As filed with
the Securities and Exchange Commission on August 4,
2011.
Registration
No. 333-174245
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 3
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Regional Management
Corp.
(Exact Name of Registrant as
Specified in its Charter)
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South Carolina (before conversion)
Delaware (after conversion)
(State or other jurisdiction
of
incorporation or organization)
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6141
(Primary Standard
Industrial
Classification Code Number)
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57-0847115
(I.R.S. Employer
Identification No.)
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509 West Butler Road
Greenville, South Carolina 29607
Telephone:
(864) 422-8011
(Address, including
zip code, and telephone number, including area code, of
Registrants principal executive offices)
Thomas F. Fortin
Chief Executive Officer
Regional Management Corp.
509 West Butler Road
Greenville, South Carolina 29607
Telephone:
(864) 422-8011
(Name, address,
including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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Joshua Ford Bonnie
Lesley Peng
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, New York 10017
Telephone:
(212) 455-2000
Facsimile:
(212) 455-2502
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Colin J. Diamond
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
Telephone: (212) 819-8200
Facsimile: (212) 354-8113
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Approximate date of commencement of the proposed sale of the
securities to the public:
As soon as practicable after the
Registration Statement is declared effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box.
o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check
the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering.
o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2
of the
Exchange Act. (Check one):
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Large
accelerated
filer
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Accelerated
filer
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Non-accelerated
filer
þ
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Smaller reporting
company
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(Do not check if a smaller
reporting company)
CALCULATION OF
REGISTRATION FEE
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PROPOSED MAXIMUM
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TITLE OF EACH CLASS OF
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AGGREGATE OFFERING
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AMOUNT OF
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SECURITIES TO BE REGISTERED
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PRICE
(1)(2)
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REGISTRATION FEE
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Common Stock, par value $0.10 per share
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$
100,000,000
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$
11,610
(3)
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(1)
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Estimated solely for the purpose of
determining the amount of the registration fee in accordance
with Rule 457(o) under the Securities Act of 1933.
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(2)
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Includes shares of common stock
subject to the underwriters over-allotment option.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information contained in this preliminary prospectus is not
complete and may be changed. We and the selling stockholders may
not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell these securities
and is not soliciting an offer to buy these securities in any
jurisdiction where the offer or sale is not
permitted.
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SUBJECT TO
COMPLETION, DATED AUGUST 4, 2011
PRELIMINARY PROSPECTUS
Shares
Common Stock
We are
offering shares
of our common stock and the selling stockholders identified in
this prospectus are
offering shares
of our common stock. We will not receive any proceeds from the
sale of shares by the selling stockholders. This is our initial
public offering and no public market currently exists for our
common stock. We expect the initial public offering price to be
between
$
and
$
per share. Our common stock has been approved for listing on the
New York Stock Exchange under the symbol RM.
Investing in our common stock involves a high degree of risk.
Please read Risk Factors beginning on page 12
of this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
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PER SHARE
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TOTAL
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Public Offering Price
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$
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$
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Underwriting Discounts and Commissions
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$
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$
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Proceeds to Regional Management Corp. before expenses
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$
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$
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Proceeds to the selling stockholders before expenses
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$
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$
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Delivery of the shares of common stock is expected to be made on
or
about
, 2011. The selling stockholders have granted the underwriters
an option for a period of 30 days to purchase an
additional shares
of our common stock solely to cover over-allotments. If the
underwriters exercise the option in full, the total underwriting
discounts and commissions payable by the selling stockholders
will be $ , and the total proceeds
to the selling stockholders, before expenses, will be
$ .
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Jefferies
JMP Securities
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Stephens Inc.
BMO Capital Markets
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Prospectus
dated ,
2011
Table of
Contents
We are responsible for the information contained in this
prospectus and in any free writing prospectus we may authorize
to be delivered to you. Neither we nor any of the selling
stockholders have authorized anyone to provide you with
additional or different information. We and the underwriters are
offering to sell, and seeking offers to buy, shares of our
common stock only in jurisdictions where offers and sales are
permitted. The information in this prospectus is accurate only
as of the date of this prospectus, regardless of the time of
delivery of this prospectus or any sale of shares of our common
stock. This prospectus is not an offer to sell or solicitation
of an offer to buy these shares of common stock in any
circumstances under which the offer or solicitation is unlawful.
Unless the context suggests otherwise, references in this
prospectus to Regional, the Company,
we, us and our refer to
Regional Management Corp. and its consolidated subsidiaries.
In this prospectus, we refer to Palladium Equity Partners III,
L.P. and Parallel 2005 Equity Fund, LP, our current majority
owners, as the sponsors, and we refer to the other
owners of Regional Management Corp. as the individual
owners. We refer the sponsors together with the individual
owners as our existing owners. Palladium Equity
Partners III, L.P. is an affiliate of Palladium Equity Partners,
LLC, which we refer to, together with its affiliates, as
Palladium, and Parallel 2005 Equity Fund, LP is an
affiliate of Parallel Investment Partners, LLC, which we refer
to, together with its affiliates, as Parallel.
i
In this prospectus, references to loans (and
corresponding references to lending and
lender) include both direct loans and indirect
loans. Direct loans are loans which are closed and funded
directly by the financing provider. Indirect loans are closed
and funded by a third party, such as an automobile dealer or a
retailer, and subsequently purchased by the financing provider.
This prospectus includes market and industry data and forecasts
that we have derived from publicly available information,
various industry publications, other published industry sources
and our internal data and estimates. Our internal data and
estimates are based upon information obtained from trade and
business organizations and other contacts in the markets in
which we operate and our managements understanding of
industry conditions.
Unless indicated otherwise, the information included in this
prospectus (1) assumes no exercise by the underwriters of
the over-allotment option to purchase up to an
additional shares
of common stock from the selling stockholders and
(2) assumes that the shares of common stock to be sold in
this offering are sold at
$
per share of common stock, which is the midpoint of the price
range indicated on the front cover of this prospectus.
Through and
including ,
2011 (the 25th day after the date of this prospectus), all
dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This requirement is in addition to the dealers
obligation to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
ii
SUMMARY
This summary highlights selected information contained
elsewhere in this prospectus and does not contain all the
information you should consider before investing in shares of
our common stock. You should read this entire prospectus
carefully, including the section entitled Risk
Factors and the financial statements and the related notes
included elsewhere in this prospectus, before you decide to
invest in shares of our common stock.
Regional
Management Corp.
We are a diversified specialty consumer finance company
providing a broad array of loan products primarily to customers
with limited access to consumer credit from banks, thrifts,
credit card companies and other traditional lenders. We began
operations in 1987 with four branches in South Carolina and have
expanded our branch network to 146 locations with over 137,000
active customer accounts across South Carolina, Texas, North
Carolina, Tennessee and Alabama as of March 31, 2011. Each
of our loan products is secured, structured on a fixed rate,
fixed term basis with fully amortizing equal monthly installment
payments and is repayable at any time without penalty. Our loans
are sourced through our multiple channel platform, including in
our branches, through direct mail campaigns, independent and
franchise automobile dealerships, online credit application
networks, furniture and appliance retailers and our consumer
website. We operate an integrated branch model in which all
loans, regardless of origination channel, are serviced and
collected through our branch network, providing us with frequent
in-person contact with our customers, which we believe improves
our credit performance and customer loyalty. Our goal is to
consistently and soundly grow our finance receivables and manage
our portfolio risk while providing our customers with attractive
and
easy-to-understand
loan products that serve their varied financial needs.
Our diversified product offerings include:
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Small Installment Loans
We offer standardized
small installment loans ranging from $300 to $2,500, with terms
of up to 36 months, which are secured by non-essential
household goods. We originate these loans both through our
branches and through mailing live checks to
pre-screened individuals who are able to enter into a loan by
depositing these checks. As of March 31, 2011, we had
approximately 110,000 small installment loans outstanding
representing $99.6 million in finance receivables.
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Large Installment Loans
We offer large
installment loans through our branches ranging from $2,500 to
$18,000, with terms of between 18 and 54 months, which are
secured by a vehicle in addition to non-essential household
goods. As of March 31, 2011, we had approximately 11,000
large installment loans outstanding representing
$32.7 million in finance receivables.
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Automobile Purchase Loans
We offer automobile
purchase loans of up to $30,000, generally with terms of between
36 and 72 months, which are secured by the purchased
vehicle. Our automobile purchase loans are offered through a
network of dealers in our geographic footprint, including over
1,550 independent and over 540 franchise automobile dealerships
as of March 31, 2011. Our automobile purchase loans include
both direct loans, which are sourced through a dealership and
closed at one of our branches, and indirect loans, which are
originated and closed at a dealership in our network without the
need for the customer to visit one of our branches. As of
March 31, 2011, we had approximately 13,700 automobile
purchase loans outstanding representing $102.2 million in
finance receivables.
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Furniture and Appliance Purchase Loans
We
offer indirect furniture and appliance purchase loans of up to
$7,500, with terms of between six and 48 months, which are
secured by the purchased furniture or appliance. These loans are
offered through a network of over 100 furniture and appliance
retailers. Since launching this product in November 2009, our
portfolio has grown to approximately 3,200 furniture and
appliance purchase loans outstanding representing
$3.7 million in finance receivables.
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Insurance Products
We offer our customers
optional payment protection insurance relating to many of our
loan products.
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Our revenue has grown from $49.0 million in 2006 to
$86.8 million in 2010, representing a compound annual
growth rate (CAGR) of 15.4%. Our net income from
continuing operations has grown even more rapidly from
$7.0 million in 2006 to $16.4 million in 2010,
representing a CAGR of 23.9%. On a pro forma basis, giving
effect to this offering and the application of the estimated net
proceeds therefrom as described under Use of
Proceeds, our net income would have been
$21.0 million in 2010. For the three months ended
March 31, 2011, our revenues were $24.7 million and
our net income from continuing operations was $4.9 million.
Our aggregate finance
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receivables have grown from $140.6 million as of
December 31, 2006 to $247.2 million as of
December 31, 2010, representing a CAGR of 15.2%. As of
March 31, 2010 and March 31, 2011, our aggregate
finance receivables were $200.0 million and
$238.1 million, respectively.
Our
Industry
We operate in the consumer finance industry serving the large
and growing population of underbanked and other non-prime
consumers who have limited access to credit from banks, thrifts,
credit card companies and other traditional lenders. According
to the FDIC, there were approximately 43 million adults
living in underbanked households in the United States in
2009 and, according to the Fair Isaac Corporation
(FICO), the percentage of the U.S. population
with FICO scores below 600 rose from approximately 15% in 2007
prior to the recession to 26% in April 2010. While the number of
non-prime consumers in the United States has grown, the supply
of consumer credit to this demographic has contracted since
deregulation of the U.S. banking industry in the 1980s.
Tightened credit requirements that began during the recession in
2008 and 2009 further reduced the supply of consumer credit.
According to the Federal Reserve Bank of New York, $1.1 trillion
in consumer credit, including mortgages, home equity lines of
credit, auto loans, credit cards, student loans and other forms
of consumer credit, was removed from the credit markets between
the second half of 2008 and the fourth quarter of 2010. We
believe the large and growing number of potential customers in
our target market, combined with the decline in available
consumer credit through the end of 2010, provides an attractive
market opportunity for our diversified product offerings.
Installment Lending.
Installment lending to
underbanked and other non-prime consumers is one of the most
highly fragmented sectors of the consumer finance industry. We
believe that installment loans are provided through
approximately 8,000 to 10,000 individually-licensed finance
company branches in the United States. Providers of installment
loans, such as Regional, generally offer loans with longer terms
and lower interest rates than other alternatives available to
underbanked consumers, such as title, payday and pawn lenders
(alternative financial services providers).
Automobile Purchase Lending.
Automobile
finance comprises one of the largest consumer finance markets in
the United States. According to CNW Research, originations by
borrowers within the subprime market averaged $88.5 billion
annually over the past ten years. In recent years, many
providers of automobile financing have substantially curtailed
their lending to subprime borrowers and as a result, subprime
automobile purchase loan approval rates have dropped
significantly from approximately 69% in early 2007 to
approximately 13% in 2010. This contraction in the supply of
financing presents an attractive opportunity to provide a large,
underserved population of borrowers with automobile purchase
financing.
Furniture and Appliance Purchase Lending.
The
furniture and appliance industry represents a large consumer
market with limited financing options for non-prime consumers.
According to the U.S. Department of Commerces Bureau
of Economic Analysis, personal consumption expenditures for
household furniture were estimated at approximately
$87.5 billion for 2010. Most furniture retailers do not
provide their own financing, but instead partner with large
banks and credit card companies who generally limit their
lending activities to prime borrowers. As a result, non-prime
customers often do not qualify for financing from these
traditional lenders. Continued demand for furniture and
appliances, combined with constraints on the availability of
credit for non-prime consumers, presents a growth opportunity
for furniture and appliance purchase loans.
Our
Strengths
Integrated Branch Model Offers Advantages Over Traditional
Lenders.
Our branch network with 146 locations
across five states serves as the foundation of our multiple
channel platform and the primary point of contact with our over
137,000 active customers. All loans, regardless of origination
channel, are serviced and collected through our branches, which
allows us to maintain frequent, in-person contact with our
customers, which we believe improves our credit performance and
customer loyalty. Additionally, with over 70% of monthly
payments made in-person at our branches, we have frequent
opportunities to assess the borrowing needs of our customers and
offer new loan products as their credit profiles evolve.
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Multiple Channel Platform.
We offer a
diversified range of loan products through our multiple channel
platform, which included, as of March 31, 2011:
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146 branches across five states;
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a network of over 1,550 independent and over 540 franchise auto
dealerships, which offer our loans to their customers;
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our pre-screened live check mailings;
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a network of over 100 furniture and appliance retailers, which
offer our loans to their customers; and
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our consumer website through which we facilitate loan
applications.
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We believe that our multiple channel platform provides us with a
competitive advantage by giving us broader access to our
customers and multiple avenues for attracting new customers,
enabling us to grow our finance receivables, revenues and
earnings.
Attractive Products for Customers with Limited Access to
Credit.
Our flexible loan products, ranging from
$300 to $30,000 with terms between three and 72 months,
incorporate features designed to meet the varied financial needs
and credit profiles of a broad array of consumers. We believe
that the rates on our products are significantly more attractive
than many other available credit options, such as payday, pawn
or title loans. We also differentiate ourselves from such
alternative financial service providers by reporting our
customers payment performance to credit bureaus, providing
our customers the opportunity to improve their credit score and
ultimately gain access to a wider range of credit options,
including our own.
Demonstrated Organic Growth.
Since
December 31, 2006, we have grown our finance receivables by
69.3% from $140.6 million to $238.1 million at
March 31, 2011 by expanding our branch network and
developing new channels and products. From 2006 to 2010, we grew
our branch count from 89 branches to 134 branches, a CAGR of
10.8%, with an average annual same-store revenue growth rate of
13.4% during the same period. We opened 11 new branches in the
first quarter of 2011 with an additional 18 openings expected
before year end. Historically, our branches have rapidly
increased their outstanding finance receivables during the early
years of operations and generally have quickly achieved
profitability. We introduced direct automobile purchase loans in
1998, and have recently expanded our product offerings to
include indirect automobile purchase loans. We opened two
AutoCredit Source branches in early 2011, which focus solely on
originating, underwriting and servicing indirect automobile
purchase loans, and, as of March 31, 2011, we had
established over 275 indirect dealer relationships through these
branches. Loan originations from our live check program have
grown from $52.5 million in 2008 to $123.0 million in
2010, a CAGR of 53.1% and totaled $13.1 million and
$17.6 million for the first three months of 2010 and the
first three months of 2011, respectively.
Consistent Portfolio Performance.
Through
over 24 years of experience in the consumer finance
industry, we have established conservative and sound
underwriting and lending practices. Our sound underwriting
standards focus on our customers ability to affordably
make payments out of their discretionary income with the value
of pledged collateral serving as a credit enhancement rather
than the primary underwriting criterion. Portfolio performance
is improved by our regular in-person contact with customers at
our branches which helps us to anticipate repayment problems
before they occur and allows us to proactively work with
customers to develop solutions prior to default, using
repossession only as a last option. Despite the challenges posed
by the sharp economic downturn beginning in 2008, our annual net
charge-offs since January 1, 2006 remained consistent,
ranging from 7.0% to 8.6% of our average finance receivables. In
2010 and the first three months of 2011, our net charge-offs as
a percentage of average finance receivables were 7.9% and 6.4%
(annualized), respectively. Our loan loss provision as a
percentage of total revenue for 2010 and for the first three
months of 2011 was 19.1% and 15.5%, respectively. We believe
that our consistent portfolio performance demonstrates the
resiliency of our business model throughout economic cycles.
Experienced Management Team.
Our executive
and senior operations management teams consist of individuals
highly experienced in installment lending and other consumer
finance services. We believe our executive management
teams experience has allowed us to consistently grow our
business while delivering high-quality service to our customers
and carefully managing our credit risk. The 19 members of our
field management team average more than 18 years of
industry experience.
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Our
Strategies
Grow Our Branch Network.
We intend to
continue growing the revenue and profitability of our branch
network by increasing volume at our existing branches, opening
new branches within our existing geographic footprint and
expanding our operations into new states.
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Existing Branches
We intend to continue
increasing same-store revenues, which have grown an average of
13.4% per annum for the five years ended December 31, 2010,
by further building relationships in the communities in which we
operate and capitalizing on opportunities to offer our customers
new loan products as their credit profiles evolve. From 2006 to
2010, we opened 44 new branches, and we expect revenues at these
branches will continue to grow faster than our overall
same-store revenue growth rate as these branches mature.
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New Branches
We believe there is sufficient
demand for consumer finance services to continue our pattern of
new branch growth and branch acquisitions in the states where we
currently operate, allowing us to capitalize on our existing
infrastructure and experience in these markets. Opening new
branches allows us to generate both direct lending at the
branches, as well as to create new origination opportunities by
establishing relationships through the branches with automobile
dealerships and furniture and appliance retailers in the
community.
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New States
We intend to explore opportunities
for growth in several states outside our existing geographic
footprint that enjoy favorable interest rate and regulatory
environments.
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Continue to Expand and Capitalize on Our Diverse Channels
and Products.
We intend to continue to reach
new customers and offer our existing customers new loan products
by expanding and capitalizing on our multiple channel platform
and broad array of offerings as follows:
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Automobile Purchase Loans
We have identified
over 11,500 additional dealers in our existing geographic
footprint. We have hired dedicated marketing personnel to
develop relationships with these additional dealers to expand
our network. We will also seek to capture a larger percentage of
the financing activity of dealers in our existing network. We
intend to continue expanding the number of franchise dealer
relationships through our AutoCredit Source branches to grow our
loan portfolio through increased penetration.
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Live Check Program
We continue to refine our
screening criteria and tracking for direct mail campaigns, which
we believe has enabled us to improve response rates and credit
performance and allowed us to triple the annual number of live
checks that we mailed from 2007 to 2010. We intend to continue
to increase our use of live checks to grow our loan portfolio by
adding new customers and creating opportunities to offer new
loan products to our existing customers.
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Furniture and Appliance Purchase Loans
We
have identified over 3,700 additional furniture and appliance
retail locations in our existing geographic footprint which
offers us the opportunity to expand our network.
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Online Sourcing
We intend to continue to
develop and expand our online marketing efforts and increase
traffic to our consumer website through the use of tools such as
search engine optimization and paid online advertising.
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Continue to Focus on Sound Underwriting and Credit
Control.
We intend to continue to leverage
our core competencies in sound underwriting and credit
management developed through over 24 years of lending
experience as we seek to profitably grow our share of the
consumer finance market. In recent years, we have implemented
several new programs to continue improving our underwriting
standards and loan collection rates, including our branch
scorecard program that systematically monitors a
range of operating, credit quality and performance metrics. We
believe the central oversight provided by our management
information system and the scorecard program, combined with our
branch-level servicing and collections, improves credit
performance. We plan to continue to develop strategies to
further improve our sound underwriting standards and loan
collection rates as we expand.
Risk
Factors
An investment in shares of our common stock involves substantial
risks and uncertainties that may adversely affect our business,
financial condition and results of operations and cash flows
that you should consider before you
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decide to participate in this offering. Some of the more
significant risks relating to an investment in our company
include the following:
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We have grown significantly in recent years and our delinquency
and charge-off rates and overall results of operations may be
adversely affected if we do not manage our growth effectively;
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We face significant risks in implementing our growth strategy
some of which are outside our control;
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We face strong direct and indirect competition;
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Our business products and activities are strictly and
comprehensively regulated at the local, state and federal level;
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Changes in laws and regulations or interpretations of laws and
regulations could negatively impact our business, results of
operations and financial condition;
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The Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010 (the Dodd-Frank Act) authorizes the newly
created Consumer Financial Protection Bureau (the
CFPB) to adopt rules that could potentially have a
serious impact on our ability to offer short-term consumer loans
and have a material adverse effect on our operations and
financial performance;
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A substantial majority of our revenue is generated by our
branches in South Carolina, Texas and North Carolina;
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Our business could suffer if we are unsuccessful in making,
continuing and growing relationships with automobile dealers and
furniture and appliance retailers;
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Regular turnover among our managers and other employees at our
branches makes it more difficult for us to operate our branches
and increases our costs of operations, which could have an
adverse effect on our business, results of operations and
financial condition;
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Our live check direct mail strategy exposes us to certain risks;
and
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We face credit risk in our lending activities.
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Please see Risk Factors for a discussion of these
and other factors you should consider before making an
investment in shares of our common stock.
Our
Sponsors
On March 21, 2007, the majority of our outstanding common
stock was acquired by Palladium Equity Partners III, L.P. and
Parallel 2005 Equity Fund, LP, which we refer to as the
acquisition transaction. Palladium is a middle
market private equity firm with over $1 billion under
management focused primarily on buyout investments. Palladium
principals have been actively involved in the investment of over
$1.3 billion in more than 45 portfolio companies since 1989
and have significant experience in financial services, business
services, food, restaurants, healthcare, industrial and media
businesses, including American Gilsonite Holding Company, Money
Transfer Holdings, L.P., Capital Contractors, Inc. and Castro
Cheese Holding Company. Palladium was founded in 1997 and is
headquartered in New York City. Parallel is a sector-focused,
middle market private equity firm that invests in
entrepreneurial companies in North America. Since 1992, the
principals of the firm have participated in investing over
$600 million in over 35 companies, with a particular
emphasis on specialty retail brands, including Dollar Tree,
Inc., Hibbett Sports, Inc., Hat World, Inc. and Teavana
Holdings, Inc. Founded in 1999 as an affiliate of middle market
buyout firm Saunders Karp & Megrue, Parallel is
headquartered in Dallas, Texas.
Regional Management Corp. was incorporated in South Carolina on
March 25, 1987. Prior to this offering, Regional Management
Corp. will be converted into a Delaware corporation. Our
principal executive offices are located at 509 West Butler
Road, Greenville, South Carolina 29607 and our telephone number
is
(864) 422-8011.
Our consumer website is located at www.GetRegionalCash.com.
Information on or accessible through our website is not part of
or incorporated by reference in this prospectus.
Throughout this prospectus, we refer to various trademarks,
service marks and trade names that we use in our business. Other
trademarks and service marks appearing in this prospectus are
the property of their respective holders.
5
THE
OFFERING
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Common stock offered by us
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shares.
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Common stock offered by the selling stockholders
|
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shares
( shares
if the underwriters exercise their over-allotment option in
full).
|
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|
Over-allotment option
|
|
The selling stockholders have granted the underwriters a
30-day
option to purchase up
to additional
shares of our common stock at the initial public offering price,
solely to cover over-allotments, if any.
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|
Common stock outstanding after this offering
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shares.
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|
Use of proceeds
|
|
We estimate that the net proceeds to us from this offering,
after deducting the underwriting discount and estimated offering
expenses payable by us, will be approximately
$ million. We intend to use
the net proceeds of this offering and cash on hand as follows:
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n
to
repay $ million of
outstanding borrowings, plus accrued and unpaid interest, under
our Third Amended and Restated Loan and Security Agreement,
dated as of March 21, 2007 (the senior revolving
credit facility);
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n
to
repay $25.8 million outstanding as of March 31, 2011,
plus accrued and unpaid interest, under our Senior Subordinated
Loan and Security Agreement, dated as of August 25, 2010
(the mezzanine debt), which is held by certain of
our existing owners; and
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n
$1.1 million
to make one-time payments to certain of our existing owners in
the aggregate in consideration for the termination of our
advisory and consulting agreements with them in accordance with
their terms upon consummation of this offering as described
under Certain Relationships and Related Person
Transactions Advisory and Consulting Fees.
|
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|
Any additional net proceeds will be applied to repay additional
outstanding borrowings under our senior revolving credit
facility. We will not receive any proceeds from the sale of
shares of our common stock by the selling stockholders. See
Use of Proceeds.
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Dividend policy
|
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We have no current plans to pay dividends on our common stock in
the foreseeable future.
|
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Risk factors
|
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See Risk Factors for a discussion of risks you
should carefully consider before deciding to invest in our
common stock.
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New York Stock Exchange symbol
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RM
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|
Conflict of interest
|
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We intend to use a portion of the net proceeds from this
offering to repay amounts outstanding under our senior revolving
credit facility. An affiliate of BMO Capital Markets Corp., an
underwriter in this offering, is one of the lenders under our
senior revolving credit facility. Because more than 5% of the
proceeds of this offering, not including underwriting
compensation, may be received by an affiliate of an underwriter
in this offering depending on the final offering price per
share, this offering is
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6
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being conducted in compliance with FINRA Rule 5121, as
administered by the Financial Industry Regulatory Authority,
Inc. However, no qualified independent underwriter is needed for
this offering because this offering meets the conditions set
forth in FINRA Rule 5121(a)(1)(A). See Use of
Proceeds and Underwriting (Conflicts of
Interest) Affiliations and Conflicts of
Interest.
|
The number of shares of our common stock to be outstanding
following this offering is based on 9,336,727 shares of our
common stock outstanding as of March 31, 2011. In this
prospectus, unless otherwise indicated, the number of shares of
common stock outstanding and the other information based thereon
does not reflect:
|
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n
|
589,622 shares of our common stock issuable upon exercise
of options at a weighted average exercise price of $5.4623 per
share outstanding as of March 31, 2011 under the Regional
Management Corp. 2007 Management Incentive Plan (our 2007
Stock Plan) including options granted in 2007 and
2008; and
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n
|
950,000 shares of common stock that have been reserved for
issuance under the Regional Management Corp. 2011 Stock
Incentive Plan (our 2011 Stock Plan)
including shares
issuable upon the exercise of stock options that we intend to
grant to our executive officers and directors
and shares
issuable upon the exercise of stock options that we intend to
grant to our other employees, each at the time of this offering
with an exercise price equal to the initial public offering
price. See Management Compensation Discussion
and Analysis 2011 Stock Incentive Plan and
Actions Taken in 2011 and Anticipated Actions
in Connection with the Offering.
|
7
SUMMARY
HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND OPERATING
DATA
The following table sets forth our summary historical and pro
forma consolidated financial and operating data as of the dates
and for the periods indicated, and should be read together with
Unaudited Pro Forma Consolidated Financial
Information, Selected Historical Consolidated
Financial and Operating Data, Managements
Discussion and Analysis of Financial Condition and Results of
Operations and the historical financial statements and
related notes included elsewhere in this prospectus.
We derived the summary historical consolidated statement of
income data for each of the years ended December 31, 2008,
2009 and 2010 and the summary historical consolidated balance
sheet data as of December 31, 2009 and 2010 from our
audited consolidated financial statements, which are included
elsewhere in this prospectus. We have derived the summary
historical consolidated statement of income data for each of the
years ended December 31, 2006 and 2007 and the summary
historical consolidated balance sheet data as of
December 31, 2006, 2007 and 2008 from our audited financial
statements, which are not included in this prospectus.
The condensed consolidated statement of income data for the
three months ended March 31, 2010 and March 31, 2011
have been derived from unaudited condensed consolidated
financial statements included elsewhere in this prospectus. The
unaudited condensed consolidated financial statements have been
prepared on substantially the same basis as the audited
consolidated financial statements and include all adjustments
that we consider necessary for a fair presentation of our
consolidated financial position and results of operations for
all periods presented.
The summary unaudited pro forma consolidated statement of income
for the fiscal year ended December 31, 2010 and the three
months ended March 31, 2011 presents our consolidated
results of operations giving pro forma effect to this offering
and the application of the estimated net proceeds therefrom as
described under Use of Proceeds, as if such
transactions occurred on January 1, 2010. The summary
unaudited pro forma consolidated balance sheet data as of
March 31, 2011 presents our consolidated financial position
giving pro forma effect to this offering and the application of
the estimated net proceeds therefrom as described under
Use of Proceeds, as if such transaction occurred on
March 31, 2011. The pro forma adjustments are based on
available information and upon assumptions that our management
believes are reasonable in order to reflect, on a pro forma
basis, the impact of these transactions on our historical
financial information. The summary unaudited pro forma
consolidated financial information is included for informational
purposes only and does not purport to reflect our results of
operations or financial position that would have occurred had we
operated as a public company during the periods presented. The
unaudited pro forma consolidated financial information should
not be relied upon as being indicative of our results of
operations or financial position had this offering and the
application of the estimated net proceeds therefrom as described
under Use of Proceeds, occurred on the dates
assumed. The unaudited pro forma consolidated financial
information also does not project our results of operations or
financial position for any future period or date.
8
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|
UNAUDITED
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|
|
|
|
|
|
|
|
|
|
|
|
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|
UNAUDITED
|
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|
PRO
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|
UNAUDITED
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PRO
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FORMA
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|
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|
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THREE
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FORMA
|
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|
THREE
|
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|
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|
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|
|
|
|
|
|
|
|
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|
MONTHS
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YEAR
|
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|
MONTHS
|
|
|
|
|
|
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|
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|
|
|
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ENDED
|
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|
ENDED
|
|
|
ENDED
|
|
|
|
YEAR ENDED DECEMBER 31,
|
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|
MARCH 31,
|
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|
DECEMBER 31,
|
|
|
MARCH 31,
|
|
|
|
2006
|
|
|
2007
(1)
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
|
(Dollars in thousands, except for per share amounts)
|
|
|
Consolidated Statements of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fee income
|
|
$
|
42,240
|
|
|
$
|
49,478
|
|
|
$
|
58,471
|
|
|
$
|
63,590
|
|
|
$
|
74,218
|
|
|
$
|
18,022
|
|
|
$
|
21,045
|
|
|
$
|
74,218
|
|
|
$
|
21,045
|
|
Insurance income, net, and other income
|
|
|
6,718
|
|
|
|
7,144
|
|
|
|
8,271
|
|
|
|
9,224
|
|
|
|
12,614
|
|
|
|
3,657
|
|
|
|
3,651
|
|
|
|
12,614
|
|
|
|
3,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
48,958
|
|
|
|
56,622
|
|
|
|
66,742
|
|
|
|
72,814
|
|
|
|
86,832
|
|
|
|
21,679
|
|
|
|
24,696
|
|
|
|
86,832
|
|
|
|
24,696
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan
losses
(2)
|
|
|
9,526
|
|
|
|
13,665
|
|
|
|
17,376
|
|
|
|
19,405
|
|
|
|
16,568
|
|
|
|
3,902
|
|
|
|
3,836
|
|
|
|
16,568
|
|
|
|
3,836
|
|
General and administrative expenses
|
|
|
21,128
|
|
|
|
22,950
|
|
|
|
27,862
|
|
|
|
29,120
|
|
|
|
33,525
|
|
|
|
8,919
|
|
|
|
10,212
|
|
|
|
33,525
|
|
|
|
10,212
|
|
Consulting and advisory fees
|
|
|
|
|
|
|
2,006
|
|
|
|
1,644
|
|
|
|
1,263
|
|
|
|
1,233
|
|
|
|
308
|
|
|
|
310
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and other debt
|
|
|
7,812
|
|
|
|
8,687
|
|
|
|
7,399
|
|
|
|
4,846
|
|
|
|
5,542
|
|
|
|
1,484
|
|
|
|
1,763
|
|
|
|
|
|
|
|
|
|
Mezzanine debt
|
|
|
|
|
|
|
5,353
|
|
|
|
3,706
|
|
|
|
3,835
|
|
|
|
4,342
|
|
|
|
984
|
|
|
|
996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
7,812
|
|
|
|
14,040
|
|
|
|
11,105
|
|
|
|
8,681
|
|
|
|
9,884
|
|
|
|
2,468
|
|
|
|
2,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
38,466
|
|
|
|
52,661
|
|
|
|
57,987
|
|
|
|
58,469
|
|
|
|
61,210
|
|
|
|
15,597
|
|
|
|
17,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes and discontinued operations
|
|
|
10,492
|
|
|
|
3,961
|
|
|
|
8,755
|
|
|
|
14,345
|
|
|
|
25,622
|
|
|
|
6,082
|
|
|
|
7,579
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
3,525
|
|
|
|
857
|
|
|
|
2,276
|
|
|
|
4,472
|
|
|
|
9,178
|
|
|
|
2,129
|
|
|
|
2,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
6,967
|
|
|
$
|
3,104
|
|
|
$
|
6,479
|
|
|
$
|
9,873
|
|
|
$
|
16,444
|
|
|
$
|
3,953
|
|
|
$
|
4,935
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
share
(3)
|
|
|
|
|
|
|
|
|
|
$
|
0.69
|
|
|
$
|
1.06
|
|
|
$
|
1.76
|
|
|
$
|
0.42
|
|
|
$
|
0.53
|
|
|
$
|
|
|
|
$
|
|
|
Diluted earnings per
share
(3)
|
|
|
|
|
|
|
|
|
|
$
|
0.68
|
|
|
$
|
1.03
|
|
|
$
|
1.70
|
|
|
$
|
0.41
|
|
|
$
|
0.51
|
|
|
$
|
|
|
|
$
|
|
|
Weighted average shares used in computing basic earnings per
share
(3)
|
|
|
|
|
|
|
|
|
|
|
9,336,727
|
|
|
|
9,336,727
|
|
|
|
9,336,727
|
|
|
|
9,336,727
|
|
|
|
9,336,727
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in computing diluted earnings per
share
(3)
|
|
|
|
|
|
|
|
|
|
|
9,482,604
|
|
|
|
9,590,564
|
|
|
|
9,669,618
|
|
|
|
9,606,178
|
|
|
|
9,648,103
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
receivables
(4)
|
|
$
|
140,605
|
|
|
$
|
167,535
|
|
|
$
|
192,289
|
|
|
$
|
214,909
|
|
|
$
|
247,246
|
|
|
$
|
200,043
|
|
|
$
|
238,117
|
|
|
|
|
|
|
$
|
|
|
Allowance for loan
losses
(2)
|
|
|
(11,191
|
)
|
|
|
(13,290
|
)
|
|
|
(15,665
|
)
|
|
|
(18,441
|
)
|
|
|
(18,000
|
)
|
|
|
(17,975
|
)
|
|
|
(18,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net finance
receivables
(5)
|
|
$
|
129,414
|
|
|
$
|
154,245
|
|
|
$
|
176,624
|
|
|
$
|
196,468
|
|
|
$
|
229,246
|
|
|
$
|
182,068
|
|
|
$
|
220,117
|
|
|
|
|
|
|
$
|
|
|
Total assets
|
|
|
141,591
|
|
|
|
168,484
|
|
|
|
192,502
|
|
|
|
214,447
|
|
|
|
241,358
|
|
|
|
197,138
|
|
|
|
237,013
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
120,110
|
|
|
|
159,079
|
|
|
|
176,095
|
|
|
|
187,807
|
|
|
|
197,914
|
|
|
|
166,456
|
|
|
|
188,556
|
|
|
|
|
|
|
|
|
|
Temporary
equity
(6)
|
|
|
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
21,481
|
|
|
|
(2,595
|
)
|
|
|
4,407
|
|
|
|
14,640
|
|
|
|
31,444
|
|
|
|
18,682
|
|
|
|
36,469
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MONTHS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ENDED
|
|
|
|
|
|
YEAR ENDED DECEMBER 31,
|
|
|
MARCH 31,
|
|
|
|
|
|
2006
|
|
|
2007
(1)
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
(Dollars in thousands, except for per share amounts)
|
|
Selected Operational Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average finance
receivables
(7)
|
|
$
|
123,645
|
|
|
$
|
146,265
|
|
|
$
|
178,159
|
|
|
$
|
192,981
|
|
|
$
|
216,024
|
|
|
$
|
206,858
|
|
|
$
|
240,884
|
|
|
|
Number of branches (at period end)
|
|
|
89
|
|
|
|
96
|
|
|
|
112
|
|
|
|
117
|
|
|
|
134
|
|
|
|
119
|
|
|
|
146
|
|
|
|
Cash flow from operations
|
|
$
|
16,129
|
|
|
$
|
17,990
|
|
|
$
|
26,654
|
|
|
$
|
31,232
|
|
|
$
|
41,215
|
|
|
$
|
11,171
|
|
|
$
|
9,985
|
|
|
|
Efficiency
ratio
(8)
|
|
|
43.2
|
%
|
|
|
40.5
|
%
|
|
|
41.7
|
%
|
|
|
40.0
|
%
|
|
|
38.6
|
%
|
|
|
41.1
|
%
|
|
|
41.4
|
%
|
|
|
Same-store finance receivables (at period
end)
(9)
|
|
$
|
133,535
|
|
|
$
|
163,945
|
|
|
$
|
184,087
|
|
|
$
|
212,804
|
|
|
$
|
236,717
|
|
|
$
|
197,795
|
|
|
$
|
224,684
|
|
|
|
Same-store revenue growth
rate
(9)
|
|
|
9.6
|
%
|
|
|
15.3
|
%
|
|
|
15.7
|
%
|
|
|
9.0
|
%
|
|
|
17.4
|
%
|
|
|
24.0
|
%
|
|
|
8.9
|
%
|
|
|
Same-store finance receivables growth
rate
(9)
|
|
|
11.8
|
%
|
|
|
16.6
|
%
|
|
|
9.9
|
%
|
|
|
10.7
|
%
|
|
|
10.1
|
%
|
|
|
11.6
|
%
|
|
|
12.3
|
%
|
|
|
Selected Asset Quality Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of loans (at period end)
|
|
|
84,760
|
|
|
|
99,089
|
|
|
|
110,895
|
|
|
|
128,285
|
|
|
|
148,813
|
|
|
|
119,615
|
|
|
|
137,367
|
|
|
|
Loan loss provision as a percentage of revenue
|
|
|
19.5
|
%
|
|
|
24.1
|
%
|
|
|
26.0
|
%
|
|
|
26.7
|
%
|
|
|
19.1
|
%
|
|
|
18.0
|
%
|
|
|
15.5
|
%
|
|
|
Loan loss provision as a percentage of average finance
receivables
|
|
|
7.7
|
%
|
|
|
9.3
|
%
|
|
|
9.8
|
%
|
|
|
10.1
|
%
|
|
|
7.7
|
%
|
|
|
7.5
|
%
(10)
|
|
|
6.4
|
%
(10)
|
|
|
Net charge-offs as a percentage of average finance receivables
|
|
|
7.0
|
%
|
|
|
7.8
|
%
|
|
|
8.4
|
%
|
|
|
8.6
|
%
|
|
|
7.9
|
%
|
|
|
8.4
|
%
(10)
|
|
|
6.4
|
%
(10)
|
|
|
Over 90 days contractual delinquency rate
|
|
|
2.8
|
%
|
|
|
2.7
|
%
|
|
|
4.5
|
%
|
|
|
3.9
|
%
|
|
|
2.3
|
%
|
|
|
3.6
|
%
|
|
|
2.3
|
%
|
|
|
Over 180 days contractual delinquency rate
|
|
|
0.7
|
%
|
|
|
0.6
|
%
|
|
|
1.3
|
%
|
|
|
1.0
|
%
|
|
|
0.4
|
%
|
|
|
1.2
|
%
|
|
|
0.5
|
%
|
|
|
|
|
|
(1)
|
|
On March 21, 2007, Palladium
Equity Partners III, L.P. and Parallel 2005 Equity Fund, LP
acquired the majority of our outstanding common stock. In
connection with the acquisition transaction, we issued
$25.0 million of mezzanine debt at an interest rate of
18.375%, plus related fees, which we refinanced in 2007 and
again in 2010 with Palladium Equity Partners III, L.P. and
certain of our individual owners. Additionally, we pay the
sponsors annual advisory fees of $675,000 in the aggregate, and
pay certain individual owners annual consulting fees of $450,000
in the aggregate, in each case, plus certain expenses. See
Certain Relationships and Related Person
Transactions Advisory and Consulting Fees. We
intend to repay the mezzanine debt with proceeds from this
offering, and we expect to terminate the consulting and advisory
agreements concurrent with this offering.
|
|
(2)
|
|
As of January 1, 2010, we
changed our loan loss allowance methodology for small
installment loans to determine the allowance using losses from
the trailing eight months, rather than the trailing nine months,
to more accurately reflect the six-month average life of our
small installment loans. The change from nine to eight months of
average losses reduced the loss allowance for small installment
loans by $1.1 million as of January 1, 2010 and
reduced the provision for loan losses by $451,000 for 2010.
|
|
(3)
|
|
Prior to the acquisition
transaction, we had a different capital structure, including a
different number of shares of common stock outstanding.
Accordingly, a comparison of earnings before the acquisition
transaction is not meaningful.
|
|
(4)
|
|
Finance receivables equal the total
amount due from the customer, net of unearned finance charges,
insurance premiums and commissions.
|
|
(5)
|
|
Net finance receivables equal the
total amount due from the customer, net of unearned finance
charges, insurance premiums and commissions and allowance for
loan losses.
|
|
(6)
|
|
The shareholders agreement among
us, Regional Holdings LLC, the sponsors and the individual
owners provides that the individual owners have the right to put
their stock back to us if an initial public offering does not
occur within five years of the date of the acquisition
transaction, March 21, 2007. We valued this put option at
the original purchase price of $12.0 million. The filing of
the registration statement of which this prospectus forms a part
relating to this offering makes it probable that the put option
will not become exercisable.
|
|
(7)
|
|
Average finance receivables are
computed using the most recent thirteen month-end balances for
the annual periods shown and the most recent four month-end
balances for the three-month periods shown.
|
|
(8)
|
|
Our efficiency ratio is calculated
by dividing the sum of general and administrative expenses by
total revenue.
|
|
(9)
|
|
All same-store measurements for any
period are calculated based on stores that had been open for at
least one year as of the end of the period.
|
|
(10)
|
|
The loan loss provision and net
charge-offs as a percentage of average finance receivables are
annualized figures.
|
10
RISK
FACTORS
An investment in shares of our common stock involves risks.
You should carefully consider the following information about
these risks, together with the other information contained in
this prospectus, before investing in shares of our common
stock.
Risks Related to
Our Business
We have grown
significantly in recent years and our delinquency and charge-off
rates and overall results of operations may be adversely
affected if we do not manage our growth
effectively.
We have experienced substantial growth in recent years, opening
16 new branches in 2008, six in 2009, 17 in 2010 and 11 in the
first three months of 2011, and we intend to continue our growth
strategy in the future. As we increase the number of branches we
operate, we will be required to find new, or relocate existing,
employees to operate our branches and allocate resources to
train and supervise those employees. The success of a branch
depends significantly on the manager overseeing its operations
and on our ability to enforce our underwriting standards and
implement controls over branch operations. Recruiting suitable
managers for new branches can be challenging, particularly in
remote areas and areas where we face significant competition.
Furthermore, the annual turnover in 2010 among our branch
managers was approximately 34%, and turnover rates of managers
in our new branches may be similar or higher. Increasing the
number of branches that we operate may divide the attention of
our senior management or strain our ability to adapt our
infrastructure and systems to accommodate our growth. If we are
unable to promote, relocate or recruit suitable managers and
oversee their activities effectively, our delinquency and
charge-off rates may increase and our overall results of
operations may be adversely impacted.
We face
significant risks in implementing our growth strategy, some of
which are outside our control.
We intend to continue our growth strategy, which is based on
opening and acquiring branches in existing and new markets and
introducing new products and channels. For example, we currently
expect to open at least 29 new branches in 2011. Our ability to
execute this growth strategy is subject to significant risks,
some of which are beyond our control, including:
|
|
|
|
n
|
the prevailing laws and regulatory environment of each state in
which we operate or seek to operate, and, to the extent
applicable, federal laws and regulations, which are subject to
change at any time;
|
|
|
n
|
the degree of competition in new markets and its effect on our
ability to attract new customers;
|
|
|
n
|
our ability to identify attractive locations for new branches;
|
|
|
n
|
our ability to recruit qualified personnel, in particular in
remote areas and areas where we face a great deal of
competition; and
|
|
|
n
|
our ability to obtain adequate financing for our expansion plans.
|
For example, North Carolina requires a needs and
convenience assessment of a new lending license and
location prior to the granting of the license, which adds time
and expense to opening de novo locations. In addition, certain
states into which we may expand, such as Georgia, limit the
number of lending licenses granted. There can be no assurance
that if we apply for a license for a new branch, whether in one
of the states where we currently operate or in a state into
which we would like to expand, we would be granted a license to
operate. We also cannot be certain that any such license, even
if granted, would be obtained in a timely manner or without
burdensome conditions or limitations. In addition, we may not be
able to obtain and maintain any regulatory approvals, government
permits or licenses that may be required.
We face strong
direct and indirect competition.
The consumer finance industry is highly competitive, and the
barriers to entry for new competitors are relatively low in the
markets in which we operate. We compete for customers, locations
and other important aspects of our business with many other
local, regional, national and international financial
institutions, many of whom have greater financial resources than
we do.
Our installment loan operations compete with other installment
lenders as well as with alternative financial services providers
(such as payday and title lenders, check advance companies and
pawnshops), online or
peer-to-peer
lenders, issuers of non-prime credit cards and other
competitors. We believe that future regulatory developments in
the consumer finance industry may cause lenders that currently
focus on alternative financial services to begin to offer
installment loans. In addition, if companies in the installment
loan business attempt to provide more attractive
11
loan terms than is standard across the industry, we may lose
customers to those competitors. In installment loans, we compete
primarily on the basis of price, breadth of loan product
offerings, flexibility of loan terms offered and the quality of
customer service provided.
Our automobile purchase loan operations compete with numerous
financial services providers, including non-prime auto lenders,
dealers that provide financing, captive finance companies owned
by automobile manufacturers and, to a limited extent, credit
unions. Our furniture and appliance purchase loan operations
compete with store and third-party credit cards, prime lending
sources,
rent-to-own
finance providers and other competitors. Although the furniture
and appliance purchase loan market includes few competitors
serving non-prime borrowers, there are numerous competitors
offering non-prime automobile purchase loans. For automobile
purchase loans and furniture and appliance purchase loans, we
compete primarily on the basis of interest rates charged, the
quality of credit accepted, the flexibility of loan terms
offered, the speed of approval and the quality of customer
service provided.
If we fail to compete successfully, we could face lower sales
and may decide or be compelled to materially alter our lending
terms to our customers, which could result in decreased
profitability.
A substantial
majority of our revenue is generated by our branches in South
Carolina, Texas and North Carolina.
Our branches in South Carolina accounted for 54.3% of our
revenue in 2010 and 52.7% of our revenue for the first three
months of 2011. In addition, our branches in Texas and North
Carolina accounted for 19.2% and 15.0%, respectively, of our
revenue in 2010 and 20.6% and 13.3%, respectively, of our
revenue for the first three months of 2011. Furthermore, all of
our operations are in four Southeastern and one Southwestern
state. As a result, we are highly susceptible to adverse
economic conditions in those areas. For example, the
unemployment rate in South Carolina, which was 9.6% as of
April 2011, is among the highest in the country. High
unemployment rates may reduce the number of qualified borrowers
to whom we will extend loans, which would result in reduced loan
originations. Adverse economic conditions may increase
delinquencies and charge-offs and decrease our overall loan
portfolio quality. If any of the adverse regulatory or
legislative events described in this Risk Factors
section were to occur in South Carolina, Texas or North
Carolina, it could materially adversely affect our business,
results of operations and financial condition. For example, if
interest rates in South Carolina, which are currently not
capped, were to be capped, our business, results of operations
and financial condition would be materially and adversely
affected.
Our business
could suffer if we are unsuccessful in making, continuing and
growing relationships with automobile dealers and furniture and
appliance retailers.
Our automobile purchase loans and furniture and appliance
purchase loans are reliant on our relationships with automobile
dealers and furniture and appliance retailers. In particular,
our automobile purchase loan operations depend in large part
upon our ability to establish and maintain relationships with
reputable dealers who direct customers to our branches or
originate loans at the point of sale, which we subsequently
purchase. Although we have relationships with certain automobile
dealers, none of our relationships are exclusive and some of
them are newly established and they may be terminated at any
time. As a result of the recent economic downturn and
contraction of credit to both dealers and their customers, there
has been an increase in dealership closures and our existing
dealer base has experienced decreased sales and loan volume in
the past and may experience decreased sales and loan volume in
the future, which may have an adverse effect on our business,
our results of operations and financial condition.
Our furniture and appliance purchase loan business model is
based on our ability to enter into agreements with individual
furniture and appliance retailers to provide financing to
customers in their stores. Although our relationships with
independent licensees of a major U.S. furniture retailer
are currently a significant source of our furniture and
appliance purchase loans, we do not have a relationship with the
retailer itself or its manufacturing affiliate and instead
depend on non-exclusive relationships with individual licensees
of the retailer, each of which may be terminated at any time. If
a competitor were to offer better service or more attractive
loan products to our furniture and appliance retailer partners,
it is possible that our retail partners would terminate their
relationships with us. If we are unable to continue to grow our
existing relationships and develop new relationships, our
results of operations and financial condition and ability to
continue to expand could be adversely affected.
12
Regular
turnover among our managers and other employees at our branches
makes it more difficult for us to operate our branches and
increases our costs of operations, which could have an adverse
effect on our business, results of operations and financial
condition.
Our workforce is comprised primarily of employees who work on an
hourly basis. In certain areas where we operate, there is
significant competition for employees. In the past, we have lost
employees and candidates to competitors who have been willing to
pay higher compensation than we pay. Our ability to continue to
expand our operations depends on our ability to attract, train
and retain a large and growing number of qualified employees.
The turnover among our all of our branch employees was
approximately 43% in 2010 and 36% for the twelve months ended
March 31, 2011. This turnover increases our cost of
operations and makes it more difficult to operate our branches.
Our customer service representative and assistant manager roles
have historically experienced high turnover. We may not be able
to retain and cultivate personnel at these ranks for future
promotion to branch manager. If our employee turnover rates
increase above historical levels or if unanticipated problems
arise from our high employee turnover and we are unable to
readily replace such employees, our business, results of
operations and financial condition and ability to continue to
expand could be adversely affected.
We are subject
to government regulations concerning our hourly and our other
employees, including minimum wage, overtime and health care
laws.
We are subject to applicable rules and regulations relating to
our relationship with our employees, including minimum wage and
break requirements, health benefits, unemployment and sales
taxes, overtime and working conditions and immigration status.
Legislated increases in the federal minimum wage and increases
in additional labor cost components, such as employee benefit
costs, workers compensation insurance rates, compliance
costs and fines, as well as the cost of litigation in connection
with these regulations, would increase our labor costs.
Unionizing and collective bargaining efforts have received
increased attention nationwide in recent periods. Should our
employees become represented by unions, we would be obligated to
bargain with those unions with respect to wages, hours and other
terms and conditions of employment, which is likely to increase
our labor costs. Moreover, as part of the process of union
organizing and collective bargaining, strikes and other work
stoppages may occur, which would cause disruption to our
business. Similarly, many employers nationally in similar retail
environments have been subject to actions brought by
governmental agencies and private individuals under
wage-hour
laws on a variety of claims, such as improper classification of
workers as exempt from overtime pay requirements and failure to
pay overtime wages properly, with such actions sometimes brought
as class actions and these actions can result in material
liabilities and expenses. Should we be subject to employment
litigation, such as actions involving
wage-hour,
overtime, break and working time, it may distract our management
from business matters and result in increased labor costs. In
addition, we currently sponsor employer-subsidized premiums for
major medical programs for eligible salaried personnel and
mini-medical (limited benefit) programs for eligible
hourly employees who elect health care coverage through our
insurance programs. As a result of regulatory changes, we may
not be able to continue to offer health care coverage to our
employees on affordable terms or at all. If we are unable to
locate, attract, train or retain qualified personnel, or if our
costs of labor increase significantly, our business, results of
operations and financial condition may be adversely affected.
Our live check
direct mail strategy exposes us to certain risks.
A significant portion of our growth in our small installment
loans has been achieved through our direct mail campaigns, which
involve mailing to pre-screened recipients live
checks, which customers can sign and cash or deposit
thereby agreeing to the terms of the loan, which are disclosed
on the front and back of the check. We use live checks to seed
new branch openings and attract new customers and those with
higher credit in our geographic footprint. Loans initiated
through live checks represented approximately one quarter of the
value of our originated loans. We expect that live checks will
represent a greater percentage of our small installment loans in
the future. There are several risks associated with the use of
live checks including the following:
|
|
|
|
n
|
it is more difficult to maintain sound underwriting standards
with live check customers, and these customers have historically
presented a higher risk of default than customers that originate
loans in our branches, as we do not meet a live check customer
prior to soliciting them and extending a loan to them, and we
may not be able to verify certain elements of their financial
condition, including their current employment status or life
circumstances;
|
|
|
n
|
we rely on a software-based model and credit information from a
third-party credit bureau that is more limited than a full
credit report to pre-screen potential live check recipients,
which may not be as effective or may be inaccurate or outdated;
|
13
|
|
|
|
n
|
we face limitations on the number of potential borrowers who
meet our lending criteria within proximity to our branches;
|
|
|
n
|
we may not be able to continue to access the demographic and
credit file information that we use to generate our mailing
lists due to expanded regulatory or privacy restrictions;
|
|
|
n
|
live checks pose a greater risk of fraud as the live checks may
be fraudulently replicated;
|
|
|
n
|
we depend on one bank to issue and clear our live checks and any
failure by that bank to properly process the live checks could
limit the ability of a recipient to cash the check and enter
into a loan with us;
|
|
|
n
|
we sell clearly disclosed optional credit insurance products as
part of our live check mailing campaigns; however, customers may
subsequently claim that they did not receive sufficient
explanation or notice of the insurance products that they
purchased;
|
|
|
n
|
customers may opt out of direct mail solicitations and
solicitations based on their credit file or may otherwise
prohibit us from soliciting them; and
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postal rates and piece printing rates may continue to rise.
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Our expected increase in the use of live checks will further
increase our exposure to, and the magnitude of, these risks.
A reduction in
demand for our products and failure by us to adapt to such
reduction could adversely affect our business and results of
operations.
The demand for the products we offer may be reduced due to a
variety of factors, such as demographic patterns, changes in
customer preferences or financial conditions, regulatory
restrictions that decrease customer access to particular
products or the availability of competing products. For example,
we are highly dependent upon selecting and maintaining
attractive branch locations. These locations are subject to
local market conditions, including the employment available in
the area, housing costs, traffic patterns, crime and other
demographic influences, any of which may quickly change. Should
we fail to adapt to significant changes in our customers
demand for, or access to, our products, our revenues could
decrease significantly and our operations could be harmed. Even
if we do make changes to existing products or introduce new
products to fulfill customer demand, customers may resist or may
reject such products. Moreover, the effect of any product change
on the results of our business may not be fully ascertainable
until the change has been in effect for some time and by that
time it may be too late to make further modifications to such
product without causing further harm to our business, results of
operations and financial condition.
We may attempt
to pursue acquisitions or strategic alliances, which may be
unsuccessful.
We may attempt to achieve our business objectives through
acquisitions and strategic alliances. We compete with other
companies for these opportunities, including companies with
greater financial resources, and we cannot be certain that we
will be able to effect acquisitions or strategic alliances on
commercially reasonable terms, or at all. Furthermore, the
acquisitions that we have pursued previously have been
significantly smaller than us. We do not have experience with
integrating larger acquisitions. Even if we enter into these
transactions, we may experience, among other things:
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overvaluing potential targets due to limitations on our due
diligence efforts;
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difficulties in integrating any acquired companies, branches or
products into our existing business, including integration of
account data into our information systems;
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inability to realize the benefits we anticipate in a timely
fashion, or at all;
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attrition of key personnel from acquired businesses;
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unexpected losses due to the acquisition of existing loan
portfolios with loans originated using less stringent
underwriting criteria;
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significant costs, charges or writedowns; or
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unforeseen operating difficulties that require significant
financial and managerial resources that would otherwise be
available for the ongoing development and expansion of our
existing operations.
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We are exposed
to credit risk in our lending activities.
Our ability to collect on loans depends on the willingness and
repayment ability of our borrowers. Any material adverse change
in the ability or willingness of a significant portion of our
borrowers to meet their obligations to us, whether due to
changes in economic conditions, the cost of consumer goods,
interest rates, natural disasters, acts of war or terrorism, or
other causes over which we have no control, would have a
material adverse impact on our
14
earnings and financial condition. Further, a substantial
majority of our borrowers are non-prime borrowers, who are more
likely to be affected, and more severely affected, by adverse
macroeconomic conditions such as those that have persisted over
the last few years. We generally consider customers with a
Beacon score, a measure of credit provided by Equifax, below 645
to be non-prime borrowers, although we also consider factors
other than Beacon scores in evaluating a potential
customers credit, such as length of employment and
duration of current residence. There is no industry standard
definition of non-prime and, consequently, other lenders may use
different criteria to identify non-prime customers. These
criteria have not changed in the past three years. We cannot be
certain that our credit administration personnel, policies and
procedures will adequately adapt to changes in economic or any
other conditions affecting customers and the quality of the loan
portfolio.
We may be
limited in our ability to collect on our loan portfolio and the
security interests securing a significant portion of our loan
portfolio are not perfected, which may increase our loan
losses.
Legal and practical limitations may limit our ability to collect
on our loan portfolio, resulting in increased loan losses,
decreased revenues and decreased earnings. State and federal
laws and regulations restrict our collection efforts.
All of our loan portfolio is secured, but a significant portion
of such security interests have not been and will not be
perfected. The amounts that we are able to recover from the
repossession and sale of this collateral typically does not
cover the outstanding loan balance and costs of recovery. In
cases where we repossess a vehicle securing a loan, we sell our
repossessed automobile inventory through public sales conducted
by independent automobile auction organizations after the
required post-repossession waiting period. There is
approximately a
30-day
period between the time we repossess a vehicle or other property
and the time it is sold at auction. In certain instances, we may
sell repossessed collateral other than vehicles through our
branches after the required post-repossession waiting period and
appropriate receipt of valid bids. The proceeds we receive from
such sales depend upon various factors, including the supply of,
and demand for, used vehicles and other property at the time of
sale. During periods of economic slowdown or recession, such as
have existed in the United States for much of the past few
years, there may be less demand for used vehicles and other
property.
Further, a significant portion of our loan portfolio is not
secured by perfected security interests, including small
installment loans and furniture and appliance purchase loans.
The lack of perfected security interests is one of several
factors that may make it more difficult for us to collect on our
loan portfolio. During 2010 and the first three months of 2011,
net charge-offs as a percentage of average finance receivables
on our small installment loans, which are secured by unperfected
interests in personal property, were 10.2% and 8.6%
(annualized), respectively, while net charge-offs as a
percentage of average finance receivables for our large
installment loans and automobile purchase loans, which are
secured by perfected interests in an automobile or other
vehicle, for the same periods were 6.0% and 4.5% (annualized),
respectively. Lastly, given the relatively small size of our
loans, the costs of collecting loans may be high relative to the
amount of the loan. As a result, many collection practices that
are legally available, such as litigation, may be financially
impracticable. These factors may increase our loan losses, which
would have a material adverse effect on our results of
operations and financial condition.
Our policies
and procedures for underwriting, processing and servicing loans
are subject to potential failure or circumvention, which may
adversely affect our results of operations.
Most of our underwriting activities and our credit extension
decisions are made at our local branches. We train our employees
individually
on-site
in
the branch to make loans that conform to our underwriting
standards. Such training includes critical aspects of state and
federal regulatory compliance, cash handling, account management
and customer relations. Although we have standardized employee
manuals, we primarily rely on our 15 district supervisors, with
oversight by our state vice presidents, branch auditors and
headquarters personnel, to train and supervise our branch
employees, rather than centralized or standardized training
programs. Therefore, the quality of training and supervision may
vary from district to district and branch to branch depending
upon the amount of time apportioned to training and supervision
and individual interpretations of our operations policies and
procedures. We cannot be certain that every loan is made in
accordance with our underwriting standards and rules. We have in
the past experienced some instances of loans extended that
varied from our underwriting standards. Variances in
underwriting standards and lack of supervision could expose us
to greater delinquencies and charge-offs than we have
historically experienced.
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If our
estimates of loan losses are not adequate to absorb actual
losses, our provision for loan losses would increase, which
would adversely affect our results of operations.
We maintain an allowance for loan losses for all loans we make.
To estimate the appropriate level of loan loss reserves, we
consider known and relevant internal and external factors that
affect loan collectability, including the total amount of loans
outstanding, historical loan charge-offs, our current collection
patterns and economic trends. Our methodology for establishing
our reserves for doubtful accounts is based in large part on our
historic loss experience. If customer behavior changes as a
result of economic conditions and if we are unable to predict
how the unemployment rate, housing foreclosures and general
economic uncertainty may affect our loan loss reserves, our
provision may be inadequate. In 2010, and the first three months
of 2011, our provision for loan losses was $16.6 million
and $3.8 million, respectively, and we had a net charge-off
for the same periods of $17.0 million and
$3.8 million, respectively, related to losses on our loans.
As of March 31, 2011, our finance receivables were
$238.1 million. Maintaining the adequacy of our allowance
for loan losses may require that we make significant and
unanticipated increases in our provisions for loan losses, which
would materially affect our results of operations. Our loan loss
reserves, however, are estimates, and if actual loan losses are
materially greater than our loan loss reserves, our financial
condition and results of operations could be adversely affected.
Neither state regulators nor federal regulators regulate our
allowance for loan losses. Additional information regarding our
allowance for loan losses is included in the section captioned
Managements Discussion and Analysis of Financial
Condition and Results of Operations Critical
Accounting Policies Loan Losses.
Interest rates
on automobile purchase and furniture and appliance purchase
loans are determined at competitive market interest rates and we
may fail to adequately set interest rates, which may adversely
affect our business.
In recent years, we have expanded our automobile purchase loan
business and our furniture and appliance purchase loan business
and we plan to continue to expand those businesses in the
future. Unlike installment loans, which in certain states are
typically made at or near the maximum interest rates permitted
by law, automobile purchase loans and furniture and appliance
purchase loans are often made at competitive market interest
rates, which are governed by laws for installment sales
contracts. We have limited experience in determining interest
rates in these markets. If we fail to set interest rates at a
level that adequately reflects the credit risks of our
customers, or if we set interest rates at a level too low to
sustain our profitability, our business, results of operations
and financial condition could be adversely affected.
Failure of
third-party service providers upon which we rely could adversely
affect our business.
We rely on certain third-party service providers. In particular,
we currently rely on a single vendor to print and mail our live
checks for our direct mail marketing campaigns. Our reliance on
third parties such as this can expose us to risks. For example,
an error by our previous live check vendor during 2010 resulted
in checks being misdirected, requiring us in some cases to
notify state regulators, refund certain interest and fee amounts
and exposing us to increased credit risk. In addition, we do not
have ongoing contracts with live check vendors, but instead
enter into individual purchase orders for each of our campaigns.
As a result, we have no contractual assurance that any
particular vendor will be able or willing to provide these
services to us on favorable terms. If any of our third-party
service providers, including our live check vendors, are unable
to provide their services timely and effectively, or at all, it
could have a material adverse effect on our business, financial
condition and results of operations and cash flows.
We depend to a
substantial extent on borrowings under our senior revolving
credit facility to fund our liquidity needs.
We have a senior revolving credit facility committed through
August 2013 that allows us to borrow up to $225.0 million,
assuming we are in compliance with a number of covenants and
conditions. Concurrently with consummation of this offering we
expect to enter into an amended and restated agreement with
respect to our senior revolving credit facility (the
amended and restated senior revolving credit
facility), which would also have a maximum availability of
up to $225.0 million and a maturity of August 2014. As of
March 31, 2011, as adjusted to give effect to the offering
and the application of the estimated net proceeds therefrom as
described under Use of Proceeds, the amount
outstanding under our senior revolving credit facility would
have been
$ million,
and we would have had
$ million
of remaining availability thereunder out of a total availability
of
$ million
based on our borrowing base as of March 31, 2011. During
the year ended December 31, 2010 and the three months ended
March 31, 2011, the maximum amount of borrowings
outstanding under the facility at one time was
$163.3 million. We use our senior revolving credit facility
as a source of liquidity, including for working capital and to
fund the loans we make to our customers. If our existing sources
of liquidity become insufficient to satisfy our financial needs
or our access to these sources becomes unexpectedly restricted,
we may need to try to raise additional debt or equity in the
future. If such an event were to occur, we can give no assurance
that such alternate sources of liquidity would be available to
us on favorable terms or at all. In addition, we cannot
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be certain that we will be able to replace the amended and
restated senior revolving credit facility when it matures on
favorable terms or at all. If any of these events occur, our
business, results of operations and financial condition could be
adversely affected.
We are not insulated from the pressures and potentially negative
consequences of the recent financial crisis and similar risks
beyond our control that have and may continue to affect the
capital and credit markets, the broader economy, the financial
services industry or the segment of that industry in which we
operate.
We are subject
to interest rate risk resulting from general economic conditions
and policies of various governmental and regulatory
agencies.
Interest rates are highly sensitive to many factors that are
beyond our control, including general economic conditions and
policies of various governmental and regulatory agencies and, in
particular, the Federal Reserve Board. Changes in monetary
policy, including changes in interest rates, could influence the
amount of interest we pay on our senior revolving credit
facility or any other floating interest rate obligations we may
incur, which would increase our operating costs and decrease our
operating margins. Interest payable on our senior revolving
credit facility is variable, based on LIBOR with a LIBOR floor
of 1.00% and could increase in the future. Concurrently with
consummation of this offering we expect to enter into an amended
and restated senior revolving credit facility, which would also
include variable interest rates and a LIBOR floor of 1.00%.
Although we have purchased interest rate caps on a
$150.0 million notional amount to hedge such increases,
these caps expire in 2014 and we may not be able to replace
these instruments when they mature on favorable terms or at all.
See Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources. Furthermore, market conditions or
regulatory restrictions on interest rates we charge may prevent
us from passing any increases in interest rates along to our
customers.
Our revolving
credit agreement contains restrictions and limitations that
could affect our ability to operate our business.
The credit agreement governing our senior revolving credit
facility contains a number of covenants that could adversely
affect our business and the flexibility to respond to changing
business and economic conditions or opportunities. Among other
things, these covenants limit our ability to:
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incur or guarantee additional indebtedness;
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purchase large loan portfolios in bulk;
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pay dividends or make distributions on our capital stock or make
certain other restricted payments;
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sell assets, including our loan portfolio or the capital stock
of our subsidiaries;
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enter into transactions with our affiliates;
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create or incur liens; and
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consolidate, merge, sell or otherwise dispose of all or
substantially all of our assets.
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In addition, the credit agreement imposes certain obligations on
us relating to our underwriting standards, recordkeeping and
servicing of our loans, and our loss reserves and charge-off
policies. It also requires us to maintain certain financial
ratios, including an interest coverage ratio and a borrowing
base ratio (calculated as the ratio of our unsubordinated debt
to the sum of our adjusted tangible net worth and our
subordinated debt).
If we were to breach any covenants or obligations under the
credit agreement and such breaches were to result in an event of
default, our lenders could cause all amounts outstanding to
become due and payable, subject to applicable grace periods.
This could trigger cross-defaults under any future debt
instruments and materially and adversely affect our financial
condition and ability to continue operating our business as a
going concern. As of March 31, 2011, we were in compliance
with the covenants under our senior revolving credit facility
and our mezzanine debt. Concurrently with the consummation of
this offering, we expect to enter into an amended and restated
senior revolving credit facility, which will contain similar
covenants and other provisions.
If we lose the
services of any of our key management personnel, our business
could suffer.
Our future success significantly depends on the continued
service and performance of our key management personnel.
Competition for these employees is intense. The loss of the
service of members of our senior management or key team members,
including our state vice presidents, or the inability to attract
additional qualified personnel as needed could materially harm
our business. Our success depends, in part, on the continued
service of our President and Chief
17
Operating Officer, C. Glynn Quattlebaum, who is 64 years
old and our Executive Vice President and Chief Financial
Officer, Robert D. Barry, who is 67. Both of these executive
officers are nearing the age of retirement.
We also depend on our 15 district supervisors to supervise,
train and motivate our branch employees. These supervisors have
significant experience with the company and would be difficult
to replace. If we lose a district supervisor to a competitor, we
could be at risk of losing other employees and customers despite
the confidentiality agreements and non-solicitation agreements
we have entered into with each employee.
We rely on
information technology products developed, owned and supported
by third parties, including our competitors.
We use a software package developed and owned by ParaData
Financial Systems (ParaData), a wholly owned
subsidiary of World Acceptance Corporation, one of our primary
competitors, to record, document and manage our loans. Over the
years we have tailored this software to meet our specific needs.
We depend on the willingness and ability of ParaData to continue
to provide customized solutions and support for our evolving
products and business model. In the future, ParaData may not be
able to modify the loan management software to meet our needs,
or they could alter the program without notice to us or cease to
adequately support it. ParaData could also decide in the future
to refuse to provide support for its software to us on
commercially reasonable terms, or at all. If any of these events
were to occur, we would be forced to migrate to an alternative
software package, which could materially affect our business,
results of operations and financial condition.
We rely on DealerTrack, Route One, Teledata Communications Inc.
and other third-party software vendors to provide access to loan
applications
and/or
screen applications. There can be no assurance that these third
party providers will continue to provide us information in
accordance with our lending guidelines or that they will
continue to provide us lending leads at all. If this occurs, our
loan losses, business, results of operations and financial
condition may be adversely affected.
Security
breaches in our branches or in our information systems could
adversely affect our financial conditions and results of
operations.
All of our account payments occur at our branches, either in
person or by mail, and frequently consist of cash payments,
which we deposit at local banks throughout the day. This
business practice exposes us daily to the potential for employee
theft of funds or, alternatively, to theft and burglary due to
the cash we maintain in the branch. Despite controls and
procedures to prevent such losses, we have in the past sustained
losses due to employee fraud and theft. In addition, our
employees field call delinquent accounts by visiting
the home or workplace of a delinquent borrower. Such visits may
subject our employees to a variety of dangers including
violence, vehicle accidents and other perils. A breach in the
security of our branches or in the safety of our employees could
result in employee injury and adverse publicity and could result
in a loss of customer business or expose us to civil litigation
and possible financial liability, any of which could have a
material adverse effect on our financial condition and results
of operations.
We rely heavily on communications and information systems to
conduct our business. Each branch is part of an information
network that is designed to permit us to maintain adequate cash
inventory, reconcile cash balances on a daily basis and report
revenues and expenses to our headquarters. Any failure,
interruption or breach in security of these systems, including
any failure of our
back-up
systems, could result in failures or disruptions in our customer
relationship management, general ledger, loan and other systems
and could result in a loss of customer business, subject us to
additional regulatory scrutiny, or expose us to civil litigation
and possible financial liability, any of which could have a
material adverse effect on our financial condition and results
of operations.
Our
centralized headquarters functions are susceptible to
disruption by catastrophic events, which could have a material
adverse effect on our business, results of operations and
financial condition.
Our headquarters buildings are located in Greenville, South
Carolina. Our information systems and administrative and
management processes are primarily provided to our branches from
this centralized location, and our separate data management
facility is located in the same city, and these processes could
be disrupted if a catastrophic event, such as a tornado, power
outage or act of terror, affected Greenville. Any such
catastrophic event or other unexpected disruption of our
headquarters or data management facility could have a material
adverse effect on our business, results of operations and
financial condition.
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Risks Related to
Regulation
Our business
products and activities are strictly and comprehensively
regulated at the local, state and federal level. Changes in
current laws and regulations or in the interpretation of such
laws and regulations could have a material adverse effect on our
business, results of operations and financial
condition.
Our business is subject to numerous local, state and federal
laws and regulations. These regulations impose significant costs
or limitations on the way we conduct or expand our business and
these costs or limitations may increase in the future if such
laws and regulations are changed. These laws and regulations
govern or affect, among other things:
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the interest rates that we may charge customers;
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terms of loans, including fees, maximum amounts and minimum
durations;
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the number of simultaneous or consecutive loans and required
waiting periods between loans;
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disclosure practices, including posting of fees;
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currency and suspicious activity reporting;
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recording and reporting of certain financial transactions;
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privacy of personal customer information;
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the types of products and services that we may offer;
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collection practices;
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approval of licenses; and
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locations of our branches.
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Our primary regulators are the state regulators for the states
in which we operate: South Carolina, Texas, North Carolina,
Tennessee and Alabama. See Business Government
Regulation. We operate each of our branches under licenses
granted to us by these state regulators. State regulators may
enter our branches and conduct audits of our records and
practices at any time, with or without notice. If we fail to
observe, or are not able to comply with, applicable legal
requirements, we may be forced to discontinue certain product
offerings, which could adversely impact our business, results of
operations and financial condition. In addition, violation of
these laws and regulations could result in fines and other civil
and/or
criminal penalties, including the suspension or revocation of
our branch licenses, rendering us unable to operate in one or
more locations. All the states in which we operate have laws
governing the interest rate and fees that we can charge and
required disclosure statements, among other restrictions.
Violation of these laws could involve penalties requiring the
forfeiture of principal
and/or
interest and fees that we have charged. Depending on the nature
and scope of a violation, fines and other penalties for
noncompliance of applicable requirements could be significant
and could have a material adverse effect on our business,
results of operation and financial condition.
Licenses to open new branches are granted in the discretion of
state regulators. Accordingly, licenses may be denied
unexpectedly or for reasons outside our control. This could
hinder our ability to implement our business plan in a timely
manner or at all.
As we enter new markets and develop new products, we may become
subject to additional state and federal regulations. For
example, although we intend to expand into new states, we may
encounter unexpected regulatory or other difficulties in these
new states or markets, which may prevent us from growing in new
states or markets. Similarly, while we intend to grow our
furniture and appliance purchase and indirect automobile
purchase loan operations, we may encounter unexpected regulatory
or other difficulties. As a result, we may not be able to
successfully execute our strategies to grow our revenue and
earnings.
Changes in
laws and regulations or interpretations of laws and regulations
could negatively impact our business, results of operations and
financial condition.
Although many of the laws and regulations applicable to our
business have remained substantially unchanged for many years,
the laws and regulations directly affecting our lending
activities are under review and are subject to change,
especially as a result of current economic conditions, changes
in the
make-up
of
the current executive and legislative branches and the political
focus on issues of consumer and borrower protection. In
addition, consumer advocacy groups and various other media
sources continue to advocate for governmental and regulatory
action to prohibit or severely restrict various financial
products, including the loan products we offer.
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Any changes in such laws and regulations could force us to
modify, suspend or cease part or, in the worst case, all of our
existing operations. It is also possible that the scope of
federal regulations could change or expand in such a way as to
preempt what has traditionally been state law regulation of our
business activities. The enactment of one or more of such
regulatory changes could materially and adversely affect our
business, results of operations and prospects.
States may also seek to impose new requirements or interpret or
enforce existing requirements in new ways. Changes in current
laws or regulations or the implementation of new laws or
regulations in the future may restrict our ability to continue
our current methods of operation or expand our operations.
Additionally, these laws and regulations could subject us to
liability for prior operating activities or lower or eliminate
the profitability of operations going forward by, among other
things, reducing the amount of interest and fees we charge in
connection with our loans. If these or other factors lead us to
close our branches in a state, in addition to the loss of net
revenues attributable to that closing, we would incur closing
costs such as lease cancellation payments and we would have to
write off assets that we could no longer use. If we were to
suspend rather than permanently cease our operations in a state,
we would also have continuing costs associated with maintaining
our branches and our employees in that state, with little or no
revenues to offset those costs.
We maintain a relationship with our primary regulator in each of
the states in which we operate, participate in national and
state industry associations and actively monitor the regulatory
environment, and we are currently unaware of any specific
proposal that would change the laws and regulations under which
we operate in a manner material to our business.
In addition to state and federal laws and regulations, our
business is subject to various local rules and regulations such
as local zoning regulations. Local zoning boards and other local
governing bodies have been increasingly restricting the
permitted locations of other consumer finance companies, such as
payday lenders and pawn shops. Any future actions taken to
require special use permits for, or impose other restrictions
on, our ability to provide products could adversely affect our
ability to expand our operations or force us to attempt to
relocate existing branches. If we were forced to relocate any of
our branches, in addition to the costs associated with the
relocation, we may be required to hire new employees in the new
areas, which may adversely impact the operations of those
branches. Relocation of an existing branch may also hinder our
collection abilities, as our business model relies on the
location of our branches being close to where our customers live
in order to successfully collect on outstanding loans.
Changes in laws or regulations may have a material adverse
effect on all aspects of our business in a particular state and
on our overall business, results of operations and financial
condition.
The Dodd-Frank
Act authorizes the newly created CFPB to adopt rules that could
potentially have a serious impact on our ability to offer
short-term consumer loans and have a material adverse effect on
our operations and financial performance.
Title X of the Dodd-Frank Act establishes the CFPB, which
become operational on July 21, 2011. Under the Dodd-Frank
Act, the CFPB has regulatory, supervisory and enforcement powers
over providers of consumer financial products that we offer,
including explicit supervisory authority to examine and require
registration of installment lenders such as ourselves. Included
in the powers afforded to the CFPB is the authority to adopt
rules describing specified acts and practices as being
unfair, deceptive or
abusive, and hence unlawful. Specifically, the CFPB
has the authority to declare an act or practice abusive if it,
among other things, materially interferes with the ability of a
consumer to understand a term or condition of a consumer
financial product or service or takes unreasonable advantage of
a lack of understanding on the part of the consumer of the
product or service. Although the Dodd-Frank Act expressly
provides that the CFPB has no authority to establish usury
limits, some consumer advocacy groups have suggested that
certain forms of alternative consumer finance products, such as
installment loans, should be a regulatory priority and it is
possible that at some time in the future the CFPB could propose
and adopt rules making such lending or other products that we
may offer materially less profitable or impractical. Further,
the CFPB may target specific features of loans or loan
practices, such as refinancings, by rulemaking that could cause
us to cease offering certain products or engaging in certain
practices. It is possible that the CFPB will adopt rules that
specifically restrict refinancings of existing loans. Our
refinancings of existing loans are divided into three
categories: refinancings of loans in an amount greater than the
original loan amount, renewals of existing loans that are
current and renewals of existing loans that are delinquent,
which represented 19.1%, 32.9% and 1.7%, respectively, of our
loan originations in 2010 and 13.9%, 35.7% and 1.8%,
respectively, of our loan originations in the first three months
of 2011. Any such rules could have a material adverse effect on
our business, results of operation and financial condition. The
CFPB could also adopt rules imposing new and potentially
20
burdensome requirements and limitations with respect to any of
our current or future lines of business, which could have a
material adverse effect on our operations and financial
performance.
In addition to the Dodd-Frank Acts grant of regulatory
powers to the CFPB, the Dodd-Frank Act gives the CFPB authority
to pursue administrative proceedings or litigation for
violations of federal consumer financial laws. In these
proceedings, the CFPB can obtain cease and desist orders (which
can include orders for restitution or rescission of contracts,
as well as other kinds of affirmative relief) and monetary
penalties ranging from $5,000 per day for minor violations of
federal consumer financial laws (including the CFPBs own
rules) to $25,000 per day for reckless violations and
$1 million per day for knowing violations. If we are
subject to such administrative proceedings, litigation, orders
or monetary penalties in the future, this could have a material
adverse effect on our operations and financial performance.
Also, where a company has violated Title X of the
Dodd-Frank Act or CFPB regulations under Title X, the
Dodd-Frank Act empowers state attorneys general and state
regulators to bring civil actions for the kind of cease and
desist orders available to the CFPB (but not for civil
penalties). If the CFPB or one or more state officials believe
we have violated the foregoing laws, they could exercise their
enforcement powers in ways that would have a material adverse
effect on us.
Our stock
price or results of operations could be adversely affected by
media and public perception of installment loans and of
legislative and regulatory developments affecting activities
within the installment lending sector.
Consumer advocacy groups and various media sources continue to
criticize alternative financial services providers (such as
payday and title lenders, check advance companies and
pawnshops). These critics frequently characterize such
alternative financial services providers as predatory or abusive
toward consumers. If these persons were to criticize the
products that we offer, it could result in further regulation of
our business. Furthermore, our industry is highly regulated, and
announcements regarding new or expected governmental and
regulatory action in the alternative financial services sector
may adversely impact our stock price and perceptions of our
business even if such actions are not targeted at our operations
and do not directly impact us.
Risks Related to
this Offering
There may not
be an active trading market for shares of our common stock,
which may cause shares of our common stock to trade at a
discount from the initial offering price and make it difficult
to sell the shares of common stock you purchase.
Prior to this offering, there has not been a public trading
market for shares of our common stock. It is possible that after
this offering an active trading market will not develop or
continue or, if developed, that any market will be sustained
which would make it difficult for you to sell your shares of
common stock at an attractive price or at all. The initial
public offering price per share of common stock will be
determined by agreement among us and the representatives of the
underwriters, and may not be indicative of the price at which
shares of our common stock will trade in the public market after
this offering.
If securities
or industry analysts do not publish research or reports about
our business, or if they downgrade their recommendations
regarding our common stock, our stock price and trading volume
could decline.
The trading market for our common stock will be influenced by
the research and reports that industry or securities analysts
publish about us or our business. If any of the analysts who
covers us downgrades our common stock or publishes inaccurate or
unfavorable research about our business, our common stock price
may decline. If analysts cease coverage of us or fail to
regularly publish reports on us, we could lose visibility in the
financial markets, which in turn could cause our common stock
price or trading volume to decline and our common stock to be
less liquid.
The market
price of shares of our common stock may be volatile, which could
cause the value of your investment to decline.
Even if a trading market develops, the market price of our
common stock may be highly volatile and could be subject to wide
fluctuations. Securities markets worldwide experience
significant price and volume fluctuations. This market
volatility, as well as general economic, market or political
conditions, could reduce the market price of shares of our
common stock in spite of our operating performance. In addition,
our operating results could be below the expectations of public
market analysts and investors due to a number of potential
factors, including variations in our quarterly operating
results, additions or departures of key management personnel,
failure to meet analysts earnings estimates, publication
of research reports about our industry, litigation and
government investigations, changes or proposed changes in laws
or regulations or differing interpretations or enforcement
thereof affecting our
21
business, adverse market reaction to any indebtedness we may
incur or securities we may issue in the future, changes in
market valuations of similar companies or speculation in the
press or investment community, announcements by our competitors
of significant contracts, acquisitions, dispositions, strategic
partnerships, joint ventures or capital commitments, adverse
publicity about the industries we participate in or individual
scandals, and in response the market price of shares of our
common stock could decrease significantly. You may be unable to
resell your shares of common stock at or above the initial
public offering price.
In the past few years, stock markets have experienced extreme
price and volume fluctuations. In the past, following periods of
volatility in the overall market and the market price of a
companys securities, securities class action litigation
has often been instituted against these companies. This
litigation, if instituted against us, could result in
substantial costs and a diversion of our managements
attention and resources.
Investors in
this offering will suffer immediate and substantial
dilution.
The initial public offering price per share of common stock will
be substantially higher than our pro forma net tangible book
value per share immediately after this offering. As a result,
you will pay a price per share of common stock that
substantially exceeds the per share book value of our tangible
assets after subtracting our liabilities. In addition, you will
pay more for your shares of common stock than the amounts paid
by our existing owners. Assuming an offering price of
$
per share of common stock, which is the midpoint of the range on
the front cover of this prospectus, you will incur immediate and
substantial dilution in an amount of
$
per share of common stock. See Dilution.
Because we
have no current plans to pay cash dividends on our common stock
for the foreseeable future, you may not receive any return on
investment unless you sell your common stock for a price greater
than that which you paid for it.
We intend to retain future earnings, if any, for future
operation, expansion and debt repayment and have no current
plans to pay any cash dividends for the foreseeable future. The
declaration, amount and payment of any future dividends on
shares of common stock will be at the sole discretion of our
board of directors. Our board of directors may take into account
general and economic conditions, our financial condition and
results of operations, our available cash and current and
anticipated cash needs, capital requirements, contractual,
legal, tax and regulatory restrictions and implications on the
payment of dividends by us to our stockholders or by our
subsidiaries to us and such other factors as our board of
directors may deem relevant. In addition, our ability to pay
dividends may be limited by covenants of any existing and future
outstanding indebtedness we or our subsidiaries incur, including
our senior revolving credit facility. As a result, you may not
receive any return on an investment in our common stock unless
you sell our common stock for a price greater than that which
you paid for it.
You may be
diluted by the future issuance of additional common stock in
connection with our incentive plans, acquisitions or
otherwise.
After this offering we will have
approximately million
shares of common stock authorized but unissued. Our amended and
restated certificate of incorporation to become effective
immediately prior to the consummation of this offering
authorizes us to issue these shares of common stock and options,
rights, warrants and appreciation rights relating to common
stock for the consideration and on the terms and conditions
established by our board of directors in its sole discretion,
whether in connection with acquisitions or otherwise. We have
reserved 950,000 shares for issuance under our 2011 Stock
Plan,
including shares
issuable upon the exercise of stock options that we intend to
grant to our executive officers and directors
and shares
issuable upon the exercise of stock options that we intend to
grant to our other employees, each at the time of this offering
with an exercise price equal to the initial public offering
price. See Management Compensation Discussion
and Analysis 2011 Stock Incentive Plan and
Actions Taken in 2011 and Anticipated Actions
in Connection with the Offering. Any common stock that we
issue, including under our 2011 Stock Plan or other equity
incentive plans that we may adopt in the future, would dilute
the percentage ownership held by the investors who purchase
common stock in this offering.
If we or our
existing investors sell additional shares of our common stock
after this offering, the market price of our common stock could
decline.
The sale of substantial amounts of shares of our common stock in
the public market, or the perception that such sales could
occur, could harm the prevailing market price of shares of our
common stock. These sales, or the possibility that these sales
may occur, also might make it more difficult for us to sell
equity securities in the future at a time and at a price that we
deem appropriate. Upon consummation of this offering we will
have a total
of shares
of our common stock outstanding. Of the outstanding shares,
the shares
sold in this
22
offering
(or shares
if the underwriters exercise their over-allotment option in
full) will be freely tradable without restriction or further
registration under the Securities Act of 1933, as amended (the
Securities Act), except that any shares held by our
affiliates, as that term is defined under Rule 144 of the
Securities Act, may be sold only in compliance with the
limitations described in Shares Eligible for Future
Sale.
The
remaining shares,
representing % of our total
outstanding shares of our common stock following this offering,
will be subject to certain restrictions on resale following the
consummation of this offering. We, our officers, directors and
holders of substantially all of our outstanding shares of common
stock immediately prior to this offering have signed
lock-up
agreements with the underwriters that will, subject to certain
exceptions, restrict the sale of the shares of our common stock
held by them for 180 days following the date of this
prospectus, subject to extension in the case of an earnings
release or material news or a material event relating to us.
Jefferies & Company, Inc. may, in its sole discretion
and without notice, release all or any portion of the shares of
common stock subject to
lock-up
agreements. See Underwriting (Conflicts of Interest)
for a description of these
lock-up
agreements.
Upon the expiration of the
lock-up
agreements described above, all of
such shares
will be eligible for resale in a public market, subject, in the
case of shares held by our affiliates, to volume, manner of sale
and other limitations under Rule 144. We expect that each
of the sponsors will be considered affiliates 180 days
after this offering based on their expected share ownership
(consisting
of shares
owned by Palladium
and shares
owned by Parallel assuming no exercise of the underwriters
option to purchase additional shares), as well as their board
nomination rights. Certain other of our shareholders may also be
considered affiliates at that time. In addition, commencing
180 days following this offering, the holders of these
shares of common stock will have the right, subject to certain
exceptions and conditions, to require us to register their
shares of common stock under the Securities Act, and they will
have the right to participate in future registrations of
securities by us. Registration of any of these outstanding
shares of common stock would result in such shares becoming
freely tradable without compliance with Rule 144 upon
effectiveness of the registration statement. See
Shares Eligible for Future Sale.
In
addition, shares
of common stock will be eligible for sale upon exercise of
vested options subject to the agreements described above.
Following this offering, we intend to file one or more
registration statements on
Form S-8
under the Securities Act to register shares of common stock or
securities convertible into or exchangeable for shares of common
stock issued under or covered by our 2011 Stock Plan. Any such
Form S-8
registration statements will automatically become effective upon
filing. We expect that the initial registration statement on
Form S-8
will
cover shares
of common stock. Once these shares are registered, they can be
sold in the public market upon issuance, subject to restrictions
under the securities laws applicable to resales by affiliates.
As restrictions on resale end, the market price of our shares of
common stock could drop significantly if the holders of these
restricted shares sell them or are perceived by the market as
intending to sell them. These factors could also make it more
difficult for us to raise additional funds through future
offerings of our shares of common stock or other securities.
We are
controlled by our existing owners and our existing owners will
exert significant influence over us after the completion of this
offering, and their interests may not coincide with
yours.
Immediately following this offering and the application of net
proceeds from this offering, our existing owners will control
approximately % of our common stock
(or % if the underwriters exercise
in full their over-allotment option). Accordingly, our existing
owners will have substantial influence over election of the
members of our board of directors, and thereby have substantial
influence over our management and affairs. In addition, they
will have substantial influence over the outcome of all matters
requiring stockholder approval, including mergers and other
material transactions, and may be able to cause or prevent a
change in the composition of our board of directors or a change
in control of our company that could deprive our stockholders of
an opportunity to receive a premium for their common stock as
part of a sale of our company and might ultimately affect the
market price of our common stock. We and our existing owners
will also be party to an amended and restated shareholders
agreement, as described below in Certain Relationships and
Related Person Transactions Shareholders
Agreement.
We will be a
controlled company within the meaning of the New
York Stock Exchange rules and we will qualify for and may rely
on exemptions from certain corporate governance
requirements.
Our existing owners will continue to control a majority of the
combined voting power of all classes of our voting stock upon
completion of the offering of our common stock and we will be a
controlled company within the
23
meaning of the New York Stock Exchange corporate governance
standards. Under these rules, a company of which more than 50%
of the voting power is held by an individual, a group or another
company is a controlled company and may elect not to
comply with certain corporate governance requirements of the New
York Stock Exchange, including (1) the requirement that a
majority of the board of directors consist of independent
directors, (2) the requirement that we have a
nominating/corporate governance committee that is composed
entirely of independent directors with a written charter
addressing the committees purpose and responsibilities and
(3) the requirement that we have a compensation committee
that is composed entirely of independent directors with a
written charter addressing the committees purpose and
responsibilities. We intend to elect to rely on these
exemptions. As a result, we may not have a majority of
independent directors and our compensation and nominating and
corporate governance committees may not consist entirely of
independent directors. Accordingly, you will not have the same
protections afforded to stockholders of companies that are
subject to all of the corporate governance requirements of the
New York Stock Exchange.
Our amended
and restated certificate of incorporation will contain a
provision renouncing our interest and expectancy in certain
corporate opportunities identified by the
sponsors.
Our sponsors and their affiliates are in the business of
providing buyout capital and growth capital to developing
companies, and may acquire interests in businesses that directly
or indirectly compete with certain portions of our business. Our
amended and restated certificate of incorporation will provide
for the allocation of certain corporate opportunities between
us, on the one hand, and the sponsors, on the other hand. As set
forth in our amended and restated certificate of incorporation,
neither the sponsors, nor any director, officer, stockholder,
member, manager or employee of the sponsors will have any duty
to refrain from engaging, directly or indirectly, in the same
business activities or similar business activities or lines of
business in which we operate. Therefore, a director or officer
of our company who also serves as a director, officer, member,
manager or employee of the sponsors may pursue certain
acquisition opportunities that may be complementary to our
business and, as a result, such acquisition opportunities may
not be available to us. These potential conflicts of interest
could have a material adverse effect on our business, financial
condition, results of operations or prospects if attractive
corporate opportunities are allocated by the sponsors to
themselves or their other affiliates instead of to us. The terms
of our amended and restated certificate of incorporation are
more fully described in Description of Capital
Stock Corporate Opportunity.
The
requirements of being a public company may strain our resources
and distract our management.
As a public company, we will be subject to the reporting
requirements of the Securities and Exchange Act of 1934, as
amended (the Exchange Act), and requirements of the
Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act).
These requirements may place a strain on our systems and
resources. The Exchange Act requires that we file annual,
quarterly and current reports with respect to our business and
financial condition. The Sarbanes-Oxley Act requires that we
maintain effective disclosure controls and procedures and
internal controls over financial reporting. To maintain and
improve the effectiveness of our disclosure controls and
procedures, we will need to commit significant resources, hire
additional staff and provide additional management oversight. We
will be implementing additional procedures and processes for the
purpose of addressing the standards and requirements applicable
to public companies. In addition, sustaining our growth also
will require us to commit additional management, operational and
financial resources to identify new professionals to join our
firm and to maintain appropriate operational and financial
systems to adequately support expansion. These activities may
divert managements attention from other business concerns,
which could have a material adverse effect on our business,
financial condition, results of operations and cash flows. We
expect to incur significant additional annual expenses related
to these steps and, among other things, additional directors and
officers liability insurance, director fees, reporting
requirements, transfer agent fees, hiring additional accounting,
legal and administrative personnel, increased auditing and legal
fees and similar expenses.
We have not
completed an assessment of internal controls over financial
reporting as contemplated by Section 404 of the
Sarbanes-Oxley Act, and failure to achieve and maintain
effective internal controls over financial reporting in
accordance with Section 404 of the Sarbanes-Oxley Act could
have a material adverse effect on our business and common stock
price.
Because currently we do not have comprehensive documentation of
our internal controls and have not yet tested our internal
controls in accordance with Section 404, we cannot conclude
in accordance with Section 404 that we do not have a
material weakness in our internal controls or a combination of
significant deficiencies that could result in the conclusion
that we have a material weakness in our internal controls. If we
are not able to complete our initial assessment of our internal
controls and otherwise implement the requirements of
Section 404 in a timely manner or with adequate compliance,
our independent registered public accounting firm may not be
able to certify as to the
24
adequacy of our internal controls over financial reporting. We
have contracted with a third party to assist us in performing a
risk assessment of our internal controls over financial
reporting, documenting key controls, determining entity level
controls and developing a program for monitoring, testing and
remediating internal control deficiencies over financial
reporting and coordinating with our external auditors.
Matters impacting our internal controls may cause us to be
unable to report our financial information on a timely basis and
thereby subject us to adverse regulatory consequences, including
sanctions by the SEC or violations of applicable stock exchange
listing rules, and result in a breach of the covenants under our
financing arrangements. There also could be a negative reaction
in the financial markets due to a loss of investor confidence in
us and the reliability of our financial statements. Confidence
in the reliability of our financial statements also could suffer
if we or our independent registered public accounting firm were
to report a material weakness in our internal controls over
financial reporting. This could materially adversely affect us
and lead to a decline in the price of our common stock.
Anti-takeover
provisions in our charter documents and applicable state law
might discourage or delay acquisition attempts for us that you
might consider favorable.
Our amended and restated certificate of incorporation and
amended and restated bylaws to become effective immediately
prior to the consummation of this offering will contain
provisions that may make the acquisition of our company more
difficult without the approval of our board of directors. Among
other things, these provisions:
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authorize the issuance of undesignated preferred stock, the
terms of which may be established and the shares of which may be
issued without stockholder approval, and which may include super
voting, special approval, dividend, or other rights or
preferences superior to the rights of the holders of common
stock;
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prohibit stockholder action by written consent, which requires
all stockholder actions to be taken at a meeting of our
stockholders;
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provide that the board of directors is expressly authorized to
make, alter, or repeal our bylaws and that our stockholders may
only amend our bylaws with the approval of 80% or more of all of
the outstanding shares of our capital stock entitled to
vote; and
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establish advance notice requirements for nominations for
elections to our board or for proposing matters that can be
acted upon by stockholders at stockholder meetings.
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In addition, a Texas regulation requires the approval of the
Texas Consumer Credit Commissioner for the acquisition, directly
or indirectly, of 10% or more of the voting or common stock of a
consumer finance company. The overall effect of this law, and
similar laws in other states, is to make it more difficult to
acquire a consumer finance company than it might be to acquire
control of a nonregulated corporation.
Further, as a Delaware corporation, we are also subject to
provisions of Delaware law, which may impair a takeover attempt
that our stockholders may find beneficial. These anti-takeover
provisions and other provisions under Delaware law could
discourage, delay or prevent a transaction involving a change in
control of our company, including actions that our stockholders
may deem advantageous, or negatively affect the trading price of
our common stock. These provisions could also discourage proxy
contests and make it more difficult for you and other
stockholders to elect directors of your choosing and to cause us
to take other corporate actions you desire.
25
FORWARD-LOOKING
STATEMENTS
This prospectus contains forward-looking statements, which
reflect our current views with respect to, among other things,
our operations and financial performance. You can identify these
forward-looking statements by the use of words such as
outlook, believes, expects,
potential, continues, may,
will, should, seeks,
approximately, predicts,
intends, plans, estimates,
anticipates or the negative version of these words
or other comparable words. These statements include, but are not
limited to, statements about:
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our intention to expand our automobile and furniture purchase
loan portfolios, expand our live check campaigns and continue to
develop our online marketing;
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our intention to increase volume at our existing branches, open
new branches and enter new markets in the future;
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our plans to develop new products in the future;
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our intention to increase the number of customers we serve
through expanding our channels and products;
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our ability to maintain the quality of our asset portfolio and
our plans to develop new underwriting and credit control
strategies;
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our belief that our capital expenditure requirements and
liquidity needs will be met; and
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our expectations about future dividends and our plans to retain
any future earnings.
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Such forward-looking statements are subject to various risks and
uncertainties. Accordingly, there are or will be important
factors that could cause actual outcomes or results to differ
materially from those indicated in these statements. We believe
these factors include but are not limited to those described
under Risk Factors and Managements
Discussion and Analysis of Financial Condition and Results of
Operations Factors Affecting Our Results of
Operations. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we
cannot guarantee future events, results, actions, levels of
activity, performance or achievements. These factors should not
be construed as exhaustive and should be read in conjunction
with the other cautionary statements that are included in this
prospectus. We undertake no obligation to publicly update or
review any forward-looking statement, whether as a result of new
information, future developments or otherwise, except as
required by law.
26
USE OF
PROCEEDS
We estimate that the net proceeds we will receive from this
offering, after deducting the underwriting discount and
estimated offering expenses payable by us, will be approximately
$ million.
We intend to use the net proceeds from this offering and cash on
hand as follows:
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to repay
$ million
of outstanding borrowings, plus accrued and unpaid interest,
under our senior revolving credit facility;
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to repay $25.8 million outstanding as of March 31,
2011, plus accrued and unpaid interest, under our mezzanine
debt, which is currently held by certain of our existing
owners; and
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$1.1 million to make one-time payments to certain of our
existing owners in the aggregate in consideration for the
termination of our advisory and consulting agreements with them
in accordance with their terms upon consummation of this
offering as described under Certain Relationships and
Related Person Transactions Advisory and Consulting
Fees.
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Any additional net proceeds will be applied to repay additional
outstanding borrowings under our senior revolving credit
facility.
A $1.00 increase in the assumed initial public offering price
per share would increase the net proceeds we will receive from
this offering by
$ million,
and an increase of 1.0 million shares in the number of
shares offered by us would increase the net proceeds we will
receive from this offering by
$ million,
assuming in each case that all else is constant and after
deducting the underwriting discount and estimated offering
expenses payable by us. A $1.00 decrease in the assumed initial
public offering price per share or a decrease of
1.0 million shares in the number of shares offered by us
would result in equal changes in the opposite direction.
As of March 31, 2011, we had $25.8 million aggregate
principal amount of mezzanine debt outstanding, which matures on
October 25, 2013 and accrues interest at a rate of 15.25%
per annum. The mezzanine debt was refinanced in August 2010,
with the proceeds used to retire our previously existing
mezzanine debt. As of March 31, 2011, we had
$151.3 million aggregate principal amount outstanding under
our senior revolving credit facility, which matures
August 25, 2013. Borrowings under the senior revolving
credit facility bear interest at a rate equal to one-month LIBOR
(with a LIBOR floor of 1.00%) plus 3.25% as of March 31,
2011. For additional information regarding our liquidity and
outstanding indebtedness, see Managements Discussion
and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
We will not receive any proceeds from the sale of shares of our
common stock by the selling stockholders.
27
DIVIDEND
POLICY
Following completion of the offering, we have no current plans
to pay any dividends on our common stock for the foreseeable
future and instead currently intend to retain earnings, if any,
for future operations and expansion and debt repayment.
The declaration, amount and payment of any future dividends on
shares of common stock will be at the sole discretion of our
board of directors. Our board of directors may take into account
general and economic conditions, our financial condition and
results of operations, our available cash and current and
anticipated cash needs, capital requirements, contractual,
legal, tax and regulatory restrictions and implications on the
payment of dividends by us to our stockholders or by our
subsidiaries to us and such other factors as our board of
directors may deem relevant. In addition, our senior revolving
credit facility includes, and our amended and restated senior
revolving credit facility will include, a restricted payment
covenant, which restricts our ability to pay dividends on our
common stock.
We did not declare or pay any dividends on our common stock in
2009, 2010 or the first three months of 2011.
28
CAPITALIZATION
The following table sets forth our capitalization as of
March 31, 2011:
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on a historical basis; and
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on an as adjusted basis to give effect to the offering and the
application of the estimated net proceeds therefrom as described
under Use of Proceeds, as if each had occurred on
March 31, 2011.
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You should read this table together with the information
contained in this prospectus, including Use of
Proceeds, Unaudited Pro Forma Consolidated Financial
Information, Managements Discussion and
Analysis of Financial Condition and Results of Operations
and the historical consolidated financial statements and related
notes included elsewhere in this prospectus.
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AS OF MARCH 31, 2011
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ACTUAL
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AS
ADJUSTED
(1)
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(Dollars in thousands)
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Long-term debt:
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Mezzanine debt
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$
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25,814
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$
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Senior revolving credit
facility
(2)
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151,347
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Total long-term debt
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177,161
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Temporary
equity
(3)
:
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12,000
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Stockholders equity:
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Common stock, par value $0.10 per share; 25,000,000 shares
authorized and 9,336,727 shares issued and outstanding,
actual; 1,000,000,000 shares authorized
and shares
issues and outstanding, as adjusted
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934
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Additional paid-in
capital
(4)
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28,049
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Retained
earnings
(5)
|
|
|
7,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
36,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
225,630
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
A $1.00 increase in the assumed
initial public offering price per share would decrease total
long-term debt by
$ million,
would increase additional paid-in capital by
$ million
and would increase total stockholders equity by
$ million,
assuming the number of shares offered by us remains the same and
after deducting the underwriting discount and the estimated
offering expenses payable by us. An increase of 1.0 million
shares in the number of shares offered by us would decrease
total long-term debt by
$ million,
would increase additional paid-in capital by
$ million,
and would increase total stockholders equity by
$ million,
assuming the initial public offering price remains the same and
after deducting the underwriting discount and estimated offering
expenses payable by us. A $1.00 decrease in the assumed initial
public offering price per share or a decrease of
1.0 million shares in the number of shares offered by us
would result in equal changes in the opposite direction.
|
|
|
|
(2)
|
|
Our senior revolving credit
facility is a $225.0 million facility, as described under
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources Financing Arrangements
Senior Revolving Credit Facility. We intend to repay a
portion of the borrowings under our senior revolving credit
facility with a portion of the net proceeds from this offering.
|
|
(3)
|
|
The shareholders agreement among
us, Regional Holdings LLC, the sponsors and the individual
owners provides that the individual owners have the right to put
their stock back to us if an initial public offering does not
occur within five years of the date of the acquisition
transaction, March 21, 2007. We valued this put option at
the original purchase price of $12.0 million. The filing of
the registration statement of which this prospectus forms a part
relating to this offering makes it probable that the put option
will not become exercisable.
|
|
|
|
(4)
|
|
Reflects (i) an adjustment for
the estimated net proceeds to us from the offering less the par
value recorded under common stock and (ii) the
reclassification of temporary equity to additional paid-in
capital as described in footnote 3 above.
|
|
|
|
(5)
|
|
Reflects the write-off of
unamortized debt issuance costs related to the mezzanine debt.
|
29
DILUTION
If you invest in shares of our common stock, your interest will
be immediately diluted to the extent of the difference between
the initial public offering price per share of common stock and
the pro forma net tangible book value per share of common stock
after this offering. Dilution results from the fact that the per
share offering price of the shares of common stock is
substantially in excess of the pro forma net tangible book value
per share attributable to our existing owners.
Our net tangible book value as of March 31, 2011 was
approximately $35.7 million, or $3.82 per share of common
stock. Net tangible book value represents the amount of total
tangible assets less total liabilities, and net tangible book
value per share of common stock represents net tangible book
value divided by the number of shares of common stock
outstanding.
After giving effect to this offering and the application of the
proceeds therefrom as described in Use of Proceeds,
our pro forma net tangible book value as of March 31, 2011
would have been
$ million,
or $
per share of common stock. This represents an immediate increase
in net tangible book value of
$
per share of common stock to our existing owners and an
immediate dilution in net tangible book value of
$
per share of common stock to investors in this offering.
The following table illustrates this dilution on a per share of
common stock basis:
|
|
|
|
|
|
|
|
|
Assumed initial public offering price per share of common stock
|
|
|
|
|
|
$
|
|
|
Net tangible book value per share of common stock as of
March 31, 2011
|
|
$
|
3.82
|
|
|
|
|
|
Increase in net tangible book value per share of common stock
attributable to investors in this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net tangible book value per share of common stock
after the offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilution in net tangible book value per share of common stock to
investors in this offering
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
A $1.00 increase in the assumed initial public offering price of
$
per share of our common stock would increase our net tangible
book value after giving to the offering by
$ million,
or by
$
per share of our common stock, assuming the number of shares
offered by us remains the same and after deducting the
underwriting discount and the estimated offering expenses
payable by us. A $1.00 decrease in the assumed initial public
offering price per share would result in equal changes in the
opposite direction.
The following table summarizes, on the same pro forma basis as
of March 31, 2011, the total number of shares of common
stock purchased from us, the total cash consideration paid to us
and the average price per share of common stock paid by our
existing owners and by new investors purchasing shares of common
stock in this offering, assuming the underwriters do not
exercise their over-allotment option.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRICE PER
|
|
|
|
SHARES OF COMMON
|
|
|
TOTAL
|
|
|
SHARE OF
|
|
|
|
STOCK PURCHASED
|
|
|
CONSIDERATION
|
|
|
COMMON
|
|
|
|
NUMBER
|
|
|
PERCENTAGE
|
|
|
AMOUNT
|
|
|
PERCENTAGE
|
|
|
STOCK
|
|
|
|
(In thousands)
|
|
|
Existing owners
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
Investors in this offering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100
|
%
|
|
$
|
|
|
|
|
100
|
%
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Each $1.00 increase in the assumed offering price of
$
per share would increase total consideration paid by investors
in this offering and total consideration paid by all
stockholders by
$ million,
assuming the number of shares offered by us remains the same and
after deducting the underwriting discount and the estimated
offering expenses payable by us. A $1.00 decrease in the assumed
initial public offering price per share would result in equal
changes in the opposite direction.
The dilution information above is for illustration purposes
only. Our net tangible book value following the consummation of
this offering is subject to adjustment based on the actual
initial public offering price of our shares and other terms of
this offering determined at pricing.
31
UNAUDITED PRO
FORMA CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma consolidated statement of income for the
fiscal year ended December 31, 2010 and for the three
months ended March 31, 2011 presents our consolidated
results of operations giving pro forma effect to this offering
and the application of the estimated net proceeds therefrom as
described under Use of Proceeds, as if such
transactions occurred at January 1, 2010. The unaudited pro
forma consolidated balance sheet as of March 31, 2011
presents our consolidated financial position giving pro forma
effect to this offering and the application of the estimated net
proceeds therefrom as described under Use of
Proceeds, as if such transactions occurred on
March 31, 2011. The pro forma adjustments are based on
available information and upon assumptions that our management
believes are reasonable in order to reflect, on a pro forma
basis, the impact of these transactions on our historical
financial information.
The unaudited pro forma consolidated financial information
should be read together with Managements Discussion
and Analysis of Financial Condition and Results of
Operations and the historical financial statements and
related notes included elsewhere in this prospectus.
The unaudited pro forma consolidated financial information is
included for informational purposes only and does not purport to
reflect our results of operations or financial position had we
operated as a public company during the periods presented. The
unaudited pro forma consolidated financial information should
not be relied upon as being indicative of our results of
operations or financial position had this offering and the
application of the estimated net proceeds therefrom as described
under Use of Proceeds occurred on the dates assumed.
The unaudited pro forma consolidated financial information also
does not project our results of operations or financial position
for any future period or date.
The pro forma adjustments give effect to:
|
|
|
|
n
|
the application of the proceeds from this offering as described
under Use of Proceeds including:
|
|
|
|
|
|
the repayment of a portion of our outstanding indebtedness and
the associated reduction in interest expense; and
|
|
|
|
|
|
the termination of our advisory agreement with the sponsors and
consulting agreements with certain of the individual owners and
the associated termination of consulting and advisory fees, each
in accordance with its terms upon the consummation of this
offering as described under Certain Relationships and
Related Person Transactions, which termination does not
result in any adjustment to our pro forma consolidated balance
sheet;
|
|
|
|
|
n
|
the termination of the right of the individual owners to sell
their stock back to us, which pursuant to the terms of the
shareholders agreement among us, Regional Holdings LLC, the
sponsors and the individual owners terminates upon the
consummation of this offering; and
|
|
|
|
|
n
|
a recalculation of weighted average diluted shares outstanding
using a value per share of
$
rather than the value estimated in the historical financial
statements.
|
32
REGIONAL
MANAGEMENT CORP.
UNAUDITED PRO
FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR
ENDED DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRO FORMA
|
|
|
|
|
|
|
ACTUAL
|
|
|
ADJUSTMENTS
|
|
|
PRO FORMA
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fee income
|
|
$
|
74,218
|
|
|
$
|
|
|
|
$
|
74,218
|
|
Insurance income, net
|
|
|
8,252
|
|
|
|
|
|
|
|
8,252
|
|
Other income
|
|
|
4,362
|
|
|
|
|
|
|
|
4,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
86,832
|
|
|
|
|
|
|
|
86,832
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
16,568
|
|
|
|
|
|
|
|
16,568
|
|
General and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
|
|
|
20,630
|
|
|
|
|
|
|
|
20,630
|
|
Occupancy
|
|
|
5,165
|
|
|
|
|
|
|
|
5,165
|
|
Advertising
|
|
|
2,027
|
|
|
|
|
|
|
|
2,027
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and advisory fees
|
|
|
1,233
|
|
|
|
(1,233
|
)
(1)
|
|
|
|
|
Other
|
|
|
5,703
|
|
|
|
|
|
|
|
5,703
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and other debt
|
|
|
5,542
|
|
|
|
|
(2)
|
|
|
|
|
Mezzanine debt
|
|
|
4,342
|
|
|
|
(4,342
|
)
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
9,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
61,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
25,622
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
9,178
|
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
16,444
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.76
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
1.70
|
|
|
|
|
|
|
|
|
|
Pro forma basic earnings per share
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Pro forma diluted earnings per share
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Weighted average basic shares outstanding
|
|
|
9,336,727
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding
|
|
|
9,669,618
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average basic shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average diluted shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Reflects the termination of the
advisory agreement we entered into with each of the sponsors and
the consulting agreements we entered into with certain of the
individual owners, pursuant to which we paid the sponsors and
the individual owners an aggregate of $1.2 million for the
year ended December 31, 2010. These agreements will be
terminated upon the consummation of this offering in accordance
with their terms upon payment of one-time aggregate termination
fees of $1.1 million.
|
|
|
|
(2)
|
|
Reflects reduction in interest
expense of
$ million
as a result of repayment of
$ million
in aggregate principal amount of our senior revolving credit
facility, offset in part by an unused line fee associated with
our senior revolving credit facility of 0.50%. Our senior
revolving credit facility bears interest a rate equal to
one-month LIBOR (with a LIBOR floor of 1.00%) plus 3.25% as of
December 31, 2010.
|
|
|
|
(3)
|
|
Reflects reduction in interest
expense of $4.3 million as a result of repayment of the
$25.8 million in aggregate principal amount of our
mezzanine debt. Our mezzanine debt accrues interest at a rate of
15.25% per annum.
|
|
|
|
(4)
|
|
Reflects an increase in income
taxes of
$ million
as a result of the increase in income before taxes.
|
33
REGIONAL
MANAGEMENT CORP.
UNAUDITED PRO
FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE
MONTHS ENDED MARCH 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRO FORMA
|
|
|
|
|
|
|
ACTUAL
|
|
|
ADJUSTMENTS
|
|
|
PRO FORMA
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fee income
|
|
$
|
21,045
|
|
|
$
|
|
|
|
$
|
21,045
|
|
Insurance income, net
|
|
|
2,194
|
|
|
|
|
|
|
|
2,194
|
|
Other income
|
|
|
1,457
|
|
|
|
|
|
|
|
1,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
24,696
|
|
|
|
|
|
|
|
24,696
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
3,836
|
|
|
|
|
|
|
|
3,836
|
|
General and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
|
|
|
6,540
|
|
|
|
|
|
|
|
6,540
|
|
Occupancy
|
|
|
1,471
|
|
|
|
|
|
|
|
1,471
|
|
Advertising
|
|
|
647
|
|
|
|
|
|
|
|
647
|
|
Other expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and advisory fees
|
|
|
310
|
|
|
|
(310
|
)
(1)
|
|
|
|
|
Other
|
|
|
1,554
|
|
|
|
|
|
|
|
1,554
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and other debt
|
|
|
1,763
|
|
|
|
|
(2)
|
|
|
|
|
Mezzanine debt
|
|
|
996
|
|
|
|
(996
|
)
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
2,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
17,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
7,579
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
2,644
|
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,935
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
|
Pro forma basic earnings per share
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Pro forma diluted earnings per share
|
|
|
|
|
|
|
|
|
|
$
|
|
|
Weighted average basic shares outstanding
|
|
|
9,336,727
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding
|
|
|
9,648,103
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average basic shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma weighted average diluted shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Reflects the termination of the
advisory agreement we entered into with each of the sponsors and
the consulting agreements we entered into with certain of the
individual owners, pursuant to which we paid the sponsors and
the individual owners an aggregate of $0.3 million for the
three months ended March 31, 2011. These agreements will be
terminated upon the consummation of this offering in accordance
with their terms upon payment of a one-time aggregate
termination fee of $1.1 million.
|
|
(2)
|
|
Reflects reduction in interest
expense of
$ million
as a result of repayment of
$ million
in aggregate principal amount of our senior revolving credit
facility, offset in part by an unused line fee associated with
our senior revolving credit facility of 0.50%. Our senior
revolving credit facility bears interest a rate equal to
one-month LIBOR (with a LIBOR floor of 1.00%) plus 3.25% as of
March 31, 2011.
|
|
(3)
|
|
Reflects reduction in interest
expense of $1.0 million as a result of repayment of the
$25.8 million in aggregate principal amount of our
mezzanine debt. Our mezzanine debt accrues interest at a rate of
15.25% per annum.
|
|
(4)
|
|
Reflects an increase in income
taxes of
$ million
as a result of the increase in income before taxes.
|
34
REGIONAL
MANAGEMENT CORP.
UNAUDITED PRO
FORMA CONSOLIDATED BALANCE SHEET
AS OF
MARCH 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PRO FORMA
|
|
|
|
|
|
|
ACTUAL
|
|
|
ADJUSTMENTS
|
|
|
PRO FORMA
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,384
|
|
|
$
|
|
|
|
$
|
|
|
Gross finance receivables
|
|
|
304,840
|
|
|
|
|
|
|
|
304,840
|
|
Less unearned finance charges, insurance premiums and commissions
|
|
|
(66,723
|
)
|
|
|
|
|
|
|
(66,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
|
238,117
|
|
|
|
|
|
|
|
238,117
|
|
Allowance for loan losses
|
|
|
(18,000
|
)
|
|
|
|
|
|
|
(18,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net finance receivables
|
|
|
220,117
|
|
|
|
|
|
|
|
220,117
|
|
Premises and equipment, net of accumulated depreciation
|
|
|
3,366
|
|
|
|
|
|
|
|
3,366
|
|
Deferred tax asset, net
|
|
|
4,726
|
|
|
|
|
|
|
|
4,726
|
|
Repossessed assets at net realizable value
|
|
|
183
|
|
|
|
|
|
|
|
183
|
|
Other assets
|
|
|
4,727
|
|
|
|
(111
|
)
(1)
|
|
|
4,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
237,503
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash overdraft
|
|
$
|
1,404
|
|
|
$
|
|
|
|
$
|
1,404
|
|
Accounts payable and accrued expenses
|
|
|
10,273
|
|
|
|
|
|
|
|
10,273
|
|
Senior revolving credit facility
|
|
|
151,347
|
|
|
|
|
(2)
|
|
|
|
|
Mezzanine debt
|
|
|
25,814
|
|
|
|
(25,814
|
)
(3)
|
|
|
|
|
Other debt
|
|
|
196
|
|
|
|
|
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
189,034
|
|
|
|
|
|
|
|
|
|
Temporary equity
|
|
|
12,000
|
|
|
|
(12,000
|
)
(4)
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value $0.10 per share; 25,000,000 shares
authorized, and 9,336,727 shares issued and outstanding,
actual; 1,000,000,000 shares authorized
and shares
issued and outstanding, as adjusted
|
|
|
934
|
|
|
|
|
(5)
|
|
|
|
|
Additional paid-in capital
|
|
|
28,049
|
|
|
|
|
(6)
|
|
|
|
|
Retained earnings
|
|
|
7,486
|
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
36,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
237,503
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Reflects the write off of
unamortized debt issuance costs related to the mezzanine debt.
|
|
|
|
(2)
|
|
Reflects the repayment of
$ million
in aggregate principal amount under our senior revolving credit
facility as described under Use of Proceeds.
|
|
|
|
(3)
|
|
Reflects the repayment of
$ million
in aggregate principal amount of mezzanine debt as described
under Use of Proceeds.
|
|
|
|
(4)
|
|
Reflects the reclassification of
temporary equity to additional paid-in capital. The shareholders
agreement between us, Regional Holdings LLC, the sponsors and
the individual owners provides that the individual owners have
the right to put their stock back to us if an initial public
offering does not occur within five years of the date of
acquisition, March 21, 2007. This right will be terminated
upon the consummation of this offering.
|
|
|
|
(5)
|
|
Reflects an adjustment to common
stock reflecting the par value for the common stock to be issued
in this offering.
|
|
|
|
(6)
|
|
Reflects (i) an adjustment for
the estimated net proceeds to us from this offering less the par
value recorded under common stock as described in footnote 6
above and (ii) the reclassification of temporary equity to
additional paid-in capital as described in footnote 5 above.
|
35
SELECTED
HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The table sets forth our selected historical consolidated
financial and operating data as of the dates and for the periods
indicated, and should be read together with Unaudited Pro
Forma Consolidated Financial Information,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the historical
consolidated financial statements and related notes included
elsewhere in this prospectus.
We derived the selected historical consolidated statement of
income data for each of the years ended December 31, 2008,
2009 and 2010 and the selected historical consolidated balance
sheet data as of December 31, 2009 and 2010 from our
audited consolidated financial statements, which are included
elsewhere in this prospectus. We have derived the selected
historical consolidated statement of income data for each of the
years ended December 31, 2006 and 2007 and the selected
historical consolidated balance sheet data as of
December 31, 2006, 2007 and 2008 from our audited financial
statements, which are not included in this prospectus.
The condensed consolidated statement of income data for the
three months ended March 31, 2010 and March 31, 2011,
have been derived from unaudited condensed consolidated
financial statements included elsewhere in this prospectus. The
unaudited condensed consolidated financial statements have been
prepared on substantially the same basis as the audited
consolidated financial statements and include all adjustments
that we consider necessary for a fair presentation of our
consolidated financial position and results of operations for
all periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED
|
|
|
|
|
|
|
THREE MONTHS
|
|
|
|
|
|
|
ENDED
|
|
|
|
YEAR ENDED DECEMBER 31,
|
|
|
MARCH 31,
|
|
|
|
2006
|
|
|
2007
(1)
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Consolidated Statements of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fee income
|
|
$
|
42,240
|
|
|
$
|
49,478
|
|
|
$
|
58,471
|
|
|
$
|
63,590
|
|
|
$
|
74,218
|
|
|
$
|
18,022
|
|
|
$
|
21,045
|
|
Insurance income, net, and other income
|
|
|
6,718
|
|
|
|
7,144
|
|
|
|
8,271
|
|
|
|
9,224
|
|
|
|
12,614
|
|
|
|
3,657
|
|
|
|
3,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
48,958
|
|
|
|
56,622
|
|
|
|
66,742
|
|
|
|
72,814
|
|
|
|
86,832
|
|
|
|
21,679
|
|
|
|
24,696
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan
losses
(2)
|
|
|
9,526
|
|
|
|
13,665
|
|
|
|
17,376
|
|
|
|
19,405
|
|
|
|
16,568
|
|
|
|
3,902
|
|
|
|
3,836
|
|
General and administrative expenses
|
|
|
21,128
|
|
|
|
22,950
|
|
|
|
27,862
|
|
|
|
29,120
|
|
|
|
33,525
|
|
|
|
8,919
|
|
|
|
10,212
|
|
Consulting and advisory fees
|
|
|
|
|
|
|
2,006
|
|
|
|
1,644
|
|
|
|
1,263
|
|
|
|
1,233
|
|
|
|
308
|
|
|
|
310
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and other debt
|
|
|
7,812
|
|
|
|
8,687
|
|
|
|
7,399
|
|
|
|
4,846
|
|
|
|
5,542
|
|
|
|
1,484
|
|
|
|
1,763
|
|
Mezzanine debt
|
|
|
|
|
|
|
5,353
|
|
|
|
3,706
|
|
|
|
3,835
|
|
|
|
4,342
|
|
|
|
984
|
|
|
|
996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
7,812
|
|
|
|
14,040
|
|
|
|
11,105
|
|
|
|
8,681
|
|
|
|
9,884
|
|
|
|
2,468
|
|
|
|
2,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
38,466
|
|
|
|
52,661
|
|
|
|
57,987
|
|
|
|
58,469
|
|
|
|
61,210
|
|
|
|
15,597
|
|
|
|
17,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes and discontinued operations
|
|
|
10,492
|
|
|
|
3,961
|
|
|
|
8,755
|
|
|
|
14,345
|
|
|
|
25,622
|
|
|
|
6,082
|
|
|
|
7,579
|
|
Income taxes
|
|
|
3,525
|
|
|
|
857
|
|
|
|
2,276
|
|
|
|
4,472
|
|
|
|
9,178
|
|
|
|
2,129
|
|
|
|
2,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income from continuing operations
|
|
$
|
6,967
|
|
|
$
|
3,104
|
|
|
$
|
6,479
|
|
|
$
|
9,873
|
|
|
$
|
16,444
|
|
|
$
|
3,953
|
|
|
$
|
4,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
$
|
0.69
|
|
|
$
|
1.06
|
|
|
$
|
1.76
|
|
|
$
|
0.42
|
|
|
$
|
0.53
|
|
Diluted earnings per
share
(3)
|
|
|
|
|
|
|
|
|
|
$
|
0.68
|
|
|
$
|
1.03
|
|
|
$
|
1.70
|
|
|
$
|
0.41
|
|
|
$
|
0.51
|
|
Weighted average shares used in computing basic earnings per
share
(3)
|
|
|
|
|
|
|
|
|
|
|
9,336,727
|
|
|
|
9,336,727
|
|
|
|
9,336,727
|
|
|
|
9,336,727
|
|
|
|
9,336,727
|
|
Weighted average shares used in computing diluted earnings per
share
(3)
|
|
|
|
|
|
|
|
|
|
|
9,482,604
|
|
|
|
9,590,564
|
|
|
|
9,669,618
|
|
|
|
9,606,178
|
|
|
|
9,648,103
|
|
Consolidated Balance Sheet Data (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
receivables
(4)
|
|
$
|
140,605
|
|
|
$
|
167,535
|
|
|
$
|
192,289
|
|
|
$
|
214,909
|
|
|
$
|
247,246
|
|
|
$
|
200,043
|
|
|
$
|
238,117
|
|
Allowance for loan
losses
(2)
|
|
|
(11,191
|
)
|
|
|
(13,290
|
)
|
|
|
(15,665
|
)
|
|
|
(18,441
|
)
|
|
|
(18,000
|
)
|
|
|
(17,975
|
)
|
|
|
(18,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net finance
receivables
(5)
|
|
$
|
129,414
|
|
|
$
|
154,245
|
|
|
$
|
176,624
|
|
|
$
|
196,468
|
|
|
$
|
229,246
|
|
|
$
|
182,068
|
|
|
$
|
220,117
|
|
Total assets
|
|
|
141,591
|
|
|
|
168,484
|
|
|
|
192,502
|
|
|
|
214,447
|
|
|
|
241,358
|
|
|
|
197,138
|
|
|
|
237,025
|
|
Total liabilities
|
|
|
120,110
|
|
|
|
159,079
|
|
|
|
176,095
|
|
|
|
187,807
|
|
|
|
197,914
|
|
|
|
166,456
|
|
|
|
188,556
|
|
Temporary
equity
(6)
|
|
|
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
12,000
|
|
Total stockholders equity
|
|
|
21,481
|
|
|
|
(2,595
|
)
|
|
|
4,407
|
|
|
|
14,640
|
|
|
|
31,444
|
|
|
|
18,682
|
|
|
|
36,469
|
|
36
|
|
|
(1)
|
|
On March 21, 2007, Palladium
Equity Partners III, L.P. and Parallel 2005 Equity Fund, LP
acquired the majority of our outstanding common stock. In
connection with the acquisition transaction, we issued
$25.0 million of mezzanine debt at an interest rate of
18.375%, plus related fees, which we refinanced in 2007 and
again in 2010 with Palladium Equity Partners III, L.P. and
certain of our individual owners. Additionally, we pay the
sponsors annual advisory fees of $675,000, in the aggregate and
pay certain individual owners annual consulting fees of $450,000
in the aggregate, in each case, plus certain expenses. See
Certain Relationships and Related Person
Transactions Advisory and Consulting Fees. We
intend to repay the mezzanine debt in full with proceeds from
this offering, and we expect to terminate the consulting and
advisory agreements concurrent with this offering.
|
|
(2)
|
|
As of January 1, 2010, we
changed our loan loss allowance methodology for small
installment loans to determine the allowance using losses from
the trailing eight months, rather than the trailing nine months,
to more accurately reflect the six-month average life of our
small installment loans. The change from nine to eight months of
average losses reduced the loss allowance for small installment
loans by $1.1 million as of January 1, 2010 and
reduced the provision for loan losses by $451,000 for 2010.
|
|
(3)
|
|
Prior to the acquisition
transaction, we had a different capital structure, including a
different number of shares of common stock outstanding.
Accordingly, a comparison of earnings before the acquisition
transaction is not meaningful.
|
|
(4)
|
|
Finance receivables equal the total
amount due from the customer, net of unearned finance charges,
insurance premiums and commissions.
|
|
(5)
|
|
Net finance receivables equal the
total amount due from the customer, net of unearned finance
charges, insurance premiums and commissions and allowance for
loan losses.
|
|
(6)
|
|
The shareholders agreement among
us, Regional Holdings LLC, the sponsors and the individual
owners provides that the individual owners have the right to put
their stock back to us if an initial public offering does not
occur within five years of the date of the acquisition
transaction, March 21, 2007. We valued this put option at
the original purchase price of $12.0 million. The filing of
the registration statement of which this prospectus forms a part
relating to this offering makes it probable that the put option
will not become exercisable.
|
37
MANAGEMENTS
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this discussion together with the
consolidated financial statements, related notes and other
financial information included in this prospectus. The following
discussion may contain predictions, estimates and other
forward-looking statements that involve a number of risks and
uncertainties, including those discussed under Risk
Factors and elsewhere in this prospectus. These risks
could cause our actual results to differ materially from any
future performance suggested below. Accordingly, you should read
Forward-Looking Statements and Risk
Factors.
As a result of a change in our methodology regarding the
allowance for loan losses on January 1, 2010, the
presentation of allowance for loan losses and provisions for
loan losses for dates and periods prior to January 1, 2010
differs from later dates and periods. See Critical
Accounting PoliciesLoan Losses.
Overview
We are a diversified specialty consumer finance company
providing a broad array of loan products primarily to customers
with limited access to consumer credit from banks, thrifts,
credit card companies and other traditional lenders. We began
operations in 1987 with four branches in South Carolina and have
expanded our branch network to 146 locations with over 137,000
active customer accounts across South Carolina, Texas, North
Carolina, Tennessee and Alabama as of March 31, 2011. Each
of our loan products is secured, structured on a fixed rate,
fixed term basis with fully amortizing equal monthly installment
payments and is repayable at any time without penalty. Our loans
are sourced through our multiple channel platform, including in
our branches, through direct mail campaigns, independent and
franchise automobile dealerships, online credit application
networks, furniture and appliance retailers and our consumer
website. We operate an integrated branch model in which all
loans, regardless of origination channel, are serviced and
collected through our branch network, providing us with frequent
in-person contact with our customers, which we believe improves
our credit performance and customer loyalty. Our goal is to
consistently and soundly grow our finance receivables and manage
our portfolio risk while providing our customers with attractive
and
easy-to-understand
loan products that serve their varied financial needs.
Our diversified product offerings include:
|
|
|
|
n
|
Small Installment Loans
As of March 31,
2011, we had approximately 110,000 small installment loans
outstanding representing $99.6 million in finance
receivables.
|
|
|
n
|
Large Installment Loans
As of March 31,
2011, we had approximately 11,000 large installment loans
outstanding representing $32.7 million in finance
receivables.
|
|
|
n
|
Automobile Purchase Loans
As of
March 31, 2011, we had approximately 13,700 automobile
purchase loans outstanding representing $102.2 million in
finance receivables.
|
|
|
n
|
Furniture and Appliance Purchase Loans
As of
March 31, 2011, we had approximately 3,200 furniture and
appliance purchase loans outstanding representing
$3.7 million in finance receivables.
|
|
|
n
|
Insurance Products
We offer our customers
optional payment protection insurance options relating to many
of our loan products.
|
Our primary sources of revenue are interest and fee income from
our loan products, of which interest and fees relating to
installment loans and automobile purchase loans have
historically been the largest component. In 2009, we introduced
furniture and appliance purchase loans and expanded our
automobile purchase loans to offer loans through online credit
application networks. In addition to interest and fee income
from loans, we derive revenue from insurance products sold to
customers of our direct loan products.
Factors Affecting
Our Results of Operations
Our business is driven by several factors affecting our
revenues, costs and results of operations, including the
following:
Growth in Loan Portfolio.
The revenue that we derive
from interest and fees from our loan products is largely driven
by the number of loans that we originate. Average finance
receivables grew 8.3% from $178.2 million in 2008 to
$193.0 million in 2009 and then grew 11.9% to
$216.0 million in 2010. Average finance receivables grew
16.4% from $206.9 million in the first three months of 2010
to $240.8 million in the first three months of 2011. We
38
originated 43,000, 47,400, 55,300 and 6,820 new loans during
2008, 2009, 2010 and the first three months of 2011,
respectively. We source our loans through our branches and our
live check program, as well as through automobile dealerships
and furniture and appliance retailers that partner with us. Our
loans are made exclusively in geographic markets served by our
network of branches. Increasing the number of branches we
operate allows us to increase the number of loans that we are
able to service. We opened 16, six and 17 new branches in 2008,
2009 and 2010, respectively. As of March 31, 2011, we had
opened 11 new branches and acquired one branch in 2011,
with an additional 18 locations expected to open before
year end. We have grown more rapidly in our two newest states,
Tennessee and Alabama. We opened our first branch in Tennessee
in 2007 and our first branch in Alabama in 2009. As of
March 31, 2011, we operated 12 branches with a total of
$12.9 million in finance receivables in Tennessee and 10
branches with a total of $8.2 million in finance
receivables in Alabama.
Product Mix.
We offer a number of different loan
products, including small installment loans, large installment
loans, automobile purchase loans and furniture and appliance
purchase loans. We charge different interest rates and fees and
are exposed to different credit risks with respect to the
various types of loans we offer. For example, in recent years,
we have sought to increase our product diversification by
growing our automobile purchase and furniture and appliance
purchase loans, which have lower interest rates and fees than
our small and large installment loans but also have longer
maturities and lower charge-off rates. Our product mix also
varies to some extent by state. For example, small installment
loans make up a smaller percentage of our loan portfolio in
North Carolina than in the other states in which we operate
because the rate structure in North Carolina is more favorable
for larger loans. Small installment loans make up a larger
percentage of our loan portfolio in Texas than our other loan
products because our branches in Texas have historically focused
on small installment loans. However, we expect to diversify our
product mix in Texas in the future. The following table sets
forth the finance receivables for each of our loan products as
of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF DECEMBER 31,
|
|
|
AS OF MARCH 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
% OF
|
|
|
|
|
|
% OF
|
|
|
|
|
|
% OF
|
|
|
|
FINANCE
|
|
|
TOTAL FINANCE
|
|
|
FINANCE
|
|
|
TOTAL FINANCE
|
|
|
FINANCE
|
|
|
TOTAL FINANCE
|
|
|
|
RECEIVABLES
|
|
|
RECEIVABLES
|
|
|
RECEIVABLES
|
|
|
RECEIVABLES
|
|
|
RECEIVABLES
|
|
|
RECEIVABLES
|
|
|
|
(Dollars in thousands)
|
|
|
Small installment loans
|
|
$
|
102,651
|
|
|
|
47.8
|
%
|
|
$
|
117,599
|
|
|
|
47.6
|
%
|
|
$
|
99,622
|
|
|
|
41.8
|
%
|
Large installment loans
|
|
|
28,217
|
|
|
|
13.1
|
%
|
|
|
33,653
|
|
|
|
13.6
|
%
|
|
|
32,669
|
|
|
|
13.7
|
%
|
Automobile purchase loans
|
|
|
83,253
|
|
|
|
38.7
|
%
|
|
|
93,232
|
|
|
|
37.7
|
%
|
|
|
102,164
|
|
|
|
42.9
|
%
|
Furniture and appliance purchase loans
|
|
|
788
|
|
|
|
0.4
|
%
|
|
|
2,762
|
|
|
|
1.1
|
%
|
|
|
3,661
|
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
214,909
|
|
|
|
100.0
|
%
|
|
$
|
247,246
|
|
|
|
100.0
|
%
|
|
$
|
238,117
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality.
Our results of operations are highly
dependent upon the strength of our asset portfolio. We recorded
$17.4 million of provisions for loan losses during 2008 (or
9.8% as a percentage of average finance receivables),
$19.4 million of provisions for loan losses during 2009 (or
10.1% as a percentage of average finance receivables),
$16.6 million of provisions for loan losses during 2010 (or
7.7% as a percentage of average finance receivables) and $3.8
million of provisions for loan losses during the first three
months of 2011 (or 6.4% as a percentage of average finance
receivables (annualized)). The quality of our asset portfolio is
the result of our ability to enforce sound underwriting
standards, maintain diligent portfolio oversight and respond to
changing economic conditions as we grow our loan portfolio.
Allowance for
Loan Losses
Prior to January 1, 2010, management analyzed losses in the
loan portfolio using two categories of loans: small installment
loans (which included all loans of less than $2,500) and large
loans (which included all other loans). Beginning
January 1, 2010, we have evaluated losses in each of the
four categories of loans in establishing the
39
allowance for loan losses. The following tables provide
reconciliations of the allowance for loan losses by component
for the years ended December 31, 2008, 2009 and 2010 and
the three months ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLOWANCE AS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PERCENTAGE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCE
|
|
|
OF FINANCE
|
|
|
|
BALANCE
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
|
|
|
RECEIVABLES
|
|
|
RECEIVABLES
|
|
|
|
JANUARY 1,
|
|
|
|
|
|
CHARGE-
|
|
|
|
|
|
DECEMBER 31,
|
|
|
DECEMBER 31,
|
|
|
DECEMBER 31,
|
|
|
|
2008
|
|
|
PROVISION
|
|
|
OFFS
|
|
|
RECOVERIES
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
Small installment loans
|
|
$
|
4,755
|
|
|
|
3,937
|
|
|
|
(5,248
|
)
|
|
|
494
|
|
|
|
3,938
|
|
|
|
59,340
|
|
|
|
6.6
|
%
|
Large loans
|
|
|
7,385
|
|
|
|
13,597
|
|
|
|
(10,631
|
)
|
|
|
384
|
|
|
|
10,735
|
|
|
|
132,949
|
|
|
|
8.1
|
%
|
Unallocated
|
|
|
1,150
|
|
|
|
(158
|
)
|
|
|
|
|
|
|
|
|
|
|
992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,290
|
|
|
|
17,376
|
|
|
|
(15,879
|
)
|
|
|
878
|
|
|
|
15,665
|
|
|
|
192,289
|
|
|
|
8.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLOWANCE AS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PERCENTAGE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCE
|
|
|
OF FINANCE
|
|
|
|
BALANCE
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
|
|
|
RECEIVABLES
|
|
|
RECEIVABLES
|
|
|
|
JANUARY 1,
|
|
|
|
|
|
CHARGE-
|
|
|
|
|
|
DECEMBER 31,
|
|
|
DECEMBER 31,
|
|
|
DECEMBER 31,
|
|
|
|
2009
|
|
|
PROVISION
|
|
|
OFFS
|
|
|
RECOVERIES
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
Small installment loans
|
|
$
|
3,938
|
|
|
|
10,324
|
|
|
|
(6,345
|
)
|
|
|
166
|
|
|
|
8,083
|
|
|
|
102,651
|
|
|
|
7.9
|
%
|
Large loans
|
|
|
10,735
|
|
|
|
10,073
|
|
|
|
(10,657
|
)
|
|
|
207
|
|
|
|
10,358
|
|
|
|
112,258
|
|
|
|
9.2
|
%
|
Unallocated
|
|
|
992
|
|
|
|
(992
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,665
|
|
|
|
19,405
|
|
|
|
(17,002
|
)
|
|
|
373
|
|
|
|
18,441
|
|
|
|
214,909
|
|
|
|
8.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLOWANCE AS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PERCENTAGE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCE
|
|
|
OF FINANCE
|
|
|
|
BALANCE
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
|
|
|
RECEIVABLES
|
|
|
RECEIVABLES
|
|
|
|
JANUARY 1,
|
|
|
|
|
|
CHARGE-
|
|
|
|
|
|
DECEMBER 31,
|
|
|
DECEMBER 31,
|
|
|
DECEMBER 31,
|
|
|
|
2010
|
|
|
PROVISION
|
|
|
OFFS
|
|
|
RECOVERIES
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
Small installment loans
|
|
$
|
8,083
|
|
|
|
10,664
|
|
|
|
(10,068
|
)
|
|
|
295
|
|
|
|
8,974
|
|
|
|
117,599
|
|
|
|
7.6
|
%
|
Large installment loans
|
|
|
2,719
|
|
|
|
2,780
|
|
|
|
(2,588
|
)
|
|
|
61
|
|
|
|
2,972
|
|
|
|
33,653
|
|
|
|
8.8
|
%
|
Automobile purchase loans
|
|
|
7,629
|
|
|
|
2,745
|
|
|
|
(4,738
|
)
|
|
|
103
|
|
|
|
5,739
|
|
|
|
93,232
|
|
|
|
6.2
|
%
|
Furniture and appliance purchase loans
|
|
|
10
|
|
|
|
209
|
|
|
|
(75
|
)
|
|
|
1
|
|
|
|
145
|
|
|
|
2,762
|
|
|
|
5.2
|
%
|
Unallocated
|
|
|
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,441
|
|
|
|
16,568
|
|
|
|
(17,469
|
)
|
|
|
460
|
|
|
|
18,000
|
|
|
|
247,246
|
|
|
|
7.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLOWANCE AS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PERCENTAGE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCE
|
|
|
OF FINANCE
|
|
|
|
BALANCE
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
|
|
|
RECEIVABLES
|
|
|
RECEIVABLES
|
|
|
|
JANUARY 1,
|
|
|
|
|
|
CHARGE-
|
|
|
|
|
|
MARCH 31,
|
|
|
MARCH 31,
|
|
|
MARCH 31,
|
|
|
|
2011
|
|
|
PROVISION
|
|
|
OFFS
|
|
|
RECOVERIES
|
|
|
2011
|
|
|
2011
|
|
|
2011
|
|
|
Small installment loans
|
|
$
|
8,974
|
|
|
|
321
|
|
|
|
(2,465
|
)
|
|
|
123
|
|
|
|
6,953
|
|
|
|
99,623
|
|
|
|
7.0
|
%
|
Large installment loans
|
|
|
2,972
|
|
|
|
66
|
|
|
|
(579
|
)
|
|
|
19
|
|
|
|
2,478
|
|
|
|
32,669
|
|
|
|
7.6
|
%
|
Automobile purchase loans
|
|
|
5,739
|
|
|
|
2,620
|
|
|
|
(925
|
)
|
|
|
26
|
|
|
|
7,460
|
|
|
|
102,164
|
|
|
|
7.3
|
%
|
Furniture and appliance purchase loans
|
|
|
145
|
|
|
|
60
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
170
|
|
|
|
3,661
|
|
|
|
4.6
|
%
|
Unallocated
|
|
|
170
|
|
|
|
769
|
|
|
|
|
|
|
|
|
|
|
|
939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,000
|
|
|
|
3,836
|
|
|
|
(4,004
|
)
|
|
|
168
|
|
|
|
18,000
|
|
|
|
238,117
|
|
|
|
7.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provisions for
Loan Losses
In evaluating our allowance for loan losses, we currently
separate our portfolio of receivables into four components based
on loan type: small installment, large installment, automobile
purchase, and furniture and appliance purchase. The allowance
for small installment loans is based on the historic loss
percentage computed by using the most recent eight months of
losses applied to the most recent month-end balance of loans.
The allowance for each other loan type is based on the historic
loss percentage computed by using the most recent 12 months
of losses applied to the most recent month-end balance of loans
for each such loan type. We believe, therefore, that the primary
underlying factor driving the provision for loan losses for each
of these loan types is the same: general economic conditions in
the areas in which we conduct business. In addition, gasoline
prices and the market for repossessed automobiles at auction are
an additional underlying factor that we believe influences the
provision for loan losses for automobile purchase loans and, to
a lesser extent, large installment loans. We monitor these
factors and the monthly trend of delinquencies and the slow file
(which consists of all loans one or more days past due) to
identify trends that might require an increased provision and
modify the provision for loan losses accordingly.
Distribution of
Finance Receivables
The following table presents the distribution of our finance
receivables by loan product and segregated by the final maturity
of the loan as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WITHIN ONE
|
|
|
ONE YEAR TO
|
|
|
|
|
|
|
|
|
|
YEAR
|
|
|
FIVE YEARS
|
|
|
AFTER FIVE YEARS
|
|
|
TOTAL
|
|
|
|
(Dollars in thousands)
|
|
|
Small installment loans
|
|
$
|
58,169
|
|
|
$
|
59,430
|
|
|
$
|
|
|
|
$
|
117,599
|
|
Large installment loans
|
|
|
4,388
|
|
|
|
29,265
|
|
|
|
|
|
|
|
33,653
|
|
Automobile purchase loans
|
|
|
6,080
|
|
|
|
86,979
|
|
|
|
173
|
|
|
|
93,232
|
|
Furniture and appliance purchase loans
|
|
|
703
|
|
|
|
2,059
|
|
|
|
|
|
|
|
2,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
69,340
|
|
|
$
|
177,733
|
|
|
$
|
173
|
|
|
$
|
247,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the distribution of our finance
receivables by state and segregated by the final maturity of the
loan as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WITHIN ONE
|
|
|
ONE YEAR TO
|
|
|
|
|
|
|
|
|
|
YEAR
|
|
|
FIVE YEARS
|
|
|
AFTER FIVE YEARS
|
|
|
TOTAL
|
|
|
|
(Dollars in thousands)
|
|
|
South Carolina
|
|
$
|
29,466
|
|
|
$
|
99,935
|
|
|
$
|
66
|
|
|
$
|
129,467
|
|
Texas
|
|
|
20,628
|
|
|
|
21,870
|
|
|
|
61
|
|
|
|
42,559
|
|
North Carolina
|
|
|
10,288
|
|
|
|
48,364
|
|
|
|
16
|
|
|
|
58,668
|
|
Tennessee
|
|
|
5,385
|
|
|
|
4,691
|
|
|
|
30
|
|
|
|
10,106
|
|
Alabama
|
|
|
3,573
|
|
|
|
2,873
|
|
|
|
|
|
|
|
6,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
69,340
|
|
|
$
|
177,733
|
|
|
$
|
173
|
|
|
$
|
247,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All of our finance receivables have predetermined, or fixed,
interest rates.
41
Interest Rates.
Our costs of funds are affected by
changes in interest rates. In particular, the interest rate that
we pay on our senior revolving credit facility, and will pay on
our amended and restated senior revolving credit facility, is a
floating rate based on LIBOR. Although we have purchased
interest rate caps to protect a notional amount of
$150.0 million of our outstanding senior revolving credit
facility should the three-month LIBOR exceed 6.0%, our cost of
funding will increase if LIBOR increases. The interest rates
that we charge on our loans are not significantly impacted by
changes in market interest rates.
Efficiency Ratio.
One of our key operating metrics
is our efficiency ratio, which is calculated by dividing the sum
of general and administrative expenses by total revenue. Our
efficiency ratio has improved from 43.2% in 2006 to 38.6% in
2010 as a result of our focus on operating efficiencies and
gains in productivity. Our efficiency ratio was 41.4% in the
first three months of 2011, compared to 41.1% in the same period
of 2010. The increase in our efficiency ratio primarily was due
to expenses associated with opening 11 new stores in the
first quarter of 2011. Following this offering, we expect to
incur new expenses associated with operating as a public company
and increased personnel expenses, which will tend to increase
our efficiency ratio.
Components of
Results of Operations
Interest and
Fee Income
Our interest and fee income consists primarily of interest
earned on outstanding loans. We cease accruing interest on a
loan when the customer is contractually past due 90 days.
Accrual resumes when the customer makes at least one full
payment and the account is less than 90 days contractually
past due.
Loan fees are additional charges to the customer, such as loan
origination fees, acquisition fees and maintenance fees, as
permitted by state law. The fees may or may not be refundable to
the customer in the event of an early payoff depending on state
law. Fees are accreted to income over the life of the loan on
the constant yield method and are included in the
customers truth in lending disclosure. For the periods
prior to January 1, 2010, management evaluated interest and
fee income on an aggregate basis as opposed to by each loan
product as management has done since January 1, 2010.
The following table sets forth the composition of our average
finance receivables and average yield for each of our loan
products for the year ended December 31, 2010 and for the
three months ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR THE YEAR ENDED DECEMBER 31,
|
|
|
FOR THE THREE MONTHS ENDED MARCH 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
|
AVERAGE FINANCE
|
|
|
|
|
|
AVERAGE FINANCE
|
|
|
|
|
|
|
RECEIVABLES
|
|
|
AVERAGE YIELD
|
|
|
RECEIVABLES
|
|
|
AVERAGE YIELD
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Small installment loans
|
|
$
|
96,104
|
|
|
|
47.6
|
%
|
|
$
|
108,324
|
|
|
|
48.8
|
%
|
Large installment loans
|
|
|
32,483
|
|
|
|
26.6
|
%
|
|
|
32,700
|
|
|
|
27.2
|
%
|
Automobile purchase loans
|
|
|
85,705
|
|
|
|
22.7
|
%
|
|
|
96,528
|
|
|
|
22.7
|
%
|
Furniture and appliance purchase loans
|
|
|
1,730
|
|
|
|
22.8
|
%
|
|
|
3,273
|
|
|
|
18.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
216,024
|
|
|
|
34.4
|
%
|
|
$
|
240,824
|
|
|
|
35.0
|
%
|
|
Insurance
Income
Our insurance income consists of revenue from the sale of
various insurance products and other payment protection options
offered to customers who obtain loans directly from us. We do
not sell insurance to non-borrowers. The type and terms of our
insurance products vary from state to state based on applicable
laws and regulations. We offer optional credit life insurance,
credit accident and health insurance and involuntary
unemployment insurance. We require property insurance on any
personal property securing loans and offer customers the option
of providing proof of such insurance purchased from a third
party (such as homeowners or renters insurance) in lieu of
purchasing property insurance from us. We also require proof of
liability and collision insurance for any vehicles securing
loans, and we obtain collateral insurance on behalf of customers
who permit their other insurance coverage to lapse.
We issue insurance certificates as agents on behalf of an
unaffiliated insurance company and then remit to the
unaffiliated insurance company the premiums we collect (net of
refunds on paid out or renewed loans). The unaffiliated
insurance company cedes life insurance premiums to our
wholly-owned insurance subsidiary, RMC Reinsurance, Ltd.
(RMC Reinsurance), as written and non-life premiums
to RMC Reinsurance as earned. As of
42
March 31, 2011, we had pledged an $888,000 letter of credit
to the unaffiliated insurance company to secure payment of life
insurance claims. We maintain a cash reserve for life insurance
claims in an amount determined by the unaffiliated insurance
company. The unaffiliated insurance company maintains the
reserves for non-life claims.
Other
Income
Our other income consists primarily of late charges assessed on
customers who fail to make a payment within a specified number
of days following the due date of the payment (except in North
Carolina, which does not permit late charges on consumer loans).
Other income also includes fees for extending the due date of a
loan and returned check charges. Due date extensions are only
available to a customer once every thirteen months, are
available only to customers who are current on their loans and
must be approved by personnel at our headquarters. Less than 1%
of scheduled payments were deferred in 2010.
Provision for
Loan Losses
Provisions for loan losses are charged to income in amounts that
we judge as sufficient to maintain an allowance for loan losses
at an adequate level to provide for losses on the related
finance receivables portfolio. Loan loss experience, contractual
delinquency of finance receivables, the value of underlying
collateral, and managements judgment are factors used in
assessing the overall adequacy of the allowance and the
resulting provision for loan losses. Our provision for loan
losses fluctuates so that we maintain an adequate loan loss
allowance that accurately reflects our estimates of losses in
our loan portfolio. Therefore changes in our charge-off rates
may result in changes to our provision for loan losses. While
management uses the best information available to make its
evaluation, future adjustments to the allowance may be necessary
if there are significant changes in economic conditions or
portfolio performance.
As of January 1, 2010, we changed our loan loss allowance
methodology for small installment loans to determine the
allowance using losses from the trailing eight months, rather
than the trailing nine months, to more accurately reflect the
six-month average life of our small installment loans. The
change in accounting estimate from nine to eight months of
average losses reduced the loss allowance for small installment
loans by $1.0 million as of January 1, 2010 and
reduced the provision for loan losses by $0.5 million for
2010.
General and
Administrative Expenses
Our general and administrative expenses are comprised of four
categories: personnel, occupancy, advertising and other. We
typically measure our general and administrative expenses as a
percentage of total revenue, which we refer to as our
efficiency ratio.
Our personnel expenses are the largest component of our general
and administrative expenses and consist primarily of the
salaries, bonuses and benefits associated with all of our
branch, field and headquarters employees and related payroll
taxes. As described in Management Compensation
Discussion and Analysis Actions Taken in 2011 and
Anticipated Actions in Connection with the Offering, at
the time of this offering, we intend to grant awards of stock
options to purchase an aggregate
of shares
of our common stock to our executive officers and directors and
stock options to purchase an aggregate
of shares
of our common stock to our other employees, each pursuant to the
2011 Stock Plan. Each stock option will have an exercise price
equal to the initial public offering price per share in this
offering, and will vest in five equal annual installments
beginning on the first anniversary of the grant date. We expect
to record deferred stock-based compensation expense equal to the
grant-date fair value of the stock options issued of
$ million,
which will be recognized over the vesting period.
Our occupancy expenses consist primarily of the cost of renting
our branches, all of which are leased, as well as the costs
associated with operating our branches.
Our advertising expenses consist primarily of costs associated
with our live check direct mail campaigns (including postage and
costs associated with selecting recipients), maintaining our web
site as well as telephone directory advertisements and some
local advertising by branches. These costs are expensed as
incurred.
Other expenses consist primarily of various other expenses
including legal, audit, office supplies, credit bureau charges
and postage.
We expect that our general and administrative expenses will
increase as a result of the additional legal, accounting,
insurance and other expenses associated with being a public
company.
43
Consulting and
Advisory Fees
Consulting and advisory fees consist of amounts payable to the
sponsors and certain former major shareholders, who were members
of our management before our acquisition by the sponsors,
pursuant to the agreements described under Certain
Relationships and Related Party Transactions
Advisory and Consulting Fees. These agreements will be
terminated upon consummation of this offering.
Interest
Expense
Our interest expense consists primarily of interest payable and
amortization of debt issuance costs in respect of borrowings
under our senior revolving credit facility and our mezzanine
debt. Interest expense also includes costs attributable to the
interest rate caps we enter into to manage our interest rate
risk. Changes in the fair value of the interest rate cap are
reflected in interest expense for the senior and other debt. We
intend to repay the mezzanine debt and a portion of the
borrowings under our senior revolving credit facility with
proceeds from this offering. Concurrently with consummation of
this offering we expect to enter into an amended and restated
senior revolving credit facility. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
Income
Taxes
Incomes taxes consist primarily of state and federal income
taxes. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to temporary
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled. The effects of future tax rate changes are
recognized in the period when the enactment of new rates occurs.
Results of
Operations
The following table summarizes key components of our results of
operations for the periods indicated both in dollars and as a
percentage of total revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR ENDED DECEMBER 31,
|
|
|
THREE MONTHS ENDED MARCH 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
% OF
|
|
|
|
|
|
% OF
|
|
|
|
|
|
% OF
|
|
|
|
|
|
% OF
|
|
|
|
|
|
% OF
|
|
|
|
AMOUNT
|
|
|
REVENUE
|
|
|
AMOUNT
|
|
|
REVENUE
|
|
|
AMOUNT
|
|
|
REVENUE
|
|
|
AMOUNT
|
|
|
REVENUE
|
|
|
AMOUNT
|
|
|
REVENUE
|
|
|
|
(In thousands, except percentages)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fee income
|
|
$
|
58,471
|
|
|
|
87.6
|
%
|
|
$
|
63,590
|
|
|
|
87.3
|
%
|
|
$
|
74,218
|
|
|
|
85.5
|
%
|
|
$
|
18,022
|
|
|
|
83.1
|
%
|
|
$
|
21,045
|
|
|
|
85.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance income, net
|
|
|
4,620
|
|
|
|
6.9
|
%
|
|
|
5,229
|
|
|
|
7.2
|
%
|
|
|
8,252
|
|
|
|
9.5
|
%
|
|
|
2,295
|
|
|
|
10.6
|
%
|
|
|
2,194
|
|
|
|
8.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
3,651
|
|
|
|
5.5
|
%
|
|
|
3,995
|
|
|
|
5.5
|
%
|
|
|
4,362
|
|
|
|
5.0
|
%
|
|
|
1,362
|
|
|
|
6.3
|
%
|
|
|
1,457
|
|
|
|
5.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
66,742
|
|
|
|
100.0
|
%
|
|
|
72,814
|
|
|
|
100.0
|
%
|
|
|
86,832
|
|
|
|
100.0
|
%
|
|
|
21,679
|
|
|
|
100.0
|
%
|
|
|
24,696
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
17,376
|
|
|
|
26.0
|
%
|
|
|
19,405
|
|
|
|
26.7
|
%
|
|
|
16,568
|
|
|
|
19.1
|
%
|
|
|
3,902
|
|
|
|
18.0
|
%
|
|
|
3,836
|
|
|
|
15.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
|
|
|
17,781
|
|
|
|
26.7
|
%
|
|
|
18,991
|
|
|
|
26.1
|
%
|
|
|
20,630
|
|
|
|
23.8
|
%
|
|
|
5,946
|
|
|
|
27.4
|
%
|
|
|
6,540
|
|
|
|
26.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy
|
|
|
4,398
|
|
|
|
6.6
|
%
|
|
|
4,538
|
|
|
|
6.2
|
%
|
|
|
5,165
|
|
|
|
5.9
|
%
|
|
|
1,222
|
|
|
|
5.6
|
%
|
|
|
1,471
|
|
|
|
6.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
999
|
|
|
|
1.5
|
%
|
|
|
1,212
|
|
|
|
1.7
|
%
|
|
|
2,027
|
|
|
|
2.3
|
%
|
|
|
547
|
|
|
|
2.5
|
%
|
|
|
647
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
4,684
|
|
|
|
7.0
|
%
|
|
|
4,379
|
|
|
|
6.0
|
%
|
|
|
5,703
|
|
|
|
6.6
|
%
|
|
|
1,204
|
|
|
|
5.6
|
%
|
|
|
1,554
|
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting and advisory fees
|
|
|
1,644
|
|
|
|
2.5
|
%
|
|
|
1,263
|
|
|
|
1.7
|
%
|
|
|
1,233
|
|
|
|
1.4
|
%
|
|
|
308
|
|
|
|
1.4
|
%
|
|
|
310
|
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior and other debt
|
|
|
7,399
|
|
|
|
11.0
|
%
|
|
|
4,846
|
|
|
|
6.6
|
%
|
|
|
5,542
|
|
|
|
6.4
|
%
|
|
|
1,484
|
|
|
|
6.8
|
%
|
|
|
1,763
|
|
|
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine debt
|
|
|
3,706
|
|
|
|
5.6
|
%
|
|
|
3,835
|
|
|
|
5.3
|
%
|
|
|
4,342
|
|
|
|
5.0
|
%
|
|
|
984
|
|
|
|
4.5
|
%
|
|
|
996
|
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
11,105
|
|
|
|
16.6
|
%
|
|
|
8,681
|
|
|
|
11.9
|
%
|
|
|
9,884
|
|
|
|
11.4
|
%
|
|
|
2,468
|
|
|
|
11.4
|
%
|
|
|
2,759
|
|
|
|
11.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
57,987
|
|
|
|
86.9
|
%
|
|
|
58,469
|
|
|
|
80.3
|
%
|
|
|
61,210
|
|
|
|
70.5
|
%
|
|
|
15,597
|
|
|
|
71.9
|
%
|
|
|
17,117
|
|
|
|
69.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes
|
|
|
8,755
|
|
|
|
13.1
|
%
|
|
|
14,345
|
|
|
|
19.7
|
%
|
|
|
25,622
|
|
|
|
29.5
|
%
|
|
|
6,082
|
|
|
|
28.1
|
%
|
|
|
7,579
|
|
|
|
30.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
2,276
|
|
|
|
3.4
|
%
|
|
|
4,472
|
|
|
|
6.1
|
%
|
|
|
9,178
|
|
|
|
10.6
|
%
|
|
|
2,129
|
|
|
|
9.8
|
%
|
|
|
2,644
|
|
|
|
10.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,479
|
|
|
|
9.7
|
%
|
|
$
|
9,873
|
|
|
|
13.6
|
%
|
|
$
|
16,444
|
|
|
|
18.9
|
%
|
|
$
|
3,953
|
|
|
|
18.3
|
%
|
|
$
|
4,935
|
|
|
|
20.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
Three Months
Ended March 31, 2011 Compared to Three Months Ended
March 31, 2010
Interest and Fee
Income
Interest and fee income increased $3.0 million, or 16.8%,
to $21.0 million in the first three months of 2011 from
$18.0 million in the first three months of 2010. The
increase in interest and fee income was due primarily to a 16.4%
increase in average net finance receivables during the period
and an increase in the average yield on loans from 34.8% to
35.0%. The following table sets forth the portions of the
increase in interest and fee income attributable to changes in
finance receivables balance and average yield for each of our
products for the three months ended March 31, 2011 compared
to the three months ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
|
|
MARCH 31, 2011 COMPARED TO
|
|
|
|
THREE MONTHS ENDED
|
|
|
|
MARCH 31, 2010 INCREASE
|
|
|
|
(DECREASE)
|
|
|
|
(Dollars in thousands)
|
|
|
|
VOLUME
|
|
|
RATE
|
|
|
NET
|
|
|
Small installment loans
|
|
$
|
2,023
|
|
|
$
|
45
|
|
|
$
|
2,068
|
|
Large installment loans
|
|
|
79
|
|
|
|
57
|
|
|
|
136
|
|
Automobile purchase loans
|
|
|
785
|
|
|
|
(49
|
)
|
|
|
736
|
|
Furniture and appliance purchase loans
|
|
|
96
|
|
|
|
(14
|
)
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,983
|
|
|
$
|
40
|
|
|
$
|
3,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a discussion of the changes by product type:
|
|
|
|
n
|
Small Installment Loans
Average small
installment loans outstanding increased by $16.6 million in
the first quarter of 2011 compared to the comparable period in
2010, in part due to a successful 2010 holiday live check
campaign, which resulted in increased loans during the first
quarter of 2011. The growth in receivables at recently opened
branches as they matured also contributed to the growth in
overall small installment loans outstanding. The change in
volume accounts for the majority of the increase in interest
income as the change in average yield was negligible.
|
|
|
n
|
Large Installment Loans
Average large
installment loans outstanding increased by $1.2 million in
the first quarter of 2011 compared to the comparable period in
2010 while the average yield increased by 70 basis points.
|
|
|
n
|
Automobile Purchase Loans
Average automobile
purchase loans outstanding increased by $13.9 million in
the first quarter of 2011 compared to the comparable period in
2010, offset by a modest decline of 20 basis points in
average yield. The increase in automobile purchase loans
outstanding was principally due to our increased emphasis on
such loans, including our new initiatives relating to indirect
lending and our AutoCredit Source branches. We believe the
modest decline in rate of 20 basis points is attributable
to a slight shift to loans for later model vehicles, which have
lower interest rates in certain states.
|
|
|
|
|
n
|
Furniture and Appliance Purchase Loans
Average furniture and appliance purchase loans
outstanding increased $2.3 million in the first quarter of
2011 compared to the comparable period in 2010. The increase in
furniture and appliance purchase loans outstanding resulted from
the additional relationships we established with new furniture
and appliance retailers as well as an expansion of volume
through our existing relationships.
|
Insurance
Income
Insurance income decreased $0.1 million, or 4.4%, to
$2.2 million in the first three months of 2011 from
$2.3 million in the first three months of 2010. The
decrease in insurance income was due primarily to a 1.9%
increase in direct automobile purchase loans as a percentage of
total loans in the first three months of 2011 compared to the
first three months of 2010. Insurance sales are lower on
automobile purchase loans than on installment loans because we
often do not have direct contact with automobile purchase loan
customers to offer insurance products. Insurance income was 0.9%
of average finance receivables in the first three months of 2011
compared to 1.1% in the first three months of 2010.
45
Other
Income
Other income increased $0.1 million, or 7.0%, to
$1.5 million in the first three months of 2011 from
$1.4 million in the first three months of 2010. The largest
component of other income was late charges, which increased
$0.1 million, or 14.2%, to $0.8 million in the first
three months of 2011 from $0.7 million in the first three
months of 2010. Late charges as a percentage of average finance
receivables declined slightly in the first three months of 2011
as compared to the first three months of 2010, which was the
result of lower delinquencies.
Provision for
Loan Losses
Our provision for loan losses decreased $0.1 million, or
1.7%, to $3.8 million in the first three months of 2011
from $3.9 million in the first three months of 2010. The
decrease in provision for loan losses in the first three months
of 2011 resulted mainly from a decrease in charge-offs as a
result of fewer delinquencies in our overall loan portfolio. Net
charge-offs for the first three months of 2011 were $3.8
million, or 6.4% of average finance receivables (annualized),
compared to $4.4 million, or 8.4% of average finance receivables
(annualized), in the first three months of 2010.
General and
Administrative Expenses
Our general and administrative expenses, comprising expenses for
personnel, occupancy, advertising and other expenses, increased
$1.3 million, or 14.5%, to $10.2 million in the first
three months of 2011 from $8.9 million in the first three
months of 2010. Our efficiency ratio increased 0.3% to 41.4% in
the first three months of 2011 from 41.1% in the first three
months of 2010.
Personnel.
The largest component of general
and administrative expenses is personnel expenses, which
increased $0.6 million, or 10.0%, to $6.5 million in
the first three months of 2011 from $5.9 million in the
first three months of 2010. This increase is primarily
attributable to the opening of an additional 27 branches from
March 31, 2010 to March 31, 2011. Personnel costs decreased
as a percentage of total revenue to 26.5% in the first three
months of 2011 from 27.4% in the first three months of 2010.
Occupancy.
Occupancy expenses increased
$0.2 million, or 20.4%, to $1.5 million in the first
three months of 2011 from $1.2 million in the first three
months of 2010. The increase in occupancy expense is the result
of additional branches and the associated rent and utility costs.
Advertising.
Advertising expenses increased
$0.1 million, or 18.3%, to $0.6 million in the first
three months of 2011 from $0.5 million in the first three
months of 2010. The increase in advertising expenses was due
primarily to an increase in the size of our live check campaigns
along with the growth in our business.
Other Expenses.
Other expenses increased
$0.4 million, or 29.1%, to $1.6 million in the first
three months of 2011 from $1.2 million in the first three
months of 2010. The increase in other expenses was due primarily
to growth in our business.
Interest
Expense
Interest expense increased $0.3 million, or 11.8%, to
$2.8 million in the first three months of 2011 from
$2.5 million in the first three months of 2010. The
increase in interest expense was due primarily to increased
interest expense associated with our senior revolving credit
facility and mezzanine debt.
Interest expense associated with the senior revolving credit
facility increased $0.3 million in the first three months
of 2011. We renewed our senior revolving credit facility in
August 2010. The renewed senior revolving credit facility
included a new LIBOR floor of 1.00%, a higher interest rate
spread over LIBOR and a higher fee on the unused amount of the
facility. In addition, the average amount outstanding under our
senior revolving credit facility increased by $12.9 million in
the first three months of 2011 as compared to the first three
months of 2010. In the first three months of 2010, the average
30-day
LIBOR
rate was 0.23% and, in the first three months of 2011, the rate
was 0.26%. The rate on the mezzanine debt was 15.25% in first
three months of 2011 as compared to 14.25% in the first three
months of 2010.
We intend to repay the mezzanine debt and a portion of the
borrowings under our senior revolving credit facility in
connection with the offering transactions.
46
Consulting and
Advisory Fees
The consulting and advisory fees paid to related parties was
$0.3 million in each of the first three months of 2010 and
the first three months of 2011. These agreements will be
terminated in connection with the offering transactions.
Income
Taxes
Income taxes increased $0.5 million, or 24.1%, to
$2.6 million in the first three months of 2011 from
$2.1 million in the first three months of 2010. The
increase in income taxes was due primarily to an increase in our
net income before taxes.
Year Ended
December 31, 2010 Compared To Year Ended December 31,
2009
Interest and Fee
Income
Interest and fee income increased $10.6 million, or 16.7%,
to $74.2 million in 2010 from $63.6 million in 2009.
The increase in interest and fee income was due primarily to an
11.9% increase in average finance receivables during the period
and an increase in the average yield on loans from 33.0% to
34.4%. The increase in average finance receivables largely
resulted from our opening of 17 new branches in 2010 as well as
the growth of other recently opened branches. The increase in
average yield is attributable in part to our more rapid growth
in Alabama, Tennessee, Texas and South Carolina, all of which
are states with more favorable interest rate environments.
Insurance
Income
Insurance income increased $3.0 million, or 57.8%, to
$8.3 million in 2010 from $5.2 million in 2009. The
increase in insurance income was due primarily to growth in
loans and higher acceptance of insurance products in connection
with our loans. Insurance income also benefited from a refund of
$570,000 from our insurance partner recognized in January 2010
and a reduction of $147,000 in our credit involuntary
unemployment insurance claims reserve recognized in April 2010
and a further reduction of $85,000 in October 2010. Net of these
items, insurance income increased $2.2 million, or 42.5%.
Insurance income was 3.8% of average finance receivables in 2010
compared to 2.7% in 2009.
Other
Income
Other income increased $367,000, or 9.2%, to $4.4 million
in 2010 from $4.0 million in 2009. The largest component of
other income was late charges, which increased $230,000, or
8.9%, to $2.8 million in 2010 from $2.6 million in
2009. The increase in late charges was attributable to growth in
finance receivables, slightly offset by lower delinquencies in
2010 compared to 2009.
Provision for
Loan Losses
Our provision for loan losses decreased $2.8 million, or
14.6%, to $16.6 million in 2010 from $19.4 million in
2009. The decreased provision for loan losses in 2010 resulted
mainly from lower net charge-offs. Net charge-offs for 2010 were
7.9% of average loans, compared to 8.6% of average loans in
2009. The decrease is also due to a change in our determination
of the loan loss allowance for small installment loans. As of
January 1, 2010, we changed our loan loss allowance methodology
for small installment loans to determine the allowance using
losses from the trailing eight months, rather than the trailing
nine months, to more accurately reflect the six-month average
life of our small installment loans. The change from nine to
eight months of average losses reduced the loss allowance for
small installment loans by $1.1 million as of January 1, 2010
and reduced the provision for loan losses by $451,000 for 2010.
General and
Administrative Expenses
Our general and administrative expenses, comprising expenses for
personnel, occupancy, advertising, and other expenses, increased
$4.4 million, or 15.2%, to $33.5 million in 2010 from
$29.1 million in 2009. Our efficiency ratio improved to
38.6% in 2010 from 40.0% in 2009.
Personnel.
Personnel expenses increased
$1.6 million, or 8.6%, to $20.6 million in 2010 from
$19.0 million in 2009. This increase was primarily
attributable to the opening of 17 new stores in 2010. Personnel
costs declined as a percentage of total revenue to 23.8% in 2010
from 26.1% in 2009.
Occupancy.
Occupancy expenses increased $627,000, or
13.8%, to $5.2 million in 2010 from $4.5 million in
2009. The increase in occupancy expense was the result of
opening new stores and increases in rent on lease renewals for
certain existing stores.
47
Advertising.
Advertising expenses increased
$815,000, or 67.2%, to $2.0 million in 2010 from
$1.2 million in 2009. The increase in advertising expenses
was due primarily to an increase in the size of our live check
campaigns. The volume of our live check distributions increased
81.3% from 2009 to 2010.
Other Expenses.
Other expenses increased
$1.3 million, or 30.2%, to $5.7 million in 2010 from
$4.4 million in 2009. The increase in other expenses was
due primarily to growth in our business, as other expenses as a
percentage of total revenue remained relatively constant.
Interest
Expense
Interest expense increased $1.2 million, or 13.9%, to
$9.9 million in 2010 from $8.7 million in 2009. The
increase in interest expense was due primarily to an unfavorable
mark-to-market
adjustment of $843,000 recorded on our interest rate caps in
2010, compared to a favorable adjustment of $280,000 in 2009.
The increase also reflects increased interest expense associated
with our senior revolving credit facility and mezzanine debt.
Interest expense associated with the senior revolving credit
facility increased $696,000, primarily because of an increase in
effective interest rates. We renewed our senior revolving credit
facility in August 2010. The renewed senior revolving credit
facility included a new LIBOR floor of 1.00%, a higher interest
rate spread over LIBOR and a higher fee on the unused amount of
the facility. As a result, the effective rate increased from
3.4% in 2009 to a blended effective rate on the new and old
revolving credit facilities of 3.8% in 2010. In 2009, the
average
one-month
LIBOR was 0.33% and, in 2010, the rate was 0.27%. Interest
expense also increased slightly due to an increase in weighted
average borrowings to $144.1 million in 2010 from
$141.8 million in 2009.
Increased costs relating to our mezzanine debt are primarily due
to refinancing such debt in August 2010. The refinancing
resulted in an increase in interest rate from 14.00% to 15.25%
and the recognition of $246,000 in unamortized debt issuance
costs at the time of renewal.
We intend to repay the mezzanine debt and a portion of the
borrowings under our senior revolving credit facility with
proceeds from this offering.
Consulting and
Advisory Fees
The consulting and advisory fees paid to related parties
decreased $30,000, or 2.4%, to $1.2 million in 2010 from
$1.3 million in 2009. These agreements will be terminated
upon the consummation of this offering.
Income
Taxes
Income taxes increased $4.7 million, or 105.2%, to
$9.2 million in 2010 from $4.5 million in 2009. The
increase in income taxes was due primarily to growth in our
pre-tax income. Additionally, we moved into the 35% bracket
applicable to pre-tax income in excess of $18.3 million.
RMC Reinsurance is qualified as a small life insurance company
for income tax purposes and as such is permitted to exclude a
certain amount of income from taxable income. This income tax
benefit declined on a relative basis in 2010 as our insurance
income exceeded the amount permitted to be excluded.
Year Ended
December 31, 2009 Compared to Year Ended December 31,
2008
Interest and Fee
Income
Interest and fee income increased $5.1 million, or 8.8%, to
$63.6 million in 2009 from $58.5 million in 2008. The
increase in interest and fee income was due primarily to an 8.3%
increase in average finance receivables and a small increase in
the average yield on loans from 32.8% to 33.0%. Although we
opened only five net branches in 2009, we opened 23 branches
between 2006 and 2008. As our branches generally grow more
quickly in the early years of operations, the branches opened
between 2006 and 2008 contributed significantly to the growth in
average finance receivables between 2008 and 2009. The growth in
finance receivables was due primarily to growth in our small
installment loans, which increased to $102.6 million at
December 31, 2009, from $59.3 million at
December 31, 2008. Our large loans outstanding declined
slightly from 2008 to 2009 as demand for automobiles declined
due to general economic conditions, which led to a decline in
demand for automobile purchase loans. We also tightened our
underwriting standards for large loans, as they are generally
secured by automobiles.
Insurance
Income
Insurance income increased $609,000, or 13.2%, to
$5.2 million in 2009 from $4.6 million in 2008. The
increase in insurance income was due primarily to growth of our
loan portfolio. Insurance income was essentially flat in 2009 as
a percentage of average finance receivables at 2.7% compared to
2.6% in 2008.
48
Other
Income
Other income increased $344,000, or 9.4%, to $4.0 million
in 2009 from $3.7 million in 2008. Late charges increased
slightly to $2.6 million in 2009 from $2.4 million in
2008. The increase was attributable to growth in finance
receivables, as late charges as a percentage of average finance
receivables remained constant.
Provision for
Loan Losses
The provision for loan losses increased $2.0 million, or
11.7%, to $19.4 million in 2009 from $17.4 million in
2008. The increase in the provision for loan losses was due
primarily to an 8.3% increase in average finance receivables and
an increase in net charge-offs from 8.4% of average loans in
2008 to 8.6% of average loans in 2009 and an increase in the
allowance due to prevailing economic conditions.
General and
Administrative Expenses
Our general and administrative expenses, comprising expenses for
personnel, occupancy, advertising, and other expenses increased
$1.3 million, or 4.5%, to $29.1 million in 2009 from
$27.9 million in 2008. Our efficiency ratio improved to
40.0% in 2009 from 41.7% in 2008.
Personnel.
Personnel expenses increased
$1.2 million, or 6.8%, to $19.0 million in 2009 from
$17.8 million in 2008. As a percentage of total revenue
personnel costs were 26.1% for 2009 compared to 26.6% for 2008.
The increase in personnel costs was attributable to normal
salary increases and a modest increase in personnel due to the
opening of six stores in the second half of 2009.
Occupancy.
Occupancy expenses increased $140,000, or
3.2%, to $4.5 million in 2009 from $4.4 million in
2008. The increase in occupancy expense is the result of opening
new stores and increases in rent on lease renewals in existing
stores.
Advertising.
Advertising expenses increased
$213,000, or 21.3%, to $1.2 million in 2009 from
$1.0 million in 2008. The increase in advertising expenses
was due primarily to an increase in our live check campaigns.
The volume of our live check distributions increased 68.4% from
2008 to 2009.
Other Expenses.
Other expenses decreased $305,000,
or 6.5%, to $4.4 million in 2009 from $4.7 million in
2008. The decrease in other expenses was partly due to the
introduction of our branch scorecard program in 2009. The
scorecard measures a variety of performance criteria, including
branch expense control against a predetermined standard. We
believe that the scorecard program has contributed to a
measurable decline in controllable expenses at our branches.
Interest
Expense
Interest expense decreased $2.4 million, or 21.8%, to
$8.7 million in 2009 from $11.1 million in 2008. The
decrease in interest expense was due primarily to decreased
interest expense associated with our senior revolving credit
facility, slightly offset by increased interest expense
associated with our mezzanine debt.
Interest expense on our senior revolving credit facility
decreased $2.6 million, despite an increase in average
borrowings to $141.8 million in 2009 from
$135.1 million in 2008, because of a decline in variable
interest rates. In 2008, the average rate on
one-month
LIBOR was 2.67%; in 2009, the rate was 0.35%. Additionally,
interest expense in 2009 benefited from a favorable fair value
adjustment of $280,000 on our interest rate cap.
We intend to repay the mezzanine debt and a portion of the
borrowings under our senior revolving credit facility with
proceeds from this offering.
Consulting and
Advisory Fees
The consulting and advisory fees paid to related parties
decreased $381,000, or 23.2%, to $1.3 million in 2009 from
$1.6 million in 2008. The decrease in consulting and
advisory fees was due primarily to the reduction in fees and
expenses paid in 2008 related to the evaluation of certain
acquisition transactions that were not consummated. These
agreements will be terminated upon the consummation of this
offering.
Income
Taxes
Income taxes increased $2.2 million, or 96.5%, to
$4.5 million in 2009 from $2.3 million in 2008. The
increase was primarily due to an increase in our net income
before taxes. Additionally, the benefit of the small life
insurance
49
company exemption had a more significant impact in 2008 because
of the subsidiarys lower effective tax rate and overall
lower income before income taxes.
Quarterly
Information and Seasonality
Our loan volume and corresponding finance receivables follow
seasonal trends. Demand for our loans is typically highest
during the fourth quarter, largely due to holiday spending. Loan
demand has generally been the lowest during the first quarter,
largely due to the timing of income tax refunds. During the
remainder of the year, our loan volume typically grows from
customer loan activity. In addition, we typically generate
higher loan volumes in the second half of the year from our live
check campaigns, which are timed to coincide with seasonal
consumer demand. Consequently, we experience significant
seasonal fluctuations in our operating results and cash needs.
Liquidity and
Capital Resources
We have historically financed, and plan to continue to finance,
the majority of our operating liquidity and capital needs
through a combination of cash flows from operations and
borrowings under our senior revolving credit facility.
As a holding company, almost all of the funds generated from our
operations are earned by our operating subsidiaries. In
addition, our wholly-owned subsidiary RMC Reinsurance is
required to maintain cash reserves against life insurance
policies ceded to it, as determined by the ceding company, and
has also purchased a cash-collateralized letter of credit in
favor of the ceding company. As of March 31, 2011, these
reserve requirements totaled $888,000; additionally, we had a
reserve for life insurance claims on our balance sheet of
$190,000, as determined by the third party, unrelated ceding
company.
Our primary cash needs relate to funding our lending activities
and, to a lesser extent, capital expenditures relating to
expanding and maintaining our branch locations.
Cash
Flow
A summary of operating, investing and financing activities are
shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR ENDED DECEMBER 31,
|
|
|
UNAUDITED THREE MONTHS ENDED MARCH 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(In thousands)
|
|
|
Provided by operating activities
|
|
$
|
26,654
|
|
|
$
|
31,232
|
|
|
$
|
41,215
|
|
|
$
|
11,171
|
|
|
$
|
9,985
|
|
Provided by (used in) investing activities
|
|
|
(41,198
|
)
|
|
|
(40,711
|
)
|
|
|
(50,599
|
)
|
|
|
10,303
|
|
|
|
4,728
|
|
Provided by (used in) by financing activities
|
|
|
14,428
|
|
|
|
11,066
|
|
|
|
7,222
|
|
|
|
(23,730
|
)
|
|
|
(11,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
$
|
(116
|
)
|
|
$
|
1,587
|
|
|
$
|
(2,162
|
)
|
|
$
|
(2,256
|
)
|
|
$
|
3,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Activities
Net cash provided by operating activities decreased by
$1.2 million, or 10.6%, to $10.0 million in the first
three months of 2011 from $11.1 million in the first three
months of 2010. The decrease was primarily due to an increase in
cash paid for income taxes of $1.8 million, partially
offset by an increase in net income of $1.0 million. We did
not make an estimated tax payment in the first three months of
2010 as we had recently adopted the fair market value method of
valuing loans for tax purposes.
Net cash provided by operating activities increased by
$10.0 million, or 32.0%, to $41.2 million in 2010 from
$31.2 million in 2009. The increases were primarily due to
increased net income.
Net cash provided by operating activities increased by
$4.6 million, or 17.2%, to $31.2 million in 2009 from
$26.6 million in 2008. The increases were due primarily to
increased net income.
Investing
Activities
Investing activities consist of finance receivables originated,
net increase in restricted cash, purchase of furniture and
equipment for new and existing branches and the purchase of
interest rate caps.
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR ENDED DECEMBER 31,
|
|
|
UNAUDITED THREE MONTHS ENDED MARCH 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(In thousands)
|
|
|
Finance receivables (originated) repaid
|
|
$
|
(39,755
|
)
|
|
$
|
(39,249
|
)
|
|
$
|
(49,346
|
)
|
|
$
|
10,497
|
|
|
$
|
4,728
|
|
Net increase in restricted cash
|
|
|
(95
|
)
|
|
|
(106
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of furniture and equipment
|
|
|
(1,348
|
)
|
|
|
(556
|
)
|
|
|
(1,210
|
)
|
|
|
(194
|
)
|
|
|
|
|
Purchase of interest rate caps
|
|
|
|
|
|
|
(800
|
)
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
$
|
(41,198
|
)
|
|
$
|
(40,711
|
)
|
|
$
|
(50,599
|
)
|
|
$
|
10,303
|
|
|
$
|
4,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities decreased
$5.6 million, or 54.1%, to $4.7 million in the first
three months of 2011 from $10.3 million in the first three
months of 2010. Outstanding finance receivables typically
decline in the first quarter of each year. In the first three
months of 2011, the decline was smaller than the decline in the
first three months of 2010.
Net cash used in investing activities increased by
$9.9 million, or 24.3%, to $50.6 million in 2010 from
$40.7 million in 2009. The increases were due primarily to
an increase in our finance receivables originated as described
above.
Net cash used in investing activities decreased by $487,000, or
1.2%, to $40.7 million in 2009 from $41.2 million in
2008.
Financing
Activities
Financing activities consist of borrowings and payments on our
outstanding indebtedness and the net change in our cash
overdraft.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
YEAR ENDED DECEMBER 31,
|
|
|
UNAUDITED THREE MONTHS ENDED MARCH 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(In thousands)
|
|
|
Net increase (decrease) in cash overdraft
|
|
$
|
(332
|
)
|
|
$
|
(214
|
)
|
|
$
|
215
|
|
|
$
|
744
|
|
|
$
|
1,039
|
|
Net advances (payments) on senior revolving credit facility
|
|
|
16,396
|
|
|
|
11,674
|
|
|
|
7,015
|
|
|
|
(24,591
|
)
|
|
|
(11,954
|
)
|
Proceeds from issuance of mezzanine debt, related party
|
|
|
|
|
|
|
|
|
|
|
25,814
|
|
|
|
|
|
|
|
|
|
Payments on mezzanine debt
|
|
|
|
|
|
|
|
|
|
|
(25,814
|
)
|
|
|
|
|
|
|
|
|
Payments on subordinated debt and other notes, net
|
|
|
(1,636
|
)
|
|
|
(394
|
)
|
|
|
(8
|
)
|
|
|
117
|
|
|
|
(270
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
$
|
14,428
|
|
|
$
|
11,066
|
|
|
$
|
7,222
|
|
|
$
|
(23,730
|
)
|
|
$
|
(11,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
The amount of borrowings required to fund loan growth has
consistently declined since 2008, as illustrated in the
following chart:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET ADVANCES ON
|
|
|
|
|
|
|
SENIOR REVOLVING
|
|
|
|
|
NET ADVANCES
|
|
CREDIT FACILITY AS A
|
|
|
|
|
(PAYMENTS)
|
|
PERCENTAGE OF
|
|
|
FINANCE
|
|
ON SENIOR
|
|
FINANCE
|
|
|
RECEIVABLES
|
|
REVOLVING
|
|
RECEIVABLES
|
PERIOD
|
|
ORIGINATED
|
|
CREDIT FACILITY
|
|
ORIGINATED
|
|
|
(In thousands, except percentages)
|
|
2008
|
|
$
|
39,755
|
|
|
$
|
16,396
|
|
|
|
41
|
%
|
2009
|
|
$
|
39,249
|
|
|
$
|
11,674
|
|
|
|
30
|
%
|
2010
|
|
$
|
49,346
|
|
|
$
|
7,015
|
|
|
|
14
|
%
|
First quarter 2011
|
|
$
|
5,293
|
|
|
$
|
(11,954
|
)
|
|
|
NA
|
|
|
Net cash used in financing activities decreased by
$12.5 million, or 52.9%, to $11.2 million in the three
months ended March 31, 2011 from $23.7 million in the
three months ended March 31, 2010. The decrease in net cash
used in financing activities was primarily a result of a
decrease in net payments to our senior revolving credit facility
due to decreased cash available from operating activities.
Net cash provided by financing activities decreased by
$3.8 million, or 34.7%, to $7.2 million in 2010 from
$11.1 million in 2009. The decrease in net cash provided by
financing activities was primarily a result of a decrease in the
net advances from our senior revolving credit facility, due to
our increased cash available from operating activities, which
has allowed us to fund a greater percentage of our loans using
cash on hand.
Net cash provided by financing activities decreased by
$3.4 million, or 23.3%, to $11.1 million in 2009 from
$14.4 million in 2008. The decrease in net cash provided by
financing activities was primarily a result of a decrease in the
net advances from our senior revolving credit facility, due to
increased cash available from operating activities.
We intend to repay the mezzanine debt and a portion of the
borrowings under our senior revolving credit facility with
proceeds from this offering.
Financing
Arrangements
Senior Revolving
Credit Facility
In August 2010, we renewed our senior revolving credit facility
with a syndicate of banks. The senior revolving credit facility
provides for up to $225.0 million in availability, with a
borrowing base of 85% of eligible finance receivables. The
senior revolving credit facility matures on August 25,
2013. Borrowings under the facility bear interest, payable
monthly at rates equal to LIBOR of a maturity we elect between
one month and six months, with a LIBOR floor of 1.00%, plus an
applicable margin based on our leverage ratio (which was 3.25%
as of March 31, 2011). Alternatively, we may pay interest
at a rate based on the prime rate plus an applicable margin
(which would have been 2.25% as of March 31, 2011). We also
pay an unused line fee of 0.50% per annum, payable monthly. The
senior revolving credit facility is collateralized by certain of
our assets including substantially all of our finance
receivables and equity interests of substantially all of our
subsidiaries. The credit agreement contains certain restrictive
covenants, including maintenance of specified interest coverage
and debt ratios, restrictions on distributions and limitations
on other indebtedness, maintenance of a minimum allowance for
loan losses and certain other restrictions.
Our outstanding debt under the senior revolving credit facility
was $151.3 million at March 31, 2011. At
March 31, 2011, we were in compliance with our debt
covenants.
We have entered into interest rate caps to manage interest rate
risk associated with a notional amount of $150.0 million of
our LIBOR-based borrowings. The interest rate caps have a strike
rate of 6.0% and a maturity of March 4, 2014. When
three-month LIBOR exceeds six percent, the counterparty
reimburses us for the excess over six percent; no payment is
required by us or the counterparty when three-month LIBOR is
below six percent. We intend to repay a portion of the
borrowings under our senior revolving credit facility using a
portion of the net proceeds from this offering.
52
Concurrently with the consummation of this offering, we expect
to enter into an amended and restated senior revolving credit
facility. We anticipate that the amended and restated senior
revolving credit facility will continue to provide for up to
$225.0 million in availability, with a borrowing base of
85% of eligible finance receivables, and mature in August 2014.
The amended and restated senior credit facility will reduce the
applicable margin for LIBOR loans from 3.25% to 3.00% and reduce
the applicable premium for prime rate loans from 2.25% to 2.00%.
We also will continue to pay an unused line fee of 0.50% per
annum, payable monthly. The amended senior revolving credit
facility will continue to be collateralized by certain of our
assets including substantially all of our finance receivables
and the equity interests of substantially all of our
subsidiaries and will contain certain restrictive covenants,
including maintenance of specified interest coverage and debt
ratios, restrictions on distributions and limitations on other
indebtedness, maintenance of a minimum allowance for loan losses
and certain other restrictions.
Mezzanine
Debt
In August 2010, we entered into a $25.8 million mezzanine
loan from a sponsor and three individual owners. The mezzanine
debt, which matures on October 25, 2013, accrues interest
at a rate of 15.25% per annum, of which 2.00% is payable in kind
at our option. The mezzanine debt is secured by a junior lien on
certain of our assets, including the equity interests of
substantially all of our subsidiaries and substantially all of
our finance receivables and is subordinated to our senior
revolving credit facility. The proceeds of this debt were used
to retire the mezzanine debt of the same amount to an unrelated
lender.
The mezzanine loan agreement contains certain restrictive
covenants, including maintenance of a specified interest
coverage ratio, a restriction on distributions, limitations on
additional borrowings, debt ratio, maintenance of a minimum
allowance for loan losses and certain other restrictions.
At March 31, 2011, we were in compliance with all debt
covenants. At March 31, 2011, the aggregate principal
amount of mezzanine debt outstanding was $25.8 million. We
intend to use the proceeds from this offering to repay our
mezzanine debt in full.
Other Financing
Arrangements
We have a $500,000 line of credit, which is secured by a
mortgage on our headquarters, with a commercial bank to
facilitate our cash management program. The interest rate is
prime plus 1% and interest is payable monthly. The line of
credit matures on July 31, 2011 and there are no
significant restrictive covenants associated with this line of
credit. We expect to increase this line of credit to $1,500,000
in the third quarter of 2011.
Off Balance Sheet
Arrangements
We are not a party to any off balance sheet arrangements.
Contractual
Obligations
The following table summarizes our contractual obligations as of
December 31, 2010 and the effect such obligations are
expected to have on our liquidity and cash flows in future
periods.
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|
|
|
|
|
|
|
|
|
|
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PAYMENTS DUE BY PERIOD
|
|
|
|
|
|
|
LESS THAN 1
|
|
|
|
|
|
|
|
|
MORE THAN
|
|
|
|
TOTAL
|
|
|
YEAR
|
|
|
1 - 3 YEARS
|
|
|
3 - 5 YEARS
|
|
|
5 YEARS
|
|
|
|
(In thousands)
|
|
|
Long-term debt obligations
|
|
$
|
189,581
|
|
|
$
|
466
|
|
|
$
|
189,115
|
|
|
$
|
|
|
|
$
|
|
|
Interest payments on long-term debt obligations
|
|
|
30,744
|
|
|
|
11,341
|
|
|
|
19,403
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
|
3,936
|
|
|
|
1,836
|
|
|
|
1,998
|
|
|
|
79
|
|
|
|
23
|
|
Other long-term liabilities reflected on our balance sheet under
GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
224,261
|
|
|
$
|
13,643
|
|
|
$
|
210,516
|
|
|
$
|
79
|
|
|
$
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
The following table summarizes our contractual obligations as of
December 31, 2010 and the effect such obligations are
expected to have on our liquidity and cash flows in future
periods after giving effect to this offering and the expected
use of proceeds therefrom.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PAYMENTS DUE BY PERIOD
|
|
|
|
|
|
|
LESS THAN 1
|
|
|
|
|
|
|
|
|
MORE THAN
|
|
|
|
TOTAL
|
|
|
YEAR
|
|
|
1 - 3 YEARS
|
|
|
3 - 5 YEARS
|
|
|
5 YEARS
|
|
|
|
(In thousands)
|
|
|
Long-term debt obligations
|
|
$
|
|
|
|
$
|
466
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Interest payments on long-term debt obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease obligations
|
|
|
3,936
|
|
|
|
1,836
|
|
|
|
1,998
|
|
|
|
79
|
|
|
|
23
|
|
Other long-term liabilities reflected on our balance sheet under
GAAP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
79
|
|
|
$
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Impact of
Inflation
Our results of operations and financial condition are presented
based on historical cost, except for the interest rate cap which
is carried at fair value. While it is difficult to accurately
measure the impact of inflation due to the imprecise nature of
the estimates required, we believe the effects of inflation, if
any, on our results of operations and financial condition have
been immaterial.
Related Party
Transactions
For a description of our related party transactions, see
Certain Relationships and Related Person
Transactions.
Quantitative and
Qualitative Disclosures about Market Risk
Interest Rate
Risk
Interest rate risk arises from the possibility that changes in
interest rates will affect our financial statements.
Finance receivables are originated either at prevailing market
rates or at statutory limits. Our loan portfolio turns
approximately 1.2 times per year from cash payments and renewal
of loans. As our automobile purchase loans and furniture and
appliance purchase loans have longer maturities and typically
are not refinanced prior to maturity, the turn of the loan
portfolio may decrease as these loans increase as a percentage
of our portfolio.
At March 31, 2011, our outstanding debt under our senior
revolving credit facility was $151.3 million and interest
on borrowings under this facility was approximately 4.5%
including amortization of debt issuance costs. Because the LIBOR
interest rates are currently below the 1.00% floor provided for
in our senior revolving credit facility, an increase of
100 basis points in the LIBOR interest rate would result in
an increase of less than 100 basis points to our borrowing
costs. Based on a LIBOR rate of 0.30% and the outstanding
balance at March 31, 2011, this increase in LIBOR would
result in an increase of 30 basis points to our borrowing
costs and would result in $454,000 of increased interest
expense. Concurrently with consummation of this offering we
expect to enter into an amended and restated senior revolving
credit facility. See Liquidity and Capital
Resources.
We have entered into interest rate caps to manage interest rate
risk associated with $150.0 million of our LIBOR-based
borrowings. The interest rate caps are based on the three-month
LIBOR contract and reimburse us for the difference when
three-month LIBOR exceeds six percent and have a maturity of
March 4, 2014. The carrying value of the interest rate caps
are adjusted to fair value. For the year ended December 31,
2010, we recorded an unfavorable fair value adjustment of
$843,000 as an increase in interest expense and, for the three
months ended March 31, 2011, we recorded an unfavorable
fair value adjustment of $21,000 as an increase in interest
expense.
Critical
Accounting Policies
Managements discussion and analysis of financial condition
and results of operations is based upon our consolidated
financial statements, which have been prepared in accordance
with accounting principles generally
54
accepted in the United States (U.S. GAAP). The
preparation of these financial statements requires estimates and
judgments that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Management
bases estimates on historical experience and other assumptions
it believes to be reasonable under the circumstances and
evaluates these estimates on an on-going basis. Actual results
may differ from these estimates under different assumptions or
conditions.
Refer to Note 1 to our consolidated financial statements
for the year ended December 31, 2010 included elsewhere in
the prospectus for a complete discussion of our significant
accounting policies. We set forth below those material
accounting policies that we believe are the most critical to an
investors understanding of our financial results and
condition and that involve a higher degree of complexity and
management judgment.
Loan
Losses
Finance receivables are equal to the total amount due from the
customer, net of unearned finance and insurance charges. Net
finance receivables are equal to the total amount due from the
customer, net of unearned finance and insurance charges and
allowance for loan losses.
Provisions for loan losses are charged to income in amounts
sufficient to maintain an adequate allowance for loan losses on
our related finance receivables portfolio. Loan loss experience,
contractual delinquency of finance receivables, the value of
underlying collateral and managements judgment are factors
used in assessing the overall adequacy of the allowance and the
resulting provision for loan losses.
Our loans within each loan product are homogenous and it is not
possible to evaluate individual loans. Prior to 2010, management
analyzed losses in the loan portfolio using two categories of
loans: small installment loans (which included all loans of less
than $2,500) and large loans (which included all other loans).
As our loan products have evolved, we have separated our loan
portfolio into four categories: small installment loans, large
installment loans, automobile purchase loans and furniture and
appliance purchase loans. Beginning in 2010, we have evaluated
losses in each of the four categories of loans in establishing
the allowance for loan losses. Management believes that the use
of four categories to analyze losses in the loan portfolio is
more representative of our business beginning in 2010 following
our introduction of furniture and appliance purchase loans and
our expansion of automobile purchase loans to include indirect
automobile purchase loans. We believe four categories will
provide a more accurate analytical framework for determining
appropriate allowance for loan loss levels as our business
develops and we expand our product offerings. We believe this
change in methodology had no impact on our allowance for loan
losses and our financial statements as a whole in 2010 and 2011.
In making an evaluation about the portfolio we consider the
trend of contractual delinquencies and the slow file. The slow
file consists of all loans that are one or more days past due.
We use the number of accounts in the slow file rather than the
dollar amount to prevent masking delinquencies of smaller loans
compared to larger loans. We evaluate delinquencies and the slow
file by each state and by supervision district within states to
identify trends requiring investigation. Historically, loss
rates have been affected by several factors, including the
unemployment rates in the areas in which we operate, the number
of customers filing for bankruptcy protection and the prices
paid for vehicles at automobile auctions. Management considers
each of these factors in establishing the allowance for loan
losses.
As of January 1, 2010, we changed our accounting estimate
for our loan loss allowance methodology for small installment
loans to determine the allowance using losses from the trailing
eight months, rather than the trailing nine months, to more
accurately reflect the six-month average life of our small
installment loans. We use eight months rather than a shorter
period as it takes one month for a loan to become delinquent and
we believe using eight months provides an allowance that is more
appropriate and more conservative than one resulting from seven
months of losses. The change in accounting estimate from nine to
eight months of average losses reduced the loss allowance for
small installment loans by $1.1 million as of
January 1, 2010 and reduced the provision for loan losses
by $451,000 for 2010. FASB 250-10-45-18 suggests that changes in
a loan loss allowance due to the ongoing evaluation of an
entitys experience constitutes a change in accounting
estimate. We believe the change from nine to eight months is a
change in accounting estimate, rather than an error in the
financial statements. Changes in estimates are appropriately
reflected currently in the financial statements.
55
In 2011, we began evaluating the loans of customers in
Chapter 13 bankruptcy for impairment as troubled debt
restructurings. We have adopted the policy of aggregating loans
with similar risk characteristics for purposes of computing the
amount of impairment. In connection with the adoption of this
practice, we computed the estimated impairment on our
Chapter 13 bankrupt loans in the aggregate by discounting
the projected cash flows at the original contract rates on the
loan using the terms imposed by the bankruptcy court. We applied
this method in the aggregate to each of our four classes of
loans.
Our policy for the accounts of customers in bankruptcy is to
charge off the balance of accounts in a confirmed bankruptcy
under Chapter 7 of the bankruptcy code. For customers in a
Chapter 13 bankruptcy plan, we reduce the interest rate to
that specified in the bankruptcy order. Additionally, if the
bankruptcy court converts a portion of a loan to an unsecured
claim, our policy is to charge off the portion of the unsecured
balance that we deem uncollectible at the time the bankruptcy
plan is confirmed. Once the customer is in a confirmed
Chapter 13 bankruptcy plan, we receive payments with
respect to the remaining amount of the loan at the reduced
interest rate from the bankruptcy trustee. We do not believe
that accounts in a confirmed Chapter 13 plan have a higher
level of risk than non-bankrupt accounts. If a customer fails to
comply with the terms of the bankruptcy order, we will petition
the trustee to have the customer dismissed from bankruptcy. Upon
dismissal, we restore the account to the original terms and
pursue collection through our normal collection activities.
In making the computations of the present value of cash payments
to be received on bankrupt accounts in each product category, we
used the weighted average interest rates and weighted average
remaining term based on data as of June 30, 2011.
Management believes using the current data does not materially
change the results that would be obtained if it had available
data for interest rates and remaining term data as of the
applicable periods. In the future, we will use data for the
current quarter.
We fully reserve for all loans at the date that the loan is
contractually delinquent 180 days. We only initiate
repossession proceedings when an account is seriously
delinquent, we have exhausted other means of collection and, in
the opinion of management, the customer is unlikely to make
further payments. Since 2010, we have sold substantially all
repossessed vehicles through public sales conducted by
independent automobile auction organizations, after the required
post-possession waiting period. Losses on the sale of
repossessed collateral are charged to the allowance for loan
losses.
Income
Recognition
Interest income is recognized using the interest (actuarial)
method, or constant yield method. Therefore, we recognize
revenue from interest at an equal rate over the term of the
loan. Unearned finance charges on pre-compute contracts are
rebated to customers utilizing the Rule of 78s method. The
difference between income recognized under the constant yield
method and the Rule of 78s method is recognized as an adjustment
to interest income at the time of rebate. Accrual of interest
income on finance receivables is suspended when no payment has
been received for 90 days or more on a contractual basis.
The accrual of income is not resumed until one or more full
contractual monthly payments are received and the account is
less than 90 days contractually delinquent. Interest income
is suspended on finance receivables for which collateral has
been repossessed.
We recognize income on credit insurance products using the
constant yield method over the life of the related loan. Rebates
are computed using the Rule of 78s method and any difference
between the constant yield method and the Rule of 78s is
recognized in income at the time of rebate.
We charge a fee to automobile dealers for each loan we purchase
from that dealer. We defer this fee and accrete it to income
using a method that approximates the constant yield method over
the life of the loan.
Charges for late fees are recognized as income when accrued.
Insurance
Operations
Insurance operations include revenue and expense from the sale
of optional insurance products to our customers. These optional
products include credit life, credit accident and health,
property insurance and involuntary unemployment insurance. The
premiums and commissions we receive are deferred and amortized
to income over the life of the insurance policy using the
constant yield method.
56
Stock-Based
Compensation
We have a stock option plan for certain members of management.
We granted options with respect to 441,000 shares in 2007
and 222,000 shares in 2008. We did not grant any options in
2009, 2010 or the first three months of 2011. We measure
compensation cost for stock-based awards made under this plan at
estimated fair value and recognize compensation expense over the
service period for awards expected to vest. All grants are made
at 100% of fair value at the date of the grant.
The fair value of stock options is determined using the
Black-Scholes valuation model. The Black-Scholes model requires
the input of highly subjective assumptions, including expected
volatility, risk-free interest rate and expected life, changes
to which can materially affect the fair value estimate. In
addition, the estimation of stock-based awards that will
ultimately vest requires judgment, and to the extent actual
results or updated estimates differ from current estimates, such
amounts will be recorded as a cumulative adjustment in the
period estimates are revised.
Prior to this offering, there was no published market value for
our stock; therefore, the performance of the common stock of a
publicly traded company whose business is comparable to ours was
used to estimate the volatility of our stock. The risk-free rate
is based on the U.S. Treasury yield at the date our board
of directors approved the option awards for the period over
which the options are exercisable.
Income
Taxes
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effects of future tax rate changes are recognized in the
period when the enactment of new rates occurs.
When tax returns are filed, it is highly certain that some
positions taken would be sustained upon examination by the
taxing authorities, while others are subject to uncertainty
about the merits of the position taken or the amount of the
position that would be ultimately sustained. The benefit of a
tax position is recognized in the financial statements in the
period during which, based on all available evidence, it is more
likely than not that the position will be sustained upon
examination, including the resolution of appeals or litigation
processes, if any. Tax positions taken are not offset or
aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the
largest amount of tax benefit that is more than 50% likely of
being realized upon settlement with the applicable taxing
authority. The portion of the benefits associated with tax
positions taken that exceeds the amount measured as described
above is reflected as a liability for unrecognized tax benefits
in the accompanying balance sheet along with any associated
interest and penalties that would be payable to the taxing
authorities upon examination. As of March 31, 2011, we had
not taken any tax positions that exceeds the amount described
above.
Interest and penalties associated with unrecognized tax benefits
are classified as additional income taxes in the consolidated
statements of income.
We file income tax returns in the U.S. federal jurisdiction
and various states. We are generally no longer subject to
U.S. federal or state and local income tax examinations by
taxing authorities before 2007, though we remain subject to
examination in Texas for the 2006 tax year.
The Internal Revenue Service concluded an examination of
RMCs 2007 and 2008 tax returns in early 2010. The amount
assessed by the Internal Revenue Service was not material to the
consolidated financial statements.
Recently Issued
Accounting Standards
Accounting
Pronouncements Issued and Partially Adopted
In July 2010, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update (ASU)
2010-20,
Disclosures about the Credit Quality of Financing Receivables
and the Allowance for Credit Losses
. ASU
2010-20
requires more robust and disaggregated disclosures about the
credit quality of financing receivables and allowances for
credit losses, including disclosure about credit quality
indicators, past due information and modifications of finance
receivables. The disclosures required as of the end of a
reporting period and certain items
57
related to activity during the year were adopted in 2010, which
significantly expanded the existing disclosure requirements, but
did not have any impact on our consolidated financial position,
results of operations or cash flows. The remaining amendments
that require disclosures about activity that occurs during a
reporting period are effective for periods beginning on or after
December 15, 2010, but will not have any impact on our
consolidated financial position, results of operations or cash
flows.
Accounting
Pronouncements Issued and Not Yet Adopted
In October 2010, the FASB issued ASU
2010-26,
Accounting for Costs Associated with Acquiring or Renewing
Insurance Contracts
. ASU
2010-26
modifies the definitions of the type of costs incurred by
insurance entities that can be capitalized in the successful
acquisition of new and renewal contracts. ASU
2010-26
requires incremental direct costs of successful contract
acquisition as well as certain costs related to underwriting,
policy issuance and processing, medical and inspection and sales
force contract selling for successful contract acquisition to be
capitalized. These incremental direct costs and other costs are
those that are essential to the contract transaction and would
not have been incurred had the contract transaction not
occurred. This guidance is effective for us for the year
beginning January 1, 2012 and may be applied prospectively
or retrospectively. We do not expect the adoption of this
guidance to have a material impact on our financial position,
results of operations and cash flows.
In April 2011, the FASB issued ASU
2011-02,
Receivables (Topic 310): A Creditors Determination of
Whether a Restructuring Is a Troubled Debt Restructuring
.
ASU
2011-02
clarifies which loan modifications constitute troubled debt
restructurings. It is intended to assist creditors in
determining whether a modification of the terms of a receivable
meets the criteria to be considered a troubled debt
restructuring, both for purposes of recording an impairment loss
and for disclosure of troubled debt restructurings. ASU
2011-02
is
effective for interim and annual periods beginning on or after
June 15, 2011, and applies retrospectively to
restructurings occurring on or after the beginning of the fiscal
year of adoption. We do not expect the adoption of this guidance
to have a material impact on our consolidated financial
position, results of operations, cash flows or disclosures.
In May 2011, the FASB issued ASU 2011-04,
Fair Value
Measurement
, which aligns disclosures related to fair value
between U.S. GAAP and International Financial Reporting
Standards. The ASU includes changes to the wording used to
describe many of the requirements in U.S. GAAP for measuring
fair value and changes to the disclosure of information about
fair value measurements. More specifically, the changes clarify
the intent of the FASB regarding the application of existing
fair value measurements and disclosures as well as changing some
particular principles or requirements for measuring fair value
or for disclosing information about fair value measurements.
This ASU is effective for interim and annual periods beginning
after December 15, 2011. We do not expect the adoption of
this guidance to have a material impact on our consolidated
financial statements.
58
BUSINESS
Overview
We are a diversified specialty consumer finance company
providing a broad array of loan products primarily to customers
with limited access to consumer credit from banks, thrifts,
credit card companies and other traditional lenders. We began
operations in 1987 with four branches in South Carolina and have
expanded our branch network to 146 locations with over 137,000
active customer accounts across South Carolina, Texas, North
Carolina, Tennessee and Alabama as of March 31, 2011. Each
of our loan products is secured, structured on a fixed rate,
fixed term basis with fully amortizing equal monthly installment
payments and is repayable at any time without penalty. Our loans
are sourced through our multiple channel platform, including in
our branches, through direct mail campaigns, independent and
franchise automobile dealerships, online credit application
networks, furniture and appliance retailers and our consumer
website. We operate an integrated branch model in which all
loans, regardless of origination channel, are serviced and
collected through our branch network, providing us with frequent
in-person contact with our customers, which we believe improves
our credit performance and customer loyalty. Our goal is to
consistently and soundly grow our finance receivables and manage
our portfolio risk while providing our customers with attractive
and
easy-to-understand
loan products that serve their varied financial needs.
Our diversified product offerings include:
|
|
|
|
n
|
Small Installment Loans
We offer standardized
small installment loans ranging from $300 to $2,500, with terms
of up to 36 months, which are secured by non-essential
household goods. We originate these loans both through our
branches and through mailing live checks to pre-screened
individuals who are able to enter into a loan by depositing
these checks. As of March 31, 2011, we had approximately
110,000 small installment loans outstanding representing
$99.6 million in finance receivables or an average of
approximately $910 per loan. In 2010 and the first three months
of 2011, interest and fee income from small installment loans
contributed $45.7 million and $13.2 million,
respectively, to our total revenue.
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Large Installment Loans
We offer large
installment loans through our branches ranging from $2,500 to
$18,000, with terms of between 18 and 54 months, which are
secured by a vehicle in addition to non-essential household
goods. As of March 31, 2011, we had approximately 11,000
large installment loans outstanding representing
$32.7 million in finance receivables or an average of
approximately $3,000 per loan. In 2010 and the first three
months of 2011, interest and fee income from large installment
loans contributed $8.6 million and $2.2 million,
respectively, to our total revenue.
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Automobile Purchase Loans
We offer automobile
purchase loans of up to $30,000, generally with terms of between
36 and 72 months, which are secured by the purchased
vehicle. Our automobile purchase loans are offered through a
network of dealers in our geographic footprint, including over
1,550 independent and over 540 franchise automobile dealerships
as of March 31, 2011. Our automobile purchase loans include
both direct loans, which are sourced through a dealership and
closed at one of our branches, and indirect loans, which are
originated and closed at a dealership in our network without the
need for the customer to visit one of our branches. As of
March 31, 2011, we had approximately 13,700 automobile
purchase loans outstanding representing $102.2 million in
finance receivables or an average of approximately $7,500 per
loan. In 2010 and the first three months of 2011, interest and
fee income from automobile purchase loans contributed
$19.5 million and $5.5 million, respectively, to our
total revenue.
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Furniture and Appliance Purchase Loans
We
offer indirect furniture and appliance purchase loans of up to
$7,500, with terms of between six and 48 months, which are
secured by the purchased furniture or appliance. These loans are
offered through a network of over 100 furniture and appliance
retailers, including 50 franchise locations of the largest
furniture retailer in the United States. Since launching this
product in November 2009, our portfolio has grown to
approximately 3,200 furniture and appliance purchase loans
outstanding representing $3.7 million in finance
receivables or an average of approximately $1,160 per loan as of
March 31, 2011. In 2010 and the first three months of 2011,
interest and fee income from furniture and appliance loans
contributed $362,000 and $149,000, respectively, to our total
revenue.
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Insurance Products
We offer our customers
optional payment protection insurance relating to many of our
loan products.
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Our revenue has grown from $49.0 million in 2006 to
$86.8 million in 2010, representing a CAGR of 15.4%. Our
net income from continuing operations has grown even more
rapidly from $7.0 million in 2006 to $16.4 million in
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2010, representing a CAGR of 23.9%. On a pro forma basis, giving
effect to this offering and the application of the estimated net
proceeds therefrom as described under Use of
Proceeds, our net income would have been
$ million
in 2010. For the three months ended March 31, 2011,
our revenues were $24.7 million and our net income from
continuing operations was $4.9 million. Our aggregate
finance receivables have grown from $140.6 million as of
December 31, 2006 to $247.2 million as of
December 31, 2010, representing a CAGR of 15.2%. As of
March 31, 2010 and March 31, 2011, our aggregate
finance receivables were $200.0 million and
$238.1 million, respectively.
Our
Industry
We operate in the consumer finance industry serving the large
and growing population of underbanked and other non-prime
consumers who have limited access to credit from banks, thrifts,
credit card companies and other traditional lenders. According
to the FDIC, there were approximately 43 million adults
living in underbanked households in the United States in
2009. Furthermore, difficult economic conditions in recent years
have resulted in an increase in the number of non-prime
consumers in the United States. According to FICO, the
percentage of the U.S. population with FICO scores below
600 rose from approximately 15% in 2007 prior to the recession
to 26% in April 2010, representing an increase of more than
17 million people.
While the number of non-prime consumers in the United States has
grown, the supply of consumer credit to this demographic has
contracted. Following deregulation of the U.S. banking
industry in the 1980s, many banks and finance companies that
traditionally provided small denomination consumer credit
refocused their businesses on larger loans with lower
comparative origination costs and lower charge-off rates.
Tightened credit requirements imposed by banks, thrifts, credit
card companies and other traditional lenders that began during
the recession in 2008 and 2009 further reduced the supply of
consumer credit for the growing number of underbanked and
non-prime individuals. According to the Federal Reserve Bank of
New York, $1.1 trillion in consumer credit, including mortgages,
home equity lines of credit, auto loans, credit cards, student
loans and other forms of consumer credit, was removed from the
credit markets between the second half of 2008 and the fourth
quarter of 2010.
We believe the large and growing number of potential customers
in our target market, combined with the decline in available
consumer credit through the end of 2010, provides an attractive
market opportunity for our diversified product
offerings installment lending, automobile purchase
lending and furniture and appliance purchase lending.
Installment Lending.
Installment lending to
underbanked and other non-prime consumers is one of the most
highly fragmented sectors of the consumer finance industry. We
believe that installment loans are provided through
approximately 8,000 to 10,000 individually-licensed finance
company branches in the United States. Providers of installment
loans, such as Regional, generally offer loans with longer terms
and lower interest rates than other alternatives available to
underbanked consumers, such as title, payday and pawn lenders.
Automobile Purchase Lending.
Automobile
finance comprises one of the largest consumer finance markets in
the United States. According to CNW Research, a market research
company focused on automobile purchase trends, at the end of
2010, there was in excess of $1.7 trillion in automobile
financing outstanding in the United States, including automobile
purchase loans as well as leases, of which 47% related to used
vehicle sales. The automobile purchase loan sector is generally
segmented by the credit characteristics of the borrower.
According to CNW Research, originations by borrowers within the
subprime market averaged $88.5 billion annually over the
past ten years. Automobile purchase loans are typically
initiated or arranged through approximately 68,000 automobile
dealers nationwide who rely on financing to drive their
automobile sales. In recent years, many providers of automobile
financing have substantially curtailed their lending to subprime
borrowers due to significant disruptions in the capital markets
and declines in underlying borrower creditworthiness. As a
result, subprime automobile purchase loan approval rates have
dropped significantly from approximately 69% in early 2007 to
approximately 13% in 2010. This contraction in the supply of
financing presents an attractive opportunity to provide a large,
underserved population of borrowers with automobile purchase
financing.
Furniture and Appliance Purchase Lending.
The
furniture and appliance industry represents a large consumer
market with limited financing options for non-prime consumers.
According to the U.S. Department of Commerces Bureau
of Economic Analysis, personal consumption expenditures for
household furniture were estimated at approximately
$87.5 billion for 2010. As measured by Twice, a trade
publication covering the consumer electronics
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and major appliance industries, the top 100 consumer electronics
retailers in the United States reported consumer electronic
sales of $121.3 billion in 2009. Most furniture retailers
do not provide their own financing, but instead partner with
large banks and credit card companies who generally limit their
lending activities to prime borrowers. As a result, non-prime
customers often do not qualify for financing from these
traditional lenders. Continued demand for furniture and
appliances, combined with constraints on the availability of
credit for non-prime consumers, presents a growth opportunity
for furniture and appliance purchase loans.
Our
Strengths
Integrated
Branch Model Offers Advantages Over Traditional
Lenders
Our branch network with 146 locations across five states serves
as the foundation of our multiple channel platform and the
primary point of contact with our over 137,000 active customers.
By integrating underwriting, servicing and collections at the
branch level, our employees are able to maintain a relationship
with our customers throughout the life of a loan. For loans
originated at a branch, underwriting decisions are typically
made by our local branch manager. Our branch managers combine
our sound, company-wide underwriting standards and flexibility
within our guidelines to consider each customers unique
circumstances. This tailored branch-level underwriting approach
allows us to both reject certain bad loans that would otherwise
be approved solely based on a credit report or automated loan
approval system, as well as to selectively extend loans to
customers with prior credit challenges who might otherwise be
denied credit. In addition, all loans, regardless of origination
channel, are serviced and collected through our branches, which
allows us to maintain frequent, in-person contact with our
customers. We believe this frequent-contact, relationship-driven
lending model provides greater insight into potential payment
difficulties and allows us to more effectively pursue payment
solutions, which improves our overall credit performance.
Additionally, with over 70% of monthly payments made in-person
at our branches, we have frequent opportunities to assess the
borrowing needs of our customers and offer new loan products as
their credit profiles evolve.
Multiple
Channel Platform
We offer a diversified range of loan products through our
multiple channel platform, which enables us to efficiently reach
existing and new customers throughout our markets. We began
building our strategically located branch network over
24 years ago and have expanded to 146 branches as of
March 31, 2011. Our automobile purchase loans are offered
through a network of dealers in our geographic footprint,
including over 1,550 independent and over 540 franchise auto
dealerships as of March 31, 2011. We have recently begun to
expand this channel by offering indirect automobile purchase
loans, which are closed at the dealership without the need for
the customer to visit a branch. In addition, we have
relationships with over 100 furniture and appliance retailers
that offer our furniture and appliance purchase loans in their
stores at the point of sale. We have also further developed and
refined our direct mail campaigns, including pre-screened live
check mailings and mailings of invitations to apply for a loan,
which enable us to market our products to hundreds of thousands
of customers on a cost-effective basis. Finally, we have
developed our consumer website to promote our products and
facilitate loan applications. We believe that our multiple
channel platform provides us with a competitive advantage by
giving us broader access to our existing customers and multiple
avenues for attracting new customers, enabling us to grow our
finance receivables, revenues and earnings while we maintain
consistent credit performance through our integrated branch
model.
Attractive
Products for Customers with Limited Access to
Credit
Our flexible loan products, ranging from $300 to $30,000 with
terms between three and 72 months, are competitively
priced, easy to understand and incorporate features designed to
meet the varied financial needs and credit profiles of a broad
array of consumers. This product diversity distinguishes us from
monoline competitors and provides us with the ability to offer
our customers new loan products as their credit profiles evolve,
building customer loyalty.
We believe that the rates on our products are significantly more
attractive than many other credit options available to our
customers, such as payday, pawn or title loans. We also
differentiate ourselves from such alternative financial service
providers by reporting our customers payment performance
to credit bureaus, providing our customers the opportunity to
improve their credit score by establishing a responsible payment
history with us and ultimately gain access to a wider range of
credit options, including our own. We believe this opportunity
for our customers to potentially improve their credit history,
combined with our competitive pricing and terms, distinguish us
in the consumer finance market and provide us with a competitive
advantage.
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Demonstrated
Organic Growth
We have grown our finance receivables by 69.3% from
$140.6 million at December 31, 2006 to
$238.1 million at March 31, 2011. Our growth has come
both from expanding our branch network and developing new
channels and products.
From 2006 to 2010, we grew our year-end branch count from 89
branches to 134 branches, a CAGR of 10.8%, while only closing
one branch, which was consolidated with another existing branch,
during the same period. We opened 11 new branches in the first
quarter of 2011 with an additional 18 locations expected to open
before year end. We have also grown our existing branch
revenues. Our same-store revenue growth rate was 17.4% in 2010,
and has averaged 13.4% annually since 2006. In the first three
months of 2011, our same-store revenue growth rate was 8.9%.
Historically, our branches have rapidly increased their
outstanding finance receivables during the early years of
operations and generally have quickly achieved profitability.
We have also grown by adding new channels and products, which
are then serviced and collected at the local branch level. We
introduced direct automobile purchase loans in 1998, and have
recently expanded our product offerings to include indirect
automobile purchase loans. Indirect automobile purchase loans
allow customers to obtain a loan at a dealership without
visiting one of our branches. We opened two AutoCredit Source
branches in early 2011, which focus solely on originating,
underwriting and servicing indirect automobile purchase loans,
and, as of March 31, 2011, we had established over 275
indirect dealer relationships through these branches. Loan
originations from our live check program have grown from
$52.5 million in 2008 to $123.0 million in 2010, a
CAGR of 53.1%, and totaled $13.1 million and
$17.6 million for the first three months of 2010 and the
first three months of 2011, respectively, as we have increased
the volume and sophistication of our live check marketing
campaigns. We also introduced a consumer website enabling
customers to complete a loan application online. Since the
launch of our website in late 2008, we have received more than
13,100 applications resulting in loans representing
$3.5 million in gross finance receivables.
Consistent
Portfolio Performance
Through over 24 years of experience in the consumer finance
industry, we have established conservative and sound
underwriting and lending practices to carefully manage our
credit exposure as we grow our business, develop new products
and enter new markets. We generally do not make loans to
customers with less than one year with their current employer
and at their current residence, although we also consider
numerous other factors in evaluating a potential customers
creditworthiness, such as unencumbered income and a credit
report detailing the applicants credit history. Our sound
underwriting standards focus on our customers ability to
affordably make loan payments out of their discretionary income
with the value of pledged collateral serving as a credit
enhancement rather than the primary underwriting criterion.
Portfolio performance is improved by our regular in-person
contact with customers at our branches, which helps us to
anticipate repayment problems before they occur, and allows us
to proactively work with customers to develop solutions prior to
default, using repossession only as a last option. In addition,
our centralized management information system enables regular
monitoring of branch portfolio metrics. Our state operations
vice presidents and district supervisors monitor loan
underwriting, delinquencies and charge-offs of each branch in
their respective regions on a daily basis. In addition, the
compensation received by our branch managers and assistant
managers has a significant performance component and is closely
tied to credit quality among other defined performance targets.
We believe our frequent-contact, relationship-driven lending
model, combined with regular monitoring and alignment of
employee incentives, improves our overall credit performance.
Despite the challenges posed by the sharp economic downturn
beginning in 2008, our annual net charge-offs since
January 1, 2006 remained consistent, ranging from 7.0% to
8.6% of our average finance receivables. In 2010 and the first
three months of 2011, our net charge-offs as a percentage of
average finance receivables were 7.9% and 6.4% (annualized),
respectively. Our loan loss provision as a percentage of total
revenue for 2010 and for the first three months of 2011 was
19.1% and 15.5%, respectively. We believe that our consistent
portfolio performance demonstrates the resiliency of our
business model throughout economic cycles.
Experienced
Management Team
Our executive and senior operations management teams consist of
individuals highly experienced in installment lending and other
consumer finance services. We believe our executive management
teams experience has allowed us to consistently grow our
business while delivering high-quality service to our customers
and carefully managing our credit risk. Our executive management
team has centralized a number of business procedures, such as
62
marketing and direct mail campaigns, which were formerly
conducted at each branch. This has allowed us to achieve annual
improvements in our expense efficiency ratio and enhanced
control over our individual branches. Our management team has
also strengthened our underwriting procedures and improved the
data monitoring that we apply across our business, including for
our direct mail campaigns and our branch location analysis. Our
state operations vice presidents average more than 22 years
of industry experience and more than 15 years of service at
Regional, while our district supervisors average more than
18 years of industry experience and more than five years of
service with Regional. As of March 31, 2011, our 157 branch
managers had an average of more than four years of service as
branch managers at Regional.
Our
Strategies
Grow Our
Branch Network
We intend to continue growing the revenue and profitability of
our branch network by increasing volume at our existing
branches, opening new branches within our existing geographic
footprint and expanding our operations into new states.
Establishing local contact with our customers through the
expansion of our branch network is key to our frequent-contact,
relationship-driven lending model and is embodied in our
marketing tagline: Your Hometown Credit Source.
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Existing Branches
We intend to continue
increasing same-store revenues, which have grown an average of
13.4% per annum for the five years ended December 31, 2010,
by further building relationships in the communities in which we
operate and capitalizing on opportunities to offer our customers
new loan products as their credit profiles evolve. From 2006 to
2010, we opened 44 new branches, and we expect revenues at these
branches will continue to grow faster than our overall
same-store revenue growth rate as these branches mature.
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New Branches
We believe there is sufficient
demand for consumer finance services to continue our pattern of
new branch growth and branch acquisitions in the states where we
currently operate, allowing us to capitalize on our existing
infrastructure and experience in these markets. We also analyze
detailed demographic and market data to identify favorable
locations for new branches. Opening new branches allows us to
generate both direct lending at the branches, as well as to
create new origination opportunities by establishing
relationships through the branches with automobile dealerships
and furniture and appliance retailers in the community.
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New States
We intend to explore opportunities
for growth in several states outside our existing geographic
footprint that enjoy favorable interest rate and regulatory
environments, such as Georgia, Kentucky, Louisiana, Mississippi,
Missouri, New Mexico, Oklahoma and Virginia. We do not expect to
expand into states with unfavorable interest rate or regulatory
environments even if those states are otherwise attractive for
our business.
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We also believe that the highly fragmented nature of the
consumer finance industry and the evolving competitive and
economic environment provide attractive opportunities for growth
through branch acquisitions although we have no present
agreement or plan concerning any specific acquisition.
Continue to
Expand and Capitalize on Our Diverse Channels and
Products
We intend to continue to expand and capitalize on our multiple
channel platform and broad array of offerings as follows:
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Automobile Purchase Loans
We source our
automobile purchase loans through a network of approximately
2,090 dealers as of March 31, 2011, and have identified over
11,500 additional dealers in our existing geographic footprint.
We have hired dedicated marketing personnel to develop
relationships with these additional dealers to expand our
automobile financing network. We will also seek to capture a
larger percentage of the financing activity of dealers in our
existing network by continuing to improve our relationships with
dealers and our response time for loan applications. We intend
to continue expanding the number of franchise dealer
relationships through our AutoCredit Source branches to grow our
loan portfolio through increased penetration.
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Live Check Program
We continue to refine our
screening criteria and tracking for direct mail campaigns, which
we believe has enabled us to improve response rates and credit
performance and allowed us to triple the annual number of live
checks that we mailed from 2007 to 2010. In 2010, we mailed over
1.4 million live checks as well as 0.5 million
invitations to apply for loans. We intend to continue to
increase our use of live checks to grow our loan portfolio by
adding new customers and increasing volume at our branches,
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creating opportunities to offer new loan products to our
existing customers. In addition, we mail live checks in new
markets shortly before opening new branches, which we believe
helps our new branches to more quickly develop a customer base
and build finance receivables. The use of live checks is not
subject to substantial regulation in any of the states in which
we currently operate or any states into which we expect to
expand, but is subject to regulation in other jurisdictions. We
are not aware of any pending legislation in any of the states in
which we operate that would affect our use of live checks.
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Furniture and Appliance Purchase Loans
As of
March 31, 2011, we had a network over 100 furniture and
appliance retail locations through which we offer our furniture
and appliance loans, and have identified over 3,700 additional
furniture and appliance retail locations in our existing
geographic footprint. We intend to continue to grow our network
of furniture and appliance retailers by having our dedicated
marketing personnel continue to solicit new retailers, obtain
referrals through relationships with our existing retail
partners, and, to a lesser extent, reach retailers through trade
shows and industry associations. We believe that the furniture
and appliance purchase lending markets are currently
substantially underpenetrated, particularly with respect to
non-prime customers, due to the limited number of lenders
providing financing to these customers and the recent
curtailment of credit provided by prime financing sources.
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Online Sourcing
We developed a new channel in
late 2008 by offering an online loan application on our consumer
website to serve customers who seek to reach us over the
Internet. We intend to continue to develop and expand our online
marketing efforts and increase traffic to our consumer website
through the use of tools such as search engine optimization and
paid online advertising.
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We believe the expansion of our channels and products, supported
by the growth of our branch network, will provide us with
opportunities to reach new customers as well as to offer new
loan products to our existing customers as their credit profiles
evolve. We plan to continue to develop and introduce new
products that are responsive to the needs of our customers in
the future.
Continue to
Focus on Sound Underwriting and Credit Control
We intend to continue to leverage our core competencies in sound
underwriting and credit management developed through over
24 years of lending experience as we seek to profitably
grow our share of the consumer finance market. Our philosophy is
to emphasize sound underwriting standards focused on a
customers ability to affordably make loan payments, to
work with customers experiencing payment difficulties and to use
repossession only as a last option. For example, we permit
customers to defer payments or refinance delinquent loans under
certain circumstances although we do not offer customers
experiencing payment difficulties the opportunity to modify
their loans to reduce the amount of principal or interest that
they owe. A deferral extends the due date of the loan by one
month and allows the customer to maintain his or her credit
rating in good standing. Gross finance receivables with respect
of which any payment was deferred for the year ended
December 31, 2010 and the three months ended March 31,
2011 totaled $47.2 million and $8.9 million,
respectively. In addition to deferrals, we also allow customers
to refinance loans. While we typically only allow customers to
refinance if their loan is current, we allow customers to
refinance delinquent loans on a limited basis if those customers
otherwise satisfy our credit standards (other than with respect
to the delinquency). We believe that refinancing delinquent
loans for certain deserving customers who have made periodic
payments allows us to help customers to resolve temporary
financial setbacks and to repair or sustain their credit. During
2010 and the first three months of 2011, we refinanced only
$7.4 million and $1.6 million, respectively, of
delinquent loans, representing approximately 1.7% and 1.8%, of
our total loan volume for the year 2010 and the first three
months of 2011, respectively, and as of March 31, 2011, the
outstanding balance of such refinancings was only
$4.8 million, or 1.6% of gross finance receivables as of
such date. In accordance with this philosophy, we intend to
continue to refine our underwriting standards to assess an
individuals creditworthiness and ability to repay a loan.
In recent years, we have implemented several new programs to
continue improving our underwriting standards and loan
collection rates, including our branch scorecard
program that systematically monitors a range of operating,
credit quality and performance metrics. Our management
information system enables us to regularly review loan volumes,
collections and delinquencies. We believe this central
oversight, combined with our branch-level servicing and
collections, improves credit performance. We plan to continue to
develop strategies to further improve our sound underwriting
standards and loan collection rates as we expand.
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Our
Products
Small
Installment Loans
We offer small installment loans ranging from $300 to $2,500
through our branches as well as through our live check program.
Our small installment loans are standardized by amount, rate and
maturity to reduce documentation and related processing costs
and to conform with state lending laws. They are payable in
fixed rate, fully amortizing equal monthly installments with
terms of up to 36 months, and are repayable at any time
without penalty. From January 1, 2010 through
March 31, 2011, the average originated net loan size and
term for our small installment loans were $1,001 and
15 months, respectively. Our small installment loans
include loans originated through our live check campaigns, which
had an average originated net loan size and term of $1,130 and
16 months, respectively, in 2010. The weighted average
yield we earned on our portfolio of small installment loans was
47.6% during 2010 and 48.8% for the first three months of 2011.
The interest rates, fees and other charges, maximum principal
amounts and maturities for our small installment loans vary from
state to state, depending upon relevant laws and regulations.
See Government Regulation.
The majority of our small installment loans are made to
customers who visit one of our branches and complete a
standardized credit application. Customers may also complete and
submit a small installment loan application by phone or on our
consumer website before completing the loan in one of our
branches. We carefully evaluate each potential customers
creditworthiness by examining the individuals unencumbered
income, length of current employment, duration of residence and
a credit report detailing the applicants credit history.
Our small installment loan approval process is based on the
customers creditworthiness rather than the value of
collateral pledged. Loan amounts are established based on
underwriting standards designed to allow customers to affordably
make their loan payments out of their discretionary income.
In addition, for small installment loans originated at our
branches, we require our customers to submit a list of their
non-essential household goods and pledge these goods as
collateral. We do not perfect our security interests by filing
UCC financing statements in these goods and instead typically
collect a non-file insurance fee and obtain non-file insurance.
Each of our branches is equipped to perform immediate
background, employment and credit checks, and approve small
installment loan applications promptly while the customer waits.
Our employees verify the applicants employment and credit
histories through telephone checks with employers, other
employment references, supporting documentation, such as
paychecks and earnings summaries, and a variety of third-party
credit reporting agencies.
We also source small installment loans through our live check
mailing campaigns to pre-screened individuals. These campaigns
are often timed to coincide with seasonal demand for loans to
finance vacations,
back-to-school
needs and holiday spending. We also launch live check campaigns
in conjunction with opening new branches to help build an
initial customer base. Customers can cash or deposit live checks
at their convenience thereby agreeing to the terms of the loan
as prominently set forth on the check. Each individual we
solicit for a live check loan has been pre-screened through a
major credit bureau to meet our thorough underwriting criteria.
In addition to screening each potential live check
recipients credit score and bankruptcy history, we also
use a proprietary model that assesses 27 different attributes of
potential recipients. When a customer enters into a loan by
cashing or depositing the live check, our personnel gather
additional contact and other information on the borrower to
assist us in servicing the loan and offering other products to
meet the customers financing needs. Small installment
loans originated through our live check program are secured by
certain non-essential household goods.
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The following table sets forth the composition of our finance
receivables for small installment loans by state at December 31
of each year from 2006 through 2010, and at March 31, 2010 and
2011:
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AT DECEMBER 31,
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AT MARCH 31,
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2006
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2007
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2008
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2009
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2010
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2010
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2011
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South Carolina
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70
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%
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61
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%
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53
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%
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47
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%
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43
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%
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47
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%
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43
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%
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Texas
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14
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%
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22
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%
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26
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%
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27
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%
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29
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%
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|
|
27
|
%
|
|
|
28
|
%
|
North Carolina
|
|
|
16
|
%
|
|
|
16
|
%
|
|
|
19
|
%
|
|
|
21
|
%
|
|
|
20
|
%
|
|
|
22
|
%
|
|
|
21
|
%
|
Tennessee
|
|
|
|
|
|
|
1
|
%
|
|
|
2
|
%
|
|
|
4
|
%
|
|
|
5
|
%
|
|
|
3
|
%
|
|
|
5
|
%
|
Alabama
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
%
|
|
|
3
|
%
|
|
|
1
|
%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the total number of small
installment loans, finance receivables and average per loan for
our small installment loans by state at March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
NUMBER
|
|
|
FINANCE
|
|
|
AVERAGE
|
|
|
|
OF LOANS
|
|
|
RECEIVABLES
|
|
|
PER LOAN
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
South Carolina
|
|
|
48,109
|
|
|
$
|
42,681
|
|
|
$
|
887
|
|
Texas
|
|
|
33,570
|
|
|
|
28,167
|
|
|
|
839
|
|
North Carolina
|
|
|
17,646
|
|
|
|
20,579
|
|
|
|
1,166
|
|
Tennessee
|
|
|
6,025
|
|
|
|
4,746
|
|
|
|
788
|
|
Alabama
|
|
|
4,256
|
|
|
|
3,449
|
|
|
|
810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
109,606
|
|
|
$
|
99,622
|
|
|
$
|
909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large
Installment Loans
We also offer large installment loans through our branches in
amounts ranging from $2,500 to $18,000. Our large installment
loans are payable in fixed rate, fully amortizing equal monthly
installments with terms of 18 to 54 months, and are
repayable at any time without penalty. We require our large
installment loans to be secured by a vehicle, which may be an
automobile, motorcycle, boat or all-terrain vehicle, as well as
certain non-essential household goods. From January 1, 2010
through March 31, 2011, our average originated net loan
size and term for large installment loans were $3,101 and
27 months, respectively. The weighted average yield we
earned on our portfolio of large installment loans was 26.6%
during 2010 and 27.2% for the first three months of 2011.
Potential customers apply for a large installment loan by
visiting one of our branches, where they are interviewed by one
of our employees who evaluates the customers
creditworthiness, including a review of a credit bureau report,
before extending a loan. As with our small installment loans,
large installment loans are made to individuals based on the
customers unencumbered income, length of current
employment, duration of residence and prior credit experience
and credit report history. Loan amounts are established based on
underwriting standards designed to allow customers to affordably
make their loan payments out of their discretionary income. Our
branches perform the same immediate verifications that we
perform for small installment loans in order to approve large
installment loan applications promptly.
Our branch employees will perform an in-person appraisal of the
collateral pledged for a large installment loan using our
multipoint checklist and will use one or more third-party
valuation sources, such as the National Automobile Dealers
Association (NADA) Appraisal Guides, to determine an estimate of
the collaterals value. Regardless of the value of the
vehicle, we will not lend in excess of our assessment of the
borrowers ability to repay.
We perfect all first-lien security interests in each pledged
vehicle by retaining the title to the collateral in our files
until the loan is fully repaid. In certain states, we offer
large installment loans secured by second-lien security
interests on vehicles, in which case we instead seek to perfect
our security interest by recording our lien on the title. We
work with customers experiencing payment difficulties to help
them to find a solution and view repossession only as a last
option. In the event we do elect to repossess a vehicle, we use
third-party vendors. We then sell our repossessed
66
vehicle inventory through public sales conducted by independent
automobile auction organizations after the required
post-repossession waiting period. Any excess proceeds from the
sale of the collateral are returned to the customer.
The following table sets forth the composition of our finance
receivables for large installment loans by state at December 31
of each year from 2006 through 2010, and at March 31, 2010 and
2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AT DECEMBER 31,
|
|
|
AT MARCH 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
South Carolina
|
|
|
79
|
%
|
|
|
72
|
%
|
|
|
72
|
%
|
|
|
62
|
%
|
|
|
57
|
%
|
|
|
62
|
%
|
|
|
53
|
%
|
Texas
|
|
|
12
|
%
|
|
|
20
|
%
|
|
|
11
|
%
|
|
|
11
|
%
|
|
|
9
|
%
|
|
|
10
|
%
|
|
|
9
|
%
|
North Carolina
|
|
|
9
|
%
|
|
|
8
|
%
|
|
|
15
|
%
|
|
|
24
|
%
|
|
|
26
|
%
|
|
|
25
|
%
|
|
|
29
|
%
|
Tennessee
|
|
|
|
|
|
|
|
|
|
|
2
|
%
|
|
|
2
|
%
|
|
|
4
|
%
|
|
|
2
|
%
|
|
|
5
|
%
|
Alabama
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
%
|
|
|
4
|
%
|
|
|
1
|
%
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the total number of large
installment loans, finance receivables and average per loan for
our large installment loans by state at March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NUMBER
|
|
|
FINANCE
|
|
|
AVERAGE
|
|
|
|
OF LOANS
|
|
|
RECEIVABLES
|
|
|
PER LOAN
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
South Carolina
|
|
|
5,775
|
|
|
$
|
17,368
|
|
|
$
|
3,007
|
|
Texas
|
|
|
1,245
|
|
|
|
2,885
|
|
|
|
2,317
|
|
North Carolina
|
|
|
2,851
|
|
|
|
9,638
|
|
|
|
3,380
|
|
Tennessee
|
|
|
524
|
|
|
|
1,479
|
|
|
|
2,823
|
|
Alabama
|
|
|
497
|
|
|
|
1,299
|
|
|
|
2,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10,892
|
|
|
$
|
32,669
|
|
|
$
|
2,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile
Purchase Loans
Our automobile purchase loans are offered through a network of
dealers in our geographic footprint, including over 1,550
independent and over 540 franchise automobile dealerships as of
March 31, 2011. These loans are offered in amounts up to
$30,000 and are secured by the financed vehicle. They are
payable in fixed rate, fully amortizing equal monthly
installments with terms generally of 36 to 72 months, and
are repayable at any time without penalty. From January 1,
2010 through March 31, 2011, our average originated net
loan size and term for automobile purchase loans were $11,126
and 53 months, respectively. The weighted average yield we
earned on our portfolio of automobile purchase loans was 22.7%
during 2010 and 22.7% for the first three months of 2011.
Direct Automobile Purchase Loans.
We have business
relationships with dealerships throughout our geographic
footprint that offer our loans to their customers in need of
financing. These dealers will contact one of our local branches
to initiate a loan application when they have identified a
customer that meets our written underwriting standards.
Applications for direct automobile purchase loans may also be
received through one of the online credit application networks
in which we participate, such as DealerTrack and RouteOne. We
will review the application and requested loan terms and propose
modifications, if necessary, before providing initial approval
inviting the dealer and the customer to come to a local branch
to close the loan. Our branch employees interview the customer
to verify information in the dealers credit application,
obtain a credit bureau report on the customer and inspect the
vehicle to confirm that the customers order accurately
describes the vehicle before closing the loan. Our branch
employees will perform the same in-person appraisal of the
pledged vehicle that they would perform for a vehicle securing a
large installment loan.
Indirect Automobile Purchase Loans.
Since late 2010,
we have also offered indirect automobile purchase loans, which
allow customers and dealers to complete a loan at the dealership
without the need to visit one of our branches. We only offer
indirect loans through larger franchise dealers within our
geographic footprint. These larger franchise dealers collect
credit applications from their customers and either forward the
applications to us specifically or, more commonly, submit the
applications to numerous potential lenders through online credit
application networks, such as DealerTrack and RouteOne.
Beginning earlier this year, we introduced AutoCredit
67
Source branches in the Dallas-Ft. Worth, Texas and
Charlotte, North Carolina metropolitan areas, which focus solely
on originating, underwriting and servicing indirect automobile
purchase loans. Since opening these two new AutoCredit Source
branches, we have already established over 275 indirect
dealer relationships through these branches. In our other
markets, indirect automobile purchase loan applications are
processed by our centralized underwriting department. Once the
loan is approved, the dealer closes the loan on a standardized
retail installment sales contract at the point of sale.
Subsequently, we purchase the loan and then service and collect
on it locally either through an AutoCredit Source branch or our
nearest branch.
Automobile purchase loans are made to individuals based on the
customers unencumbered income, length of current
employment, duration of residence and prior credit experience
and credit report history. Loan amounts are established based on
underwriting standards designed to allow customers to affordably
make their loan payments out of their discretionary income. We
perfect our collateral by recording our lien and retaining the
vehicles title. Our underwriting standards, however, are
primarily based on the creditworthiness of the borrower and we
view repossession only as a last option.
The following table sets forth the composition of our finance
receivables for automobile purchase loans by state at
December 31 of each year from 2006 through 2010, and at
March 31, 2010 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AT DECEMBER 31,
|
|
|
AT MARCH 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
South Carolina
|
|
|
85
|
%
|
|
|
76
|
%
|
|
|
64
|
%
|
|
|
61
|
%
|
|
|
64
|
%
|
|
|
61
|
%
|
|
|
62
|
%
|
Texas
|
|
|
|
|
|
|
3
|
%
|
|
|
7
|
%
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
5
|
%
|
|
|
8
|
%
|
North Carolina
|
|
|
15
|
%
|
|
|
21
|
%
|
|
|
29
|
%
|
|
|
32
|
%
|
|
|
27
|
%
|
|
|
31
|
%
|
|
|
25
|
%
|
Tennessee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
%
|
|
|
3
|
%
|
|
|
2
|
%
|
|
|
4
|
%
|
Alabama
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the total number of automobile
purchase loans, finance receivables and average per loan for our
automobile purchase loans by state at March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NUMBER
|
|
|
FINANCE
|
|
|
AVERAGE
|
|
|
|
OF LOANS
|
|
|
RECEIVABLES
|
|
|
PER LOAN
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
South Carolina
|
|
|
8,378
|
|
|
$
|
63,699
|
|
|
$
|
7,603
|
|
Texas
|
|
|
917
|
|
|
|
7,685
|
|
|
|
8,381
|
|
North Carolina
|
|
|
3,804
|
|
|
|
25,785
|
|
|
|
6,779
|
|
Tennessee
|
|
|
431
|
|
|
|
3,546
|
|
|
|
8,227
|
|
Alabama
|
|
|
173
|
|
|
|
1,449
|
|
|
|
8,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
13,703
|
|
|
$
|
102,164
|
|
|
$
|
7,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture and
Appliance Purchase Loans
We began offering loans to finance the purchase of furniture and
appliances in late 2009. Our furniture and appliance purchase
loans are indirect installment loans structured as retail
installment sales contracts that are offered in amounts of up to
$7,500. They are payable in fixed rate, fully amortizing equal
monthly installments with terms of between six and
48 months, and are repayable at any time without penalty.
From January 1, 2010 through March 31, 2011, our
average originated net loan size and term for furniture and
appliance purchase loans were $1,377 and 24 months,
respectively. The weighted average yield we earned on our
portfolio of furniture and appliance purchase loans was 22.8%
during 2010 and 18.2% for the first three months of 2011.
Our furniture and appliance purchase loans provide financing for
customers who may not qualify for prime financing from
traditional lenders. We believe that the furniture and appliance
purchase lending markets are underserved by sources of non-prime
financing. As compared to other limited sources of non-prime
financing, our furniture and appliance loans often offer more
attractive interest rates and terms to customers.
68
Our furniture and appliance purchase loans are indirect loans
made through a retailer at the point of sale without the need
for the customer to visit one of our branches, similar to our
indirect automobile purchase loans. We partner with furniture
and appliance retailers who offer our furniture and appliance
purchase loans directly to their customers. As of March 31,
2011, we provided furniture and appliance purchase loans to
customers at over 100 furniture and appliance retail locations,
including 50 franchise store locations of the largest furniture
retailer in the United States. By providing a source of
non-prime financing, we are often able to help our retailer
partners complete sales to customers who may not otherwise have
been able finance their purchase.
Our retail partners typically submit applications to us online
or via facsimile while the customer waits. If a customer is not
accepted by a retailers prime financing provider, we will
evaluate the customers credit based on the same
application data, without the need for the customer to complete
an additional form. Underwriting for our furniture and appliance
purchase loans is conducted through a centralized underwriting
team, RMC Retail.
We individually evaluate the creditworthiness of potential
furniture and appliance purchase loan customers using the same
information and resources as for our other loan products,
including a credit bureau report, before providing a response to
the retailer within ten minutes. If we approve the loan, the
retailer completes our standardized retail installment sales
contract, which includes recording a security interest in the
purchased furniture or appliance. Loan amounts are established
based on underwriting standards designed to allow customers to
affordably make their loan payments out of their discretionary
income. The collections of such loans are performed within our
branches. We work with customers experiencing payment
difficulties to help them to find a solution and view
repossession of the collateral only as a last option.
The following table sets forth the total number of furniture and
appliance purchase loans, the finance receivables and average
per loan for our furniture and appliance purchase loans by state
at March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NUMBER
|
|
|
FINANCE
|
|
|
AVERAGE
|
|
|
|
OF LOANS
|
|
|
RECEIVABLES
|
|
|
PER LOAN
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
South Carolina
|
|
|
419
|
|
|
$
|
549
|
|
|
$
|
1,311
|
|
Texas
|
|
|
1,128
|
|
|
|
1,475
|
|
|
|
1,308
|
|
North Carolina
|
|
|
1,603
|
|
|
|
1,613
|
|
|
|
1,006
|
|
Tennessee
|
|
|
11
|
|
|
|
14
|
|
|
|
1,242
|
|
Alabama
|
|
|
5
|
|
|
|
10
|
|
|
|
1,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,166
|
|
|
$
|
3,661
|
|
|
$
|
1,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
Products
We offer our customers a number of different optional insurance
products and other payment protection in connection with our
loans. The insurance products we offer customers are voluntary
and not a condition of the loan. Our insurance products,
including the types of products offered and the terms and
conditions thereof, vary from state to state in compliance with
applicable laws and regulations. We do not sell insurance to
non-borrowers. In 2010 and the first three months of 2011,
insurance income, net, was $8.3 million and
$2.2 million, or 9.5% and 8.9% of our total revenue,
respectively.
We market and sell insurance policies as an agent for an
unaffiliated third-party insurance company. The policies are
then ceded to our wholly-owned reinsurance subsidiary, RMC
Reinsurance, Ltd., which then bears the full risk of the policy.
For the sale of insurance policies, we, as agent, write policies
only within the limitations established by our agency contracts
with the unaffiliated third-party insurance company.
Credit Life Insurance, Credit Accident and Health Insurance
and Involuntary Unemployment Insurance.
We market and
sell optional credit life insurance, credit accident and health
insurance and involuntary unemployment insurance in connection
with our loans in selected markets. Credit life insurance
provides for the payment in full of the borrowers credit
obligation to the lender in the event of the borrowers
death. Credit accident and health insurance, which is only
offered in conjunction with credit life insurance, provides for
the repayment of loan installments to the lender that come due
during an insureds period of income interruption resulting
from disability from illness or injury. Involuntary unemployment
insurance provides for repayment of loan installments in the
event
69
the borrower is no longer employed as the result of a layoff or
reduction in workforce. All customers purchasing these types of
insurance from us sign a statement on the loan contract
affirming that they understand that their purchase of insurance
is not a condition of our granting the loan.
Collateral Protection Collision Insurance.
Before we
originate an automobile purchase loan or large installment loan,
we require the borrower to provide proof of acceptable liability
and collision insurance on the vehicle securing the loan. While
we do not offer automobile insurance to our customers, we will
obtain collateral protection collision insurance
(CPI) on behalf of customers who permit their other
insurance coverage to lapse. If we obtain CPI for a vehicle, the
customer has the opportunity to provide proof of insurance to
cancel the CPI and receive a refund of all unearned premiums.
Property Insurance.
We also require that our
customers provide proof of acceptable insurance for any personal
property securing a loan. Customers can provide proof of such
insurance purchased from a third party (such as homeowners or
renters insurance) or can purchase the property insurance that
we offer.
Our
Branches
Our branches are generally conveniently located in visible, high
traffic locations, such as shopping centers. We do not need to
keep large amounts of cash at our branches because we disburse
our loans by check, rather than by cash payment. As a result,
our branches have an open, welcoming and hospitable layout
without the need for secure booths separating our customers from
our employees.
The following table sets forth the number of branches as of the
dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AT DECEMBER 31,
|
|
|
AT MARCH 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
South Carolina
|
|
|
58
|
|
|
|
59
|
|
|
|
59
|
|
|
|
58
|
|
|
|
61
|
|
|
|
62
|
|
|
|
66
|
|
Texas
|
|
|
21
|
|
|
|
23
|
|
|
|
30
|
|
|
|
31
|
|
|
|
35
|
|
|
|
36
|
|
|
|
37
|
|
North Carolina
|
|
|
10
|
|
|
|
13
|
|
|
|
18
|
|
|
|
18
|
|
|
|
19
|
|
|
|
19
|
|
|
|
21
|
|
Tennessee
|
|
|
|
|
|
|
1
|
|
|
|
5
|
|
|
|
6
|
|
|
|
10
|
|
|
|
10
|
|
|
|
12
|
|
Alabama
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
9
|
|
|
|
9
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
89
|
|
|
|
96
|
|
|
|
112
|
|
|
|
117
|
|
|
|
134
|
|
|
|
136
|
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the period presented in the table above, we grew net
branches by 45 branches. During the same period, we closed only
one branch, which was consolidated with another nearby branch.
In 2011, we currently plan to open at least 29 new branches in
the five states that we currently serve. In evaluating whether
to locate a branch in a particular community, we examine several
factors, including the demographic profile of the community,
demonstrated demand for consumer finance, the regulatory and
political climate and the availability of suitable employees to
staff, manage and supervise the new branch. We also look for a
concentration of independent and franchise automobile dealers as
well as furniture and appliance retailers in order to build our
sales finance business.
The following table sets forth the average finance receivables
per branch based on maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVERAGE FINANCE
|
|
|
|
|
|
|
|
|
|
RECEIVABLES PER
|
|
|
|
|
|
|
|
AGE OF BRANCH
|
|
BRANCH AS OF
|
|
|
PERCENTAGE INCREASE
|
|
|
NUMBER OF
|
|
(AS OF MARCH 31, 2011)
|
|
MARCH 31, 2011
|
|
|
FROM NEWER CATEGORY
|
|
|
BRANCHES
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Branches open less than one year
|
|
$
|
498
|
|
|
|
|
|
|
|
27
|
|
Branches open one to three years
|
|
$
|
1,247
|
|
|
|
150.4
|
%
|
|
|
24
|
|
Branches open three to five years
|
|
$
|
1,425
|
|
|
|
14.3
|
%
|
|
|
24
|
|
Branches open five years or more
|
|
$
|
2,261
|
|
|
|
58.7
|
%
|
|
|
71
|
|
|
The average contribution to operating income from our branches
has historically increased as our branches mature. For the
twelve months ended March 31, 2011, our branches that were
open for less than one year contributed an average of $27,000
per store, branches open one to three years contributed an
average of $203,000 per store,
70
branches open three to five years contributed an average of
$318,000 per store and branches open five years or more
contributed an average of $506,000 per store. We calculate the
average branch contribution as total revenues generated by the
branch less the expenses directly attributable to the branch,
including the provision for losses associated with loans closed
at the branch and operating expenses such as personnel, lease
and interest expenses. General corporate overhead, including
management salaries, are not attributable to any individual
branch. Accordingly, the sum of branch contributions from all of
our branches is greater than our income before taxes.
Payment and Loan
Collections
We have implemented company-wide payment and loan collection
policies and practices, which are designed to maintain
consistent portfolio performance and to facilitate regulatory
compliance. Our district supervisors and state vice presidents
oversee the training of each branch employee in these policies
and practices, which include standard procedures for
communicating with customers in person, over the telephone and
by mail. Our corporate procedures require the maintenance of a
log of collection activity for each account. Our state vice
presidents, district supervisors and internal audit teams
regularly review these records to ensure compliance with our
company procedures, which are designed to comply with applicable
regulatory requirements. See Risk FactorsWe may be
limited in our ability to collect on our loan portfolio and the
security interests securing a significant portion of our loan
portfolio are not perfected, which may increase our loan
losses. Our corporate policies also include encouraging
customers to visit our branches to make payments. For more
information on our oversight structures and procedures, see
EmployeesMonitoring and Supervision
below.
We estimate that approximately 70% of monthly loan payments are
received from customers in person at our branches, with the
remaining payments generally made by mail. Encouraging payment
at the branch allows us to maintain regular contact with our
customers and further develop our overall relationship with
them. We believe that the development and continual
reinforcement of personal relationships with customers improves
our ability to monitor their creditworthiness, reduces credit
risk and generates opportunities to offer new loan products to
our customers as their credit profiles evolve. To reduce late
payment risk, branch employees encourage customers to inform us
in advance of expected payment problems.
Branch employees also promptly contact customers following the
first missed payment due date and thereafter remain in close
contact with such customers, including through phone calls and
letters. Our branch employees also contact a delinquent
customers employer and other references listed on the
customers loan application. We use third-party skip
tracing services to locate delinquent customers in the event
that our branch employees are unable to do so. In certain cases,
we seek a legal judgment against delinquent customers.
We obtain security interests for all of our loans, and we
perfect the security interests in vehicles securing large
installment loans and automobile purchase loans. For a
discussion of the collateral requirements as they relate to each
of our loan products, see Small Installment
Loans on page 66, Large Installment
Loans on page 67, Automobile Purchase
Loans on page 69 and Furniture and
Appliance Purchase Loans on page 70. Our district
supervisors and internal audit teams regularly review collateral
documentation on our loan products to customers to confirm
compliance with our guidelines. We perfect all first-lien
security interests in each pledged vehicle by retaining the
title to the collateral in our files until the loan is fully
repaid. In certain states, we offer large installment loans
secured by second-lien security interests on vehicles, in which
case we instead seek to perfect our security interest by
recording our lien on the title. We only initiate repossession
efforts when an account is seriously delinquent, we have
exhausted other means of collection and, in the opinion of
management, the customer is unlikely to make further payments.
Since 2010, we have sold substantially all repossessed vehicles
through public sales conducted by independent automobile auction
organizations, after the required post-possession waiting
period. Losses on the sale of repossessed collateral are charged
to the allowance for loan losses.
In certain cases, we permit our existing customers to refinance
their loans. Our refinancings of existing loans are divided into
three categories: refinancings of loans in an amount greater
than the original loan amount, renewals of existing loans that
are current and renewals of existing loans that are delinquent,
which represented 19.1%, 32.9% and 1.7%, respectively, of our
loan originations in 2010 and 13.9%, 35.7% and 1.8%,
respectively, of our loan originations in the first three months
of 2011.
Any refinancing of a loan in an amount greater than the original
amount generally requires an underwriting review to determine a
customers qualification for the increased loan amount.
Furthermore, we obtain a new credit report and
71
may complete a new application on renewals of existing loans if
they have not completed one within the prior two years. We do
not refinance our automobile purchase or furniture and appliance
purchase loans.
While we typically only allow customers to refinance if their
loan is current, we allow customers to refinance delinquent
loans on a limited basis if those customers otherwise satisfy
our credit standards (other than with respect to the
delinquency). We believe that refinancing delinquent loans for
certain deserving customers who have made periodic payments
allows us to help customers to resolve temporary financial
setbacks and to repair or sustain their credit. During 2010 and
the first three months of 2011, we refinanced only
$7.4 million and $1.6 million, respectively, of
delinquent loans, and as of March 31, 2011, the outstanding
balance of such refinancings was only $4.8 million, or 1.6%
of gross finance receivables as of such date.
We fully reserve on our financial statements for accounts upon
180 days of contractual delinquency, however, we continue
to pursue payments on such loans, which we believe improves
overall recoveries. Accounts may only be charged off by our
district supervisors or state vice presidents following review
of the collection work applied to them. We continue to attempt
to collect on charged-off loans centrally, and we do not sell
any of our charged-off accounts to third-party debt purchasers,
nor do we place any debt with third-party collection agencies.
Information
Technology
Since 1999, we have used a data processing software package
developed and owned by ParaData Financial Systems and have
invested in customizing the ParaData software to improve the
management of our specific processes and product types. The
ParaData software is also used by many of our competitors. With
this software package, we are able to fully automate all of our
loan account processing and servicing. The system provides
thorough management information and control capabilities,
including monitoring of all loans made, collections,
delinquencies and other functions. We believe that the ParaData
loan management system is adequate for our current business
needs and that it will support our expected growth.
Competition
The consumer finance industry is highly fragmented, with
numerous competitors. The competition we face for each of our
loan products is distinct.
Small and
Large Installment Loans
The small and large installment loan industry is highly
fragmented in the five states in which we currently operate. Our
largest installment loan competitor in most of the markets in
which we operate is World Acceptance Corp., an installment
finance lender with approximately 1,000 branches, less than half
of which are located in states that we serve. Additionally, we
compete with Security Finance Corporation for small installment
loans as well as for automobile purchase loans. We believe that
Security Finance Corporation has in excess of 1,100 branches
nationwide. We also compete with a handful of private
competitors with between 100 to 250 branches in certain of the
states in which we operate. We believe that the majority of our
competitors are independent operators with generally less than
100 branches. We believe that competition between
installment consumer loan companies occurs primarily on the
basis of price, breadth of loan product offerings, flexibility
of loan terms offered and the quality of customer service
provided. While underbanked customers may also use alternative
financial services providers, their products offer different
terms and typically carry substantially higher interest rates
than our installment loans. Accordingly, we believe alternative
financial services providers are not an attractive alternative
for customers who meet our underwriting standards, which are
generally stricter than the underwriting standards of
alternative financial services providers. Our small and large
installment loans also compete to a lesser extent with online or
peer-to-peer
lenders and issuers of non-prime credit cards.
Automobile
Purchase Loans
In the automobile purchase loan industry, we compete with
numerous financial service companies, including non-prime auto
lenders, dealers that provide financing, captive finance
companies owned by automobile manufacturers and, to a limited
extent, credit unions. Competition among automobile purchase
lenders is largely on the basis of interest rates charged, the
quality of credit accepted, the flexibility of loan terms
offered, the speed of approval and the quality of customer
service provided. Much of the automobile purchase loan
marketplace has shifted to processing loan applications
generated at dealers through such online credit application
networks as DealerTrack or RouteOne where prompt service and
response times to dealers and their customers are essential to
compete in this market.
72
Furniture and
Appliance Purchase Loans
In the furniture and appliance purchase loan industry, there are
currently only a small number of lenders dedicated to non-prime
furniture and appliance purchase loans. To the extent customers
require furniture and appliance financing but do not qualify for
a retailers prime sources of financing, the main
alternatives are
rent-to-own
financing providers and credit card companies. Our furniture and
appliance purchase loans are typically made at competitive
rates, and competition is largely on the same basis as
automobile purchase loans.
Point-of-sale
financing decisions must be made rapidly while the customer is
on the sales floor. We provide responses to customers in less
than ten minutes, and we staff RMC Retail, our centralized
furniture and appliance purchase loan underwriting team, with
multiple shifts seven days per week during peak retail furniture
shopping hours to ensure rapid response times.
Seasonality
Our loan volume and corresponding finance receivables follow
seasonal trends. Demand for our loans is typically highest
during the fourth quarter, largely due to holiday spending. Loan
demand has generally been the lowest during the first quarter,
largely due to decreases in demand as a result of the timing of
income tax refunds. During the remainder of the year, our loan
volume typically grows from customer loan activity. In addition,
we typically generate higher loan volumes in the second half of
the year from our live check campaigns, which are timed to
coincide with seasonal consumer demand. Consequently, we
experience significant seasonal fluctuations in our operating
results and cash needs.
Employees
As of March 31, 2011, we had approximately
529 employees, none of whom were represented by labor
unions. We consider our relations with our personnel to be good.
We experience a high level of turnover among our entry-level
employees, which we believe is typical of the consumer finance
industry. However, as of March 31, 2011, our 146 branch
managers had an average of more than four years of service as
branch managers at Regional.
Staff and
Training
Local branches are generally staffed with three to four
employees. The branch manager oversees operations of the branch
and is responsible for approving all loan applications. Each
branch has one or two assistant managers who contact delinquent
customers, review loan applications and prepare operational
reports. Each branch also has a customer service representative
who takes loan applications, processes loan applications,
processes payments and assists in the preparation of operational
reports, collection efforts and marketing activities. Larger
volume branches may employ additional assistant managers and
customer service representatives.
New employees are tested on a detailed training manual that
outlines our operating policies and procedures during the first
year of employment. In addition, each branch provides weekly
in-branch training sessions and periodic training sessions
outside the branch.
Monitoring and
Supervision
We have robust oversight structures and procedures in place to
ensure compliance with our operational standards and policies
and the applicable regulatory requirements in each state. All of
our loans are prepared using our loan management software, which
is programmed to compute fees, interest rates and other loan
terms in compliance with our underwriting standards and
applicable regulations. We work with our regulatory counsel to
develop standardized forms and agreements for each state,
ensuring consistency and compliance.
Our loan operations are organized by state with separate
business units for each of South Carolina, North Carolina and
Texas and a fourth business unit that includes both Alabama and
Tennessee. Several levels of management monitor and supervise
the operations of each of our branches. Branch managers are
directly responsible for the performance of their respective
branches. District supervisors are responsible for the
performance of between six and ten branches in their districts,
communicating with the branch managers of each of their branches
at least weekly and visiting the branches at least monthly. Four
state vice presidents monitor the performance of all of our
branches, primarily through communications with district
supervisors. These state vice presidents communicate with the
district supervisors of each of their districts at least weekly
and visit each of their branches at least quarterly. Our
information technology platform enables us to regularly monitor
our portfolio, which we believe improves our credit performance.
73
At least once per year, each branch undergoes an audit by our
internal auditors. These audits include an examination of cash
balances and compliance with our loan approval, review and
collection procedures and compliance with state and federal laws
and regulations. Branches that do not receive a satisfactory
grade from our internal audit team are automatically re-audited
within 90 days in order to confirm operational improvements.
In 2009, we introduced a scorecard program to
systematically monitor a range of operating metrics at each
branch. Our scorecard system currently tracks 15 different
dimensions of operations, including the performance and
compliance of each branch on a series of underwriting metrics.
Our headquarters staff provides central oversight by reconciling
on a daily basis all account payments, cash balances and bank
deposits for each of our branches. Senior management receives
daily delinquency, loan volume, charge-off and other statistical
reports consolidated by state and has access to these daily
reports for each branch. On a monthly basis, district
supervisors audit the operations of each branch in their
geographic area and submit standardized reports detailing their
findings to senior management. District supervisors and state
vice presidents meet with the executive management team once per
quarter to review branch scorecard results as well as to discuss
other operational and financial performance results against our
targets and historical standards. Remedial plans are put in
place to correct any underperformance.
Properties
We own our home office buildings in Greenville, South Carolina,
which total approximately 9,500 square feet. Our $500,000
line of credit is secured by a mortgage on this property. Each
of our 146 branches, as of March 31, 2011, is leased under
fixed term lease agreements. Our branches are located throughout
South Carolina, Texas, North Carolina, Tennessee and Alabama,
and the average branch size is approximately 1,200 square
feet.
Government
Regulation
Consumer finance companies are subject to extensive regulation,
supervision and licensing under various state and federal
statutes, ordinances and regulations. Many of these regulations
impose detailed constraints on the terms of our loans or the
retail installment sales contracts that we purchase, lending
forms and operations. The software that we use to originate
loans is designed to ensure compliance with all applicable
lending regulations.
State Lending
Regulation
In general, state statutes establish maximum loan amounts and
interest rates and the types and maximum amounts of fees,
insurance premiums and other fees that may be charged for both
direct and indirect lending. Specific allowable charges vary by
state. Statutes in Texas allow for indexing the maximum small
loan amounts to the Consumer Price Index and set maximum rates
for automobile purchase loans based on the age of the vehicle.
Except in the state of North Carolina, our direct loan products
are pre-computed loans in which the finance charge is a
combination of origination or acquisition fees, account
maintenance fees, monthly account handling fees and other
charges permitted by the relevant state laws. Direct loans in
North Carolina are structured as simple interest loans as
prescribed by state law.
In addition, state laws regulate the keeping of books and
records and other aspects of the operation of consumer finance
companies. State and federal laws regulate account collection
practices. Generally, state regulations also establish minimum
capital requirements for each local branch. State agency
approval is required to open new branches.
Each of our branches is separately licensed under the laws of
the state in which the branch is located. Licenses granted by
the regulatory agencies in these states are subject to renewal
every year and may be revoked for failure to comply with
applicable state and federal laws and regulations. In the states
in which we currently operate, licenses may be revoked only
after an administrative hearing. We believe we are in compliance
with state law and regulations applicable to our lending
operations in each state.
We and our operations are regulated by several state agencies,
including the Consumer Finance Division of the South Carolina
Board of Financial Institutions, the South Carolina Department
of Consumer Affairs, the North Carolina Office of the
Commissioner of Banks, the Texas Office of the Consumer Credit
Commissioner, the Tennessee Department of Financial Institutions
and the Alabama State Banking Department. These state regulatory
agencies audit our branches from time to time, and each state
agency performs an annual compliance audit of our operations in
that state.
74
Insurance
Regulation
Charges for credit insurance and similar payment protection
products are made at authorized statutory rates and are stated
separately in our disclosure to customers, as required by the
Truth in Lending Act and by various applicable state laws.
We are also subject to state regulations governing insurance
agents in the states in which we sell insurance. State insurance
regulations require that insurance agents be licensed and limit
the premium amount charged for such insurance. Our captive
insurance subsidiary is regulated by the insurance authorities
of the Turks and Caicos Islands of the British West Indies,
where the subsidiary is organized and domiciled.
Dodd-Frank
Wall Street Reform and Consumer Protection Act of
2010
At the federal level, Congress enacted comprehensive financial
regulatory reform legislation on July 21, 2010, which is to
take effect July 21, 2011. A significant focus of the new
law, known as the Dodd-Frank Act, is heightened consumer
protection. The Dodd-Frank Act established a new body, called
the CFPB, that will have regulatory, supervisory and enforcement
powers over providers of consumer financial products and
services, including explicit supervisory authority to examine
and require registration of non-depository lenders and
promulgate rules that can affect the practices and activities of
lenders.
Although the Dodd-Frank Act expressly provides that the CFPB has
no authority to establish usury limits, some consumer advocacy
groups have suggested that various forms of alternative
financial services or specific features of consumer loan
products should be a regulatory priority and it is possible that
at some time in the future the CFPB could propose and adopt
rules making such lending services materially less profitable or
impractical, which may include installment finance loans or
other products that we offer.
In addition to the grant of certain regulatory powers to the
CFPB, the Dodd-Frank Act gives the CFPB authority to pursue
administrative proceedings or litigation for violations of
federal consumer financial laws. In these proceedings, the CFPB
can obtain cease and desist orders (which can include orders for
restitution or rescission of contracts, as well as other kinds
of affirmative relief) and monetary penalties.
Other Federal
Laws and Regulations
In addition to the Dodd-Frank Act and state and local laws and
regulations, numerous other federal laws and regulations affect
our lending operations. These laws include the Truth in Lending
Act, the Equal Credit Opportunity Act, the Fair Credit Reporting
Act, the Gramm-Leach-Bliley Act and in each case the regulations
thereunder, and the Federal Trade Commissions Credit
Practices Rule. These laws require us to provide complete
disclosure of the principal terms of each loan to the borrower,
prior to the consummation of the loan transaction, prohibit
misleading advertising, protect against discriminatory lending
practices and proscribe unfair credit practices.
Under the Truth in Lending Act and Regulation Z promulgated
thereunder, we must disclose certain material terms related to a
credit transaction, including, but not limited to, the annual
percentage rate, finance charge, amount financed, total of
payments, the number and amount of payments and payment due
dates to repay the indebtedness.
Under the Equal Credit Opportunity Act and Regulation B
promulgated thereunder, we cannot discriminate against any
credit applicant on the basis of any protected category, such as
race, color, religion, national origin, sex, marital status or
age. We are also required to make certain disclosures regarding
consumer rights and advise customers whose credit applications
are not approved of the reasons for the rejection.
Under the Fair Credit Reporting Act, we must provide certain
information to customers whose credit applications are not
approved on the basis of a report obtained from a consumer
reporting agency, promptly update any credit information
reported to a credit reporting agency about a customer and have
a process by which customers may inquire about credit
information furnished by us to a consumer reporting agency.
Under the Gramm-Leach-Bliley Act, we must protect the
confidentiality of our customers nonpublic personal
information and disclose information on our privacy policy and
practices, including with regard to the sharing of
customers nonpublic personal information with third
parties. This disclosure must be made to customers at the time
the customer relationship is established and, in some cases, at
least annually thereafter.
75
The Federal Trade Commissions Credit Practices Rule limits
the types of property we may accept as collateral to secure a
consumer loan.
Violations of these statutes and regulations may result in
actions for damages, claims for refund of payments made, certain
fines and penalties, injunctions against certain practices and
the potential forfeiture of rights to repayment of loans.
Changes to any of these statutes and regulations may have a
materially adverse effect on our business as described under
Risk Factors Risks Related to Regulation.
Legal
Proceedings
We are involved in routine litigation and claims primarily
arising out of our operations in the normal course of business,
which we do not expect to have a material adverse effect upon
our consolidated financial statements.
76
MANAGEMENT
Directors,
Director Nominees and Executive Officers
The following table sets forth the names, ages and positions of
our directors, director nominees and executive officers as of
the date of this prospectus.
|
|
|
|
|
|
|
NAME
|
|
AGE
|
|
POSITION
|
|
David Perez
|
|
|
43
|
|
|
Chairman of the Board of Directors
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Roel C. Campos
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Director Nominee
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Richard T. DellAquila
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Director
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Richard A. Godley
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Director
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Jared L. Johnson
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Director
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Alvaro G. de Molina
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Director Nominee
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Carlos Palomares
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Director Nominee
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Erik A. Scott
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Director
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Thomas F. Fortin
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Chief Executive Officer and Director Nominee
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C. Glynn Quattlebaum
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President and Chief Operating Officer
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Robert D. Barry
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Executive Vice President and Chief Financial Officer
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A. Michelle Masters
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Senior Vice President, Strategic Development and Corporate
Secretary
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David Perez
has served as the chairman of the board of
directors since April 2011 and has been a director of Regional
since March 2007. He has served as a Managing Director with
Palladium since 2003. Previously, he held senior private equity
positions at General Atlantic Partners and Atlas Venture, and
also held positions at Chase Capital Partners and James D.
Wolfensohn, Inc. Mr. Perez serves on the Board of Directors
of Palladiums privately held portfolio companies Aconcagua
Holdings, Inc., American Gilsonite Company, Capital Contractors,
Inc., DolEx Dollar Express, Inc., Jordan Healthcare Holdings,
Inc. and Prince Minerals, Inc. Mr. Perez serves as the
Chair of the Board of Directors of the National Association of
Investment Companies (NAIC), is a member of the Council on
Foreign Relations, and is the President of the Board of
Directors of Ballet Hispánico. Mr. Perez earned a
B.S./M.S. degree from the Dresden University of Technology, an
M.Eng. degree in Engineering Management from Cornell University
and an M.B.A. degree from Harvard Business School.
Roel C. Campos
is a director nominee. Mr. Campos is
a partner with the law firm of Locke Lord Bissell &
Liddell LLP, which he joined in April 2011. He practices in the
areas of securities regulation, corporate governance and
securities enforcement. He had previously been a partner in the
law firm of Cooley Godward Kronish LLP from September 2007 to
April 2011. Prior to that, he received a presidential
appointment and served as a Commissioner of the Securities and
Exchange Commission (SEC) from 2002 to 2007. Prior
to serving with the SEC, Mr. Campos was a founding partner
of a Houston-based radio broadcaster. Earlier in his career, he
practiced corporate law and served as a federal prosecutor in
Los Angeles, California. Mr. Campos is a trustee for the
Managed Portfolio Series, an open-end mutual fund registered
with the SEC under the Investment Company Act. Mr. Campos
was selected by President Barack Obama to serve on his citizen
Presidential Intelligence Advisory Board. Mr. Campos also
serves on the Advisory Board for the Public Company Accounting
Oversight Board and serves on various non-profit boards.
Mr. Campos earned a B.S. degree from the United States Air
Force Academy, an M.B.A. degree from the University of
California, Los Angeles, and a J.D. degree from Harvard Law
School.
Richard T. DellAquila
has been a director of
Regional since July 2010. Mr. DellAquila is a
Principal at Parallel, which he joined in March 2010. Prior to
joining Parallel, Mr. DellAquila was a Principal at
Southfield Capital Advisors LLC from January 2006 to February
2010, and has previously held positions at Sasco Capital, Inc.,
Pangea, Ltd, and Bear, Stearns & Co. Inc.
Mr. DellAquila also serves on the boards of
Parallels privately held portfolio companies
Quartermaster, Inc., USA Discounters, Inc. and Newhall
Laboratories, Inc. Mr. DellAquila graduated from
Hamilton College where he received a B.A. degree in Economics.
He also studied as an undergraduate at Oxford University.
77
Richard A. Godley
has been a director of Regional since
its inception in 1987 and is its founder. He previously served
as President and Chief Executive Officer of Regional from 1987
until January 2006 and served as chairman of the board of
directors from January 2006 until March 2007. Prior to founding
Regional, Mr. Godley served as Senior Vice President of
World Acceptance Corporation. Mr. Godley is a veteran of
the U.S. Army and served in Vietnam from 1968 to 1969.
Jared L. Johnson
has been a director of Regional since
2009. Mr. Johnson is a Managing Director at Parallel, which
he joined as a Principal in 2003. Prior to joining Parallel,
Mr. Johnson was a Vice President with Summit Partners and
has previously held positions with Robertson Stephens and
Kirkland Messina. Mr. Johnson also serves on the boards of
Parallels privately held portfolio companies Marmalade
Holdings, Inc., New Moosejaw, LLC, Quartermaster, Inc. and TFO
Holdings, Inc. Mr. Johnson is a graduate of Stanford
University, where he received an A.B. degree in American Studies.
Alvaro G. de Molina
is a director nominee. Until 2009,
Mr. de Molina was the Chief Executive Officer of GMAC LLC, which
he had originally joined as Chief Operating Officer in 2007.
Since departing GMAC LLC, Mr. de Molina has been a private
investor. He also joined Cerberus Capital Management where he
worked with the operations group for a period during 2007,
following a
17-year
career at Bank of America where he most recently served as its
Chief Financial Officer from 2005 until 2007. During his tenure
at Bank of America, Mr. de Molina also served as Chief Executive
Officer of Banc of America Securities, President of Global
Capital Markets and Investment Banking, head of Market Risk
Management and Corporate Treasurer. Previously, he also served
in key roles at JPMorgan Chase Bank, N.A., Becton, Dickinson and
Company and PriceWaterhouse LLP (now PricewaterhouseCoopers
LLP). Mr. de Molina is a member of the Board of Visitors of Duke
Universitys Fuqua School of Business. He holds a B.S.
degree in Accounting from Fairleigh Dickinson University and an
M.B.A. degree from Rutgers Business School and is a graduate of
the Duke University Advanced Management Program.
Carlos Palomares
is a director nominee. Since 2007,
Mr. Palomares has been President and Chief Executive
Officer of SMC Resources, a consulting practice that advises
senior executives on business and marketing strategy. From 2001
to 2007, Mr. Palomares was Senior Vice President at Capital
One Financial Corp. (Capital One), and he was Chief Operating
Officer of Capital One Federal Savings Bank banking unit from
2004 to 2007. Prior to joining Capital One, Mr. Palomares
held a number of senior positions with Citigroup Inc. and its
affiliates, including Chief Operating Officer of Citibank Latin
America Consumer Bank from 1998 to 2001, Chief Financial Officer
of Citibank North America Consumer Bank from 1997 to 1998,
Chairman and CEO of Citibank Italia from 1990 to 1992 and
President and CEO of Citibank FSB Florida from 1992 to 1997.
Mr. Palomares serves on the board of directors of Pan
American Life Insurance Group, Inc. and the Coral Gables
Trust Company. He also serves on the board of the Florida
chapter of the National Association of Corporate Directors.
Mr. Palomares earned a B.S. degree in Quantitative Analysis
from New York University.
Erik A. Scott
has been a director of Regional since 2007.
He currently serves as a Managing Director with Palladium, a
position he has held since 2010. From 2005 to 2010, he was a
Vice President and Principal with Palladium. Previously, he was
a Principal at FdG Associates and Parthenon Capital and also
held positions at Allied Capital and Bowles Hollowell
Conner & Co. Mr. Scott also serves on the boards
of Palladiums privately held portfolio companies Capital
Contractors, Inc. and DolEx Dollar Express, Inc. Mr. Scott
earned a B.A. degree in Economics with a concentration in
Spanish from Vanderbilt University and an M.B.A. degree from the
Darden Graduate School of Business Administration at the
University of Virginia.
Thomas F. Fortin
was appointed Chief Executive Officer of
Regional in March 2007 and is also a director nominee. Prior to
joining Regional, Mr. Fortin was, from 2005 to 2007,
President of Cogent Strategic Advisors, LLC, a consulting firm
serving institutional investors. From 1998 to 2005,
Mr. Fortin was Vice President, Development for EJB Group,
Inc., a private investment holding company based in Charlotte,
North Carolina. From 1992 to 1998, Mr. Fortin was Vice
President and Chief Financial Officer of InLight Solutions,
Inc., a medical technology business located in Albuquerque, New
Mexico that he co-founded. He also held positions at Bowles
Hollowell Conner & Co. and Trammell Crow Company. In
2008, Mr. Fortin was elected to the Board of Directors of
the American Financial Services Association (AFSA),
the principal trade organization for the installment lending
industry. He currently serves on the Executive Committee of the
Board of Directors of AFSA, is Vice Chairman of the AFSA
Independents Section and is the Chairman of the AFSA Political
Action Committee. Mr. Fortin earned a B.S. degree in
Industrial Engineering from Stanford University and an M.B.A.
degree from Harvard Business School.
78
Mr. Fortin served as an Operating Partner of Parallel from June
2003 to March 2007. He is also the
brother-in-law
of F. Barron Fletcher, III, the managing member of
Parallel, one of the sponsors.
C. Glynn Quattlebaum
has served as President and
Chief Operating Officer of Regional since March 2007. Prior to
that time, he served Regional as Senior Vice President,
Operations from 1998 to 2007. He is a co-founder of Regional and
has been employed by Regional since its founding in 1987. Prior
to joining Regional, Mr. Quattlebaum was a Supervisor with
World Acceptance Corporation, where he began his career in
consumer finance in 1974. Mr. Quattlebaum also serves on
the board of the South Carolina Independent Consumer Finance
Association.
Robert D. Barry, CPA,
was appointed Executive Vice
President and Chief Financial Officer of Regional in March 2007.
Prior to joining Regional, Mr. Barry was the Managing
Member of AccessOne Mortgage Company, LLC in Raleigh, North
Carolina from 1997 to 2007. During this time, he also served as
part-time Chief Financial Officer for Patriot State Bank,
Fuquay-Varina, North Carolina, from March 2006 to March 2007 and
Nuestro Banco, Raleigh, North Carolina, from July 2006 to March
2007. Prior to his time at AccessOne, Mr. Barry was
Executive Vice President and Chief Financial Officer for
Regional Acceptance Corporation, a consumer finance company
unrelated to us, and prior to that he was a financial
institutions partner in the Raleigh, North Carolina office of
KPMG LLP. Mr. Barry earned a B.S. degree in Accounting from
the University of Delaware and is a Certified Public Accountant
licensed in North Carolina and Georgia.
A. Michelle Masters
currently serves as
Regionals Senior Vice President, Strategic Development and
Corporate Secretary. Ms. Masters joined Regional in
December 1999 as Senior Financial Analyst and was promoted to
Controller and Treasurer in January 2006. Ms. Masters was
subsequently promoted to Senior Vice President of Finance in May
2008. Ms. Masters holds a B.A. degree in Accounting and
Business Administration from Furman University and an M.B.A.
degree from Clemson University.
There are no family relationships among any of our directors or
executive officers.
Composition of
the Board of Directors After this Offering
Our board of directors currently consists of five directors,
Messrs. DellAquila, Godley, Johnson, Perez and Scott,
with Mr. Perez serving as chair. Upon the listing of our
common stock on the New York Stock Exchange, Messrs. Campos, de
Molina and Palomares, three director nominees who are
independent in accordance with the criteria established by the
New York Stock Exchange for independent board members, will be
appointed to the board of directors. Additionally, in connection
with this offering, our Chief Executive Officer,
Mr. Fortin, will be appointed to our board of directors.
Upon the consummation of this offering, the size of our board of
directors will be increased to eight directors.
Following this offering, our existing owners will continue to
control more than 50% of the voting power for the election of
directors of our outstanding common stock. Accordingly, we
intend to elect to rely upon exemptions available to a
controlled company under the New York Stock Exchange
corporate governance standards. These exemptions exempt us from
the obligation to comply with certain New York Stock Exchange
corporate governance requirements including the requirements
that:
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n
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within one year of the date of the listing of our common stock
on the New York Stock Exchange, a majority of our board of
directors consists of independent directors, as
defined under the rules of the New York Stock Exchange;
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n
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we have a compensation committee that is, within one year of the
date of the listing of our common stock on the New York Stock
Exchange, composed entirely of independent directors; and
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n
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we have a corporate governance and nominating committee that is,
within one year of the date of the listing of our common stock
on the New York Stock Exchange, composed entirely of independent
directors.
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Accordingly, you will not have the same protections afforded to
stockholders of companies that are subject to all of the New
York Stock Exchange corporate governance requirements. In the
event that we cease to be a controlled company, we will be
required to comply with these provisions within the transition
periods specified in the rules of the New York Stock Exchange.
These exemptions do not modify the independence requirements for
our audit committee, and we intend to comply with the applicable
requirements of the SEC and New York Stock Exchange
79
rules with respect to our audit committee within the applicable
time frame. See Board Committees
Audit Committee.
Our board of directors will have discretion to determine the
size of the board of directors. Our directors will be elected at
each years annual meeting of stockholders.
Director
Qualifications
Historically, the members of our board of directors have been
designated in accordance with our current shareholders
agreement, which we expect will be replaced upon completion of
this offering with our amended and restated shareholders
agreement. Our current shareholders agreement provides that the
board is comprised of five directors, including (i) four
designees of Regional Holdings LLC (which, pursuant to an
agreement among the holders of Regional Holdings LLC, includes
two designees of Palladium and two designees of Parallel) and
(ii) a designee of our individual owners. Following this
offering, our existing owners will initially continue to have
the right to designate a majority of the members of our board of
directors. See Certain Relationships and Related Person
Transactions Shareholders Agreement. Our
existing owners have sought to ensure that our board of
directors is composed of members whose particular experience,
qualifications, attributes and professional and functional
skills, when taken together, will allow the board to effectively
satisfy its oversight responsibilities. In identifying
candidates for membership on our board, our existing owners have
historically taken into account (1) certain individual
qualifications, such as high ethical standards, integrity,
mature, careful judgment, industry knowledge or experience and
an ability to work collegially with the other members of our
board and (2) all other factors they consider appropriate,
including alignment with our stockholders.
When determining whether our current directors and proposed new
directors have the experience, qualifications, attributes and
skills, taken as a whole, to enable our board to satisfy its
oversight responsibilities effectively in light of our business
and structure, our board focused primarily on their valuable
contributions to our success in recent years and on the
information discussed in the biographical information set forth
under Management Directors, Director Nominees
and Executive Officers. In particular,
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Mr. Perez was selected to serve as a director in light of
his affiliation with Palladium and his significant experience in
working with companies controlled by private equity sponsors,
including several financial companies, and his experience in
working with the management of various other companies owned by
Palladiums funds;
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n
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Mr. Campos was selected to serve as a director in light of
his extensive financial background and experience in working
with financial services companies, his experience with the SEC
and his significant experience with public companies across a
variety of industries;
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n
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Mr. DellAquila was selected to serve as a director in
light of his affiliation with Parallel, his extensive financial
background and experience in working with financial services
companies and his experience in working with the management of
various other companies owned by Parallel;
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Mr. Godley was selected to serve as a director due to his
long-standing role with the company as founder and his
significant continuing equity ownership;
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Mr. Johnson was selected to serve as a director in light of
his affiliation with Parallel, his extensive financial
background and his experience in working with the management of
various other companies owned by Parallel;
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n
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Mr. de Molina was selected to serve as a director in light of
his extensive financial background and his significant
experience with public and private financial services companies;
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n
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Mr. Palomares was selected to serve as a director in light
of his extensive financial background and his significant
experience in leadership roles with public financial services
companies;
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n
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Mr. Scott was selected as a director in light of his
affiliation with Palladium, his extensive financial background
and his experience in working with the management of various
other companies owned by Palladium funds; and
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Mr. Fortin was selected to serve as a director in light of
his role as our Chief Executive Officer and the management
perspective he brings to board deliberations as well as his
experience with the state and federal regulators applicable to
our business.
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80
Board
Committees
Our board of directors has established an audit committee and a
compensation committee, and will establish a corporate
governance and nominating committee prior to the consummation of
this offering. The composition and responsibilities of each
committee are described below. Members serve on these committees
until their resignation or until otherwise determined by our
board.
Audit
Committee
Our audit committee currently consists of Messrs. Scott and
DellAquila. Upon the completion of this offering, our
audit committee will consist of Messrs. Campos,
DellAquila, de Molina, Palomares and Scott, with
Mr. de Molina serving as chair. Pursuant to the audit
committees written charter, our audit committee is
responsible for, among other things:
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n
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selecting and hiring our independent auditors, and approving the
audit and non-audit services to be performed by our independent
auditors;
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n
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assisting the board of directors in evaluating the
qualifications, performance and independence of our independent
auditors;
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n
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assisting the board of directors in monitoring the quality and
integrity of our financial statements and our accounting and
financial reporting processes;
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assisting the board of directors in monitoring our compliance
with legal and regulatory requirements;
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assisting the board of directors in reviewing the adequacy and
effectiveness of our internal control over financial reporting
processes;
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assisting the board of directors in monitoring the performance
of our internal audit function;
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discussing the scope and results of the audit with the
independent registered public accounting firm;
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reviewing with management and our independent auditors our
annual and quarterly financial statements;
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establishing procedures for the receipt, retention and treatment
of complaints received by us regarding accounting, internal
accounting controls or auditing matters and the confidential,
anonymous submission by our employees of concerns regarding
questionable accounting or auditing matters; and
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preparing the audit committee report that the SEC requires in
our annual proxy statement.
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We expect that each of Messrs. Campos, de Molina and
Palomares will be, upon his appointment, an independent director
for the purpose of audit committee membership.
The SEC rules and New York Stock Exchange rules require us to
have a fully independent audit committee within one year of the
date of the listing of our common stock on the New York Stock
Exchange.
Compensation
Committee
Our compensation committee currently consists of
Messrs. Johnson, Godley and Perez. Upon consummation of
this offering, our compensation committee will consist of
Messrs. Godley, Johnson, de Molina and Perez, with
Mr. Johnson serving as chair. The compensation committee is
or will be responsible for, among other things:
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reviewing and approving, or making recommendations to the board
of directors with respect to, corporate goals and objectives
relevant to the compensation of our CEO, evaluating our
CEOs performance in light of those goals and objectives,
and, either as a committee or together with the other
independent directors (as directed by the board of directors),
determining and approving our CEOs compensation level
based on such evaluation;
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n
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reviewing and approving the compensation of our executive
officers, including annual base salary, annual incentive
bonuses, specific goals, equity compensation, employment
agreements, severance and change in control arrangements, and
any other benefits, compensation or arrangements;
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reviewing and recommending the compensation of our directors;
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n
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reviewing and discussing annually with management our
Compensation Discussion and Analysis disclosure
required by SEC rules following the consummation of this
offering;
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n
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preparing the compensation committee report required by the SEC
to be included in our annual proxy statement following the
consummation of this offering; and
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n
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reviewing and making recommendations with respect to our equity
compensation plans.
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81
Corporate
Governance and Nominating Committee
Upon consummation of this offering, our corporate governance and
nominating committee will consist of Messrs. Campos,
Johnson and Scott, with Mr. Campos serving as chair. The
corporate governance and nominating committee will be
responsible for, among other things:
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n
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assisting our board of directors in identifying prospective
director nominees and recommending nominees to the board of
directors;
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overseeing the evaluation of the board of directors and
management;
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n
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reviewing developments in corporate governance practices and
developing and recommending a set of corporate governance
guidelines; and
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recommending members for each committee of our board of
directors.
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Compensation
Committee Interlocks and Insider Participation
Mr. Godley, a member of our compensation committee, is the
founder of Regional, a significant stockholder and a party to
our shareholders agreement. Prior to March 2007, he served as
our President and Chief Executive Officer. Since March 2007,
Mr. Godley has served as a consultant to Regional pursuant
to a consulting agreement, which will be terminated pursuant to
its terms upon the consummation of this offering and the payment
by us of a $150,000 one-time termination fee to Mr. Godley
pursuant to the terms of the consulting agreement.
Mr. Godley is also a lender under our mezzanine debt
arrangements, which we intend to repay with a portion of the
proceeds of this offering. See Certain Relationships and
Related Person Transactions. None of the other members of
our compensation committee is our current or former officer or
employee.
None of our executive officers serves as a member of the board
of directors or compensation committee (or other committee
performing equivalent functions) of any entity that has one or
more executive officers serving on our board of directors or
compensation committee.
Director
Compensation
During 2010, the directors of Regional Management Corp. were
Messrs. Perez, DellAquila, Godley, Johnson and Scott.
Our directors receive no separate compensation for service on
the board of directors or on committees of the board of
directors. Mr. Godley, however, received consulting fees
pursuant to a consulting agreement as described under
Certain Relationships and Related Person
Transactions.
The following table provides summary information concerning the
compensation received by our directors during fiscal 2010:
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ALL OTHER
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NAME
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YEAR
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COMPENSATION
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TOTAL
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Richard T. DellAquila
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2010
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Richard A. Godley
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2010
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$
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150,000
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(1)
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$
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150,000
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Jared L. Johnson
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2010
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David Perez
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2010
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Erik A. Scott
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2010
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(1)
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Mr. Godley received consulting
fees pursuant to a consulting agreement as described under
Certain Relationships and Related Person
Transactions. Pursuant to this consulting agreement, we
pay Mr. Godley a monthly fee equal to $12,500, as well as
pay or reimburse him for all reasonable
out-of-pocket
expenses directly related to the performance of his duties and
responsibilities to us under the agreement. Upon the
consummation of this offering, the agreement will be terminated
pursuant to its terms and we will pay Mr. Godley a one-time
termination fee of $150,000.
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Following this offering, our employees who serve as directors
will receive no separate compensation for service on the board
of directors or on committees of the board of directors. We
anticipate that each non-employee director will receive an
annual retainer of $25,000, plus $10,000 for each committee on
which each such director serves. In addition, upon joining the
board of directors, each non-employee director will receive
options to purchase 10,000 shares of our common stock with
an exercise price equal to the fair market value on the date of
grant and will, subject to the directors continued service
on our board of directors, have standard vesting provisions,
which
82
will be determined prior to the consummation of this offering.
We expect to grant each such non-employee director additional
stock options of comparable value and terms annually. In
addition, each director will be reimbursed for reasonable
out-of-pocket
expenses incurred in connection with his service on our board of
directors. In order to set the levels of director compensation
for the non-executive directors, the compensation committee
reviewed the director compensation packages for the same
publicly-traded comparable set used for executive officers, as
described below under Compensation Discussion and
Analysis Compensation Determination Process,
and also spoke to executive recruiting firms as to market
practice.
Compensation
Discussion and Analysis
The following discussion and analysis of the compensation
arrangements of our named executive officers identified in the
Summary Compensation Table below should be read
together with the compensation tables and related disclosures
regarding our current plans, considerations, expectations and
determinations regarding future compensation programs. Our
executive compensation programs following the consummation of
this offering could differ materially from those summarized in
this Compensation Discussion and Analysis section.
Compensation
Program Objectives
The primary objectives of our executive compensation program are
to attract and retain talented executives to effectively manage
and lead our company and create value for our stockholders. The
compensation packages for our named executive officers generally
include a base salary, performance-based annual cash awards,
discretionary cash bonuses, equity awards and other benefits.
The discussion below includes a review of our compensation
decisions with respect to 2010. Our named executive officers for
2010 were Thomas F. Fortin, our Chief Executive Officer; Robert
D. Barry, our Executive Vice President and Chief Financial
Officer; C. Glynn Quattlebaum, our President and Chief Operating
Officer; and A. Michelle Masters, our Senior Vice President,
Strategic Development and Corporate Secretary.
Compensation
Determination Process
Our current compensation program for our named executive
officers has been designed based on our view that each component
of executive compensation should be set at levels that are
necessary, within reasonable parameters, to successfully attract
and retain skilled executives and that are fair and equitable in
light of market practices. We did not use a compensation
consultant in 2010. In setting an individual named executive
officers initial compensation package and the relative
allocation among different types of compensation, we consider
the nature of the position being filled, the scope of associated
responsibilities, the individuals prior experience and
skills and the individuals compensation expectations, as
well as the compensation of existing executive officers at our
company and our general impressions of prevailing conditions in
the market for executive talent.
We generally monitor compensation practices in the market where
we compete for executive talent to obtain an overview of market
practices and to ensure that we make informed decisions on
executive pay packages. Consistent with our compensation
objectives of attracting and retaining top executive talent, we
believe that the base salaries and performance-based annual cash
award targets of our named executive officers should be set at
levels which are competitive with our peer group companies of
comparable size, although we do not target any specific pay
percentile for our named executive officers. To obtain a sense
of the market, we review the compensation awarded by the
following publicly-traded companies: Aarons, Inc.,
Americas Car-Mart, Inc., Credit Acceptance Corp., Dollar
Financial Corp., EZCORP, Inc., First Cash Financial Services,
Inc., Nicholas Financial, Inc., Rent-A-Center, Inc. and World
Acceptance Corp., as well as select private companies in the
portfolios of the sponsors and companies that compete with us.
In conducting this review, we place particular emphasis on the
relative size of such companies in relation to our size and also
consider the overall salary levels for each position held,
individual bonus targets and incentive compensation paid and
equity ownership levels. We believe that appropriate base
salaries for our named executive officers should generally be in
line with those paid by peer group companies of comparable size,
that performance-based annual cash awards should reward
exceptional performance with overall compensation which can
exceed those of peer group companies of comparable size and that
total compensation for named executive officers may approach the
higher end of such peer group companies of comparable size if
bonus targets are reached.
83
For 2010, the compensation for our named executive officers was
generally higher than publicly-traded peer companies that are
smaller than us and either slightly higher, comparable to or
lower than the larger publicly-traded peer group companies.
Our board of directors makes all compensation determinations for
Messrs. Fortin, Quattlebaum and Barry. Historically,
Ms. Masters compensation has been determined by
Messrs. Fortin and Quattlebaum. We have an employment
agreement with each of Messrs. Fortin and Quattlebaum and a
letter agreement with Mr. Barry. Ms. Masters is an
at-will employee and does not have an employment agreement or a
letter agreement with us. We anticipate that, following this
offering, the compensation committee of our board of directors
will review and approve the compensation determinations for all
of our executive officers.
Elements of
Compensation
Base
Salaries
Base salaries are intended to provide a minimum, fixed level of
cash compensation sufficient to attract and retain an effective
management team when considered in combination with other
components of our executive compensation program. We believe
that the base salary element is required to provide our named
executive officers with a stable income stream that is
commensurate with their responsibilities and to compensate them
for services rendered during the fiscal year. Annual base
salaries are established on the basis of market conditions at
the time we hire an executive as well as by taking into account
the particular executives level of qualifications and
experience. Any subsequent modifications to annual base salaries
are made in consideration of the appropriateness of each
executive officers compensation, both individually and
relative to the other executive officers, the individual
performance of each executive officer and any significant
changes in market conditions. We do not apply specific formulas
to determine increases. The current annual base salaries for our
named executive officers, which were at the same levels
throughout 2010, are as follows: $350,000 for Mr. Fortin,
$225,000 for Mr. Barry, $435,750 for Mr. Quattlebaum;
and $102,300 for Ms. Masters.
Performance-Based
Annual Cash Awards
Our annual incentive program is designed to drive achievement of
annual corporate goals, including key financial and operating
results and strategic goals that create value for stockholders.
Our named executive officers are eligible for performance-based
annual cash awards linked to our performance in relation to
performance targets set by our board of directors. Target annual
incentive levels for each named executive officer are shown in
the table below. In addition, the board of directors retains the
authority to award special bonuses for exceptional achievement.
The awards for 2010 were based on our performance with respect
to the following metrics:
|
|
|
|
n
|
net income from operations, which measures profitability;
|
|
|
n
|
total debt / EBITDA (earnings before interest, taxes,
depreciation and amortization), which is our leverage ratio;
|
|
|
n
|
average finance receivables, which measures our loan growth;
|
|
|
n
|
net loans charged off, which measures our charge-off
control; and
|
|
|
n
|
total general and administrative expense percentage, which
measures our expense control.
|
These metrics drive the overall performance of our business from
year to year and are elements of our historical financial
success. Net income from operations measures the effectiveness
of our management teams execution of our strategic and
operational plans. We believe that this measure accurately
reflects business variables and factors that are directly within
managements control or, if not directly within
managements control, are directly influenced by decisions
made by our management executives. Total debt / EBITDA
measures our reliance on our credit facilities to produce cash
flow. We believe that we should, over time, reduce our reliance
upon borrowings and should fund proportionately more of our loan
originations from operating cash flow as we grow. This measure
holds management accountable for de-leveraging our balance sheet
over time. Average finance receivables measures the growth of
our loan portfolio. We seek to continually grow our business on
a consistent and sound basis. We establish annual growth
objectives for our management team for loans that we originate
and service. Net loans charged off measures the control our
management team exerts on loans and is ultimately a measure of
the quality of underwriting policies and decisions. We guide our
management team to specific aggregate net charge-off goals each
year that, combined with our average finance receivables
measure, balances attractive growth with effective portfolio
control. Total general and administrative expense percent
measure the effectiveness with which our management team
utilizes our corporate resources.
84
The following table illustrates our five performance metrics for
2010, their initial weightings, our performance targets, our
actual results, the resulting actual weightings and the maximum
weightings:
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ACTUAL
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ACTUAL
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MAXIMUM
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|
INITIAL
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|
TARGET FOR
|
|
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RESULTS FOR
|
|
|
WEIGHTING
|
|
|
WEIGHTING
|
|
PERFORMANCE METRIC
|
|
WEIGHTING
|
|
|
2010
|
|
|
2010
|
|
|
FOR 2010
|
|
|
FOR 2010
|
|
|
Net income from
operations
(1)
|
|
|
30.0
|
%
|
|
$
|
15,151,000
|
|
|
$
|
20,023,000
|
|
|
|
33.0
|
%
|
|
|
33
|
%
|
Total debt / EBITDA
(2)
|
|
|
30.0
|
%
|
|
|
5.7
|
x
|
|
|
4.5
|
x
|
|
|
33.0
|
%
|
|
|
33
|
%
|
Average finance
receivables
(3)
|
|
|
13.3
|
%
|
|
$
|
214,038,000
|
|
|
$
|
216,115,000
|
|
|
|
13.5
|
%
|
|
|
14.63
|
%
|
Net loans charged
off
(4)
|
|
|
13.3
|
%
|
|
|
8.5
|
%
|
|
|
8.0
|
%
|
|
|
14.1
|
%
|
|
|
14.63
|
%
|
Total general and administrative expense
percentage
(5)
|
|
|
13.3
|
%
|
|
|
41.7
|
%
|
|
|
38.3
|
%
|
|
|
14.4
|
%
|
|
|
14.63
|
%
|
Total
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
108.0
|
%
|
|
|
109.89
|
%
|
|
|
|
(1)
|
|
If net income from operations is
(A) equal to or greater than 90% but less than 100% of the
target, the executive is entitled to an award equal to 30% of
the target award amount multiplied by a fraction, the numerator
of which is equal to the actual net income from operations
expressed as a percentage of the target minus 90% and the
denominator of which is equal to 10%; and (B) equal to or
greater than 100% of the target, the executive is entitled to an
award equal to 30% of the target award amount multiplied by a
fraction, the numerator of which is equal to the actual net
income from operations expressed as a percentage of the target
and the denominator of which is equal to 100%.
|
|
(2)
|
|
If total debt / EBITDA is
(A) greater than 100% but less than 110% of the target, the
executive is entitled to an award equal to 30% of the target
award multiplied by a fraction, the numerator of which is equal
to the difference between 110% and the actual total debt /
EBITDA expressed as a percentage of the target and the
denominator of which is equal to 10%; and (B) equal to or
less than 100% of the target, the executive is entitled to an
award equal to 30% of the target award amount multiplied by the
sum of one and the difference between 100% and the actual total
debt / EBITDA expressed as a percentage of the target.
|
|
(3)
|
|
If average monthly finance
receivables is equal to or greater than 100% of the target, the
executive is entitled to an award equal to 13.3% of the target
award amount multiplied by a fraction, the numerator of which is
equal to the actual finance receivables expressed as a
percentage of the target and the denominator of which is equal
to 100%.
|
|
(4)
|
|
If net loans charged off is equal
to or less than 100% of the target, the executive is entitled to
an award equal to 13.3% of the target award amount multiplied by
the sum of one and the difference between 100% and actual net
loans charged off expressed as a percentage of net loans charged
off.
|
|
(5)
|
|
If the total general and
administrative expense percentage is equal to or less than 100%
of the target, the executive is entitled to an award equal to
13.3% of the target award amount multiplied by the sum of one
and the difference between 100% and the actual total general and
administrative expense percentage expressed as a percentage of
the total general and administrative expense percentage.
|
Based on the extent to which we achieved the performance goals,
as shown above, the following table sets forth the target award
for each named executive officer for 2010 as a percentage of his
or her annual base salary, the actual award, which was
determined by applying the 108% performance factor based on our
performance in relation to the metrics set forth in the table
above, and the maximum award:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PERCENTAGE
|
|
|
|
|
|
|
|
|
MAXIMUM
|
|
|
|
|
|
|
OF BASE
|
|
|
|
|
|
|
|
|
AWARD
|
|
|
|
ANNUAL
|
|
|
SALARY USED TO
|
|
|
|
|
|
ACTUAL
|
|
|
(109.89%
|
|
|
|
BASE
|
|
|
DETERMINE AWARD
|
|
|
TARGET
|
|
|
AWARD (108%
|
|
|
OF TARGET
|
|
NAME
|
|
SALARY
|
|
|
ELIGIBILITY
|
|
|
AWARD
|
|
|
OF TARGET AWARD)
|
|
|
AWARD)
|
|
|
Thomas F. Fortin
|
|
$
|
350,000
|
|
|
|
59
|
%
|
|
$
|
206,500
|
|
|
$
|
223,020
|
|
|
$
|
226,923
|
|
Robert D. Barry
|
|
$
|
225,000
|
|
|
|
74.5
|
%
|
|
$
|
167,625
|
|
|
$
|
181,035
|
|
|
$
|
184,203
|
|
C. Glynn Quattlebaum
|
|
$
|
435,750
|
|
|
|
42.4
|
%
|
|
$
|
184,758
|
|
|
$
|
199,539
|
|
|
$
|
203,031
|
|
A. Michelle Masters
|
|
$
|
102,300
|
|
|
|
25
|
%
|
|
$
|
25,575
|
|
|
$
|
27,621
|
|
|
$
|
28,104
|
|
The percentages set forth in the table above in the column
Percentage of Base Salary Used to Determine Award
Eligibility are set forth in the employment agreements of
Messrs. Fortin and Quattlebaum and the letter agreement of
Mr. Barry and determined with respect to Ms. Masters
by Messrs. Fortin and Quattlebaum. They are calibrated so
that the total compensation opportunity for each named executive
officer is commensurate with that executives role
85
and responsibilities with us and so that Messrs. Fortin,
Barry and Quattlebaum can have similar performance-based annual
cash award opportunities despite differences in their respective
base salaries. An executive must be employed by us on the last
day of the performance year in order to be eligible to receive
payment in respect of a performance-based annual cash award.
Discretionary
Cash Bonuses
Our board of directors has made periodic cash bonus payments to
Messrs. Fortin and Barry in recognition of various specific
projects and achievements. There is no formula or schedule for
such discretionary payments. For 2010, Mr. Fortin was paid
an aggregate discretionary cash bonus of $12,000 in recognition
of his leadership in developing and launching our furniture
financing business and AutoCredit Source, and Mr. Barry was
paid an aggregate discretionary cash bonus of $3,400 in
recognition of successfully expanding our senior revolving
credit facility.
Equity
Awards
In 2007 and 2008, our board of directors granted options to
Messrs. Fortin, Barry and Quattlebaum pursuant to our 2007
Stock Plan. See Outstanding Equity Awards at
2010 Fiscal Year-End. These grants were intended to
directly align the interests of such named executive officers
with those of our stockholders, to give such named executive
officers a strong incentive to maximize stockholder returns on a
long-term basis and to aid in our recruitment and retention of
key executive talent necessary to ensure our continued success.
Each of Messrs. Fortin, Barry and Quattlebaum currently
holds options which have a strike price of $5.4623 per share and
vest 20% on the date of grant and 20% per year in each of the
subsequent four years. In addition, these options vest and
become exercisable in full upon the occurrence of a Change of
Control (as defined in the Option Award Agreements). Our board
of directors did not grant any equity awards during 2009 or 2010.
Other
Compensation
We also provide various other limited perquisites and other
personal benefits to our named executive officers that are
intended to be part of a competitive compensation program. These
benefits include 401(k) plan matching contributions for each of
our named executive officers and monthly automobile allowances
of $1,150 for Messrs. Fortin and Barry and $1,650 for
Mr. Quattlebaum. Mr. Quattlebaum receives a higher
allowance to reflect additional driving that he does for us in
his capacity as President and Chief Operating Officer. The board
of directors believes that these benefits are comparable to
those offered by other companies that compete with us for
executive talent and consistent with our overall compensation
program. Perquisites are not a material part of our compensation
program. We also provide our named executive officers with
benefits that are generally available to all of our employees,
including health insurance, disability insurance, dental
insurance, vision insurance, a $10,000 life insurance benefit
and vacation time. See Summary Compensation
Table All Other Compensation.
Payments Upon
Termination and Change in Control
Pursuant to the terms of his employment agreement or letter
agreement, each of Messrs. Fortin, Barry and Quattlebaum is
entitled to certain benefits upon the termination of his
employment with us, the terms of which are described below under
Potential Payments Upon Termination or Change in
Control. These benefits are intended to alleviate concerns
that may arise in the event of an executives separation
from service with us and enable executives to fully focus on
their duties to us while employed by us. As noted above under
Equity Awards, outstanding options held
by Messrs. Fortin, Barry and Quattlebaum pursuant to our
2007 Stock Plan vest upon a change in control.
Actions Taken
in 2011 and Anticipated Actions in Connection with the
Offering
We anticipate making adjustments to our executive compensation
program in connection with this offering. At the time of this
offering, we intend to
grant , ,
and
options to Mr. Fortin, Mr. Barry, Mr. Quattlebaum
and Ms. Masters, respectively. In addition, we intend to
grant options to certain of our directors. The options will vest
in five equal annual installments beginning on the first
anniversary of the grant date, each have an exercise price equal
to the initial public offering price and will be granted
pursuant to the 2011 Stock Plan.
Following the consummation of this offering, we may determine
that we wish to change some of our executive compensation
programs in light of the availability of publicly-traded equity
as a compensation tool, but we have not yet formulated any plans
to make such changes.
86
Deductibility
of Executive Compensation
Section 162(m) of the Internal Revenue Code (the
Code) limits the ability of the company to deduct
for tax purposes compensation over $1,000,000 to our principal
executive officer or any one of our three highest paid executive
officers, other than our principal executive officer or
principal financial officer, who are employed by us on the last
day of our taxable year, unless, in general, the compensation is
paid pursuant to a plan that is performance related,
non-discretionary and has been approved by our stockholders. No
such limitation on deductibility was applicable in 2010. The
compensation committee will review and consider the
deductibility of executive compensation under
Section 162(m) and may authorize certain payments that will
be in excess of the $1,000,000 limitation. The compensation
committee believes that it needs to balance the benefits of
designing awards that are tax-deductible with the need to design
awards that attract, retain and reward executives responsible
for the success of the company.
Summary
Compensation Table
The following table provides summary information concerning the
compensation for services rendered to us during fiscal 2010 by
(1) our Chief Executive Officer, (2) our Chief
Financial Officer and (3) each of our other executive
officers as of December 31, 2010 (collectively, the
named executive officers).
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCENTIVE PLAN
|
|
|
ALL OTHER
|
|
|
|
|
|
|
|
|
|
SALARY
|
|
|
BONUS
|
|
|
COMPENSATION
|
|
|
COMPENSATION
|
|
|
TOTAL
|
|
NAME AND PRINCIPAL POSITION
|
|
YEAR
|
|
|
($)
|
|
|
($)
(1)
|
|
|
($)
|
|
|
($)
(2)
|
|
|
($)
|
|
|
Thomas F. Fortin,
Chief Executive Officer
|
|
|
2010
|
|
|
|
350,000
|
|
|
|
12,000
|
|
|
|
223,020
|
|
|
|
15,847
|
|
|
|
600,867
|
|
Robert D. Barry,
Executive Vice President and Chief Financial Officer
|
|
|
2010
|
|
|
|
225,000
|
|
|
|
3,400
|
|
|
|
181,035
|
|
|
|
17,894
|
|
|
|
427,329
|
|
C. Glynn Quattlebaum,
President and Chief Operating Officer
|
|
|
2010
|
|
|
|
435,750
|
|
|
|
|
|
|
|
199,539
|
|
|
|
26,695
|
|
|
|
661,984
|
|
A. Michelle Masters,
Senior Vice President, Strategic Development and Corporate
Secretary
|
|
|
2010
|
|
|
|
102,300
|
|
|
|
|
|
|
|
27,621
|
|
|
|
4,118
|
|
|
|
134,039
|
|
|
|
|
(1)
|
|
Represents discretionary bonuses
awarded in 2010. See Compensation Discussion and
Analysis Elements of Compensation
Discretionary Cash Bonuses.
|
|
(2)
|
|
Represents aggregate automobile
allowance payments of $13,800 to each of Messrs. Fortin and
Barry, and $19,800 to Mr. Quattlebaum, a 401(k) plan
matching contribution of $2,047 (of which $178 was an excess
contribution and was refunded by the 401(k) plan administrator
to the executive), $4,094 (of which $2,441 was an excess
contribution and was refunded by the 401(k) plan administrator
to the executive), $6,895 (of which $5,508 was an excess
contribution and was refunded by the 401(k) plan administrator
to the executive) and $2,224 (of which $378 was an excess
contribution and was refunded by the 401(k) plan administrator
to the executive) to Mr. Fortin, Mr. Barry,
Mr. Quattlebaum and Ms. Masters, respectively, and a
cash payment of $1,894 to Ms. Masters in lieu of accrued
and unused vacation time as provided by company policy.
|
87
Grants of
Plan-Based Awards in 2010
The following table reflects grants of plan-based awards made by
us in 2010 to our named executive officers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESTIMATED FUTURE PAYOUTS
|
|
|
|
UNDER NON-EQUITY INCENTIVE PLAN
|
|
|
|
AWARDS
(1)
|
|
|
|
THRESHOLD
|
|
|
TARGET
|
|
|
MAXIMUM
|
|
NAME
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Thomas F. Fortin,
Chief Executive Officer
|
|
|
|
|
|
|
206,500
|
|
|
|
226,923
|
|
Robert D. Barry,
Executive Vice President and Chief Financial Officer
|
|
|
|
|
|
|
167,625
|
|
|
|
184,203
|
|
C. Glynn Quattlebaum,
President and Chief Operating Officer
|
|
|
|
|
|
|
184,758
|
|
|
|
203,031
|
|
A. Michelle Masters,
Senior Vice President, Strategic Development and Corporate
Secretary
|
|
|
|
|
|
|
25,575
|
|
|
|
28,104
|
|
|
|
|
(1)
|
|
Amounts represent estimated
possible payments under our annual incentive program. Actual
amounts paid under the annual incentive program for 2010 are
shown in the Non-Equity Incentive Plan Compensation
column of the Summary Compensation Table. For more
information on the performance metrics applicable to these
awards, see Compensation Discussion and
Analysis Elements of Compensation
Performance-Based Annual Cash Awards.
|
Outstanding
Equity Awards at 2010 Fiscal Year-End
The following table provides information regarding outstanding
equity awards held by our named executive officers as of
December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPTION AWARDS
|
|
|
|
NUMBER OF
|
|
|
NUMBER OF
|
|
|
|
|
|
|
|
|
|
SECURITIES
|
|
|
SECURITIES
|
|
|
|
|
|
|
|
|
|
UNDERLYING
|
|
|
UNDERLYING
|
|
|
|
|
|
|
|
|
|
UNEXERCISED
|
|
|
UNEXERCISED
|
|
|
OPTION
|
|
|
|
|
|
|
OPTIONS
|
|
|
OPTIONS
|
|
|
EXERCISE
|
|
|
OPTION
|
|
|
|
(#)
|
|
|
(#)
|
|
|
PRICE
|
|
|
EXPIRATION
|
|
NAME
|
|
EXERCISABLE
|
|
|
UNEXERCISABLE
|
|
|
($)
|
|
|
DATE
|
|
|
Thomas F. Fortin,
Chief Executive Officer
|
|
|
117,937.8
|
(1)
|
|
|
78,625.2
|
(1)
|
|
$
|
5.4623
|
|
|
|
3/21/17
|
|
Robert D. Barry,
|
|
|
58,968.8
|
(2)
|
|
|
14,742.2
|
(2)
|
|
$
|
5.4623
|
|
|
|
3/21/17
|
|
Executive Vice President and
Chief Financial Officer
|
|
|
14,702.4
|
(3)
|
|
|
9,801.6
|
(3)
|
|
$
|
5.4623
|
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3/21/17
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C. Glynn Quattlebaum,
President and Chief Operating Officer
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235,875.2
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(2)
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58,968.8
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(2)
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$
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5.4623
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3/21/17
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A. Michelle Masters,
Senior Vice President, Strategic Development and Corporate
Secretary
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(1)
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Of these options, 20% vested on the
February 26, 2008 grant date; 20% vested on March 21,
2009; 20% vested on March 21, 2010; 20% vested on
March 21, 2011; and 20% are scheduled to vest on
March 21, 2012, subject to Mr. Fortin remaining
employed by us through such vesting date. The remaining unvested
options automatically vest upon a change of control, which would
be triggered, among other things, if the existing owners cease
to own at least 50% of the outstanding voting power of the
Company.
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(2)
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Of these options, 20% vested on the
October 11, 2007 grant date; 20% vested on March 21,
2008; 20% vested on March 21, 2009; 20% vested on
March 21, 2010; and 20% vested on March 21, 2011.
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(3)
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Of these options, 20% vested on the
April 23, 2008 grant date; 20% vested on April 23,
2009; 20% vested on April 23, 2010; 20% vested on
April 23, 2011; and 20% are scheduled to vest on
April 23, 2012, subject to Mr. Barry remaining
employed by us through such vesting date. The remaining unvested
options automatically vest upon a change of control, which would
be triggered, among other things, if the existing owners cease
to own at least 50% of the outstanding voting power of the
Company.
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Option Exercises
and Stock Vested in 2010
None of our named executive officers had options that were
exercised or restricted stock that vested during 2010.
88
Pension Benefits
for 2010
We do not offer pension benefits to our named executive officers.
Non-Qualified
Deferred Compensation for 2010
We do not offer non-qualified deferred compensation to our named
executive officers.
Potential
Payments Upon Termination or Change in Control
The following table illustrates the additional benefits that
would have been triggered for Messrs. Fortin, Barry and
Quattlebaum by a termination or change in control of our company
on December 31, 2010. The actual amounts that would be
payable in these circumstances can only be determined at the
time of the executives termination or a change in control
and, accordingly, may differ from the estimated amounts set
forth in the tables below. Ms. Masters would not have been
entitled to additional benefits triggered by such events.
Mr.
Fortin
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ACCELERATED
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SALARY
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VESTING
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COBRA
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CONTINUATION
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OF OPTIONS
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PREMIUMS
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TOTAL
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($)
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($)
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($)
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($)
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Termination With Cause; Voluntary Termination;
Death
(1)
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Disability
(2)
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175,000
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11,545
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186,545
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Termination Without Cause; Involuntary
Termination
(2)
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175,000
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11,545
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186,545
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Change in Control
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(3
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(3
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(1)
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If Mr. Fortins death
occurs during a fiscal year, he is entitled to a pro rata
portion of his performance-based annual cash award for the year.
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(2)
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Following termination upon
Disability, termination without Cause or an Involuntary
Termination (each as defined in Mr. Fortins
Employment Agreement), Mr. Fortin would be entitled to
continued salary payments for six months, provided that those
payments will be reduced by the value of any disability benefits
paid to Mr. Fortin (in the case of Disability) and by the
amount of any income Mr. Fortin earns from any other
employment. During the salary continuation period,
Mr. Fortin is entitled to COBRA premium payments for
coverage comparable to that under our group medical plan unless
he becomes entitled to health insurance from a subsequent
employer. If Mr. Fortins termination upon Disability,
termination without Cause or Involuntary Termination occurs
during a fiscal year, he is entitled to a pro rata portion of
his performance-based annual cash award for the year.
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(3)
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Upon a Change of Control (as
defined in Mr. Fortins Option Award Agreement), all
of Mr. Fortins unvested options would vest. As of
December 31, 2010, Mr. Fortin held 78,625.2 unvested
options. Because there was no public market for our Common Stock
as of December 31, 2010, the market value of each share of
Common Stock as of that date is not determinable. Accordingly,
we cannot calculate the value of accelerated vesting of options
on that date.
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Mr. Fortin is subject to non-competition and
non-solicitation covenants for three years following termination
of his employment with us.
Mr.
Barry
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ACCELERATED
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SALARY
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VESTING
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COBRA
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CONTINUATION
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OF OPTIONS
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PREMIUMS
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TOTAL
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($)
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($)
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($)
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($)
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Termination Without
Cause
(1)
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112,500
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112,500
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Change in Control
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(2
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(2
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(1)
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Following termination without
cause, Mr. Barry would be entitled to continued salary
payments for six months.
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(2)
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Upon a Change of Control (as
defined in Mr. Barrys Option Award Agreements), all
of Mr. Barrys unvested options would vest. As of
December 31, 2010, Mr. Barry held an aggregate of
24,543.8 unvested options. Because we there was no public market
for our
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89
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Common Stock as of
December 31, 2010, the market value of each share of Common
Stock as of that date is not determinable. Accordingly, we
cannot calculate the value of accelerated vesting of options on
that date.
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Mr. Quattlebaum
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ACCELERATED
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SALARY
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VESTING
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COBRA
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CONTINUATION
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OF OPTIONS
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PREMIUMS
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TOTAL
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($)
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($)
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($)
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($)
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Termination With Cause; Voluntary Termination;
Death
(1)
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Disability
(2)
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435,750
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23,697
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459,447
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Termination Without Cause; Involuntary
Termination
(2)
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435,750
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23,697
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459,447
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Change in Control
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(3
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(3
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(1)
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If Mr. Quattlebaums
death occurs during a fiscal year, he is entitled to a pro rata
portion of his performance-based annual cash award for the year.
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(2)
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Following termination upon
Disability, termination without Cause or an Involuntary
Termination (each as defined in Mr. Quattlebaums
Employment Agreement), Mr. Quattlebaum would be entitled to
continued salary payments for twelve months, provided that those
payments will be reduced by the value of any disability benefits
paid to Mr. Quattlebaum (in the case of Disability) and by
the amount of any income Mr. Quattlebaum earns from any
other employment. During the salary continuation period,
Mr. Quattlebaum is entitled to COBRA premium payments for
coverage comparable to that under our group medical plan unless
he becomes entitled to health insurance from a subsequent
employer. If Mr. Quattlebaums termination upon
Disability, termination without Cause or Involuntary Termination
occurs during a fiscal year, he is entitled to a pro rata
portion of his performance-based annual cash award for the year.
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(3)
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Upon a Change of Control (as
defined in Mr. Quattlebaums Option Award Agreement),
all of Mr. Quattlebaums unvested options would vest.
As of December 31, 2010, Mr. Quattlebaum held 58,968.8
unvested options. Because there was no public market for our
Common Stock as of December 31, 2010, the market value of
each share of Common Stock as of that date is not determinable.
Accordingly, we cannot calculate the value of accelerated
vesting of options on that date.
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Mr. Quattlebaum is subject to a non-solicitation covenant
for three years following termination of his employment with us.
Employment
Agreements
The agreements described in this section are filed as
exhibits to the registration statement of which this prospectus
forms a part, and the following descriptions are qualified by
reference thereto.
Employment
Agreement with Mr. Fortin
We have entered into an employment agreement with
Mr. Fortin as of February 29, 2008, as amended,
pursuant to which he serves as our Chief Executive Officer. The
employment term is a five-year term that began on
February 29, 2008.
Mr. Fortin is currently entitled to receive an annual base
salary of $350,000, which is subject to increases as may be
determined by our board of directors from time to time. With
respect to each calendar year during the employment term,
Mr. Fortin is also eligible to earn an annual bonus award
under the applicable bonus plan based upon the achievement of
performance targets established by our board of directors.
Pursuant to the employment agreement, Mr. Fortin also
received a grant of 196,563 time-vesting stock options, subject
to the terms of our 2007 Stock Plan, which will fully accelerate
upon a change in control of the Company.
If Mr. Fortins employment is terminated by us without
cause or by Mr. Fortin as a result of
involuntary termination, Mr. Fortin will be
entitled to receive (1) accrued but unpaid salary, bonus
and expense reimbursements through his termination date,
(2) continued payment of his annual base salary until
six months after his termination date, reduced by the
amount of income received by Mr. Fortin from other
employment during that period, (3) payment of the COBRA
premium applicable to Mr. Fortin for comparable coverage
under our group medical plan for so long as he is entitled to
continued payment of his base salary and is not entitled to
obtain insurance from a subsequent employer and (4) an
amount equal to the annual cash bonus award, if any, that
Mr. Fortin would have been entitled to receive pursuant to
the terms of his employment agreement in respect of such year
had his employment not terminated, prorated for the portion of
such year Mr. Fortin was employed during
90
such year. Such salary and bonus would be paid as and at such
times as Mr. Fortin would have received his salary and
bonus had he remained our employee.
If Mr. Fortins employment terminates due to his death
or disability (as defined in his employment
agreement), Mr. Fortin will be entitled to receive accrued
but unpaid salary, bonus and expense reimbursement prior to his
death or disability, and an amount equal to the annual cash
bonus award, if any, that Mr. Fortin would have been
entitled to receive pursuant to the terms of his employment
agreement in respect of such year had his employment not
terminated, prorated for the portion of such year
Mr. Fortin was employed during such year. Such salary and
expense reimbursement is payable within 45 days of his
death or disability, and such bonus would be paid as and at such
times as Mr. Fortin would have received his salary and
bonus had he remained our employee. In addition, in the event
Mr. Fortins employment is terminated due to
disability, he is entitled to continued payment of his annual
base salary until six months after his termination date, reduced
by the amounts payable under any disability insurance, plan or
policy maintained by us and by the amount of any salary, wages
or other income paid to or for the benefit of Mr. Fortin
from any other employment, and payment of the COBRA premiums,
when due, for Mr. Fortin to obtain continuation medical
insurance for such period or until he obtains health insurance
from a subsequent employer. Such salary would be paid as and at
such times as Mr. Fortin would have received his salary had
he remained our employee.
If we terminate Mr. Fortins agreement with
cause, or if Mr. Fortin voluntarily terminates
his employment not due to involuntary termination,
he is entitled only to accrued but unpaid salary and expense
reimbursements through his termination date.
For the purpose of the employment agreement with
Mr. Fortin, cause includes (1) the willful
or grossly negligent material failure by Mr. Fortin to
perform his duties thereunder; (2) Mr. Fortins
conviction of any felony or certain other crimes;
(3) certain acts of fraud, embezzlement or
misappropriation; (4) certain failures to comply with any
written policy of ours that materially interferes with his
ability to discharge his duties, responsibilities or obligations
under his employment agreement; (5) the knowing
misstatement of our financial records; (6) the material
breach by Mr. Fortin of any of the terms of his employment
agreement; or (7) the failure to disclose material
financial or other information to our board of directors.
For the purpose of the employment agreement with
Mr. Fortin, involuntary termination means
Mr. Fortins termination of his employment which, in
his good faith judgment, is due to a material change of
Mr. Fortins responsibilities, position, authority,
duties or in the terms or status of his employment agreement or
a reduction in his base salary.
Mr. Fortin is also subject to a covenant not to disclose
our confidential information during his employment term and at
all times thereafter and covenants not to compete with us and
not to solicit our employees or customers during his employment
term and for three years following termination of his employment
for any reason.
Employment
Agreement with Mr. Quattlebaum
We have entered into an employment agreement with
Mr. Quattlebaum as of March 21, 2007, as amended,
pursuant to which Mr. Quattlebaum serves as our President
and Chief Operating Officer. The employment term is a five-year
term that began on March 21, 2007.
Mr. Quattlebaum is currently entitled to receive an annual
base salary of $435,750, which is subject to increases as may be
determined by our board of directors from time to time. With
respect to each calendar year during the employment term,
Mr. Quattlebaum is also eligible to earn an annual bonus
award under the applicable bonus plan based upon the achievement
of performance targets established by our board of directors.
Pursuant to the employment agreement, Mr. Quattlebaum also
received a grant of 294,844 time-vesting stock options to
Mr. Quattlebaum, subject to the terms of our 2007 Stock
Plan, which will fully accelerate upon a change in
control of the Company.
If Mr. Quattlebaums employment is terminated by us
without cause or by Mr. Quattlebaum as a result
of involuntary termination (as such terms are
defined in the employment agreement), Mr. Quattlebaum will
be entitled to receive (1) accrued but unpaid salary, bonus
and expense reimbursement through his termination date,
(2) continued payment of his annual base salary until
twelve months after his termination date, (3) payment
of the COBRA premium applicable to Mr. Quattlebaum for
comparable coverage under our group medical plan for so long
91
as he is entitled to continued payment of his base salary and is
not entitled to obtain insurance from a subsequent employer and
(4) an amount equal to the annual cash bonus award, if any,
that Mr. Quattlebaum would have been entitled to receive
pursuant to the terms of his employment agreement in respect of
such year had his employment not terminated, prorated for the
portion of such year Mr. Quattlebaum was employed during
such year. Such salary and bonus would be paid as and at such
times as Mr. Quattlebaum would have received his salary and
bonus had he remained our employee.
If we terminate Mr. Quattlebaums agreement with
cause, or if Mr. Quattlebaum voluntarily
terminates his employment for a reason other than due to
involuntary termination, he is entitled only to
accrued but unpaid salary and expense reimbursements through his
termination date.
If Mr. Quattlebaums employment terminates due to his
death or disability (as defined in his employment
agreement), Mr. Quattlebaum will be entitled to receive
accrued but unpaid salary, bonus and expense reimbursement prior
to his death or disability, and an amount equal to the annual
cash bonus award, if any, that Mr. Quattlebaum would have
been entitled to receive pursuant to the terms of his employment
agreement in respect of such year had his employment not
terminated, prorated for the portion of such year
Mr. Quattlebaum was employed during such year. Such salary
and expense reimbursement is payable within 45 days of his
death or disability, and such bonus would be paid as and at such
times as Mr. Quattlebaum would have received his bonus had
he remained our employee. In addition, in the event
Mr. Quattlebaums employment is terminated due to
disability, he is entitled to continued payment of his annual
base salary until twelve months after his termination date,
reduced by the amounts payable under any disability insurance,
plan or policy maintained by us, and payment of the COBRA
premiums, when due, for Mr. Quattlebaum to obtain
continuation medical insurance for such period or until he
obtains health insurance from a subsequent employer. Such salary
would be paid as and at such times as Mr. Quattlebaum would
have received his salary had he remained our employee.
For the purpose of the employment agreement with
Mr. Quattlebaum, cause includes (1) the
willful or grossly negligent material failure by
Mr. Quattlebaum to perform his duties thereunder;
(2) Mr. Quattlebaums conviction of any felony or
certain other crimes; (3) certain acts of fraud,
embezzlement or misappropriation; (4) certain failures to
comply with any written policy of ours that materially
interferes with his ability to discharge his duties,
responsibilities or obligations under his employment agreement;
(5) the knowing misstatement of our financial records;
(6) the material breach by Mr. Quattlebaum of any of
the terms of his employment agreement; or (7) the failure
to disclose material financial or other information to our board
of directors.
For the purpose of the employment agreement with
Mr. Quattlebaum, involuntary termination means
Mr. Quattlebaums termination of his employment which,
in his good faith judgment, is due to a material change of
Mr. Quattlebaums responsibilities, position,
authority, duties or in the terms or status of his employment
agreement, a reduction in his base salary or a forced relocation
outside the Greenville, SC metropolitan area.
Mr. Quattlebaum is also subject to a covenant not to
disclose our confidential information during his employment term
and at all times thereafter and covenants not to solicit our
employees or customers during his employment term and for three
years following termination of his employment for any reason.
Employment
Letter Agreement with Mr. Barry
We have entered into a letter agreement with Mr. Barry as
of July 1, 2008, as amended, pursuant to which
Mr. Barry serves as our Executive Vice President and Chief
Financial Officer.
Mr. Barry is currently entitled to receive an annual base
salary of $225,000, subject to annual review. With respect to
each calendar year during the employment term, the letter
agreement provides that Mr. Barry is also eligible to earn
an annual bonus award under the applicable bonus plan based upon
the achievement of our performance targets for Mr. Barry
established by our board of directors. The employment agreement
also provides for the grant of stock options to Mr. Barry
under our 2007 Stock Plan to increase his option holdings to
1.00% of Regionals outstanding and reserved shares, which
options were granted in 2008.
If we terminate Mr. Barrys employment without cause,
he is entitled to receive six months of his prevailing base
salary as severance.
92
2007 Management
Incentive Plan
General
We adopted our 2007 Stock Plan effective as of March 21,
2007. The 2007 Stock Plan permits the grant of non-qualified
stock options and incentive stock options to our and our
subsidiaries key employees, executive officers,
non-employee directors, consultants or other independent
advisors. As of March 31, 2011, 447,790 shares of our
common stock were available for future awards of options under
the 2007 Stock Plan. No awards may be made under the 2007 Stock
Plan after the tenth anniversary of the effective date of the
plan. We will not grant any further awards under the 2007 Stock
Plan following the completion of this offering.
Administration
The 2007 Stock Plan is administered by the board of directors or
such other committee of our board of directors to which it has
delegated power (the Committee), which, prior to our
initial registration, unless the board of directors determines
otherwise, consists of the entire board of directors. The
Committee has the full authority and discretion to administer
the 2007 Stock Plan and to take any action that is necessary or
advisable in connection with the administration of the 2007
Stock Plan, including, without limitation, the authority and
discretion to interpret and construe any provision of the 2007
Stock Plan, or any agreement, notification, or document entered
into or delivered pursuant to the 2007 Stock Plan, and to
determine whether a participants termination of employment
resulted from voluntary resignation for good reason, discharge
for cause, or any other reason. The interpretation and
construction by the Committee of any such provision and any
determination by the Committee pursuant to any provision of the
2007 Stock Plan, or any agreement, notification, or document
entered into or delivered pursuant to the 2007 Stock Plan, will
be final and conclusive.
Terms of Stock
Options
Options granted under the 2007 Stock Plan are vested and
exercisable at such times and upon such terms and conditions as
may be determined by the Committee, but in no event will an
option be exercisable more than ten years after it is granted.
Under the 2007 Stock Plan, the exercise price per share for any
option awarded is determined by the Committee, but may not be
less than 100% of the fair market value of a share on the day
the option is granted.
All stock options granted by our board of directors to date
under the 2007 Stock Plan have been granted at or above the fair
market value of our common stock at the grant date based upon
the most recent valuation of our common stock. As a
privately-owned company, there has been no market for our common
stock. Accordingly, we have no program, plan or practice
pertaining to the timing of stock option grants to executive
officers, coinciding with the release of material non-public
information.
An option may be exercised by paying the exercise price in cash
or its equivalent, shares, to the extent authorized by the
Committee, by permitting us to withhold a number of shares
otherwise issuable having an aggregate value equal to the
aggregate exercise price in respect of the option, or any
combination of the foregoing.
As of March 31, 2011, options to purchase
589,622 shares of our common stock were outstanding under
the 2007 Stock Plan.
Any shares of our common stock issued upon the exercise of such
options are subject to a repurchase right, pursuant to which we
may repurchase shares acquired upon the exercise of an option,
in specified circumstances including any termination of
employment of a participant. This repurchase right will lapse
upon the closing of a public offering of our shares.
Each of Messrs. Fortin, Barry and Quattlebaum currently
holds options which have a strike price of $5.4623 per share and
vest 20% on the date of grant and 20% per year in each of the
subsequent four years. In addition, these options vest and
become exercisable in full upon the occurrence of a Change of
Control (as defined in the Option Award Agreements). Our board
of directors did not grant any equity awards during 2009 or 2010.
Adjustments
Upon Certain Events
The Committee will make or provide for adjustment in the number
of shares subject to the 2007 Stock Plan, the number of shares
subject to an option granted under the 2007 Stock Plan, the
option price applicable to any such options, in each case as the
Committee in its sole discretion may determine is equitably
required to maintain the
93
intent of the 2007 Stock Plan or to prevent dilution or
enlargement of the rights of participants that would otherwise
result from (1) any stock dividend, stock split,
combination of shares, recapitalization, or other change in the
capital structure of the Company, (2) any merger,
consolidation, spin-off, split-off, spin-out, split-up,
reorganization, partial or complete liquidation or other
distribution of assets, issuance of rights or warrants to
purchase securities, or (3) any other corporate transaction
or event having an effect similar to any of the foregoing. In
addition, in the event of any such transaction or event, the
Committee, in its sole discretion, may provide in substitution
for any or all outstanding options under the 2007 Stock Plan,
such alternative consideration as it, in good faith, may
determine to be equitable in the circumstances and may require
in connection with such substitution the surrender of all stock
options so replaced.
Amendment and
Termination
The Committee may amend or terminate the 2007 Stock Plan at any
time, provided that the 2007 Stock Plan may not be amended
without further approval of our stockholders if such amendment
would result in the plan no longer satisfying any applicable
listing requirements. In addition, neither the Committee nor the
board may reduce the exercise price of an option, or replace an
underwater option with a new option having a lower exercise
price, without approval of each class of stockholders of the
corporation, in each case other than amendments made pursuant to
the Committees authority to adjust awards upon certain
events (described under Adjustments Upon Certain
Events above).
2011 Stock
Incentive Plan
Our board of directors expects to adopt, and we expect our
stockholders to approve, the 2011 Stock Plan prior to the
completion of this offering. The following description of the
2011 Stock Plan is not complete and is qualified by reference to
the full text of the 2011 Stock Plan, which will be filed as an
exhibit to the registration statement of which this prospectus
forms a part.
Purpose
The purpose of the 2011 Stock Plan is to aid us and our
affiliates in recruiting and retaining key employees, directors
and other service providers of outstanding ability and to
motivate those employees, directors, consultants and other
service providers to exert their best efforts on our behalf and
on behalf of our affiliates by providing incentives through the
granting of stock options, stock appreciation rights
(SARs), other stock-based awards, and other
performance-based awards.
Shares Subject
to the Plan
The 2011 Stock Plan provides that the total number of shares of
common stock that may be issued under the 2011 Stock Plan is
950,000, and the maximum number of shares for which incentive
stock options may be granted to any participant in one fiscal
year is 475,000. Shares of our common stock covered by awards
that terminate or lapse without the payment of consideration may
be granted again under the 2011 Stock Plan. Awards may be made
under the 2011 Stock Plan in substitution for outstanding awards
previously granted by a company that is acquired by us, but the
shares subject to such substituted awards will not be counted
against the aggregate number of shares otherwise available for
awards under the 2011 Stock Plan.
Administration
The 2011 Stock Plan will be administered by the compensation
committee of our board of directors or such other committee of
our board of directors to which it has delegated power (the
Committee). The Committee is authorized to interpret
the 2011 Stock Plan, to establish, amend and rescind any rules
and regulations relating to the 2011 Stock Plan and to make any
other determinations that it deems necessary or desirable for
the administration of the 2011 Stock Plan and may delegate such
authority. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in the 2011 Stock Plan
in the manner and to the extent the Committee deems necessary or
desirable. The Committee will have the full power and authority
to establish the terms and conditions of any award consistent
with the provisions of the 2011 Stock Plan and to waive any such
terms and conditions at any time (including, without limitation,
accelerating or waiving any vesting conditions). Determinations
made by the Committee need not be uniform and may be made
selectively among participants in the 2011 Stock Plan.
Limitations
No award may be granted under the 2011 Stock Plan after the
tenth anniversary of the effective date (as defined therein),
but awards theretofore granted may extend beyond that date.
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Options
The Committee may grant non-qualified stock options and
incentive stock options, which will be subject to the terms and
conditions as set forth in the 2011 Stock Plan, the related
award agreement and any other terms, not inconsistent therewith,
as determined by the Committee; provided that all stock options
granted under the 2011 Stock Plan are required to have a per
share exercise price that is not less than 100% of the fair
market value of our common stock underlying such stock options
on the date an option is granted (other than in the case of
options granted in substitution of previously granted awards),
and all stock options that are intended to qualify as incentive
stock options will be subject to the terms and conditions that
comply with the rules as may be prescribed by Section 422
of the Code. The maximum term for stock options granted under
the 2011 Stock Plan will be 10 years from the initial date
of grant. The purchase price for the shares as to which a stock
option is exercised will be paid to us, to the extent permitted
by law (1) in cash or its equivalent at the time the stock
option is exercised, (2) in shares having a fair market
value equal to the aggregate exercise price for the shares being
purchased and satisfying any requirements that may be imposed by
the Committee, so long as the shares will have been held for
such period established by the Committee in order to avoid
adverse accounting treatment, (3) partly in cash and partly
in shares, (4) if there is a public market for the shares
at such time, through the delivery of irrevocable instructions
to a broker to sell the shares being obtained upon the exercise
of the stock option and to deliver to us an amount out of the
proceeds of such sale equal to the aggregate exercise price for
the shares being purchased, or (5) allow for payment
through a net settlement feature. The
repricing of stock options is prohibited without
prior approval of our stockholders.
Stock
Appreciation Rights
The Committee may grant stock appreciation rights, or SARs,
independent of or in connection with a stock option. The
exercise price per share of a SAR will be an amount determined
by the Committee but in no event will such amount be less than
100% of the fair market value of a share on the date the SAR is
granted (other than in the case of SARs granted in substitution
of previously granted awards). Generally, each SAR will entitle
the participant upon exercise to an amount equal to the product
of (1) the excess of (A) the fair market value on the
exercise date of one share of common stock, over (B) the
exercise price per share, times (2) the numbers of shares
of common stock covered by the SAR. As discussed above with
respect to options, the repricing of SARs is
prohibited under the 2011 Stock Plan without prior approval of
our stockholders.
Other
Stock-Based Awards (including Performance-Based
Awards)
In addition to stock options and SARs, the Committee may grant
or sell awards of shares, restricted shares, restricted stock
units, and awards that are valued in whole or in part by
reference to, or otherwise based on the fair market value of
shares, including performance-based awards. The Committee, in
its sole discretion, may grant awards which are denominated in
shares or cash (such awards, Performance-Based
Awards), which awards may, but are not required to, be
granted in a manner which is intended to be deductible by us
under Section 162(m) of the Code. Such Performance-Based
Awards will be in such form, and dependent on such conditions,
as the Committee will determine, including, without limitation,
the right to receive, or vest with respect to, one or more
shares or the cash value of the award upon the completion of a
specified period of service, the occurrence of an event
and/or
the
attainment of performance objectives. The maximum amount of a
Performance-Based Award that may be earned during each fiscal
year during a performance period by any participant will be:
(x) with respect to Performance-Based Awards that are
denominated in shares, 475,000 shares and (y) with
respect to Performance-Based Awards that are denominated in
cash, $2,500,000. The amount of the Performance-Based Award
actually paid to a participant may be less than the amount
determined by the applicable performance goal formula, at the
discretion of the Committee.
Effect of
Certain Events on 2011 Stock Plan and Awards
In the event of any stock dividend or split, reorganization,
recapitalization, merger, consolidation, spin-off, combination
or exchange of shares or other corporate exchange, any equity
restructuring (as defined under FASB Accounting Standard
Codification 718), or any distribution to stockholders of common
stock other than regular cash dividends or any similar event,
the Committee in its sole discretion and without liability to
any person will make such substitution or adjustment, if any, as
it deems to be reasonably necessary to address, on an equitable
basis, the effect of such event, as to (i) the number or
kind of common stock or other securities that may be issued as
set forth in the 2011 Stock Plan or pursuant to outstanding
awards, (ii) the maximum number of shares for which options
or SARs may be granted during a fiscal year to any participant,
(iii) the maximum amount of a Performance-Based Award that
may be granted during a fiscal year to any participant,
(iv) the exercise price of any award
and/or
(v) any other affected terms of such awards. Except as
otherwise provided in an award agreement or otherwise
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determined by the Committee, in the event of a Change in Control
(as defined in the 2011 Stock Plan), with respect to any
outstanding awards then held by participants which are
unexercisable or otherwise unvested or subject to lapse
restrictions, the Committee may, but will not be obligated to,
in a manner intended to comply with the requirements of
Section 409A of the Code, (1) accelerate, vest, or
cause the restrictions to lapse with all or any portion of an
award, (2) cancel awards for fair value (as determined in
the sole discretion of the Committee), which, in the case of
stock options and SARs, may equal the excess, if any, of the
value of the consideration to be paid in the Change in Control
transaction to holders of the same number of shares subject to
such stock options or SARs over the aggregate exercise price of
such stock options or SARs, (3) provide for the issuance of
substitute awards or (4) provide that the stock options
will be exercisable for all shares subject thereto for a period
of at least 30 days prior to the Change in Control and that
upon the occurrence of the Change in Control, the stock options
will terminate and be of no further force or effect. The
Committee may cancel stock options and SARs for no consideration
if the fair market value of the shares subject to such options
or SARs is less than or equal to the aggregate exercise price of
such stock options or SARs.
Forfeiture and
Clawback
The Committee may in its sole discretion specify in an award or
a policy that is incorporated into an award by reference that
the participants rights, payments, and benefits with
respect to such award will be subject to reduction,
cancellation, forfeiture or recoupment upon the occurrence of
certain specified events, in addition to any otherwise
applicable vesting or performance conditions contained in such
award. Such events may include, but are not limited to,
termination of employment for cause, termination of the
participants provision of services to us, breach of
noncompetition, confidentiality, or other restrictive covenants
that may apply to the participant, or adverse restatement of our
previously released financial statements as a consequence of
errors, omissions, fraud, or misconduct.
Nontransferability
of Awards
Unless otherwise determined by the Committee, an award will not
be transferable or assignable by a participant otherwise than by
will or by the laws of descent and distribution.
Amendment and
Termination
The Committee may generally amend, alter or discontinue the 2011
Stock Plan, but no amendment, alteration or discontinuation will
be made (1) without the approval of our stockholders to the
extent such approval is (a) required by or
(b) desirable to satisfy the requirements of any applicable
law, including the listing standards of the securities exchange,
which is, at the applicable time, the principal market for the
shares of our common stock, or (2) without the consent of a
participant, would materially adversely impair any of the rights
or obligations under any award theretofore granted to the
participant under the 2011 Stock Plan; provided, however, that
the Committee may amend the 2011 Stock Plan in such manner as it
deems necessary to permit the granting of awards meeting the
requirements of the Code or other applicable laws, including,
without limitation, to avoid adverse tax consequences or
accounting consequences to us or any participant.
Section 409A
of the Code
The 2011 Stock Plan and awards issued thereunder will be
interpreted in accordance with Section 409A of the Code and
Department of Treasury regulations, and no award will be
granted, deferred, accelerated, paid out or modified under the
2011 Stock Plan in a manner that would result in the imposition
of an additional tax under Code Section 409A upon a
participant.
United States
Federal Income Tax Consequences
The following is a general summary of the material United States
federal income tax consequences of the grant, vesting and
exercise of awards under the 2007 Stock Plan and the 2011 Stock
Plan and the disposition of shares acquired pursuant to the
exercise of such awards and is intended to reflect the current
provisions of the Code and the regulations thereunder. This
summary is not intended to be a complete statement of applicable
law, nor does it address foreign, state, local and payroll tax
considerations. Moreover, the United States federal income tax
consequences to any particular participant may differ from those
described herein by reason of, among other things, the
particular circumstances of such participant.
Incentive Stock
Options
Options granted as incentive stock options (ISOs)
under Section 422 of the Code may qualify for special tax
treatment. The Code requires that, for treatment of an option as
an ISO, common stock acquired through the exercise of the option
cannot be disposed of before the later of (i) two years
from the date of grant of the option or
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(ii) one year from the date of exercise. Holders of ISOs
will generally incur no federal income tax liability at the time
of grant or upon exercise of those options. However, the option
spread value at the time of option exercise will be
an item of tax preference, which may give rise to
alternative minimum tax liability for the taxable
year in which the exercise occurs. If the holder does not
dispose of the shares before two years following the date of
grant and one year following the date of exercise, the
difference between the exercise price and the amount realized
upon disposition of the shares will constitute long-term capital
gain or loss, as the case may be. Assuming both holding periods
are satisfied, we will not be allowed a deduction for federal
income tax purposes in connection with the grant or exercise of
the ISO. If, within two years following the date of grant or
within one year following the date of exercise, the holder of
shares acquired through the exercise of an ISO disposes of those
shares, the participant will generally realize taxable
compensation at the time of such disposition equal to the
difference between the exercise price and the lesser of the fair
market value of the share on the date of exercise or the amount
realized on the subsequent disposition of the shares, and that
amount will generally be deductible by us for federal income tax
purposes, subject to the possible limitations on deductibility
under Sections 280G and 162(m) of the Code for compensation
paid to executives designated in those Sections. Finally, if an
otherwise qualified ISO becomes first exercisable in any one
year for shares having an aggregate value in excess of $100,000
(based on the grant date value), the portion of the ISO in
respect of those excess shares will be treated as a
non-qualified stock option for federal income tax purposes.
Non-Qualified
Stock Options
No income will be realized by a participant upon grant of a
non-qualified stock option. Upon the exercise of a non-qualified
stock option, the participant will recognize ordinary
compensation income in an amount equal to the excess, if any, of
the fair market value of the underlying exercised shares over
the option exercise price paid at the time of exercise. We will
be able to deduct this same amount for United States federal
income tax purposes, but such deduction may be limited under
Sections 280G and 162(m) of the Code for compensation paid
to certain executives designated in those Sections.
SARs
No income will be realized by a participant upon grant of an
SAR. Upon the exercise of an SAR, the participant will recognize
ordinary compensation income in an amount equal to the fair
market value of the shares of stock or cash payment received in
respect of the SAR. We will be able to deduct this same amount
for United States federal income tax purposes, but such
deduction may be limited under Sections 280G and 162(m) of
the Code for compensation paid to certain executives designated
in those Sections.
Restricted
Stock
A participant will not be subject to tax upon the grant of an
award of restricted stock unless the participant otherwise
elects to be taxed at the time of grant pursuant to
Section 83(b) of the Code. On the date an award of
restricted stock becomes transferable or is no longer subject to
a substantial risk of forfeiture, the participant will have
taxable compensation equal to the difference between the fair
market value of the shares on that date over the amount the
participant paid for such shares, if any, unless the participant
made an election under Section 83(b) of the Code to be
taxed at the time of grant. If the participant makes an election
under Section 83(b), the participant will have taxable
compensation at the time of grant equal to the difference
between the fair market value of the shares on the date of grant
over the amount the participant paid for such shares, if any.
(Special rules apply to the receipt and disposition of
restricted stock received by officers and directors who are
subject to Section 16(b) of the Exchange Act). We will be
able to deduct, at the same time as it is recognized by the
participant, the amount of taxable compensation to the
participant for United States federal income tax purposes, but
such deduction may be limited under Sections 280G and
162(m) of the Code for compensation paid to certain executives
designated in those Sections.
Restricted Stock
Units
A participant will not be subject to tax upon the grant of a
restricted stock unit award. Rather, upon the delivery of shares
or cash pursuant to a restricted stock unit award, the
participant will have taxable compensation equal to the fair
market value of the number of shares (or the amount of cash) the
participant actually receives with respect to the award. We will
be able to deduct the amount of taxable compensation to the
participant for United States federal income tax purposes, but
the deduction may be limited under Sections 280G and 162(m)
of the Code for compensation paid to certain executives
designated in those Sections.
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Stock Bonus
Awards
A participant will have taxable compensation equal to the
difference between the fair market value of the shares on the
date the common stock subject to the award is transferred to the
participant over the amount the participant paid for such
shares, if any. We will be able to deduct, at the same time as
it is recognized by the participant, the amount of taxable
compensation to the participant for United States federal income
tax purposes, but such deduction may be limited under
Sections 280G and 162(m) of the Code for compensation paid
to certain executives designated in those Sections.
Section 162(m)
In general, Section 162(m) of the Code denies a publicly
held corporation a deduction for United States federal income
tax purposes for compensation in excess of $1 million per
year per person to its principal executive officer, and the
three other officers (other than the principal executive officer
and principal financial officer) whose compensation is disclosed
in its prospectus or proxy statement as a result of their total
compensation, subject to certain exceptions. Subject to
obtaining approval of the 2011 Stock Plan by our stockholders
prior to the payment of any awards thereunder, the 2011 Stock
Plan is intended to satisfy an exception with respect to grants
of options to covered employees. In addition, the 2011 Stock
Plan is designed to permit certain awards of restricted stock,
restricted stock units, cash bonus awards and other awards to be
awarded as performance compensation awards intended to qualify
under the performance-based compensation exception
to Section 162(m) of the Code. Finally, under a special
Section 162(m) exception, any compensation paid pursuant to
a compensation plan in existence before the effective date of
this offering will not be subject to the $1,000,000 limitation
until the earliest of: (1) the expiration of the
compensation plan, (2) a material modification of the
compensation plan (as determined under Section 162(m)),
(3) the issuance of all the employer stock and other
compensation allocated under the compensation plan, or
(4) the first meeting of stockholders at which directors
are elected after the close of the third calendar year following
the year in which the offering occurs.
Annual Incentive
Plan
Our board of directors expects to adopt, and expects our
stockholders to approve, the Regional Management Corp. Annual
Incentive Plan, (the Annual Incentive Plan), prior
to the completion of this offering. The following description of
the Annual Incentive Plan is not complete and is qualified by
reference to the full text of the Annual Incentive Plan, which
will be filed as an exhibit to the registration statement of
which this prospectus forms a part.
Purpose
The Annual Incentive Plan is a bonus plan designed to attract,
retain, motivate and reward participants by providing them with
the opportunity to earn competitive compensation directly linked
to our performance.
Administration
The Annual Incentive Plan will be administered by the
compensation committee of our board of directors or such other
committee of our board of directors to which it has delegated
power (the Committee).
Eligibility;
Awards
Awards may be granted to our officers and key employees in the
sole discretion of the Committee. The Annual Incentive Plan
provides for the payment of incentive bonuses in the form of
cash, or, at the sole discretion of the Committee, in awards
under the 2011 Stock Plan. For performance-based bonuses
intended to comply with the performance-based compensation
exemption under Section 162(m) of the Code, by no later
than the end of the first quarter of a given performance period
(or such other date as may be required or permitted by
Section 162(m) of the Code to the extent applicable to us
and the Annual Incentive Plan), the Committee will establish
such target incentive bonuses for each individual participant in
the Annual Incentive Plan. However, the Committee may in its
sole discretion grant such bonuses, if any, to such participants
as the Committee may choose, in respect of any given performance
period, that is not intended to comply with the
performance-based exemption under Section 162(m) of the
Code. No participant may receive a bonus under the Annual
Incentive Plan, with respect of any fiscal year, in excess of
$2,500,000.
Performance
Goals
The Committee will establish the performance periods over which
performance objectives will be measured. A performance period
may be for a fiscal year or a shorter period, as determined by
the Committee. No later than the
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last day of the first quarter of a given performance period
begins (or such other date as may be required or permitted by
Section 162(m) of the Code to the extent applicable to us
and the Annual Incentive Plan), the Committee will establish
(1) the performance objective or objectives that must be
satisfied for a participant to receive a bonus for such
performance period, and (2) the target incentive bonus for
each participant. Performance objective(s) will be based upon
one or more of the following criteria, as determined by the
Committee: (i) consolidated income before or after taxes
(including income before interest, taxes, depreciation and
amortization); (ii) EBITDA; (iii) adjusted EBITDA,
(iv) operating income; (v) net income;
(vi) adjusted cash net income; (vii) adjusted cash net
income per share; (viii) net income per share;
(ix) book value per share; (x) return on members
or stockholders equity; (xi) expense management
(including, without limitation, total general and administrative
expense percentages); (xii) return on investment;
(xiii) improvements in capital structure;
(xiv) profitability of an identifiable business unit or
product; (xv) maintenance or improvement of profit margins;
(xvi) stock price; (xvii) market share;
(xviii) revenue or sales (including, without limitation,
net loans charged off and average finance receivables);
(xix) costs (including, without limitation, total general
and administrative expense percentages); (xx) cash flow;
(xxi) working capital; (xxii) multiple of invested
capital; (xxiii) total debt (including, without limitation,
total debt as a multiple of EBITDA) and (xxiv) total
return. The foregoing criteria may relate to us, one or more of
our subsidiaries or one or more of our divisions or units, or
any combination of the foregoing, and may be applied on an
absolute basis
and/or
be
relative to one or more peer group companies or indices, or any
combination thereof, all as the Committee will determine. The
performance measures and objectives established by the Committee
may be different for different fiscal years and different
objectives may be applicable to different officers and key
employees.
As soon as practicable after the applicable performance period
ends, the Committee will (A) determine (i) whether and
to what extent any of the performance objective(s) established
for such performance period have been satisfied and certify to
such determination, and (ii) for each participant employed
as of the date on which bonuses under the plan are payable,
unless otherwise determined by the Committee (to the extent
permitted under Section 162(m) of the Code, to the extent
applicable to us and the Annual Incentive Plan), the actual
bonus to which such participant will be entitled, taking into
consideration the extent to which the performance objective(s)
have been met and such other factors as the Committee may deem
appropriate and (B) cause such bonus to be paid to such
participant. The Committee has absolute discretion to reduce or
eliminate the amount otherwise payable to any participant under
the Annual Incentive Plan and to establish rules or procedures
that have the effect of limiting the amount payable to each
participant to an amount that is less than the maximum amount
otherwise authorized as that participants target incentive
bonus.
To the extent permitted under Section 162(m) of the Code,
to the extent applicable to us and the Annual Incentive Plan,
unless otherwise determined by the Committee, if a participant
is hired or rehired by us after the beginning of a performance
period (or such corresponding period if the performance period
is not a fiscal year) for which a bonus is payable, such
participant may, if determined by the Committee, receive an
annual bonus equal to the bonus otherwise payable to such
participant based upon our actual performance for the applicable
performance period or, if determined by the Committee, based
upon achieving targeted performance objectives pro-rated for the
days of employment during such period or such other amount as
the Committee may deem appropriate.
Forfeiture and
Clawback
The Committee may in its sole discretion specify in an award or
a policy that is incorporated into an award by reference that
the participants rights, payments, and benefits with
respect to such award will be subject to reduction,
cancellation, forfeiture or recoupment upon the occurrence of
certain specified events, in addition to any otherwise
applicable vesting or performance conditions contained in such
award. Such events may include, but are not limited to,
termination of employment for cause, termination of the
participants provision of services to us, breach of
noncompetition, confidentiality, or other restrictive covenants
that may apply to the participant, or restatement of our
financial statements to reflect adverse results from those
previously released financial statements as a consequence of
errors, omissions, fraud, or misconduct.
Change in
Control
If there is a Change in Control (as defined in the 2011 Stock
Plan, as described above), the Committee, as constituted
immediately prior to the change in control, will determine in
its sole discretion whether and to what extent the performance
criteria have been met or will be deemed to have been met for
the year in which the change in control occurs and for any
completed performance period for which a determination under the
plan has not been made.
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Termination of
Employment
If a participant dies or becomes disabled prior to date on which
bonuses under the Annual Incentive Plan for the applicable
performance period are payable, the participant may receive an
annual bonus equal to the bonus otherwise payable to the
participant based on actual company performance for the
applicable performance period or, if determined by the
Committee, based upon achieving targeted performance objectives,
pro-rated for the days of employment during the performance
period. Unless otherwise determined by the Committee, if a
participants employment terminates for any other reason,
such participant will not receive a bonus.
Payment of
Awards
Payment of any bonus amount is made to participants as soon as
is practicable after the Committee certifies that one or more of
the applicable performance objectives has been attained or after
the Committee determines the amount of such bonus. All payments
thus made will be in accordance with or exempt from the
requirements of Section 409A of the Code.
Amendment and
Termination of Plan
Our board of directors or the Committee may at any time amend,
suspend, discontinue or terminate the Annual Incentive Plan,
subject to stockholder approval if such approval is necessary to
continue to qualify the amounts payable under the Annual
Incentive Plan under Section 162(m) of the Code if such
amounts are intended to be so qualified; provided, that no such
amendment, suspension, discontinuance or termination will
adversely affect the rights of any participant in respect of any
fiscal year that has already begun. Unless earlier terminated,
the Annual Incentive Plan will expire on the day immediately
prior to our first shareholder meeting at which directors are to
be elected that occurs after the close of the third calendar
year following the calendar year in which our initial public
offering occurs.
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CERTAIN
RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Shareholders
Agreement
In March 2007, we entered into a shareholders agreement with the
sponsors, Regional Holdings LLC (a holding company owned by the
sponsors) and the individual owners. Among other things, the
existing shareholders agreement provides that the board is
comprised of five directors, including (a) four designees
of Regional Holdings LLC (which, pursuant to an agreement among
the holders of Regional Holdings LLC, includes two designees of
Palladium and two designees of Parallel) and (b) a designee
of our individual owners. The existing shareholders agreement
also provides: (1) the existing owners with
tag-along rights in connection with certain
transfers of shares by the other existing owners,
(2) Regional Holdings LLC with drag-along
rights, to require other existing owners to sell shares to a
third party in connection with certain transfers of shares by
Regional Holdings LLC, (3) the other existing owners with a
right of first offer in connection with certain transfers of
shares by Regional Holdings LLC, (4) Regional Holdings LLC
with a right of first refusal in connection with certain
transfers of shares by the other existing owners,
(5) Regional Holdings LLC with demand registration rights,
and provides incidental registration rights to the other
existing owners, (6) the existing owners with
pre-emptive rights with respect to new issuances of
shares of our common stock, (7) the individual owners with
a right to put all or a portion of their shares to
us at their fair market value beginning in March 2012 if a
qualified public offering has not occurred by that date and
(8) certain limitations on transfer of shares by the
existing owners until the earlier of the expiration of the
lock-up
agreement following an initial public offering and March 2012.
Our shareholders agreement will be amended and restated in its
entirety prior to the consummation of this offering to eliminate
or replace most of the provisions summarized above. The amended
and restated shareholders agreement will include the following
voting agreement:
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if the parties to the amended and restated shareholders
agreement hold more than 50% of our outstanding stock entitled
to vote for the election of directors, then such parties will
collectively have the right to designate the smallest whole
number of directors that constitutes a majority of the board;
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if the parties to the amended and restated shareholders
agreement hold 50% or less, but more than 25%, of our
outstanding stock entitled to vote for the election of
directors, then such parties will collectively have the right to
designate the number of directors that is one fewer than the
smallest whole number of directors that constitutes a majority
of the board; and
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if the parties to the amended and restated shareholders
agreement hold 25% or less of our outstanding stock entitled to
vote for the election of directors, such parties will have no
right to designate directors except that each of
(1) Palladium, (2) Parallel and (3) a
representative of the individual owners will have the right to
designate one director if such stockholder or group of
stockholders holds at least 5% of the outstanding stock entitled
to vote for the election of directors.
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The director designation rights described in the first and
second bullets above will be allocated among the existing owners
as follows:
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for so long as the individual owners in the aggregate continue
to hold at least 5% of the outstanding stock entitled to vote
for the election of directors, one director will be designated
by a representative of the individual owners; and
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all of the remaining directors to be designated by the parties
to the shareholders agreement will be divided between Parallel
and Palladium in the ratio that most nearly matches the ratio of
their ownership of shares of common stock; provided that, unless
and until the ratio of the number shares of common stock held by
Parallel to the number of shares of common stock held by
Palladium is less than such ratio immediately following this
offering, the number of directors to be designated by Parallel
will not be fewer than one fewer than the number of directors to
be designated by Palladium.
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The amended and restated shareholders agreement will also
provide the sponsors with demand registration rights, and
provide incidental registration rights to the other existing
owners. The amended and restated shareholders agreement will
also provide that, in certain circumstances, parties to that
agreement that have designated a director who is then serving on
our board of directors may not make a significant investment in
one of our competitors unless such party has first presented the
investment opportunity to us.
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The form of the amended and restated shareholders agreement is
filed as an exhibit to the registration statement of which this
prospectus forms a part, and the foregoing description is
qualified by reference thereto.
Mezzanine
Debt
As of March 31, 2011, we had $25.8 million aggregate
principal amount of our mezzanine debt outstanding, of which
$20.8 million was held by Palladium (a sponsor),
$2.0 million was held by Richard A. Godley (a director and
an individual owner), $2.0 million was held by Jerry L.
Shirley (an individual owner) and $1.0 million was held by
Brenda F. Kinlaw (an individual owner). The mezzanine debt
matures on October 25, 2013 and accrues interest at a rate
of 15.25% per annum. The mezzanine debt is secured by a junior
lien on certain of our assets, including the equity interests of
substantially all of our subsidiaries and substantially all of
our finance receivables, and is subordinated to our senior
revolving credit facility. The mezzanine debt was issued on
August 25, 2010 to retire mezzanine debt in the same
amount, which had been held by an unrelated lender. The
agreement governing our mezzanine debt contains certain
restrictive covenants, including maintenance of a specified
interest coverage ratio, a prohibition on distributions,
additional borrowings, debt ratios, maintenance of a minimum
allowance for loan losses and certain other restrictions.
We intend to use the proceeds of this offering to repay the
mezzanine debt in full. During 2010, Palladium, Richard A.
Godley, Jerry L. Shirley and Brenda F. Kinlaw each received
payments of interest and financing fees totaling $947,311,
$91,028, $91,028 and $45,514, respectively, and $793,521,
$76,250, $76,250 and $38,125, respectively, during the first
three months of 2011.
The agreement governing our mezzanine debt is filed as an
exhibit to the registration statement of which this prospectus
forms a part, and the foregoing description is qualified by
reference thereto.
Advisory and
Consulting Fees
We have entered into an advisory agreement with the sponsors,
pursuant to which they have agreed to provide us with certain
advisory and consulting services. In consideration for such
services, we agreed to pay each sponsor an annual fee equal to
$337,500 and pay or reimburse each of them for all reasonable
out-of-pocket
expenses directly related to the services rendered by the
sponsors, not to exceed $50,000 in any year unless approved by
our board of directors. This advisory agreement will be
terminated pursuant to its terms effective upon the consummation
of this offering upon the payment to each sponsor of a one-time
termination fee of $337,500.
In March 2007, we entered into a consulting agreement with each
of Mr. Godley, Brenda F. Kinlaw and Jerry L. Shirley, each
an individual owner. In addition, Mr. Godley is a director
on our board of directors. Pursuant to these agreements, each of
them has agreed to provide us with certain consulting services.
In consideration for such services, we agreed to pay each of
them a monthly fee equal to $12,500, as well as pay or reimburse
each of them for all reasonable
out-of-pocket
expenses directly related to the performance of his or her
duties and responsibilities to us under the agreements. Under
these consulting agreements, we also provided each of these
individual owners with health insurance through March 2009. Each
of these consulting agreements will be terminated pursuant to
their terms upon the consummation of this offering upon the
payment to each consultant of a one-time termination fee of
$150,000.
We have agreed to pay the commercially reasonable legal fees
incurred by the individual owners in connection with this
offering.
Relationship
Between Thomas F. Fortin and F. Barron
Fletcher, III
Thomas F. Fortin, our chief executive officer and a director
nominee, is the
brother-in-law
of F. Barron Fletcher, III, the managing member of
Parallel, one of the sponsors.
Statement of
Policy Regarding Transactions with Related Persons
Prior to the consummation of this offering, our board of
directors will adopt a written statement of policy regarding
transactions with related persons, which we refer to as our
related person policy. Our related person policy
requires that a related person (as defined as in
paragraph (a) of Item 404 of
Regulation S-K)
must promptly disclose to our general counsel, or other person
designated by our board of directors, any related person
102
transaction (defined as any transaction that is
anticipated would be reportable by us under Item 404(a) of
Regulation S-K
in which we were or are to be a participant and the amount
involved exceeds $120,000 and in which any related person had or
will have a direct or indirect material interest) and all
material facts with respect thereto. The general counsel, or
such other person, will then promptly communicate that
information to our board of directors. No related person
transaction will be executed without the approval or
ratification of our board of directors. It is our policy that
directors interested in a related person transaction will recuse
themselves from any vote of a related person transaction in
which they have an interest. Our policy does not specify the
standards to be applied by directors in determining whether or
not to approve or ratify a related person transaction and we
accordingly anticipate that these determinations will be made in
accordance with principles of Delaware law generally applicable
to directors of a Delaware corporation.
Our amended and restated certificate of incorporation provides
for the allocation of certain corporate opportunities between
us, on the one hand, and the sponsors, on the other hand. These
terms of our amended and restated certificate of incorporation
are more fully described in Description of Capital
Stock Corporate Opportunity.
Indemnification
of Directors and Officers
Our amended and restated bylaws provide that we will indemnify
our directors and officers to the fullest extent permitted by
the Delaware General Corporation Law, which we refer to as the
DGCL. In addition, our amended and restated certificate of
incorporation will provide that our directors will not be liable
for monetary damages for breach of fiduciary duty to the fullest
extent permitted by the DGCL.
There is no pending litigation or proceeding naming any of our
directors or officers to which indemnification is being sought,
and we are not aware of any pending or threatened litigation
that may result in claims for indemnification by any director or
officer.
103
PRINCIPAL AND
SELLING STOCKHOLDERS
The following table sets forth information regarding the
beneficial ownership of shares of our common stock by
(1) each person known to us to beneficially own more than
5% of the outstanding shares of our common stock, (2) each
selling stockholder, (3) each of our directors, director
nominees and named executive officers and (4) all of our
directors and executive officers as a group, each as of the date
of this prospectus. As of the date of this prospectus, there
were 12 holders of record of our common stock.
Beneficial ownership is determined in accordance with the rules
of the SEC. These rules deem common stock subject to options,
warrants or rights currently exercisable, or exercisable within
60 days, to be outstanding for purposes of computing the
percentage ownership of the person holding the options, warrants
or rights or of a group of which the person is a member, but
they do not deem such stock to be outstanding for purposes of
computing the percentage ownership of any other person or group.
All shares indicated below as beneficially owned are held with
sole voting and investment power except as otherwise indicated.
All of our stockholders prior to this offering are parties to an
amended and restated shareholders agreement that contains
certain voting agreements. You should read the description of
the shareholders agreement set forth under Certain
Relationships and Related Person Transactions for more
information regarding the voting arrangements.
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SHARES OF COMMON STOCK BENEFICIALLY OWNED
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AFTER THE OFFERING
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AFTER THE OFFERING
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SHARES OF
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SHARES OF
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ASSUMING
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ASSUMING
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COMMON
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COMMON
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UNDERWRITERS
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UNDERWRITERS
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STOCK
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STOCK
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OPTION IS NOT
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OPTION IS
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BEING
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SUBJECT TO
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PRIOR TO THE OFFERING
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EXERCISED
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EXERCISED IN FULL
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OFFERED
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OPTION
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NAME OF BENEFICIAL OWNER
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NUMBER
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%
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NUMBER
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%
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NUMBER
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%
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NUMBER
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NUMBER
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5% stockholders:
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Parties to the amended and restated shareholders agreement as a
group
(1)
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9,631,571
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100.0
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%
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Palladium Equity Partners III,
L.P.
(2)
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4,495,461
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48.2
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%
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Parallel 2005 Equity Fund,
LP
(3)
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2,565,057
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28.3
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%
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Jerry L.
Shirley
(4)
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962,062
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10.3
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%
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The Richard A. Godley, Sr. Revocable
Trust
(5)
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691,677
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7.4
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%
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Named executive officers, directors and director nominees:
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Richard A.
Godley
(6)
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766,677
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8.2
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%
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C. Glynn
Quattlebaum
(7)
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477,917
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5.0
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%
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Robert D.
Barry
(8)
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93,314
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*
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Roel C. Campos
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Richard T.
DellAquila
(9)
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Thomas F.
Fortin
(10)
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157,250
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1.7
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%
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Jared L.
Johnson
(11)
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A. Michelle Masters
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Alvaro G. de Molina
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Carlos Palomares
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David
Perez
(12)
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Erik A.
Scott
(13)
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Directors and executive officers as a group (9 persons)
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1,495,158
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15.1
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%
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Other selling stockholders:
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Brenda F.
Kinlaw
(14)
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183,073
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2.0
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%
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Denise
Godley
(15)
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75,000
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*
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William T. Tyler
Godley
(16)
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35,870
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*
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Vanessa Bailey
Godley
(17)
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31,122
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*
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Jesse W.
Geddings
(18)
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35,000
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*
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104
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*
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Represents less than 1%.
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(1)
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Parallel 2005 Equity Fund, LP,
Palladium Equity Partners III, L.P., Richard A. Godley, Sr.
Revocable Trust, Vanessa Bailey Godley, William T.
Tyler Godley, the Tyler Godley 2011 Irrevocable
Trust dated March 28, 2011 (with Jerry L. Shirley as
investment advisor), Denise Godley, Jerry L. Shirley, Brenda F.
Kinlaw, C. Glynn Quattlebaum, Sherri Quattlebaum and Jesse W.
Geddings will be parties to our amended and restated
shareholders agreement as described under Certain
Relationships and Related Person Transactions
Shareholders Agreement.
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(2)
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Palladium Equity Partners III,
L.L.C. (Palladium General) is the general partner of
Palladium Equity Partners III, L.P. Marcos A. Rodriguez is the
managing member of Palladium General. The address of each of the
entities listed and Mr. Rodriguez is Rockefeller Center,
1270 Avenue of the Americas, Suite 2200, New York, New York
10020. Mr. Rodriguez disclaims beneficial ownership of such
shares. Palladium Equity Partners III, L.P. is a party to our
shareholders agreement, one of its affiliates receives advisory
fees from us pursuant to an advisory agreement that will be
terminated upon consummation of this offering and one of its
affiliates is a lender under our mezzanine debt, in each case as
described under Certain Relationships and Related Person
Transactions.
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(3)
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Parallel 2005 Equity Partners, LP
is the general partner of Parallel 2005 Equity Fund, LP.
Parallel 2005 Equity Partners, LLC is the general partner of
Parallel 2005 Equity Partners, LP. F. Barron Fletcher, III
is the managing member of Parallel 2005 Equity Partners, LLC.
The address of each of the entities listed and Mr. Fletcher
is 2100 McKinney Avenue, Suite 1200, Dallas, Texas 75201.
Mr. Fletcher disclaims beneficial ownership of such shares,
except to the extent of his pecuniary interest therein. Parallel
2005 Equity Fund, LP is a party to our shareholders agreement
and its affiliate receives advisory fees from us pursuant to an
advisory agreement that will be terminated upon consummation of
this offering, as described under Certain Relationships
and Related Person Transactions.
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(4)
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Includes 412,843 shares held
by the Tyler Godley 2011 Irrevocable Trust dated March 28,
2011. Mr. Shirley is the investment advisor with respect to
all shares of Regionals stock held by the trust.
U.S. Trust Company of Delaware is the administrative
trustee. Mr. Shirley disclaims beneficial ownership of all
shares held by the trust. The address for Mr. Shirley is
c/o Regional
Management Corp., 509 West Butler Road, Greenville, South
Carolina 29607. Mr. Shirley is a party to our shareholders
agreement, currently acts as a consultant to Regional and is a
lender under our mezzanine debt, in each case as described under
Certain Relationships and Related Person
Transactions.
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(5)
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The Richard A. Godley, Sr.
Revocable Trust is a party to our shareholders agreement as
described under Certain Relationships and Related Person
Transactions Shareholders Agreement. Mr. and
Ms. Godley are the trustees of the trust, and
Ms. Godley disclaims beneficial ownership of shares held by
the trust.
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(6)
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The address for Mr. Godley is
c/o Regional
Management Corp., 509 West Butler Road, Greenville, South
Carolina 29607. Mr. Godley holds no shares directly. Includes
shares owned by the Richard A. Godley, Sr. Revocable Trust
(691,677 shares, of
which shares
will be sold in this offering
or shares
assuming the underwriters option is exercised in full) and
shares owned by Mr. Godleys spouse Denise Godley
(75,000 shares of
which shares
will be sold in this offering
or shares
assuming the underwriters option is exercised in full).
Mr. Godley disclaims beneficial ownership of the shares
held by his wife. Does not include shares owned by
Mr. Godleys adult son, William T. Tyler
Godley (35,870 shares of
which shares
will be sold in this offering
or shares
assuming the underwriters option is exercised in full),
shares owned by the Tyler Godley 2011 Irrevocable Trust
(412,843), as described in note (4) above, or shares owned by
Vanessa Bailey Godley, the widow of Mr. Godleys other
adult son, Richard Allen Godley, Jr. (31,122 shares of
which shares
will be sold in this offering
or shares
assuming the underwriters option is exercised in full).
Mr. Godley disclaims beneficial ownership with respect to
all such shares. Mr. Godley is a director of Regional
Management Corp. In addition, Mr. Godley is party to our
shareholders agreement, currently serves as a consultant to
Regional and is a lender under our mezzanine debt, in each case
as described under Certain Relationships and Related
Person Transactions.
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(7)
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Includes 294,844 shares
subject to options either currently exercisable or exercisable
within 60 days over which Mr. Quattlebaum will not
have voting or investment power until the options are exercised.
The shares described in this note are considered outstanding for
the purpose of computing the percentage of outstanding stock
owned by Mr. Quattlebaum and by directors and executive
officers as a group, but not for the purpose of computing the
percentage ownership of any other person. The remaining
183,073 shares are jointly held by Mr. Quattlebaum and
his wife, Sherri Quattlebaum. Mr. Quattlebaum is our
President and Chief Operating Officer, and Mr. and
Ms. Quattlebaum are parties to our shareholders agreement
as described under Certain Relationships and Related
Person Transactions Shareholders Agreement.
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(8)
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Includes 93,314 shares subject
to options either currently exercisable or exercisable within
60 days over which Mr. Barry will not have voting or
investment power until the options are exercised. The shares
described in this note are considered outstanding for the
purpose of computing the percentage of outstanding stock owned
by Mr. Barry and by directors and executive officers as a
group, but not for the purpose of computing the percentage
ownership of any other person.
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(9)
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Mr. DellAquila is a
Principal with Parallel.
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(10)
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Includes 157,250 shares
subject to options either currently exercisable or exercisable
within 60 days over which Mr. Fortin will not have
voting or investment power until the options are exercised. The
shares described in this note are considered outstanding for the
purpose of computing the percentage of outstanding stock owned
by Mr. Fortin and by directors and executive officers as a
group, but not for the purpose of computing the percentage
ownership of any other person. Mr. Fortin was an operating
partner of Parallel from 2003 to 2007.
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(11)
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Mr. Johnson is a Managing
Director with Parallel.
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(12)
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Mr. Perez is a Managing
Director with Palladium.
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(13)
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Mr. Scott is a Managing
Director with Palladium.
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(14)
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Ms. Kinlaw currently is a
party to our shareholders agreement, acts as a consultant to
Regional and is a lender under our mezzanine debt, in each case
as described under Certain Relationships and Related
Person Transactions.
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(15)
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Denise Godley is the wife of
Richard A. Godley, Sr. and the address for Ms. Godley is
c/o Regional
Management Corp., 509 West Butler Road, Greenville, South
Carolina 29607. Ms. Godley is party to our shareholders
agreement as described under Certain Relationships and
Related Person Transactions Shareholders
Agreement. The Richard A. Godley, Sr. Revocable Trust, of
which Mr. Godley is the trustee, holds 691,677 shares.
Ms. Godley disclaims beneficial ownership of these shares.
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(16)
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William T. Tyler Godley
is Richard A. Godley, Sr.s adult son. Tyler Godley is
party to our shareholders agreement as described under
Certain Relationships and Related Person
Transactions Shareholders Agreement. Tyler
Godley is the beneficiary of the Tyler Godley 2011 Irrevocable
Trust dated March 28, 2011, which holds
412,843 shares, as described in note (4) above, but has no
control over the voting or disposition of shares held by the
trust.
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(17)
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Vanessa Bailey Godley the widow of
Richard A. Godley, Sr.s. son, Richard Allen Godley, Jr.
Ms. Godley is a party to our shareholders agreement as
described under Certain Relationships and Related Person
Transactions Shareholders Agreement.
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(18)
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Mr. Geddings is our Vice
President of South Carolina Operations. Mr. Geddings is a
party to our shareholders agreement as described under
Certain Relationships and Related Person
Transactions Shareholders Agreement.
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106
DESCRIPTION OF
CAPITAL STOCK
The following description of our capital stock as it will be in
effect upon the consummation of this offering is a summary and
is qualified in its entirety by reference to our amended and
restated certificate of incorporation and amended and restated
bylaws, the forms of which are filed as exhibits to the
registration statement of which this prospectus forms a part,
and by applicable law. Our amended and restated certificate of
incorporation will become effective immediately prior to the
consummation of this offering.
Upon consummation of this offering, our authorized capital stock
will consist of 1,000,000,000 shares of common stock, par
value $0.10 per share, and 100,000,000 shares of preferred
stock, par value $0.10 per share. Unless our board of directors
determines otherwise, we will issue all shares of our capital
stock in uncertificated form.
Common
Stock
Holders of shares of our common stock are entitled to one vote
for each share held of record on all matters submitted to a vote
of stockholders.
Holders of shares of our common stock are entitled to receive
dividends when and if declared by our board of directors out of
funds legally available therefor, subject to any statutory or
contractual restrictions on the payment of dividends and to any
restrictions on the payment of dividends imposed by the terms of
any outstanding preferred stock.
Upon our dissolution or liquidation or the sale of all or
substantially all of our assets, after payment in full of all
amounts required to be paid to creditors and to the holders of
preferred stock having liquidation preferences, if any, the
holders of shares of our common stock will be entitled to
receive pro rata our remaining assets available for distribution.
Holders of shares of our common stock do not have preemptive,
subscription, redemption or conversion rights.
Preferred
Stock
Our amended and restated certificate of incorporation authorizes
our board of directors to establish one or more series of
preferred stock (including convertible preferred stock). Unless
required by law or by any stock exchange, the authorized shares
of preferred stock will be available for issuance without
further action by you. Our board of directors is able to
determine, with respect to any series of preferred stock, the
terms and rights of that series, including:
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the designation of the series;
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the number of shares of the series, which our board may, except
where otherwise provided in the preferred stock designation,
increase or decrease, but not below the number of shares
then-outstanding;
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whether dividends, if any, will be cumulative or non-cumulative
and the dividend rate of the series;
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the dates at which dividends, if any, will be payable;
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the redemption rights and price or prices, if any, for shares of
the series;
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the terms and amounts of any sinking fund provided for the
purchase or redemption of shares of the series;
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the amounts payable on shares of the series in the event of any
voluntary or involuntary liquidation, dissolution or
winding-up
of the affairs of our company;
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whether the shares of the series will be convertible into shares
of any other class or series, or any other security, of our
company or any other entity, and, if so, the specification of
the other class or series or other security, the conversion
price or prices or rate or rates, any rate adjustments, the date
or dates as of which the shares will be convertible and all
other terms and conditions upon which the conversion may be made;
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restrictions on the issuance of shares of the same series or of
any other class or series; and
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the voting rights, if any, of the holders of the series.
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We could issue a series of preferred stock that could, depending
on the terms of the series, impede or discourage an acquisition
attempt or other transaction that some, or a majority, of you
might believe to be in your best interests or in which you might
receive a premium for your shares of common stock over the
market price of the shares of common stock.
107
Authorized but
Unissued Capital Stock
Delaware law does not require stockholder approval for any
issuance of authorized shares. However, the listing requirements
of the New York Stock Exchange, which would apply so long as the
shares of common stock remain listed on the New York Stock
Exchange, require stockholder approval of certain issuances
equal to or exceeding 20% of the then-outstanding voting power
or the then-outstanding number of shares of common stock. These
additional shares may be used for a variety of corporate
purposes, including future public offerings, to raise additional
capital or to facilitate acquisitions.
One of the effects of the existence of unissued and unreserved
common stock or preferred stock may be to enable our board of
directors to issue shares to persons friendly to current
management, which issuance could render more difficult or
discourage an attempt to obtain control of our company by means
of a merger, tender offer, proxy contest or otherwise, and
thereby protect the continuity of our management and possibly
deprive the stockholders of opportunities to sell their shares
at prices higher than prevailing market prices.
Forum Selection
Clause
Unless we consent in writing to the selection of an alternative
forum, the Court of Chancery of the State of Delaware will be
the sole and exclusive forum for (i) any derivative action
or proceeding brought on our behalf, (ii) any action
asserting a claim of breach of a fiduciary duty owed by any of
our directors, officers, employees or agents or our
stockholders, (iii) any action asserting a claim arising
pursuant to any provision of the DGCL or (iv) any action
asserting a claim governed by the internal affairs doctrine, in
each such case subject to said Court of Chancery having personal
jurisdiction over the indispensable parties named as defendants
therein. Any person or entity purchasing or otherwise acquiring
any interest in shares of our capital stock of the corporation
will be deemed to have notice of and consented to the forum
selection clause.
Anti-Takeover
Effects of Provisions of Delaware Law and Our Amended and
Restated Certificate of Incorporation and Bylaws
Undesignated
Preferred Stock
The ability to authorize undesignated preferred stock will make
it possible for our board of directors to issue preferred stock
with super majority voting, special approval, dividend or other
rights or preferences on a discriminatory basis that could
impede the success of any attempt to acquire us or otherwise
effect a change in control of us. These and other provisions may
have the effect of deferring, delaying or discouraging hostile
takeovers, or changes in control or management of our company.
Requirements
for Advance Notification of Stockholder Meetings, Nominations
and Proposals
Our amended and restated bylaws provide that special meetings of
the stockholders may be called only by or at the direction of
the board of directors, the chairman of our board or the chief
executive officer or, for so long as the parties to our
shareholders agreement continue to beneficially own at least 40%
of the total voting power of all the then outstanding shares of
our capital stock, by the sponsors. Our amended and restated
bylaws prohibit the conduct of any business at a special meeting
other than as specified in the notice for such meeting. These
provisions may have the effect of deferring, delaying or
discouraging hostile takeovers, or changes in control or
management of our company.
Our amended and restated bylaws establish advance notice
procedures with respect to stockholder proposals and the
nomination of candidates for election as directors, other than
nominations made by or at the direction of the board of
directors or a committee of the board of directors. In order for
any matter to be properly brought before a meeting,
a stockholder will have to comply with advance notice
requirements and provide us with certain information.
Additionally, vacancies and newly created directorships may be
filled only by a vote of a majority of the directors then in
office, even though less than a quorum, and not by the
stockholders. Our amended and restated bylaws allow the
presiding officer at a meeting of the stockholders to adopt
rules and regulations for the conduct of meetings which may have
the effect of precluding the conduct of certain business at a
meeting if the rules and regulations are not followed. These
provisions may also defer, delay or discourage a potential
acquirer from conducting a solicitation of proxies to elect the
acquirers own slate of directors or otherwise attempting
to obtain control of our company.
108
Our amended and restated certificate of incorporation provides
that the board of directors is expressly authorized to make,
alter, or repeal our bylaws and that our stockholders may only
amend our bylaws with the approval of 80% or more of all of the
outstanding shares of our capital stock entitled to vote from
and after the date on which the parties to our shareholders
agreement cease to beneficially own at least 40% of the total
voting power of all the then outstanding shares of our capital
stock or with the approval of a majority of the voting power of
all the then outstanding shares of our capital stock prior to
such date.
No Cumulative
Voting
The DGCL provides that stockholders are not entitled to the
right to cumulate votes in the election of directors unless our
amended and restated certificate of incorporation provides
otherwise. Our amended and restated certificate of incorporation
does not expressly provide for cumulative voting.
Stockholder
Action by Written Consent
Pursuant to Section 228 of the DGCL, any action required to
be taken at any annual or special meeting of the stockholders
may be taken without a meeting, without prior notice and without
a vote if a consent or consents in writing, setting forth the
action so taken, is signed by the holders of outstanding stock
having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which
all shares of our stock entitled to vote thereon were present
and voted, unless the companys amended and restated
certificate of incorporation provides otherwise. Our amended and
restated certificate of incorporation provides that from and
after the date on which the parties to our shareholders
agreement cease to beneficially own at least 40% of the total
voting power of all the then outstanding shares of our capital
stock any action, any action required or permitted to be taken
by our stockholders may not be effected by consent in writing by
such stockholders unless such action is recommended by all
directors then in office.
Delaware
Anti-Takeover Statute
We have opted out of Section 203 of the DGCL.
Section 203 provides that, subject to certain exceptions
specified in the law, a publicly-held Delaware corporation shall
not engage in certain business combinations with any
interested stockholder for a three-year period after
the date of the transaction in which the person became an
interested stockholder. These provisions generally prohibit or
delay the accomplishment of mergers, assets or stock sales or
other takeover or
change-in-control
attempts that are not approved by a companys board of
directors.
However, our amended and restated certificate of incorporation
and bylaws will provide that in the event the parties to our
shareholders agreement cease to beneficially own at least 5% of
the total voting power of all the then outstanding shares of our
capital stock, we will automatically become subject to
Section 203 of the DGCL. In general, Section 203
prohibits a publicly-held Delaware corporation from engaging,
under certain circumstances, in a business combination with an
interested stockholder for a period of three years following the
date the person became an interested stockholder unless:
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prior to the date of the transaction, the board of directors of
the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an
interested stockholder;
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upon completion of the transaction that resulted in the
stockholder becoming an interested stockholder, the stockholder
owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding
(1) shares owned by persons who are directors and also
officers and (2) shares owned by employee stock plans in
which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer; or
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on or subsequent to the date of the transaction, the business
combination is approved by the board and authorized at an annual
or special meeting of stockholders, and not by written consent,
by the affirmative vote of at least
66
2
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3
%
of the outstanding voting stock which is not owned by the
interested stockholder.
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Generally, a business combination includes a merger, asset or
stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. An interested stockholder
is a person who, together with affiliates and associates, owns
or, within three years prior to the determination of interested
stockholder status, did own 15% or more of a corporations
outstanding voting stock.
Under certain circumstances, Section 203 makes it more
difficult for a person who would be an interested
stockholder to effect various business combinations with a
corporation for a three-year period. Accordingly,
Section 203 could have an anti-takeover effect with respect
to certain transactions our board of directors does not
109
approve in advance. The provisions of Section 203 may
encourage companies interested in acquiring our company to
negotiate in advance with our board of directors because the
stockholder approval requirement would be avoided if our board
of directors approves either the business combination or the
transaction that results in the stockholder becoming an
interested stockholder. However, Section 203 also could
discourage attempts that might result in a premium over the
market price for the shares of common stock held by
stockholders. These provisions also may make it more difficult
to accomplish transactions that stockholders may otherwise deem
to be in their best interests.
Corporate
Opportunity
Our amended and restated certificate of incorporation provides
that our non-employee directors and their affiliates have no
obligation to offer us an opportunity to participate in business
opportunities presented to them or their affiliates even if the
opportunity is one that we might reasonably have pursued, and
neither the sponsors nor their affiliates will be liable to us
or our stockholders for breach of any duty by reason of any such
activities. Stockholders will be deemed to have notice of and
consented to this provision of our amended and restated
certificate of incorporation.
Transfer Agent
and Registrar
The transfer agent and registrar for shares of our common stock
will be American Stock Transfer & Trust Company, LLC.
Listing
Our common stock has been approved for listing on the New York
Stock Exchange under the symbol RM.
110
CERTAIN UNITED
STATES FEDERAL INCOME AND
ESTATE TAX CONSEQUENCES TO
NON-U.S.
HOLDERS
The following is a summary of certain United States federal
income and estate tax consequences of the purchase, ownership
and disposition of our common stock as of the date hereof.
Except where noted, this summary deals only with common stock
that is held as a capital asset by a
non-U.S. holder.
A
non-U.S. holder
means a person (other than a partnership) that is not for United
States federal income tax purposes any of the following:
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an individual citizen or resident of the United States;
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a corporation (or any other entity treated as a corporation for
United States federal income tax purposes) created or organized
in or under the laws of the United States, any state thereof or
the District of Columbia;
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an estate the income of which is subject to United States
federal income taxation regardless of its source; or
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a trust if it (1) is subject to the primary supervision of
a court within the United States and one or more United States
persons have the authority to control all substantial decisions
of the trust or (2) has a valid election in effect under
applicable United States Treasury regulations to be treated as a
United States person.
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This summary is based upon provisions of the Internal Revenue
Code of 1986, as amended (the Code), and
regulations, rulings and judicial decisions as of the date
hereof. Those authorities may be changed, perhaps retroactively,
so as to result in United States federal income and estate tax
consequences different from those summarized below. This summary
does not address all aspects of United States federal income and
estate taxes and does not deal with foreign, state, local or
other tax considerations that may be relevant to
non-U.S. holders
in light of their personal circumstances. In addition, it does
not represent a detailed description of the United States
federal income tax consequences applicable to you if you are
subject to special treatment under the United States federal
income tax laws (including if you are a United States
expatriate, controlled foreign corporation,
passive foreign investment company or a partnership
or other pass-through entity for United States federal income
tax purposes). We cannot assure you that a change in law will
not alter significantly the tax considerations that we describe
in this summary.
If a partnership (or any entity treated as a partnership for
United States federal income tax purposes) holds our common
stock, the tax treatment of a partner will generally depend upon
the status of the partner and the activities of the partnership.
If you are a partner of a partnership holding our common stock,
you should consult your tax advisors.
If you are considering the purchase of our common stock, you
should consult your own tax advisors concerning the particular
United States federal income and estate tax consequences to you
of the ownership of the common stock, as well as the
consequences to you arising under the laws of any other taxing
jurisdiction.
Dividends
Dividends paid to a
non-U.S. holder
of our common stock generally will be subject to withholding of
United States federal income tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty.
However, dividends that are effectively connected with the
conduct of a trade or business by the
non-U.S. holder
within the United States (and, if required by an applicable
income tax treaty, are attributable to a United States permanent
establishment) are not subject to the withholding tax, provided
certain certification and disclosure requirements are satisfied.
Instead, such dividends are subject to United States federal
income tax on a net income basis in the same manner as if the
non-U.S. holder
were a United States person as defined under the Code. Any such
effectively connected dividends received by a foreign
corporation may be subject to an additional branch profits
tax at a 30% rate or such lower rate as may be specified
by an applicable income tax treaty.
A
non-U.S. holder
of our common stock who wishes to claim the benefit of an
applicable treaty rate and avoid backup withholding, as
discussed below, for dividends will be required (a) to
complete Internal Revenue Service
Form W-8BEN
(or other applicable form) and certify under penalty of perjury
that such holder is not a United States person as defined under
the Code and is eligible for treaty benefits or (b) if our
common stock is held through certain foreign intermediaries, to
satisfy the relevant certification requirements of applicable
United States Treasury regulations. Special certification and
other requirements apply to certain
non-U.S. holders
that are pass-through entities rather than corporations or
individuals.
A
non-U.S. holder
of our common stock eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty may obtain a
refund of any excess amounts withheld by timely filing an
appropriate claim for refund with the Internal Revenue Service.
111
Gain on
Disposition of Shares of Common Stock
Any gain realized on the disposition of our common stock
generally will not be subject to United States federal income
tax unless:
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the gain is effectively connected with a trade or business of
the
non-U.S. holder
in the United States (and, if required by an applicable income
tax treaty, is attributable to a United States permanent
establishment of the
non-U.S. holder);
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the
non-U.S. holder
is an individual who is present in the United States for
183 days or more in the taxable year of that disposition,
and certain other conditions are met; or
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we are or have been a United States real property holding
corporation for United States federal income tax purposes.
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An individual
non-U.S. holder
described in the first bullet point immediately above will be
subject to tax on the net gain derived from the sale under
regular graduated United States federal income tax rates. An
individual
non-U.S. holder
described in the second bullet point immediately above will be
subject to a flat 30% tax on the gain derived from the sale,
which may be offset by United States source capital losses, even
though the individual is not considered a resident of the United
States. If a
non-U.S. holder
that is a foreign corporation falls under the first bullet point
immediately above, it will be subject to tax on its net gain in
the same manner as if it were a United States person as defined
under the Code and, in addition, may be subject to the branch
profits tax equal to 30% of its effectively connected earnings
and profits or at such lower rate as may be specified by an
applicable income tax treaty.
We believe we are not and do not anticipate becoming a
United States real property holding corporation for
United States federal income tax purposes.
Federal Estate
Tax
Common stock held by an individual
non-U.S. holder
at the time of death will be included in such holders
gross estate for United States federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.
Information
Reporting and Backup Withholding
We must report annually to the Internal Revenue Service and to
each
non-U.S. holder
the amount of dividends paid to such holder and the tax withheld
with respect to such dividends, regardless of whether
withholding was required. Copies of the information returns
reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the
non-U.S. holder
resides under the provisions of an applicable income tax treaty.
A
non-U.S. holder
will be subject to backup withholding for dividends paid to such
holder unless such holder certifies under penalty of perjury
that it is a
non-U.S. holder
(and the payor does not have actual knowledge or reason to know
that such holder is a United States person as defined under the
Code), or such holder otherwise establishes an exemption.
Information reporting and, depending on the circumstances,
backup withholding will apply to the proceeds of a sale of our
common stock within the United States or conducted through
certain United States-related financial intermediaries, unless
the beneficial owner certifies under penalty of perjury that it
is a
non-U.S. holder
(and the payor does not have actual knowledge or reason to know
that the beneficial owner is a United States person as defined
under the Code), or such owner otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules may be
allowed as a refund or a credit against a
non-U.S. holders
United States federal income tax liability provided the required
information is furnished to the Internal Revenue Service.
Additional
Withholding Requirements
Under recently enacted legislation and administrative guidance,
the relevant withholding agent may be required to withhold 30%
of any dividends paid after December 31, 2013 and the
proceeds of a sale of our common stock paid after
December 31, 2014 to (i) a foreign financial
institution unless such foreign financial institution agrees to
verify, report and disclose its United States accountholders and
meets certain other specified requirements or (ii) a
non-financial foreign entity that is the beneficial owner of the
payment unless such entity certifies that it does not have any
substantial United States owners or provides the name, address
and taxpayer identification number of each substantial United
States owner and such entity meets certain other specified
requirements. Prospective investors should consult their own tax
advisors regarding this legislation.
112
SHARES ELIGIBLE
FOR FUTURE SALE
Prior to this offering, there has been no public market for
shares of our common stock. We cannot predict the effect, if
any, future sales of shares of common stock, or the availability
for future sale of shares of common stock, will have on the
market price of shares of our common stock prevailing from time
to time. The sale of substantial amounts of shares of our common
stock in the public market, or the perception that such sales
could occur, could harm the prevailing market price of shares of
our common stock.
Upon consummation of this offering we will have a total
of shares
of our common stock outstanding. Of the outstanding shares,
the shares
sold in this offering
(or shares
if the underwriters exercise their over-allotment option in
full) will be freely tradable without restriction or further
registration under the Securities Act except that any shares
held by our affiliates, as that term is defined under
Rule 144 of the Securities Act, may be sold only in
compliance with the limitations described below. The remaining
outstanding shares of common stock will be deemed restricted
securities, as defined under Rule 144. We expect that each
of the sponsors will be considered affiliates 180 days
after this offering based on their expected share ownership
(consisting
of shares
owned by Palladium
and shares
owned by Parallel assuming no exercise of the underwriters
option to purchase additional shares), as well as their board
nomination rights. Certain other of our shareholders may also be
considered affiliates at that time. Restricted securities may be
sold in the public market only if the sale is registered or if
it qualifies for an exemption from registration under the
Securities Act, certain of which we summarize below.
Lock-Up
Agreements
We, our officers, directors and holders of substantially all of
our outstanding shares of common stock immediately prior to this
offering will be subject to
lock-up
agreements with the underwriters that will restrict the sale of
the shares of our common stock held by them for 180 days
after the date of this prospectus, subject to certain
exceptions, including the shares of common stock being sold in
this offering. See Underwriting (Conflicts of
Interest) for a description of these
lock-up
agreements.
Eligibility of
Restricted Shares for Sale in the Public Market
Other than the shares sold in this offering, all of the
remaining shares of our common stock will be available for sale,
subject to the
lock-up
agreements described above, after the date of this prospectus in
registered sales or pursuant to Rule 144 or another
exemption from registration. For the purpose of the volume,
manner of sale and other limitations under Rule 144
applicable to affiliates described below, we expect that each of
the sponsors will be considered affiliates 180 days after
this offering based on their expected share ownership
(consisting
of shares
owned by Palladium
and shares
owned by Parallel assuming no exercise of the underwriters
option to purchase additional shares), as well as their board
nomination rights. Certain other of our shareholders may also be
considered affiliates at that time.
Rule 144
In general, under Rule 144, as currently in effect, a
person who is not deemed to be or have been one of our
affiliates for purposes of the Securities Act at any time during
90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least six months is entitled
to sell such shares without registration, subject to compliance
with the public information requirements of Rule 144. If
such a person has beneficially owned the shares proposed to be
sold for at least one year then such person is entitled to sell
such shares without complying with any of the requirements of
Rule 144.
In general, under Rule 144, as currently in effect, our
affiliates or persons selling shares on behalf of our affiliates
are entitled to sell within any three-month period beginning
90 days after the date of this prospectus, a number of
shares that does not exceed the greater of:
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1% of the number of shares of our common stock then outstanding,
which will equal
approximately shares
immediately after this offering; or
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the average weekly trading volume of our common stock during the
four calendar weeks preceding the filing of a notice on
Form 144 with respect to such sale.
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113
Sales under Rule 144 by our affiliates or persons selling
shares on behalf of our affiliates are also subject to certain
manner of sale provisions and notice requirements and to the
availability of current public information about us.
Stock Incentive
Compensation
In addition, there were 589,622 shares of our common stock
issuable upon exercise of options at a weighted average exercise
price of $5.4623 per share outstanding as of March 31, 2011
under our 2007 Stock Plan, including options granted in 2007 and
2008. Furthermore, 950,000 shares of common stock may be
granted under our 2011 Stock Plan,
including shares
issuable upon the exercise of stock options that we intend to
grant to our executive officers and directors
and shares
issuable upon the exercise of stock options that we intend to
grant to our other employees, each at the time of this offering.
See Management Compensation Discussion and
Analysis 2011 Stock Incentive Plan and
Actions Taken in 2011 and Anticipated Actions
in Connection with the Offering. We intend to file one or
more registration statements on
Form S-8
under the Securities Act to register shares of common stock or
securities convertible into or exchangeable for shares of common
stock issued under or covered by our 2011 Stock Plan. Any such
Form S-8
registration statements will automatically become effective upon
filing. Accordingly, shares of common stock registered under
such registration statements will be available for sale in the
open market. We expect that the initial registration statement
on
Form S-8
will
cover shares
of common stock.
Registration
Rights
Upon the closing of this offering, we will enter into an amended
and restated shareholders agreement with our existing owners,
pursuant to which we will grant them, their affiliates and
certain of their transferees the right, under certain
circumstances and subject to certain restrictions, to require us
to register under the Securities Act shares of common stock (and
other securities convertible into or exchangeable or exercisable
for shares of common stock) held by them. Securities registered
under any such registration statement will be available for sale
in the open market unless restrictions apply. See Certain
Relationships and Related Person Transactions
Shareholders Agreement.
114
UNDERWRITING
(CONFLICTS OF INTEREST)
Subject to the terms and conditions set forth in the
underwriting agreement by and among us, the selling stockholders
and Jefferies & Company, Inc., as representative of
the underwriters, we and the selling stockholders have agreed to
sell to the underwriters and the underwriters have severally
agreed to purchase from us and the selling stockholders, the
number of shares of common stock indicated in the table below:
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NUMBER OF SHARES
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UNDERWRITERS
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OF COMMON STOCK
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Jefferies & Company, Inc.
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Stephens Inc.
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JMP Securities LLC
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BMO Capital Markets Corp.
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Total
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Jefferies & Company, Inc. and Stephens Inc. are acting
as joint book-running managers of this offering and
Jefferies & Company, Inc. is acting as representative
of the underwriters named above.
The underwriting agreement provides that the obligations of the
several underwriters are subject to certain conditions precedent
such as the receipt by the underwriters of officers
certificates and legal opinions and approval of certain legal
matters by their counsel. The underwriting agreement provides
that the underwriters will purchase all of the shares, other
than those shares subject to the underwriters
over-allotment option, if any of them are purchased. If an
underwriter defaults, the underwriting agreement provides that
the purchase commitments of the nondefaulting underwriters may
be increased or the underwriting agreement may be terminated. We
and the selling stockholders have agreed to indemnify the
underwriters and certain of their controlling persons against
certain liabilities, including liabilities under the Securities
Act, and to contribute to payments that the underwriters may be
required to make in respect of those liabilities.
The underwriters have advised us that they currently intend to
make a market in our common stock. However, the underwriters are
not obligated to do so and may discontinue any market-making
activities at any time without notice. No assurance can be given
as to the liquidity of the trading market for our common stock.
The underwriters are offering the shares of common stock subject
to their acceptance of the shares from us and the selling
stockholders and subject to prior sale. The underwriters reserve
the right to withdraw, cancel or modify offers to the public and
to reject orders in whole or in part. In addition, the
underwriters have advised us that they do not expect sales to
accounts over which they have discretionary authority to exceed
5% of the shares of common stock being offered.
Commission and
Expenses
The underwriters have advised us that they propose to offer the
shares to the public at the initial public offering price set
forth on the cover page of this prospectus and to certain
dealers at that price less a concession not in excess of
$ per share. The underwriters may
allow, and certain dealers may reallow, a discount from the
concession not in excess of $ per
share to certain brokers and dealers. After the offering, the
initial public offering price, concession and reallowance to
dealers may be reduced by the representative. No such reduction
will change the amount of proceeds to be received by us as set
forth on the cover page of this prospectus.
The following table shows the public offering price, the
underwriting discount that we and the selling stockholders are
to pay the underwriters and the proceeds, before expenses, to us
and the selling stockholders in connection with
115
this offering. Such amounts are shown assuming both no exercise
and full exercise of the underwriters over-allotment
option.
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PER SHARE
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TOTAL
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WITHOUT
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WITH
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WITHOUT
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WITH
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OVER-ALLOTMENT
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OVER-ALLOTMENT
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OVER-ALLOTMENT
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OVER-ALLOTMENT
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OPTION
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OPTION
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OPTION
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OPTION
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Public offering price
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$
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$
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$
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$
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Underwriting discount paid by us
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$
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$
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$
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$
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Proceeds to us, before expenses
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$
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$
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$
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$
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Underwriting discount paid by the selling stockholders
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$
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$
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$
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$
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Proceeds to the selling stockholders, before expenses
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$
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$
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$
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$
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We estimate expenses payable by us in connection with this
offering, other than the underwriting discount referred to
above, will be approximately
$ million.
Determination of
Offering Price
Prior to the offering, there has not been a public market for
our common stock. Consequently, the initial public offering
price for our common stock will be determined by negotiations
between us and the underwriters. Among the factors to be
considered in these negotiations will be prevailing market
conditions, our financial information, market valuations of
other companies that we and the underwriters believe to be
comparable to us, estimates of our business potential, the
present state of our development and other factors deemed
relevant.
We offer no assurances that the initial public offering price
will correspond to the price at which the common stock will
trade in the public market subsequent to the offering or that an
active trading market for the common stock will develop and
continue after the offering.
Listing
Our common stock has been approved for listing on the New York
Stock Exchange under the trading symbol RM.
Over-Allotment
Option
The selling stockholders have granted to the underwriters an
option, exercisable for 30 days from the date of this
prospectus, to purchase up to an aggregate
of additional
shares of common stock from the selling stockholders at the
public offering price set forth on the cover page of this
prospectus, less the underwriting discount, solely to cover
over-allotments, if any. If the underwriters exercise this
option, each underwriter will be obligated, subject to specified
conditions, to purchase a number of additional shares
proportionate to that underwriters initial purchase
commitment as indicated in the table above. This option may be
exercised only if the underwriters sell more shares than the
total number set forth on the cover page of this prospectus.
No Sales of
Similar Securities
We, our officers, directors and holders of substantially all of
our outstanding shares of common stock immediately prior to this
offering have agreed, subject to specified exceptions described
below, not to directly or indirectly:
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n
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sell, offer, contract or grant any option to sell (including any
short sale), pledge, transfer, establish an open put
equivalent position within the meaning of
Rule 16a-1(h)
under the Exchange Act, or
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n
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otherwise dispose of any shares of common stock, options or
warrants to acquire common stock, or securities exchangeable or
exercisable for or convertible into common stock currently or
hereafter owned either of record or beneficially, or
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n
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publicly announce an intention to do any of the foregoing for a
period of 180 days after the date of this prospectus
without the prior written consent of Jefferies &
Company, Inc.
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116
This restriction terminates after the close of trading of the
common stock on and including the 180 days after the date
of this prospectus. However, subject to certain exceptions, in
the event that either:
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n
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during the last 17 days of the
180-day
restricted period, we issue an earnings release or material news
or a material event relating to us occurs, or
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n
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prior to the expiration of the
180-day
restricted period, we announce that we will release earnings
results during the
16-day
period beginning on the last day of the
180-day
restricted period,
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then in either case the expiration of the
180-day
restricted period will be extended until the expiration of the
18-day
period beginning on the date of the issuance of an earnings
release or the occurrence of the material news or event, as
applicable, unless Jefferies & Company, Inc. waives,
in writing, such an extension.
The restrictions do not apply to:
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n
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sales of shares of our common stock to the underwriters pursuant
to the underwriting agreement;
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n
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certain transfers of shares of our common stock or securities
convertible or exchangeable into such shares acquired in the
open market or in the offering;
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n
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certain transfers of shares of our common stock or securities
convertible or exchangeable into such shares to affiliates,
related entities or family members;
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certain transfers as a bona fide gift or gifts, or for estate
planning purposes; or
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transfers of shares of common stock solely in connection with
certain cashless exercises of stock options,
including the sale of such shares in respect of tax withholding
payments.
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Jefferies & Company, Inc. may, in its sole discretion
and at any time or from time to time before the termination of
the
180-day
period, without public notice, release all or any portion of the
securities subject to
lock-up
agreements. There are no existing agreements between the
underwriters and any of our stockholders who will execute a
lock-up
agreement, providing consent to the sale of shares prior to the
expiration of the
lock-up
period.
Stabilization
The underwriters have advised us that, pursuant to
Regulation M under the Exchange Act, certain persons
participating in the offering may engage in transactions,
including over-allotment, stabilizing bids, syndicate covering
transactions or the imposition of penalty bids, which may have
the effect of stabilizing or maintaining the market price of the
common stock at a level above that which might otherwise prevail
in the open market. Over-allotment involves syndicate sales in
excess of the offering size, which creates a syndicate short
position. Covered short sales are sales made in an
amount not greater than the underwriters over-allotment
option. The underwriters may close out any covered short
position by either exercising their over-allotment option or
purchasing shares in the open market. In determining the source
of shares to close out the covered short position, the
underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to
the price at which they may purchase shares through the
over-allotment option. Naked short sales are sales
in excess of the over-allotment option. The underwriters must
close out any naked short position by purchasing shares in the
open market. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward
pressure on the price of the common stock in the open market
after pricing that could adversely affect investors who purchase
in this offering. A stabilizing bid is a bid for the purchase of
common stock on behalf of the underwriters for the purpose of
fixing or maintaining the price of the common stock. A syndicate
covering transaction is the bid for or the purchase of common
stock on behalf of the underwriters to reduce a short position
incurred by the underwriters in connection with the offering. A
penalty bid is an arrangement permitting the underwriters to
reclaim the selling concession otherwise accruing to a syndicate
member in connection with the offering if the notes originally
sold by such syndicate member are purchased in a syndicate
covering transaction and therefore have not been effectively
placed by such syndicate member.
None of we, the selling stockholders or any of the underwriters
makes any representation or prediction as to the direction or
magnitude of any effect that the transactions described above
may have on the price of our common stock. The underwriters are
not obligated to engage in these activities and, if commenced,
any of the activities may be discontinued at any time.
117
Electronic
Distribution
A prospectus in electronic format may be made available by
e-mail
or on
the web sites or through online services maintained by one or
more of the underwriters or their affiliates. In those cases,
prospective investors may view offering terms online and may be
allowed to place orders online. The underwriters may agree with
us to allocate a specific number of shares of common stock for
sale to online brokerage account holders. Any such allocation
for online distributions will be made by the underwriters on the
same basis as other allocations. Other than the prospectus in
electronic format, the information on the underwriters web
sites and any information contained in any other web site
maintained by any of the underwriters is not part of this
prospectus, has not been approved
and/or
endorsed by us or the underwriters and should not be relied upon
by investors.
Affiliations and
Conflicts of Interest
The underwriters or their affiliates may from time to time in
the future provide investment banking, commercial lending and
financial advisory services to us and our affiliates in the
ordinary course of business. The underwriters and their
affiliates, as applicable, will receive customary compensation
and reimbursement of expenses in connection with such services.
In the course of their businesses, the underwriters and their
affiliates may actively trade our securities or loans for their
own account or for the accounts of customers, and, accordingly,
the underwriters and their affiliates may at any time hold long
or short positions in such securities or loans.
BMO Capital Markets Financing, Inc., an affiliate of BMO Capital
Markets Corp., is one of the lenders under our senior revolving
credit facility and Bank of Montreal, another affiliate of BMO
Capital Markets Corp., is the counterparty to our interest rate
cap. We intend to use a portion of the proceeds to repay
outstanding borrowings under the senior revolving credit
facility. Because more than 5% of the proceeds of this offering,
not including underwriting compensation, may be received by an
affiliate of an underwriter in this offering depending on the
final offering price per share, this offering is being conducted
in compliance with FINRA Rule 5121, as administered by the
Financial Industry Regulatory Authority, Inc. However, no
qualified independent underwriter is needed for this offering
because this offering meets the conditions set forth in FINRA
Rule 5121(a)(1)(A). See Use of Proceeds.
118
CERTAIN ERISA
CONSIDERATIONS
The following discussion is a summary of certain considerations
associated with the purchase of our common stock by
(i) employee benefit plans that are subject to Title I
of the Employee Retirement Income Security Act of 1974, as
amended (ERISA), (ii) plans, individual
retirement accounts and other arrangements that are subject to
Section 4975 of the Code or provisions under any federal,
state, local,
non-U.S. or
other laws or regulations that are similar to such provisions of
ERISA or the Code, and (iii) entities whose underlying
assets are considered to include plan assets of any
such plan, account or arrangement (each, an ERISA
Plan).
Section 406 of ERISA and Section 4975 of the Code
prohibit ERISA Plans from engaging in specified transactions
involving plan assets with persons or entities who
are parties in interest, within the meaning of
ERISA, or disqualified persons, within the meaning
of Section 4975 of the Code, unless an exemption is
available. A party in interest or disqualified person who
engaged in a non-exempt prohibited transaction may be subject to
excise taxes and other penalties and liabilities under ERISA and
the Code. In addition, the fiduciary of the ERISA Plan that
engaged in such a non-exempt prohibited transaction may be
subject to penalties and liabilities under ERISA and the Code. A
prohibited transaction within the meaning of ERISA and the Code
may result if our common stock is acquired by an ERISA Plan to
which we or an underwriter is a party in interest and such
acquisition is not entitled to an applicable exemption, of which
there are many.
The foregoing discussion is general in nature and is not
intended to be all-inclusive. Due to the complexity of these
rules and the penalties that may be imposed upon persons
involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries, or other persons
considering purchasing our common stock on behalf of, or with
the assets of, any ERISA Plan, consult with their counsel
regarding the matters described herein.
119
NOTICE TO
INVESTORS
The shares of common stock are being offered for sale only in
those jurisdictions where it is lawful to make such offers. The
distribution of this prospectus and the offering or sale of the
shares of common stock in some jurisdictions may be restricted
by law. Persons into whose possession this prospectus comes are
required by us and the underwriters to inform themselves about
and to observe any applicable restrictions. This prospectus may
not be used for or in connection with an offer or solicitation
by any person in any jurisdiction in which that offer or
solicitation is not authorized or to any person to whom it is
unlawful to make that offer or solicitation.
European Economic
Area
In relation to each member state of the European Economic Area
which has implemented the Prospectus Directive, each of which we
refer to as a Relevant Member State, including each Relevant
Member State that has implemented amendments to
Article 3(2) of the Prospectus Directive with regard to
persons to whom an offer of securities is addressed and the
denomination per unit of the offer of securities, each of which
we refer to as an Early Implementing Member State, with effect
from and including the date on which the Prospectus Directive is
implemented in that Relevant Member State, which we refer to as
the Relevant Implementation Date, no offer of shares of our
common stock offered hereby will be made in this offering to the
public in that Relevant Member State (other than offers, which
we refer to as Permitted Public Offers where a prospectus will
be published in relation to the shares of our common stock
offered hereby that has been approved by the competent authority
in a Relevant Member State or, where appropriate, approved in
another Relevant Member State and notified to the competent
authority in that Relevant Member State, all in accordance with
the Prospectus Directive), except that with effect from and
including that Relevant Implementation Date, offers of shares of
our common stock offered hereby may be made to the public in
that Relevant Member State at any time:
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(a)
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to qualified investors, as defined in the Prospectus
Directive, including:
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(i)
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(in the case of Relevant Member States other than Early
Implementing Member States), legal entities which are authorized
or regulated to operate in the financial markets or, if not so
authorized or regulated, whose corporate purpose is solely to
invest in securities, or any legal entity which has two or more
of (i) an average of at least 250 employees during the
last financial year; (ii) a total balance sheet of more
than 43.0 million and (iii) an annual net
turnover of more than 50.0 million as shown in its
last annual or consolidated accounts; or
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(ii)
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(in the case of Early Implementing Member States), persons or
entities that are described in points (1) to (4) of
Section I of Annex II to Directive 2004/39/EC, and
those who are treated on request as professional clients in
accordance with Annex II to Directive 2004/39/EC, or
recognized as eligible counterparties in accordance with
Article 24 of Directive 2004/39/EC unless they have
requested that they be treated as non-professional
clients; or
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(b)
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to fewer than 100 (or, in the case of Early Implementing Member
States, 150) natural or legal persons (other than
qualified investors as defined in the Prospectus
Directive) subject to obtaining the prior consent of the
book-running mangers for any such offer; or
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(c)
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in any other circumstances falling within Article 3(2) of
the Prospectus Directive, provided that no such offer of shares
of our common stock offered hereby shall result in a requirement
for the publication of a prospectus pursuant to Article 3
of the Prospectus Directive or of a supplement to a prospectus
pursuant to Article 16 of the Prospectus Directive.
|
Each person in a Relevant Member State (other than a Relevant
Member State where there is a Permitted Public Offer) who
initially acquires any shares of our common stock offered hereby
or to whom any offer is made under this offering will be deemed
to have represented, acknowledged and agreed to and with each
book-running manager that (A) it is a qualified
investor, and (B) in the case of any shares of our
common stock offered hereby acquired by it as a financial
intermediary, as that term is used in Article 3(2) of the
Prospectus Directive, (x) the shares of our common stock
offered hereby acquired by it in this offering have not been
acquired on behalf of, nor have they been acquired with a view
to their offer or resale to, persons in any Relevant Member
State other than qualified
120
investors as defined in the Prospectus Directive, or in
circumstances in which the prior consent of the Subscribers has
been given to the offer or resale, or (y) where shares of
our common stock offered hereby have been acquired by it on
behalf of persons in any Relevant Member State other than
qualified investors as defined in the Prospectus
Directive, the offer of those shares to it is not treated under
the Prospectus Directive as having been made to such persons.
For the purpose of the above provisions, the expression an
offer to the public in relation to any shares of our
common stock offered hereby in any Relevant Member State means
the communication in any form and by any means of sufficient
information on the terms of the offer of any such shares to be
offered so as to enable an investor to decide to purchase any
such shares, as the same may be varied in the Relevant Member
State by any measure implementing the Prospectus Directive in
the Relevant Member State and the expression Prospectus
Directive means Directive 2003/71/EC (including that
Directive as amended, in the case of Early Implementing Member
States) and includes any relevant implementing measure in each
Relevant Member State.
United
Kingdom
An offer of shares may not be made to the public in the United
Kingdom within the meaning of Section 102B of the Financial
Services and Markets Act 2000 (as amended) (FSMA) except to
legal entities which are authorized or regulated to operate in
the financial markets or, if not so authorized or regulated,
whose corporate purpose is solely to invest in securities or
otherwise in circumstances which do not require us to publish a
prospectus pursuant to the Prospectus Rules of the Financial
Services Authority (FSA).
An invitation or inducement to engage in investment activity
(within the meaning of Section 21 of FSMA) may only be
communicated to persons who have professional experience in
matters relating to investments falling within
Article 19(5) of the Financial Services and Markets Act
2000 (Financial Promotion) Order 2005 or in circumstances in
which Section 21 of FSMA does not apply to us.
All applicable provisions of the FSMA with respect to anything
done by the underwriters in relation to our common stock must be
complied with in, from or otherwise involving the United Kingdom.
Germany
Any offer or solicitation of securities within Germany must be
in full compliance with the German Securities Prospectus Act
(Wertpapierprospektgesetz WpPG). The offer and
solicitation of securities to the public in Germany requires the
publication of a prospectus that has to be filed with and
approved by the German Federal Financial Services Supervisory
Authority (Bundesanstalt für
Finanzdienstleistungsaufsicht BaFin). This
prospectus has not been and will not be submitted for filing and
approval to the BaFin and, consequently, will not be published.
Therefore, this prospectus does not constitute a public offer
under the German Securities Prospectus Act
(Wertpapierprospektgesetz). This prospectus and any other
document relating to our common stock, as well as any
information contained therein, must therefore not be supplied to
the public in Germany or used in connection with any offer for
subscription of our common stock to the public in Germany, any
public marketing of our common stock or any public solicitation
for offers to subscribe for or otherwise acquire our common
stock. This prospectus and other offering materials relating to
the offer of our common stock are strictly confidential and may
not be distributed to any person or entity other than the
designated recipients hereof.
Notice to
Prospective Investors in Hong Kong
Our securities may not be offered or sold in Hong Kong, by means
of this prospectus or any document other than (i) to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap.571, Laws of Hong Kong)
and any rules made thereunder, or (ii) in circumstances
which do not constitute an offer to the public within the
meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong),
or (iii) in other circumstances which do not result in the
document being a prospectus within the meaning of
the Companies Ordinance (Cap.32, Laws of Hong Kong). No
advertisement, invitation or document relating to our securities
may be issued or may be in the possession of any person for the
purpose of issue (in each case whether in Hong Kong or
elsewhere) which is directed at, or the contents of which are
likely to be accessed or read by, the public in Hong Kong
(except if permitted to do so under the securities laws of Hong
Kong) other than with respect to the securities which are or are
121
intended to be disposed of only to persons outside Hong Kong or
only to professional investors within the meaning of
the Securities and Futures Ordinance (Cap. 571, Laws of Hong
Kong) and any rules made thereunder.
Notice to
Prospective Investors in Singapore
This document has not been registered as a prospectus with the
Monetary Authority of Singapore and in Singapore, the offer and
sale of our securities is made pursuant to exemptions provided
in sections 274 and 275 of the Securities and Futures Act,
Chapter 289 of Singapore (SFA). Accordingly,
this prospectus and any other document or material in connection
with the offer or sale, or invitation for subscription or
purchase, of our securities may not be circulated or
distributed, nor may our securities be offered or sold, or be
made the subject of an invitation for subscription or purchase,
whether directly or indirectly, to persons in Singapore other
than (i) to an institutional investor as defined in
Section 4A of the SFA pursuant to Section 274 of the
SFA, (ii) to a relevant person as defined in
section 275(2) of the SFA pursuant to Section 275(1)
of the SFA, or any person pursuant to Section 275(1A) of
the SFA, and in accordance with the conditions specified in
Section 275 of the SFA or (iii) otherwise pursuant to,
and in accordance with the conditions of, any other applicable
provision of the SFA, in each case subject to compliance with
the conditions (if any) set forth in the SFA. Moreover, this
document is not a prospectus as defined in the SFA. Accordingly,
statutory liability under the SFA in relation to the content of
prospectuses would not apply. Prospective investors in Singapore
should consider carefully whether an investment in our
securities is suitable for them.
Where our securities are subscribed or purchased under
Section 275 of the SFA by a relevant person which is:
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(a)
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by a corporation (which is not an accredited investor as defined
in Section 4A of the SFA) the sole business of which is to
hold investments and the entire share capital of which is owned
by one or more individuals, each of whom is an accredited
investor; or
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(b)
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for a trust (where the trustee is not an accredited investor)
whose sole purpose is to hold investments and each beneficiary
of the trust is an individual who is an accredited investor,
|
shares of that corporation or the beneficiaries rights and
interest (howsoever described) in that trust shall not be
transferable for six months after that corporation or that trust
has acquired the shares under Section 275 of the SFA,
except:
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(1)
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to an institutional investor (for corporations under
Section 274 of the SFA) or to a relevant person defined in
Section 275(2) of the SFA, or any person pursuant to an
offer that is made on terms that such shares of that corporation
or such rights and interest in that trust are acquired at a
consideration of not less than $200,000 (or its equivalent in a
foreign currency) for each transaction, whether such amount is
to be paid for in cash or by exchange of securities or other
assets, and further for corporations, in accordance with the
conditions, specified in Section 275 of the SFA;
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(2)
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where no consideration is given for the transfer; or
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(3)
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where the transfer is by operation of law.
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In addition, investors in Singapore should note that the
securities acquired by them are subject to resale and transfer
restrictions specified under Section 276 of the SFA, and
they, therefore, should seek their own legal advice before
effecting any resale or transfer of their securities.
122
LEGAL
MATTERS
The validity of the shares of common stock will be passed upon
for us by Simpson Thacher & Bartlett LLP,
New York, New York. Certain legal matters in connection
with this offering will be passed upon for the underwriters by
White & Case LLP, New York, New York.
EXPERTS
The consolidated financial statements of Regional Management
Corp. and subsidiaries as of December 31, 2009 and
December 31, 2010 and for the years ended December 31,
2008, December 31, 2009 and December 31, 2010
appearing in this prospectus and the registration statement have
been audited by McGladrey & Pullen, LLP, an
independent registered public accounting firm, as stated in
their report appearing elsewhere herein, and are included in
reliance upon such report and upon the authority of such firm as
experts in accounting and auditing.
WHERE YOU CAN
FIND MORE INFORMATION
We have filed with the SEC a registration statement on
Form S-1
under the Securities Act with respect to the shares of common
stock offered by this prospectus. This prospectus, filed as part
of the registration statement, does not contain all of the
information set forth in the registration statement and its
exhibits and schedules, portions of which have been omitted as
permitted by the rules and regulations of the SEC. For further
information about us and shares of our common stock, we refer
you to the registration statement and to its exhibits and
schedules. Statements in this prospectus about the contents of
any contract, agreement or other document are not necessarily
complete and in each instance we refer you to the copy of such
contract, agreement or document filed as an exhibit to the
registration statement. Anyone may inspect the registration
statement and its exhibits and schedules without charge at the
public reference facilities the SEC maintains at
100 F Street, N.E., Washington, D.C. 20549. You
may obtain copies of all or any part of these materials from the
SEC upon the payment of certain fees prescribed by the SEC. You
may obtain further information about the operation of the
SECs Public Reference Room by calling the SEC at
1-800-SEC-0330.
You may also inspect these reports and other information without
charge at a website maintained by the SEC. The address of this
site is
http://www.sec.gov.
Upon consummation of this offering, we will become subject to
the informational requirements of the Exchange Act and will be
required to file reports and other information with the SEC. You
will be able to inspect and copy these reports and other
information at the public reference facilities maintained by the
SEC at the address noted above. You also will be able to obtain
copies of this material from the Public Reference Room of the
SEC as described above, or inspect them without charge at the
SECs website. We intend to make available to our common
stockholders annual reports containing consolidated financial
statements audited by an independent registered public
accounting firm.
123
INDEX
TO FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
F-2
|
|
Audited Financial Statements at December 31, 2009 and 2010
and for the years ended December 31, 2008, 2009 and 2010
|
|
|
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-6
|
|
|
|
|
F-7
|
|
Unaudited Condensed Financial Statements at March 31, 2011
and for the three months ended March 31, 2010 and 2011
|
|
|
|
|
|
|
|
F-29
|
|
|
|
|
F-30
|
|
|
|
|
F-31
|
|
|
|
|
F-32
|
|
F-1
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Regional Management Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Regional Management Corp. and Subsidiaries as of
December 31, 2009 and 2010, and the consolidated statements
of income, stockholders equity, and cash flows for the
years ended December 31, 2008, 2009 and 2010. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Regional Management Corp. and Subsidiaries as of
December 31, 2009 and 2010, and the results of their
operations and their cash flows for the years ended
December 31, 2008, 2009 and 2010 in conformity with
U.S. generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
Raleigh, North Carolina
May 16, 2011
F-2
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands, except per share information)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
3,018
|
|
|
$
|
856
|
|
|
|
|
|
|
|
|
|
|
Gross finance receivables
|
|
|
272,432
|
|
|
|
318,991
|
|
Less unearned finance charges, insurance premiums and commissions
|
|
|
(57,523
|
)
|
|
|
(71,745
|
)
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
|
214,909
|
|
|
|
247,246
|
|
Allowance for loan losses
|
|
|
(18,441
|
)
|
|
|
(18,000
|
)
|
|
|
|
|
|
|
|
|
|
Net finance receivables
|
|
|
196,468
|
|
|
|
229,246
|
|
Premises and equipment, net of accumulated depreciation
|
|
|
2,812
|
|
|
|
3,069
|
|
Deferred tax asset, net
|
|
|
7,306
|
|
|
|
4,376
|
|
Repossessed assets at net realizable value
|
|
|
665
|
|
|
|
296
|
|
Other assets
|
|
|
4,178
|
|
|
|
3,515
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
214,447
|
|
|
$
|
241,358
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Cash overdraft
|
|
$
|
150
|
|
|
$
|
365
|
|
Accounts payable and accrued expenses
|
|
|
5,217
|
|
|
|
7,968
|
|
Senior revolving credit facility
|
|
|
156,286
|
|
|
|
163,301
|
|
Mezzanine debt to third party
|
|
|
25,680
|
|
|
|
|
|
Mezzanine debt to related party
|
|
|
|
|
|
|
25,814
|
|
Other debt
|
|
|
474
|
|
|
|
466
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
187,807
|
|
|
|
197,914
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
Temporary equity
|
|
|
12,000
|
|
|
|
12,000
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock (25,000,000 shares authorized; 9,336,727
issued and outstanding; $.10 par value per share)
|
|
|
934
|
|
|
|
934
|
|
Additional paid-in capital
|
|
|
27,599
|
|
|
|
27,959
|
|
Retained earnings (deficit)
|
|
|
(13,893
|
)
|
|
|
2,551
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
14,640
|
|
|
|
31,444
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
214,447
|
|
|
$
|
241,358
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands, except per share information)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fee income
|
|
$
|
58,471
|
|
|
$
|
63,590
|
|
|
$
|
74,218
|
|
Insurance income, net
|
|
|
4,620
|
|
|
|
5,229
|
|
|
|
8,252
|
|
Other income
|
|
|
3,651
|
|
|
|
3,995
|
|
|
|
4,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
66,742
|
|
|
|
72,814
|
|
|
|
86,832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
17,376
|
|
|
|
19,405
|
|
|
|
16,568
|
|
General and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
|
|
|
17,781
|
|
|
|
18,991
|
|
|
|
20,630
|
|
Occupancy
|
|
|
4,398
|
|
|
|
4,538
|
|
|
|
5,165
|
|
Advertising
|
|
|
999
|
|
|
|
1,212
|
|
|
|
2,027
|
|
Other
|
|
|
4,684
|
|
|
|
4,379
|
|
|
|
5,703
|
|
Consulting and advisory fees
|
|
|
1,644
|
|
|
|
1,263
|
|
|
|
1,233
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior revolving credit facility and other debt
|
|
|
7,399
|
|
|
|
4,846
|
|
|
|
5,542
|
|
Mezzanine debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party
|
|
|
3,706
|
|
|
|
3,835
|
|
|
|
2,915
|
|
Related parties
|
|
|
|
|
|
|
|
|
|
|
1,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
11,105
|
|
|
|
8,681
|
|
|
|
9,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
57,987
|
|
|
|
58,469
|
|
|
|
61,210
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
8,755
|
|
|
|
14,345
|
|
|
|
25,622
|
|
Income taxes
|
|
|
2,276
|
|
|
|
4,472
|
|
|
|
9,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,479
|
|
|
$
|
9,873
|
|
|
$
|
16,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.69
|
|
|
$
|
1.06
|
|
|
$
|
1.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
0.68
|
|
|
$
|
1.03
|
|
|
$
|
1.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
9,336,727
|
|
|
|
9,336,727
|
|
|
|
9,336,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
9,482,604
|
|
|
|
9,590,564
|
|
|
|
9,669,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL
|
|
|
RETAINED
|
|
|
|
|
|
|
COMMON
|
|
|
PAID-IN
|
|
|
EARNINGS
|
|
|
|
|
|
|
STOCK
|
|
|
CAPITAL
|
|
|
(DEFICIT)
|
|
|
TOTAL
|
|
|
|
(Dollars in thousands)
|
|
|
Balance, December 31, 2007
|
|
$
|
934
|
|
|
$
|
26,716
|
|
|
$
|
(30,245
|
)
|
|
$
|
(2,595
|
)
|
Stock option expense
|
|
|
|
|
|
|
523
|
|
|
|
|
|
|
|
523
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
6,479
|
|
|
|
6,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
934
|
|
|
|
27,239
|
|
|
|
(23,766
|
)
|
|
|
4,407
|
|
Stock option expense
|
|
|
|
|
|
|
360
|
|
|
|
|
|
|
|
360
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
9,873
|
|
|
|
9,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
934
|
|
|
|
27,599
|
|
|
|
(13,893
|
)
|
|
|
14,640
|
|
Stock option expense
|
|
|
|
|
|
|
360
|
|
|
|
|
|
|
|
360
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
16,444
|
|
|
|
16,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
$
|
934
|
|
|
$
|
27,959
|
|
|
$
|
2,551
|
|
|
$
|
31,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(Dollars in thousands)
|
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,479
|
|
|
$
|
9,873
|
|
|
$
|
16,444
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
17,376
|
|
|
|
19,405
|
|
|
|
16,568
|
|
Amortization of stock option expense
|
|
|
523
|
|
|
|
360
|
|
|
|
360
|
|
Fair value adjustment on interest rate caps
|
|
|
|
|
|
|
(280
|
)
|
|
|
843
|
|
Payment of in-kind interest on mezzanine debt
|
|
|
168
|
|
|
|
512
|
|
|
|
134
|
|
Deferred income taxes
|
|
|
(1,183
|
)
|
|
|
(98
|
)
|
|
|
2,930
|
|
Depreciation and amortization
|
|
|
1,078
|
|
|
|
1,144
|
|
|
|
1,383
|
|
Change in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
(506
|
)
|
|
|
182
|
|
|
|
(198
|
)
|
Other liabilities
|
|
|
2,719
|
|
|
|
134
|
|
|
|
2,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
26,654
|
|
|
|
31,232
|
|
|
|
41,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables originated
|
|
|
(39,755
|
)
|
|
|
(39,249
|
)
|
|
|
(49,346
|
)
|
Net increase in restricted cash
|
|
|
(95
|
)
|
|
|
(106
|
)
|
|
|
|
|
Purchase of furniture and equipment
|
|
|
(1,348
|
)
|
|
|
(556
|
)
|
|
|
(1,210
|
)
|
Purchase of interest rate caps
|
|
|
|
|
|
|
(800
|
)
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(41,198
|
)
|
|
|
(40,711
|
)
|
|
|
(50,599
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash overdraft
|
|
|
(332
|
)
|
|
|
(214
|
)
|
|
|
215
|
|
Net advances on senior revolving credit facility
|
|
|
16,396
|
|
|
|
11,674
|
|
|
|
7,015
|
|
Proceeds from issuance of mezzanine debt, related party
|
|
|
|
|
|
|
|
|
|
|
25,814
|
|
Payments on mezzanine debt
|
|
|
|
|
|
|
|
|
|
|
(25,814
|
)
|
Payments on subordinated debt and other notes, net
|
|
|
(1,636
|
)
|
|
|
(394
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
14,428
|
|
|
|
11,066
|
|
|
|
7,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
(116
|
)
|
|
|
1,587
|
|
|
|
(2,162
|
)
|
Cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
1,547
|
|
|
|
1,431
|
|
|
|
3,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
|
|
$
|
1,431
|
|
|
$
|
3,018
|
|
|
$
|
856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for interest
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid to third parties
|
|
$
|
11,152
|
|
|
$
|
8,918
|
|
|
$
|
7,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid to related parties
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments for income taxes
|
|
$
|
1,820
|
|
|
$
|
4,844
|
|
|
$
|
8,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures of Noncash Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of mezzanine debt in lieu of cash interest payment
|
|
$
|
168
|
|
|
$
|
512
|
|
|
$
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
F-6
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
(Dollars in thousands, except per share information)
Note 1.
Nature of Business and Significant Accounting Policies
Nature of business:
Regional Management Corp. (the
Company) was incorporated and began operations in
1987. The Company is engaged in the consumer finance business,
offering small installment loans, large installment loans,
automobile purchase loans, furniture and appliance purchase
loans, related credit insurance, and ancillary products and
services. As of December 31, 2010, the Company operates
offices in 134 locations in the states of Alabama (9 offices),
North Carolina (19 offices), South Carolina (61 offices),
Tennessee (10 offices), and Texas (35 offices) under the brand
names Regional Finance, RMC Financial Services, Anchor Finance,
and Sun Finance. The Company opened 16, six, and 17 new offices
during the years ended December 31, 2008, 2009, and 2010,
respectively.
Principles of consolidation:
The consolidated
financial statements include the accounts of Regional Management
Corp. and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation. The Company operates through a separate
subsidiary in each state.
The accounting and reporting policies of the Company are in
accordance with accounting principles generally accepted in the
United States of America and conform to general practices within
the consumer finance industry.
The following is a description of significant accounting
policies used in preparing the financial statements.
Use of estimates:
The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to change
relate to the determination of the allowance for loan losses,
fair value of stock-based compensation and the valuation of
deferred tax assets.
Business segments:
The Company reports operating
segments in accordance with Financial Accounting Standards Board
(FASB) Accounting Standards Codification (ASC) Topic
280. Operating segments are components of an enterprise about
which separate financial information is available that is
evaluated regularly by the chief operating decision maker in
determining how to allocate resources and assess performance.
FASB ASC Topic 280 requires that a public enterprise report a
measure of segment profit or loss, certain specific revenue and
expense items, segment assets, information about the way
operating segments were determined, and other items.
The Company has one reportable segment, which is the consumer
finance business. The other revenue generating activities of the
Company, including insurance operations and income tax
preparation, are done in the existing branch network in
conjunction with or as a complement to the consumer finance
operations. There is no discrete financial information available
for these activities and they do not meet the criteria under
FASB ASC Topic 280 to be reported separately.
Cash and statement of cash flows:
Cash flows from
loan operations and short-term borrowings are reported on a net
basis.
F-7
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
Finance receivables:
The Companys loan
portfolio consists of the following (2010 originations):
|
|
|
|
|
|
|
|
AVERAGE SIZE
|
|
Small installment loans
|
|
$
|
1.0
|
|
Large installment loans
|
|
$
|
3.1
|
|
Automobile purchase loans
|
|
$
|
10.8
|
|
Furniture and appliance purchase loans
|
|
$
|
1.4
|
|
|
Small installment loan receivables are direct loans to customers
and are secured by non-essential household goods and include
live check loans, which are checks mailed to customers based on
a rigorous pre-screening process that includes a review of the
prospective customers credit profile provided by one of
the national credit reporting bureaus. Large installment loan
receivables are direct loans to customers and are secured by
automobiles or other vehicles in addition to non-essential
household goods. Automobile purchase loan receivables consist of
direct loans, which are originated at the dealership and closed
in one of our branches, and indirect loans, which are originated
and closed at a dealership in our network without the need for
the customer to visit one of our branches. In each case these
automobile purchase loans are collateralized primarily by used
and some new automobiles, which are initiated by and purchased
from automobile dealerships, subject to the Companys
credit approval. Furniture and appliance purchase loan
receivables consist principally of retail installment sales
contracts collateralized by the furniture purchased, which are
initiated by and purchased from furniture retailers, subject to
the Companys credit approval.
Loan losses:
Provisions for loan losses are charged
to income as losses are estimated to have occurred and in
amounts sufficient to maintain an allowance for loan losses at
an adequate level to provide for losses on the finance
receivables. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is
confirmed. Subsequent recoveries, if any, are credited to the
allowance. Loan loss experience, average loan life, and
contractual delinquency of finance receivables by loan type, the
value of underlying collateral, and managements judgment
are factors used in assessing the overall adequacy of the
allowance and the resulting provision for loan losses. While
management uses the best information available to make its
evaluation, future adjustments to the allowance may be necessary
if there are significant changes in economic conditions or
portfolio performance. This evaluation is inherently subjective
as it requires estimates that are susceptible to significant
revisions as more information becomes available.
The allowance consists of specific and general components. The
specific component relates to loans that are considered
impaired. The Company fully reserves for all loans at the date
that the loan is contractually delinquent 180 days. The
Company only initiates repossession proceedings when an account
is seriously delinquent and in the opinion of management, the
customer is unlikely to make further payments. Since 2010, the
Company has sold substantially all repossessed vehicle inventory
through public sales conducted by independent automobile auction
organizations after the required post-repossession waiting
period. Vehicles held for sale at the office location are
generally taken to an auction if not sold within 90 days of
obtaining title. Losses on the sale of repossessed collateral
are charged to the allowance for loan losses.
The Companys allowance for loan losses has three
components. The following is a description of the components of
the allowance for loan losses:
|
|
|
|
n
|
Most recent twelve months of historical losses are used to
estimate the allowance for large installment loans (loans in
excess of $2,500), automobile purchase loans and all furniture
and appliance purchase loans
|
|
|
n
|
Most recent eight months of historical losses are used to
estimate the allowance for small installment loans, including
live checks (loans of $2,500 or less)
|
F-8
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
|
|
|
|
n
|
An unallocated allowance amount. The unallocated amount of the
allowance is managements estimate of incurred losses
relating to loans outstanding at December 31 due to current
factors that may affect historical loss estimates described
above. Factors that impact this amount include, among other
factors, general economic trends, unemployment levels, business
conditions, the trend of loan originations, delinquency,
bankruptcy and trends in the market value of collateral in the
areas in which the Company operates.
|
Automobile purchase, furniture and appliance purchase and large
installment loans have longer maturities than small installment
loans, which is why a shorter time period is used for small
installment loan losses.
In 2011, the Company began evaluating the loans of customers in
Chapter 13 bankruptcy for impairment as troubled debt
restructurings. The Company has adopted the policy of
aggregating loans with similar risk characteristics for purposes
of computing the amount of impairment. In connection with the
adoption of this practice, the Company computed the estimated
impairment on its Chapter 13 bankrupt loans in the
aggregate by discounting the projected cash flows at the
original contract rates on the loan using the terms imposed by
the bankruptcy court. This method was applied in the aggregate
to each of the Companys four classes of loans.
The Companys policy for the accounts of customers in
bankruptcy is to charge off the balance of accounts in a
confirmed bankruptcy under Chapter 7 of the bankruptcy
code. For customers in a Chapter 13 bankruptcy plan, the
Company reduces the interest rate to that specified in the
bankruptcy order. Additionally, if the bankruptcy court converts
a portion of a loan to an unsecured claim the Companys
policy is to charge off the portion of the unsecured balance
that it deems uncollectible at the time the bankruptcy plan is
confirmed. Once the customer is in a confirmed Chapter 13
bankruptcy plan, the Company receives payments with respect to
the remaining amount of the loan at the reduced interest rate
from the bankruptcy trustee. The Company does not believe that
accounts in a confirmed Chapter 13 plan have a higher level
of risk than non-bankrupt accounts. If a customer fails to
comply with the terms of the bankruptcy order, the Company will
petition the trustee to have the customer dismissed from
bankruptcy. Upon dismissal, the Company restores the account to
the original terms and pursues collection through its normal
collection activities.
In making the computations of the present value of cash payments
to be received on bankrupt accounts in each product category,
the Company used the weighted average interest rates and
weighted average remaining term based on data as of
June 30, 2011. Management believes using the current data
does not materially change the results that would be obtained if
it had available data for interest rates and remaining term data
as of the applicable periods. In the future, the Company will
use data for the current quarter.
Impaired loans:
The Company does not have impaired
loans as defined by FASB ASC Topic 310, except loans considered
to be troubled debt restructurings and accounts 180 or more days
contractually delinquent, which are fully reserved for as
described above. In accordance with the Companys
charge-off policy, once a loan is deemed uncollectible, 100% of
the net investment is charged-off.
The factors used to determine whether an account is
uncollectible are the age of the account, supervisory review of
collection efforts, and other factors such as customers
relocating to an area where collection is not practical. As of
December 31, 2010, bankrupt accounts that had not been
charged-off were approximately $2,662. Such accounts are
specifically evaluated for impairment. The Company has elected
to evaluate such loans in the aggregate in accordance with
FASB ASC Topic 310 as they have common risk
characteristics. Of the total $2,662 of bankrupt accounts at
December 31, 2010, $311 are more than 180 days
contractually delinquent and thus fully reserved. For customers
with a confirmed Chapter 13 bankruptcy plan, the Company
receives payments through the bankruptcy court. For customers
who recently filed for Chapter 13 bankruptcy, the Company
generally does not receive any payments until their bankruptcy
plan is confirmed by the court. If the customers have made
payments to the trustee in advance of plan confirmation, the
Company may receive a lump sum payment from the trustee once the
plan is confirmed. This lump sum payment
F-9
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
represents the Companys pro-rata share of the amount paid
by the customer. If a customer files for bankruptcy under
Chapter 7 of the bankruptcy code, the customers
entire debt is cancelled. In such cases, the Company charges off
the account upon receiving notice from the bankruptcy court. If
a vehicle secures a Chapter 7 bankruptcy account, the
customer has the option of buying the vehicle at fair value or
reaffirming the loan and continuing to pay the loan.
The remainder of the accounts are those that operations
personnel are of the view that some portion of the account can
be collected. Following is a chart of the maturity of accounts
that are 180 days or more past due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AS OF DECEMBER 31, 2010
|
|
|
|
NON-BANKRUPT
|
|
|
CUSTOMERS
|
|
|
TOTAL 180+ PAST DUE
|
|
|
|
CUSTOMERS
|
|
|
IN BANKRUPTCY
|
|
|
ACCOUNTS
|
|
|
Accounts at least 180 days but less than one year
contractually delinquent
|
|
$
|
709
|
|
|
$
|
224
|
|
|
$
|
933
|
|
Accounts at least one year but less than two years contractually
delinquent
|
|
|
91
|
|
|
|
82
|
|
|
|
173
|
|
Accounts at least two years contractually delinquent
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
800
|
|
|
$
|
311
|
|
|
$
|
1,111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency:
The Company determines past due status
using the contractual terms of the loan. This is the credit
quality indicator used to evaluate the allowance for loan losses
for each class of finance receivables.
Repossessed assets:
Repossessed collateral is valued
at the lower of the receivable balance on the loan prior to
repossession or estimated net realizable value. Management
estimates net realizable value at the projected cash value upon
liquidation, less costs to sell the related collateral.
Premises and equipment:
The Company owns its
headquarters buildings. During 2010, the Company sold the only
branch office that it owned. Offices are leased under
non-cancellable leases. Office buildings are depreciated on the
straight-line method for financial reporting purposes over their
estimated useful lives of 39 to 40 years. Furniture and
equipment are depreciated on the straight-line method over their
estimated useful lives, generally three to five years.
Leasehold improvements are depreciated over the shorter of the
life of the asset or the remaining term of the lease agreement.
Maintenance and repairs are charged to expense as incurred.
Income recognition:
Interest income is recognized
using the interest (actuarial) method, also known as the
constant yield method. Therefore, the Company recognizes revenue
from interest at an equal rate over the term of the loan.
Unearned finance charges on pre-compute contracts are rebated to
customers utilizing the Rule of 78s method. The difference
between income recognized under the constant yield method and
the Rule of 78s method is recognized as an adjustment to
interest income at the time of rebate. Accrual of interest
income on finance receivables is suspended when no payment has
been received for 90 days or more on a contractual basis.
The accrual of income is not resumed until one or more full
contractual monthly payments are received and the finance
receivable is less than 90 days contractually delinquent.
Interest income is suspended on finance receivables for which
collateral has been repossessed. Payments received on loans in
nonaccrual status are first applied to interest, then to any
late charges or other fees, with any remaining amount applied to
principal.
The Company recognizes income on credit insurance products using
the constant yield method over the life of the related loan.
Rebates are computed using the Rule of 78s method and any
difference between the constant yield method and the Rule of 78s
is recognized in income at the time of rebate.
The Company charges a fee to automobile dealers for each loan it
purchases from that dealer. The Company defers this fee and
accretes it to income using a method that approximates the
constant yield method.
F-10
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
Charges for late fees are recognized as income when accrued.
Loan origination fees and costs:
Non-refundable fees
received and direct costs incurred for the origination of
finance receivables are deferred and amortized to interest
income over the contractual lives of the loans using the
constant yield method. Unamortized amounts are recognized in
income at the time that loans are paid in full.
Insurance operations:
Insurance operations include
revenue and expense from the Companys sale of optional
insurance products to its customers. These optional products
include credit life, credit accident and health, property
insurance, and involuntary unemployment insurance. Insurance
premiums are remitted to an unaffiliated company that issues the
policy to the customer. This company cedes the premiums to the
Companys wholly-owned insurance subsidiary, RMC
Reinsurance, Ltd. Life insurance premiums are ceded to the
Company as written, non-life products are ceded as earned. The
premiums and commissions received by the Company are deferred
and amortized to income over the life of the insurance policy
using the constant yield method.
In 2009, the Company began a collateral protection collision
insurance (CPI) program in one state. CPI is added
to a loan when a customer fails to provide the Company proof of
collision insurance on an automobile securing a loan. The CPI
program is administered by an independent third party, which
tracks insurance lapses and cancellations and issues a policy
when the customer does not provide proof of insurance. The
insurance is added to the loan and increases the customers
monthly loan payment. The third party and its insurance partner
retain a percentage of the premium and pay all claims. The
Company earns a percentage of the premium and will earn
additional income if losses are less than estimated by the
independent third party. Income is recognized on the constant
yield method over the life of the insurance policy, which is
generally one year.
Non-file insurance is written in lieu of recording and
perfecting the Companys security interest in the assets
pledged on certain loans. Non-file insurance and the related
insurance premiums, claims, and recoveries are not reflected in
the accompanying financial statements except when claims are
incurred. Non-file insurance premiums are collected from the
borrower on certain loans at inception and renewal and remitted
directly to the unaffiliated insurance company.
The Company maintains a cash reserve for life insurance claims
in an amount determined by the ceding company. The cash reserve
secures a letter of credit issued by a commercial bank in favor
of the ceding company. The ceding company maintains the reserves
for non-life claims.
Reinsurance balances and transactions:
Reinsurance
is accounted for over the terms of the underlying reinsured
policies using assumptions consistent with those used to account
for the policies. Following are total net premiums written and
reinsured and total earned premiums for the years ended
December 31, 2008, 2009, and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
NET WRITTEN
|
|
EARNED
|
YEAR ENDED DECEMBER 31,
|
|
PREMIUMS
|
|
PREMIUMS
|
|
2008
|
|
$
|
8,000
|
|
|
$
|
6,892
|
|
2009
|
|
|
10,463
|
|
|
|
8,592
|
|
2010
|
|
|
12,641
|
|
|
|
11,845
|
|
|
Interest rate caps:
In 2009, the Company purchased
three interest rate caps with notional amounts of $10,000 each.
The Company purchased the caps to protect a portion of its
senior revolving credit facility from increases in interest
rates above the strike rate of the cap. In early 2010, the
Company exchanged its $30,000 notional cap for a cap with a
notional amount of $128,500, a strike rate of 6.0%, and a
maturity of March 2014. There was no cost related to this
exchange. In late 2010, the Company purchased an additional cap
increasing the total interest rate protection to $150,000 on the
same terms as the exchanged cap. At December 31, 2010, the
caps are based on
F-11
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
the three-month LIBOR contract and reimburse the Company for the
difference when three-month LIBOR exceeds six percent. The
carrying value of the caps, are adjusted to fair value. For the
year ended December 31, 2010 the Company recorded an
unfavorable fair value adjustment of $843 as an increase in
interest expense.
Stock-based compensation:
The Company has a stock
option plan for certain members of management. The Company
measures compensation cost for stock-based awards made under
this plan at estimated fair value and recognizes compensation
expense over the service period for awards expected to vest. All
grants are made at 100% of the fair value on the date of the
grant. The fair value of stock options is determined using the
Black-Scholes valuation model. The Black-Scholes model requires
the input of highly subjective assumptions, including expected
volatility, risk-free interest rate, and expected life, changes
to which can materially affect the fair value estimate. In
addition, the estimation of stock-based awards that will
ultimately vest requires judgment, and to the extent actual
results or updated estimates differ from current estimates, such
amounts will be recorded as a cumulative adjustment in the
period estimates are revised. Prior to the proposed initial
public offering, there has been no published market value for
the Companys stock; therefore, the performance of the
common stock of a publicly traded company whose business is
comparable to the Company was used to estimate the volatility of
the Companys stock.
Advertising costs:
Advertising costs are expensed as
incurred and advertising costs totaled $999, $1,212, and $2,027
for the years ended December 31, 2008, 2009, and 2010,
respectively.
Income taxes:
Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled. The effects of future tax rate changes
are recognized in the period when the enactment of new rates
occurs.
When tax returns are filed, it is highly certain that some
positions taken would be sustained upon examination by the
taxing authorities, while others are subject to uncertainty
about the merits of the position taken or the amount of the
position that would be ultimately sustained. The benefit of a
tax position is recognized in the financial statements in the
period during which, based on all available evidence, it is more
likely than not that the position will be sustained upon
examination, including the resolution of appeals or litigation
processes, if any. Tax positions taken are not offset or
aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the
largest amount of tax benefit that is more than 50% likely of
being realized upon settlement with the applicable taxing
authority. The portion of the benefits associated with tax
positions taken that exceeds the amount measured as described
above is reflected as a liability for unrecognized tax benefits
in the accompanying balance sheet along with any associated
interest and penalties that would be payable to the taxing
authorities upon examination.
Interest and penalties associated with unrecognized tax benefits
are classified as additional income taxes in the consolidated
statements of income.
The Company files U.S. federal and various state income tax
returns. The Company is generally no longer subject to
U.S. federal or state and local income tax examinations by
taxing authorities before 2007, with the exception of Texas,
which is 2006.
The Internal Revenue Service (IRS) concluded an
examination of the Companys 2007 and 2008 tax returns in
early 2010. The amount assessed by the IRS was not material to
the consolidated financial statements.
F-12
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
Earnings per share:
Earnings per share has been
computed on the basis of the weighted-average number of common
shares outstanding during each year presented. Common shares
issuable upon the exercise of the stock-based compensation,
which are computed using the treasury stock method, are included
in the computation of diluted earnings per share.
Government regulation:
The Company is subject to
various state and federal laws and regulations, which, among
other things, impose limits on interest rates, other charges,
and insurance premiums and require licensing and qualifications.
Congress recently passed the Dodd-Frank Wall Street Reform and
Consumer Protection Act. Among other provisions, the bill
created the Consumer Financial Protection Bureau
(CFPB). The CFPB has the authority to promulgate
regulations that could affect the Companys business. The
CFPB has not issued any regulations to date and the Company is
not aware of any pending regulations that might affect its
business.
Subsequent events:
The Company has evaluated its
subsequent events (events occurring after December 31,
2010) through May 16, 2011, which represents the date
the financial statements were issued.
Disclosure about fair value of financial
instruments:
The following methods and assumptions were
used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value:
Finance receivables:
Finance receivables are
originated either at prevailing market rates or at statutory
limits. The Companys loan portfolio turns approximately
1.2 times per year from cash payments and renewal of loans.
Management believes that the carrying value approximates the
fair value of its loan portfolio.
Interest rate caps:
The fair value of the interest
rate caps is the estimated amount the Company would receive to
terminate the cap agreements at the reporting date, taking into
account current interest rates and the creditworthiness of the
counterparty for assets and creditworthiness of the Company for
liabilities.
Debt:
The Company refinanced its senior revolving
credit facility in August 2010 and as a result of the
refinancing believes that the fair value of this variable rate
debt approximates its carrying value at December 31, 2010.
The Company also refinanced its mezzanine debt in August 2010
and estimates that the fixed interest rate on the mezzanine debt
exceeds the estimated market interest rate for similar debt,
resulting in a fair value in excess of the carrying amount. The
Company also considered its creditworthiness in its
determination of fair value.
The estimated carrying and fair values of the Companys
financial instruments as of December 31, 2009 and 2010 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
2010
|
|
|
CARRYING
|
|
FAIR
|
|
CARRYING
|
|
FAIR
|
|
|
AMOUNT
|
|
VALUE
|
|
AMOUNT
|
|
VALUE
|
|
Cash
|
|
$
|
3,018
|
|
|
$
|
3,018
|
|
|
$
|
856
|
|
|
$
|
856
|
|
Restricted cash
|
|
|
888
|
|
|
|
888
|
|
|
|
888
|
|
|
|
888
|
|
Finance receivables
|
|
|
196,468
|
|
|
|
196,468
|
|
|
|
229,246
|
|
|
|
229,246
|
|
Interest rate caps
|
|
|
1,080
|
|
|
|
1,080
|
|
|
|
280
|
|
|
|
280
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior revolving credit facility
|
|
|
156,286
|
|
|
|
156,208
|
|
|
|
163,301
|
|
|
|
163,301
|
|
Mezzanine
|
|
|
25,680
|
|
|
|
23,764
|
|
|
|
25,814
|
|
|
|
26,697
|
|
Other
|
|
|
474
|
|
|
|
474
|
|
|
|
466
|
|
|
|
466
|
|
|
F-13
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
The Company Follows the Provisions of
ASC 820-10.
ASC
820-10
applies to all assets and liabilities that are being measured
and reported on a fair value basis.
ASC 820-10
requires disclosure that establishes a framework for measuring
fair value in GAAP, and expands disclosure about fair value
measurements. This statement enables the reader of the financial
statements to assess the inputs used to develop those
measurements by establishing a hierarchy for ranking the quality
and reliability of the information used to determine fair
values. The statement requires that assets and liabilities
carried at fair value be classified and disclosed in one of the
following three categories:
Level 1 Quoted market prices in active markets
for identical assets or liabilities.
Level 2 Observable market based inputs or
unobservable inputs that are corroborated by market data.
Level 3 Unobservable inputs that are not
corroborated by market data.
In determining the appropriate levels, the Company performs a
detailed analysis of the assets and liabilities that are subject
to
ASC 820-10.
At each reporting period, all assets and liabilities for which
the fair value measurement is based on significant unobservable
inputs are classified as Level 3.
The table below presents the balances of assets measured at fair
value on a recurring basis by level within the hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST RATE CAPS
|
DECEMBER 31,
|
|
TOTAL
|
|
LEVEL 1
|
|
LEVEL 2
|
|
LEVEL 3
|
|
2009
|
|
$
|
1,080
|
|
|
$
|
|
|
|
$
|
1,080
|
|
|
$
|
|
|
2010
|
|
|
280
|
|
|
|
|
|
|
|
280
|
|
|
|
|
|
|
The following methods and assumptions were used to estimate the
fair value of each asset subject to ASC
820-10
for
which it is carried at fair value on a nonrecurring basis:
Certain assets and liabilities are measured at fair value on a
nonrecurring basis; that is, the instruments are not measured at
fair value on an ongoing basis but are subject to fair value
adjustments in certain circumstances (for example, when there is
evidence of impairment). The following table presents the assets
carried on the balance sheet by level within the hierarchy as of
December 31, 2009 and 2010 for which a nonrecurring change
in fair value has been recorded during the years ended
December 31, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REPOSSESSED ASSETS
|
DECEMBER 31,
|
|
TOTAL
|
|
LEVEL 1
|
|
LEVEL 2
|
|
LEVEL 3
|
|
TOTAL LOSSES
|
|
2009
|
|
$
|
665
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
665
|
|
|
$
|
518
|
|
2010
|
|
|
296
|
|
|
|
|
|
|
|
|
|
|
|
296
|
|
|
|
218
|
|
|
Accounting pronouncements issued and partially
adopted:
In July 2010, the FASB issued Accounting
Standards Update (ASU)
2010-20,
Disclosures about the Credit Quality of Financing Receivables
and the Allowance for Credit Losses
. ASU
2010-20
requires more robust and disaggregated disclosures about the
credit quality of financing receivables and allowances for
credit losses, including disclosure about credit quality
indicators, past due information and modifications of finance
receivables. The disclosures required as of the end of a
reporting period and certain items related to activity during
the year were adopted in 2010, which significantly expanded the
existing disclosure requirements, but did not have any impact on
the Companys consolidated financial position, results of
operations, or cash flows. The remaining amendments that require
disclosures about activity that occurs during a
F-14
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
reporting period are effective for periods beginning on or after
December 15, 2010 and will not have an impact on the
Companys consolidated financial position, results of
operations or cash flows.
Accounting pronouncements issued, not yet
adopted:
In October 2010, the FASB issued ASU
2010-26,
Accounting for Costs Associated with Acquiring or Renewing
Insurance Contracts
. ASU
2010-26
modifies the definitions of the type of costs incurred by
insurance entities that can be capitalized in the successful
acquisition of new and renewal contracts. ASU
2010-26
requires incremental direct costs of successful contract
acquisition as well as certain costs related to underwriting,
policy issuance and processing, medical and inspection and sales
force contract selling for successful contract acquisition to be
capitalized. These incremental direct costs and other costs are
those that are essential to the contract transaction and would
not have been incurred had the contract transaction not
occurred. This guidance is effective for the Company for the
year beginning January 1, 2012 and may be applied
prospectively or retrospectively. The Company does not expect
the adoption of this guidance to have a material impact on the
Companys consolidated financial position, results of
operations, cash flows, or disclosures.
In April 2011, the FASB issued ASU
2011-02,
Receivables (Topic 310): A Creditors Determination of
Whether a Restructuring Is a Troubled Debt Restructuring.
The ASU clarifies which loan modifications constitute
troubled debt restructurings. It is intended to assist creditors
in determining whether a modification of the terms of a
receivable meets the criteria to be considered a troubled debt
restructuring, both for purposes of recording an impairment loss
and for disclosure of troubled debt restructurings. This ASU is
effective for interim and annual periods beginning on or after
June 15, 2011, and applies retrospectively to
restructurings occurring on or after the beginning of the fiscal
year of adoption. The Company does not expect the adoption of
this guidance to have a material impact on the Companys
consolidated financial position, results of operations, cash
flows, or disclosures.
Note 2.
Finance Receivables, Credit Quality Information and Allowance
for Loan Losses
Finance receivables at December 31, 2009 and 2010 consisted
of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Small installment loans
|
|
$
|
102,651
|
|
|
$
|
117,599
|
|
Large installment loans
|
|
|
28,217
|
|
|
|
33,653
|
|
Automobile purchase loans
|
|
|
83,253
|
|
|
|
93,232
|
|
Furniture and appliance purchase loans
|
|
|
788
|
|
|
|
2,762
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
$
|
214,909
|
|
|
$
|
247,246
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the allowance for loan losses for the years ended
December 31, 2008, 2009, and 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Balance at beginning of year
|
|
$
|
13,290
|
|
|
$
|
15,665
|
|
|
$
|
18,441
|
|
Provision for loan losses
|
|
|
17,376
|
|
|
|
19,405
|
|
|
|
16,568
|
(1)
|
Finance receivables charged off
|
|
|
(15,879
|
)
|
|
|
(17,002
|
)
|
|
|
(17,469
|
)
|
Recoveries
|
|
|
878
|
|
|
|
373
|
|
|
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
15,665
|
|
|
$
|
18,441
|
|
|
$
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Reducing the required allowance for
small loans from nine to eight months of losses reduced the 2010
provision by $451.
|
F-15
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
The following is a reconciliation of the allowance for loan
losses by component for the year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLOWANCE AS
|
|
|
ALLOWANCE AS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PERCENTAGE
|
|
|
PERCENTAGE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCE
|
|
|
OF FINANCE
|
|
|
OF FINANCE
|
|
|
|
BALANCE
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
|
|
|
RECEIVABLES
|
|
|
RECEIVABLES
|
|
|
RECEIVABLES
|
|
|
|
JANUARY 1,
|
|
|
|
|
|
CHARGE-
|
|
|
|
|
|
DECEMBER 31,
|
|
|
DECEMBER 31,
|
|
|
DECEMBER 31,
|
|
|
DECEMBER 31,
|
|
|
|
2010
|
|
|
PROVISION
|
|
|
OFFS
|
|
|
RECOVERIES
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Small installment loans
|
|
$
|
8,083
|
|
|
$
|
10,664
|
|
|
$
|
(10,068
|
)
|
|
$
|
295
|
|
|
$
|
8,974
|
|
|
$
|
117,599
|
|
|
|
7.9
|
%
|
|
|
7.6
|
%
|
Large installment loans
|
|
|
2,719
|
|
|
|
2,780
|
|
|
|
(2,588
|
)
|
|
|
61
|
|
|
|
2,972
|
|
|
|
33,653
|
|
|
|
9.6
|
%
|
|
|
8.8
|
%
|
Automobile purchase loans
|
|
|
7,629
|
|
|
|
2,745
|
|
|
|
(4,738
|
)
|
|
|
103
|
|
|
|
5,739
|
|
|
|
93,232
|
|
|
|
9.2
|
%
|
|
|
6.2
|
%
|
Furniture and appliance purchase loans
|
|
|
10
|
|
|
|
209
|
|
|
|
(75
|
)
|
|
|
1
|
|
|
|
145
|
|
|
|
2,762
|
|
|
|
1.3
|
%
|
|
|
5.2
|
%
|
Unallocated
|
|
|
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,441
|
|
|
$
|
16,568
|
|
|
$
|
(17,469
|
)
|
|
$
|
460
|
|
|
$
|
18,000
|
|
|
$
|
247,246
|
|
|
|
8.6
|
%
|
|
|
7.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of January 1, 2010, the Company changed its loan loss
allowance methodology for small installment loans to determine
the allowance using losses from the trailing eight months,
rather than the trailing nine months, to more accurately reflect
the six-month average life of its small installment loans. The
change from nine to eight months of average losses reduced the
loss allowance for small installment loans by $1,074 as of
January 1, 2010 and reduced the provision for loan losses
by $451 for 2010.
Following is a summary of the finance receivables associated
with customers in bankruptcy as of December 31, 2009 and
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
FINANCE
|
|
|
FINANCE
|
|
|
|
RECEIVABLES IN
|
|
|
RECEIVABLES IN
|
|
|
|
BANKRUPTCY
|
|
|
BANKRUPTCY
|
|
|
|
AS OF
|
|
|
AS OF
|
|
|
|
DECEMBER 31,
|
|
|
DECEMBER 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Small installment loans
|
|
$
|
440
|
|
|
$
|
353
|
|
Large installment loans
|
|
|
732
|
|
|
|
559
|
|
Automobile purchase loans
|
|
|
1,641
|
|
|
|
1,715
|
|
Furniture and appliance purchase loans
|
|
|
27
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,840
|
|
|
$
|
2,662
|
|
|
|
|
|
|
|
|
|
|
|
F-16
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
The following is an assessment of the credit quality of finance
receivables at December 31, 2009 and 2010. The contractual
delinquency of the finance receivable portfolio by component at
December 31, 2009 and 2010 was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
FURNITURE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AND
|
|
|
|
|
|
|
SMALL
|
|
|
LARGE
|
|
|
|
|
|
APPLIANCE
|
|
|
|
|
|
|
INSTALLMENT
|
|
|
INSTALLMENT
|
|
|
AUTOMOBILE
|
|
|
PURCHASE
|
|
|
|
|
|
|
LOANS
|
|
|
LOANS
|
|
|
PURCHASE LOANS
|
|
|
LOANS
|
|
|
TOTAL
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Current accounts
|
|
$
|
79,625
|
|
|
|
77.6
|
%
|
|
$
|
17,555
|
|
|
|
62.2
|
%
|
|
$
|
55,718
|
|
|
|
66.9
|
%
|
|
$
|
516
|
|
|
|
65.5
|
%
|
|
$
|
153,414
|
|
|
|
71.4
|
%
|
1-29 days
|
|
|
13,251
|
|
|
|
12.9
|
%
|
|
|
6,920
|
|
|
|
24.5
|
%
|
|
|
19,718
|
|
|
|
32.7
|
%
|
|
|
190
|
|
|
|
24.1
|
%
|
|
|
40,079
|
|
|
|
18.6
|
%
|
Delinquency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 to 59 days
|
|
|
2,995
|
|
|
|
2.9
|
%
|
|
|
1,463
|
|
|
|
5.2
|
%
|
|
|
3,829
|
|
|
|
4.6
|
%
|
|
|
67
|
|
|
|
8.5
|
%
|
|
|
8,354
|
|
|
|
3.9
|
%
|
60 to 89 days
|
|
|
2,092
|
|
|
|
2.0
|
%
|
|
|
728
|
|
|
|
2.6
|
%
|
|
|
1,860
|
|
|
|
2.2
|
%
|
|
|
4
|
|
|
|
0.5
|
%
|
|
|
4,684
|
|
|
|
2.2
|
%
|
Over 90 days
|
|
|
4,688
|
|
|
|
4.6
|
%
|
|
|
1,551
|
|
|
|
5.5
|
%
|
|
|
2,128
|
|
|
|
2.6
|
%
|
|
|
11
|
|
|
|
1.4
|
%
|
|
|
8,378
|
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total delinquency
|
|
|
9,775
|
|
|
|
9.5
|
%
|
|
|
3,742
|
|
|
|
13.3
|
%
|
|
|
7,817
|
|
|
|
9.4
|
%
|
|
|
82
|
|
|
|
10.4
|
%
|
|
|
21,416
|
|
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
$
|
102,651
|
|
|
|
100.0
|
%
|
|
$
|
28,217
|
|
|
|
100.0
|
%
|
|
$
|
83,253
|
|
|
|
100.0
|
%
|
|
$
|
788
|
|
|
|
100.0
|
%
|
|
$
|
214,909
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables in nonaccrual status
|
|
$
|
4,688
|
|
|
|
4.6
|
%
|
|
$
|
1,551
|
|
|
|
5.5
|
%
|
|
$
|
2,128
|
|
|
|
2.6
|
%
|
|
$
|
11
|
|
|
|
1.4
|
%
|
|
$
|
8,378
|
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
FURNITURE AND
|
|
|
|
|
|
|
SMALL
|
|
|
LARGE
|
|
|
|
|
|
APPLIANCE
|
|
|
|
|
|
|
INSTALLMENT
|
|
|
INSTALLMENT
|
|
|
AUTOMOBILE
|
|
|
PURCHASE
|
|
|
|
|
|
|
LOANS
|
|
|
LOANS
|
|
|
PURCHASE LOANS
|
|
|
LOANS
|
|
|
TOTAL
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Current accounts
|
|
$
|
90,455
|
|
|
|
76.9
|
%
|
|
$
|
22,969
|
|
|
|
68.3
|
%
|
|
$
|
67,751
|
|
|
|
72.7
|
%
|
|
$
|
2,299
|
|
|
|
83.2
|
%
|
|
$
|
183,474
|
|
|
|
74.2
|
%
|
1-29 days
|
|
|
18,387
|
|
|
|
15.7
|
%
|
|
|
7,424
|
|
|
|
22.0
|
%
|
|
|
20,363
|
|
|
|
21.8
|
%
|
|
|
342
|
|
|
|
12.4
|
%
|
|
|
46,516
|
|
|
|
18.8
|
%
|
Delinquency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 to 59 days
|
|
|
3,269
|
|
|
|
2.8
|
%
|
|
|
1,486
|
|
|
|
4.4
|
%
|
|
|
2,816
|
|
|
|
3.0
|
%
|
|
|
40
|
|
|
|
1.5
|
%
|
|
|
7,611
|
|
|
|
3.1
|
%
|
60 to 89 days
|
|
|
1,986
|
|
|
|
1.6
|
%
|
|
|
762
|
|
|
|
2.3
|
%
|
|
|
1,113
|
|
|
|
1.2
|
%
|
|
|
31
|
|
|
|
1.1
|
%
|
|
|
3,892
|
|
|
|
1.6
|
%
|
Over 90 days
|
|
|
3,502
|
|
|
|
3.0
|
%
|
|
|
1,012
|
|
|
|
3.0
|
%
|
|
|
1,189
|
|
|
|
1.3
|
%
|
|
|
50
|
|
|
|
1.8
|
%
|
|
|
5,753
|
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total delinquency
|
|
|
8,757
|
|
|
|
7.4
|
%
|
|
|
3,260
|
|
|
|
9.7
|
%
|
|
|
5,118
|
|
|
|
5.5
|
%
|
|
|
121
|
|
|
|
4.4
|
%
|
|
|
17,256
|
|
|
|
7.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
$
|
117,599
|
|
|
|
100.0
|
%
|
|
$
|
33,653
|
|
|
|
100.0
|
%
|
|
$
|
93,232
|
|
|
|
100.0
|
%
|
|
$
|
2,762
|
|
|
|
100.0
|
%
|
|
$
|
247,246
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables in nonaccrual status
|
|
$
|
3,502
|
|
|
|
3.0
|
%
|
|
$
|
1,012
|
|
|
|
3.0
|
%
|
|
$
|
1,189
|
|
|
|
1.3
|
%
|
|
$
|
50
|
|
|
|
1.8
|
%
|
|
$
|
5,753
|
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
Following is a summary of finance receivables evaluated for
impairment:
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, 2009
|
|
|
DECEMBER 31, 2010
|
|
|
Finance receivables evaluated for impairment
|
|
|
|
|
|
|
|
|
Accounts 180 or more days past due, excluding accounts of
customers in bankruptcy
|
|
$
|
1,835
|
|
|
$
|
803
|
|
Customers in Chapter 13 bankruptcy
|
|
|
2,840
|
|
|
|
2,662
|
|
|
|
|
|
|
|
|
|
|
Total impaired accounts specifically evaluated
|
|
$
|
4,675
|
|
|
$
|
3,464
|
|
Finance receivables evaluated collectively
|
|
|
210,234
|
|
|
|
243,782
|
|
|
|
|
|
|
|
|
|
|
Finance receivables outstanding
|
|
$
|
214,909
|
|
|
$
|
247,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, 2009
|
|
|
DECEMBER 31, 2010
|
|
|
Total impaired accounts specifically evaluated
|
|
$
|
4,675
|
|
|
$
|
3,464
|
|
Amount of the specific reserve for impaired accounts
|
|
|
3,026
|
|
|
|
1,874
|
|
|
|
|
|
|
|
|
|
|
|
Note 3.
Premises and Equipment and Rental Commitments
At December 31, 2009 and 2010, premises and equipment
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Land and premises
|
|
$
|
1,020
|
|
|
$
|
844
|
|
Furniture, fixtures, and equipment
|
|
|
6,619
|
|
|
|
7,807
|
|
Leasehold improvements
|
|
|
1,183
|
|
|
|
1,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,822
|
|
|
|
9,940
|
|
Less accumulated depreciation
|
|
|
6,010
|
|
|
|
6,871
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,812
|
|
|
$
|
3,069
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the years ended December 31, 2008,
2009, and 2010 totaled $702, $797 and $953, respectively.
Future minimum rent commitments under non-cancellable operating
leases in effect as of December 31, 2010 are as follows:
|
|
|
|
|
|
|
YEAR ENDING DECEMBER 31,
|
|
AMOUNT
|
|
|
2011
|
|
$
|
1,836
|
|
2012
|
|
|
1,255
|
|
2013
|
|
|
587
|
|
2014
|
|
|
156
|
|
2015
|
|
|
79
|
|
Thereafter
|
|
|
23
|
|
|
|
|
|
|
|
|
$
|
3,936
|
|
|
|
|
|
|
|
F-18
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
Leases generally contain options to extend for periods from 1 to
10 years; the cost of such extensions is not included
above. Rent expense for the years ended December 31, 2008,
2009, and 2010 equaled $1,728, $1,868, and $2,073, respectively.
In addition to rent, the Company typically pays for all
operating expenses, property taxes, and repairs and maintenance
on properties that it leases.
Note 4.
Other Assets
Other assets include the following at December 31, 2009 and
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Interest receivable
|
|
$
|
758
|
|
|
$
|
792
|
|
Intangible assets, including debt issuance costs, net of
accumulated amortization
|
|
|
752
|
|
|
|
808
|
|
Interest rate caps
|
|
|
1,080
|
|
|
|
280
|
|
Restricted cash
|
|
|
888
|
|
|
|
888
|
|
Other
|
|
|
700
|
|
|
|
747
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,178
|
|
|
$
|
3,515
|
|
|
|
|
|
|
|
|
|
|
|
The Company has debt issuance costs included in other assets
with estimated future amortization of $153, $153, and $138 for
the years ending December 31, 2011, 2012, and 2013,
respectively.
Note 5.
Debt
Following is a summary of the Companys debt as of
December 31, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Senior revolving credit facility
|
|
$
|
156,286
|
|
|
$
|
163,301
|
|
Mezzanine debt
|
|
|
25,680
|
|
|
|
25,814
|
|
Mortgage loan and line of credit
|
|
|
122
|
|
|
|
|
|
Secured line of credit
|
|
|
352
|
|
|
|
466
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
182,440
|
|
|
$
|
189,581
|
|
|
|
|
|
|
|
|
|
|
Unused amount of senior revolving credit facility, subject to
borrowing base
|
|
$
|
11,214
|
|
|
$
|
61,699
|
|
|
|
|
|
|
|
|
|
|
|
The senior revolving credit facility consisted of senior secured
maximum available borrowings totaling $167,500 and $225,000 at
December 31, 2009 and 2010, respectively. The Company
renewed and increased the senior revolving credit facility in
August 2010. The new senior revolving credit facility bears
interest at rates equal to LIBOR plus an applicable margin
(3.25% at December 31, 2010) which varies based on a
borrowing base ratio (with a LIBOR minimum of 1.0%) or the prime
rate plus 2.25% as elected by the Company. The Company also pays
an unused line fee of .50% per annum, payable monthly. Interest
payments are due monthly and the agreement expires
August 25, 2013. Advances on this agreement are at 85% of
eligible finance receivables. The senior revolving credit
facility is secured by substantially all of the Companys
finance receivables. The senior revolving credit facility
agreement contains certain restrictive covenants, including
maintenance of a specified interest coverage ratio, restrictions
on distributions, limitations on additional borrowings, debt
ratio, maintenance of a minimum allowance for loan losses, and
certain other restrictions. At December 31, 2010, the
Company was in compliance with all debt covenants.
F-19
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
As of December 31, 2010, the mezzanine debt was a $25,814
loan from one of the Companys sponsors and three
individual owners maturing October 25, 2013, secured by a
junior lien on substantially all of the Companys finance
receivables. This agreement is subordinated to the senior bank
debt. The proceeds of this debt were used to retire the
mezzanine debt of the same amount to an unrelated lender. The
interest rate is 15.25% per annum, of which 2% is payable in
kind at the Companys option. Through the date of the
refinancing, the Company deferred $814 in interest payments to
the unrelated lender. The mezzanine loan agreement contains
certain restrictive covenants, including maintenance of a
specified interest coverage ratio, a restriction on
distributions, limitations on additional borrowings, debt ratio,
maintenance of a minimum allowance for loan losses, and certain
other restrictions. At December 31, 2010, the Company was
in compliance with all debt covenants.
In 2009, the Company was obligated on a mortgage loan secured by
a branch office. The Company relocated to a new location during
2010, sold the branch office, and retired the mortgage debt.
The Company has a $500 line of credit, which is secured by a
mortgage on the Companys headquarters, with a commercial
bank to facilitate its cash management program. The interest
rate is prime plus 1% and interest is payable monthly. The line
of credit matures July 31, 2011 and there are no
significant restrictive covenants associated with this line of
credit.
The
one-month
LIBOR was 0.25% and 0.375% at December 31, 2009 and 2010,
respectively, although under the new senior revolving credit
facility the minimum LIBOR rate is 1.0%. The prime rate was
3.25% at December 31, 2009 and 2010.
Following is a summary of principal payments required on
outstanding debt during each of the next 5 years:
|
|
|
|
|
|
|
YEAR ENDING DECEMBER 31,
|
|
AMOUNT
|
|
|
2011
|
|
$
|
466
|
|
2012
|
|
|
|
|
2013
|
|
|
189,115
|
|
2014
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
189,581
|
|
|
|
|
|
|
|
Note 6.
Temporary Equity
The shareholders agreement between the Company, Regional
Holdings LLC, the sponsors and the individual owners provides
that the individual owners have the right to put their stock
back to the Company if an initial public offering does not occur
within five years of the acquisition date, March 21, 2007.
The put option is exercisable for 90 days following
March 21, 2012. The purchase price of the stock is the then
fair value, and the option is subject to contingencies,
principally failure to complete an initial public offering and
approval of the senior lender. The Company valued this put
option at the original purchase price of $12,000. The proposed
initial public offering makes it probable that the put option
will not become exercisable. There are 2,196,877 shares
owned by the individual owners.
F-20
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
Note 7.
Income Taxes
Regional Management Corp. and its subsidiaries file a
consolidated federal income tax return. The Company files
consolidated or separate state income tax returns as permitted
by individual states in which it operates.
Income tax expense was $2,276, $4,472, and $9,178 for the years
ended December 31, 2008, 2009, and 2010, respectively,
which differed from the amount computed by applying the
U.S. federal income tax rate of 34% for the years ended
December 31, 2008 and 2009, and 35% for the year ended
December 31, 2010 to total income before income taxes as a
result of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
U. S. federal tax expense at statutory rate
|
|
$
|
2,977
|
|
|
$
|
4,877
|
|
|
$
|
8,968
|
|
Increase (reduction) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Small insurance company income exclusion
|
|
|
(568
|
)
|
|
|
(583
|
)
|
|
|
(444
|
)
|
State tax, net of federal benefit
|
|
|
209
|
|
|
|
360
|
|
|
|
569
|
|
Other
|
|
|
(342
|
)
|
|
|
(182
|
)
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,276
|
|
|
$
|
4,472
|
|
|
$
|
9,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense attributable to total income before income
taxes consists of the following for the years ended
December 31, 2008, 2009, and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. federal
|
|
$
|
2,967
|
|
|
$
|
4,024
|
|
|
$
|
5,732
|
|
State and local
|
|
|
492
|
|
|
|
546
|
|
|
|
516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,459
|
|
|
|
4,570
|
|
|
|
6,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
U. S. federal
|
|
|
(1,007
|
)
|
|
|
(83
|
)
|
|
|
2,553
|
|
State and local
|
|
|
(176
|
)
|
|
|
(15
|
)
|
|
|
377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,183
|
)
|
|
|
(98
|
)
|
|
|
2,930
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,276
|
|
|
$
|
4,472
|
|
|
$
|
9,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
Net deferred tax assets consist of the following as of
December 31, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
6,340
|
|
|
$
|
6,587
|
|
Unearned insurance commissions
|
|
|
840
|
|
|
|
1,172
|
|
Non-refundable dealer fees
|
|
|
554
|
|
|
|
813
|
|
Stock-based compensation
|
|
|
496
|
|
|
|
636
|
|
Fair value adjustment on interest rate cap
|
|
|
|
|
|
|
329
|
|
Amortization of non-compete
|
|
|
248
|
|
|
|
227
|
|
Group insurance reserve
|
|
|
98
|
|
|
|
135
|
|
Accrued expenses
|
|
|
|
|
|
|
129
|
|
Unearned insurance premium reserves
|
|
|
66
|
|
|
|
63
|
|
Book over tax depreciation and amortization
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
8,885
|
|
|
|
10,091
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Fair market value adjustment of finance receivables
|
|
|
|
|
|
|
4,394
|
|
Deferred loan costs
|
|
|
1,240
|
|
|
|
1,161
|
|
Tax over book depreciation
|
|
|
|
|
|
|
66
|
|
Prepaid expenses
|
|
|
4
|
|
|
|
|
|
Fair value adjustment on interest rate cap
|
|
|
154
|
|
|
|
|
|
Other
|
|
|
181
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax liabilities
|
|
|
1,579
|
|
|
|
5,715
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
7,306
|
|
|
$
|
4,376
|
|
|
|
|
|
|
|
|
|
|
|
Note 8.
Earnings Per Share
The following schedule reconciles the computation of basic and
diluted earnings per share for the years ended December 31,
2008, 2009, and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
NET INCOME
|
|
|
SHARES
|
|
|
PER SHARE
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
6,479
|
|
|
|
9,336,727
|
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock
|
|
|
|
|
|
|
145,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders plus assumed exercise of
options to purchase common stock
|
|
$
|
6,479
|
|
|
|
9,482,604
|
|
|
$
|
0.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
NET INCOME
|
|
|
SHARES
|
|
|
PER SHARE
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
9,873
|
|
|
|
9,336,727
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock
|
|
|
|
|
|
|
253,837
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders plus assumed exercise of
options to purchase common stock
|
|
$
|
9,873
|
|
|
|
9,590,564
|
|
|
$
|
1.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
NET INCOME
|
|
|
SHARES
|
|
|
PER SHARE
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
16,444
|
|
|
|
9,336,727
|
|
|
$
|
1.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock
|
|
|
|
|
|
|
332,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders plus assumed exercise of
options to purchase common stock
|
|
$
|
16,444
|
|
|
|
9,669,618
|
|
|
$
|
1.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 9.
Related Party Transactions
The Company is majority owned by two sponsors. Following is a
summary of transactions during the years ended December 31,
2008, 2009, and 2010 with the sponsors and the individual owners
who retain an interest in the Company.
|
|
|
|
|
|
|
|
|
|
|
|
INDIVIDUAL
|
|
|
|
|
OWNERS
|
|
SPONSORS
|
|
2008:
|
|
|
|
|
|
|
|
|
Consulting and advisory fees expense
|
|
$
|
454
|
|
|
$
|
948
|
|
2009:
|
|
|
|
|
|
|
|
|
Consulting and advisory fees expense
|
|
|
454
|
|
|
|
809
|
|
2010:
|
|
|
|
|
|
|
|
|
Issuance of 15.25% mezzanine debt
|
|
|
5,000
|
|
|
|
20,814
|
|
Financing fees
|
|
|
20
|
|
|
|
83
|
|
Interest paid on mezzanine debt
|
|
|
210
|
|
|
|
864
|
|
Consulting and advisory fees expense
|
|
|
450
|
|
|
|
783
|
|
|
Note 10.
Concentrations of Credit Risk
The Companys portfolio of finance receivables is with
customers living in four southeastern states (Alabama, North
Carolina, South Carolina, and Tennessee) and one southwestern
state (Texas); consequently, such customers ability to
honor their installment contracts may be affected by economic
conditions in these areas. Additionally, the
F-23
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
Company is exposed to a concentration of credit risk inherent in
providing consumer finance products to borrowers who cannot
obtain traditional bank financing. A majority of the
Companys loans are secured by household goods or
automobiles and the Company believes it has access to this
collateral through repossession. The ability to repossess
collateral mitigates this risk; however, as a matter of practice
the Company does not generally repossess household goods
collateral.
The Company also has a risk that its customers will seek
protection from creditors by filing under the bankruptcy laws.
When a customer files bankruptcy, the Company must cease
collection efforts and petition the bankruptcy court to obtain
its collateral or work out a court approved bankruptcy plan
involving the Company and all other creditors of the customer.
It is the Companys experience that such plans can take an
extended period of time to conclude and usually involve a
reduction in the interest rate from the rate in the contract to
a court-approved rate.
Note 11.
Employee Benefit Plans
Retirement savings plan:
The Company has a defined
contribution employee benefit plan (401(k) plan) covering
full-time employees who have at least one year of service.
Employees can invest up to $16.5 ($22.0 if over
age 50) of their gross pay; the Company makes a
matching contribution equal to 50 percent of the first six
percent of employees gross income contributed to the plan.
The Companys matching contribution is discretionary and
subject to approval of the Compensation Committee. For the years
ended December 31, 2008, 2009, and 2010, the Company
recorded expense for the Companys match of $150, $122, and
$29, respectively.
Health insurance plan:
The Company has a
self-insured health plan available to all full-time salaried
employees after one month of service. At the beginning of each
plan year, the Company estimates the total cost of health
insurance for the forthcoming year, allocates a portion of the
cost to plan participants, and pays the balance of the cost. The
Company has insurance to protect against claims in excess
individual and aggregate amounts. The Companys insurance
advisors estimate the reserve required for incurred, but not
reported claims which have been recorded in the consolidated
financial statements. The Companys expense for the years
ended December 31, 2008, 2009, and 2010 was $1,021, $1,479,
and $1,223, respectively.
Effective with the plan year beginning May 1, 2008, the
Company began offering a mini-med insurance plan for
newly hired hourly employees and hourly employees not then
participating in the self-insured plan. A portion of the premium
is paid by the employee and the balance by the Company. The
insurance company bears all risk of loss on this policy.
Discretionary bonuses:
The Company pays
discretionary bonuses to certain of its officers. The amount of
bonuses charged to operating expenses was $544.0, $423.2, and
$675.0, for the years ended December 31, 2008, 2009, and
2010, respectively. Bonus payments are subject to approval by
the compensation committee.
Stock compensation plan:
On March 21, 2007, the
Company adopted the 2007 Management Incentive Plan (the
Plan) pursuant to which the Companys Board of
Directors may grant options to purchase a maximum of
1.037 million shares of its $.10 par value common
stock. All grants are made at 100% of the fair value at the date
of grant. Options granted under the plan vest at 20 percent
at the date of grant and 20 percent on the anniversary date
of the grant each year thereafter for four years. In addition,
these options vest and become exercisable in full upon the
occurrence of a Change of Control (as defined in the Option
Award Agreements). Optionees must exercise their options within
ten and nine years of the grant, for the 2007 and 2008 grants,
respectively. No options were granted in 2009 or 2010.
F-24
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
The Company recognizes compensation expense in the financial
statements for all stock-based payments granted on or after
October 11, 2007 based upon the fair value estimated in
accordance with the provisions of the Codification.
The fair value of option grants is estimated on the grant date
using the Black-Scholes option-pricing model with the following
assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2008
|
|
Expected volatility
|
|
|
37.48
|
%
|
|
|
37.48
|
%
|
Expected dividends
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Expected term (in years)
|
|
|
10.00
|
|
|
|
9.00
|
|
Risk-free rate
|
|
|
4.50
|
%
|
|
|
3.77
|
%
|
Vesting period (in years)
|
|
|
4
|
|
|
|
4
|
|
|
Expected volatility is based on the historic volatility of a
publicly traded company in the same industry. The risk free
interest rate is based on the U.S. Treasury yield at the
date the Board approved the option awards for the period (9 to
10 years) over which options are exercisable.
For the years ended December 31, 2008, 2009, and 2010, the
Company recorded stock-based compensation expense in the amount
of $523.0, $359.9, and $359.9, respectively. As of
December 31, 2010, unrecognized stock-based compensation
expense to be recognized over future periods approximated
$212.6. This amount will be recognized as expense over a period
of 1.3 years. The total income tax benefit recognized in
the income statement for the stock-based compensation
arrangements was $204.3, 140.3, and $140.3 for the years ended
December 31, 2008, 2009, and 2010, respectively.
F-25
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
A summary of the status of the Companys stock option plan
is presented below (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
|
|
|
|
WEIGHTED
|
|
|
AVERAGE
|
|
|
|
|
|
|
|
|
|
AVERAGE
|
|
|
REMAINING
|
|
|
AGGREGATE
|
|
|
|
NUMBER OF
|
|
|
PRICE
|
|
|
CONTRACTUAL
|
|
|
INTRINSIC
|
|
|
|
SHARES
|
|
|
PER SHARE
|
|
|
LIFE (YEARS)
|
|
|
VALUE
|
|
|
Options outstanding at January 1, 2008
|
|
|
441
|
|
|
$
|
5.4623
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
222
|
|
|
|
5.4623
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(73
|
)
|
|
|
5.4623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2008
|
|
|
590
|
|
|
$
|
5.4623
|
|
|
|
8.3
|
|
|
$
|
3,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2008
|
|
|
191
|
|
|
$
|
5.4623
|
|
|
|
8.3
|
|
|
$
|
1,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for grant at December 31, 2008
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2008
|
|
|
590
|
|
|
$
|
5.4623
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2009
|
|
|
590
|
|
|
$
|
5.4623
|
|
|
|
7.3
|
|
|
$
|
5,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2009
|
|
|
309
|
|
|
$
|
5.4623
|
|
|
|
7.3
|
|
|
$
|
2,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for grant at December 31, 2009
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2009
|
|
|
590
|
|
|
$
|
5.4623
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2010
|
|
|
590
|
|
|
$
|
5.4623
|
|
|
|
6.3
|
|
|
$
|
9,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2010
|
|
|
427
|
|
|
$
|
5.4623
|
|
|
|
6.3
|
|
|
$
|
6,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for grant at December 31, 2010
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010, the options have a weighted-average
remaining contractual life of 6.3 years.
The intrinsic value was estimated by applying the Companys
operating metrics to those of a publicly traded company in the
same industry.
F-26
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
Information on the vesting status of options outstanding at
December 31, 2009 and 2010, respectively, follows (shares
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
WEIGHTED
|
|
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
AVERAGE
|
|
|
|
|
|
|
GRANT DATE
|
|
|
|
|
|
GRANT DATE
|
|
|
|
SHARES
|
|
|
FAIR VALUE
|
|
|
SHARES
|
|
|
FAIR VALUE
|
|
|
Non-vested options, beginning of the year
|
|
|
399
|
|
|
$
|
5.4623
|
|
|
|
281
|
|
|
$
|
5.4623
|
|
Granted
|
|
|
|
|
|
|
5.4623
|
|
|
|
|
|
|
|
5.4623
|
|
Vested
|
|
|
(118
|
)
|
|
|
5.4623
|
|
|
|
(118
|
)
|
|
|
5.4623
|
|
Forfeited
|
|
|
|
|
|
|
5.4623
|
|
|
|
|
|
|
|
5.4623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested options, end of the year
|
|
|
281
|
|
|
$
|
5.4623
|
|
|
|
163
|
|
|
$
|
5.4623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employment agreements:
The Company has employment
contracts with two members of senior management and an
employment letter agreement with a third employee. These
contracts and agreement stipulate the payment of salary, bonus,
perquisites, and stock option awards to the affected individuals.
The Company has consulting agreements with three of its
individual owners. Consulting fees paid totaled $453.5, $453.5,
and $450.0, for the years ended December 31, 2008, 2009 and
2010, respectively.
Note 12.
Commitments and Contingencies
The Company is a defendant in various pending or threatened
lawsuits. These matters are subject to various legal proceedings
in the ordinary course of business. Each of these matters is
subject to various uncertainties and some of them may have an
unfavorable outcome to the Company. The Company has established
accruals for the matters that are probable and reasonably
estimable. The Company is not party to any legal proceedings
that management believes would have a materially adverse effect
on the Companys consolidated financial statements.
Note 13.
Restricted Assets
RMC Reinsurance, Ltd. is a wholly-owned life insurance
subsidiary of the Company. RMC Reinsurance is required to
maintain cash reserves against life insurance policies ceded to
it, as determined by the ceding company. In 2009, the Company
purchased a letter of credit in the amount of $888 in favor of
the ceding company. The letter of credit is secured by a cash
deposit of $888. The cash securing the letter of credit in 2009
and 2010 and the required reserves are presented as restricted
cash in the other asset category in the accompanying balance
sheets, which totaled $888 at December 31, 2009 and 2010.
Note 14.
Interest Rate Caps
On April 9, 2009 the Company purchased interest rate caps
with a notional amount of $30,000, a strike rate of 3.0%, and
equal maturities in April 2013, 2014, and 2015. On March 4,
2010, the company exchanged its $30,000 of interest rate caps
for a rate cap with a notional amount of $128,500, a strike rate
of 6.0%, and a maturity of March 4, 2014. There was no cost
associated with this exchange.
On November 5, 2010, the company purchased an additional
interest rate cap of $21,500, increasing its interest rate
coverage to $150,000. The strike rate and maturity of this
latter purchase are the same as the cap purchased on
March 4, 2010.
F-27
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(Dollars in
thousands, except per share information)
Following is a summary of changes in the rate caps:
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Balance at end of prior year
|
|
$
|
|
|
|
$
|
1,080
|
|
Purchases
|
|
|
800
|
|
|
|
43
|
|
Fair value adjustment included as an (increase) decrease in
interest expense
|
|
|
280
|
|
|
|
(843
|
)
|
|
|
|
|
|
|
|
|
|
Balance sheet at December 31, included in other assets
|
|
$
|
1,080
|
|
|
$
|
280
|
|
|
|
|
|
|
|
|
|
|
|
When three-month LIBOR exceeds six percent, the counter party
reimburses the Company for the excess over six percent; no
payment is required by the Company or the counterparty when
three-month LIBOR is below six percent.
Note 15.
Subsequent Event
On May 5, 2011, the Companys Board of Directors
approved the filing of a registration statement on
Form S-1
for an initial public offering of the Companys common
stock.
F-28
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31,
|
|
|
MARCH 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands, except per share information)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
856
|
|
|
$
|
4,384
|
|
Gross finance receivables
|
|
|
318,991
|
|
|
|
304,840
|
|
Less unearned finance charges, insurance premiums and commissions
|
|
|
(71,745
|
)
|
|
|
(66,723
|
)
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
|
247,246
|
|
|
|
238,117
|
|
Less allowance for loan losses
|
|
|
(18,000
|
)
|
|
|
(18,000
|
)
|
|
|
|
|
|
|
|
|
|
Net finance receivables
|
|
|
229,246
|
|
|
|
220,117
|
|
Premises and equipment, net of accumulated depreciation
|
|
|
3,069
|
|
|
|
3,366
|
|
Deferred tax asset, net
|
|
|
4,376
|
|
|
|
4,726
|
|
Repossessed assets at net realizable value
|
|
|
296
|
|
|
|
183
|
|
Other assets
|
|
|
3,515
|
|
|
|
4,727
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
241,358
|
|
|
$
|
237,503
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Cash overdraft
|
|
$
|
365
|
|
|
$
|
1,404
|
|
Accounts payable and accrued expenses
|
|
|
7,968
|
|
|
|
10,273
|
|
Senior revolving credit facility
|
|
|
163,301
|
|
|
|
151,347
|
|
Mezzanine debt to related parties
|
|
|
25,814
|
|
|
|
25,814
|
|
Other debt
|
|
|
466
|
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
197,914
|
|
|
|
189,034
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies:
|
|
|
|
|
|
|
|
|
Temporary equity
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, par value $0.10 per share; 25,000,000 shares
authorized; 9,336,727 issued and outstanding
|
|
|
934
|
|
|
|
934
|
|
Additional
paid-in-capital
|
|
|
27,959
|
|
|
|
28,049
|
|
Retained earnings
|
|
|
2,551
|
|
|
|
7,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,444
|
|
|
|
36,469
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
241,358
|
|
|
$
|
237,503
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2011
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands, except per share information)
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fee income
|
|
|
|
|
|
$
|
18,022
|
|
|
|
|
|
|
$
|
21,045
|
|
Insurance income, net
|
|
|
|
|
|
|
2,295
|
|
|
|
|
|
|
|
2,194
|
|
Other income
|
|
|
|
|
|
|
1,362
|
|
|
|
|
|
|
|
1,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
|
|
|
|
21,679
|
|
|
|
|
|
|
|
24,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
|
|
|
|
3,902
|
|
|
|
|
|
|
|
3,836
|
|
General and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel
|
|
|
|
|
|
|
5,946
|
|
|
|
|
|
|
|
6,540
|
|
Occupancy
|
|
|
|
|
|
|
1,222
|
|
|
|
|
|
|
|
1,471
|
|
Advertising
|
|
|
|
|
|
|
547
|
|
|
|
|
|
|
|
647
|
|
Other
|
|
|
|
|
|
|
1,204
|
|
|
|
|
|
|
|
1,554
|
|
Consulting and advisory fees
|
|
|
|
|
|
|
308
|
|
|
|
|
|
|
|
310
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior revolving credit facility and other debt
|
|
|
|
|
|
|
1,484
|
|
|
|
|
|
|
|
1,763
|
|
Mezzanine debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third party
|
|
|
|
|
|
|
984
|
|
|
|
|
|
|
|
|
|
Related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
|
|
|
|
2,468
|
|
|
|
|
|
|
|
2,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
|
|
|
|
15,597
|
|
|
|
|
|
|
|
17,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
|
|
|
|
6,082
|
|
|
|
|
|
|
|
7,579
|
|
Income taxes
|
|
|
|
|
|
|
2,129
|
|
|
|
|
|
|
|
2,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
$
|
3,953
|
|
|
|
|
|
|
$
|
4,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
$
|
0.42
|
|
|
|
|
|
|
$
|
0.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
$
|
0.41
|
|
|
|
|
|
|
$
|
0.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
9,336,727
|
|
|
|
|
|
|
|
9,336,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
9,606,178
|
|
|
|
|
|
|
|
9,648,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-30
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2011
|
|
|
|
(Unaudited)
|
|
|
|
(Dollars in thousands, except per share information)
|
|
|
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,953
|
|
|
$
|
4,935
|
|
Adjustments to reconcile net income to cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
3,902
|
|
|
|
3,836
|
|
Depreciation and amortization
|
|
|
293
|
|
|
|
305
|
|
Amortization of stock compensation expense
|
|
|
90
|
|
|
|
90
|
|
Fair value adjustment on interest rate caps
|
|
|
439
|
|
|
|
21
|
|
Payment of in-kind interest on mezzanine debt
|
|
|
128
|
|
|
|
|
|
Deferred income taxes
|
|
|
150
|
|
|
|
(350
|
)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
116
|
|
|
|
(1,157
|
)
|
Other liabilities
|
|
|
2,100
|
|
|
|
2,305
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
11,171
|
|
|
|
9,985
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
Finance receivables repaid
|
|
|
10,497
|
|
|
|
5,293
|
|
Purchase of furniture and equipment
|
|
|
(194
|
)
|
|
|
(565
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
10,303
|
|
|
|
4,728
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
Increase in cash overdraft
|
|
|
744
|
|
|
|
1,039
|
|
Net payments on senior revolving credit facility
|
|
|
(24,591
|
)
|
|
|
(11,954
|
)
|
Issuance (payments) on subordinated debt and other notes, net
|
|
|
117
|
|
|
|
(270
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(23,730
|
)
|
|
|
(11,185
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
(2,256
|
)
|
|
|
3,528
|
|
Cash
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
3,018
|
|
|
|
856
|
|
|
|
|
|
|
|
|
|
|
Ending
|
|
$
|
762
|
|
|
$
|
4,384
|
|
|
|
|
|
|
|
|
|
|
Cash payments for interest
|
|
|
|
|
|
|
|
|
Paid to third parties
|
|
$
|
1,676
|
|
|
$
|
1,731
|
|
|
|
|
|
|
|
|
|
|
Paid to related parties
|
|
$
|
|
|
|
$
|
957
|
|
|
|
|
|
|
|
|
|
|
Cash payments for income taxes
|
|
$
|
160
|
|
|
$
|
1,949
|
|
|
|
|
|
|
|
|
|
|
Issuance of mezzanine debt in lieu of cash interest payments
|
|
$
|
128
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-31
(Unaudited)
Note 1.
Basis of Presentation
Basis of presentation:
The consolidated financial
statements of Regional Management Corp. (the
Company) at March 31, 2011 and for the three
months ended March 31, 2010 and 2011 are unaudited and have
been prepared in conformity with Financial Accounting Standards
Board (FASB) Accounting Standards Codification
(ASC) 270, Interim Reporting. In the opinion of
management include all adjustments, all of which are normal,
recurring adjustments that are necessary for a fair presentation
of the financial position at March 31, 2011 and the results
of operations and cash flows for the three month periods ended
March 31, 2010 and 2011.
The accompanying financial statements have been prepared in
accordance with the accounting policies stated in the
Companys audited financial statements for the year ended
December 31, 2010 and should be read in conjunction with
the notes to those consolidated financial statements. The
consolidated balance sheet data as of December 31, 2010 was
derived from the Companys audited financial statements,
but does not include all disclosures required by accounting
principles generally accepted in the United States of America.
Note 2.
Nature of Business and Significant Accounting Policies
Nature of business:
The Company was incorporated and
began operations in 1987. The Company is engaged in the consumer
finance business, offering small installment loans, large
installment loans, automobile purchase loans, furniture and
appliance purchase loans, related credit insurance, and
ancillary products and services. As of March 31, 2011, the
Company operates offices in 146 locations in the states of
Alabama (10 offices), North Carolina (21 offices), South
Carolina (66 offices), Tennessee (12 offices), and Texas (37
offices) under the brand names Regional Finance, RMC Financial
Services, Anchor Finance, and Sun Finance. In the three months
ended March 31, 2011, the Company opened 11 offices and
made one small branch acquisition.
Principles of consolidation:
The consolidated
financial statements include the accounts of Regional Management
Corp. and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation. The Company operates through a separate
subsidiary in each state.
The accounting and reporting policies of the Company are in
accordance with accounting principles generally accepted in the
United States of America and conform to general practices within
the consumer finance industry.
The following is a description of significant accounting
policies used in preparing the financial statements.
Use of estimates:
The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to change
relate to the determination of the allowance for loan losses,
fair value of stock-based compensation, and the valuation of
deferred tax assets.
Business segments:
The Company reports operating
segments in accordance with FASB ASC Topic 280. Operating
segments are components of an enterprise about which separate
financial information is available that is evaluated regularly
by the chief operating decision maker in determining how to
allocate resources and assess performance. FASB ASC Topic 280
requires that a public enterprise report a measure of segment
profit or loss, certain specific
F-32
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
revenue and expense items, segment assets, information about the
way operating segments were determined, and other items.
The Company has one reportable segment, which is the consumer
finance business. The other revenue generating activities of the
Company, including insurance operations and income tax
preparation, are done in the existing branch network in
conjunction with or as a complement to the consumer finance
operations. There is no discrete financial information available
for these activities and they do not meet the criteria under
FASB ASC Topic 280 to be reported separately.
Cash and statement of cash flows:
Cash flows from
loan operations and short-term borrowings are reported on a net
basis.
Finance receivables:
The Company offers four types
of consumer loans. Small installment loan receivables are direct
loans to customers and are secured by non-essential household
goods and include live check loans, which are checks mailed to
customers based on a rigorous pre-screening process that
includes a review of the prospective customers credit
profile provided by one of the national credit reporting
bureaus. Large installment loan receivables are direct loans to
customers and are secured by automobiles or other vehicles in
addition to non-essential household goods. Automobile purchase
loan receivables consist of direct loans, which are originated
at the dealership and closed in one of our branches, and
indirect loans, which are originated and closed at a dealership
in our network without the need for the customer to visit one of
our branches. In each case, these automobile purchase loans are
collateralized primarily by used and some new automobiles, which
are initiated by and purchased from automobile dealerships,
subject to the Companys credit approval. Furniture and
appliance purchase loan receivables consist principally of
retail installment sales contracts collateralized by the
furniture purchased, which are initiated by and purchased from
furniture retailers, subject to the Companys credit
approval.
Loan losses:
Provisions for loan losses are charged
to income as losses are estimated to have occurred and in
amounts sufficient to maintain an allowance for loan losses at
an adequate level to provide for losses on the finance
receivables. Loan losses are charged against the allowance when
management believes the uncollectibility of a loan balance is
confirmed. Subsequent recoveries, if any, are credited to the
allowance. Loan loss experience, average loan life, and
contractual delinquency of finance receivables by loan type, the
value of underlying collateral, and managements judgment
are factors used in assessing the overall adequacy of the
allowance and the resulting provision for loan losses. While
management uses the best information available to make its
evaluation, future adjustments to the allowance may be necessary
if there are significant changes in economic conditions or
portfolio performance. This evaluation is inherently subjective,
as it requires estimates that are susceptible to significant
revisions as more information becomes available.
The allowance consists of specific and general components. The
specific component relates to loans that are considered
impaired. The Company fully reserves for all loans at the date
that the loan is contractually delinquent 180 days. The
Company only initiates repossession proceedings when an account
is seriously delinquent and in the opinion of management, the
customer is unlikely to make further payments. Since 2010, the
Company has sold substantially all repossessed vehicle inventory
through public sales conducted by independent automobile auction
organizations after the required post-repossession waiting
period. Vehicles held for sale at the office location are
generally taken to an auction if not sold within 90 days of
obtaining title. Losses on the sale of repossessed collateral
are charged to the allowance for loan losses.
F-33
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
The Companys allowance for loan losses has three
components. The following is a description of the components of
the allowance for loan losses:
|
|
|
|
n
|
Most recent twelve months of historical losses are used to
estimate the allowance for large installment loans (loans in
excess of $2,500), automobile purchase loans, and all furniture
and appliance purchase loans. During the three months ended
March 31, 2011, the Company increased the amount allocated
to the automobile loss component of the allowance by
$2.2 million in addition to the amount determined using the
trailing twelve months of losses. The Company made this
adjustment after analyzing loss trends in the periods in which
the loans originated. Increased prices for gasoline is another
factor used to determine the automobile purchase loan loss
component of the allowance. The impact of high gasoline prices
may not yet be captured in loss trends over the trailing twelve
months. The price of gasoline can affect the ability of a
customer to afford the financed vehicle and therefore the
likelihood that the customer may surrender the vehicle or the
Company may be forced to repossess it. Additionally, automobile
loan originations increased in the three months ended
March 31, 2011. In recognition of all these factors, the
Company increased the amount of the automobile loss allowance.
|
|
|
|
|
n
|
Most recent eight months of historical losses are used to
estimate the allowance for small installment loans, including
live checks (loans of $2,500 or less)
|
|
|
|
|
n
|
An unallocated allowance amount. The unallocated amount of the
allowance is managements estimate of incurred losses
relating to loans outstanding at March 31, 2011. Factors
that impact this amount include among other factors, general
economic trends, unemployment levels, business conditions, the
trend of loan originations, delinquency, bankruptcy and trends
in the market value of collateral in the areas in which the
Company operates.
|
Automobile purchase, furniture and appliance purchase, and large
installment loans have longer maturities than small installment
loans, which is why a shorter period is used for small
installment loan losses.
In 2011, the Company began evaluating the loans of customers in
Chapter 13 bankruptcy for impairment as troubled debt
restructurings. The Company has adopted the policy of
aggregating loans with similar risk characteristics for purposes
of computing the amount of impairment. In connection with the
adoption of this practice, the Company computed the estimated
impairment on its Chapter 13 bankrupt loans in the
aggregate by discounting the projected cash flows at the
original contract rates on the loan using the terms imposed by
the bankruptcy court. This method was applied in the aggregate
to each of the Companys four classes of loans.
The Companys policy for the accounts of customers in
bankruptcy is to charge off the balance of accounts in a
confirmed bankruptcy under Chapter 7 of the bankruptcy
code. For customers in a Chapter 13 bankruptcy plan, the
Company reduces the interest rate to that specified in the
bankruptcy order. Additionally, if the bankruptcy court converts
a portion of a loan to an unsecured claim the Companys
policy is to charge off the portion of the unsecured balance
that it deems uncollectible at the time the bankruptcy plan is
confirmed. Once the customer is in a confirmed Chapter 13
bankruptcy plan, the Company receives payments with respect to
the remaining amount of the loan at the reduced interest rate
from the bankruptcy trustee. The Company does not believe that
accounts in a confirmed Chapter 13 plan have a higher level
of risk than non-bankrupt accounts. If a customer fails to
comply with the terms of the bankruptcy order, the Company will
petition the trustee to have the customer dismissed from
bankruptcy. Upon dismissal, the Company restores the account to
the original terms and pursues collection through its normal
collection activities.
In making the computations of the present value of cash payments
to be received on bankrupt accounts in each product category,
the Company used the weighted average interest rates and
weighted average remaining term based on data as of
June 30, 2011. Management believes using the current data
does not materially change the
F-34
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
results that would be obtained if it had available data for
interest rates and remaining term data as of the applicable
periods. In the future, the Company will use data for the
current quarter.
Impaired loans:
The Company does not have impaired
loans as defined by FASB ASC Topic 310, except loans considered
to be troubled debt restructurings and accounts 180 or more days
contractually delinquent, which are fully reserved for as
described above. In accordance with the Companys
charge-off policy, once a loan is deemed uncollectible, 100% of
the net investment is charged-off.
The factors used to determine whether an account is
uncollectible are the age of the account, supervisory review of
collection efforts, and other factors such as customers
relocating to an area where collection is not practical. As of
March 31, 2011, bankrupt accounts that had not been
charged-off were approximately $2.7 million. Such accounts
are specifically evaluated for impairment. The Company has
elected to evaluate such loans in the aggregate in accordance
with FASB ASC Topic 310 as they have common risk
characteristics. Of the total $2.7 million of bankrupt
accounts at March 31, 2011, $214 are more than
180 days delinquent and thus fully reserved. For customers
with a confirmed Chapter 13 bankruptcy plan, we receive
payments through the bankruptcy court. For customers who
recently filed for Chapter 13 bankruptcy, the Company
generally does not receive any payments until their bankruptcy
plan in confirmed by the court. If the customers have made
payments to the trustee in advance of plan confirmation, the
Company may receive a lump sum payment from the trustee once the
plan is confirmed. This lump sum payment represents the
Companys pro-rata share of the amount paid by the
customer. If a customer files for bankruptcy under
Chapter 7 of the bankruptcy code, the customers
entire debt is cancelled. In such cases, the Company charges off
the account upon receiving notice from the bankruptcy court. If
a vehicle secures a Chapter 7 bankruptcy account, the
customer has the option of buying the vehicle at fair value or
reaffirming the loan and continuing to pay the loan.
At March 31, 2011, approximately $214 of the 180 days
or more past due accounts are customers in Chapter 13
bankruptcy. The remainder of the 180+ past due accounts are
those of which operations personnel are of the view that some
portion can be collected. Following is a chart of the maturity
of accounts that are 180 days or more that are past due:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MARCH 31, 2011
|
|
|
|
NON-
|
|
|
CUSTOMERS
|
|
|
TOTAL 180+
|
|
|
|
BANKRUPT
|
|
|
IN
|
|
|
PAST DUE
|
|
|
|
CUSTOMERS
|
|
|
BANKRUPTCY
|
|
|
ACCOUNTS
|
|
|
Accounts at least 180 days but less than one year contractually
delinquent
|
|
$
|
937
|
|
|
$
|
187
|
|
|
$
|
1,124
|
|
Accounts at least one year but less than two years contractually
delinquent
|
|
|
39
|
|
|
|
22
|
|
|
|
61
|
|
Accounts at least two years contractually delinquent
|
|
|
1
|
|
|
|
5
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
977
|
|
|
$
|
214
|
|
|
$
|
1,191
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delinquency:
The Company determines past due status
using the contractual terms of the loan. This is the credit
quality indicator used to evaluate the allowance for loan losses
for each class of finance receivables.
F-35
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
Repossessed assets:
Repossessed collateral is valued
at the lower of the receivable balance on the loan prior to
repossession or estimated net realizable value. Management
estimates net realizable value at the projected cash value upon
liquidation, less costs to sell the related collateral.
Premises and equipment:
The Company owns its
headquarters buildings. During 2010, the Company sold the only
branch office that it owned. Offices are leased under
non-cancellable leases. Office buildings are depreciated on the
straight-line method for financial reporting purposes over their
estimated useful lives of 39 to 40 years. Furniture and
equipment are depreciated on the straight-line method over their
estimated useful lives, generally three to five years. Leasehold
improvements are depreciated over the shorter of the life of the
asset or the remaining term of the lease agreement. Maintenance
and repairs are charged to expense as incurred.
Income recognition:
Interest income is recognized
using the interest (actuarial) method, also known as the
constant yield method. Therefore, the Company recognizes revenue
from interest at an equal rate over the term of the loan.
Unearned finance charges on pre-compute contracts are rebated to
customers utilizing the Rule of 78s method. The difference
between income recognized under the constant yield method and
the Rule of 78s method is recognized as an adjustment to
interest income at the time of rebate. Accrual of interest
income on finance receivables is suspended when no payment has
been received for 90 days or more on a contractual basis.
The accrual of income is not resumed until one or more full
contractual monthly payments are received and the finance
receivable is less than 90 days contractually delinquent.
Interest income is suspended on finance receivables for which
collateral has been repossessed. Payments received on loans in
nonaccrual status are first applied to interest, then to any
late charges or other fees, with any remaining amount applied to
principal.
The Company recognizes income on credit insurance products using
the constant yield method over the life of the related loan.
Rebates are computed using the Rule of 78s method and any
difference between the constant yield method and the Rule of 78s
is recognized in income at the time of rebate.
The Company charges a fee to automobile dealers for each loan it
purchases from that dealer. The Company defers this fee and
accretes it to income using a method that approximates the
constant yield method.
Charges for late fees are recognized as income when accrued.
Loan origination fees and costs:
Non-refundable fees
received and direct costs incurred for the origination of
finance receivables are deferred and amortized to interest
income over the contractual lives of the loans using the
constant yield method. Unamortized amounts are recognized in
income at the time that loans are paid in full.
Insurance operations:
Insurance operations include
revenue and expense from the Companys sale of optional
insurance products to its customers. These optional products
include credit life, credit accident and health, property
insurance, and involuntary unemployment insurance. Insurance
premiums are remitted to an unaffiliated company that issues the
policy to the customer. This company cedes the premiums to the
Companys wholly-owned insurance subsidiary, RMC
Reinsurance, Ltd. Life insurance premiums are ceded to the
Company as written, non-life products are ceded as earned. The
premiums and commissions received by the Company are deferred
and amortized to income over the life of the insurance policy
using the constant yield method.
In 2009, the Company began a collateral protection collision
insurance (CPI) program in one state. CPI is added
to a loan when a customer fails to provide the Company proof of
collision insurance on an automobile securing a loan. The CPI
program is administered by an independent third party, which
tracks insurance lapses and cancellations and issues a policy
when the customer does not provide proof of insurance. The
insurance is added to
F-36
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
the loan and increases the customers monthly loan payment.
The third party and its insurance partner retain a percentage of
the premium and pay all claims. The Company earns a percentage
of the premium and will earn additional income if losses are
less than estimated by the independent third party. Income is
recognized on the constant yield method over the life of the
insurance policy, which is generally one year.
Non-file insurance is written in lieu of recording and
perfecting the Companys security interest in the assets
pledged on certain loans. Non-file insurance and the related
insurance premiums, claims, and recoveries are not reflected in
the accompanying financial statements except when claims are
incurred. Non-file insurance premiums are collected from the
borrower on certain loans at inception and renewal and remitted
directly to the unaffiliated insurance company.
The Company maintains a cash reserve for life insurance claims
in an amount determined by the ceding company. The cash reserve
secures a letter of credit issued by a commercial bank in favor
of the ceding company. The ceding company maintains the reserves
for non-life claims.
Reinsurance balances and transactions:
Reinsurance
is accounted for over the terms of the underlying reinsured
policies using assumptions consistent with those used to account
for the policies.
Interest rate caps:
In 2009, the Company purchased
three interest rate caps with notional amounts of $10,000 each.
The Company purchased the caps to protect a portion of its
senior revolving credit facility from increases in interest
rates above the strike rate of the cap. In early 2010, the
Company exchanged its $30,000 notional cap for a cap with a
notional amount of $128,500, a strike rate of 6.0%, and a
maturity of March 2014. There was no cost related to this
exchange. In late 2010, the Company purchased an additional cap
increasing the total interest rate protection to $150,000 on the
same terms as the exchanged cap. At March 31, 2011, the
caps are based on the three-month LIBOR contract and reimburse
the Company for the difference when three-month LIBOR exceeds
six percent. The carrying value of the caps, are adjusted to
fair value. For the three months ended March 31, 2010 and
2011, the Company recorded unfavorable fair value adjustments of
$439 and $21, respectively as increases in interest expense.
Income taxes:
Deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to
be recovered or settled. The effects of future tax rate changes
are recognized in the period when the enactment of new rates
occurs.
When tax returns are filed, it is highly certain that some
positions taken would be sustained upon examination by the
taxing authorities, while others are subject to uncertainty
about the merits of the position taken or the amount of the
position that would be ultimately sustained. The benefit of a
tax position is recognized in the financial statements in the
period during which, based on all available evidence, it is more
likely than not that, the position will be sustained upon
examination, including the resolution of appeals or litigation
processes, if any. Tax positions taken are not offset or
aggregated with other positions. Tax positions that meet the
more-likely-than-not recognition threshold are measured as the
largest amount of tax benefit that is more than 50% likely of
being realized upon settlement with the applicable taxing
authority. The portion of the benefits associated with tax
positions taken that exceeds the amount measured as described
above is reflected as a liability for unrecognized tax benefits
in the accompanying balance sheet along with any associated
interest and penalties that would be payable to the taxing
authorities upon examination.
F-37
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
The Company files U.S. federal and various state income tax
returns. The Company is generally no longer subject to
U.S. federal or state and local income tax examinations by
taxing authorities before 2007, with the exception of Texas,
which is 2006.
The Internal Revenue Service (IRS) concluded an
examination of the Companys 2007 and 2008 tax returns in
early 2010. The amount assessed by the IRS was not material to
the consolidated financial statements.
Earnings per share:
Earnings per share have been
computed based on the weighted-average number of common shares
outstanding during each year presented. Common shares issuable
upon the exercise of the stock-based compensation, which are
computed using the treasury stock method, are included in the
computation of diluted earnings per share.
Government regulation:
The Company is subject to
various state and federal laws and regulations, which, among
other things, impose limits on interest rates, other charges,
and insurance premiums and require licensing and qualifications.
Congress recently passed the Dodd-Frank Wall Street Reform and
Consumer Protection Act. Among other provisions, the bill
created the Consumer Financial Protection Bureau
(CFPB). The CFPB has the authority to promulgate
regulations that could affect the Companys business. The
CFPB has not issued any regulations to date and the Company is
not aware of any pending regulations that might affect its
business.
Subsequent events:
The Company has evaluated its
subsequent events (events occurring after March 31,
2011) through June 22, 2011, which represents the date
the financial statements were issued.
Disclosure about fair value of financial
instruments:
The following methods and assumptions were
used to estimate the fair value of each class of financial
instruments for which it is practicable to estimate that value:
Finance receivables:
Finance receivables are
originated either at prevailing market rates or at statutory
limits. The Companys loan portfolio turns approximately
1.2 times per year from cash payments and renewal of loans.
Management believes that the carrying value approximates the
fair value of its loan portfolio.
Interest rate caps:
The fair value of the interest
rate caps is the estimated amount the Company would receive to
terminate the cap agreements at the reporting date, taking into
account current interest rates and the creditworthiness of the
counterparty for assets and creditworthiness of the Company for
liabilities.
Debt:
The Company refinanced its senior revolving
credit facility in August 2010 and as a result of the
refinancing believes that the fair value of this variable rate
debt approximates its carrying value at December 31, 2010
and March 31, 2011. The Company also refinanced its
mezzanine debt in August 2010 and estimates that the fixed
interest rate on the mezzanine debt exceeds the estimated market
interest rate for similar debt, resulting in a fair value in
excess of the carrying amount. The Company also considered its
creditworthiness in its determination of fair value.
F-38
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
The estimated carrying and fair values of the Companys
financial instruments as of December 31, 2010 and
March 31, 2011 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, 2010
|
|
|
MARCH 31, 2011
|
|
|
|
CARRYING AMOUNT
|
|
|
FAIR VALUE
|
|
|
CARRYING AMOUNT
|
|
|
FAIR VALUE
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Cash
|
|
$
|
856
|
|
|
$
|
856
|
|
|
$
|
4,384
|
|
|
$
|
4,384
|
|
Restricted cash
|
|
|
888
|
|
|
|
888
|
|
|
|
888
|
|
|
|
888
|
|
Net finance receivables
|
|
|
229,246
|
|
|
|
229,246
|
|
|
|
220,117
|
|
|
|
220,117
|
|
Interest rate caps
|
|
|
280
|
|
|
|
280
|
|
|
|
259
|
|
|
|
259
|
|
Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior revolving credit facility
|
|
|
163,301
|
|
|
|
163,301
|
|
|
|
151,347
|
|
|
|
151,347
|
|
Mezzanine
|
|
|
25,814
|
|
|
|
26,697
|
|
|
|
25,814
|
|
|
|
26,647
|
|
Other
|
|
|
466
|
|
|
|
466
|
|
|
|
196
|
|
|
|
196
|
|
|
The Company follows the provisions of
ASC 820-10.
ASC
820-10
applies to all assets and liabilities that are being measured
and reported on a fair value basis.
ASC 820-10
requires disclosure that establishes a framework for measuring
fair value in GAAP, and expands disclosure about fair value
measurements. This statement enables the reader of the financial
statements to assess the inputs used to develop those
measurements by establishing a hierarchy for ranking the quality
and reliability of the information used to determine fair
values. The statement requires that assets and liabilities
carried at fair value be classified and disclosed in one of the
following three categories:
Level 1 Quoted market prices in active markets
for identical assets or liabilities.
Level 2 Observable market based inputs or
unobservable inputs that are corroborated by market data.
Level 3 Unobservable inputs that are not
corroborated by market data.
In determining the appropriate levels, the Company performs a
detailed analysis of the assets and liabilities that are subject
to
ASC 820-10.
At each reporting period, all assets and liabilities for which
the fair value measurement is based on significant unobservable
inputs are classified as Level 3.
The table below presents the balances of assets measured at fair
value on a recurring basis by level within the hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INTEREST RATE CAPS (INCLUDED IN OTHER ASSETS)
|
|
|
|
|
QUOTED
|
|
|
|
|
|
|
|
|
PRICES IN
|
|
|
|
|
|
|
|
|
ACTIVE
|
|
SIGNIFICANT
|
|
|
|
|
|
|
MARKETS FOR
|
|
OTHER
|
|
SIGNIFICANT
|
|
|
|
|
IDENTICAL
|
|
OBSERVABLE
|
|
UNOBSERVABLE
|
|
|
|
|
ASSETS
|
|
INPUTS
|
|
INPUTS
|
|
|
TOTAL
|
|
(LEVEL 1)
|
|
(LEVEL 2)
|
|
(LEVEL 3)
|
|
December 31, 2010
|
|
$
|
280
|
|
|
$
|
|
|
|
$
|
280
|
|
|
$
|
|
|
March 31, 2011(unaudited)
|
|
|
259
|
|
|
|
|
|
|
|
259
|
|
|
|
|
|
|
|
F-39
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
The following methods and assumptions were used to estimate the
fair value of each asset subject to
ASC 820-10
for which it is carried at fair value on a nonrecurring basis:
Certain assets and liabilities are measured at fair value on a
nonrecurring basis; that is, the instruments are not measured at
fair value on an ongoing basis but are subject to fair value
adjustments in certain circumstances (for example, when there is
evidence of impairment). The following table presents the assets
carried on the balance sheet by level within the hierarchy as of
December 31, 2010 and March 31, 2011 for which a
nonrecurring change in fair value has been recorded during the
year ended December 31, 2010 and the three months ended
March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REPOSSESSED ASSETS
|
|
|
|
|
QUOTED
|
|
|
|
|
|
|
|
|
|
|
PRICES IN
|
|
|
|
|
|
|
|
|
|
|
ACTIVE
|
|
|
|
|
|
|
|
|
|
|
MARKETS
|
|
SIGNIFICANT
|
|
|
|
|
|
|
|
|
FOR
|
|
OTHER
|
|
SIGNIFICANT
|
|
|
|
|
|
|
IDENTICAL
|
|
OBSERVABLE
|
|
UNOBSERVABLE
|
|
|
|
|
|
|
ASSETS
|
|
INPUTS
|
|
INPUTS
|
|
TOTAL
|
|
|
TOTAL
|
|
(LEVEL 1)
|
|
(LEVEL 2)
|
|
(LEVEL 3)
|
|
LOSSES
|
|
December 31, 2010
|
|
$
|
296
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
296
|
|
|
$
|
218
|
|
March 31, 2011(unaudited)
|
|
|
183
|
|
|
|
|
|
|
|
|
|
|
|
183
|
|
|
|
218
|
|
|
Accounting pronouncements issued and adopted:
In
July 2010, the FASB issued Accounting Standards Update (ASU)
2010-20,
Disclosures about the Credit Quality of Financing Receivables
and the Allowance for Credit Losses
. ASU
2010-20
requires more robust and disaggregated disclosures about the
credit quality of financing receivables and allowances for
credit losses, including disclosure about credit quality
indicators, past due information and modifications of finance
receivables. The disclosures required as of the end of a
reporting period and certain items related to activity during
the year were adopted in 2010, which significantly expanded the
existing disclosure requirements, but did not have any impact on
the Companys consolidated financial position, results of
operations, or cash flows. The remaining amendments that require
disclosures about activity that occurs during a reporting period
are effective for periods beginning on or after
December 15, 2010 and were adopted January 1, 2011 and
did not have an impact on the Companys consolidated
financial position, results of operations or cash flows.
Accounting pronouncements issued, not yet
adopted:
In October 2010, the FASB issued ASU
2010-26,
Accounting for Costs Associated with Acquiring or Renewing
Insurance Contracts
. ASU
2010-26
modifies the definitions of the type of costs incurred by
insurance entities that can be capitalized in the successful
acquisition of new and renewal contracts. ASU
2010-26
requires incremental direct costs of successful contract
acquisition as well as certain costs related to underwriting,
policy issuance and processing, medical and inspection and sales
force contract selling for successful contract acquisition to be
capitalized. These incremental direct costs and other costs are
those that are essential to the contract transaction and would
not have been incurred had the contract transaction not
occurred. This guidance is effective for the Company for the
year beginning January 1, 2012 and may be applied
prospectively or retrospectively. The Company does not expect
the adoption of this guidance to have a material impact on the
Companys consolidated financial position, results of
operations, cash flows, or disclosures.
In April 2011, the FASB issued ASU
2011-02,
Receivables (Topic 310): A Creditors Determination of
Whether a Restructuring Is a Troubled Debt Restructuring.
The ASU clarifies which loan modifications constitute
troubled debt restructurings. It is intended to assist creditors
in determining whether a modification of the terms of a
receivable
F-40
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
meets the criteria to be considered a troubled debt
restructuring, both for purposes of recording an impairment loss
and for disclosure of troubled debt restructurings. This ASU is
effective for interim and annual periods beginning on or after
June 15, 2011, and applies retrospectively to
restructurings occurring on or after the beginning of the fiscal
year of adoption. The Company does not expect the adoption of
this guidance to have a material impact on the Companys
consolidated financial position, results of operations, cash
flows, or disclosures.
In May 2011, the FASB issued ASU 2011-04,
Fair Value
Measurement
, which aligns disclosures related to fair value
between U.S. GAAP and International Financial Reporting
Standards. The ASU includes changes to the wording used to
describe many of the requirements in U.S. GAAP for measuring
fair value and changes to the disclosure of information about
fair value measurements. More specifically, the changes clarify
the intent of the FASB regarding the application of existing
fair value measurements and disclosures as well as changing some
particular principles or requirements for measuring fair value
or for disclosing information about fair value measurements.
This ASU is effective for interim and annual periods beginning
after December 15, 2011. The Company does not expect the
adoption of this guidance to have a material impact on its
consolidated financial statements.
Note 3.
Finance Receivables, Credit Quality Information, and Allowance
for Loan Losses
Finance receivables at December 31, 2010 and March 31,
2011 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, 2010
|
|
|
MARCH 31, 2011
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Small installment loans
|
|
$
|
117,599
|
|
|
$
|
99,623
|
|
Large installment loans
|
|
|
33,653
|
|
|
|
32,669
|
|
Automobile purchase loans
|
|
|
93,232
|
|
|
|
102,164
|
|
Furniture and appliance purchase loans
|
|
|
2,762
|
|
|
|
3,661
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
$
|
247,246
|
|
|
$
|
238,117
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the allowance for loan losses for the three months
ended March 31, 2010 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
THREE MONTHS ENDED
|
|
|
|
MARCH 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
|
(Unaudited)
|
|
|
Balance at beginning of period
|
|
$
|
18,441
|
|
|
$
|
18,000
|
|
Provision for loan losses
|
|
|
3,902
|
|
|
|
3,836
|
|
Finance receivables charged off
|
|
|
(4,486
|
)
|
|
|
(4,004
|
)
|
Recoveries
|
|
|
118
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
17,975
|
|
|
$
|
18,000
|
|
|
|
|
|
|
|
|
|
|
|
F-41
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
The following is a reconciliation of the allowance for loan
losses by component for the year ended December 31, 2010
and the three months ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLOWANCE AS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PERCENTAGE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOAN
|
|
|
OF LOAN
|
|
|
|
BALANCE
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
|
|
|
BALANCE
|
|
|
BALANCE
|
|
|
|
JANUARY 1,
|
|
|
|
|
|
CHARGE-
|
|
|
|
|
|
DECEMBER 31,
|
|
|
DECEMBER 31,
|
|
|
DECEMBER 31,
|
|
|
|
2010
|
|
|
PROVISION
|
|
|
OFFS
|
|
|
RECOVERIES
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
Small installment loans
|
|
$
|
8,083
|
|
|
$
|
10,664
|
|
|
$
|
(10,068
|
)
|
|
$
|
295
|
|
|
$
|
8,974
|
|
|
$
|
117,599
|
|
|
|
7.6
|
%
|
Large installment loans
|
|
|
2,719
|
|
|
|
2,780
|
|
|
|
(2,588
|
)
|
|
|
61
|
|
|
|
2,972
|
|
|
|
33,653
|
|
|
|
8.8
|
%
|
Automobile purchase loans
|
|
|
7,629
|
|
|
|
2,745
|
|
|
|
(4,738
|
)
|
|
|
103
|
|
|
|
5,739
|
|
|
|
93,232
|
|
|
|
6.2
|
%
|
Furniture and appliance purchase loans
|
|
|
10
|
|
|
|
204
|
|
|
|
(75
|
)
|
|
|
1
|
|
|
|
145
|
|
|
|
2,762
|
|
|
|
5.2
|
%
|
Unallocated
|
|
|
170
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,441
|
|
|
$
|
16,568
|
|
|
$
|
(17,469
|
)
|
|
$
|
460
|
|
|
$
|
18,000
|
|
|
$
|
247,246
|
|
|
|
7.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALLOWANCE AS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PERCENTAGE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCE
|
|
|
OF FINANCE
|
|
|
|
BALANCE
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE
|
|
|
RECEIVABLES
|
|
|
RECEIVABLES
|
|
|
|
JANUARY 1,
|
|
|
|
|
|
CHARGE-
|
|
|
|
|
|
MARCH 31,
|
|
|
MARCH 31,
|
|
|
MARCH 31,
|
|
|
|
2011
|
|
|
PROVISION
|
|
|
OFFS
|
|
|
RECOVERIES
|
|
|
2011
|
|
|
2011
|
|
|
2011
|
|
|
Small installment loans
|
|
$
|
8,974
|
|
|
$
|
321
|
|
|
$
|
(2,465
|
)
|
|
$
|
123
|
|
|
$
|
6,953
|
|
|
$
|
99,623
|
|
|
|
7.0
|
%
|
Large installment loans
|
|
|
2,972
|
|
|
|
66
|
|
|
|
(579
|
)
|
|
|
19
|
|
|
|
2,478
|
|
|
|
32,669
|
|
|
|
7.6
|
%
|
Automobile purchase loans
|
|
|
5,739
|
|
|
|
2,620
|
|
|
|
(925
|
)
|
|
|
26
|
|
|
|
7,460
|
|
|
|
102,164
|
|
|
|
7.3
|
%
|
Furniture and appliance purchase loans
|
|
|
145
|
|
|
|
60
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
170
|
|
|
|
3,661
|
|
|
|
4.6
|
%
|
Unallocated
|
|
|
170
|
|
|
|
769
|
|
|
|
|
|
|
|
|
|
|
|
939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,000
|
|
|
$
|
3,836
|
|
|
$
|
(4,004
|
)
|
|
$
|
168
|
|
|
$
|
18,000
|
|
|
$
|
238,117
|
|
|
|
7.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-42
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
Following is a summary of the finance receivables associated
with customers in bankruptcy as of December 31, 2010 and
March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCE
|
|
|
FINANCE
|
|
|
|
RECEIVABLES IN
|
|
|
RECEIVABLES IN
|
|
|
|
BANKRUPTCY
|
|
|
BANKRUPTCY
|
|
|
|
AS OF DECEMBER 31,
|
|
|
AS OF MARCH 31,
|
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Small installment loans
|
|
$
|
353
|
|
|
$
|
341
|
|
Large installment loans
|
|
|
559
|
|
|
|
544
|
|
Automobile purchase loans
|
|
|
1,715
|
|
|
|
1,760
|
|
Furniture and appliance purchase loans
|
|
|
35
|
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,662
|
|
|
$
|
2,674
|
|
|
|
|
|
|
|
|
|
|
|
The following is an assessment of the credit quality of finance
receivables at December 31, 2010 and March 31, 2011.
The contractual delinquency of the finance receivable portfolio
by component at December 31, 2010 and March 31, 2011
was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
FURNITURE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AND
|
|
|
|
|
|
|
SMALL
|
|
|
LARGE
|
|
|
|
|
|
APPLIANCE
|
|
|
|
|
|
|
INSTALLMENT
|
|
|
INSTALLMENT
|
|
|
AUTOMOBILE
|
|
|
PURCHASE
|
|
|
|
|
|
|
LOANS
|
|
|
LOANS
|
|
|
PURCHASE LOANS
|
|
|
LOANS
|
|
|
TOTAL
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
Current accounts
|
|
$
|
90,455
|
|
|
|
76.9
|
%
|
|
$
|
22,969
|
|
|
|
68.3
|
%
|
|
$
|
67,751
|
|
|
|
72.7
|
%
|
|
$
|
2,299
|
|
|
|
83.2
|
%
|
|
$
|
183,474
|
|
|
|
74.2
|
%
|
1-29 days
|
|
|
18,387
|
|
|
|
15.7
|
%
|
|
|
7,424
|
|
|
|
22.0
|
%
|
|
|
20,363
|
|
|
|
21.8
|
%
|
|
|
342
|
|
|
|
12.4
|
%
|
|
|
46,516
|
|
|
|
18.8
|
%
|
Delinquency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 to 59 days
|
|
|
3,269
|
|
|
|
2.8
|
%
|
|
|
1,486
|
|
|
|
4.4
|
%
|
|
|
2,816
|
|
|
|
3.0
|
%
|
|
|
40
|
|
|
|
1.5
|
%
|
|
|
7,611
|
|
|
|
3.1
|
%
|
60 to 89 days
|
|
|
1,986
|
|
|
|
1.6
|
%
|
|
|
762
|
|
|
|
2.3
|
%
|
|
|
1,113
|
|
|
|
1.2
|
%
|
|
|
31
|
|
|
|
1.1
|
%
|
|
|
3,892
|
|
|
|
1.6
|
%
|
Over 90 days
|
|
|
3,502
|
|
|
|
3.0
|
%
|
|
|
1,012
|
|
|
|
3.0
|
%
|
|
|
1,189
|
|
|
|
1.3
|
%
|
|
|
50
|
|
|
|
1.8
|
%
|
|
|
5,753
|
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total delinquency
|
|
|
8,757
|
|
|
|
7.4
|
%
|
|
|
3,260
|
|
|
|
9.7
|
%
|
|
|
5,118
|
|
|
|
5.5
|
%
|
|
|
121
|
|
|
|
4.4
|
%
|
|
|
17,256
|
|
|
|
7.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
$
|
117,599
|
|
|
|
100.0
|
%
|
|
$
|
33,653
|
|
|
|
100.0
|
%
|
|
$
|
93,232
|
|
|
|
100.0
|
%
|
|
$
|
2,762
|
|
|
|
100.0
|
%
|
|
$
|
247,246
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables in nonaccrual status
|
|
$
|
3,502
|
|
|
|
3.0
|
%
|
|
$
|
1,012
|
|
|
|
3.0
|
%
|
|
$
|
1,189
|
|
|
|
1.3
|
%
|
|
$
|
50
|
|
|
|
1.8
|
%
|
|
$
|
5,753
|
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-43
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MARCH 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
FURNITURE AND
|
|
|
|
|
|
|
SMALL
|
|
|
LARGE
|
|
|
|
|
|
APPLIANCE
|
|
|
|
|
|
|
INSTALLMENT
|
|
|
INSTALLMENT
|
|
|
AUTOMOBILE
|
|
|
PURCHASE
|
|
|
|
|
|
|
LOANS
|
|
|
LOANS
|
|
|
PURCHASE LOANS
|
|
|
LOANS
|
|
|
TOTAL
|
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
|
(Unaudited)
|
|
|
Current accounts
|
|
$
|
76,899
|
|
|
|
77.2
|
%
|
|
$
|
23,869
|
|
|
|
73.1
|
%
|
|
$
|
81,317
|
|
|
|
79.6
|
%
|
|
$
|
3,186
|
|
|
|
87.0
|
%
|
|
$
|
185,271
|
|
|
|
77.8
|
%
|
1-29 days
|
|
|
15,314
|
|
|
|
15.4
|
%
|
|
|
6,329
|
|
|
|
19.3
|
%
|
|
|
17,269
|
|
|
|
16.9
|
%
|
|
|
374
|
|
|
|
10.2
|
%
|
|
|
39,286
|
|
|
|
16.5
|
%
|
Delinquency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 to 59 days
|
|
|
2,421
|
|
|
|
2.4
|
%
|
|
|
985
|
|
|
|
3.0
|
%
|
|
|
1,854
|
|
|
|
1.8
|
%
|
|
|
26
|
|
|
|
0.7
|
%
|
|
|
5,286
|
|
|
|
2.2
|
%
|
60 to 89 days
|
|
|
1,651
|
|
|
|
1.6
|
%
|
|
|
488
|
|
|
|
1.5
|
%
|
|
|
648
|
|
|
|
0.6
|
%
|
|
|
29
|
|
|
|
0.8
|
%
|
|
|
2,816
|
|
|
|
1.2
|
%
|
Over 90 days
|
|
|
3,338
|
|
|
|
3.4
|
%
|
|
|
998
|
|
|
|
3.1
|
%
|
|
|
1,076
|
|
|
|
1.1
|
%
|
|
|
46
|
|
|
|
1.3
|
%
|
|
|
5,458
|
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total delinquency
|
|
$
|
7,410
|
|
|
|
7.4
|
%
|
|
$
|
2,471
|
|
|
|
7.6
|
%
|
|
$
|
3,578
|
|
|
|
3.5
|
%
|
|
$
|
101
|
|
|
|
2.8
|
%
|
|
$
|
13,560
|
|
|
|
5.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables
|
|
$
|
99,623
|
|
|
|
100.0
|
%
|
|
$
|
32,669
|
|
|
|
100.0
|
%
|
|
$
|
102,164
|
|
|
|
100.0
|
%
|
|
|
3,661
|
|
|
|
100.0
|
%
|
|
$
|
238,117
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance receivables in nonaccrual status
|
|
$
|
3,338
|
|
|
|
3.4
|
%
|
|
$
|
998
|
|
|
|
3.1
|
%
|
|
$
|
1,076
|
|
|
|
1.1
|
%
|
|
$
|
46
|
|
|
|
1.3
|
%
|
|
$
|
5,459
|
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Following is a summary of finance receivables evaluated for
impairment at March 31, 2010 and March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
MARCH 31, 2010
|
|
|
MARCH 31, 2011
|
|
|
Finance receivables evaluated for impairment
|
|
|
|
|
|
|
|
|
Accounts 180 or more days past due, excluding accounts of
customers in bankruptcy
|
|
$
|
2,156
|
|
|
$
|
977
|
|
Customers in Chapter 13 bankruptcy
|
|
|
2,930
|
|
|
|
2,674
|
|
|
|
|
|
|
|
|
|
|
Total impaired accounts specifically evaluated
|
|
$
|
5,086
|
|
|
$
|
3,651
|
|
Finance receivables evaluated collectively
|
|
|
194,957
|
|
|
|
234,466
|
|
|
|
|
|
|
|
|
|
|
Finance receivables outstanding
|
|
$
|
200,043
|
|
|
$
|
238,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MARCH 31, 2010
|
|
|
MARCH 31, 2011
|
|
|
Total impaired accounts specifically evaluated
|
|
$
|
5,086
|
|
|
$
|
3,651
|
|
Amount of the specific reserve for impaired accounts
|
|
|
3,075
|
|
|
|
1,861
|
|
|
|
|
|
|
|
|
|
|
|
Substantially all the Companys finance receivables are
pledged to the senior revolving credit facility and to the
mezzanine debt.
F-44
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
Note 5.
Debt
The Companys senior revolving credit facility and
mezzanine debt contain restrictive covenants including
maintenance of a specified interest coverage ratio, restrictions
on distributions, limitations on additional borrowings, debt
ratio, maintenance of a minimum allowance for loan losses, and
certain other restrictions. At March 31, 2011, the Company
was in compliance with all debt covenants. Substantially all the
Companys finance receivables are pledged to the senior
revolving credit facility and secondarily to the mezzanine debt.
Note 6.
Temporary Equity
The shareholders agreement between the Company, Regional
Holdings LLC, the sponsors and the individual owners provides
that the individual owners have the right to put their stock
back to the Company if an initial public offering does not occur
within five years of the acquisition date, March 21, 2007.
The put option is exercisable for 90 days following
March 21, 2012. The purchase price of the stock is the then
fair value, and the option is subject to contingencies,
principally failure to complete an initial public offering and
approval of the senior lender. The Company valued this put
option at the original purchase price of $12,000. The proposed
initial public offering makes it probable that the put option
will not become exercisable. There are 2,196,877 shares
owned by the individual owners.
Note 7.
Income Taxes
Regional Management Corp. and its subsidiaries file a
consolidated federal income tax return. The Company files
consolidated or separate state income tax returns as permitted
by individual states in which it operates.
Note 8.
Stock Based Compensation
There were no options to purchase common stock granted,
forfeited, or exercised during the three months ended
March 31, 2011.
Note 9.
Earnings Per Share
The following schedule reconciles the computation of basic and
diluted earnings per share for the three months ended
March 31, 2010 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
NET INCOME
|
|
|
SHARES
|
|
|
PER SHARE
|
|
|
|
(Unaudited)
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
3,953
|
|
|
|
9,336,727
|
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock
|
|
|
|
|
|
|
269,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders plus assumed exercise of
options to purchase common stock
|
|
$
|
3,953
|
|
|
|
9,606,178
|
|
|
$
|
0.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-45
REGIONAL
MANAGEMENT CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
THREE MONTHS ENDED MARCH 31, 2010 AND 2011
(Dollars in thousands, except per share information)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
NET INCOME
|
|
|
SHARES
|
|
|
PER SHARE
|
|
|
|
(Unaudited)
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders
|
|
$
|
4,935
|
|
|
|
9,336,727
|
|
|
$
|
.53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock
|
|
|
|
|
|
|
311,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders plus assumed exercise of
options to purchase common stock
|
|
$
|
4,935
|
|
|
|
9,648,103
|
|
|
$
|
.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10.
Related Party Transactions
The Company is majority owned by two sponsors. Following is a
summary of transactions during the three months ended
March 31, 2010 and 2011 with the sponsors and the
individual owners who retain an interest in the Company.
|
|
|
|
|
|
|
|
|
|
|
|
|
INDIVIDUAL
|
|
|
|
|
|
|
OWNERS
|
|
|
SPONSORS
|
|
|
2010 (unaudited)
|
|
|
|
|
|
|
|
|
Consulting and advisory fees expense
|
|
$
|
113
|
|
|
$
|
195
|
|
2011 (unaudited)
|
|
|
|
|
|
|
|
|
Interest paid on mezzanine debt
|
|
|
191
|
|
|
|
794
|
|
Consulting and advisory fees expense
|
|
|
113
|
|
|
|
195
|
|
|
Note 11.
Commitments and Contingencies
The Company is a defendant in various pending or threatened
lawsuits. These matters are subject to various legal proceedings
in the ordinary course of business. Each of these matters is
subject to various uncertainties and some of them may have an
unfavorable outcome to the Company. The Company has established
accruals for the matters that are probable and reasonably
estimable. The Company is not party to any legal proceedings
that management believes would have a materially adverse effect
on the Companys consolidated financial statements.
Note 12.
Restricted Assets
RMC Reinsurance, Ltd. is a wholly-owned life insurance
subsidiary of the Company. RMC Reinsurance is required to
maintain cash reserves against life insurance policies ceded to
it, as determined by the ceding company. In 2009, the Company
purchased a letter of credit for $888 in favor of the ceding
company. The letter of credit is secured by a cash deposit of
$888. The cash securing the letter of credit in 2010 and 2011
and the required reserves are presented as restricted cash in
the other asset category in the accompanying balance sheets,
which totaled $888 at December 31, 2010 and March 31,
2011.
Note 13.
Subsequent Event
On May 16, 2011, the Company filed a registration statement
on
Form S-1
relating to an initial public offering of the Companys
common stock.
F-46
"Your Hometown Credit Source"
|
Shares
Common Stock
PRELIMINARY
PROSPECTUS
Jefferies
Stephens Inc.
JMP Securities
BMO Capital Markets
,
2011
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
Item 13.
Other Expenses of Issuance and Distribution.
The following table sets forth the expenses payable by the
Registrant in connection with the issuance and distribution of
the shares of common stock being registered hereby. All of such
expenses are estimates, other than the filing and listing fees
payable to the Securities and Exchange Commission, the Financial
Industry Regulatory Authority and the New York Stock Exchange.
|
|
|
|
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Filing Fee Securities and Exchange Commission
|
|
$
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11,610
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|
Fee Financial Industry Regulatory Authority,
Inc.
|
|
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10,500
|
|
Listing Fee New York Stock Exchange
|
|
|
*
|
|
Fees and Expenses of Counsel
|
|
|
*
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|
Printing Expenses
|
|
|
*
|
|
Fees and Expenses of Accountants
|
|
|
*
|
|
Miscellaneous Expenses
|
|
|
*
|
|
|
|
|
|
|
Total
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|
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*
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|
|
|
|
|
|
|
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*
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To be provided by amendment.
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Item 14.
Indemnification of Directors and Officers.
Section 102(b)(7) of the DGCL allows a corporation to
provide in its certificate of incorporation that a director of
the corporation will not be personally liable to the corporation
or its stockholders for monetary damages for breach of fiduciary
duty as a director, except where the director breached the duty
of loyalty, failed to act in good faith, engaged in intentional
misconduct or knowingly violated a law, authorized the payment
of a dividend or approved a stock repurchase in violation of
Delaware corporate law or obtained an improper personal benefit.
Our amended and restated certificate of incorporation will
provide for this limitation of liability.
Section 145 of the DGCL, or Section 145, provides that
a Delaware corporation may indemnify any person who was, is or
is threatened to be made, party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of such corporation), by reason of the fact that such
person is or was an officer, director, employee or agent of such
corporation or is or was serving at the request of such
corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses
(including attorneys fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding,
provided such person acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the
corporations best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to
believe that his or her conduct was illegal. A Delaware
corporation may indemnify any persons who were or are a party to
any threatened, pending or completed action or suit by or in the
right of the corporation by reasons of the fact that such person
is or was a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses
(including attorneys fees) actually and reasonably
incurred by such person in connection with the defense or
settlement of such action or suit, provided such person acted in
good faith and in a manner he or she reasonably believed to be
in or not opposed to the corporations best interests,
provided that no indemnification is permitted without judicial
approval if the officer, director, employee or agent is adjudged
to be liable to the corporation. Where an officer or director is
successful on the merits or otherwise in the defense of any
action referred to above, the corporation must indemnify him
against the expenses which such officer or director has actually
and reasonably incurred.
Section 145 further authorizes a corporation to purchase
and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation or is or
was serving at the request of the corporation as a director,
officer, employee or agent of another corporation or enterprise,
against any liability asserted against him
II-1
and incurred by him in any such capacity, or arising out of his
or her status as such, whether or not the corporation would
otherwise have the power to indemnify him under Section 145.
Our amended and restated bylaws will provide that we must
indemnify our directors and officers to the fullest extent
authorized by the DGCL and must also pay expenses incurred in
defending any such proceeding in advance of its final
disposition upon delivery of an undertaking, by or on behalf of
an indemnified person, to repay all amounts so advanced if it
should be determined ultimately that such person is not entitled
to be indemnified under this section or otherwise.
The indemnification rights set forth above shall not be
exclusive of any other right which an indemnified person may
have or hereafter acquire under any statute, provision of our
amended and restated certificate of incorporation, our amended
and restated bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
We expect to maintain standard policies of insurance that
provide coverage (1) to our directors and officers against
loss rising from claims made by reason of breach of duty or
other wrongful act and (2) to us with respect to
indemnification payments that we may make to such directors and
officers.
The proposed form of Underwriting Agreement to be filed as
Exhibit 1.1 to this Registration Statement provides for
indemnification to our directors and officers by the
underwriters against certain liabilities.
Item 15.
Recent Sales of Unregistered Securities.
None.
Item 16.
Exhibits and Financial Statement Schedules.
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|
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1
|
.1
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Form of Underwriting Agreement*
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3
|
.1
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|
Form of Amended and Restated Certificate of Incorporation of the
Registrant
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3
|
.2
|
|
Form of Amended and Restated Bylaws of the Registrant**
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5
|
.1
|
|
Opinion of Simpson Thacher & Bartlett LLP regarding
validity of the shares of common stock registered*
|
|
10
|
.1
|
|
Form of Amended and Restated Shareholders Agreement
|
|
10
|
.2.1
|
|
Third Amended and Restated Loan and Security Agreement, dated as
of March 21, 2007, among the lenders named therein, Bank of
America, N.A., as the agent, and the Registrant, Regional
Finance Corporation of South Carolina, Regional Finance
Corporation of Georgia, Regional Finance Corporation of Texas,
Regional Finance Corporation of North Carolina, Regional Finance
Corporation of Alabama, Regional Finance Corporation of
Tennessee and R.M.C. Financial Services Corp., as borrowers;
Amendment No. 1, dated as of June 29, 2007; Consent
and Amendment No. 2, dated as of November 21, 2007;
Amendment No. 3, dated as of May 27, 2008; Joinder and
Amendment No. 4, dated as of July 28, 2008; and
Extension and Amendment No. 5, dated as of August 25,
2010
|
|
10
|
.2.2
|
|
Form of Fourth Amended and Restated Loan and Security Agreement,
among the lenders named therein, Bank of America, N.A., as the
agent, and the Registrant, Regional Finance Corporation of South
Carolina, Regional Finance Corporation of Georgia, Regional
Finance Corporation of Texas, Regional Finance Corporation of
North Carolina, Regional Finance Corporation of Alabama,
Regional Finance Corporation of Tennessee and R.M.C. Financial
Services Corp., as borrowers*
|
|
10
|
.3
|
|
Senior Subordinated Loan and Security Agreement, dated as of
August 25, 2010, by and among the lenders named therein,
Palladium Capital Management III, L.L.C., as the agent, and the
Registrant, Regional Finance Corporation of South Carolina,
Regional Finance Corporation of Georgia, Regional Finance
Corporation of Texas, Regional Finance Corporation of North
Carolina, Regional Finance Corporation of Alabama and Regional
Finance Corporation of Tennessee**
|
|
10
|
.4
|
|
Regional Management Corp. 2007 Management Incentive Plan**
|
|
10
|
.5
|
|
Form of Regional Management Corp. 2011 Stock Incentive Plan and
Forms of Nonqualified Stock Option Agreement
|
|
10
|
.6
|
|
Form of Regional Management Corp. Annual Incentive Plan
|
|
10
|
.7
|
|
Option Award Agreement with Robert D. Barry, dated as of
October 11, 2007**
|
|
10
|
.8
|
|
Option Award Agreement with Thomas F. Fortin, dated
February 26, 2008**
|
|
10
|
.9
|
|
Option Award Agreement with Robert D. Barry, effective as of
April 23, 2008**
|
II-2
|
|
|
|
|
|
10
|
.10
|
|
Option Award Agreement with C. Glynn Quattlebaum, dated as of
October 11, 2007**
|
|
10
|
.11
|
|
Employment Agreement, dated as of March 21, 2007, between
C. Glynn Quattlebaum and the Registrant; First Amendment, dated
as of July 18, 2008; Second Amendment, dated effective as
of January 1, 2009; Third Amendment, dated as of
April 13, 2010; and Fourth Amendment, dated as of
May 17, 2011**
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|
10
|
.12
|
|
Employment Agreement, dated as of February 29, 2008,
between the Registrant and Thomas F. Fortin; First Amendment to
Employment Agreement between the Registrant and Thomas F.
Fortin, dated as of July 18, 2008; Second Amendment, dated
effective as of January 1, 2009; Third Amendment, dated as
of April 13, 2010; and Fourth Amendment, dated as of
May 17, 2011**
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|
10
|
.13
|
|
Letter agreement, dated as of July 1, 2008, between the
Registrant and Robert D. Barry; the letter agreement, dated as
of April 13, 2010; and the letter agreement, dated as of
May 17, 2011**
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21
|
.1
|
|
Subsidiaries of the Registrant
|
|
23
|
.1
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|
Consent of McGladrey & Pullen, LLP
|
|
23
|
.2
|
|
Consent of Simpson Thacher & Bartlett LLP (included as
part of Exhibit 5.1)*
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|
23
|
.3
|
|
Consent of Roel C. Campos to be named as a director nominee**
|
|
23
|
.4
|
|
Consent of Alvaro G. de Molina to be named as a director
nominee**
|
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23
|
.5
|
|
Consent of Thomas F. Fortin to be named as a director nominee**
|
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23
|
.6
|
|
Consent of Carlos Palomares to be named as a director nominee**
|
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24
|
.1
|
|
Power of Attorney (included on signature page to this
Registration Statement)**
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|
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*
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To be filed by amendment.
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**
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Previously filed.
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(b)
|
Financial
Statement Schedule
|
None. Financial statement schedules have been omitted since the
required information is included in our consolidated financial
statements contained elsewhere in this registration statement.
ITEM 17.
Undertakings.
|
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(1)
|
The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt
delivery to each purchaser.
|
|
(2)
|
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
|
|
(3)
|
The undersigned Registrant hereby undertakes that:
|
|
|
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(A)
|
For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by
the registrant pursuant to Rule 424(b) (1) or
(4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was
declared effective.
|
|
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(B)
|
For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
|
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Greenville, South Carolina, on the
fourth day of August, 2011.
Regional Management Corp.
Name: Thomas F. Fortin
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|
|
|
Title:
|
Chief Executive Officer
|
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the
following persons in the capacities indicated on the fourth day
of August, 2011.
|
|
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Signature
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Title
|
|
|
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|
*
David
Perez
|
|
Chairman of the Board of Directors
|
|
|
|
*
Richard
T. DellAquila
|
|
Director
|
|
|
|
*
Richard
A. Godley
|
|
Director
|
|
|
|
*
Jared
L. Johnson
|
|
Director
|
|
|
|
*
Erik
A. Scott
|
|
Director
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|
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/s/ Thomas
F. Fortin
Thomas
F. Fortin
|
|
Chief Executive Officer
(principal executive officer)
|
|
|
|
*
Robert
D. Barry
|
|
Executive Vice President and Chief Financial Officer
(principal financial and accounting officer)
|
|
|
|
*By:
|
/s/ Thomas
F. Fortin
|
|
Name: Thomas F. Fortin
Title: Attorney in Fact
II-4
Exhibit 10.2.1
EXECUTION COPY
THIRD AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
Dated as of March 21, 2007
Among
THE FINANCIAL INSTITUTIONS NAMED HEREIN
as the Lenders
and
BANK OF AMERICA, N.A.
as the Agent
and
REGIONAL MANAGEMENT CORP.,
REGIONAL FINANCE CORPORATION OF SOUTH CAROLINA,
REGIONAL FINANCE CORPORATION OF GEORGIA,
REGIONAL FINANCE CORPORATION OF TEXAS,
REGIONAL FINANCE CORPORATION OF NORTH CAROLINA,
REGIONAL FINANCE CORPORATION OF ALABAMA,
REGIONAL FINANCE CORPORATION OF TENNESSEE, and
R.M.C. FINANCIAL SERVICES CORP.
as the Borrowers
THIRD AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This Third Amended and Restated Loan and Security Agreement (Agreement) is made and entered
into as of March 21, 2007, among the financial institutions listed on the signature pages hereof
(such financial institutions, together with their respective successors and assigns, are referred
to hereinafter each individually as a Lender and collectively as the Lenders, Bank of America,
N.A., a national banking association (Bank of America), having an address at 335 Madison Avenue,
New York, New York 10017 (Fax: (212) 503-7340), as agent for the Lenders (in its capacity as agent,
the Agent), and Regional Management Corp., a South Carolina corporation (Regional), Regional
Finance Corporation of South Carolina, a South Carolina corporation (RFCSC), Regional Finance
Corporation of Georgia, a Georgia corporation (RFCG), Regional Finance Corporation of Texas, a
Texas corporation (RFCTX), Regional Finance Corporation of North Carolina, a North Carolina
corporation (RFCNC), Regional Finance Corporation of Alabama, an Alabama corporation (RFCA),
Regional Finance Corporation of Tennessee, a Tennessee corporation (RFCTN), and R.M.C. Financial
Services Corp., a South Carolina corporation (RMC; together with Regional, RFCSC, RFCG, RFCTX,
RFCNC, RFCA and RFCTN are herein individually referred to as a Borrower and collectively referred
to as the Borrowers), whose chief executive offices are located at 509 West Butler Road,
Greenville, South Carolina 29607 (with a mailing address of Post Office Box 776, Mauldin, South
Carolina 29662 (Fax: (864) 422-8035 with a copy to (212) 218-5155 and (214) 740-3630).
RECITALS
A. WHEREAS, certain Borrowers, the lenders party thereto (the Original Lenders), and Bank of
America, as agent for the Original Lenders, are parties to that certain Second Amended and Restated
Loan and Security Agreement, dated as of March 10, 2000, as heretofore amended or otherwise
modified (the Existing Loan Agreement), whereby Bank of America, as agent for such Original
Lenders, and the Original Lenders agreed to make revolving loans, letters of credit and other
financial accommodations available to such Borrowers.
B. WHEREAS, the Borrowers, the Agent, and the Lenders have agreed to enter into this Agreement
in order to amend and restate the Existing Loan Agreement in its entirety on the terms and
conditions set forth herein.
C. WHEREAS, the Borrowers have agreed to continue to secure all of their obligations under the
Loan Documents by granting to Agent, for the benefit of Agent and Lenders, a security interest in
and lien upon all of their existing and after-acquired personal property constituting Collateral
hereunder.
D. WHEREAS, it is the intent of the parties hereto that this Agreement (i) shall re-evidence
the Borrowers indebtedness to Bank of America and the Original Lenders under the Existing Loan
Agreement, (ii) is entered into in substitution for, and not in payment of, the obligations of the
Borrowers under the Existing Loan Agreement, and (iii) is in no way intended to constitute a
novation of the Borrowers indebtedness which was evidenced by the Existing Loan Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained herein, and for good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged,
1
the parties hereto agree that the Existing Loan Agreement is hereby amended and restated to read in
its entirety as provided for in this Agreement, and the parties further agree as follows:
SECTION ONE DEFINITIONS; INTERPRETATION OF THIS AGREEMENT
1.1
Terms Defined
. As used in this Agreement, the listed terms are defined as
follows:
ACH Transactions
shall mean any cash management or related services including the
automatic clearing house transfer of funds by Bank of America for the account of Borrower pursuant
to agreement or overdrafts.
Adjusted Net Income
shall mean, with respect to any fiscal period of Borrowers, the
Net Income before provision for income taxes for such fiscal period (to the extent taxes are not
already added back in the calculation of Net Income).
Adjusted Tangible Assets
shall mean all assets except: (a) trademarks, tradenames,
franchises, goodwill, and other similar intangibles; (b) assets located and notes and receivables
due from obligors domiciled outside the United States of America, Puerto Rico, or Canada; and (c)
accounts, notes, and other receivables due from Affiliates or employees of Borrowers.
Adjusted Tangible Net Worth
shall mean the remainder of (a) net book value (after
deducting related depreciation, obsolescence, amortization, valuation, and other proper reserves)
at which the Adjusted Tangible Assets of Borrowers would be shown on a balance sheet at such date,
but excluding any amounts arising from write-ups of assets,
minus
(b) the amount at which
its liabilities (other than capital stock, surplus, and retained earnings) would be shown on such
balance sheet, and including as liabilities all reserves for contingencies and other potential
liabilities, as determined in accordance with GAAP, and as adjusted pursuant to
Paragraph
8.11
.
Advance
shall mean the proceeds of the Loan advanced from time to time by Lenders to
Borrowers in accordance with the terms of this Agreement.
Advance Rate
shall mean eighty-five percent (85%);
provided
,
however
,
that the Advance Rate, effective as of the first day of each month, shall be (a) eighty-four
percent (84%) when the Collateral Adjustment Percent calculated as of such date is equal to or
greater than fifteen percent (15%) but less than sixteen percent (16%), (b) eighty-three percent
(83%) when the Collateral Adjustment Percent calculated as of such date is equal to or greater than
sixteen percent (16%) but less than seventeen percent (17%), (c) eighty-two percent (82%) when the
Collateral Adjustment Percent calculated as of such date is equal to or greater than seventeen
percent (17%) but less than eighteen percent (18%), (d) eighty-one percent (81%) when the
Collateral Adjustment Percent calculated as of such date is equal to or greater than eighteen
percent (18%) but less than nineteen percent (19%) and (e) eighty percent (80%) when the Collateral
Adjustment Percent calculated as of such date is equal to or greater than nineteen percent (19%)
but less than twenty percent (20%).
Affiliate
shall mean, as to any Person, (a) any other Person who, directly or
indirectly, controls, is controlled by, or is under common control with such Person; (b) any other
Person who beneficially owns or holds, directly or indirectly, five percent or more of any class of
voting stock of such Person; or (c) any other Person, five percent or more of any class of the
voting stock (or if such other Person is not a corporation, five percent or more of the equity
interest) of
2
which is beneficially owned or held, directly or indirectly, by such Person. The term control
(including the terms controlled by and under common control with) means the possession,
directly or indirectly, of the power to direct or cause the direction of the management and
policies of the Person in question.
Affiliate Subordinated Debt
shall mean the Debt of the Borrowers pursuant to the
Affiliate Subordinated Debt Documents.
Affiliate Subordinated Debt Agent
shall mean Regional Mezzanine in its capacity as
agent for the holders of the Affiliate Subordinated Debt, and any successor agent.
Affiliate Subordinated Debt Documents
shall mean the Affiliate Subordinated Loan
Agreement, the Affiliate Subordinated Notes and any other documents, instruments or agreements that
from time to time evidence the Affiliate Subordinated Debt or secure or support payment or
performance thereof, as each of the foregoing may be amended, modified, restated, replaced or
supplemented from time to time.
Affiliate Subordinated Loan Agreement
shall mean the Senior Subordinated Loan
Agreement, dated as of March 21, 2007, among the Affiliate Subordinated Debt Agent, the Continuing
Shareholder Lender Representative, the Borrowers and the lenders from time to time party thereto,
as the same may be amended, modified, restated, replaced or supplemented from time to time.
Affiliate Subordinated Notes
shall mean the promissory notes issued by the Borrowers
from time to time pursuant to the Affiliate Subordinated Loan Agreement, as the same may be
amended, modified, restated, replaced or supplemented from time to time.
Agent
shall mean Bank of America, N.A., solely in its capacity as agent for the
Lenders, and any successor agent.
Agent Advances
shall have the meaning specified in
subparagraph 2.2(i)
.
Agents Expenses
shall have the meaning specified in
subparagraph 13.1
.
Agents Liens
shall mean the Liens in the Collateral granted to the Agent, for the
ratable benefit of the Lenders, Bank of America and the Agent pursuant to this Agreement and the
other Loan Documents.
Agent-Related Persons
shall mean the Agent, together with its Affiliates, and the
officers, directors, employees, agents and attorneys-in-fact of the Agent and such Affiliates.
Agreement
shall mean this Third Amended and Restated Loan and Security Agreement, as
the same may be amended, supplemented or otherwise modified in accordance with the terms hereof.
Applicable Margin
shall mean (a) with respect to Base Rate Revolving Loans, one
quarter of one percent (0.25%); and (b) with respect to LIBOR Revolving Loans, two and one quarter
percent (2.25%).
Assignee
shall have the meaning specified in
subparagraph 11.2(a)
.
3
Assignment and Acceptance
shall have the meaning specified in
subparagraph
11.2(a)
.
Attorney Costs
shall mean and include all reasonable fees, expenses and disbursements
of any law firm or other counsel engaged by the Agent, the reasonable allocated costs of internal
legal services of the Agent and the reasonable expenses of internal counsel to the Agent.
Availability
shall mean, as of the date of determination, an amount, less the sum of
the Bank Borrowing Reserve and the Bank Product Reserve and less the aggregate undrawn face amount
of all outstanding Letters of Credit which the Agent has caused to be issued or obtained for the
Borrowers accounts, equal to an amount determined by multiplying (i) the Advance Rate by (ii) the
remainder of (x) the aggregate amount of all presently due and future, unpaid, noncancellable
installment payments to be made under all of Borrowers Eligible Contracts with respect to which
interest is calculated on a precomputed basis,
minus
(y) the sum of all properly
calculated, unearned finance charges, unearned acquisition/initial charges, unearned maintenance
fees, unearned discounts and dealer reserves included therein. Notwithstanding the foregoing, for
the purpose of calculating Availability, (i) the maximum amount of Mortgage Loans, which have an
amount financed of $15,000 or more, outstanding at any time shall not exceed fifteen percent (15%)
of all Contracts then outstanding, (ii) the maximum amount of Contracts outstanding at any time
which are secured by a mobile home shall not exceed $400,000, and (iii) the maximum amount of
Contracts outstanding at any time which have an annual percentage rate of seventeen percent (17%)
and an original amount financed of more than $15,000 shall not exceed five percent (5%) of all
Contracts then outstanding.
Bank Borrowing Reserve
shall mean the amount that a Borrower has, at the time of
calculation, borrowed from any financial institution if the terms of the applicable credit
agreement with the financial institution require such Borrower to maintain any Excess Availability
under this Agreement or otherwise condition the borrowing on the existence or continuation of this
Agreement.
Bank of America
shall mean Bank of America, N.A. and any successors or assigns
thereof.
Bank Product Obligations
shall mean all debts, liabilities and obligations now owed or
hereafter arising from or in connection with Bank Products.
Bank Product Reserves
shall mean all reserves which the Agent from time to time
establishes in its reasonable discretion for the Bank Products then provided or outstanding.
Bank Products
shall mean any one or more of the following types of services or
facilities extended to Borrower by Bank of America or any affiliate of Bank of America in reliance
on Bank of Americas agreement to indemnify such affiliate: (i) credit cards, (ii) ACH
Transactions and (iii) Hedge Agreements.
Base Rate
shall mean, for any day, the rate of interest in effect for such day as
publicly announced from time to time by Bank of America in Charlotte, North Carolina, as its prime
rate (the prime rate being a rate set by Bank of America based upon various factors including
Bank of Americas costs and desired return, general economic conditions and other factors, and is
used as a reference point for pricing some loans, which may be priced at, above, or below such
announced rate). The Base Rate applicable to Base Rate Revolving Loans shall be the prime rate most
recently announced by Bank of America as of the last day of each month and shall take
4
effect at the opening of business on the first day of the immediately following month; the
Base Rate shall remain in effect for such month until adjusted as provided in the immediately
preceding clause.
Base Rate Revolving Loan
shall mean a Revolving Loan during any period in which it
bears interest at the Base Rate.
Borrower
and
Borrowers
shall have the respective meaning ascribed thereto in
the preamble to this Agreement.
Borrowing
shall mean a borrowing hereunder consisting of Revolving Loans made on the
same day by Lenders to Borrowers, or by Bank of America in the case of a Borrowing funded by
Non-Ratable Loans, or by the Agent in the case of a Borrowing consisting of an Agent Advance, or
the issuance of Letters of Credit hereunder.
Borrowing Base
shall mean the sum of the Adjusted Tangible Net Worth of Borrowers,
plus all Subordinated Debt and Affiliate Subordinated Debt of Borrowers.
Borrowing Base Certificate
shall have the meaning set forth in
Paragraph
5.2(e)
.
Business Day
shall mean (a) any day that is not a Saturday, Sunday, or a day on which
banks in Charlotte, North Carolina or New York, New York, are required or permitted to be closed,
and (b) with respect to all notices, determinations, fundings and payments in connection with the
LIBOR Rate or LIBOR Revolving Loans, any day that is a Business Day pursuant to
clause (a)
above and that is also a day on which trading is carried on by and between banks in the London
interbank market.
Capital Adequacy Regulation
shall mean any guideline, request or directive of any
central bank or other Governmental Authority, or any other law, rule or regulation, whether or not
having the force of law, in each case, regarding capital adequacy of any bank or of any corporation
controlling a bank.
Change in Control
shall mean, as of any date of determination, any of the following:
(a) Parallel and Palladium, taken together as a whole, shall fail to own or hold at least fifty-one
percent (51%) of the equity interest in Regional Investment, (b) neither Parallel nor Palladium
serves as a managing member of Regional Investment, (c) Regional Investment shall fail to own at
least ninety percent (90%) of the issued and outstanding voting membership interests in Regional
Holdings, (d) Regional Holdings shall fail to own at least seventy percent (70%) of the issued and
outstanding shares of Regionals voting stock or (e) Regional shall fail to own 100% of the issued
and outstanding voting stock of any of the other Borrowers, other than as a result of inter-company
mergers of such Subsidiaries with each other or Regional where the survivor of such merger with
Regional is Regional and except as otherwise permitted pursuant to this Agreement.
Closing Date
shall mean the date of the execution and delivery of this Agreement.
Code
shall mean the Uniform Commercial Code as adopted and in force in the state of
New York as from time to time in effect.
5
Collateral
shall mean:
(a) all present and future Contracts and all payments thereunder in whatever form, including
cash, checks, notes, drafts, chattel paper (including, without limitation, all tangible and
electronic chattel paper), and other instruments for the payment of money, together with any
guaranties and security therefor, and all of each Borrowers books and records relating thereto
(including, without limitation, all computer records, computer programs, and computer source
codes);
(b) Security Documents relating to the Contracts, together with each Borrowers rights in the
Property covered thereby and any policies of insurance insuring such Property;
(c) any assets of any Borrower in which any Lender receives a security interest or which
thereafter come into any Lenders possession, custody, or control;
(d) all proceeds of insurance including, without limitation, property, casualty, and title
insurance, affecting the Contracts;
(e) all proceeds, property, property rights, privileges and benefits arising out of, from the
enforcement of, or in connection with the Contracts and Security Documents, the property rights and
the policies of insurance referred to above, all credit balances in favor of any Borrower on any
Lenders books, and all other general intangibles relating to or arising out of the Contracts;
(f) all deposit accounts into which proceeds of the Contracts are deposited; and
(g) All equity interests in any Borrowers Subsidiaries (but not to exceed 65% of the equity
interests of any Subsidiaries organized or formed under the laws of a jurisdiction other than the
United States (or any state thereof) or the District of Columbia); provided, however, that the
Collateral shall not include the equity interests of RMC Reinsurance until such time that 65% of
the stock of RMC Reinsurance is pledged to Agent, for the benefit of Agent and Lenders, pursuant to
Paragraph 7.25
hereof.
Notwithstanding anything contained in this Agreement to the contrary (except as provided in
the next sentence), in no event shall the Collateral include, and no Borrower shall be deemed to
have granted a security interest in, any of such Borrowers right, title or interest in any license
(including but not limited to any license related to such Borrowers consumer lending activities),
contract, agreement, permit, letter of credit right or asset, to the extent, but only to the
extent, that such a grant would, under the terms of such license, contract, agreement, permit,
letter of credit right or the documentation governing such asset, be prohibited by or result in a
breach or termination of the terms of, or constitute a default under, such license, contract,
agreement, permit, letter of credit right or the documentation or the applicable law, rules or
regulations governing such license, contract, agreement, permit, letter of credit right or asset
(other than to the extent that any such term (x) has been waived by the other parties to such
license, contract, agreement, permit, letter of credit right or documentation governing such asset
or (y) would be rendered ineffective under the Code (including Sections 9-406, 9-407, 9-408, 9-409
or other applicable provisions of the Code or the uniform commercial code as in effect in any
relevant jurisdiction) or any other applicable law (including the Bankruptcy Code) or
6
principles of equity; provided, that (A) immediately upon the ineffectiveness, lapse or
termination of any such provision, the Collateral shall include, and such Borrower shall be deemed
to have granted a security interest in, all such right, title and interest as if such provision had
never been in effect and (B) the foregoing exclusion shall in no way be construed so as to limit,
impair or otherwise affect the Agents unconditional continuing security interest in and Liens upon
any rights or interests of a Borrower in or to monies due or to become due under any such license,
contract, agreement, permit, letter of credit right or the documentation governing such asset.
Notwithstanding the foregoing, the Collateral shall include all Contracts.
Collateral Adjustment Percent
shall mean, calculated as of the first day of each
month, the sum of the Past Due Percent, the Repossession Percent and the Net Charge-Off Percent.
Collection Account
shall have the meaning ascribed to such term in
subparagraph
5.2(a)
herein.
Collection Account Agreement
shall have the meaning ascribed to such term in
subparagraph 5.2(a)
herein.
Commitment
shall mean, at any time with respect to a Lender, the principal amount set
forth beside such Lenders name under the heading
Commitment
on the signature pages of
this Agreement or any amendment to this Agreement, or on the signature page of the Assignment and
Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the
provisions of
Paragraph 11.2
, as such Commitment may be adjusted from time to time in
accordance with the provisions of
Paragraph 11.2
, and
Commitments
means,
collectively, the aggregate amount of the commitments of all of the Lenders.
Consulting Agreements
shall mean, collectively, (i) Consulting Agreement dated as of
March 21, 2007 between Richard A. Godley, Sr. and Regional, (ii) Consulting Agreement dated as of
March 21, 2007 between Brenda F. Kinlaw and Regional and (c) Consulting Agreement dated as of March
21, 2007 between Jerry L. Shirley and Regional, as each may be amended, modified, restated,
replaced or supplemented from time to time in accordance with Paragraph 8.14.
Continuing Shareholder Lender Representative
shall have the meaning assigned thereto
in the Affiliate Subordinated Loan Agreement, including any successor Continuing Shareholder Lender
Representative.
Contract Debtor
shall mean each Person who is obligated to a Borrower to perform any
duty under or to make any payment pursuant to the terms of a Contract.
Contracts
shall mean all of each Borrowers right, title, and interest in and to each
presently existing and hereafter arising loan account, account, contract right, Instrument, note,
document, chattel paper, general intangible, and all other forms of obligations owing to each
Borrower, all rights of each Borrower to receive payment thereof, together with all guarantees or
other rights of each Borrower obtained in connection therewith, and any collateral therefor.
Conversion/Continuation Date
shall mean the date on which a Loan is converted into, or
continued as, a Base Rate Revolving Loan or a LIBOR Revolving Loan, as the case may be.
7
Daily Balances
shall mean the amount determined by taking the aggregate amount of all
Advances owed at the beginning of a given day, adding any new Advances made or incurred on such
date, and subtracting any payments or collections which are deemed to be paid on that date under
the provisions of this Agreement.
Debt
shall mean, with respect to any Person, all liabilities, obligations and
indebtedness, whether or not contingent, (i) in respect of borrowed money or evidenced by bonds,
notes , debentures or similar instruments, (ii) representing the balance deferred and unpaid of the
purchase price of any property or services (except any such balance that constitutes an account
payable to a trade creditor created, incurred, assumed or guaranteed by such Person in the
ordinary course of business of such Person in connection with obtaining goods, material or services
that is not overdue by more that ninety (90) days, unless being contested in good faith), (iii) all
obligations as lessee under leases which have been, or should be, in accordance with GAAP recorded
as capital leases
,
(iv) all reimbursement and other obligations with respect to letters of credit,
bankers acceptances and surety bonds, whether or not matured, (v) all indebtedness created or
arising under any conditional sale or other title retention agreement with respect to property
acquired by such Person, and (vi) all obligations of such Person under any Hedge Agreements.
Default
shall mean an event or condition the occurrence of which would, with a lapse
of time or the giving of notice or both, become an Event of Default.
Default Rate
shall mean a fluctuating per annum interest rate at all times equal to
the sum of (a) the otherwise applicable Interest Rate
plus
(b) two percent (2.0%). Each
Default Rate shall be adjusted simultaneously with any change in the applicable Interest Rate.
Defaulting Lender
shall have the meaning specified in
subparagraph 2.2(g)(ii)
.
Distribution
shall mean, in respect of any corporation: (a) payment or making of any
dividend or other distribution of property in respect to the capital stock of such corporation,
other than distributions in capital stock of the same class; or (b) the redemption or other
acquisition of any capital stock of such corporation.
Dollar
and
$
shall mean dollars in the lawful currency of the United
States.
Eligible Assignee
shall mean (a) a commercial bank, commercial finance company or
other asset based lender, having total assets in excess of $1,000,000,000; (b) any Lender listed on
the signature page of this Agreement; (c) any Affiliate of any Lender; and (d) if an Event of
Default exists, any Person reasonably acceptable to the Agent.
Eligible Contracts
shall mean only such Contracts which satisfy all of the following
requirements, as determined by Agent in its sole and absolute discretion:
(a) have been validly assigned to Agent and strictly comply with all of such Borrowers
warranties and representations contained herein and Agent has received a first priority security
interest in and lien upon such Contract;
(b) with respect to which the Contract Debtor is a resident of the continental United States;
8
(c) with respect to which the Contract Debtor is not more than 59 days contractually
delinquent in making a payment scheduled thereunder;
(d) neither Borrower nor the Contract Debtor is otherwise in default under the terms of the
Contract (
e.g.
, the Property which is the subject to the related Security Documents is not
then subject to or in the process of being repossessed);
(e) are not subject to any defense, counterclaim, offset, discount, or allowance;
(f) are secured by Property located solely in the continental United States;
(g) the terms of the Contract and Security Documents and all related documents and instruments
comply in all respects with all applicable laws;
(h) all documents relating to the Contract, including those between any Borrower and the
Contract Debtor, have been executed, are satisfactory to Agent, and originals are to be readily
available to Agent in the files of Borrowers;
(i) the Contract Debtor is not an Affiliate or employee of any Borrower;
(j) the creditworthiness of the Contract Debtor is acceptable to Agent. Without limiting the
generality of the foregoing, the Contract Debtors creditworthiness and the terms of the Contract
shall conform to Borrowers credit guidelines;
(k) the Contract meets all of the criteria set forth in Borrowers credit guidelines.
Borrowers credit guidelines shall be written and shall state in detail the credit criteria used by
Borrowers in determining the creditworthiness of Contract Debtors and the required structure and
collateral for the Contract for both Contracts originated by Borrowers and/or originated by third
parties and purchased by Borrowers. The guidelines shall be reasonably satisfactory to Agent.
Borrowers shall not change the guidelines without prior notice to and the written consent of Agent;
(l) the Contract Debtor is not the subject of a bankruptcy or insolvency proceedings;
(m) the collateral securing the Contract has not been repossessed by, or otherwise delivered
to, any Borrower or its agent;
(n) with respect to a Large Loan Contract, it has not been subject to two (2) or more payment
extensions within any twelve month period with respect to a Small Loan Contract it has not been
subject to any payment extension;
(o) all amounts due under a Contract shall be payable in equal monthly payments and shall not
include any balloon payment at maturity; and
(p) such Contract does not represent a type of loan commonly called a pay day loan in which
any Borrower holds a personal check from the Contract Debtor for payment of such loan.
Event of Default
shall mean any event or condition described in
Paragraph
10.1
.
9
Excess Availability
shall mean as of the date of determination the remainder of (a)
the lesser of (i) Borrowers Availability and (ii) the Total Credit Facility,
minus
(b) the
unpaid amount of Loans then outstanding.
Excluded Taxes
shall mean taxes imposed on or measured by the overall net income or
gross receipts of the Agent or a Lender, franchise taxes, or any similar taxes assessed pursuant to
the laws of the jurisdiction in which the Agent or such Lender is organized, the jurisdiction in
which such Agents or Lenders principal executive office is located or any jurisdiction in which
the Agent or such Lender is engaged in a trade or business or any subdivision thereof or therein.
Existing Loan Agreement
shall have the meaning set forth in the Recitals hereto.
Federal Funds Rate
shall mean, for any day, the rate per annum (rounded upwards, if
necessary, to the nearest 1/100
of 1%) equal to the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day;
provided
that (a) if such day is not a Business Day, the Federal
Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day
as so published on the next succeeding Business Day, and (b) if no such rate is so published on
such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate
charged to Bank of America on such day on such transactions as determined by Agent.
Federal Reserve Board
shall mean the Board of Governors of the Federal Reserve System
or any successor thereto.
Federal Warranty
shall mean Federal Warranty Service Corporation, as successor in
interest to American Bankers Life Assurance Company of Florida and Voyager Life Insurance Company.
Fiscal Year
shall mean each fiscal year of a Borrower, each such fiscal year ending on
December 31.
Foreign Lender
shall mean any Lender that is organized under the laws of a
jurisdiction other than that in which the Borrowers are resident for tax purposes. For purposes of
this definition, the United States, each State thereof and the District of Columbia shall be deemed
to constitute a single jurisdiction.
Funding Date
shall mean the date on which a Borrowing occurs.
GAAP
shall mean generally accepted accounting principles in the United States of
America consistently applied.
Governmental Authority
shall mean any nation or government, any state or other
political subdivision thereof, any central bank (or similar monetary or regulatory authority)
thereof, any entity exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity owned or controlled,
through stock or capital ownership or otherwise, by any of the foregoing.
10
Gross Contract Payments
shall mean, as of the date of determination, with respect to a
Contract the outstanding balance thereof including all unearned interest, fees, and charges owing
by the Contract Debtor.
Guarantor
shall mean, individually and collectively, any Person guaranteeing the
Obligations of Borrowers including, without limitation, FirstRegional Mortgage Corporation and
Upstate Motor Company.
Guaranty
shall mean the guaranty of any Person guaranteeing payment and/or performance
of the Obligations.
Hedge Agreement
shall mean any and all transactions, agreements or documents now
existing or hereafter entered into, which provides for an interest rate, credit, commodity or
equity swap, cap, floor, collar, forward foreign exchange transaction, currency swap, cross
currency rate swap, currency option, or any combination of, or option with respect to, these or
similar transactions, for the purpose of hedging any Borrowers exposure to fluctuations in
interest or exchange rates, loan, credit exchange, security or currency valuations or commodity
prices.
Instruments
shall have the same meaning as given to that term in the Code, and shall
include all negotiable instruments, notes secured by mortgages or trust deeds, and any other
writing which evidences a right to the payment of money and is not itself a security agreement or
lease, and is of a type which is, in the ordinary course of business, transferred by delivery with
any necessary endorsement or assignment.
Intercreditor Agreement
shall mean the Intercreditor and Subordination Agreement dated
as of March 21, 2007, among the Affiliate Subordinated Debt Agent, the lenders party to the
Affiliated Subordinated Loan Agreement, the Borrowers and the Agent, as the same may be amended,
modified, restated, replaced or supplemented from time to time.
Interest Period
shall mean, as to any LIBOR Revolving Loan, the period commencing on
the Funding Date of such Loan or on the Conversion/Continuation Date on which the Loan is converted
into or continued as a LIBOR Revolving Loan, and ending on the date one, two, three, four or six
months thereafter as selected by the Borrower in its Notice of Borrowing or Notice of
Conversion/Continuation;
provided
that:
(a) if any Interest Period would otherwise end on a day that is not a Business Day, that
Interest Period shall be extended to the following Business Day unless the result of such extension
would be to carry such Interest Period into another calendar month, in which event such Interest
Period shall end on the preceding Business Day;
(b) any Interest Period pertaining to a LIBOR Revolving Loan that begins on the last Business
Day of a calendar month (or on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the last Business Day of the
calendar month at the end of such Interest Period; and
(c) no Interest Period for any LIBOR Revolving Loan shall extend beyond the Maturity Date.
Interest Rate
shall mean each or any of the interest rates, including the Default
Rate, set forth in
Paragraph 2.5
.
11
IRS Code
shall mean the Internal Revenue Code of 1986, as amended from time to time,
and any successor statute, and regulations promulgated thereunder.
Large Loan Contract
shall mean a Contract which is not a Small Loan Contract.
Lender
and
Lenders
shall have the meanings specified in the introductory
paragraph hereof and shall include the Agent to the extent of any Agent Advance outstanding and
Bank of America to the extent of any Non-Ratable Loan outstanding;
provided
that no such
Agent Advance or Non-Ratable Loan shall be taken into account in determining any Lenders Pro Rata
Share.
Lending Office
shall mean the office or offices of any Lender specified as its
Lending Office or Domestic Lending Office or LIBOR Lending Office or such other office or
offices as any Lender may from time to time notify Borrowers.
Letter of Credit Fee
shall have the meaning specified in
Paragraph 2.19
.
Letter of Credit Issuer
shall mean Bank of America and any Affiliate of Bank of
America that issues any Letter of Credit pursuant to this Agreement.
Letters of Credit
shall have the meaning specified in
subparagraph 2.18(a)
.
LIBOR Rate
shall mean, for any Interest Period, with respect to LIBOR Revolving Loans
comprising part of the same Borrowing, the rate of interest per annum (rounded upward to the next
1/16th of 1.0%) determined by Agent as follows:
|
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LIBOR Rate
|
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=
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LIBOR
|
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1.00 - Eurodollar Reserve Percentage
|
Where,
Eurodollar Reserve Percentage
shall mean for any day for any Interest Period the
maximum reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1.0%) in
effect on such day (whether or not applicable to any Lender) under regulations issued from time to
time by the Federal Reserve Board for determining the maximum reserve requirement (including any
emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding
(currently referred to as Eurocurrency liabilities); and
LIBOR
shall mean the rate of interest per annum (rounded upward to the next 1/16 of
1%) at which dollar deposits in the approximate amount of the Loan to be made or continued as, or
converted into, a LIBOR Revolving Loan and having a maturity comparable to such Interest Period
would be offered to major banks in the London interbank market at their request at approximately
11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period.
LIBOR Revolving Loan
shall mean a Revolving Loan during any period in which it bears
interest at the LIBOR Rate.
Lien
shall mean any mortgage, lien, pledge, charge, conditional sale or other title
retention agreement, security interest, attachment, levy or other encumbrance of any kind, in any
case whether consensual or non-consensual. Such term shall include the filing of any UCC
12
financing statements naming any Borrower as debtor if such filing is made by, or is
authorized or permitted by, such Borrower.
Loan
shall mean all indebtedness owed by Borrowers to Agent and Lenders arising under
this Agreement, the Notes and the Letters of Credit.
Loan Account
shall have the meaning specified in
subparagraph 13.17(g)
.
Loan Documents
shall mean this Agreement, the Notes, the Letters of Credit and the
applications therefor, the Guaranties and all other agreements, instruments, and documents
heretofore, now or hereafter evidencing, securing, guaranteeing or otherwise relating to the
Obligations, the Collateral, the security interest in the Collateral, or any other aspect of the
transactions contemplated by this Agreement.
Loss Reserve Percent
shall mean the percent, calculated as of the first day of each
month, equal to (a) the aggregate amount of all Net Charge Offs during each of the twelve (12)
months immediately preceding the date of calculation, divided by (b) the amount of the Net Balance
owing under all Contracts outstanding as of the last day of each of the previous twelve (12) months
divided by twelve (12). For example, if the Borrowers charged off $10,000 each month for twelve
(12) months and if the aggregate Net Balance outstanding at the end of the previous twelve (12)
months was $2,000,000 for eight (8) months and $2,500,000 for four (4) months, the Loss Reserve
Percent would be 5.54% ($120,000/$2,166,667 (being $26,000,000 divided by 12).
Majority Lenders
shall mean at any date of determination (a) Lenders whose Pro Rata
Shares aggregate more than sixty-six and two-thirds percent (66-2/3%) as such percentage is
determined under the definition of Pro Rata Share set forth herein; or (b) in the event there are
only two (2) Lenders under this Agreement, both Lenders; or (c) to the extent Bank of Americas Pro
Rata share exceeds fifty-one percent (51%), the Lenders other than Bank of America acting
unanimously shall constitute the Majority Lenders for purposes of
Paragraph 12.5
.
Management Agreement
shall mean the Parallel Financial Advisory Services/Transaction
Fee Letter dated as of March 21, 2007, among Parallel, Palladium Capital and Regional, as may be
amended from time to time in accordance with
Paragraph 8.14
.
Management Incentive Plan
shall mean the Management Incentive Plan of Regional, dated
as of March 21, 2007, as the same may be amended, modified, restated, replaced or supplemented from
time to time in accordance with
Paragraph 8.14
.
Maturity Date
shall have the meaning specified in
Paragraph 3.1
.
Mortgage Loan
shall mean a Large Loan Contract which is secured by real property.
Net Balance
shall mean, as of the date of determination, the Gross Contract Payments
of Contract less all unearned interest, fees, and charges owing by the Contract Debtor.
Net Charge-Offs
shall mean the aggregate amount of all unpaid payments due under
Contracts which have been charged off by the Borrowers during such period, as reduced by the amount
of all cash recoveries with respect to Contracts which had been charged off during previous periods
or during such period.
13
Net Charge-Off Percent
shall mean the annualized percent, calculated as of the first
day of each month, equal to (a) the aggregate amount of all Net Charge-Offs during each of the six
(6) months immediately preceding the date of calculation, multiplied by two, divided by (b) the
aggregate amount of the Net Balances owing under all Contracts outstanding as of the last day of
each of the previous six (6) months divided by six. For example, if the Borrowers charged off
$10,000 each month for six (6) months and if the aggregate Net Balances outstanding at the end of
the previous six (6) months was $1,000,000 for four (4) months and $1,200,000 for two (2) months,
the Net Charge-Off Percent would be eleven and two-tenths percent (11.2%) ($120,000 (being $60,000
multiplied by 2)/$1,066,667).
Net Income
shall mean, with respect to any fiscal period of Borrowers, Borrowers and
their Subsidiaries consolidated net income (excluding any net income of Subsidiaries that are not
Guarantors), as determined in accordance with GAAP and reported on the financial statements for
such period, but excluding any and all of the following included in such determination of net
income (without duplication): (a) gain or loss arising from the sale of capital assets, such as
property, plant and equipment; (b) gain or loss arising from any write-up or write-down in the
book value of any asset in the ordinary course of business (excluding Contracts); (c) earnings or
losses of any corporation acquired by any Borrower in any manner, to the extent realized by such
other corporation prior to the date of acquisition; (d) earnings of any business entity in which
any Borrower has an ownership interest or of any Subsidiary that is not also a Guarantor unless
(and only to the extent) such earnings shall actually have been received by any Borrower in the
form of cash distributions; (e) earnings or losses of any Person to which assets of any Borrower
shall have been sold, transferred, or disposed of, or into which any Borrower shall have been
merged or which has been a party with Borrower to any consolidation or other form of
reorganization, prior to the date of such transaction; (f) gain or loss arising from the
acquisition of any debt or equity security of any Borrower or from cancellation or forgiveness of
debt; (g) gain or loss arising from extraordinary items, as determined in accordance with GAAP, or
from any other one-time or nonrecurring transaction; (h) non-cash gain or loss; (i) any actual
taxes paid by or on behalf of any Borrower or its Subsidiaries; (j) any net income or gain or loss
(without duplication) (i) from the disposition of any discontinued operations, including but not
limited to Upstate Motor Company and Regional Check Advance, a division of RFCSC and (ii) from the
discontinued operations of Upstate Motor Company and Regional Check Advance incurred prior to the
earlier of July 21, 2007 or the date such discontinued operations are sold; (k) restructuring
charges approved by Agent in its reasonable discretion; (l) amortization of intangibles, including
but not limited to financing costs, goodwill and the effects of purchase accounting; and (m) all
accrued but unpaid management fees, costs and expenses payable to Parallel and Palladium Capital.
Non-Ratable Loans
shall have the meaning specified in
subparagraph 2.2(h)
.
Notes
shall mean, collectively, the Third Amended and Restated Secured Promissory
Notes executed and delivered by Borrower to Lenders pursuant to the terms of this Agreement.
Notice of Borrowing
shall have the meaning specified in
subparagraph
2.2(b)(1)
.
Notice of Conversion/Continuation
shall have the meaning specified in
subparagraph
2.6(b)
.
Obligations
shall mean all present and future loans, advances, liabilities,
obligations, covenants, duties, and debts owing by Borrowers to Agent and/or any Lender arising
under or
14
pursuant to this Agreement or any of the other Loan Documents, whether or not evidenced by any
note, or other instrument or document, whether arising from an extension of credit, opening of a
letter of credit, acceptance, loan, guaranty, indemnification or otherwise, whether direct or
indirect, absolute or contingent, due or to become due, primary or secondary, as principal or
guarantor, and including all principal, interest, charges, expenses, fees, attorneys fees, filing
fees and any other sums chargeable to Borrowers hereunder or under any of the other Loan Documents.
Obligations includes, without limitation, (a) all debts, liabilities, and obligations now or
hereafter arising from or in connection with the Letters of Credit and (b) all Bank Product
Obligations.
Other Taxes
shall mean any present or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies (but excluding any tax, charge or levy that
constitutes Excluded Taxes) which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or any other Loan
Documents.
Palladium
shall mean Palladium Equity Partners III, L.P., a Delaware limited
partnership, and any Affiliates or Related Funds thereof.
Palladium Capital
shall mean Palladium Capital Management III, L.L.C., a Delaware
limited liability company and any Affiliates or Related Funds thereof.
Parallel
shall mean Parallel Investment Partners, LP, a Delaware limited partnership,
and any Affiliates or Related Funds thereof.
Participant
shall mean any Person who shall have been granted the right by any Lender
to participate in the financing provided by such Lender under this Agreement, and who shall have
entered into a participation agreement in form and substance satisfactory to such Lender.
Past Due Percent
shall mean the percent
,
calculated as of the first day of each month,
equal to (a) the aggregate amount of Gross Contract Payments owing under all Contracts (excluding
Contracts charged-off), as to which any portion of an installment due thereunder is sixty (60) days
or more past due as determined on a contractual basis as of the last day of each of the three (3)
months immediately preceding the date of calculation,
divided
by
(b) the aggregate
amount of Gross Contract Payments owing under all Contracts (excluding Contracts charged-off) as of
the last day of each of the three (3) months immediately preceding the date of calculation. For
example, if, as of the last day of the previous three months the Gross Contract Payments were
$1,000,000, $1,250,000 and $1,500,000 and on the same date the amount of Gross Contract Payments
that were more than sixty (60) days past due was $100,000, $150,000 and $150,000, the Past Due
Percent would be ten and two-thirds percent (10-2/3%) ($400,000/$3,750,000).
Patriot Act
shall mean the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No. 107-56, 115 Stat. 272
(2001), as amended and in effect from time to time.
Pending Revolving Loans
shall mean, at any time, the aggregate principal amount of all
Revolving Loans requested in any Notice(s) of Borrowing received by Agent which have not yet been
advanced.
Permitted Debt
shall have the meaning ascribed to such term in
Paragraph 8.6
hereof.
15
Permitted Liens
shall mean the following Liens (a) Liens, whether presently existing
or created hereafter, pursuant to the Loan Documents or Liens in favor of Agent; (b) Liens for
taxes or assessments or other governmental charges or levies not yet due and payable or which are
being contested in accordance with
Paragraph 8.1
, (c) workers, mechanics, suppliers,
carriers, warehousemens or other similar Liens (i) arising in the ordinary course of business or
(ii) securing obligations being contested in accordance with
Paragraph 8.1
, (d) Liens
arising in respect of leases and subleases, (e) landlords liens arising by operation of law, (f)
purchase money Liens on assets acquired by any Borrower or any of its Subsidiaries in the ordinary
course of its business to secure the purchase price of such asset or Debt incurred solely for the
purpose of financing the acquisition of such asset, (g) deposits and pledges of cash securing (i)
obligations incurred in respect of workers compensation, unemployment insurance, social security
or other forms of governmental insurance or benefits, (ii) the performance of bids, tenders,
leases, contracts (other than for the repayment of borrowed money) and statutory obligations or
(iii) obligations on surety, appeal or performance bonds, (h) easements, zoning restrictions,
licenses, covenants and similar encumbrances on real property and minor irregularities in the title
thereto that do not (i) secure obligations for the payment of money or (ii) materially impair the
value of such property or its use in the normal conduct of business, (i) liens in favor of
collecting banks arising from the endorsement of negotiable instruments for deposit or collection
in the ordinary course of business, (j) the title of a lessor or sublessor to lease property under
any lease, (k) Liens with respect to capitalized lease obligations, (l) Liens described on
Schedule 7.9
and (m) Liens in favor of Federal Warranty securing Subordinated Debt pursuant
to a security agreement containing substantially the same terms and conditions set forth in the
security agreement between Voyager Life Insurance Company (a predecessor in interest to Federal
Warranty) and Regional, dated November 22, 1999 and amended on September 1, 2002 or such other
security agreement reasonably satisfactory to the Required Lenders.
Permitted Refinancings
shall mean, with respect to any Debt, any refinancing thereof;
provided, however, that (i) no Event of Default shall have occurred and be continuing or would
arise therefrom, (ii) any such refinancing Debt shall (a) not be on financial and other terms that
are materially more onerous in the aggregate than the Debt being refinanced and shall not have
defaults, rights or remedies materially more burdensome in the aggregate to the obligor than the
Debt being refinanced, (b) not have a stated maturity or Weighted Average Life to Maturity that is
shorter than the Debt being refinanced, (c) be at least as subordinate to the Obligations as the
Debt being refinanced (and unsecured if the refinanced Debt is unsecured), and (d) be in a
principal amount that does not exceed the principal amount so refinanced, plus all accrued and
unpaid interest thereon, plus the stated amount of any premium and other payments required to be
paid in connection with such refinancing pursuant to the terms of the Debt being refinanced, plus
the amount of reasonable expenses of Borrowers or any of its Subsidiaries incurred in connection
with such refinancing, and (iii) the sole obligors and/or guarantors on such Debt shall not include
any Person other than the obligors and/or guarantors on such Debt being refinanced.
Person
shall mean any individual, sole proprietorship, partnership, limited liability
company, joint venture, trust, unincorporated organization, association, corporation, or any other
entity.
Pro Rata Share
shall mean, with respect to a Lender, a fraction (expressed as a
percentage), the numerator of which is the amount of such Lenders Commitment and the denominator
of which is the sum of the amounts of all of the Lenders Commitments, or if no
16
Commitments are outstanding or the Commitments have expired, a fraction (expressed as a
percentage), the numerator of which is the amount of Obligations owed to such Lender and the
denominator of which is the aggregate amount of the Obligations owed to the Lenders, in each case
giving effect to a Lenders participation in Non-Ratable Loans and Agent Advances.
Property
shall mean the personal and any real property described in the Security
Documents which secure the obligations of a Contract Debtor under a Contract.
Regional Holdings
shall mean Regional Holdings LLC, a Delaware limited liability
company.
Regional Investment
shall mean Regional Investment LLC, a Delaware limited liability
corporation.
Regional Mezzanine
shall mean Regional Mezzanine Finance LLC, a Delaware limited
liability company.
Related Fund
shall mean with respect to any Person, an Affiliate of such Person, or a
fund or account managed by such Person or an Affiliate of such Person.
Repossession Percent
shall mean the percent, calculated as of the first day of each
month, equal to (a) the repossession value of all property which the Borrowers have repossessed and
which, as of the last day of the month immediately preceding the date of calculation, was reflected
as an asset on the Borrowers books
divided
by
(b) the Net Balance owing under all
Contracts (excluding Contracts charged-off) outstanding as of the last day of that month. For
example, if ten (10) properties having a total repossession value of $50,000 had at any time been
repossessed by Borrowers and were reflected as assets on the books of Borrowers at the end of the
month and the Net Balance was $2,000,000 at the end of such month, the Repossession Percent would
be two and one-half percent (2-1/2%) ($50,000/$2,000,000).
Required Lenders
shall mean at any time (a) Lenders whose Pro Rata Shares aggregate
more than fifty-one percent (51%) as such percentage is determined under the definition of Pro Rata
Share set forth herein; or (b) in the event there are only two (2) Lenders under this Agreement,
either Lender; or (c) in the event Bank of Americas Pro Rata Share exceeds fifty-one percent
(51%), any two Lenders.
Requirement of Law
shall mean, as to any Person, any law (statutory or common),
treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in
each case applicable to or binding upon the Person or any of its property or to which the Person or
any of its property is subject.
Revolving Loans
shall have the meaning specified in
Paragraph 2.2
and includes
each Agent Advance and Non-Ratable Loan.
RMC Reinsurance
shall mean RMC Reinsurance, Ltd., a Turks and Caicos Islands company.
RMC Reinsurance Excess Cash
shall mean, as of any date of determination, the aggregate
amount of cash and cash equivalents of RMC Reinsurance as of such date in excess of statutory
reserves required to be maintained by RMC Reinsurance as of such date.
17
Security Documents
shall mean all security agreements, chattel mortgages, deeds of
trust, mortgages, or other security instruments or agreements of every type and nature securing the
obligations of a Contract Debtor under a Contract.
Settlement and Settlement Date
shall have the meanings specified in
subparagraph
2.2(j)(i)
.
Small Loan Contract
shall mean a Contract which has an original amount financed of
$1,800 or less.
South Carolina Notes
shall mean those certain subordinated notes issued from time to
time by Regional or its applicable Subsidiaries and registered under the South Carolina Uniform
Securities Act, South Carolina Code Section 35-1-101,
et seq
., as in effect from time to time.
Stock Purchase
shall mean a transaction among Regional, Regional Holdings and the
shareholders of Regional, whether by stock purchase, redemption or merger (or any combination
thereof), as a result of which Regional Holdings will own at least seventy percent (70%) of the
issued and outstanding shares of common stock of Regional pursuant to the Stock Purchase Agreement.
Stock Purchase Agreement
shall mean the Amended and Restated Stock Purchase Agreement
dated as of March 21, 2007, among Regional Holdings, Regional and the shareholders of Regional as
of such date, as the same may have been amended and modified as of the date of this Agreement.
Subordinated Debt
shall mean all Debt of Borrowers (other than the Affiliate
Subordinated Debt), including, but not limited to, Debt of Borrowers owed or owing to Federal
Warranty incurred both prior to and after the Closing Date, which at all times during the term of
this Agreement is (a) subordinated to Borrowers Obligations hereunder pursuant to a written
subordination agreement or in subordination provisions in the documents governing such Debt, the
terms of which are satisfactory to Required Lenders in their reasonable discretion as of the date
of such subordination agreement or as of the date such documents governing such Debt are entered
into; or (b) subordinated, in a manner reasonably satisfactory to Required Lenders as of the date
such Debt is incurred, to Borrowers Obligations hereunder;
provided
that
, with
respect to any Debt of Borrowers owing to Federal Warranty after the Closing Date, a written
subordination agreement containing the same terms (except that the principal amount of the Debt to
Federal Warranty may be increased to $2,750,000.00) and conditions set forth in the Subordination
Agreement dated as of March 10, 2000 among Agent, certain of the Borrowers party thereto and
Federal Warranty, shall be satisfactory to Required Lenders.
Subsidiary
shall mean, with respect to any Person, any corporation or other entity of
which such Person owns, directly or indirectly, more than 50% of the capital stock of such
corporation or equity interests in such other entity having by the terms thereof ordinary voting
power to elect a majority of the board of directors, board of managers or similar body of such
corporation or entity.
Supporting Letter of Credit
shall have the meaning specified in
subparagraph
2.18(i)
.
Taxes
shall mean any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each
Lender and
18
the Agent, such taxes (including income taxes or franchise taxes) as are imposed on or
measured by the Agents or each Lenders net income by the jurisdiction (or any political
subdivision thereof) under the laws of which the Agent or such Lender, as the case may be, is
organized or maintains a Lending Office.
Total Credit Facility
shall mean $130,000,000.
Unused Letter of Credit Subfacility
shall mean an amount equal to $500,000
minus
the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit
plus
(b) the aggregate unpaid reimbursement obligations with respect to all Letters of
Credit.
Unused Line Fee
shall have the meaning specified in
Paragraph 2.8
.
Weighted Average Life to Maturity
shall mean, when applied to any Debt at any date,
the number of years obtained by dividing (a) then outstanding principal amount of such Debt into
(b) the sum of the total of the product obtained by multiplying (i) the amount of each scheduled
installment, sinking fund, serial maturity or other required payment of principal including payment
at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment.
1.2
Interpretive Provisions
.
(a) The meanings of defined terms are equally applicable to the singular and plural forms of
the defined terms.
(b) The words hereof, herein, hereunder and similar words refer to this Agreement as a
whole and not to any particular provision of this Agreement; and Subparagraph, Paragraph, Section,
Schedule and Exhibit references are to this Agreement unless otherwise specified.
(c) (i) The term documents includes any and all instruments, documents, agreements,
certificates, indentures, notices and other writings, however evidenced.
(ii) The term including is not limiting and means including without limitation.
(iii) In the computation of periods of time from a specified date to a later specified date,
the word from means from and including, the words to and until each mean to but excluding
and the word through means to and including.
(d) Unless otherwise expressly provided herein, (i) references to agreements (including this
Agreement) and other contractual instruments shall be deemed to include all subsequent amendments
and other modifications thereto, but only to the extent such amendments and other modifications are
not prohibited by the terms of any Loan Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions consolidating, amending,
replacing, supplementing or interpreting the statute or regulation.
(e) This Agreement and other Loan Documents may use several different limitations, tests or
measurements to regulate the same or similar matters. All such limitations,
19
tests and measurements are cumulative and shall each be performed in accordance with their
terms.
(f) This Agreement and the other Loan Documents are the result of negotiations among and have
been reviewed by counsel to the Agent, the Borrowers and the other parties, and are the products of
all parties. Accordingly, they shall not be construed against the Lenders or the Agent merely
because of the Agents or the Lenders involvement in their preparation.
SECTION TWO LOANS AND LETTERS OF CREDIT AND TERMS OF PAYMENT
2.1
Total Facility
. Subject to all of the terms and conditions of this Agreement,
Lenders severally agree to make available a total credit facility of up to the Total Credit
Facility for Borrowers use from time to time during the term of this Agreement. The Total Credit
Facility shall be composed of a revolving line of credit consisting of Revolving Loans and Letters
of Credit up to the Availability, as described in
Paragraph 2.2
.
2.2
Revolving Loans
.
(a)
Amounts
. Subject to the satisfaction of the conditions precedent set forth in
Section Six
and so long as no Default or Event of Default then exists, each Lender
severally, but not jointly, agrees, upon Borrowers request from time to time on any Business Day
during the period from the date hereof to the Maturity Date, to make revolving loans (the
Revolving Loans) to Borrowers, in amounts not to exceed (except for Bank of America with respect
to Non-Ratable Loans and except for the Agent with respect to Agent Advances) such Lenders Pro
Rata Share of the Borrowers Availability. The Lenders, however, in their unanimous discretion, may
elect to make Revolving Loans in excess of the Availability on one or more occasions, but if they
do so, neither the Agent nor the Lenders shall be deemed thereby to have changed the limits of the
Total Credit Facility or the Availability or to be obligated to exceed such limits on any other
occasion. If the sum of outstanding Revolving Loans and the aggregate amount of Pending Revolving
Loans, together with all outstanding indebtedness owing by Borrowers under all outstanding Letters
of Credit, exceeds the Availability, Lenders may refuse to make or otherwise restrict the making of
Revolving Loans as Lenders determine until such excess has been eliminated, subject to the Agents
authority, in its sole discretion, to make Agent Advances pursuant to the terms of
subparagraph
2.2(i)
.
(b)
Procedure for Borrowing
.
(i) Each Borrowing shall be made upon any Borrowers irrevocable written notice delivered to
Agent in the form of a Notice of Borrowing in the form attached hereto as
Exhibit A
,
which notice must be received by Agent prior to 11:00 a.m. (New York, New York time) (i) three
Business Days prior to the requested Funding Date, in the case of LIBOR Revolving Loans and (ii) no
later than 11:00 a.m. (New York, New York time) on the requested Funding Date, in the case of Base
Rate Revolving Loans, specifying:
(A) the amount of the Borrowing (which, in the case of a Borrowing of LIBOR Revolving Loans,
shall be in an amount not less than $5,000,000 or in an amount that is in an integral multiple of
$1,000,000 in excess thereof);
(B) the requested Funding Date, which shall be a Business Day;
20
(C) whether the Revolving Loans requested are to be Base Rate Revolving Loans or LIBOR
Revolving Loans (and if not specified, it shall be deemed a request for Base Rate Revolving Loans);
and
(D) the duration of the Interest Period if the requested Revolving Loans are to be LIBOR
Revolving Loans. If the Notice of Borrowing fails to specify the duration of the Interest Period
for any Borrowing comprised of LIBOR Revolving Loans, such Interest Period shall be three months.
(ii) After giving effect to any Borrowing, there may not be more than five (5) different
Interest Periods in effect.
(iii) With respect to any request for Base Rate Revolving Loans, in lieu of delivering the
above-described Notice of Borrowing, a Borrower may give Agent telephonic notice of such request by
the required time, with such telephonic notice to be confirmed in writing within 24 hours of the
giving of such notice but Agent shall be entitled to rely on the telephonic notice in making such
Revolving Loans, regardless of whether any such confirmation is received by Agent.
(iv) No Borrower shall have the right to request a LIBOR Revolving Loan while an Event of
Default has occurred and is continuing.
(c)
Reliance upon Authority
. Prior to any change with respect to any of the
information contained in the following
clauses (i)
and
(ii)
, Borrowers shall
deliver to Agent a writing setting forth (i) the account of Borrowers to which Agent is authorized
to transfer the proceeds of the Revolving Loans requested pursuant to this
Paragraph 2.2
,
and (ii) the names of the persons authorized to request Revolving Loans on behalf of Borrowers, and
shall provide Agent with a specimen signature of each such person. Agent shall be entitled to rely
conclusively on such persons authority to request Revolving Loans on behalf of Borrowers, the
proceeds of which are to be transferred to any of the accounts specified by Borrowers pursuant to
the immediately preceding sentence, until Agent receives written notice to the contrary. Agent
shall have no duty to verify the identity of any individual representing himself as one of the
persons authorized by Borrowers to make such requests on its behalf. Each Borrower agrees that
each notice, election, representation and warranty, covenant, agreement and undertaking made on its
behalf by such authorized Person shall be deemed for all purposes to have been made by such
Borrower and shall be binding upon and enforceable against such Borrower to the same extent as if
the same had been made directly by such Borrower.
(d)
No Liability
. Agent shall not incur any liability to Borrowers as a result of
acting upon any notice referred to in
subparagraphs 2.2(b)
and
(c)
, which notice
Agent believes in good faith to have been given by any person duly authorized by Borrowers to
request Revolving Loans on its behalf or for otherwise acting in good faith under this
Paragraph 2.2
, and the crediting of Revolving Loans to Borrowers deposit accounts, or
transmittal to such Person as Borrowers shall direct, shall conclusively establish the obligation
of Borrowers to repay such Revolving Loans as provided herein.
(e)
Notice Irrevocable
. Any Notice of Borrowing (or telephonic notice in lieu
thereof) made pursuant to
subparagraph 2.2(b)
shall be irrevocable and Borrowers shall be
bound to borrow the funds requested therein in accordance therewith.
21
(f)
Agents Election
. Promptly after receipt of a Notice of Borrowing (or telephonic
notice in lieu thereof) pursuant to
subparagraph 2.2(b)
, Agent shall elect, in its
discretion, (i) to have the terms of
subparagraph 2.2(g)
apply to such requested Borrowing,
or (ii) to request Bank of America to make a Non-Ratable Loan pursuant to the terms of
subparagraph 2.2(h)
in the amount of the requested Borrowing;
provided
,
however
, that if Bank of America declines in its sole discretion to make a Non-Ratable Loan
pursuant to
subparagraph 2.2(h)
, Agent shall elect to have the terms of
subparagraph
2.2(g)
apply to such requested Borrowing.
(g)
Making of Revolving Loans.
(i) In the event that Agent shall elect to have the terms of this
subparagraph 2.2(g)
apply to a requested Borrowing as described in
subparagraph 2.2(f)
, or in the case of any
request by a Borrower for a Borrowing of LIBOR Revolving Loans, then promptly after receipt of a
Notice of Borrowing or telephonic notice pursuant to
subparagraph 2.2(b)
, Agent shall
notify Lenders by telecopy, telephone or other similar form of transmission, of the requested
Borrowing. Each Lender shall make the amount of such Lenders Pro Rata Share of the requested
Borrowing available to Agent in immediately available funds, to such account of Agent as Agent may
designate, not later than 1:00 p.m. (New York, New York time) on the Funding Date applicable
thereto. After Agents receipt of the proceeds of such Revolving Loans, Agent shall make the
proceeds of such Revolving Loans available to Borrowers on the applicable Funding Date by
transferring same day funds equal to the proceeds of such Revolving Loans received by Agent to the
account of Borrowers, designated in writing by Borrowers and acceptable to Agent;
provided
,
however
, that the amount of Revolving Loans so made on any date shall in no event exceed
the Excess Availability on such date.
(ii) Unless Agent receives notice from a Lender at least one Business Day prior to the date of
any Borrowing that such Lender will not make available as and when required hereunder to Agent for
the account of Borrowers the amount of that Lenders Pro Rata Share of the Borrowing, Agent may
assume that each Lender has made such amount available to Agent in immediately available funds on
the Funding Date and Agent may (but shall not be so required), in reliance upon such assumption,
make available to Borrowers on such date a corresponding amount. If and to the extent any Lender
shall not have made its full amount available to Agent in immediately available funds and Agent in
such circumstances has made available to Borrowers such amount, that Lender shall on the Business
Day following such Funding Date make such amount available to Agent, together with interest at the
Federal Funds Rate for each day during such period. A notice by Agent submitted to any Lender with
respect to amounts owing under this subparagraph shall be conclusive, absent manifest error. If
such amount is so made available, such payment to Agent shall constitute such Lenders Revolving
Loan for all purposes of this Agreement. If such amount is not made available to Agent on the
Business Day following the Funding Date, Agent will notify Borrowers of such failure to fund and,
upon demand by Agent, Borrowers shall pay such amount to Agent for Agents account, together with
interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal
to the Interest Rate applicable at the time to the Revolving Loans comprising such Borrowing. The
failure of any Lender to make any Revolving Loan on any Funding Date (any such Lender, prior to the
cure of such failure, being hereinafter referred to as a Defaulting Lender) shall not relieve any
other Lender of any obligation hereunder to make a Revolving Loan on such Funding Date, but no
Lender shall be responsible for the failure of any other Lender to make the Revolving Loan to be
made by such other Lender on any Funding Date.
22
(iii) Agent shall not be obligated to transfer to a Defaulting Lender any payments made by
Borrowers to Agent for the Defaulting Lenders benefit; nor shall a Defaulting Lender be entitled
to the sharing of any payments hereunder. Amounts payable to a Defaulting Lender shall instead be
paid to or retained by Agent. Agent may hold and, in its discretion, re-lend to Borrowers the
amount of all such payments received or retained by it for the account of such Defaulting Lender.
Any amounts so re-lent to Borrowers shall bear interest at the rate applicable to Base Rate
Revolving Loans and for all other purposes of this Agreement shall be treated as if they were
Revolving Loans,
provided
,
however
, that for purposes of voting or consenting to
matters with respect to the Loan Documents and determining Pro Rata Shares, such Defaulting Lender
shall be deemed not to be a Lender. Until a Defaulting Lender cures its failure to fund its Pro
Rata Share of any Borrowing (A) such Defaulting Lender shall not be entitled to any portion of the
Unused Line Fee or the Letter of Credit Fee, and (B) the Unused Line Fee and Letter of Credit Fee
shall accrue in favor of the Lenders which have funded their respective Pro Rata Shares of such
requested Borrowing and shall be allocated among such performing Lenders ratably based upon their
relative Commitments. This Paragraph shall remain effective with respect to such Lender until such
time as the Defaulting Lender shall no longer be in default of any of its obligations under this
Agreement. The terms of this Paragraph shall not be construed to increase or otherwise affect the
Commitment of any Lender, or relieve or excuse the performance by Borrowers of their duties and
obligations hereunder.
(h)
Making of Non-Ratable Loans.
(i) In the event Agent shall elect, with the consent of Bank of America, to have the terms of
this
subparagraph 2.2(h)
apply to a requested Borrowing as described in
subparagraph
2.2(f)
, Bank of America shall make a Revolving Loan in the amount of such Borrowing (any such
Revolving Loan made solely by Bank of America pursuant to this
subparagraph 2.2(h)
being
referred to as a Non-Ratable Loan and such Revolving Loans being referred to collectively as
Non-Ratable Loans) available to Borrowers on the Funding Date applicable thereto by transferring
same day funds to an account of Borrowers, designated in writing by Borrowers and acceptable to
Agent. Each Non-Ratable Loan shall be subject to all the terms and conditions applicable to other
Revolving Loans except that all payments thereon shall be payable to Bank of America solely for its
own account (and for the account of the holder of any participation interest with respect to such
Revolving Loan). Agent shall not request Bank of America to make any Non-Ratable Loan if (A) Agent
shall have received written notice from any Lender that one or more of the applicable conditions
precedent set forth in
Section Six
will not be satisfied on the requested Funding Date for
the applicable Borrowing, or (B) the requested Borrowing would exceed the Excess Availability on
such Funding Date. Agent shall not otherwise be required to determine whether the applicable
conditions precedent set forth in
Section Six
have been satisfied or the requested
Borrowing would exceed the Excess Availability on the Funding Date applicable thereto prior to
making, in its sole discretion, any Non-Ratable Loan.
(ii) The Non-Ratable Loans shall be secured by the Agents Liens in and to the Collateral,
shall constitute Revolving Loans and Obligations hereunder, and shall bear interest at the rate
applicable to the Base Rate Revolving Loans from time to time.
(i)
Agent Advances
.
(i) Subject to the limitations set forth in the provisos contained in this
subparagraph
2.2(i)(i)
, Agent is hereby authorized by Borrowers and Lenders, from time to time
23
in Agents sole discretion, (A) after the occurrence of a Default or an Event of Default, or
(B) at any time that any of the other applicable conditions precedent set forth in
Section
Six
have not been satisfied, to make Base Rate Revolving Loans to Borrowers on behalf of
Lenders which Agent, in its reasonable business judgment, deems necessary or desirable (1) to
preserve or protect the Collateral, or any portion thereof, (2) to enhance the likelihood of, or
maximize the amount of, repayment of the Loans and other Obligations, or (3) to pay any other
amount chargeable to Borrowers pursuant to the terms of this Agreement, including costs, fees and
expenses as described in
Paragraph 13.1
(any of the advances described in this
subparagraph 2.2(i)(i)
being hereinafter referred to as Agent Advances);
provided
,
however
, that Required Lenders may at any time revoke Agents
authorization contained in this
subparagraph 2.2(i)
to make Agent Advances, any such
revocation to be in writing and to become effective prospectively upon Agents receipt thereof;
provided further, however, that (a) if the Pro Rata Share of the Required Lenders revoking such
authorization does not exceed fifty-one percent (51%), such revocation shall become effective 120
days after Agents receipt thereof, or (b) if the Default or Event of Default would require consent
of all Lenders to waive or amend, such authorization may be revoked by any Lender effective 120
days after Agents receipt thereof; and
provided
further
,
however
, that no
such Agent Advance shall cause the Loan (including such Agent Advance) to exceed the Total Credit
Facility.
(ii) The Agent Advances shall be repayable on demand and secured by the Agents Liens in and
to the Collateral, shall constitute Revolving Loans and Obligations hereunder, and shall bear
interest at the rate applicable to Base Rate Revolving Loans from time to time. Agent shall notify
each Lender in writing of each such Agent Advance.
(j)
Settlement
. It is agreed that each Lenders funded portion of the Revolving Loans
is intended by Lenders to be equal at all times to such Lenders Pro Rata Share of the outstanding
Revolving Loans. Notwithstanding such agreement, Agent, Bank of America and the other Lenders agree
(which agreement shall not be for the benefit of or enforceable by Borrowers) that in order to
facilitate the administration of this Agreement and the other Loan Documents, settlement among them
as to the Revolving Loans, the Non-Ratable Loans and the Agent Advances shall take place on a
periodic basis in accordance with the following provisions:
(i) Agent shall request settlement (Settlement) with Lenders on at least a weekly basis, or
on a more frequent basis if so determined by Agent, (A) on behalf of Bank of America, with respect
to each outstanding Non-Ratable Loan, (B) for itself, with respect to each Agent Advance, and (C)
with respect to collections received, in each case, by notifying Lenders of such requested
Settlement by telecopy, telephone or other similar form of transmission, of such requested
Settlement, no later than 12:00 p.m., noon (New York, New York time) on the date of such requested
Settlement (the Settlement Date). Each Lender (other than Bank of America in the case of
Non-Ratable Loans, and Agent in the case of Agent Advances) shall make the amount of such Lenders
Pro Rata Share of the outstanding principal amount of the Non-Ratable Loans and Agent Advances with
respect to which Settlement is requested available to Agent, to such account of Agent as Agent may
designate, not later than 3:00 p.m. (New York, New York time), on the Settlement Date applicable
thereto, which may occur before or after the occurrence or during the continuation of a Default or
an Event of Default and whether or not the applicable conditions precedent set forth in
Section
Six
have then been satisfied. Such amounts made available to Agent shall be applied against the
amounts of the applicable Non-Ratable Loan or Agent Advance and, together with the portion of such
Non-Ratable Loan or Agent Advance representing Bank of Americas Pro Rata Share thereof, shall
24
constitute Revolving Loans of such Lenders. If any such amount is not made available to Agent
by any Lender on the Settlement Date applicable thereto, Agent shall (A) on behalf of Bank of
America, with respect to each outstanding Non-Ratable Loan, and (B) for itself, with respect to
each Agent Advance, be entitled to recover such amount on demand from such Lender together with
interest thereon at the Federal Funds Rate for the first three (3) days from and after the
Settlement Date and thereafter at the Interest Rate then applicable to the Revolving Loans.
(ii) Notwithstanding the foregoing, not more than one (1) Business Day after demand is made by
Agent (whether before or after the occurrence of a Default or an Event of Default and regardless of
whether Agent has requested a Settlement with respect to a Non-Ratable Loan or Agent Advance), each
other Lender (A) shall irrevocably and unconditionally purchase and receive from Bank of America or
the Agent, as applicable, without recourse or warranty, an undivided interest and participation in
such Non-Ratable Loan or Agent Advance equal to such Lenders Pro Rata Share of such Non-Ratable
Loan or Agent Advance and (B) if Settlement has not previously occurred with respect to such
Non-Ratable Loans or Agent Advances, upon demand by Bank of America or Agent, as applicable, shall
pay to Bank of America or Agent, as applicable, as the purchase price of such participation an
amount equal to one hundred percent (100%) of such Lenders Pro Rata Share of such Non-Ratable
Loans or Agent Advances. If such amount is not in fact made available to Agent by any Lender, Agent
shall be entitled to recover such amount on demand from such Lender together with interest thereon
at the Federal Funds Rate for the first three (3) days from and after such demand and thereafter at
the Interest Rate then applicable to Base Rate Revolving Loans.
(iii) From and after the date, if any, on which any Lender purchases an undivided interest and
participation in any Non-Ratable Loan or Agent Advance pursuant to
clause (ii)
preceding,
Agent shall promptly distribute to such Lender, such Lenders Pro Rata Share of all payments of
principal and interest and all proceeds of Collateral received by the Agent in respect of such
Non-Ratable Loan or Agent Advance.
(iv) Between Settlement Dates, Agent, to the extent no Agent Advances are outstanding, may pay
over to Bank of America any payments received by Agent, which in accordance with the terms of this
Agreement would be applied to the reduction of the Base Rate Revolving Loans, for application to
Bank of Americas Base Rate Revolving Loans including Non-Ratable Loans. If, as of any Settlement
Date, collections received since the then immediately preceding Settlement Date have been applied
to Bank of Americas Revolving Loans (other than to Non-Ratable Loans or Agent Advances in which
such Lender has not yet funded its purchase of a participation pursuant to
subparagraph
2.2(j)(ii)
above), as provided for in the previous sentence, Bank of America shall pay to Agent
for the accounts of the Lenders, to be applied to the outstanding Revolving Loans of such Lenders,
an amount such that each Lender shall, upon receipt of such amount, have, as of such Settlement
Date, its Pro Rata Share of the Revolving Loans. During the period between Settlement Dates, Bank
of America with respect to Non-Ratable Loans, Agent with respect to Agent Advances, and each Lender
with respect to the Revolving Loans other than Non-Ratable Loans and Agent Advances, shall be
entitled to interest at the applicable rate or rates payable under this Agreement on the actual
average daily amount of funds employed by Bank of America, Agent and the other Lenders.
(k)
Notation
. Agent shall record on its books the principal amount of the Revolving
Loans owing to each Lender, including the Non-Ratable Loans owing to Bank of America, and the Agent
Advances owing to Agent, from time to time. In addition, each Lender is authorized, at such
Lenders option, to note the date and amount of each payment or prepayment
25
of principal of such Lenders Revolving Loans in its books and records, including computer
records, such books and records constituting presumptive evidence, absent manifest error, of the
accuracy of the information contained therein.
(l)
Lenders Failure to Perform
. All Revolving Loans (other than Non-Ratable Loans
and Agent Advances) shall be made by Lenders simultaneously and in accordance with their Pro Rata
Shares. It is understood that (i) no Lender shall be responsible for any failure by any other
Lender to perform its obligation to make any Revolving Loans hereunder, nor shall any Commitment of
any Lender be increased or decreased as a result of any failure by any other Lender to perform its
obligation to make any Revolving Loans hereunder, (ii) no failure by any Lender to perform its
obligation to make any Revolving Loans hereunder shall excuse any other Lender from its obligation
to make any Revolving Loans hereunder, and (iii) the obligations of each Lender hereunder shall be
several, not joint and several.
(m)
Loans under Existing Loan Agreement
. The Borrowers acknowledge and agree that as
of the Closing Date (i) the outstanding principal amount of Revolving Loans under the Existing Loan
Agreement equals $100,384,333.55 and that such Revolving Loans are continued as Revolving Loans
hereunder, and (ii) there are no Letters of Credit outstanding under the Existing Loan Agreement.
All Commitments (as defined in the Existing Loan Agreement) under the Existing Loan Agreement shall
hereinafter be assigned or re-allocated among the Commitments hereunder, and after giving effect
hereto, the percentages of the Commitments are as set forth on the signature pages of this
Agreement. Notwithstanding anything set forth herein to the contrary, in order to effect the
continuation of the outstanding Loans contemplated by the preceding sentence, the amount to be
funded on the Closing Date by each Lender hereunder in respect of its Commitments shall be reduced
by the principal amount of such Lenders Loans under the Existing Loan Agreement outstanding on the
Closing Date.
2.3
Books and Records; Monthly Statements
. Each Borrower agrees that Agents and each
Lenders books and records showing the Obligations and the transactions pursuant to this Agreement
and the other Loan Documents shall be admissible in any action or proceeding arising therefrom, and
shall constitute rebuttably presumptive proof thereof, irrespective of whether any Obligation is
also evidenced by a promissory note or other instrument. Agent will provide to Borrowers a monthly
statement of Loans, payments, and other transactions pursuant to this Agreement. Such statement
shall be deemed correct, accurate, and binding on Borrowers and an account stated (except for
reversals and reapplications of payments made as provided in
Paragraph 2.4
and corrections
of errors discovered by Agent), unless Borrowers notify Agent in writing to the contrary within
thirty (30) days after such statement is rendered. In the event a timely written notice of
objections is given by Borrowers, only the items to which exception is expressly made will be
considered to be disputed by Borrowers.
2.4
Apportionment Application and Reversal of Payments
. Principal and interest
payments shall be apportioned ratably among Lenders (according to the unpaid principal balance of
the Loans to which such payments relate held by each Lender) and payments of the fees shall, as
applicable, be apportioned ratably among Lenders. All payments shall be remitted to Agent and all
such payments not relating to principal or interest of specific Loans, or not constituting payment
of specific fees, and all proceeds of Collateral received by Agent, shall be applied, ratably,
subject to the provisions of this Agreement, first, to pay any fees, indemnities or expense
reimbursements (excluding, however, any such amounts relating to Bank Products) then due to Agent
from Borrowers; second, to pay any fees or expense reimbursements then due to Lenders from the
Borrowers; third, to pay interest due in respect of all Revolving Loans, including Non-
26
Ratable Loans and Agent Advances; fourth, to pay or prepay principal of the Non-Ratable Loans
and Agent Advances; fifth, to pay or prepay principal of the Revolving Loans (other than
Non-Ratable Loans and Agent Advances) and unpaid reimbursement obligations in respect of Letters of
Credit; and sixth, to the payment of any other Obligation (including any amounts relating to Bank
Products) due to Agent or any Lender by Borrowers. Notwithstanding anything to the contrary
contained in this Agreement, unless so directed by Borrowers, or unless an Event of Default has
occurred and is continuing, neither Agent nor any Lender shall apply any payments which it receives
to any LIBOR Revolving Loan, except (a) on the expiration date of the Interest Period applicable to
any such LIBOR Revolving Loan, or (b) in the event, and only to the extent, that there are no
outstanding Base Rate Revolving Loans. Agent shall promptly distribute to each Lender, pursuant to
the applicable wire transfer instructions received from each Lender in writing, such funds as it
may be entitled to receive, subject to a Settlement delay as provided for in
subparagraph
2.2(j)
. Agent and Lenders shall have the continuing and exclusive right to apply and reverse
and reapply any and all such proceeds and payments to any portion of the Obligations.
2.5
Interest
.
(a)
Interest Rates
. All outstanding Obligations (other than Bank Product Obligations)
shall bear interest on the unpaid principal amount thereof (including, to the extent permitted by
law, on interest thereon not paid when due) from the date made until paid in full in cash at a rate
determined by reference to the Base Rate or the LIBOR Rate and
subparagraphs 2.5(a)(i)
or
(ii)
, as applicable, but not to exceed the Maximum Rate described in
Paragraph 2.7
.
Subject to the provisions of
Paragraph 2.6
, any of the Loans may be converted into, or
continued as, Base Rate Revolving Loans or LIBOR Revolving Loans in the manner provided in
Paragraph 2.6
. If at any time Loans are outstanding with respect to which notice has not
been delivered to Agent in accordance with the terms of this Agreement specifying the basis for
determining the interest rate applicable thereto, then those Loans shall be Base Rate Revolving
Loans and shall bear interest at a rate determined by reference to the Base Rate until notice to
the contrary has been given to Agent and such notice has become effective. Except as otherwise
provided herein, the outstanding Obligations (other than Bank Product Obligations)shall bear
interest as follows:
(i) For all Revolving Loans and such other Obligations which are
not
LIBOR Revolving
Loans, then at a fluctuating per annum rate equal to the Base Rate
plus
the Applicable
Margin; and
(ii) For all Revolving Loans and such other Obligations which are LIBOR Revolving Loans, then
at a per annum rate equal to the LIBOR Rate
plus
the Applicable Margin.
Each change in the Base Rate shall be reflected in the interest rate described in
clause
(i)
above as of the effective date(s) thereof, as provided in the definition of Base Rate in
Paragraph 1.1
above. All interest charges shall be computed on the basis of a year of 360
days and actual days elapsed (which results in more interest being paid than if computed on the
basis of a 365-day year). Interest accrued on all Loans will be payable in arrears on the last day
of each month for such month and on the Maturity Date and each Borrower expressly authorizes Agent
to charge the Loan Account for the purpose of paying such interest as provided in
Paragraph
2.10(d)
.
27
(b)
Default Rate
. If any Event of Default occurs and is continuing, then, while any
such Event of Default is outstanding, all of the Obligations (other than Bank Product Obligations)
shall bear interest at the Default Rate applicable thereto.
(c)
Bank Product Obligations
. Notwithstanding anything to the contrary contained
herein, all Bank Product Obligations shall bear interest, if any, at the applicable rate(s) set
forth in such Hedge Agreements or such other agreements and documents governing the Bank Products.
2.6
Conversion and Continuation Elections.
(a) Borrowers may, upon irrevocable written notice to Agent in accordance with
subparagraph 2.6(b)
:
(i) elect, as of any Business Day, in the case of Base Rate Revolving Loans to convert any
such Loans (or any part thereof in an amount not less than $5,000,000, or that is in an integral
multiple of $1,000,000 in excess thereof) into LIBOR Revolving Loans; or
(ii) elect, as of the last day of the applicable Interest Period, to continue any LIBOR
Revolving Loans having Interest Periods expiring on such day (or any part thereof in an amount not
less than $5,000,000, or that is in an integral multiple of $1,000,000 in excess thereof);
provided
, that if at any time the aggregate amount of LIBOR
Revolving Loans in respect of any Borrowing is reduced, by payment,
prepayment, or conversion of part thereof to be less than
$5,000,000, such LIBOR Revolving Loans shall automatically convert
into Base Rate Revolving Loans, and on and after such date the right
of Borrowers to continue such Loans as, and convert such Loans into,
LIBOR Revolving Loans, as the case may be, shall terminate,
and
provided
further
that if the notice shall
fail to specify the duration of the Interest Period, such Interest
Period shall be one month.
(b) Borrowers shall deliver a Notice of Conversion/Continuation in the form attached hereto as
Exhibit B
, to be received by Agent not later than 11:00 a.m. (New York, New York time) at
least three Business Days in advance of the Conversion/Continuation Date, if the Loans are to be
converted into or continued as LIBOR Revolving Loans and specifying: (i) the proposed
Conversion/Continuation Date; (ii) the aggregate amount of Loans to be converted or renewed; (iii)
the type of Loans resulting from the proposed conversion or continuation; and (iv) the duration of
the requested Interest Period.
(c) If, upon the expiration of any Interest Period applicable to LIBOR Revolving Loans,
Borrowers have failed to select timely a new Interest Period to be applicable to LIBOR Revolving
Loans or if any Default or Event of Default then exists, Borrowers shall be deemed to have elected
to convert such LIBOR Revolving Loans into Base Rate Revolving Loans effective as of the expiration
date of such Interest Period.
(d) Agent will promptly notify each Lender of its receipt of a Notice of
Conversion/Continuation. All conversions and continuations shall be made ratably according to
28
the respective outstanding principal amounts of the Loans with respect to which the notice was
given held by each Lender.
(e) During the existence of a Default or Event of Default, Borrowers may not elect to have a
Loan converted into or continued as a LIBOR Revolving Loan.
(f) After giving effect to any conversion or continuation of Loans, there may not be more than
five (5) different Interest Periods in effect.
2.7
Maximum Interest Rate
. In no event shall any interest rate provided for hereunder
exceed the maximum rate permissible for corporate borrowers under applicable law for loans of the
type provided for hereunder (the Maximum Rate). If, in any month, any interest rate, absent such
limitation, would have exceeded the Maximum Rate, then the interest rate for that month shall be
the Maximum Rate, and, if in future months, that interest rate would otherwise be less than the
Maximum Rate, then that interest rate shall remain at the Maximum Rate until such time as the
amount of interest paid hereunder equals the amount of interest which would have been paid if the
same had not been limited by the Maximum Rate. In the event that, upon payment in full of the
Obligations under this Agreement, the total amount of interest paid or accrued under the terms of
this Agreement is less than the total amount of interest which would, but for this
Paragraph
2.7
, have been paid or accrued if the interest rates otherwise set forth in this Agreement had
at all times been in effect, then Borrowers shall, to the extent permitted by applicable law, pay
Agent, for the account of Lenders, an amount equal to the difference between (a) the lesser of (i)
the amount of interest which would have been charged if the Maximum Rate had, at all times, been in
effect or (ii) the amount of interest which would have accrued had the interest rates otherwise set
forth in this Agreement, at all times, been in effect and (b) the amount of interest actually paid
or accrued under this Agreement. In the event that a court determines that Agent and/or any Lender
has received interest and other charges hereunder in excess of the Maximum Rate, such excess shall
be deemed received on account of, and shall automatically be applied to reduce, the Obligations
other than interest, in the inverse order of maturity, and if there are no Obligations outstanding,
the Agent and/or such Lender shall refund to Borrowers such excess.
2.8
Unused Line Fee
. Borrowers agree to pay, on the fifteenth day of each month and
on the Maturity Date, to Agent, for the account of Lenders, in accordance with their respective Pro
Rata Shares, an unused line fee (the Unused Line Fee) equal to one-quarter of one percent (0.25%)
per annum on the average closing daily amount by which the Total Credit Facility exceeded the sum
of the average daily outstanding amount of Revolving Loans and the average daily undrawn face
amount of outstanding Letters of Credit during the immediately preceding month or shorter period if
calculated on the Maturity Date. The Unused Line Fee shall be computed on the basis of a 360-day
year for the actual number of days elapsed. All payments received by Agent shall be deemed to be
credited to Borrowers Loan Account immediately upon receipt for purposes of calculating the Unused
Line Fee pursuant to this
Paragraph 2.8
.
2.9
Payment of Revolving Loans
. Borrowers shall repay the outstanding principal
balance of the Revolving Loans,
plus
all accrued but unpaid interest thereon, on the
Maturity Date. Borrowers may prepay Revolving Loans at any time, and reborrow subject to the terms
of this Agreement;
provided
,
however
, that with respect to any LIBOR Revolving
Loans prepaid by Borrowers prior to the expiration date of the Interest Period applicable thereto,
Borrowers agree to pay to Agent for the account of Lenders the amounts described in
Paragraph
2.14
. In addition, and without limiting the generality of the foregoing, Borrowers shall pay to
Agent, for the
29
account of Lenders, the amount, without duplication, by which the sum of outstanding Revolving
Loans and the aggregate amount of Pending Revolving Loans exceeds the Availability with any such
amount to be payable immediately without notice or demand.
2.10
Payments by Borrowers.
(a) All payments to be made by Borrowers shall be made without set-off, recoupment or
counterclaim. Except as otherwise expressly provided herein, all payments by Borrowers shall be
made to Agent for the account of Lenders, at Agents address and shall be made in Dollars and in
immediately available funds, no later than 11:00 a.m. (New York, New York time) on the date
specified herein. Any payment received by Agent later than 11:00 a.m. (New York, New York time)
shall be deemed to have been received on the following Business Day and any applicable interest or
fee shall continue to accrue.
(b) Subject to the provisions set forth in the definition of Interest Period herein,
whenever any payment is due on a day other than a Business Day, such payment shall be made on the
following Business Day, and such extension of time shall in such case be included in the
computation of interest or fees, as the case may be.
(c) Unless Agent receives notice from Borrower prior to the date on which any payment is due
to the Lenders that Borrowers will not make such payment in full as and when required, Agent may
assume that Borrowers have made such payment in full to Agent on such date in immediately available
funds and Agent may (but shall not be so required), in reliance upon such assumption, distribute to
each Lender on such due date an amount equal to the amount then due such Lender. If and to the
extent Borrowers have not made such payment in full to Agent, each Lender shall repay to Agent on
demand such amount distributed to such Lender, together with interest thereon at the Federal Funds
Rate for each day from the date such amount is distributed to such Lender until the date repaid.
(d) All payments of principal, interest, reimbursement obligations in connection with Letters
of Credit and any related credit support for Letters of Credit, fees, premiums and other sums
payable hereunder, including all reimbursement for expenses pursuant to
Paragraph 13.1
,
may, at the option of Agent, in its sole discretion, subject only to the terms of this
subparagraph 2.10(d)
, be paid from the proceeds of Revolving Loans made hereunder, whether
made following a request by Borrowers pursuant to
Paragraph 2.2
or a deemed request as
provided in this
subparagraph 2.10(d)
. Each Borrower hereby irrevocably authorizes Agent to
charge the Loan Account for the purpose of paying principal, interest, reimbursement obligations in
connection with Letters of Credit and any related credit support for Letters of Credit, fees,
premiums and other sums payable hereunder, including reimbursing expenses pursuant to
Paragraph
13.1
, and agrees that all such amounts charged shall constitute Revolving Loans (including
Non-Ratable Loans and Agent Advances) and that all such Revolving Loans so made shall be deemed to
have been requested by Borrowers pursuant to
Paragraph 2.2
.
2.11
Taxes
.
(a) Any and all payments by Borrowers to Agent and each Lender under this Agreement and any
other Loan Document shall be made free and clear of, and without deduction or withholding for, any
Taxes. In addition, Borrowers shall pay all Other Taxes.
30
(b)
BORROWERS AGREE TO INDEMNIFY AND HOLD HARMLESS AGENT AND EACH LENDER FOR THE FULL AMOUNT
OF TAXES OR OTHER TAXES (INCLUDING ANY TAXES OR OTHER TAXES IMPOSED BY ANY JURISDICTION ON AMOUNTS
PAYABLE UNDER THIS PARAGRAPH, BUT EXCLUDING THE EXCLUDED TAXES) PAID BY AGENT OR ANY LENDER AND ANY
LIABILITY (INCLUDING PENALTIES, INTEREST, ADDITIONS TO TAX AND EXPENSES) ARISING THEREFROM OR WITH
RESPECT THERETO, WHETHER OR NOT SUCH TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED.
PAYMENT UNDER THIS INDEMNIFICATION SHALL BE MADE WITHIN 30 DAYS AFTER THE DATE AGENT OR SUCH LENDER
MAKES WRITTEN DEMAND THEREFOR.
(c) If Borrowers shall be required by law to deduct or withhold any Taxes or Other Taxes from
or in respect of any sum payable hereunder to Agent or any Lender, then:
(i) the sum payable shall be increased as necessary so that after making all required
deductions and withholdings (including deductions and withholdings applicable to additional sums
payable under this Paragraph) Agent or such Lender, as the case may be, receives an amount equal to
the sum it would have received had no such deductions or withholdings been made;
(ii) Borrowers shall make such deductions and withholdings;
(iii) Borrowers shall pay the full amount deducted or withheld to the relevant taxing
authority or other authority in accordance with applicable law; and
(iv) Borrowers shall also pay to each Lender or Agent for the account of such Lender, at the
time interest is paid, all additional amounts which the respective Lender specifies as necessary to
preserve the after-tax yield such Lender would have received if such Taxes or Other Taxes had not
been imposed.
(d) Within 30 days after the date of any payment by Borrowers of Taxes or Other Taxes,
Borrowers shall furnish Agent the original or a certified copy of a receipt evidencing payment
thereof, or other evidence of payment reasonably satisfactory to Agent.
(e) If Borrowers are required to pay additional amounts to Agent or any Lender pursuant to
subparagraph (c)
of this Paragraph, if any Lender requests compensation under
Paragraph
2.13
or if any Lender gives a notice pursuant to
Paragraph 2.12
., then such Lender
shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the
jurisdiction of its Lending Office so as to eliminate any such additional payment by Borrowers
which may thereafter accrue, if such change in the judgment of such Lender is not otherwise
disadvantageous to such Lender.
2.12
Illegality
.
(a) If any Lender determines that the introduction of any Requirement of Law after the Closing
Date, or any change in any Requirement of Law after the Closing Date, or in the interpretation or
administration of any Requirement of Law after the Closing Date, has made it unlawful, or that any
central bank or other Governmental Authority after the Closing Date has asserted that it is
unlawful, for any Lender or its applicable Lending Office to make LIBOR
31
Revolving Loans, then, on notice thereof by such Lender to Borrowers through Agent, any
obligation of such Lender to make LIBOR Revolving Loans shall be suspended until such Lender
notifies Agent and Borrowers that the circumstances giving rise to such determination no longer
exist.
(b) If any Lender determines that it is unlawful to maintain any LIBOR Revolving Loan,
Borrowers shall, upon their receipt of notice of such fact and demand from such Lender (with a copy
to Agent), prepay in full such LIBOR Revolving Loans of such Lender then outstanding, together with
interest accrued thereon and amounts required under
Paragraph 2.14
, either on the last day
of the Interest Period thereof, if such Lender may lawfully continue to maintain such LIBOR
Revolving Loans to such day, or immediately, if such Lender may not lawfully continue to maintain
such LIBOR Revolving Loan. If Borrowers are required to so prepay any LIBOR Revolving Loan, then
concurrently with such prepayment, Borrowers shall borrow from the affected Lender, in the amount
of such repayment, a Base Rate Revolving Loan.
2.13
Increased Costs and Reduction of Return.
(a) If any Lender determines that, due to either (i) the introduction of or any change in the
interpretation of any law or regulation after the Closing Date or (ii) the compliance by such
Lender with any guideline or request from any central bank or other Governmental Authority (whether
or not having the force of law) after the Closing Date, there shall be any increase in the cost to
such Lender of agreeing to make or making, funding or maintaining any LIBOR Revolving Loans, then
Borrowers shall be liable for, and shall from time to time, upon demand (with a copy of such demand
to be sent to the Agent), pay to Agent for the account of such Lender, additional amounts as are
sufficient to compensate such Lender for increased costs.
(b) If any Lender shall have determined that (i) the introduction of any Capital Adequacy
Regulation after the Closing Date, (ii) any change in any Capital Adequacy Regulation after the
Closing Date, (iii) any change in the interpretation or administration of any Capital Adequacy
Regulation after the Closing Date by any central bank or other Governmental Authority charged with
the interpretation or administration thereof, or (iv) compliance by such Lender or any corporation
controlling such Lender with any Capital Adequacy Regulation, affects or would affect the amount of
capital required or expected to be maintained by such Lender or any corporation controlling such
Lender and (taking into consideration such Lenders or such corporations policies with respect to
capital adequacy and such Lenders desired return on capital) determines that amount of such
capital is increased as a consequence of its lending commitment, loans, credits or obligations
under this Agreement then, upon demand of such Lender to Borrowers through Agent, Borrowers shall
pay to such Lender, from time to time as specified by such Lender, additional amounts sufficient to
compensate such Lender for such increase.
2.14
Funding Losses
. Borrowers shall reimburse each Lender and hold each Lender
harmless from any loss or expense which such Lender may sustain or incur as a consequence of:
(a) the failure of Borrowers to make on a timely basis any payment of principal of any LIBOR
Revolving Loan;
(b) the failure of Borrowers to borrow, continue or convert a Loan after Borrowers have given
(or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/Continuation; or
32
(c) the prepayment or other payment (including after acceleration thereof) of any LIBOR
Revolving Loan on a day that is not the last day of the relevant Interest Period;
including any such loss or expense arising from the liquidation or
reemployment of funds obtained by it to maintain its LIBOR Revolving
Loans or from fees payable to terminate the deposits from which such
funds were obtained.
2.15
Inability to Determine Rates
. If Agent determines that for any reason adequate
and reasonable means do not exist for determining the LIBOR Rate for any requested Interest Period
with respect to a proposed LIBOR Revolving Loan, or that the LIBOR Rate for any requested Interest
Period with respect to a proposed LIBOR Revolving Loan does not adequately and fairly reflect the
cost to Lenders of funding such Loan, Agent will promptly so notify Borrower and each Lender.
Thereafter, the obligation of Lenders to make or maintain LIBOR Revolving Loans hereunder shall be
suspended until Agent revokes such notice in writing. Upon receipt of such notice, Borrowers may
revoke any Notice of Borrowing or Notice of Conversion/Continuation then submitted by it. If
Borrowers do not revoke such Notice, Lenders shall make, convert or continue the Loans, as proposed
by Borrowers, in the amount specified in the applicable notice submitted by Borrowers, but such
Loans shall be made, converted or continued as Base Rate Revolving Loans instead of LIBOR Revolving
Loans.
2.16
Certificates of Lenders
. Any Lender, when claiming reimbursement or compensation
under this
Section Two
, shall deliver to Borrowers (with a copy to Agent) a certificate
setting forth in reasonable detail the amount payable to such Lender hereunder and such certificate
shall be conclusive and binding on Borrowers in the absence of manifest error.
2.17
Survival
. The agreements and obligations of Borrowers in this Section Two shall
survive the payment of all other Obligations.
2.18
Letters of Credit.
(a)
Issuance
. Subject to the terms and conditions of this Agreement, the Letter of
Credit Issuer shall, upon the Borrowers request from time to time, cause stand-by letters of
credit to be issued for the Borrowers account (the Letters of Credit). The Letter of Credit
Issuer will not cause to be opened any Letter of Credit if: (i) the maximum face amount of the
requested Letter of Credit would exceed the Unused Letter of Credit Subfacility at such time; (ii)
the maximum face amount of the requested Letter of Credit, and all commissions, fees, and charges
due from Borrowers to Letter of Credit Issuer in connection with the opening thereof, would cause
the Borrowers remaining Excess Availability to be less than zero at such time or would exceed the
Total Credit Facility at such time; or (iii) the expiration date of the Letter of Credit would
exceed the Maturity Date or be greater than twelve (12) months from the date of issuance. All
payments made and expenses incurred by the Letter of Credit Issuer pursuant to or in connection
with the Letters of Credit will, at the Agents discretion, be charged to the Borrowers Loan
Account as Base Rate Revolving Loans.
(b)
Other Conditions
. In addition to being subject to the satisfaction of the
applicable conditions precedent contained in
Section Six
, the obligation of the Letter of
Credit Issuer to cause to be issued any Letter of Credit is subject to the following conditions
precedent having been satisfied in a manner satisfactory to the Agent:
33
(i) The Borrowers shall have delivered to the Letter of Credit Issuer, at such times and in
such manner as such Letter of Credit Issuer may prescribe, an application in form and substance
satisfactory to the Letter of Credit Issuer for the issuance of the Letter of Credit and such other
documents as may be reasonably required pursuant to the terms thereof, and the form and terms of
the proposed Letter of Credit shall be satisfactory to the Agent and Letter of Credit Issuer; and
(ii) As of the date of issuance, no order of any court, arbitrator or Governmental Authority
shall purport by its terms to enjoin or restrain money center banks generally from issuing letters
of credit of the type and in the amount of the proposed Letter of Credit, and no law, rule or
regulation applicable to money center banks generally and no request or directive (whether or not
having the force of law) from any Governmental Authority with jurisdiction over money center banks
generally shall prohibit, or request that the Letter of Credit Issuer refrain from, the issuance of
letters of credit generally or the issuance of such Letters of Credit.
(c)
Issuance of Letters of Credit.
(i)
Request for Issuance
. The Borrowers shall give the Agent two (2) Business Days
prior written notice of the Borrowers request for the issuance of a Letter of Credit. Such notice
shall be irrevocable and shall specify the original face amount of the Letter of Credit requested,
the effective date (which date shall be a Business Day) of issuance of such requested Letter of
Credit, whether such Letter of Credit may be drawn in a single or in partial draws, the date on
which such requested Letter of Credit is to expire (which date shall be a Business Day), the
purpose for which such Letter of Credit is to be issued, and the beneficiary of the requested
Letter of Credit. The Borrower shall attach to such notice the proposed form of the Letter of
Credit that the Agent is requested to cause to be issued.
(ii)
Responsibilities of the Agent; Issuance
. Agent shall determine, as of the
Business Day immediately preceding the requested effective date of issuance of the Letter of Credit
set forth in the notice from Borrowers pursuant to
subparagraph 2.18(c)(1)
, (A) the amount
of the applicable Unused Letter of Credit Subfacility and (B) the Availability and Excess
Availability as of such date. If (i) the undrawn amount of the requested Letter of Credit is not
greater than the Unused Letter of Credit Subfacility and (ii) the amount of such requested Letter
of Credit and all commissions, fees, and charges due from Borrowers in connection with the opening
thereof would not exceed the Excess Availability, Agent shall, so long as the other conditions
hereof and of
Section Six
are met, cause the requested Letter of Credit to be issued on
such requested effective date of issuance.
(iii)
Notice of Issuance
. On each Settlement Date, Agent shall give notice to each
Lender of the issuance of all Letters of Credit issued since the last Settlement Date.
(iv)
No Extensions or Amendment
. The Agent shall not be obligated to cause any Letter
of Credit to be extended or amended unless (A) the requirements of this
Paragraph 2.18
are
met as though a new Letter of Credit were being requested and issued, and (B) the Agent consents to
such extension or amendment, which it may withhold in its sole and absolute discretion.
34
(d)
Payments Pursuant to Letters of Credit.
(i)
Payment of Letter of Credit Obligations
. The Borrowers agree to reimburse the
Letter of Credit Issuer for any draw under any Letter of Credit immediately upon demand, and to pay
the issuer of the Letter of Credit (or the Agent, for the account of such issuer) the amount of all
other obligations and other amounts payable to such issuer under or in connection with any Letter
of Credit immediately when due, irrespective of any claim, setoff, defense or other right which the
Borrowers may have at any time against such issuer or any other Person.
(ii)
Revolving Loans to Satisfy Reimbursement Obligations
. In the event that the
issuer of any Letter of Credit honors a draw under such Letter of Credit and the Borrowers shall
not have repaid such amount to the issuer of such Letter of Credit pursuant to
subparagraph
2.18(d)(i)
, such drawing shall constitute a request by the Borrowers to the Agent for a
Borrowing of a Base Rate Revolving Loan in the amount of such drawing. The Funding Date with
respect to such Borrowing shall be the date of such drawing.
(e)
Participations.
(i)
Purchase of Participations
. Immediately upon issuance of any Letter of Credit in
accordance with
subparagraph 2.18(c)
, each Lender shall be deemed to have irrevocably and
unconditionally purchased and received without recourse or warranty, an undivided interest and
participation equal to such Lenders Pro Rata Share of the face amount of such Letter of Credit
(including all obligations of Borrowers with respect thereto, and any security therefor or guaranty
pertaining thereto).
(ii)
Sharing of Reimbursement Obligation Payments
. Whenever Agent receives a payment
from Borrowers on account of reimbursement obligations in respect of a Letter of Credit as to which
the Agent has previously received for the account of the Letter of Credit Issuer thereof payment
from a Lender pursuant to
subparagraph 2.18(d)(ii)
, Agent shall promptly pay to such Lender
such Lenders Pro Rata Share of such payment from Borrowers in Dollars. Each such payment shall be
made by Agent on the Business Day on which Agent receives immediately available funds paid to such
Person pursuant to the immediately preceding sentence, if received prior to 3:00 p.m. (New York,
New York time) on such Business Day and otherwise on the next succeeding Business Day.
(iii)
Documentation
. Upon the request of any Lender, Agent shall furnish to such
Lender copies of any Letter of Credit, reimbursement agreements executed in connection therewith,
applications for any Letter of Credit, and such other documentation as may reasonably be requested
by such Lender.
(iv)
Obligations Irrevocable
. The obligations of each Lender to make payments to
Agent with respect to any Letter of Credit or with respect to their participation therein or with
respect to the Revolving Loans made as a result of a drawing under a Letter of Credit and the
obligations of Borrower for whose account the Letter of Credit was issued to make payments to
Agent, for the account of Lenders, shall be irrevocable, not subject to any qualification or
exception whatsoever, including any of the following circumstances:
(1) any lack of validity or enforceability of this Agreement or any of the other Loan
Documents;
35
(2) the existence of any claim, setoff, defense or other right which Borrowers may have at any
time against a beneficiary named in a Letter of Credit or any transferee of any Letter of Credit
(or any Person for whom any such transferee may be acting), any Lender, Agent, the issuer of such
Letter of Credit, or any other Person, whether in connection with this Agreement, any Letter of
Credit, the transactions contemplated herein or any unrelated transactions (including any
underlying transactions between Borrowers or any other Person and the beneficiary named in any
Letter of Credit);
(3) any draft, certificate or any other document presented under the Letter of Credit proving
to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect;
(4) the surrender or impairment of any security for the performance or observance of any of
the terms of any of the Loan Documents;
(5) the occurrence of any Default or Event of Default; or
(6) the failure of Borrowers to satisfy the applicable conditions precedent set forth in
Section Six
.
(f)
Recovery or Avoidance of Payments
. In the event any payment by or on behalf of
Borrowers received by Agent with respect to any Letter of Credit and distributed by Agent to
Lenders on account of their respective participations therein is thereafter set aside, avoided or
recovered from Agent in connection with any receivership, liquidation or bankruptcy proceeding,
Lenders shall, upon demand by Agent, pay to Agent their respective Pro Rata Shares of such amount
set aside, avoided or recovered, together with interest at the rate required to be paid by Agent
upon the amount required to be repaid by it.
(g)
Compensation for Letters of Credit
. The Borrowers agree to pay to the Agent, for
the account of the Lenders, in accordance with their respective Pro Rata Shares, with respect to
each Letter of Credit, the Letter of Credit Fee specified in, and in accordance with the terms of,
Paragraph 2.19
.
(h)
Indemnification; Exoneration; Power of Attorney.
(i)
INDEMNIFICATION
. IN ADDITION TO AMOUNTS PAYABLE AS ELSEWHERE PROVIDED IN THIS
PARAGRAPH 2.18
, THE BORROWERS HEREBY AGREE TO PROTECT, INDEMNIFY, PAY AND SAVE THE LENDERS
AND THE AGENT HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, DAMAGES, LOSSES,
COSTS, CHARGES AND EXPENSES (INCLUDING ANY REASONABLE ATTORNEYS FEES) WHICH ANY LENDER OR THE
AGENT MAY INCUR OR BE SUBJECT TO AS A CONSEQUENCE, DIRECT OR INDIRECT, OF THE ISSUANCE OF ANY
LETTER OF CREDIT OR THE PROVISION OF ANY CREDIT SUPPORT OR ENHANCEMENT IN CONNECTION THEREWITH
UNLESS RESULTING FROM SUCH LENDERS OR THE AGENTS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. THE
AGREEMENT IN THIS
SUBPARAGRAPH 2.18(H)(I)
SHALL SURVIVE PAYMENT OF ALL OBLIGATIONS AND THE
TERMINATION OF THIS AGREEMENT
.
36
(ii)
Assumption of Risk by the Borrowers
. As among the Borrowers, the Lenders and the
Agent, the Borrowers assume all risks (except the risk of gross negligence or willful misconduct by
any Lender or the Agent) of the acts and omissions of, or misuse of any of the Letters of Credit
by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of
the foregoing, the Lenders and the Agent, when acting in good faith and without gross negligence or
willful misconduct, shall not be responsible for: (A) the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any Person in connection with the
application for and issuance of and presentation of drafts with respect to any of the Letters of
Credit, even if it should prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (B) the validity or sufficiency of any instrument transferring or assigning
or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or
proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason;
(C) the failure of the beneficiary of any Letter of Credit to comply duly with conditions required
in order to draw upon such Letter of Credit; (D) errors, omissions, interruptions, or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or
not they be in cipher; (E) errors in interpretation of technical terms; (F) any loss or delay in
the transmission or otherwise of any document required in order to make a drawing under any Letter
of Credit or of the proceeds thereof; (G) the misapplication by the beneficiary of any Letter of
Credit of the proceeds of any drawing under such Letter of Credit; or (H) any consequences arising
from causes beyond the control of the Agent or the Lenders, including, without limitation, any act
or omission, whether rightful or wrongful, of any present or future
de
jure
or
de
facto
Public Authority. None of the foregoing shall affect, impair or prevent
the vesting of any rights or power of the Agent or any Lender under this
Paragraph 2.18.
(iii)
Exoneration
. In furtherance and extension, and not in limitation, of the
specific provisions set forth above, any action taken or omitted by the Agent or any Lender under
or in connection with any of the Letters of Credit or any related certificates, if taken or omitted
in the absence of gross negligence or willful misconduct, shall not put the Agent or any Lender
under any resulting liability to the Borrowers or relieve the Borrowers of any of its obligations
hereunder to any such Person.
(iv)
Indemnification by Lenders
. Lenders agree to indemnify each Letter of Credit
Issuer (to the extent not reimbursed by Borrowers and without limiting the obligations of Borrowers
hereunder) ratably in accordance with their respective Pro Rata Shares, for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses
(including attorneys fees) or disbursements of any kind and nature whatsoever that may be imposed
on, incurred by or asserted against such Letter of Credit Issuer in any way relating to or arising
out of any Letter of Credit or the transactions contemplated thereby or any action taken or omitted
by such Letter of Credit Issuer under any Letter of Credit or any Loan Document in connection
therewith;
provided
that no Lender shall be liable for any of the foregoing to the extent
it arises from the gross negligence or willful misconduct of the Person to be indemnified. Without
limitation of the foregoing, each Lender agrees to reimburse each Letter of Credit Issuer promptly
upon demand for its Pro Rata Share of any costs or expenses payable by Borrowers to such Letter of
Credit Issuer, to the extent that such Letter of Credit Issuer is not promptly reimbursed for such
costs and expenses by Borrowers. The agreement contained in this Paragraph shall survive payment
in full of all Obligations.
37
(v)
Account Party
. The Borrowers hereby authorize and direct any Letter of Credit
Issuer to name the Borrower as the Account Party therein and to deliver to the Agent all
instruments, documents and other writings and property received by the Letter of Credit Issuer
pursuant to the Letter of Credit, and to accept and rely upon the Agents instructions and
agreements with respect to all matters arising in connection with the Letter of Credit or the
application therefor.
(i)
Supporting Letter of Credit; Cash Collateral
. If, notwithstanding the provisions
of this
Paragraph 2.18
and any other provision of this Agreement, any Letter of Credit is
outstanding upon the termination of this Agreement, then upon such termination the Borrowers shall
deposit with the Agent, for the ratable benefit of the Agent and the Lenders, with respect to each
Letter of Credit then outstanding, as the Majority Lenders, in their discretion, shall specify,
either (A) a standby letter of credit (a Supporting Letter of Credit) in form and substance
satisfactory to the Agent, issued by an issuer satisfactory to the Agent in an amount equal to the
greatest amount for which such Letter of Credit may be drawn plus any fees and expenses associated
with such Letter of Credit, under which Supporting Letter of Credit the Agent is entitled to draw
amounts necessary to reimburse the Agent and the Lenders for payments made by the Agent and the
Lenders under such Letter of Credit or under any credit support or enhancement provided through the
Agent with respect thereto and any fees and expenses associated with such Letter of Credit or
credit support, or (B) cash in amounts necessary to reimburse the Agent and the Lenders for
payments made by the Agent or the Lenders under such Letter of Credit or under any credit support
or enhancement provided through the Agent and any fees and expenses associated with such Letter of
Credit or credit support. Such Supporting Letter of Credit or deposit of cash shall be held by the
Agent, for the ratable benefit of the Agent and the Lenders, as security for, and to provide for
the payment of, the aggregate undrawn amount of such Letters of Credit or such credit support
remaining outstanding.
2.19
Letter of Credit Fee
. The Borrowers agree to pay to the Agent, for the account
of the Lenders, in accordance with their respective Pro Rata Shares, for each Letter of Credit, a
fee (the Letter of Credit Fee) equal to three-quarters of one percent (0.75%) per annum of the
undrawn face amount of each Letter of Credit issued for the Borrowers account at the Borrowers
request,
plus
all out-of-pocket costs, fees and expenses incurred by the Agent in
connection with the application for, processing of, issuance of, or amendment to any Letter of
Credit, which costs, fees and expenses shall include a fronting fee payable to such issuer. The
Letter of Credit Fee shall be payable monthly in arrears on the fifteenth day of each month
following any month in which a Letter of Credit was issued and/or in which a Letter of Credit
remains outstanding and on the Maturity Date. The Letter of Credit Fee shall be payable when a
Letter of Credit is issued, renewed, extended, or amended, as appropriate for the period of time
during which the Letter of Credit will be outstanding. The Letter of Credit Fee shall be computed
on the basis of a 360-day year for the actual number of days elapsed. If any Event of Default
occurs, then, from the date such Event of Default occurs until it is cured, or if not cured until
all Obligations are paid and performed in full, the Letter of Credit Fee shall be increased to two
and three-quarters percent (2.75%) per annum.
2.20
Bank Products
. Borrowers may request and Bank of America may, in its sole and
absolute discretion, arrange for Borrowers to obtain from Bank of America or Bank of Americas
Affiliates Bank Products although Borrowers are not required to do so. To the extent Bank Products
are provided by an Affiliate of Bank of America, Borrowers agree to indemnify and hold Bank of
America and the Lenders harmless from any and all costs and obligations now or
38
hereafter incurred by Bank of America or any of the Lenders which arise from the indemnity
given by Bank of America to its Affiliates related to such Bank Products except for costs or
obligations resulting from the gross negligence or willful misconduct of Bank of America or any of
the Lenders. The agreement contained in this Paragraph shall survive termination of this
Agreement. Each Borrower acknowledges and agrees that the obtaining of Bank Products from Bank of
America or Bank of Americas Affiliates (a) is in the sole and absolute discretion of Bank or Bank
of Americas Affiliates, and (b) is subject to all rules and regulations of Bank of America or Bank
of Americas Affiliates.
SECTION THREE TERM
3.1
Term of Agreement and Loan Repayment
. This Agreement shall have a term commencing
on the date this Agreement becomes effective, and ending on March 21, 2010 (Maturity Date). The
Loan shall be due and payable in full on the Maturity Date without notice or demand and shall be
repaid to Agent, for the account of Lenders, by a wire transfer of immediately available funds.
Borrowers may terminate this Agreement prior to the Maturity Date by: (a) giving Agent and
Lenders at least thirty (30) days prior notice of intention to terminate this Agreement; (b) paying
and performing, as appropriate, all Obligations on or prior to the effective date of termination;
(c) paying to Agent, for the account of the Lenders, an early termination fee equal to (i)
three-quarters of one percent (0.75%) of the outstanding Obligations in the event the effective
date of termination occurs at any time on or prior to the first anniversary of the Closing Date,
and (ii) one-half of one percent (0.50%) of the outstanding Obligations in the event the effective
date of termination occurs at any time after the first anniversary of the Closing Date and prior to
the thirty-fourth (34
th
) month after the Closing Date; and (c) with respect to any LIBOR
Revolving Loans prepaid in connection with such termination prior to the expiration date of the
Interest Period applicable thereto, the payment of the amounts described in
Paragraph 2.14.
Notwithstanding the foregoing, upon the occurrence of an Event of Default, Agent may (and shall, at
the direction of Majority Lenders) immediately terminate further performance under this Agreement
without notice or demand.
3.2
Termination of Security Interests
. Notwithstanding termination, until all
Obligations have been fully repaid, Agent, for the account of Lenders, shall retain a security
interest in all Collateral existing and thereafter arising and Borrowers shall continue to assign
to Agent, for the account of Lenders, all Contracts and security therefor and shall continue to
immediately turn over to Agent, in kind, all collections received respecting the Contracts. After
termination, and when Agent has received payment in full of all Obligations, for the account of the
Lenders, the security interest created hereby shall terminate and all right to the Collateral shall
revert to the Borrowers and Agent shall promptly execute such evidence of termination of all
security agreements and release of the security interests given by Borrowers to Agent as Borrower
may reasonably request.
SECTION FOUR SECURITY INTEREST IN COLLATERAL
4.1
Creation of Security Interest in Collateral
. Each Borrower hereby irrevocably and
unconditionally grants, transfers, and assigns to Agent, for the benefit of Agent and Lenders, all
its right, title, and interest in all the Collateral, whether presently existing or hereafter
acquired or arising, in order to secure prompt payment and performance by each Borrower of all its
Obligations. Agents title and security interest in the Collateral shall attach to all the
Collateral without further act by Agent or Borrowers. In the event any Collateral, including
proceeds, is
39
evidenced by or consists of Instruments, Borrowers shall, upon the request of Agent, endorse,
assign, and deliver to Agent such Instruments.
4.2
Borrowers Representations and Warranties Re Collateral
. Each Borrower represents
and warrants to Agent and Lenders that so long as such Borrower is obligated to Agent and Lenders,
that:
(a) the Collateral shall be owned solely by such Borrower, and no other Person, other than
Agent and Lenders, has or will have any right, title, interest, claim or lien therein except for
Permitted Liens;
(b) except as specifically consented to in writing by Agent, such Borrower shall not within
any one calendar year grant more than two extensions of time for the payment, and shall not
compromise for less than the full face value, or release in whole or in part any Person liable for
the payment of, or allow any credit whatsoever against, any portion of the Collateral, except for
the amount of cash to be paid upon any such Collateral or any instrument or document representing
such Collateral, and that the Collateral, including any monies resulting from the lease, rental,
sale or other disposition thereof, shall remain free and clear of any liens, excepting for liens
hereby granted to Agent and Lenders and Permitted Liens;
(c) Such Borrower shall pay and discharge, when due, all taxes, levies, assessments and other
charges upon the Collateral, except to the extent the validity thereof is being contested in good
faith by proper proceedings which stay the imposition of any penalty, fine or Lien resulting from
non-payment thereof and with respect to which adequate reserves in accordance with GAAP have been
set aside for the payment thereof; and
(d) Only Contracts and Security Documents in a form approved in writing by Agent shall be used
by such Borrower for all transactions which may now exist and which may exist in the future. No
Borrower shall materially vary the terms of such form of Contracts and Security Documents without
Agents prior written consent (which consent shall not be unreasonably withheld, conditioned or
delayed) or in conflict with any applicable laws.
4.3
Financing Statements
. Each Borrower agrees, at its own expense, to execute
financing statements, continuation statements, and assignments of financing statements provided for
by the Code, together with any and all other instruments or documents and to take such other
action, including delivery, as may be required to perfect or maintain Agents security interest in
the Collateral, and to execute and record an assignment of any deed of trust or mortgage naming
such Borrower as the beneficiary and a Contract Debtor (or any Guarantor) as trustor. Each
Borrower hereby (i) authorizes Agent and Agents designee to execute and file or record, or file or
record without signature as the case may be where permitted by law, at any time any such financing
statements, continuation statements, and assignments and amendments thereto on such Borrowers
behalf and (ii) ratifies such authorization to the extent that the Agent has filed any such
financing statements, continuation statements and assignments and amendments thereto, prior to the
date hereof.
4.4
Location of Collateral
. Each Borrower represents and warrants that except for
Collateral which has been delivered to Agent under the terms hereof: (a)
Schedule 4.4
is a
correct and complete list of the location of all of books and records concerning the Collateral,
the locations of the Collateral, and location of all such Borrowers places of business as of the
Closing Date; and (b) the Collateral shall remain at all times in the possession of such Borrower.
40
Each Borrower covenants and agrees that, except for Collateral in the possession of Agent, it
will not maintain the Collateral at any location other than those listed in
Schedule 4.4
,
and will not otherwise change or add to those locations, unless it gives Agent at least 30 days
prior notice thereof and executes and delivers to Agent any and all financing statements and other
documents that Agent reasonably requests in connection therewith. Notwithstanding any provision of
this Agreement to the contrary, upon the occurrence and during the continuance of an Event of
Default, each Borrower shall upon Agents request immediately deliver to Agent all Contracts and
related Security Document then existing and thereafter arising.
4.5
Protection of Collateral; Reimbursement
. Each Borrower shall pay all expenses of
protecting, storing, insuring, handling, maintaining, and shipping the Collateral and any and all
excise, property, sales, and use taxes levied by any state, federal or local authority on any of
the Collateral or in respect of the sale thereof.
If any Borrower fails promptly to pay any portion thereof when due, Agent may, at its option,
but shall not be required to, pay the same and charge any Borrowers account under this Agreement
therefor, and each Borrower agrees promptly to reimburse Agent therefor with interest accruing
thereon daily at the rate of interest then in effect under the Notes. All sums so paid or incurred
by Agent for any of the foregoing and any and all sums for which Borrowers may become liable under
this Agreement and all reasonable costs and expenses (including Agents Expenses) which Agent may
incur in enforcing or protecting its lien or rights and interest in the Collateral or any of its
rights or remedies under this Agreement or any other agreement between the parties hereto or in
respect of any of the transactions occurring thereunder until paid by Borrowers to Agent with
interest at the rate of interest then in effect under the Notes, shall be considered as additional
indebtedness owing by Borrowers to Agent under this Agreement and, as such, shall be secured by all
the Collateral. Except for Agent or Lenders gross negligence or willful misconduct, Agent shall
not be liable or responsible in any way for the safekeeping of any of the Collateral or for any
loss or damage thereto or for any diminution in the value thereof, or for any act or default of any
carrier, forwarding agency, or other Person whatsoever, but the same shall be at Borrowers sole
risk.
4.6
Release of Collateral
. Notwithstanding any other provision of this Agreement to
the contrary, upon Borrowers request, Agent shall release its security interest in any Contract(s)
(and the Security Documents related thereto) included in the Collateral so long as (a) Borrower
obtains Agents prior written consent to such release, which consent shall not be unreasonably
withheld, conditioned or delayed; (b) no Default or Event of Default exists at the time such
Contract(s) is to be released; (c) Borrower has entered into a written contract for the sale of
such Contract(s) and has delivered to Agent a fully executed copy of such written contract; (d) if
the Borrowers have no Excess Availability after giving effect to the sale, either (i) Borrower
pledges to Agent additional Collateral equivalent to such Contract(s) being released, or (ii)
Borrower reduces the outstanding, unpaid principal balance of the Notes through payment in an
amount equal to the sale price of such Contract(s) being released in the form of cash or the wire
transfer of immediately available funds; and (e) immediately following the pledging of additional
Collateral or payment of the Notes, a Default or Event of Default does not exist under this
Agreement. Upon satisfaction of all of the foregoing conditions, Agent shall release its security
interest in such Contract(s) and within a reasonable period of time, return the original such
Contract(s) and original Security Documents in its possession, if any, being released. Any
distribution of interest or principal, or loss of the Collateral or any of the Property secured
thereby, shall not release any Borrower from any of the Obligations.
41
SECTION FIVE RECORDS AND SERVICING OF CONTRACTS
5.1
Records of Contracts
. Each Borrower shall keep or will cause to be kept in a safe
place, at its chief executive office and other locations set forth on
Schedule 4.4
or
otherwise agreed to by Agent, proper and accurate books and records pertaining to the Contracts and
the other Collateral.
5.2
Servicing of Contracts
. At no expense to Agent or any Lender, each Borrower shall
diligently and faithfully perform the following services relating to the Contracts and the other
Collateral:
(a) Borrowers shall collect all payments and other proceeds of the Contracts and other
Collateral and, while any portion of the Loan is unpaid, Borrowers shall, after the establishment
of the Collection Account referred to in this
Paragraph 5.2(a)
, within three (3) Business
Days after receipt thereof, deposit all cash proceeds of the Collateral (including, for example,
all regular monthly payments received in connection with the Contracts) into a collection account
(Collection Account) established by Borrowers and Agent under a certain Deposit Account Control
Agreement between Borrowers, Agent, and the bank identified therein (the Collection Account
Agreement) to be entered into pursuant to
Paragraph 8.16
. Upon the occurrence of an Event
of Default under this Agreement, then upon written notice from Agent to the Borrowers, and at all
times thereafter any Borrowers right to withdraw any funds from the Collection Account shall
immediately terminate and only Agent shall thereafter have a right to withdraw any funds from the
Collection Account. Agent shall reinstate such Borrowers right to withdraw funds from the
Collection Account if no Event of Default is in effect for a 90 day period. Borrowers shall
provide Agent monthly or more frequently as requested by Agent with written notification of any
Contract under which any scheduled payment thereunder is 60 days or more past due.
(b) Borrowers shall perform customary insurance follow-up with respect to each policy of
insurance covering the Property which is subject to Contracts and Security Documents included in
the Collateral.
(c) Except as permitted under
subparagraph 4.2(b)
, above, Borrowers shall not waive or
vary the terms of any Contract in a way that would be adverse to Agents interest, and shall not
forbear or grant any material indulgence to any Contract Debtor, without the prior written consent
of Agent, which consent shall not be unreasonably withheld, conditioned or delayed.
(d) Upon the occurrence of an Event of Default, then upon written notice from Agent, all
rights of Borrowers to collect any payments due under the Contracts and the Collateral and all
rights of Borrowers to exercise the consensual rights which it would otherwise be entitled to
exercise pursuant to
subparagraph 5.2(a)
, above, shall immediately terminate. Borrowers,
at Agents request, shall direct all Contract Debtors to make all payments due under the Contracts
and the Collateral directly to Agent or to a bank account designated by Agent, and Borrowers shall
otherwise cooperate with Agent in that regard. All payments received by Borrowers contrary to this
subparagraph 5.2(d)
shall be received in trust for the exclusive right of Agent, shall be
segregated from other funds of Borrowers, and shall forthwith be delivered to Agent. Agent shall
reinstate Borrowers rights to collect payments and to exercise its consensual rights if no Event
of Default is in effect for a 90-day period.
42
(e)
Monthly Reports and Additional Reports Re Collateral
. Borrowers agree to deliver
to Agent, (i) within 15 days after the end of each calendar month during the term of this
Agreement, a Collateral and Loan Status Report (the Borrowing Base Certificate) and Monthly
Report of Delinquent Accounts in forms provided by Agent (or in such other form approved by Agent),
containing the information requested therein, and (ii) any other reports regarding the Collateral
as Agent may reasonably request at any time and from time to time.
(f)
Verification
. Agent may, from time to time, verify directly with Contract Debtors
the validity, amount, and any other matters relating to the Contracts and the other Collateral by
means of mail, telephone, or otherwise, either in the name of Borrowers or Agent or such other name
as Agent may choose.
SECTION SIX CONDITIONS PRECEDENT TO ADVANCES
6.1
Conditions Precedent to Initial Loans
. The following are conditions precedent to
each Lenders obligation to make any initial Advance required under this Agreement or to Agents
obligations to cause a Letter of Credit to be issued under this Agreement on the Closing Date:
(a)
Opinions of Counsel
. In connection with the effectiveness of this Agreement,
Agent and Lenders shall have received such opinions of counsel as Agent or any Lender shall
reasonably request, all in scope and substance reasonably satisfactory to Agent and Lenders.
(b)
Warranties and Representations True as of Closing Date
. The warranties and
representations contained in this Agreement shall be true and correct in all material respects on
the Closing Date with the same effect as though made on and as of that date.
(c)
Compliance with this Agreement
. Borrowers shall have performed and complied with
all covenants, agreements and conditions contained herein which are required to be performed or
complied with by Borrowers before or on the Closing Date.
(d)
First Lien on Collateral
. Agent shall have a perfected first and only Lien
(except for Permitted Liens), in all of the Contracts and other Collateral and in the documents
underlying or securing each of the Contracts.
(e)
Guaranties
. The Guaranties shall have been executed and delivered by each
Guarantor and shall be in full force and effect.
(f)
Uniform Commercial Code Financing Statements and Assignments of Contracts
. All
filings of Code financing statements, assignments of the Contracts and all other filings,
recordings and action necessary to perfect Agents Liens granted under this Agreement shall have
been filed or recorded and confirmation thereof shall have been received by Agent.
(g)
Proceedings Satisfactory
. All proceedings taken in connection with the execution
of this Agreement shall be satisfactory to Agent and Lenders and their respective counsel.
(h)
Payment of Expenses, Charges, Etc
. Agent shall have the right to pay out of the
proceeds of any Advance to be made by Lenders hereunder all sums which are due from
43
Borrowers to Agent or any Lender pursuant to the terms of this Agreement and for which the
Borrowers have received an invoice at least one (1) Business Day prior to the Closing Date.
(i)
Stock Purchase
. Agent shall have received evidence reasonably satisfactory to the
Agent that the Stock Purchase has been consummated on the Closing Date in accordance with the terms
and conditions consistent with the Stock Purchase Agreement, and the Agent shall have received true
and complete copies of the Stock Purchase Agreement, and any material related documents and
agreements.
(j)
Minimum Excess Availability
. Borrowers shall have on the Closing Date, with all
Debt of the Borrowers and the Guarantors being current, an Excess Availability of at least seven
and one-half percent (7.5%) of the outstanding Loan balance after giving effect to any Advances to
be made on the date of this Agreement.
(k)
Closing Fee
. Agent shall have received, for the benefit of Lenders, to be shared
by Lenders based on their Pro Rata Share, a fully earned and non-refundable closing fee in the
amount of $325,000.00 on the Closing Date.
(l)
Intercreditor Agreement
. Agent shall have received a copy of the fully executed
Intercreditor Agreement.
6.2
Conditions to all Advances and Letters of Credit
. Agent, Letter of Credit Issuer
and Lenders shall not be required to fund any Loans, arrange for issuance of any Letters of Credit
or grant any other accommodation to or for the benefit of Borrowers, unless the following
conditions are satisfied:
(a) No Default or Event of Default shall exist at the time of, or result from, such funding,
issuance or grant;
(b) The representations and warranties of each Borrower and Guarantor in the Loan Documents
shall be true and correct in all material respects (or in all respects for such representations and
warranties that provide for a materiality qualifier therein) on the date of, and upon giving effect
to, such funding, issuance or grant (except for representations and warranties that expressly
relate to an earlier date);
(c) All conditions precedent in any other Loan Document shall be satisfied or waived in
accordance with the terms thereof;
(d) No event shall have occurred or circumstance exist that has or could reasonably be
expected to have a material adverse effect on the business or condition (financial or otherwise) of
the Borrowers and their Subsidiaries taken as a whole; and
(e) With respect to issuance of a Letter of Credit, the other conditions in
Paragraph
2.18(b)
shall have been satisfied.
Each request (or deemed request) by Borrowers for funding of a Loan, issuance of a Letter of Credit
or grant of an accommodation shall constitute a representation by Borrowers that the foregoing
conditions are satisfied on the date of such request and on the date of such funding, issuance or
grant. As an additional condition to any funding, issuance or grant, Agent shall have received
such other information, documents, instruments and agreements as it deems reasonably appropriate in
connection therewith.
44
SECTION SEVEN REPRESENTATIONS, WARRANTIES AND COVENANTS
7.1
Representations and Warranties Reaffirmed
. Each Borrower represents and warrants
by this Agreement, by submission of each assignment of Collateral, and with each Advance request,
the following matters. Each warranty and representation shall be deemed to be automatically
repeated with each Advance and shall be true and correct in all material respects on the date of
submission of such assignment of Collateral or making of such Advance, except to the extent that
such representations and warranties specifically refer to an earlier date, in which case they shall
be true and correct in all material respects as of such earlier date, and such warranties and
representations shall be conclusively presumed to have been relied upon by Agent and each Lender
regardless of any information possessed or any investigation made by Agent or any Lender. The
warranties and representations shall be cumulative and in addition to all other warranties,
representations, and agreements which Borrower shall give or cause to be given to Agent or any
Lender, either now or hereafter.
7.2
Warranties and Representations Re Contracts
. With respect to the Contracts
included in the Collateral:
(a) Each Contract is a bona fide, valid, and binding obligation of the Contract Debtor,
enforceable in accordance with the terms of the Contract except to the extent enforceability may be
limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting
the enforcement of creditors rights generally or by equitable principles relating to
enforceability, and Borrower does not know of any fact which impairs or will impair the validity of
any such Contract.
(b) Each Contract and related Security Documents are free of any claim for credit, deduction,
discount, allowance, defense (including the defense of usury), dispute, counterclaim or setoff
except to the extent that such claims could not, individually or in the aggregate, reasonably be
expected to materially adversely affect the business or condition (financial or otherwise) of
Borrowers.
(c) Each Contract is free of any prior assignment (except for assignments to a Borrower),
superior security interest, lien, claim, or encumbrance in favor of any Person other than Agent
except for Permitted Liens.
(d) Each Contract correctly sets forth the loan terms between such Borrower and the Contract
Debtor, including the interest rate applicable thereto.
(e) To the knowledge of Borrowers, the Security Documents correctly set forth the legal
description of any subject real property and reasonably describe the subject personal property
collateral.
(f) To the knowledge of Borrowers, the signatures of all Contract Debtors are genuine and each
Contract Debtor had the legal capacity to enter into and execute such documents on the date
thereof.
7.3
Warranties and Representations Re Collateral Generally
. With respect to all
Collateral, including the Contracts:
45
(a) All state and federal laws have been complied with by the Borrowers in conjunction with
the Collateral, the non-compliance with which would have a material adverse effect on the value,
enforceability or collectability of the Collateral.
(b) At the time of the assignment of any Collateral by any Borrower, such Borrower has good
and valid title to, and full right and authority to pledge and collaterally assign, the same.
(c) The provisions of this Agreement and the other Loan Documents create legal and valid Liens
on all the Collateral in favor of the Agent and when all proper filings, recordings and other
actions necessary to perfect such Liens have been made or taken such Liens will constitute
perfected and continuing Liens on all the Collateral, having priority over all other Liens on the
Collateral (except for Permitted Liens) securing all the Obligations, and enforceable against each
Borrower and all third parties.
7.4
Solvent Financial Condition
. Immediately prior to each Advance, the present fair
salable value of the respective assets of Borrowers and any Guarantors are greater than the amount
required to pay their respective liabilities, and each is able to pay its debts as they mature.
7.5
Organization and Authority
. Each Borrower (i) is a corporation duly organized,
validly existing and in good standing under the laws of the state in which it is incorporated; (ii)
has all requisite corporate power to carry on its business as now conducted; and (iii) is duly
qualified and is authorized to do business as a foreign corporation and is in good standing as an
entity in each jurisdiction where such qualification is necessary.
7.6
Financial Statements
. Except as set forth on
Schedule 7.6
, the audited
financial statements of Borrowers and any Guarantors for the fiscal year ending December 31, 2005,
are true and correct and have been prepared in accordance with GAAP, consistently applied (except
for changes in application in which Borrowers accountants concur) and present fairly in all
material respects the financial position of Borrowers and Guarantors as of such dates and the
results of their operations for such periods. Since the date of the most recent financial
statements delivered pursuant to this Agreement, there has been no material adverse change in the
condition, financial or otherwise, of any Borrower and any Guarantor.
7.7
Full Disclosure
. The financial statements referred to in
Paragraph 7.6
above, this Agreement, and any written statement furnished by Borrowers to Agent or any Lender
(copies of which have been previously delivered), do not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements contained therein or herein
not misleading, in light of the circumstances under which it was made;
provided
, that with
respect to any projections and pro forma financial information contained in the materials
referenced above, the Borrowers represent only that such information was prepared in good faith
based upon assumptions believed to be reasonable at the time made in light of the circumstances
when made, it being recognized by Agent and Lenders that such financial information as it relates
to future events is not to be viewed as fact and that actual results during the period covered by
such financial information may differ from the projected results as set forth therein by a material
amount.
7.8
Pending Litigation
. There are no proceedings pending, or to the knowledge of any
Borrower threatened, against or affecting any Borrower or any Guarantor in any court or
46
before any Governmental Authority or arbitration board or tribunal which involve the
possibility of materially and adversely affecting the business or condition (financial or
otherwise) of Borrower or any Guarantor to perform any of its Obligations. Neither any Borrower
nor any Guarantor is in default with respect to any order of any court, Governmental Authority or
arbitration board or tribunal.
7.9
Titles to Properties
. Each Borrower has good and marketable title to the property
(including all of the Collateral) it purports to own, free from Liens except for Permitted Liens
and as set forth on
Schedule 7.9
.
7.10
Licenses
. Except as set forth on
Schedule 7.10
, each Borrower has all
licenses, permits, and franchises necessary for the conduct of its business which violation or
failure to obtain would materially and adversely affect its business or condition (financial or
otherwise).
7.11
Transaction is Legal and Authorized; Restrictive Agreements
. The execution and
delivery of this Agreement and related documents by Borrowers, the grant of the liens to Agent in
respect of the Collateral by Borrowers, and compliance by Borrowers with all of the provisions of
this Agreement are valid, legal, binding and enforceable in accordance with their terms (except as
enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors rights generally or by general equitable
principles relating to enforceability) and will not conflict with or result in any breach of any of
the provisions of any bylaws, charter or instrument to which any Borrower is a party. None of the
Borrowers are party to any agreement, and none are subject to any corporate restriction, which
adversely affects their ability to execute, deliver, and perform the Loan Documents to which they
are a party and repay the Obligations owing by it.
7.12
Taxes
. All tax returns required to be filed by any Borrowers and any Guarantor
in any jurisdiction have been filed when due (after giving effect to any extensions permitted by
applicable law and regulations), and all taxes, assessments, and other governmental charges upon
Borrowers, or upon any of its properties, income or franchises, which are due and payable, have
been paid when due, except to the extent the validity thereof is being contested in good faith by
proper proceedings which stay the imposition of any penalty, fine or Lien resulting from
non-payment thereof and with respect to which adequate reserves in accordance with GAAP have been
set aside for the payment thereof. The provisions for reserves for taxes on the books of Borrower
are adequate in all material respects for all unaudited Fiscal Years, and for its current fiscal
period.
7.13
Compliance with Law
. Except as set forth on
Schedule 7.13
, each
Borrower: (a) is not in violation of any laws, ordinances, or governmental rules or regulations to
which it or its business is subject, the violation of which would materially and adversely affect
the business or condition (financial or otherwise) of the Borrowers, and (b) has not used illegal,
improper, fraudulent or deceptive marketing techniques or unfair business practices with respect to
the Contracts which would materially and adversely affect the business or condition (financial or
otherwise) of the Borrowers. Except as set forth on
Schedule 7.13
, each Borrower has fully
complied with all applicable federal statutes and all rules and regulations promulgated thereunder
and with all provisions of law of each state whose laws, rules, and regulations relate to the
Contracts, except to the extent that such non-compliance would not materially and adversely affect
the business or condition (financial or otherwise) of the Borrowers.
47
7.14
Borrowers Office and Names
. As of the Closing Date, each Borrowers chief
executive office is located at the address stated on page one of this Agreement, and each Borrower
covenants and agrees that it will not, without prior written notification to Agent, relocate said
chief executive office. As of the Closing Date, the exact legal name of each Borrower is as set
forth on the signature page of this Agreement and no Borrower has, during the five years
immediately prior to the date of this Agreement, been known by or used any other legal name.
7.15
Credit Guidelines
. Each Borrower represents and warrants that it shall not make
any material changes in its credit guidelines (a copy of which has been previously furnished by
Borrowers to Agent and Lenders) without Agents prior written consent which Agent may withhold in
its reasonable discretion. Borrowers credit guidelines shall state in reasonable detail the
credit criteria used by Borrowers in determining the creditworthiness of Contract Debtors with
regard to the Contracts originated by Borrowers and/or originated by third parties, as appropriate.
7.16
Subsidiaries
. As of the Closing Date,
Schedule 7.16
is a correct and
complete list of the names and relationship to each Borrower of each and all of the Borrowers
Subsidiaries and such Schedule sets forth each Borrowers direct and indirect equity interest in
each Subsidiary. As of the Closing Date, the outstanding shares of each such Subsidiary owned
directly or indirectly by each Borrower are duly authorized, validly issued, fully paid and
nonassessable.
7.17
No Default
. Neither the Borrowers nor any of their Subsidiaries are in default
with respect to any note, loan agreement, mortgage, lease, or other material agreement to which
such Borrower or any such Subsidiary is a party or by which it is bound, which default would have a
material adverse effect on the business or condition (financial or otherwise) of the Borrowers and
their Subsidiaries taken as a whole.
7.18
Use of Proceeds
. None of the transactions contemplated in this Agreement
(including the use of the proceeds of the Loans) will violate or result in the violation of Section
7 of the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto,
including , without limitation, Regulations T, U and X of the Federal Reserve Board. No Borrower
owns or intends to carry or purchase any margin stock within the meaning of said Regulation U.
None of the proceeds of the loans will be used, directly or indirectly, by any Borrower or any of
its Subsidiaries to purchase or carry any security within the meaning of the Securities Exchange
Act of 1934, as amended. The Borrowers will use the proceeds of the Loans to pay the purchase
price, fees and expenses payable in connection with the Stock Purchase and this Agreement, to repay
certain Debt of the Borrowers, working capital and for general corporate purposes.
7.19
Bank Accounts
.
Schedule 7.19
sets forth, as of the Closing Date, a
complete and accurate list of (i) the name of each Person with which each Borrower or any of its
Subsidiaries has a deposit account, cash management account, safekeeping or custodial account, lock
box, vault and deposit box; and (ii) the purpose of each such account, box or vault. Other than as
set forth in
Schedule 7.19
, as of the Closing Date, neither the Borrowers nor any of their
Subsidiaries maintain any account or other arrangement with any Person pursuant to which funds or
securities of, or monies, checks, instruments, remittances, proceeds or other payments to such
Borrower or such Subsidiary may be received or accepted by such Person for or on behalf of such
Borrower or such Subsidiary.
48
7.20
Proper Contract Documentation
. Upon the reasonable request of Agent, not less
than ten days after the date on which any new Contracts are tendered to Agent for inclusion in the
Collateral, Borrowers shall have:
(i) delivered to Agent and Lenders such information concerning the Contracts and Contract
Debtors thereunder as Agent may reasonably require;
(ii) properly and effectively endorsed or collaterally assigned, as appropriate, to Agent, the
Contracts and other Collateral and the documents underlying or securing each of such Contracts; and
(iii) stamped on the Contracts, Security Documents, and all other Instruments constituting
Collateral the following words:
This document is subject to a security interest in favor of Bank of
America, N.A., as Agent.
7.21
Credit File
. With respect to each Contract, Borrowers shall maintain a credit
file for each Contract Debtor, containing financial information reflecting the creditworthiness of
each Contract Debtor.
7.22
Assignments of Contracts and Security Documents
.. Upon the reasonable request of
Agent, Borrowers shall execute and deliver to Agent formal written collateral assignments of all
new Contracts and Security Documents securing same entered into during the immediately preceding
calendar month, and all such other documents as may be reasonably requested by Agent in connection
therewith.
7.23
Pledging of Contracts
. Borrowers shall not sell, assign, pledge, or in any
manner encumber to any Person, other than Agent, a Contract, or other Collateral, except for
Permitted Liens. In addition, Regional shall not sell, assign, pledge, or in any manner encumber
to any Person, other than Agent, the stock of RMC Reinsurance.
7.24
Accurate Records Re Collateral
. Borrowers shall maintain accurate and complete
files relating to the Contracts and other Collateral to the reasonable satisfaction of Agent.
7.25
RMC Reinsurance Stock
. Borrowers agree to use their commercially reasonable
efforts to cause Regional to pledge 65% of the outstanding stock of RMC Reinsurance to Agent, for
the benefit of the Agent and the Lenders, and Agent and the Lenders agree to use their commercially
reasonable efforts to assist Regional and RMC Reinsurance in their efforts, to obtain all necessary
licenses and approvals with respect thereto, within one hundred eighty (180) days after the date
hereof; provided, however, that if such stock is not pledged by Regional within one hundred eighty
(180) days after the date hereof, such failure shall not at any time constitute a Default or Event
of Default so long as (a) Regional causes RMC Reinsurance to distribute to Regional the RMC
Reinsurance Excess Cash, on a monthly basis commencing on October 15, 2007 for the month ending
September 30, 2007 and on the 15th day of each month thereafter for the immediately preceding month
until 65% of the outstanding stock of RMC Reinsurance has been pledged by Regional to Agent, for
the benefit of the Agent and the Lenders and (b) Borrowers continue to use their commercially
reasonable efforts (so long as Agent and Lenders continue to agree to use their commercially
reasonable efforts to assist Regional and RMC Reinsurance in such efforts) to obtain the license
and approvals necessary to permit such
49
pledge of the capital stock of RMC Reinsurance. Notwithstanding anything to the contrary
contained herein, at no time shall Regional be required to cause RMC Reinsurance to dividend or
otherwise distribute RMC Reinsurance Excess Cash if and to the extent, both before and after giving
effect to such dividend or distribution, the net worth of RMC Reinsurance would be less than or
equal to zero.
SECTION EIGHT FINANCIAL AND OTHER COVENANTS
Each Borrower covenants that so long as this Agreement or any Obligation of any Borrower to
Agent or any Lender exists:
8.1
Payment of Taxes and Claims
. Each Borrower shall pay, before they become
delinquent, all taxes, assessments, and other governmental charges imposed upon it or its property
or the Collateral and all claims or demands which, if unpaid, might result in the creation of a
Lien upon its property or the Collateral except to the extent the validity thereof is being
contested in good faith by proper proceedings which stay the imposition of any penalty, fine or
Lien resulting from non-payment thereof and with respect to which adequate reserves in accordance
with GAAP have been set aside for the payment thereof.
8.2
Maintenance of Properties and Existence
. Each Borrower shall:
(a) maintain insurance with respect to its properties and business against such casualties and
contingencies of such types and in such amounts as is customary with companies of similar size and
in the same or similar business as Borrowers;
(b) keep true books, records, and accounts of all its business transactions with complete
entries made to permit the preparation of financial statements in accordance with GAAP;
(c) keep in full force and effect its corporate existence, rights, and franchises, as the case
may be except as otherwise permitted under this Agreement or the other Loan Documents or as would
not reasonably be expected to have a material adverse effect on the business or condition
(financial or otherwise) of such Borrower; and
(d) not violate any laws, ordinances, or governmental rules or regulations to which it is
subject which violation might materially and adversely affect the business or condition (financial
or otherwise) of such Borrower so that all Contracts will be valid, binding and legally enforceable
in accordance with their terms, subsequent to the assignment thereof to Agent.
8.3
Guaranties
. Each Borrower shall not become or be liable in respect of any
guaranty except (a) by endorsement, in the ordinary course of business, of negotiable instruments
for deposit or collection issued in the ordinary course of such Borrowers business, (b) for
guaranties in respect of Debt permitted by
Paragraph 8.6
, (c) for guaranties incurred in
the ordinary course of business with respect to surety and appeal bonds, performance bonds and
other similar obligations, (d) for guaranties with respect to leases, and (e) for guaranties set
forth on
Schedule 8.3
.
8.4
Borrowing Base Ratio
. Borrowers shall not permit the ratio of (a) all Debt (other
than Subordinated Debt and Affiliate Subordinated Debt), including Borrowers Obligations
50
(excluding any Bank Product Obligations) to Agent and Lenders (numerator), to (b) Borrowing
Base (denominator), to exceed 4:1, at any time. All amounts calculated under this
Paragraph
8.4
shall be calculated on a consolidated basis for all corporations comprising Borrowers and
RMC Reinsurance.
8.5
Business Conducted
. No Borrower shall engage, directly or indirectly, in any line
of business other than the businesses of substantially the type in which such Borrower is engaged
(or in the case of RFCA and RFCTN, proposes to be engaged) on the Closing Date and businesses
reasonably related thereto.
8.6
Debt
. Except as previously and expressly consented to in writing by Agent, no
Borrower shall, directly or indirectly, permit, incur or maintain any Debt, other than (a) the
Obligations, (b) Debt set forth on
Schedule 8.6
, (c) Debt evidencing intercompany loans
among Borrowers and Guarantors, (d) the Subordinated Debt and the Affiliate Subordinated Debt, (e)
the South Carolina Notes, (f) current accounts payable, accrued expenses and customer advance
payments incurred in the ordinary course of business, (g) Debt secured by Permitted Liens; (h) Debt
permitted under
Paragraph 8.3
, (i) unsecured Debt in addition to the foregoing in an
aggregate amount not to exceed $250,000 at any one time outstanding, and (j) any Debt representing
a Permitted Refinancing of the foregoing or, with respect to the Affiliate Subordinated Debt, a
refinancing permitted by the Intercreditor Agreement (collectively, Permitted Debt). No Borrower
shall (i) make any payments (A) in respect of any Subordinated Debt (except that Borrowers may make
any regularly scheduled payments of principal and interest due under such Borrowers Subordinated
Debt so long as no Default or Event of Default then exists or would result therefrom and such
payments are made in accordance with the terms and conditions of any subordination agreement among
the holder or holders of such Subordinated Debt, Agent and/or Lenders or the subordination
provisions set forth in such Subordinated Debt documents), and (B) in respect of any Affiliate
Subordinated Debt (except that Borrowers may make payments in accordance with the Intercreditor
Agreement), (ii) amend, modify or rescind any provisions of any of Borrowers (A) Subordinated Debt
in such a manner as to affect adversely Agents liens on the Collateral or the prior position of
the Notes or accelerate the date upon which any installment of principal and interest of any
Subordinated Debt is due or make the covenants and obligations of the Borrowers contained in such
Subordinated Debt documents materially more restrictive than those set forth in the Loan Documents
as of the date of such amendment or modification, or (B) Affiliate Subordinated Debt except as
permitted by the Intercreditor Agreement, or (iii) permit the prepayment or redemption of all or
any part of any Subordinated Debt or any Affiliate Subordinated Debt, except (A) with respect to
Subordinated Debt in connection with a Permitted Refinancing as permitted by clause (j) above and,
with respect to Affiliate Subordinated Debt, in accordance with the Intercreditor Agreement, (B) in
connection with a prepayment or redemption of the South Carolina Notes and other Subordinated Debt
from time to time so long as no Default or Event of Default then exists or would result therefrom
and such payments are made in accordance with the terms and conditions of any subordination
agreement among the holder or holders of such Subordinated Debt, Agent and/or Lenders or the
subordination provisions set forth in such Subordinated Debt documents, (C) in connection with a
prepayment or redemption on the Closing Date of Subordinated Debt pursuant to the Stock Purchase
Agreement, and (D) with respect to all of the Subordinated Debt owed to Federal Warranty as of the
Closing Date, payments of all such Debts on the Closing Date in an amount not to exceed
$2,038,211.17.
51
8.7
Further Assurances
. Each Borrower shall from time to time execute and deliver to
Agent such other documents and shall take such other action as may be reasonably requested by Agent
in order to implement or effectuate the provisions of, or more fully perfect the rights granted or
intended to be granted by each Borrower to Agent and Lenders pursuant to the terms of, this
Agreement, the Notes, or any other agreement executed and delivered to Agent or any Lender by such
Borrower.
8.8
Subsidiaries
. Regional shall not, directly or indirectly, organize or acquire any
other Subsidiaries without the prior written consent of Agent, which consent shall not be
unreasonably withheld, conditioned or delayed;
provided
,
however
, such Subsidiary
(other than a Subsidiary that is organized or formed under the laws of a jurisdiction other than
the United States (or any state thereof) or the District of Columbia) executes and delivers a
Guaranty substantially in the form attached hereto as Exhibit D in favor of Agent, for the
benefit of the Lenders, within thirty (30) days of becoming a Subsidiary of Regional.
8.9
Interest Coverage Ratio
. Beginning with the fiscal quarter ending June 30, 2007,
the Borrowers shall maintain a ratio, calculated as of the last day of each fiscal quarter of the
Borrowers, of not less than (a) the Adjusted Net Income for the Fiscal Year to date plus interest
expense for the Fiscal Year to date (numerator) to (b) interest expense for the fiscal year to date
(denominator) as follows:
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Fiscal Quarter Ending
|
|
Ratio
|
|
June 30, 2007 and for each
fiscal quarter thereafter calculated
based on the then fiscal year to date
|
|
|
1.3 to 1
|
|
As used herein, interest expense means the aggregate amount of interest paid by Borrowers on all
indebtedness, including Borrowers Obligations (other than Bank Product Obligations) to Agent and
Lenders, during the applicable fiscal period.
8.10
Loss Reserve
.
(a) Borrowers shall maintain a loss reserve in an amount which shall not be less than five
percent (5%) of the remainder of (i) the aggregate amount of all presently due and future, unpaid,
noncancellable installment payments to be made under all of Borrowers then-owned Contracts, minus
(ii) all unearned finance charges (if any) included therein.
(b) Borrowers shall maintain an aggregate loss reserve (including the reserves created under
subparagraph 8.10(a)
and Borrowers non-file insurance reserves) in an amount which shall
not be less than five and one-half percent (5.5%) of the remainder of (i) the aggregate amount of
all presently due and future, unpaid, noncancellable installment payments to be made under all of
Borrowers then-owned Contracts, minus (ii) the sum of all unearned finance charges (if any)
included therein, unearned acquisition charges, and unearned maintenance fees.
(c) Borrowers shall maintain an aggregate loss reserve in an amount which shall not be less
than the current Loss Reserve Percent of the remainder of (i) the aggregate amount of all presently
due and future, unpaid, noncancellable installment payments to be made
52
under all of Borrowers then-owned Contracts, minus (ii) the sum of all unearned finance
charges (if any) included therein, unearned acquisition charges, and unearned maintenance fees.
(d) Agent may require Borrowers to increase the amount of the loss reserve and aggregate loss
reserves above the foregoing required minimums to an amount determined by Agent, in its reasonable
discretion, to adequately reflect Borrowers anticipated losses.
(e) All amounts calculated under this Paragraph shall be calculated on a consolidated basis
for all corporations comprising Borrowers and RMC Reinsurance.
8.11
Charge-Off Policy
. Borrowers shall establish and implement, in a manner
reasonably satisfactory to Agent, a policy for charging off the unpaid balance of its delinquent
Contracts. Without limiting the generality of the foregoing, Borrowers policy shall provide that
on the last Business Day of each month each Borrower shall:
(a) either (i) charge off the unpaid balance of all Contracts with respect to which any
payment due thereunder is 180 or more days delinquent, as determined on a contractual basis, or
(ii) deduct the unpaid balance of all such Contracts from Borrowers Adjusted Tangible Net Worth
for purposes of this Agreement; and
(b) charge off the unpaid balance of all Contracts which were secured by a Lien on Property
which has been repossessed and/or then sold for an amount less than the Contract balance then owing
and after application of the sale proceeds and all insurance proceeds, if any, to such Contract
balance, a deficiency remains.
8.12
Prohibition on Distributions; Equity Capital Changes
. Borrowers shall not,
without Agents prior written consent, directly or indirectly (a) declare, make, or incur any
liability to make any Distribution, except for (i) Distributions by a Subsidiary of a Borrower to
such Borrower; and (ii) Distributions by Regional to Regional Holdings which are used by Regional
Holdings to pay (A) federal, state and local income taxes and franchise taxes for Regional Holdings
(to the extent such taxes relate to Regional Holdings interests in the Borrowers and their
Subsidiaries) and on behalf of the Borrowers and their Subsidiaries, in an amount not to exceed
such taxes for Regional Holdings (to the extent such taxes relate to Regional Holdings interests
in the Borrowers and their Subsidiaries), the Borrowers and their Subsidiaries, (B) state fees,
licensing expenses and other reasonable expenses necessary to maintain Regional Holdings existence
and to conduct its business (to the extent such business relates to Regional Holdings interests in
the Borrowers and their Subsidiaries), (C) employees, officers (if any) and managing members
compensation, fees and expenses, including but not limited to policy premiums related to officers
liability insurance, and payments under any employment agreement or non-competition agreement, not
to exceed $500,000 in the aggregate in any Fiscal Year for all of the foregoing items in this
clause (C)
, to the extent such fees, expenses and payments relate to the ordinary course of
business of Regional Holdings with respect to the Borrowers and their Subsidiaries, and (D) any
costs and expenses (including reasonable attorneys fees) in connection with the enforcement of any
of Regional Holdings rights and remedies under the Stock Purchase Agreement and the documents
related thereto; or (b) make any change in its capital equity structure which would reasonably be
expected to materially and adversely affect repayment of the Loan or other Obligations provided
that, changes in the Borrowers capital equity structures (i) on the Closing Date pursuant to the
Stock Purchase, and (ii) as otherwise permitted by this Agreement or the Loan Documents, shall be
permitted.
53
8.13
Limitation on Bulk Purchases
. Borrowers shall not purchase from any one seller
Contracts with an aggregate purchase price greater than $1,200,000 (Bulk Purchase Limit) in a
single transaction or as part of an integrated series of transactions, unless (a) Borrowers shall
have given Agent at least ten Business Days prior notice of the proposed purchase, together with a
copy of the purchase agreement (the agreement shall be written in all cases) and such other
information as Agent may reasonably request, and (b) Agent has notified Borrowers, within ten days
after the date Borrowers have provided all the information requested by Agent, that the Contracts
being purchased and the terms of the purchase are reasonably satisfactory to Agent.
8.14
Transactions with Affiliates
. Except as permitted by this Agreement, the Loan
Documents or the Intercreditor Agreement, no Borrower shall sell, transfer, distribute, or pay any
money or property to any Affiliate of such Borrower, or lend or advance money or property to any
Affiliate of such Borrower, or invest in (by capital contribution or otherwise), or purchase or
repurchase any stock or indebtedness, or any property, of any Affiliate of such Borrower or become
liable on any guaranty of the indebtedness, dividends, or other obligation of any Affiliate of such
Borrower. Notwithstanding the foregoing, (a) Borrowers may make loans and advances to, and sell,
transfer, distribute and pay any money and property to, and invest in, and become liable on any
guaranty of any Permitted Debt of, Borrowers, (b) Borrowers may make loans to RMC Reinsurance
provided the unpaid principal balance of such loans do not, in the aggregate, exceed at any one
time $300,000, (c) Regional may make cash Distributions to its shareholders in accordance with the
terms of
Paragraph 8.12
, (d) Regional may pay to (i) Richard A. Godley, Sr., Jerry L.
Shirley and Brenda F. Kinlaw the payments contemplated under the Consulting Agreements, provided,
however, that the Consulting Agreements shall not be amended to the extent that such amendments
would be adverse to the interests of the Agent or the Lenders, including but not limited to any
increase in the payments to be paid thereunder, unless the Agent provides its written consent to
such amendment which consent shall not be unreasonably withheld, delayed or conditioned, and (ii)
Parallel, Palladium Capital and their respective Related Funds fees for advisory and management
services, and all costs and expenses related thereto pursuant to the Management Agreement,
provided, however, that the Management Agreement shall not be amended to the extent that such
amendment would be adverse to the interests of the Agent or the Lenders, including but not limited
to any increase in the fees to be paid thereunder, unless the Agent provides its written consent to
such amendment, which consent shall not be unreasonably withheld, delayed or conditioned, (e) on
the Closing Date in connection with the Stock Purchase, the Borrowers and their Affiliates may
engage in any and all transactions required or permitted by, or contemplated in, the Stock Purchase
Agreement, including, without limitation, transferring, distributing and paying money and property
to any Affiliate of such Borrower and shareholders of such Borrower, including, without limitation,
payments in respect of Permitted Debt, and purchase and repurchase any stock, indebtedness and
property, (f) Borrowers may transfer and distribute and pay money and property (including capital
stock) to Affiliates that are holders of the Affiliate Subordinated Debt in accordance with the
terms of
Paragraph 8.6
, (g) Regional may issue stock options and stock pursuant to the
Management Incentive Plan, and, provided that no Event of Default exists or would result therefrom,
may purchase and repurchase any stock issued pursuant to such Management Incentive Plan, and (h)
Regional may pay to the Affiliate Subordinated Debt Agent, the Continuing Shareholder Lender
Representative and the holders of the Affiliate Subordinated Debt fees (including but not limited
to any arrangement or similar fee payable upon the closing date of such Affiliate Subordinated
Debt), costs and expenses pursuant to the Affiliate Subordinated Debt Documents provided that such
payments are made in accordance with the Intercreditor Agreement. Regional may sell its division,
Regional Check Advance, and its subsidiaries, FirstRegional Mortgage Corporation and
54
Upstate Motor Company, provided that Agent receives the net cash sale proceeds of any such
sale to be applied to the Revolving Loans (without any reduction in the Total Credit Facility).
8.15
Accounting Changes
. No Borrower shall (i) make any significant change in
accounting treatment or reporting practices, except as permitted or required by GAAP, or (ii)
change its Fiscal Year.
8.16
Bank Accounts and Collection Account
. No Borrower shall (i) establish any
deposit account, cash management account, safekeeping or custodial account or similar account or
any lock box or vault or other arrangement with any Person, without the prior written consent of
the Agent, which consent shall not be unreasonably withheld, conditioned or delayed, (ii) receive
or accept any monies, checks, instruments, remittances, proceeds or other payments, including
proceeds of Contracts, in any account other than the Collection Account, an account listed in
Schedule 7.19
or a new account opened in accordance with this
Paragraph 8.16
or
(iii) commingle proceeds of Collateral with funds from any other source. Notwithstanding the
foregoing, Borrowers hereby agree to use their commercially reasonable efforts to close any and all
of their existing depository accounts maintained at financial institutions other than Bank of
America other than existing depository accounts maintained at financial institutions in close
proximity to a Borrowers branch location where Bank of America does not have a bank location
within two (2) miles from such Borrowers branch location. Borrowers agree (i) to enter into a
Collection Account Agreement, in form and substance reasonably satisfactory to Agent, Bank of
America and Borrowers, within ninety (90) days from the Closing Date and (ii) to maintain the
Collection Account at all times at Bank of America.
SECTION NINE INFORMATION AS TO BORROWER
9.1
Financial Statements
. Borrowers shall submit to each Lender:
(a)
Monthly and Annual Statements
. As soon as practicable: (1) after the end of each
month of each fiscal year of Regional, and in any event within 45 days after the end of such
period, and (2) after the end of each fiscal year of Regional, and in any event within 120 days
thereafter, copies of:
(i) balance sheets of Regional and its Subsidiaries as at the end of such monthly period and
such year;
(ii) statements of income of Regional and its Subsidiaries for such month and year;
(iii) statements of cash flows of Regional and its Subsidiaries during such year;
(iv) statements of changes in stockholders equity of Regional and its Subsidiaries during such
year;
(v) statements of material changes of accounting policies, presentations, or principles made
during such year for Regional and its Subsidiaries; and
(vi) notes to such financial statements.
55
Monthly statements and annual statements shall all be in reasonable detail, fairly presenting
the financial position and the results of operations, and certified as complete and correct in all
material respects, subject to change as resulting from year-end adjustments, by the treasurer or
chief financial officer of Regional Holdings, Regional or the applicable Subsidiary, as
appropriate. Monthly financial statements shall be prepared on an individual basis for each
Borrower or Guarantor as well as on a consolidated basis for all Borrowers and Guarantors. Annual
statements of Regional and its Subsidiaries (or if the financial statements of Regional and its
Subsidiaries are required under GAAP to be consolidated with the financial statements of Regional
Holdings, then annual statements of Regional Holdings and its Subsidiaries), shall be audited and
prepared in accordance with GAAP and shall be accompanied by a report thereon unqualified as to
scope by an independent nationally recognized certified accounting firm selected by Regional
Holdings or Regional and reasonably satisfactory to Agent. In addition, the annual statements
shall be prepared on a consolidated basis, and on a consolidating basis for each of the Borrowers
and Guarantors.
(b)
Audit Reports
. Promptly upon receipt thereof, one copy of each audit report, if
any, submitted to any and all Borrowers by independent public accountants in connection with any
annual, interim, or special audit or examination made by them of the books of such Borrower.
(c)
Notice of Default or Event of Default
. Within three (3) Business Days of becoming
aware of the existence of any condition or event which constitutes a Default or an Event of
Default, a written notice specifying the nature of the claimed Default, Event of Default or other
default and what action Borrower is taking or proposes to take with respect thereto.
(d)
RMC Reinsurance Excess Cash Statement
. Within fifteen (15) days of the end of
each calendar month, a statement of RMC Reinsurance Excess Cash for such previous month, but only
during such calendar month that RMC Reinsurance is required to distribute the RMC Reinsurance
Excess Cash to Regional pursuant to
Paragraph 7.25
.
(e)
Requested Information
. With reasonable promptness, such other information as,
from time to time, may be reasonably requested by Agent or any Lender.
9.2
Inspection
. Borrowers shall permit Agent and its representatives to make such
verifications and inspections of the Collateral and to make audits and inspections, at any time
during normal business hours of such Borrower and as frequently as Agent reasonably desires upon
reasonable advance notice to such Borrower, of Borrowers books, accounts, records, correspondence
and such other papers as it may desire and of Borrowers premises and the Collateral. To reimburse
Agent for the costs of such verifications, inspections and audits, Borrowers shall pay to Agent,
for its own account and not for the account of the Lenders, all costs of appraisals, inspections,
and verifications of the Collateral, including travel, lodging, and meals for inspections of the
Collateral and Borrowers operations by Agent plus Agents then customary charge for field
examinations and audits and the preparation of reports thereof (such charge is currently $850 per
day (or portion thereof) for each Person retained or employed by Agent with respect to each field
examination or audit), provided, however, that in the absence of a Default or Event of Default, the
Borrowers shall not be obligated to pay more than $75,000 in per diem charges in any one calendar
year; such costs and charges shall be payable by Borrowers on demand by Agent. Borrowers shall
supply Agent with copies and shall permit Agent to copy such records and papers as Agent shall
request, and shall permit Agent to discuss Borrowers affairs, finances, and accounts with
Borrowers employees, officers, and independent public
56
accountants (and by this provision each Borrower hereby authorizes said accountants to discuss
with Agent the finances and affairs of such Borrower) all at such reasonable times and as often as
may be reasonably requested. Borrowers further agree to supply Agent with such other reasonable
information relating to the Collateral and to Borrowers as Agent shall request. In the event of
litigation between any Borrower and Agent, Agents right of civil discovery shall be in addition
to, and not in lieu of its rights under this
Paragraph 9.2
. Each Lender shall have the
right, at its own expense, to accompany the Agent on any such audit or inspection.
SECTION TEN EVENTS OF DEFAULT; REMEDIES
10.1
Events of Default
. An Event of Default shall exist under this Agreement upon
the occurrence of any of the following events or conditions:
(a)
Interest or Principal
. Failure to pay (i) when due or when declared due and
payable, all or any portion of the principal of Obligations (but with respect to Bank Product
Obligations, including any grace or cure period granted under the documents and agreements
evidencing such Bank Product, if any) owing to Agent or any Lender or (ii) within three (3)
Business Days after the same shall be due, all or any portion of interest on the Obligations,
taxes, reimbursement of Agents Expenses or other sums payable pursuant to the terms of this
Agreement.
(b)
Warranties or Representations
. Any warranty, representation, or other statement
made or furnished to Agent or any Lender by any Borrower or any Guarantor or any instrument
furnished in compliance with this Agreement shall have been false or misleading in any material
respect when made or furnished.
(c)
Financial Covenants
. Failure by any Borrower or any Guarantor to comply with any
financial covenants set forth in this Agreement relating to any Borrower or any Guarantor.
(d)
Other Covenants
. Failure by any Borrower or any Guarantor to comply with any
other covenants or agreements relating to any Borrower or any Guarantor as contained in this
Agreement, any Guaranty, or any other agreement executed in connection herewith or therewith
(excluding in respect of any Bank Products) for more than 30 days after such failure shall first
become known to any Borrower or to any Guarantor; or failure by any Borrower to comply with any
covenant or agreement relating to such Borrower as contained in any agreement in respect of Bank
Products beyond the applicable grace or cure period, if any, applicable thereto.
(e)
Insolvency
. Dissolution, termination of existence, insolvency (failure to pay its
debts as they mature or the failure to maintain the fair salable value of its assets in excess of
its liabilities), business failure, appointment of a receiver, trustee, custodian or similar
fiduciary, assignment for the benefit of creditors or the commencement of any proceedings under any
bankruptcy laws or by or against any Borrower or any Guarantor (if against any Borrower or
Guarantor, the continuation of such proceedings for more than 60 days) or the making by any
Borrower or any Guarantor of any offer of settlement, extension or composition to its unsecured
creditors generally.
(f)
Attachment, Judgment, Tax Liens
. The issuance or filing against any Borrower or
any Guarantor of any lien, attachment, injunction, execution, tax lien, or judgment
57
for the payment of money in excess of $500,000 which is not vacated, satisfied or discharged
in full or stayed within 30 days after issuance or filing.
(g)
Default in Other Agreements
. Default in the payment of any sum due under any
instrument of Debt for borrowed money in excess of $500,000 owed by any Borrower or any Guarantor
to any Person or any other default under such instrument of indebtedness which permits such
indebtedness to become due prior to its stated maturity or permits the holders of such indebtedness
to elect a majority of the board of directors or manage the business of any Borrower or any
Guarantor, including but not limited to, any default under any Affiliated Subordinated Debt
Documents;
provided
,
however
, no Event of Default shall result hereunder if such
Borrower or Guarantor cures such other default or if the Person to whom such Debt is owed waives
such default.
(h)
Loss of License
. The loss, revocation, or failure to renew any license, permit,
and/or franchise now held or hereafter acquired by any Borrower, which is necessary for the
continued operation of such Borrowers business which does or could reasonably be expected to
materially adversely affect the properties and condition (financial or otherwise) of such Borrower.
(i)
Liens
. If any Borrower shall pledge, hypothecate or otherwise give a Lien on the
Collateral, any Contract or the stock of RMC Reinsurance to, or if such Lien shall be obtained by,
any Person other than Agent other than Permitted Liens.
(j)
Assignment of Agreement
. The attempt by any Borrower to, or if any Borrower
shall, assign this Agreement or its rights hereunder, except in accordance with
Paragraph
13.4
.
(k)
Breach of Collection Agreement
. Failure by any Borrower to observe or a breach by
any Borrower of any covenant contained in a the Collection Account Agreement between Borrower and
Agent.
(l)
Change in Control.
Any Change in Control shall occur.
(m)
Guaranty Termination
. Default under, revocation of, or termination of any
Guaranty.
(n)
Collateral Adjustment Percent
. The Collateral Adjustment Percent shall at any
time be equal to or exceed twenty percent (20%).
10.2
Default Remedies
.
(a)
Acceleration of Obligations: Right to Dispose of Collateral
. Upon the occurrence
and during the continuance of an Event of Default as provided in
Paragraph 10.1
above, (i)
the Agent shall, at the direction of any Lender, declare an Event of Default and give written
notice thereof to Borrowers, and (ii) all of the Obligations due from Borrowers to Agent and
Lenders, at the option of Agent or Majority Lenders, and upon written notice thereof to Borrowers
by Agent or any Lender, shall accelerate and become at once due and payable and the Commitments
shall immediately terminate; Borrowers shall forthwith pay to Agent, in addition to any and all
sums and charges due, the entire principal of and accrued interest on the Notes and all other
Obligations;
provided
,
however
, that upon the occurrence of any Event of Default
58
described in
subparagraph 10.1(e)
, the Commitments shall automatically and immediately
expire and all Obligations shall automatically become immediately due and payable without notice or
demand of any kind. Agent thereupon shall have all the rights and remedies of a secured party
under the Code and all other legal and equitable rights to which it may be entitled, and Agent may
and shall, at the direction of the Majority Lenders, take such action as is required under
Paragraph 12.5
hereof. If not previously delivered to Agent, Agent shall also have the
right to require Borrowers to assemble the Collateral, at Borrowers expense, and make it available
to Agent at a place designated by Agent, and Agent shall have the right to take immediate
possession of the Collateral and may enter any of the premises of Borrowers or wherever the
Collateral shall be located, with or without force or process of law, and to keep and store the
same on said premises until sold and if said premises are the property of Borrowers, Borrowers
agree not to charge Agent for storage thereof for a period of at least ninety (90) days after the
sale or disposition of the Collateral. Borrowers waive the right to require the filing of any
undertaking or bond to obtain any such process of law. Ten (10) days notice to Borrowers of any
public or private sale or other disposition of Collateral shall be reasonable notice thereof and
such sale shall be at such location(s) as Agent shall designate in said notice. The Agent may sell
and deliver any Collateral at public or private sales, for cash, upon credit or otherwise, at such
prices and upon such terms as the Majority Lenders deem advisable, in their sole discretion, and
may, if the Agent deems it reasonable, postpone or adjourn any sale of the Collateral by an
announcement at the time and place of sale or of such postponed or adjourned sale without giving a
new notice of sale. Agent and each Lender shall have the right to bid at such sale on its own
behalf. Out of proceeds arising from any such sale, Agent shall retain all costs and charges,
including attorneys fees for pursuing, reclaiming, taking, keeping, storing, and advertising such
Collateral for sale, selling and any and all other charges and expenses in connection therewith.
Any balance shall be applied upon the Obligations of Borrowers to Agent and Lenders; and in the
event of deficiency, Borrowers shall remain liable to Agent and Lenders. In the event of any
surplus, such surplus shall be paid to the party entitled by law to same.
Upon the occurrence of an Event of Default, Agent may, from time to time, attempt to sell all
or any part of the Collateral by a private placement restricting the bidder and prospective
purchasers. In so doing, Agent may solicit offers to buy the Collateral, or any part of it, for
cash, from a limited number of purchasers deemed by Agent, in its reasonable judgment, to be
responsible parties who might be interested in purchasing the Collateral, and if Agent solicits
such offers from not less than three such purchasers then the acceptance by Agent of the highest
offer obtained therefrom shall be deemed to be a commercially reasonable method of disposition of
such Collateral.
(b)
Application of Collateral; Termination of Agreements
. Upon the occurrence of an
Event of Default, Agent may (and shall, at the direction of Majority Lenders) also, with or without
proceeding with such sale or foreclosure or demanding payment of the Obligations, without notice,
terminate further performance under this Agreement or any other agreement or agreements between
Agent or any Lender and Borrowers without further liability or obligation by Agent or any Lender,
and may also, at any time, appropriate and apply on any Obligations any and all Collateral in the
possession of Agent or any Lender, and any and all balances, credits, deposits, accounts, reserves,
indebtedness, or other monies due or owing to Borrowers or held by Agent or any Lender hereunder or
under any such financing agreement or otherwise, whether accrued or not; and Agent and Lenders
shall not, in any manner, be liable to Borrowers for any failure to make or continue to make any
Loans or Advances under this Agreement. Neither such termination, nor the termination of this
Agreement by lapse of time, the
59
giving of notice, or otherwise shall absolve, release, or otherwise affect the liability of
Borrowers in respect of transactions had prior to such termination, nor affect any of the liens,
security interests, rights, powers and remedies of Agent or any Lender, but they shall, in all
events, continue until all Obligations of Borrowers to Agent and Lenders are satisfied.
(c)
Remedies Cumulative
. All undertakings of Borrowers contained in this Agreement,
or in any documents referred to herein concurrently, or hereafter entered into, shall be deemed
cumulative. The failure or delay of Agent or any Lender to exercise or enforce any rights or
remedies under this Agreement or under any of the aforesaid agreements or Collateral shall not
operate as a waiver of such rights and remedies, but all such rights and remedies shall continue in
full force and effect until payment of all Loans and Advances and all other Obligations owing or to
become owing from Borrowers to Agent and Lenders shall have been fully satisfied, and all rights
and remedies herein provided for are cumulative and none are exclusive.
(d)
Collection Account Access
. Upon the occurrence of an Event of Default (and
subject to
Paragraph 5.2(a)
hereof), Agent may (and shall, at the direction of Majority
Lenders) notify the bank identified in the Collection Account Agreement to terminate Borrowers
right to withdraw any funds from the Collection Account identified in the Collection Account
Agreement between Borrowers and Agent.
SECTION ELEVEN AMENDMENTS; WAIVERS; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS
11.1
Amendments and Waivers
. No amendment or waiver of any provision of this
Agreement or any other Loan Document, and no consent with respect to any departure by Borrowers
therefrom, shall be effective unless the same shall be in writing and signed by Majority Lenders
(or by Agent at the written request of Majority Lenders) and Borrowers, and then any such waiver or
consent shall be effective only in the specific instance and for the specific purpose for which
given;
provided
,
however
, that no such waiver, amendment, or consent shall, unless
in writing and signed by all the Lenders and Borrowers and acknowledged by Agent, do any of the
following:
(a) increase or extend the Commitment of any Lender;
(b) postpone or delay any date fixed by this Agreement or any other Loan Document for any
payment of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder
or under any other Loan Document;
(c) reduce the principal of, or the rate of interest specified herein on any Loan, or any fees
or other amounts payable hereunder or under any other Loan Document;
(d) change the percentage of the Commitments or of the aggregate unpaid principal amount of
the Loans which is required for the Lenders or any of them to take any action hereunder;
(e) increase any of the percentages set forth in the definition of Advance Rate;
(f) amend this
Paragraph 11.1
or any provision of this Agreement providing for consent
or other action by all Lenders;
60
(g) release Collateral other than as permitted by
Paragraph 12.10
or release any
Guarantor;
(h) change the definitions of Majority Lenders or Required Lenders; or
(i) increase the Total Credit Facility or the Unused Letter of Credit Subfacility;
provided
,
however
, Agent may, in its sole discretion and notwithstanding the
limitations contained in
clauses (e)
and
(i)
above and any other terms of this
Agreement, make Agent Advances in accordance with the provisions of
Paragraph 2.2(i)
in an
amount not to exceed five percent (5%) of the Availability and,
provided
further
,
that no amendment, waiver or consent shall, unless in writing and signed by Agent, affect the
rights or duties of Agent under this Agreement or any other Loan Document.
11.2
Assignments; Participations
.
(a) Any Lender may, with the written consent of Agent (which consent shall not be unreasonably
withheld) and written consent of Borrowers so long as no Event of Default has occurred and is
continuing, assign and delegate to one or more Eligible Assignees (provided that no consent of
Agent or any Borrower shall be required in connection with any assignment and delegation by a
Lender to an Affiliate of such Lender and no consent of any Borrower shall be required in
connection with any assignment and delegation by a Lender to another Lender) (each an Assignee)
all, or any ratable part of all, of the Loans, the Commitments and the other rights and obligations
of such Lender hereunder, in a minimum amount of $5,000,000 (provided that, unless an assignor
Lender has assigned and delegated all of its Loans and Commitments, no such assignment and/or
delegation shall be permitted unless, after giving effect thereto, such assignor Lender retains a
Commitment in a minimum amount of $5,000,000); provided, however, that Borrowers and Agent may
continue to deal solely and directly with such Lender in connection with the interest so assigned
to an Assignee until (i) written notice of such assignment, together with payment instructions,
addresses and related information with respect to the Assignee, shall have been given to Borrowers
and Agent by such Lender and the Assignee; (ii) such Lender and its Assignee shall have delivered
to Borrowers and Agent an Assignment and Acceptance in the form of
Exhibit C
(Assignment
and Acceptance), together with any Note or Notes subject to such assignment; and (iii) the
assignor Lender or Assignee has paid to Agent a processing fee in the amount of $3,000.
(b) From and after the date that Agent notifies the assignor Lender that it has received an
executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the
Assignee thereunder shall be a party hereto and, to the extent that rights and obligations,
including, but not limited to, the obligation to participate in Letters of Credit and related
credit support have been assigned to it pursuant to such Assignment and Acceptance, shall have the
rights and obligations of a Lender under the Loan Documents, and (ii) the assignor Lender shall, to
the extent that rights and obligations hereunder and under the other Loan Documents have been
assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released
from its obligations under this Agreement (and in the case of an Assignment and Acceptance covering
all or the remaining portion of an assigning Lenders rights and obligations under this Agreement,
such Lender shall cease to be a party hereto).
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(c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder
and the Assignee thereunder confirm to and agree with each other and the other parties hereto as
follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes
no representation or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any
other Loan Document furnished pursuant hereto or the attachment, perfection, or priority of any
Lien granted by Borrowers to Agent or any Lender in the Collateral; (ii) such assigning Lender
makes no representation or warranty and assumes no responsibility with respect to the financial
condition of Borrowers or the performance or observance by Borrowers of any of their obligations
under this Agreement or any other Loan Document furnished pursuant hereto; (iii) such Assignee
confirms that it has received a copy of this Agreement, together with such other documents and
information as it has deemed appropriate to make its own credit analysis and decision to enter into
such Assignment and Acceptance; (iv) such Assignee will, independently and without reliance upon
Agent, such assigning Lender or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in taking or not
taking action under this Agreement; (v) such Assignee appoints and authorizes Agent to take such
action as agent on its behalf and to exercise such powers under this Agreement as are delegated to
Agent by the terms hereof, together with such powers, including the discretionary rights and
incidental power, as are reasonably incidental thereto; and (vi) such Assignee agrees that it will
perform in accordance with their terms all of the obligations which by the terms of this Agreement
are required to be performed by it as a Lender.
(d) Immediately upon satisfaction of the requirements of
subparagraph 11.2(a)
, this
Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect
the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The
Commitment allocated to each Assignee shall reduce such Commitments of the assigning Lender
pro
tanto
.
(e) Any Lender may at any time sell to one or more commercial banks, financial institutions,
or other Persons (other than a natural person) not Affiliates of any Borrower (a
Participant
) participating interests in any Loans, the Commitment of that Lender and the
other interests of that Lender (the originating Lender) hereunder and under the other Loan
Documents;
provided
,
however
, that (i) the originating Lenders obligations under
this Agreement shall remain unchanged, (ii) the originating Lender shall remain solely responsible
for the performance of such obligations, (iii) Borrowers and Agent shall continue to deal solely
and directly with the originating Lender in connection with the originating Lenders rights and
obligations under this Agreement and the other Loan Documents, and (iv) no Lender shall transfer or
grant any participating interest under which the Participant has rights to approve any amendment
to, or any consent or waiver with respect to, this Agreement or any other Loan Document (other than
the rights described in
Paragraph 11.1
as being rights that are voted on by all Lenders),
and all amounts payable by Borrowers hereunder shall be determined as if such Lender had not sold
such participation; except that, if amounts outstanding under this Agreement are due and unpaid, or
shall have been declared or shall have become due and payable upon the occurrence of an Event of
Default, each Participant shall be deemed to have the right of set-off in respect of its
participating interest in amounts owing under this Agreement to the same extent and subject to the
same limitation as if the amount of its participating interest were owing directly to it as a
Lender under this Agreement.
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(f) Notwithstanding any other provision in this Agreement, any Lender may at any time create a
security interest in, or pledge, all or any portion of its rights under and interest in this
Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal
Reserve Board or U.S. Treasury Regulation 31 CFR §203.14, and such Federal Reserve Bank may enforce
such pledge or security interest in any manner permitted under applicable law; provided, that no
such pledge or assignment shall release such Lender from any of its obligations hereunder or
substitute such pledgee or assignee for such Lender as a party hereto.
SECTION TWELVE THE AGENT
12.1
Appointment and Authorization
. Each Lender hereby designates and appoints Bank
of America as its Agent under this Agreement and the other Loan Documents and each Lender hereby
irrevocably authorizes Agent to take such action on its behalf under the provisions of this
Agreement and each other Loan Document and to exercise such powers and perform such duties as are
expressly delegated to it by the terms of this Agreement or any other Loan Document, together with
such powers as are reasonably incidental thereto. Agent agrees to act as such on the express
conditions contained in this Section Twelve. The provisions of this Section Twelve are solely for
the benefit of Agent and Lenders, and Borrower shall have no rights as a third party beneficiary of
any of the provisions contained herein. Notwithstanding any provision to the contrary contained
elsewhere in this Agreement or in any other Loan Document, Agent shall not have any duties or
responsibilities to Lenders, except those expressly set forth herein, nor shall Agent have or be
deemed to have any fiduciary relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other
Loan Document or otherwise exist against Agent. Without limiting the generality of the foregoing
sentence, the use of the term agent in this Agreement with reference to Agent is not intended to
connote any fiduciary or other implied (or express) obligations arising under agency doctrine of
any applicable law. Instead, such term is used merely as a matter of market custom, and is
intended to create or reflect only an administrative relationship between independent contracting
parties. Except as expressly otherwise provided in this Agreement, Agent shall have and may use
its sole discretion with respect to exercising or refraining from exercising any discretionary
rights or taking or refraining from taking any actions which Agent is expressly entitled to take or
assert under this Agreement and the other Loan Documents, including (a) the determination of the
applicability of ineligibility criteria with respect to the calculation of the Availability, (b)
the making of Agent Advances pursuant to
subparagraph 2.2(i)
, and (c) the exercise of
remedies pursuant to
Paragraph 10.2
, and any action so taken or not taken shall be deemed
consented to by Lenders.
12.2
Delegation of Duties
. Agent may execute any of its duties under this Agreement
or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties. Agent shall not be
responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects as
long as such selection was made without gross negligence or willful misconduct.
12.3
Liability of Agent
. None of the Agent-Related Persons shall (i) be liable for
any action taken or omitted to be taken by any of them under or in connection with this Agreement
or any other Loan Document or the transactions contemplated hereby (except for its own gross
negligence or willful misconduct), or (ii) be responsible in any manner to any of the Lenders for
any recital, statement, representation or warranty made by Borrowers or any subsidiary or Affiliate
of any Borrower, or any officer thereof, contained in this Agreement or in any other
63
Loan Document, or in any certificate, report, statement or other document referred to or
provided for in, or received by Agent under or in connection with, this Agreement or any other Loan
Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of Borrowers or any other party to any
Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be
under any obligation to any Lender to ascertain or to inquire as to the observance or performance
of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document,
or to inspect the properties, books or records of any Borrower or any of Borrowers Subsidiaries or
Affiliates.
12.4
Reliance by Agent
. Agent shall be entitled to rely, and shall be fully protected
in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter,
telegram, facsimile, telex or telephone message, statement or other document or conversation
believed by it to be genuine and correct and to have been signed, sent or made by the proper Person
or Persons, and upon advice and statements of legal counsel (including counsel to Borrowers),
independent accountants and other experts selected by Agent. Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan Document unless it
shall first receive such advice or concurrence of Required Lenders or Majority Lenders, as
applicable, as it deems appropriate and, if it so requests, it shall first be indemnified to its
satisfaction by all Lenders against any and all liability and expense which may be incurred by it
by reason of taking or continuing to take any such action. Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement or any other Loan Document
in accordance with a request or consent of Required Lenders or Majority Lenders, as applicable, (or
all Lenders if so required by
Paragraph 11.1
) and such request and any action taken or
failure to act pursuant thereto shall be binding upon all of the Lenders.
12.5
Notice of Default
. Agent shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default, unless Agent shall have received written notice from
a Lender or Borrowers referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a notice of default. Agent will notify Lenders of its receipt of any
such notice. Upon the written request of any Lender, Agent shall declare a Default under this
Agreement and send notice thereof to the Borrowers within ten (10) Business Days, with a copy
provided to each of the Lenders, unless such Default is cured or waived. Otherwise, Agent shall
take such action with respect to such Default or Event of Default as may be requested by Majority
Lenders in accordance with
Paragraph 10.2
;
provided
,
however
, that unless
and until Agent has received any such request, Agent may (but shall not be obligated to) take such
action, or refrain from taking such action, with respect to such Default or Event of Default as it
shall deem advisable. Agent and each of the Lenders agree to use reasonable good faith efforts to
disclose to each other, as soon as practicable after discovery by a senior officer with direct
responsibility for the management of the transactions with Borrowers, any information or
communication (believed to be reliable and substantially accurate) which the disclosing Lender has
reason to believe (a) is not known by Agent or the other Lenders (as applicable) and (b) may have a
material and adverse effect upon the business or operations of the Borrowers and/or upon the
collateral security for the Loan, and as a result, may impair the repayment of the Loan as and when
due;
provided
,
however
, that neither the Agent nor the other Lenders shall have any
liability as a result of its or their failure to disclose any information pursuant to this
paragraph, nor shall any Lender assert any such failure by Agent or another Lender as a defense to
any claim asserted against a Lender under the provisions of this Agreement.
64
12.6
Indemnification
. Whether or not the transactions contemplated hereby are
consummated, Lenders shall indemnify upon demand the Agent-Related Persons (to the extent not
reimbursed by or on behalf of Borrowers and without limiting the obligation of Borrowers to do so),
pro rata, from and against any and all Indemnified Liabilities as such term is defined in
Paragraph 13.14
;
provided
,
however
, that no Lender shall be liable for the
payment to the Agent-Related Persons of any portion of such Indemnified Liabilities resulting
solely from such Persons gross negligence or willful misconduct. Without limitation of the
foregoing, each Lender shall reimburse Agent upon demand for its ratable share of any costs or
out-of-pocket expenses (including Attorney Costs) incurred by Agent in connection with the
preparation, execution, delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or
referred to herein, to the extent that Agent is not reimbursed for such expenses by or on behalf of
Borrowers. The undertaking in this
Paragraph 12.6
shall survive the payment of all
Obligations hereunder and the resignation or replacement of Agent.
12.7
Agent in Individual Capacity
. Bank of America and its Affiliates may make loans
to, issue letters of credit for the account of, accept deposits from, acquire equity interests in
and generally engage in any kind of banking, trust, financial advisory, underwriting or other
business with any Borrower and its subsidiaries and Affiliates as though Bank of America were not
Agent hereunder and without notice to or consent of Lenders. Lenders acknowledge that, pursuant to
such activities, Bank of America or its Affiliates may receive information regarding any Borrower
or its Affiliates (including information that may be subject to confidentiality obligations in
favor of such Borrower or such Affiliate) and acknowledge that Agent and Bank of America shall be
under no obligation to provide such information to them. With respect to its Loans, Bank of America
shall have the same rights and powers under this Agreement as any other Lender and may exercise the
same as though it were not Agent, and the terms Lender and Lenders include Bank of America in
its individual capacity.
12.8
Successor Agent
. Agent may resign as Agent upon 30 days notice to Lenders and
Borrower, such resignation to be effective upon the acceptance of a successor agent to its
appointment as Agent. In the event Bank of America sells all of its Commitment and Loans as part
of a sale, transfer or other disposition by Bank of America of substantially all of its loan
portfolio, Bank of America shall resign as Agent and such purchaser or transferee shall become the
successor Agent hereunder. If Agent resigns under this Agreement, subject to the proviso in the
preceding sentence, Majority Lenders shall appoint from among Lenders a successor agent for
Lenders. If no successor agent is appointed prior to the effective date of the resignation of
Agent, Agent may appoint, after consulting with Lenders and Borrowers, a successor agent from among
Lenders. Upon the acceptance of its appointment as successor agent hereunder, such successor agent
shall succeed to all the rights, powers and duties of the retiring Agent and the term Agent shall
mean such successor agent and the retiring Agents appointment, powers and duties as Agent shall be
terminated. After any retiring Agents resignation hereunder as Agent, the provisions of this
Section Twelve shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement.
12.9
Withholding Tax
. At least five Business Days prior to the first date for payment
of interest or fees hereunder to a Foreign Lender, the Foreign Lender shall deliver to Borrowers
and Agent two duly completed copies of IRS Form W-8BEN or W-8ECI (or any subsequent replacement or
substitute form therefor), certifying that such Lender can receive payment of
65
Obligations without deduction or withholding of any United States federal income taxes. Each
Foreign Lender shall deliver to Borrowers and Agent two additional copies of such form before the
preceding form expires or becomes obsolete or after the occurrence of any event requiring a change
in the form, as well as any amendments, extensions or renewals thereof as may be reasonably
requested by Borrowers or Agent, in each case, certifying that the Foreign Lender can receive
payment of Obligations without deduction or withholding of any such taxes, unless an event
(including any change in treaty or law) has occurred that renders such forms inapplicable or
prevents the Foreign Lender from certifying that it can receive payments without deduction or
withholding of such taxes. During any period that a Foreign Lender does not or is unable to
establish that it can receive payments without deduction or withholding of such taxes, other than
by reason of an event (including any change in treaty or law) that occurs after it becomes a
Lender, Agent may withhold taxes from payments to such Foreign Lender at the applicable statutory
and treaty rates, and Borrowers shall not be required to pay any additional amounts under this
Paragraph 12.9
or
Paragraph 2.11
as a result of such withholding.
12.10
Collateral Matters
.
(a) Lenders hereby irrevocably authorize Agent, at its option and in its sole discretion, to
release any Agents Lien upon any Collateral (i) upon the termination of the Commitments and
payment and satisfaction in full by Borrowers of all Loans and reimbursement obligations in respect
of Letters of Credit and related credit support, and the termination or cash collateralization of
all outstanding Letters of Credit (whether or not any of such obligations are due) and all other
Obligations, all in accordance with the provisions of
Paragraph 3.2
; (ii) constituting
property being sold or disposed of if Borrowers certify to Agent that the sale or disposition is
made in compliance with this Agreement (and Agent may rely conclusively on any such certificate,
without further inquiry); (iii) constituting property in which Borrowers owned no interest at the
time the Lien was granted or at any time thereafter; or (iv) constituting property leased to
Borrowers under a lease which has expired or been terminated in a transaction permitted under this
Agreement. Except as provided above, Agent will not release any of the Agents Liens without the
prior written authorization of Lenders. Upon request by Agent or Borrowers at any time, Lenders
will confirm in writing Agents authority to release any Agents Liens upon particular types or
items of Collateral pursuant to this
Paragraph 12.10
.
(b) Upon receipt by Agent of any authorization required pursuant to
subparagraph
12.10(a)
from Lenders of Agents authority to release any Agents Liens upon particular types
or items of Collateral, and upon at least five (5) Business Days prior written request by
Borrowers, Agent shall (and is hereby irrevocably authorized by Lenders to) execute such documents
as may be necessary to evidence the release of the Agents Liens upon such Collateral;
provided
,
however
, that (i) Agent shall not be required to execute any such
document on terms which, in Agents opinion, would expose Agent to liability or create any
obligation or entail any consequence other than the release of such Liens without recourse or
warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations
or any Liens (other than those expressly being released) upon (or obligations of Borrowers in
respect of) all interests retained by Borrowers, including the proceeds of any sale, all of which
shall continue to constitute part of the Collateral.
(c) Agent shall have no obligation whatsoever to any of the Lenders to assure that the
Collateral exists or is owned by Borrowers or is cared for, protected or insured or has been
encumbered, or that the Agents Liens have been properly or sufficiently or lawfully created,
perfected, protected or enforced or are entitled to any particular priority, or to exercise at
66
all or in any particular manner or under any duty of care, disclosure or fidelity, or to
continue exercising, any of the rights, authorities and powers granted or available to Agent
pursuant to any of the Loan Documents, it being understood and agreed that in respect of the
Collateral, or any act, omission or event related thereto, Agent may act in any manner it may deem
appropriate, in its sole discretion given Agents own interest in the Collateral in its capacity as
one of the Lenders and that Agent shall have no other duty or liability whatsoever to any Lender as
to any of the foregoing.
12.11
Restrictions on Actions by Lenders; Sharing of Payments
.
(a) Each of the Lenders agrees that it shall not, without the express consent of all Lenders,
and that it shall, to the extent it is lawfully entitled to do so, upon the request of all Lenders,
set off against the Obligations, any amounts owing by such Lender to Borrowers or any accounts of
Borrowers now or hereafter maintained with such Lender. Each of the Lenders further agrees that it
shall not, unless specifically requested to do so by Agent, take or cause to be taken any action to
enforce its rights under this Agreement or against Borrowers, including the commencement of any
legal or equitable proceedings, to foreclose any lien on, or otherwise enforce any security
interest in, any of the Collateral.
(b) If at any time or times any Lender shall receive (i) by payment, foreclosure, setoff or
otherwise, any proceeds of Collateral or any payments with respect to the Obligations of Borrowers
to such Lender arising under, or relating to, this Agreement or the other Loan Documents, except
for any such proceeds or payments received by such Lender from Agent pursuant to the terms of this
Agreement, or (ii) payments from Agent in excess of such Lenders ratable portion of all such
distributions by Agent, such Lender shall promptly (1) turn the same over to Agent, in kind, and
with such endorsements as may be required to negotiate the same to Agent, or in same day funds, as
applicable, for the account of all of the Lenders and for application to the Obligations in
accordance with the applicable provisions of this Agreement, or (2) purchase, without recourse or
warranty, an undivided interest and participation in the Obligations owed to the other Lenders so
that such excess payment received shall be applied ratably as among Lenders in accordance with
their Pro Rata Shares;
provided
,
however
, that if all or part of such excess
payment received by the purchasing party is thereafter recovered from it, those purchases of
participations shall be rescinded in whole or in part, as applicable, and the applicable portion of
the purchase price paid therefor shall be returned to such purchasing party, but without interest
except to the extent that such purchasing party is required to pay interest in connection with the
recovery of the excess payment.
12.12
Agency for Perfection
. Each Lender hereby appoints each other Lender as agent
for the purpose of perfecting the Lenders security interest in assets which, in accordance with
Article 9 of the Code, can be perfected only by possession. Should any Lender (other than Agent)
obtain possession of any such Collateral, such Lender shall notify Agent thereof, and, promptly
upon Agents request therefor shall deliver such Collateral to Agent or in accordance with Agents
instructions.
12.13
Payments by Agent to Lenders
. All payments to be made by Agent to Lenders shall
be made by bank wire transfer or internal transfer of immediately available funds to each Lender
pursuant to wire transfer instructions delivered in writing to Agent on or prior to the
effectiveness of this Agreement (or if such Lender is an Assignee, on the applicable Assignment and
Acceptance), or pursuant to such other wire transfer instructions as each party may designate for
itself by written notice to Agent. Concurrently with each such payment, Agent shall identify
67
whether such payment (or any portion thereof) represents principal, premium or interest on the
Revolving Loans or otherwise.
12.14
Concerning the Collateral and the Related Loan Documents
. Each Lender
authorizes and directs Agent to enter into this Agreement and the other Loan Documents, for the
ratable benefit and obligation of Agent and Lenders. Each Lender agrees that any action taken by
Agent, Majority Lenders or Required Lenders, as applicable, in accordance with the terms of this
Agreement or the other Loan Documents, and the exercise by Agent, Majority Lenders, or Required
Lenders, as applicable, of their respective powers set forth therein or herein, together with such
other powers that are reasonably incidental thereto, shall be binding upon all of the Lenders.
12.15
Field Audit and Examination Reports; Disclaimer by Lenders
. By signing this
Agreement, each Lender:
(a) is deemed to have requested that Agent furnish such Lender, promptly after it becomes
available, a copy of each field audit or examination report (each a Report and collectively,
Reports) prepared by Agent;
(b) expressly agrees and acknowledges that neither Bank of America nor Agent (i) makes any
representation or warranty as to the accuracy of any Report, or (ii) shall be liable for any
information contained in any Report;
(c) expressly agrees and acknowledges that the Reports are not comprehensive audits or
examinations, that Agent or Bank of America or other party performing any audit or examination will
inspect only specific information regarding Borrowers and will rely significantly upon Borrowers
books and records, as well as on representations of Borrowers personnel;
(d) agrees to keep all Reports confidential and strictly for its internal use, and not to
distribute except to its participants, or use any Report in any other manner; and
(e) without limiting the generality of any other indemnification provision contained in this
Agreement, agrees: (i) to hold Agent and any such other Lender preparing a Report harmless from
any action the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw
from any Report in connection with any loans or other credit accommodations that the indemnifying
Lender has made or may make to Borrower, or the indemnifying Lenders participation in, or the
indemnifying Lenders purchase of, a loan or loans of Borrower; and (ii) to pay and protect, and
indemnify, defend and hold Agent and any such other Lender preparing a Report harmless from and
against, the claims, actions, proceedings, damages, costs, expenses and other amounts (including
Attorney Costs) incurred by Agent and any such other Lender preparing a Report as the direct or
indirect result of any third parties who might obtain all or part of any Report through the
indemnifying Lender.
12.16
Relation Among Lenders
. The Lenders are not partners or co-venturers, and no
Lender shall be liable for the acts or omissions of, or (except as otherwise set forth herein in
case of Agent) authorized to act for, any other Lender.
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SECTION THIRTEEN GENERAL
13.1
Expenses
. Promptly following any Borrowers receipt of any monthly or other
statement from Agent, Borrowers shall pay all of the following expenses (Agents Expenses):
(a) except as otherwise expressly provided herein, all reasonable expenses incurred by Agent
in the administration of this Agreement and the Loan, including but not limited to mailing costs
and accounting fees, and any reasonable costs or out-of-pocket expenses (including Attorney Costs)
incurred by Agent in connection with the preparation, execution, delivery, administration,
modification, or amendment (whether through negotiations, legal proceedings or otherwise) of, or
legal advice in respect of, rights or responsibilities under, this Agreement, any other Loan
Document, or any document contemplated by or referred to herein;
(b) all taxes levied against or paid by Agent or any Lender (other than Excluded Taxes) and
all filing and recording fees, costs and expenses which may be incurred by Agent in respect to the
filing and/or recording of any document or instrument relating to the transactions described in
this Agreement; and
(c) all costs, outlays, reasonable attorneys fees and expenses of any kind (including all
allocated staff costs) incurred by Agent or any Lender in the enforcement of this Agreement or the
defense of legal proceedings involving any claim made against Agent or any Lender arising out of
this Agreement or the protection of the Collateral.
13.2
Invalidated Payments
. If after receipt of any payment which is applied to the
payment of all or any part of the Obligations, Agent or any Lender is for any reason compelled to
surrender such payment or proceeds to any Person because such payment or application of proceeds is
invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference,
impermissible setoff, or a diversion of trust funds, or for any other reason, then the Obligations
or part thereof intended to be satisfied shall be revived and continued and this Agreement shall
continue in full force as if such payment or proceeds had not been received by Agent or such
Lender, and Borrowers shall be liable to pay to Agent and Lenders, and hereby does indemnify Agent
and Lenders and hold Agent and Lenders harmless for the amount of such payment or proceeds
surrendered. The provisions of this
Paragraph 13.2
shall be and remain effective
notwithstanding any contrary action which may have been taken by Agent or any Lender in reliance
upon such payment or application of proceeds, and any such contrary action so taken shall be
without prejudice to Agents and Lenders rights under this Agreement and shall be deemed to have
been conditioned upon such payment or application of proceeds having become final and irrevocable.
The provisions of this
Paragraph 13.2
shall survive the termination of this Agreement.
13.3
Application of Code to Agreement
. This Agreement has been entered into pursuant
to the provisions of the Code. Any additional remedies available to Agent and Lenders under the
applicable provisions of the Code not specifically included herein shall be deemed a part of this
Agreement, and Agent and Lenders shall have the benefit of any such additional remedies.
13.4
Parties, Successors and Assigns
. This Agreement shall be binding upon each party
hereto and its respective successors and assigns, and inure to the benefit of the successors and
assigns of Agent and each Lender;
provided
,
however
, that no interest herein may be
assigned by Borrowers without prior written consent of Agent and each Lender. The rights and
69
benefits of Agent and Lenders hereunder shall, if such Persons so agree, inure to any party
acquiring any interest in the Obligations or any part thereof.
13.5
Notices and Communications
.
(a)
Notice Address
. All notices, requests and other communications by or to a party
hereto shall be in writing and shall be given to any Borrower, at Regionals address shown on page
one of this Agreement, and to any other Person at its address shown on page one of this Agreement
or stated below its signature to this Agreement (or, in the case of a Person who becomes a Lender
after the Closing Date, at the address shown on its Assignment and Acceptance), or at such other
address as a party may hereafter specify by notice in accordance with this
Paragraph 13.5
.
Each such notice, request or other communication shall be effective only (a) if given by facsimile
transmission, when transmitted to the applicable facsimile number, if confirmation of receipt is
received (except that, if not given during normal business hours for the recipient, such notice
shall be deemed to have been given at the opening of business on the next business day for the
recipient); (b) if given by certified or registered U.S. mail, upon receipt, with first-class
postage pre-paid, addressed to the applicable address; or (c) if given by personal delivery, when
duly delivered to the notice address with receipt acknowledged. Notwithstanding the foregoing, no
notice to Agent pursuant to
Paragraphs 2.2, 2.6, 2.18 or 3.1
shall be effective until
actually received by the Agent. Any written notice, request or other communication that is not
sent in conformity with the foregoing provisions shall nevertheless be effective on the date
actually received by the noticed party. Any notice received by Regional shall be deemed received
by all Borrowers.
(b)
Electronic Communications; Voice Mail
. Electronic mail and internet websites may
be used only for routine communications, such as financial statements, Borrowing Base Certificates
and other information required by
Paragraph 9.1 or Paragraph 5.2(e)
, administrative matters
and distribution of Loan Documents for execution. Agent and Lenders make no assurances as to the
privacy and security of electronic communications. Electronic and voice mail may not be used as
effective notice under the Loan Documents.
(c)
Non-Conforming Communications
. Agent and Lenders may rely upon any notices
purportedly given by or on behalf of any Borrower even if such notices were not made in a manner
specified herein, were incomplete or were not confirmed, or if the terms thereof, as understood by
the recipient, varied from a later confirmation.
EACH BORROWER SHALL INDEMNIFY AND HOLD HARMLESS
EACH INDEMNIFIED PERSON FROM ANY LIABILITIES, LOSSES, COSTS AND EXPENSES ARISING FROM ANY
TELEPHONIC COMMUNICATION PURPORTEDLY GIVEN BY OR ON BEHALF OF A BORROWER, EXCEPT TO THE EXTENT SUCH
LIABILITIES, LOSSES, COSTS AND EXPENSES RESULT FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
SUCH INDEMNIFIED PERSON.
13.6
Accounting Principles
. All accounting computations required to be made for the
purposes of this Agreement shall be done in accordance with GAAP as provided in
Paragraph
8.15
or unless otherwise agreed to in writing by Agent, at the time in effect, to the extent
applicable, except where such principles are inconsistent with the requirements of this Agreement.
13.7
Total Agreement; References
. This Agreement and all other agreements referred to
herein or delivered in connection herewith shall constitute the entire agreement between the
70
parties relating to the subject matter hereof, shall rescind all prior agreements and
understandings between the parties hereto relating to the subject matter hereof (including, without
limitation, the Existing Loan Agreement), and shall not be changed or terminated orally. Each of
the Loan Documents and any and all other agreements, documents or instruments now or hereafter
executed and delivered pursuant to the terms of the Existing Loan Agreement or pursuant to the
terms hereof are hereby amended so that any reference therein to the Existing Loan Agreement shall
mean a reference to this Agreement. Notwithstanding the foregoing, (i) the liens and security
interests granted by Borrowers in favor of Agent pursuant to the Existing Loan Agreement and the
other Loan Documents shall continue in full force and effect from and after the date hereof in
favor of Agent, for the benefit of Agent and Lenders, as security for the Obligations, (ii) the
Loans outstanding by Lenders under the Existing Loan Agreement (and all accrued and unpaid interest
thereon and fees in respect thereof) and all other Obligations outstanding thereunder as of the
date of this Agreement shall remain outstanding and shall be restated and extended as Revolving
Loans hereunder and shall not be deemed to be paid, released, discharged or otherwise satisfied by
the execution of this Agreement, and this Agreement shall not constitute a refinancing,
substitution or novation of such Loans and Obligations or any of the other rights, duties and
obligations of the parties hereunder, and (iii) all indemnification obligations of the Borrowers
under the Existing Loan Agreement and any other Loan Documents shall survive the execution and
delivery of this Agreement and shall continue in full force and effect for the benefit of the
Lenders, the Agent, and any other Person indemnified under the Existing Loan Agreement or any other
Loan Document at any time prior to the date of this Agreement.
13.8
Governing Law
.
PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS
LAW, THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS, UNLESS OTHERWISE SPECIFIED, SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CONFLICT OF LAW PRINCIPLES (BUT
GIVING EFFECT TO FEDERAL LAWS RELATING TO NATIONAL BANKS).
13.9
Survival
. All warranties, representations, and covenants made by Borrowers under
this Agreement shall be considered to have been relied upon by Agent and each Lender and shall
survive the delivery to Lenders of the Notes regardless of any investigation made by Agent or any
Lender or on its behalf.
13.10
Power of Attorney
. Each Borrower hereby appoints Agent, and its agents and
designees, the true and lawful agents and attorneys-in-fact of such Borrower, with full power of
substitution, (a) during the continuance of an Event of Default, to (i) receive, open and dispose
of all mail addressed to such Borrower relating to the Collateral, (ii) notify and direct the
United States Post Office authorities by notice given in the name of such Borrower and signed on
its behalf, to change the address for delivery of all mail addressed to such Borrower relating to
the Collateral to an address to be designated by Agent, and to cause such mail to be delivered to
such designated address where Agent may open all such mail and remove therefrom any notes, checks,
acceptances, drafts, money orders or other instruments in payment of the Collateral in which Agent
has a security interest hereunder and any documents relative thereto, with full power to endorse
the name of such Borrower upon any such notes, checks, acceptances, drafts, money order or other
form of payment or on Collateral or security of any kind and to effect the deposit and collection
thereof, and Agent shall have the further right and power to endorse the name of such Borrower on
any documents otherwise relating to such Collateral, (iii) send notices
71
to such Contract Debtors or account debtors, and (iv) do any and all other things necessary or
proper to carry out the intent of this Agreement; and (b) at all times, to (i) sign the name of
such Borrower to drafts against Contract Debtors or other account debtors, and execute on behalf of
such Borrower assignments, notices of assignments, financing statements and other public records
and notices on all other instruments or documents and (ii) do any and all other things necessary or
proper to perfect and protect the liens and rights of Agent and Lenders created under this
Agreement. Each Borrower agrees that neither Agent or any Lender nor any of its agents, designees
or attorneys-in-fact will be liable for any acts of commission or omission, or for any error of
judgment or mistake of fact or law, except for those arising from the gross negligence or willful
misconduct of the Agent or any Lender or any of their agents, designees or attorneys-in-fact.
The powers granted hereunder are coupled with an interest and shall be irrevocable during the term
hereof. Agent shall have the right to apply all money or security otherwise due to Borrowers to the
payment of any of the Advances or other sums payable pursuant to this Agreement at such time and in
such order of application as Agent may determine.
13.11
LITIGATION
. PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW,
THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK SHALL HAVE JURISDICTION TO HEAR AND
DETERMINE ANY CLAIMS OR DISPUTES AMONG ANY BORROWER, AGENT AND LENDERS, PERTAINING TO THIS
AGREEMENT. EACH BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY
ACTION OR PROCEEDING COMMENCED IN SUCH COURTS.
13.12
Severability
. To the extent any provision of this Agreement is not enforceable
under applicable law, such provision shall be deemed null and void and shall have no effect on the
remaining portions of the Agreement.
13.13
Jury Trial Waiver
. BORROWERS, LENDERS AND AGENT EACH IRREVOCABLY WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES
AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT
TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. BORROWER, LENDERS AND AGENT EACH AGREE THAT ANY SUCH
CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE
FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY
OPERATION OF THIS PARAGRAPH AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN
WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN
DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
72
13.14
Indemnity of Agent and Lenders by Borrower
.
EACH BORROWER AGREES TO DEFEND,
INDEMNIFY AND HOLD THE AGENT-RELATED PERSONS, AND EACH LENDER AND EACH OF ITS RESPECTIVE OFFICERS,
DIRECTORS, EMPLOYEES, COUNSEL, AGENTS AND ATTORNEYS-IN-FACT (EACH, AN
INDEMNIFIED PERSON
)
HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES,
ACTIONS, JUDGMENTS, SUITS, COSTS, CHARGES, EXPENSES AND DISBURSEMENTS (INCLUDING ATTORNEY COSTS) OF
ANY KIND OR NATURE WHATSOEVER WHICH MAY AT ANY TIME (INCLUDING AT ANY TIME FOLLOWING REPAYMENT OF
THE LOANS AND THE TERMINATION, RESIGNATION OR REPLACEMENT OF AGENT OR REPLACEMENT OF ANY LENDER) BE
IMPOSED ON, INCURRED BY OR ASSERTED AGAINST ANY SUCH PERSON BY A PERSON WHO IS NOT ALSO AN
INDEMNIFIED PERSON IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY DOCUMENT
CONTEMPLATED BY OR REFERRED TO HEREIN, OR THE TRANSACTIONS CONTEMPLATED HEREBY, OR ANY ACTION TAKEN
OR OMITTED BY ANY SUCH PERSON UNDER OR IN CONNECTION WITH ANY OF THE FOREGOING, INCLUDING WITH
RESPECT TO ANY INVESTIGATION, LITIGATION OR PROCEEDING (INCLUDING ANY INSOLVENCY PROCEEDING OR
APPELLATE PROCEEDING) RELATED TO OR ARISING OUT OF THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR THE
LOANS OR THE USE OF THE PROCEEDS THEREOF, WHETHER OR NOT ANY INDEMNIFIED PERSON IS A PARTY THERETO
(ALL THE FOREGOING, COLLECTIVELY, THE
INDEMNIFIED LIABILITIES
);
PROVIDED
,
THAT,
BORROWERS SHALL HAVE NO OBLIGATION HEREUNDER TO ANY INDEMNIFIED PERSON WITH RESPECT
TO INDEMNIFIED LIABILITIES (I) RESULTING SOLELY FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
SUCH INDEMNIFIED PERSON OR (II) THAT ARE AWARDED AS DIRECT OR ACTUAL DAMAGES (AND NOT ANY DAMAGES
CONSTITUTING SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNATIVE) TO ANY BORROWER OR GUARANTOR IN AN
ACTION BROUGHT BY SUCH BORROWER OR GUARANTOR AGAINST AN INDEMNIFIED PERSON FOR BREACH OF SUCH
INDEMNIFIED PERSONS OBLIGATIONS HEREUNDER OR UNDER ANY OTHER LOAN DOCUMENT IF SUCH BORROWER OR
GUARANTOR HAS OBTAINED A FINAL, NON-APPEALABLE JUDGMENT IN ITS FAVOR IN SUCH ACTION AS DETERMINED
BY A COURT OF COMPETENT JURISDICTION. THE AGREEMENTS IN THIS
PARAGRAPH 13.14
SHALL SURVIVE
PAYMENT OF ALL OTHER OBLIGATIONS
.
13.15
Limitation of Liability
. NO CLAIM MAY BE MADE BY ANY BORROWER, AGENT, ANY
LENDER OR OTHER PERSON AGAINST ANY BORROWER, AGENT, ANY LENDER, OR THE AFFILIATES, DIRECTORS,
OFFICERS, EMPLOYEES, OR AGENTS OF ANY OF THEM FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE
DAMAGES IN RESPECT OF ANY CLAIM FOR BREACH OF CONTRACT OR ANY OTHER THEORY OF LIABILITY ARISING OUT
OF, OR RELATED TO, THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR
ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, AND BORROWER, AGENT AND EACH LENDER
HEREBY WAIVE, RELEASE AND AGREE NOT TO SUE UPON ANY CLAIM FOR SUCH DAMAGES,
73
WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.
13.16
Right of Setoff
. In addition to any rights and remedies of Lenders provided by
law, if an Event of Default exists or the Obligations have been accelerated, each Lender is
authorized at any time and from time to time, without prior notice to Borrowers, any such notice
being waived by Borrower to the fullest extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time held by, and other
indebtedness at any time owing by, such Lender to or for the credit or the account of Borrowers
against any and all Obligations owing to such Lender, now or hereafter existing, irrespective of
whether or not Agent or such Lender shall have made demand under this Agreement or any Loan
Document and although such Obligations may be contingent or unmatured. Each Lender agrees promptly
to notify Borrowers and Agent after any such set-off and application made by such Lender;
provided
,
however
, that the failure to give such notice shall not affect the
validity of such set-off and application. NOTWITHSTANDING THE FOREGOING, NO LENDER SHALL EXERCISE
ANY RIGHT OF SET-OFF, BANKERS LIEN, OR THE LIKE AGAINST ANY DEPOSIT ACCOUNT OR PROPERTY OF
BORROWER HELD OR MAINTAINED BY SUCH LENDER WITHOUT THE PRIOR WRITTEN UNANIMOUS CONSENT OF THE
LENDERS.
13.17
Joint and Several Liability
.
(a) Each Borrower agrees that it is jointly and severally, directly and primarily liable to
Agent and Lenders for payment in full of the Obligations and that such liability is independent of
the duties, obligations, and liabilities of the other Borrowers. Agent or any Lender may bring a
separate action or actions on each, any, or all of the Obligations against any Borrower, whether
action is brought against the other Borrower(s).
(b) Each Borrower agrees that any release which may be given by Agent or any Lender to the
other Borrowers or any guarantor or endorser of any of the Obligations shall not release such other
Borrowers from their obligations hereunder.
(c) Each Borrower hereby waives any right to assert against Agent or any Lender any defense
(legal or equitable), setoff, counterclaim, or claims which any Borrower individually may now or
any time hereafter have against the other Borrowers or any other party liable to Agent or any
Lender in any manner or way whatsoever.
(d) Any and all present and future indebtedness of a Borrower to the other Borrowers is hereby
subordinated to the full payment and performance of the Obligations.
(e) Each Borrower is presently informed as to the financial condition of the other Borrowers
and of all other circumstances which a diligent inquiry would reveal and which bear upon the risk
of nonpayment of the Obligations. Each Borrower hereby covenants that it will keep itself informed
as to the financial condition of the other Borrowers, the status of the other Borrowers and of all
circumstances which bear upon the risk of nonpayment. Absent a written request from any Borrower to
Agent or any Lender for information, each Borrower hereby waives any and all rights it may have to
require Agent or any Lender to disclose to such Borrower any information which Agent or any Lender
may now or hereafter acquire concerning the condition or circumstances of the other Borrower.
74
(f) Each Borrower waives all rights to notices of default, existence, creation, or incurring
of new or additional indebtedness, and all other notices of formalities to which such Borrower may,
as joint and several Borrower hereunder, be entitled.
(g) At the request of Borrowers to facilitate and expedite the administration and accounting
processes and procedures of their borrowings hereunder, Agent and Lenders have agreed, in lieu of
maintaining separate loan accounts, that Agent shall maintain a single loan account under the name
of Borrowers (Loan Account). The Loan shall be made jointly and severally to the Borrowers and
shall be charged to their Loan Account, together with all interest and other charges as permitted
under and pursuant to this Agreement. The Loan shall be credited with all repayments of Obligations
received by Agent, on behalf of Lenders, from any Borrower as paid into the Collection Account
pursuant to the terms of this Agreement.
(h) Requests for borrowings may be made by any Borrower, pursuant to the terms of
Section
Two
hereof. Each Borrower expressly agrees and acknowledges that neither Agent nor any Lender
shall have any responsibility to inquire into the correctness of the apportionment or allocation of
or any disposition by any of the Borrowers of (i) any Obligations, or (ii) any of the expenses and
other items charged to the Loan Account pursuant to this Agreement. All Obligations and such
expenses and other items shall be made for the collective, joint, and several account of the
Borrowers and shall be charged to their Loan Account.
(i) Each Borrower agrees and acknowledges that the administration of the Obligations on a
combined basis as set forth in this
Paragraph 13.17
is being done as an accommodation to
Borrowers and at their request, and that neither Agent nor any Lender shall incur any liability to
any of the Borrowers as a result thereof.
TO INDUCE AGENT AND LENDERS TO DO SO, AND IN
CONSIDERATION THEREOF, EACH OF THE BORROWERS HEREBY AGREES TO INDEMNIFY AND HOLD AGENT AND EACH
LENDER HARMLESS FROM AND AGAINST ANY AND ALL LIABILITY, EXPENSES, LOSS, DAMAGE, CLAIM OF DAMAGE, OR
INJURY, MADE AGAINST AGENT OR ANY LENDER BY ANY OF BORROWERS OR BY ANY OTHER PERSON, ARISING FROM
OR INCURRED BY REASON OF SUCH ADMINISTRATION OF THE OBLIGATIONS, EXCEPT TO THE EXTENT SUCH
LIABILITIES, EXPENSES, LOSSES, DAMAGES, CLAIMS AND INJURIES (I) RESULT SOLELY FROM THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF AGENT OR ANY LENDER OR (II) ARE AWARDED AS DIRECT OR ACTUAL
DAMAGES (AND NOT ANY DAMAGES CONSTITUTING SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNATIVE) TO ANY
BORROWER OR GUARANTOR IN AN ACTION BROUGHT BY SUCH BORROWER OR GUARANTOR AGAINST AN INDEMNIFIED
PERSON FOR BREACH OF SUCH INDEMNIFIED PERSONS OBLIGATIONS HEREUNDER OR UNDER ANY OTHER LOAN
DOCUMENT IF SUCH BORROWER OR GUARANTOR HAS OBTAINED A FINAL, NON-APPEALABLE JUDGMENT IN ITS FAVOR
ON SUCH CLAIM AS DETERMINED BY A COURT OF COMPETENT JURISDICTION
.
(j) Each Borrower represents and warrants to Agent and each Lender that the collective
administration of the Obligations is being undertaken by Agent and each Lender pursuant to this
Paragraph 13.17
, because Borrowers are integrated in their operation and administration and
require financing on a basis permitting the availability of credit from time to time to each of the
Borrowers. Each Borrower will derive benefit, directly and indirectly, from such collective
administration and credit availability because the successful operation of each Borrower is
enhanced by the continued successful performance of the integrated group.
75
(k) Each Borrower hereby postpones and subordinates to the final payment in full of the
Obligations any right of subrogation it has or may have against the other Borrowers with respect to
the Obligations or any other indebtedness incurred pursuant to this Agreement. In addition, each
Borrower hereby postpones any right to proceed against the other Borrowers, now or hereafter, for
contribution, indemnity, reimbursement, and any other rights and claims, whether direct or
indirect, liquidated or contingent, such Borrower may now have or hereafter have as against any
other Borrower with respect to the Obligations or any other indebtedness incurred pursuant to this
Agreement, until all Obligations have been finally paid in full. Each Borrower agrees that in light
of the immediately foregoing agreements, the execution of this Agreement shall not be deemed to
make such Borrower a creditor of any other Borrower, and that for purposes of §§547 and 550 of
the United States Bankruptcy Code (11 U.S.C. §§547, 550), such Borrower shall not be deemed a
creditor of the other Borrower.
13.18
Counterparts
. This Agreement may be executed in one or more counterparts, each
of which when so executed shall be deemed to be an original, but all of which when taken together
shall constitute one and the same instrument. Delivery of an executed counterpart of a signature
page of this Agreement by facsimile or electronic mail shall be effective as delivery of a manually
executed counterpart to this Agreement.
13.19
Headings
. The headings, captions and arrangements used in this Agreement are
for convenience only and shall not affect the interpretation of this Agreement.
13.20
No Waivers; Cumulative Remedies
. No failure by Agent or any Lender to exercise
any right, remedy, or option under this Agreement or any present or future supplement thereto, or
in any other agreement between or among Borrower and Agent and/or any Lender, or delay by Agent or
any Lender in exercising the same, will operate as a waiver thereof. No waiver by Agent or any
Lender will be effective unless it is in writing, and then only to the extent specifically stated.
No waiver by Agent or the Lenders on any occasion shall affect or diminish Agents and each
Lenders rights thereafter to require strict performance by Borrower of any provision of this
Agreement. Agent and the Lenders may proceed directly to collect the Obligations without any prior
recourse to the Collateral. Agents and each Lenders rights under this Agreement will be
cumulative and not exclusive of any other right or remedy which Agent or any Lender may have.
13.21
Other Security and Guarantees
. Agent, may, without notice or demand and without
affecting any Borrowers obligations hereunder, from time to time: (a) take from any Person and
hold collateral (other than the Collateral) for the payment of all or any part of the Obligations
and exchange, enforce or release such collateral or any part thereof; and (b) accept and hold any
endorsement or guaranty of payment of all or any part of the Obligations and release or substitute
any such endorser or guarantor, or any Person who has given any Lien in any other collateral as
security for the payment of all or any part of the Obligations, or any other Person in any way
obligated to pay all or any part of the Obligations. The Lenders and the Letter of Credit Issuer
irrevocably authorize Agent, at its option and in its discretion, to release any Guarantor from its
obligations under a guaranty if such Person ceases to be a Subsidiary as a result of a transaction
permitted hereunder. Upon request by Agent at any time, the Required Lenders will confirm in
writing Agents authority to release any Guarantor from its obligations under the Guaranty pursuant
to this
Paragraph 13.21
.
13.22
NO ORAL AGREEMENTS
.
THIS AGREEMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS AS
WRITTEN, REPRESENT THE FINAL
76
AGREEMENT AMONG AGENT, LENDERS AND BORROWERS AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG AGENT, LENDERS AND BORROWERS.
13.23
Patriot Act Notice
. Lender hereby notifies Borrowers and Guarantors that
pursuant to the requirements of the Patriot Act, Lender is required to obtain, verify and record
information that identifies each Borrower and Guarantor, including its legal name, address, tax ID
number and other information that will allow Lender to identify it in accordance with the Patriot
Act. Lender may also require information regarding Borrowers management and owners, such as legal
name, address, social security number and date of birth in accordance with the Patriot Act.
13.24
Replacement of Lenders
. If (a) only one Lender requests compensation under
Paragraph 2.13
, (b) if the Borrower is required to pay any additional amount to only one
Lender or any Governmental Authority for the account of one Lender pursuant to
Paragraph
2.11
, (c) if any Lender is a Defaulting Lender, (d) if any Lender is acquired by or merges with
any other Person and such Lender is not the surviving Person, or (e) if only one Lender fails to
approve an amendment, consent or waiver hereunder which is approved by the Majority Lenders, then
the Borrower may, at its sole expense and effort, upon notice to such Lender and Agent, require
such Lender to assign and delegate, without recourse (in accordance with and subject to the
restrictions contained in, and consents required by,
Paragraph 11.2)
, all of its interests,
rights and obligations under this Agreement and the related Loan Documents to an assignee that
shall assume such obligations (which assignee may be another Lender, if a Lender accepts such
assignment),
provided
that:
(i) Borrowers or the assignee shall have paid Agent the assignment fee specified in
subparagraph 11.2(a)
.
(ii) such Lender shall have received payment of an amount equal to the outstanding principal
of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder
and under the other Loan Documents (including any amounts under
Paragraph 2.14
from the
assignee (to the extent of such outstanding principal and accrued interest and fees) or the
Borrowers (in the case of all other amounts);
(iii) such assignment does not conflict with applicable laws; and
(iv) such assignment is completed within ninety (90) days of any request in (a) above, payment
in (b) above, default in (c) above, merger in (d) above, or any failure to approve in (e) above.
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a
result of a waiver by such Lender or otherwise, the circumstances entitling the Borrowers to
require such assignment and delegation cease to apply. The right to replace a Lender hereunder in
subparagraphs (a), (b) and (e)
does not apply if more than one Lender is affected in each
scenario.
[signatures continued on next page]
77
IN WITNESS WHEREOF the parties have executed this Agreement on the day and year first above
written.
BORROWERS
REGIONAL MANAGEMENT CORP.
REGIONAL FINANCE CORPORATION OF SOUTH CAROLINA
REGIONAL FINANCE CORPORATION OF GEORGIA
REGIONAL FINANCE CORPORATION OF TEXAS
REGIONAL FINANCE CORPORATION OF NORTH CAROLINA
REGIONAL FINANCE CORPORATION OF ALABAMA
REGIONAL FINANCE CORPORATION OF TENNESSEE
R.M.C. FINANCIAL SERVICES CORP.
|
|
|
|
|
By:
|
|
/s/ Eric A. Anderson
|
|
|
Name:
|
|
Eric A. Anderson
|
|
|
Title:
|
|
Chief Financial Officer of each of
the above-listed corporations
|
|
|
78
AGENT
|
|
|
|
|
BANK OF AMERICA, N.A.
,
as Agent
|
|
|
|
|
|
|
|
By:
|
|
/s/ Bruce Jenks
|
|
|
Name:
|
|
Bruce Jenks
|
|
|
Title:
|
|
Vice President
|
|
|
LENDERS
|
|
|
|
|
BANK OF AMERICA, N.A.
,
as a Lender and Letter of Credit Issuer
|
|
|
|
|
|
|
|
By:
|
|
/s/ Bruce Jenks
|
|
|
Name:
|
|
Bruce Jenks
|
|
|
Title:
|
|
Vice President
|
|
|
|
|
|
Address:
|
|
335 Madison Avenue
|
|
|
New York, NY 10017
|
|
|
Attn: Bruce Jenks, Vice President
|
Fax:
|
|
(212) 503-7340
|
Commitment = $50,000,000
|
|
|
|
|
BMO CAPITAL MARKETS FINANCING, INC.
,
as a Lender
|
|
|
|
|
|
|
|
By:
|
|
/s/
Thomas Wilson
|
|
|
Name:
|
|
Thomas J. Wilson
|
|
|
Title:
|
|
Vice President
|
|
|
|
|
|
Address:
|
|
111 West Monroe Street
|
|
|
5th Floor East
|
|
|
Chicago, Illinois 60603
|
Fax:
|
|
(312) 765-8353
|
Commitment = $22,500,000
79
|
|
|
|
|
CAPITAL ONE, N.A.
,
as a Lender
|
|
|
|
|
|
|
|
By:
|
|
/s/ Lori S. Mitchell
|
|
|
Name:
|
|
Lori S. Mitchell
|
|
|
Title:
|
|
Senior Vice President
|
|
|
|
|
|
Address:
|
|
440 Third Street
|
|
|
Baton Rouge, Louisiana 70802
|
Fax:
|
|
(225) 381-7570
|
Commitment = $20,000,000
|
|
|
|
|
FIRST TENNESSEE BANK NATIONAL ASSOCIATION
,
as a Lender
|
|
|
|
|
|
|
|
By:
|
|
/s/ David Perry
|
|
|
Name:
|
|
David Perry
|
|
|
Title:
|
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Senior Vice President
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Address:
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165 Madison Avenue
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Memphis, Tennessee 38103
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Fax:
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(901) 523-4633
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Commitment = $22,500,000
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BoS (USA) INC.
as a Lender
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By:
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/s/ Karen Weich
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Name:
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Karen Weich
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Title:
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Vice President, Loan Documentation
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Address:
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565 Fifth Avenue
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New York, New York 10017
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Fax:
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(212) 883-6610
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Commitment = 15,000,000
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EXHIBIT A
NOTICE OF BORROWING
Date: _______________________, 20___
To: Bank of America, N.A., as Agent, regarding the Third Amended and Restated Loan and Security
Agreement dated as of March 21, 2007 (as extended, renewed, amended or restated from time to time,
the
Loan and Security Agreement
) among Regional Management Corp., Regional Finance
Corporation of South Carolina, Regional Finance Corporation of Georgia, Regional Finance
Corporation of Texas, Regional Finance Corporation of North Carolina, Regional Finance Corporation
of Alabama, Regional Finance Corporation of Tennessee and R.M.C. Financial Services Corp., as
borrowers, the lenders party thereto and Bank of America, N.A., as Agent.
Ladies and Gentlemen:
The undersigned, ____________________ (the
Borrower
), refers to the Loan and
Security Agreement, the terms defined therein being used herein as therein defined, and hereby
gives you notice irrevocably of the Borrowing specified below:
1.
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The Business Day of the proposed Borrowing is _________________, 20__.
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2.
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The aggregate amount of the proposed Borrowing is $_______________.
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3.
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The Borrowing is to be comprised of $________ of Base Rate Revolving Loans and $__________ of
LIBOR Revolving Loans.
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4.
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The duration of the Interest Period for the LIBOR Revolving Loans, if any, included in the
Borrowing shall be ____________ months.
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The undersigned hereby certifies that the following statements are true on the date hereof, and
will be true on the date of the proposed Borrowing, before and after giving effect thereto and to
the application of the proceeds therefrom:
(a)
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The representations and warranties of Borrower contained in the Loan and Security Agreement
are true and correct in all material respects as though made on and as of such date (except
for representations and warranties that expressly relate to an earlier date);
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(b)
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No Default or Event of Default has occurred and is continuing, or would result from such
proposed Borrowing; and
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(c)
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The proposed Borrowing will not cause the aggregate principal amount of all outstanding
Revolving Loans to exceed the Availability or the Total Credit Facility.
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[NAME OF BORROWER]
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By:
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Name:
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Title:
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EXHIBIT B
NOTICE OF CONVERSION/CONTINUATION
Date: _______________________, 20___
To: Bank of America, N.A., as Agent regarding the Third Amended and Restated Loan and Security
Agreement dated as of March 21, 2007 (as extended, renewed, amended or restated from time to time,
the
Loan and Security Agreement
) among Regional Management Corp., Regional Finance
Corporation of South Carolina, Regional Finance Corporation of Georgia, Regional Finance
Corporation of Texas, Regional Finance Corporation of North Carolina, Regional Finance Corporation
of Alabama, Regional Finance Corporation of Tennessee and R.M.C. Financial Services Corp., as
borrowers, the lenders party thereto and Bank of America, N.A., as Agent.
Ladies and Gentlemen:
The undersigned, ______________________ (the
Borrower
), refers to the Loan and
Security Agreement, the terms defined therein being used herein as therein defined, and hereby
gives you notice irrevocably of the [conversion] [continuation] of the Loans specified herein,
that:
1. The Conversion/Continuation Date is ______________________, 20__.
2. The aggregate amount of the Loans to be [converted] [continued] is $_____________.
3. The Loans are to be [converted into] [continued as] [LIBOR] [Base Rate] Revolving Loans.
4. The duration of the Interest Period for the Loans included in the [conversion] [continuation]
shall be _____ months.
The undersigned hereby certifies that the following statements are true on the date hereof, and
will be true on the proposed Conversion/Continuation Date, before and after giving effect thereto
and to the application of the proceeds therefrom:
(a) The representations and warranties of Borrower contained in the Loan and Security Agreement are
true and correct in all material respects as though made on and as of such date (except for
representations and warranties that expressly relate to an earlier date);
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(b) No Default or Event of Default has occurred and is continuing, or would result from such
proposed [conversion] [continuation]; and
(c) The proposed conversion-continuation will not cause the aggregate principal amount of all
outstanding Revolving Loans to exceed the Availability or the Total Credit Facility.
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[NAME OF BORROWER]
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By:
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Name:
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Title:
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EXHIBIT C
[FORM OF] ASSIGNMENT AND ACCEPTANCE AGREEMENT
This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this
Assignment and Acceptance
) dated as
of ____________________, 20__ is made between ____________________ (the
Assignor
) and
__________________________ (the
Assignee
).
RECITALS
WHEREAS, the Assignor is party to that certain Third Amended and Restated Loan and Security
Agreement dated as of March 21, 2007 (as amended, amended and restated, modified, supplemented or
renewed, the
Credit Agreement
) among Regional Management Corp., a South Carolina
corporation (Regional); Regional Finance Corporation of South Carolina, a South Carolina
corporation (RFCSC); Regional Finance Corporation of Georgia, a Georgia corporation (RFCG);
Regional Finance Corporation of Texas, a Texas corporation (RFCT); Regional Finance Corporation
of North Carolina, a North Carolina corporation (RFCNC); Regional Finance Corporation of Alabama,
an Alabama corporation (RFCA); Regional Finance Corporation of Tennessee, a Tennessee corporation
(RFCTN); and R.M.C. Financial Services Corp., a South Carolina corporation (RMC) (Regional,
RFCSC, RFCG, RFCT, RFCNC, RFCA, RFCTN and RMC are herein individually and collectively referred to
as the Borrowers), the several financial institutions from time to time party thereto (including
the Assignor, the
Lenders
), and Bank of America, N. A., as agent for the Lenders (the
Agent
). Any terms defined in the Credit Agreement and not defined in this Assignment and
Acceptance are used herein as defined in the Credit Agreement;
WHEREAS, as provided under the Credit Agreement, the Assignor has committed to making Loans
(the
Committed Loans
) to the Borrowers in an aggregate amount not to exceed $__________
(the
Commitment
);
WHEREAS, the Assignor has made Committed Loans in the aggregate principal amount of
$__________ to the Borrowers;
WHEREAS, [the Assignor has acquired a participation in its pro rata share of the Lenders
liabilities under Letters of Credit in an aggregate principal amount of $____________ (the
L/C
Obligations
)] [no Letters of Credit are outstanding under the Credit Agreement]; and
WHEREAS, the Assignor wishes to assign to the Assignee [part of the] [all] rights and
obligations of the Assignor under the Credit Agreement in respect of its Commitment, together with
a corresponding portion of each of its outstanding Committed Loans and L/C Obligations, in an
amount equal to $__________ (the
Assigned Amount
) on the terms and subject to the
conditions set forth herein and the Assignee wishes to accept assignment of such rights and to
assume such obligations from the Assignor on such terms and subject to such conditions;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein,
the parties hereto agree as follows:
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Section 1. Assignment and Acceptance.
(a) Subject to the terms and conditions of this Assignment and Acceptance, (i) the Assignor
hereby sells, transfers and assigns to the Assignee, and (ii) the Assignee hereby purchases,
assumes and undertakes from the Assignor, without recourse and without representation or warranty
(except as provided in this Assignment and Acceptance) _______% (the
Assignees Percentage
Share
) of (A) the Commitment, the Committed Loans and the L/C Obligations of the Assignor and
(B) all related rights, benefits, obligations, liabilities and indemnities of the Assignor under
and in connection with the Credit Agreement and the Loan Documents.
(b) With effect on and after the Effective Date (as defined in Section 5 hereof), the Assignee
shall be a party to the Credit Agreement and succeed to all of the rights and be obligated to
perform all of the obligations of a Lender under the Credit Agreement, including the requirements
concerning confidentiality and the payment of indemnification, with a Commitment in an amount equal
to the Assigned Amount. The Assignee agrees that it will perform in accordance with their terms all
of the obligations which by the terms of the Credit Agreement are required to be performed by it as
a Lender. It is the intent of the parties hereto that the Commitment of the Assignor shall, as of
the Effective Date, be reduced by an amount equal to the Assigned Amount and the Assignor shall
relinquish its rights and be released from its obligations under the Credit Agreement to the extent
such obligations have been assumed by the Assignee;
provided
,
however
, the Assignor
shall not relinquish its rights under
Paragraphs 2.11, 2.18, 13.2, 13.14 and 13.17
of the
Credit Agreement to the extent such rights relate to the time prior to the Effective Date.
(c) After giving effect to the assignment and assumption set forth herein, on the Effective
Date the Assignees Commitment will be $_________.
(d) After giving effect to the assignment and assumption set forth herein, on the Effective
Date the Assignors Commitment will be $_________.
Section 2. Payments.
(a) As consideration for the sale, assignment and transfer contemplated in Section 1 hereof,
the Assignee shall pay to the Assignor on the Effective Date in immediately available funds an
amount equal to $__________, representing the Assignees Pro Rata Share of the principal amount of
all Committed Loans.
(b) The Assignee further agrees to pay to the Agent a processing fee in the amount specified
in
subparagraph 11.2(a)
of the Credit Agreement.
Section 3. Reallocation of Payments.
Any interest, fees and other payments accrued to the Effective Date with respect to the
Commitment, and Committed Loans and L/C Obligations shall be for the account of the Assignor. Any
interest, fees and other payments accrued on and after the Effective Date with respect to the
Assigned Amount shall be for the account of the Assignee. Each of the Assignor and the Assignee
agrees that it will hold in trust for the other party any interest, fees and other amounts which it
may receive to which the other party is entitled pursuant to the preceding
86
sentence and pay to the other party any such amounts which it may receive promptly upon
receipt.
Section 4. Independent Credit Decision.
The Assignee (a) acknowledges that it has received a copy of the Credit Agreement and the
Schedules and Exhibits thereto, together with copies of the most recent financial statements of the
Borrowers, and such other documents and information as it has deemed appropriate to make its own
credit and legal analysis and decision to enter into this Assignment and Acceptance; and (b) agrees
that it will, independently and without reliance upon the Assignor, the Agent or any other Lender
and based on such documents and information as it shall deem appropriate at the time, continue to
make its own credit and legal decisions in taking or not taking action under the Credit Agreement.
Section 5. Effective Date; Notices.
(a) As between the Assignor and the Assignee, the effective date for this Assignment and
Acceptance shall be __________, 20___ (the
Effective Date
);
provided
that the
following conditions precedent have been satisfied on or before the Effective Date:
(i) this Assignment and Acceptance shall be executed and delivered by the Assignor and the
Assignee;
[(ii) the consent of the Agent and the Borrowers required for an effective assignment of the
Assigned Amount by the Assignor to the Assignee shall have been duly obtained and shall be in full
force and effect as of the Effective Date;]
(iii) the Assignee shall pay to the Assignor all amounts due to the Assignor under this
Assignment and Acceptance;
[(iv) the Assignee shall have complied with
Paragraph 11.2(a)
of the Credit Agreement
(if applicable);]
(v) the processing fee referred to in Section 2(b) hereof and in
subparagraph 11.2(a)
of the Credit Agreement shall have been paid to the Agent; and
(b) Promptly following the execution of this Assignment and Acceptance, the Assignor shall
deliver to the Borrowers and the Agent for acknowledgment by the Agent, a Notice of Assignment in
the form attached hereto as
Schedule 1
.
[Section 6. Agent. [INCLUDE ONLY IF ASSIGNOR IS AGENT]
(a) The Assignee hereby appoints and authorizes the Assignor to take such action as agent on
its behalf and to exercise such powers under the Credit Agreement as are delegated to the Agent by
the Lenders pursuant to the terms of the Credit Agreement.
(b) The Assignee shall assume no duties or obligations held by the Assignor in its capacity as
Agent under the Credit Agreement.]
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Section 7. Withholding Tax.
The Assignee (a) represents and warrants to the Lender, the Agent and the Borrowers that under
applicable law and treaties no tax will be required to be withheld by the Lender with respect to
any payments to be made to the Assignee hereunder, (b) agrees to furnish (if it is organized under
the laws of any jurisdiction other than the United States or any State thereof) to the Agent and
the Borrowers prior to the time that the Agent or Borrowers is required to make any payment of
principal, interest or fees hereunder, duplicate executed originals of either IRS Form W-8BEN or
W-8ECI (or any subsequent replacement or substitute form therefor) (wherein the Assignee claims
entitlement to the benefits of a tax treaty that provides for a complete exemption from U.S.
federal income withholding tax on all payments hereunder) and agrees to provide new such forms upon
the expiration of any previously delivered form or comparable statements in accordance with
applicable U.S. law and regulations and amendments thereto, duly executed and completed by the
Assignee, and (c) agrees to comply with all applicable U.S. laws and regulations with regard to
such withholding tax exemption.
Section 8. Representations and Warranties.
(a) The Assignor represents and warrants that (i) it is the legal and beneficial owner of the
interest being assigned by it hereunder and that such interest is free and clear of any Lien or
other adverse claim; (ii) it is duly organized and existing and it has the full power and authority
to take, and has taken, all action necessary to execute and deliver this Assignment and Acceptance
and any other documents required or permitted to be executed or delivered by it in connection with
this Assignment and Acceptance and to fulfill its obligations hereunder; (iii) no notices to, or
consents, authorizations or approvals of, any Person are required (other than any already given or
obtained) for its due execution, delivery and performance of this Assignment and Acceptance, and
apart from any agreements or undertakings or filings required by the Credit Agreement, no further
action by, or notice to, or filing with, any Person is required of it for such execution, delivery
or performance; and (iv) this Assignment and Acceptance has been duly executed and delivered by it
and constitutes the legal, valid and binding obligation of the Assignor, enforceable against the
Assignor in accordance with the terms hereof, subject, as to enforcement, to bankruptcy,
insolvency, moratorium, reorganization and other laws of general application relating to or
affecting creditors rights and to general equitable principles.
(b) The Assignor makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in connection with the Credit
Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Credit Agreement or any other instrument or document furnished pursuant thereto. The
Assignor makes no representation or warranty in connection with, and assumes no responsibility with
respect to, the solvency, financial condition or statements of the Borrowers, or the performance or
observance by the Borrowers, of any of its respective obligations under the Credit Agreement or any
other instrument or document furnished in connection therewith.
(c) The Assignee represents and warrants that (i) it is duly organized and existing and it has
full power and authority to take, and has taken, all action necessary to execute and deliver this
Assignment and Acceptance and any other documents required or permitted to be executed or delivered
by it in connection with this Assignment and Acceptance, and to fulfill its obligations hereunder;
(ii) no notices to, or consents, authorizations or approvals of, any Person are required (other
than any already given or obtained) for its due execution, delivery and
88
performance of this Assignment and Acceptance; and apart from any agreements or undertakings
or filings required by the Credit Agreement, no further action by, or notice to, or filing with,
any Person is required of it for such execution, delivery or performance; (iii) this Assignment and
Acceptance has been duly executed and delivered by it and constitutes the legal, valid and binding
obligation of the Assignee, enforceable against the Assignee in accordance with the terms hereof,
subject, as to enforcement, to bankruptcy, insolvency, moratorium, reorganization and other laws of
general application relating to or affecting creditors rights and to general equitable principles;
and (iv) it is an Eligible Assignee.
Section 9. Further Assurances.
The Assignor and the Assignee each hereby agree to execute and deliver such other instruments,
and take such other action, as either party may reasonably request in connection with the
transactions contemplated by this Assignment and Acceptance, including the delivery of any notices
or other documents or instruments to the Borrowers or the Agent, which may be required in
connection with the assignment and assumption contemplated hereby.
Section 10. Miscellaneous.
(a) Any amendment or waiver of any provision of this Assignment and Acceptance shall be in
writing and signed by the parties hereto. No failure or delay by either party hereto in exercising
any right, power or privilege hereunder shall operate as a waiver thereof and any waiver of any
breach of the provisions of this Assignment and Acceptance shall be without prejudice to any rights
with respect to any other or further breach thereof.
(b) All payments made hereunder shall be made without any set-off or counterclaim.
(c) The Assignor and the Assignee shall each pay its own costs and expenses incurred in
connection with the negotiation, preparation, execution and performance of this Assignment and
Acceptance.
(d) This Assignment and Acceptance may be executed in any number of counterparts and all of
such counterparts taken together shall be deemed to constitute one and the same instrument.
(e) THIS ASSIGNMENT AND ACCEPTANCE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAW OF THE STATE OF NEW YORK. The Assignor and the Assignee each irrevocably submits to the
non-exclusive jurisdiction of any State or Federal court sitting in New York over any suit, action
or proceeding arising out of or relating to this Assignment and Acceptance and irrevocably agrees
that all claims in respect of such action or proceeding may be heard and determined in such New
York State or Federal court. Each party to this Assignment and Acceptance hereby irrevocably
waives, to the fullest extent it may effectively do so, the defense of an inconvenient forum to the
maintenance of such action or proceeding.
(f) THE ASSIGNOR AND THE ASSIGNEE EACH HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING
OUT OF, UNDER, OR IN CONNECTION WITH THIS ASSIGNMENT AND ACCEPTANCE,
89
THE CREDIT AGREEMENT, ANY RELATED DOCUMENTS AND AGREEMENTS OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, OR STATEMENTS (WHETHER ORAL OR WRITTEN).
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Assignment and Acceptance
to be executed and delivered by their duly authorized officers as of the date first above written.
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[ASSIGNOR]
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By:
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Name:
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Title:
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By:
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Name:
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Title:
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Address:
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[ASSIGNEE]
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By:
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Name:
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Title:
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By:
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Name:
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Title:
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Address:
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90
SCHEDULE 1
NOTICE OF ASSIGNMENT AND ACCEPTANCE
_______________, ____
Bank of America, N.A., as Agent
40 East 52
nd
Street
New York, New York 10022
Attn: _________________
Regional Management Corporation
P.O. Box 776
Mauldin, South Carolina 29662
Attn:__________________
Ladies and Gentlemen:
We refer to the Third Amended and Restated Loan and Security Agreement dated as of March 21,
2007 (as amended, amended and restated, modified, supplemented or renewed from time to time the
Credit Agreement
) among Regional Management Corp., a South Carolina corporation
(
Regional
); Regional Finance Corporation of South Carolina, a South Carolina corporation
(
RFCSC
); Regional Finance Corporation of Georgia, a Georgia corporation (
RFCG
);
Regional Finance Corporation of Texas, a Texas corporation (
RFCT
); Regional Finance
Corporation of North Carolina, a North Carolina corporation (RFCNC); Regional Finance Corporation
of Alabama, an Alabama corporation (
RFCA
); Regional Finance Corporation of Tennessee, a
Tennessee corporation (RFCTN); and R.M.C. Financial Services Corp., a South Carolina corporation
(
RMC
) (Regional, RFCSC, RFCG, RFCT, RFCNC, RFCA, RFCTN and RMC are herein individually
and collectively referred to as the
Borrowers
), the Lenders referred to therein and Bank
of America, N. A., as agent for the Lenders (the
Agent
). Terms defined in the Credit
Agreement are used herein as therein defined.
1. We hereby give you notice of, and request your consent to, the assignment by
__________________ (the
Assignor
) to _______________ (the
Assignee
) of _____%
of the right, title and interest of the Assignor in and to the Credit Agreement (including the
right, title and interest of the Assignor in and to the Commitments of the Assignor, all
outstanding Loans made by the Assignor and the Assignors participation in the Letters of Credit
pursuant to the Assignment and Acceptance Agreement attached hereto (the
Assignment and
Acceptance
). We understand and agree that the Assignors Commitment, as of ________________,
20___, is $___________, the aggregate amount of its outstanding Loans is $_____________, and its
participation in L/C Obligations is $____________.
The Assignee agrees that, upon receiving the consent of the Agent and, if applicable, the Borrowers
to such assignment, the Assignee will be bound by the terms of the Credit Agreement as fully and to
the same extent as if the Assignee were the Lender originally holding such interest in the Credit
Agreement.
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The following administrative details apply to the Assignee:
(A) Notice Address:
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Assignee name:
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Address:
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Attention:
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Telephone:
(___)
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Telecopier: (___)
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Telex (Answerback):
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(B) Payment Instructions:
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Account No.:
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At:
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Reference:
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Attention:
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2. You are entitled to rely upon the representations, warranties and covenants of each of the
Assignor and Assignee contained in the Assignment and Acceptance.
IN WITNESS WHEREOF, the Assignor and the Assignee have caused this Notice of Assignment and
Acceptance to be executed by their respective duly authorized officials, officers or agents as of
the date first above mentioned.
Very truly yours,
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[NAME OF ASSIGNOR]
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By:
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Name:
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[NAME OF ASSIGNEE]
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By:
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ACKNOWLEDGED AND ASSIGNMENT
CONSENTED TO:
AGENT
:
Bank of America, N.A.,
as Agent
If applicable,
BORROWERS
:
REGIONAL MANAGEMENT CORP.
REGIONAL FINANCE CORPORATION OF SOUTH CAROLINA
REGIONAL FINANCE CORPORATION OF GEORGIA
REGIONAL FINANCE CORPORATION OF TEXAS
REGIONAL FINANCE CORPORATION OF NORTH CAROLINA
REGIONAL FINANCE CORPORATION OF ALABAMA
REGIONAL FINANCE CORPORATION OF TENNESSEE
R.M.C. FINANCIAL SERVICES CORP.
Title:________________ of each of the above-listed corporations
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EXHIBIT D (FORM OF GUARANTY)
GUARANTY
THIS GUARANTY (as the same now exists or may be hereafter amended, supplemented or otherwise
modified from time to time, this
Guaranty
) dated as of _____ __, 200_, made by
_____________________ (the
Guarantor
) in favor of BANK OF AMERICA, N.A., as agent for the
Lenders (in such capacity, the
Agent
). Except as otherwise defined herein, capitalized
terms used herein and defined in the Loan Agreement (as hereinafter defined) shall be used herein
as so defined.
W
I
T
N
E
S
S
E
T
H
:
WHEREAS, Regional Management Corp., a South Carolina corporation (
Regional
),
Regional Finance Corporation of South Carolina, a South Carolina corporation, Regional Finance
Corporation of Georgia, a Georgia corporation, Regional Finance Corporation of Texas, a Texas
corporation, Regional Finance Corporation of North Carolina, a North Carolina corporation, and
R.M.C. Financial Services Corp., a South Carolina corporation, Regional Finance Corporation of
Alabama, an Alabama corporation and Regional Finance Corporation of Tennessee, a Tennessee
corporation (individually and collectively, the
Borrowers
) are parties to that certain
Third Amended and Restated Loan and Security Agreement, dated as of March 21, 2007 (as amended,
restated, modified or supplemented from time to time, the
Loan Agreement
) among the
Borrowers, Bank of America, N.A. as agent (the Agent), and the lenders party thereto (the
Lenders);
WHEREAS, the Guarantor is a wholly-owned Subsidiary of Regional;
WHEREAS, the execution and delivery by the Guarantor of this Guaranty is required pursuant to
Paragraph 8.8 of the Loan Agreement; and
WHEREAS, the Guarantor will obtain benefits as a result of the credit extended to the
Borrowers under the Loan Agreement and, accordingly, the Guarantor desires to execute and deliver
this Guaranty in order induce the Lenders to continue to extend credit to the Borrowers;
NOW, THEREFORE, in consideration of the foregoing and other benefits accruing to the
Guarantor, the receipt and sufficiency of which are hereby acknowledged, the Guarantor hereby makes
the following representations and warranties to the Agent, for the benefit of the Agent and the
Lenders, and hereby covenants and agrees with the Agent, for the benefit of the Agent and the
Lenders, as follows:
Section 1.
GUARANTY
1.1
Guaranteed Obligations
. (a) The Guarantor unconditionally and irrevocably
guarantees to the Agent and Lenders, and their successors and assigns, the payment when due
(whether by acceleration or otherwise) of all Obligations of the Borrowers (the
Guaranteed
Obligations
) including, without limitation, (i) the aggregate unpaid principal balance of all
Loans made under the Loan Agreement, (ii) all interest accrued thereon and all
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fees payable under the Loan Agreement and the other Loan Documents (including all interest
accrued from the commencement of a case under the Federal Bankruptcy Code by or against the
Borrowers or other bankruptcy, insolvency or reorganization proceeding for the Borrowers regardless
of whether such interest or fees are an allowed claim in any such case or proceeding) and (iii) all
other amounts now or hereafter payable by the Borrowers under the Loan Agreement, any promissory
notes issued thereunder (the
Notes
) or any other Loan Document to which the Borrowers is
a party, when and as the same shall become due, whether at the stated date or dates for payment, by
acceleration or otherwise, according to the terms of the Loan Agreement, the Notes or any other
applicable Loan Document, without regard to any defense, setoff or counterclaim that may at any
time be asserted by or available to the Borrowers and notwithstanding any discharge of the
Borrowers from the Guaranteed Obligations.
(b) The Guarantor hereby agrees that if any amount of the Guaranteed Obligations shall not be
paid promptly when due, the Guarantor shall pay such amount to the Agent immediately after written
demand is made therefor by the Agent. All payments by the Guarantor under this Guaranty shall be
paid in Dollars and in immediately available funds at the office of the Agent at 335 Madison
Avenue, New York, New York 10017 or at such other office or to such account of the Agent as the
Agent shall designate in writing from time to time.
(c) It is the intention of the Guarantor that the obligations of the Guarantor hereunder shall
be in, but not in excess of, the maximum amount permitted by applicable law. To that end, but only
to the extent such obligations would otherwise be avoidable, notwithstanding anything to the
contrary contained herein or in any other Loan Documents, the obligations of the Guarantor
hereunder shall be reduced to that amount which after giving effect thereto and to all other
liabilities of the Guarantor (absolute or contingent) would not render the Guarantor insolvent or
unable to pay its debts and liabilities as they mature or leave the Guarantor with an unreasonably
small capital. For purposes of the foregoing, insolvent or unreasonably small capital and the
effective time of reductions required by this paragraph 1.1(c) shall be determined in accordance
with applicable law.
(d) Notwithstanding anything to the contrary contained herein or in any other agreement,
document or instrument, until the Obligations are paid in full, the Guarantor hereby irrevocably
waives to the extent permitted by law all rights of subrogation (whether such rights arise under
common law, contract or Federal law (including, without limitation, Section 509 or the U.S.
Bankruptcy Code) to the claims of the Agent or any Lender against the Borrowers, and waives all
contractual, statutory and common law rights of contribution, reimbursement, indemnification and
similar rights and claims (as such term is defined in the U.S. Bankruptcy Code) against the
Borrowers which may arise in connection with, or as a result of, this Guaranty.
1.2
Obligations Unconditional
. (a) The obligations of the Guarantor under this
Guaranty shall be absolute, unconditional and irrevocable and shall remain in full force and effect
until the date the Obligations are paid in full (the
Release Date
). This Guaranty is a
guaranty of payment and not of collection and the obligations of the Guarantor hereunder shall not
be affected or modified and shall remain in full force and effect regardless of the occurrence from
time to time of any event, including, without limitation, any of the following, whether or not such
event shall occur with notice to, or with the consent of, the Guarantor:
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(i) the waiver, surrender, compromise, settlement, discharge, release or
termination of any or all of the Guaranteed Obligations, except for the payment in
full in accordance with the Loan Agreement of the Obligations;
(ii) the failure to give any notice to the Borrowers, except to the extent
required by the Loan Agreement or the Loan Documents;
(iii) the extension of the time for payment or performance of the Guaranteed
Obligations;
(iv) the application of any sums by whomsoever paid or howsoever realized to
any liability or liabilities of the Borrowers to the Agent and Lenders regardless of
what liability or liabilities of the Borrowers remain unpaid;
(v) the modification, waiver or amendment (whether material or otherwise) of
the terms of the Loan Agreement, or the Notes or any other Loan Document;
(vi) the taking or the failure to take any action referred to in, or the
exercise or failure to exercise any discretion vested in the Agent or any Lender by,
the Loan Agreement, the Notes or any other Loan Document;
(vii) the illegality, invalidity, unenforceability or irregularity of the Loan
Agreement, the Notes or any other Loan Document;
(viii) any failure, omission, delay or lack of diligence on the part of the
Agent or any Lender in the enforcement, assertion or exercise of any right, power or
remedy conferred on the Agent or any Lender under any Loan Document, or the
inability of the Agent or any Lender to enforce any provision of any Loan Document
for any reason, or any other act or omission on the part of the Agent or any Lender,
including, without limitation, the failure by the Agent or any Lender to perfect or
protect any Lien granted to the Agent and Lenders under any Security Document, the
release or substitution of any collateral by the Agent and/or Lenders, the failure
by the Agent and/or Lenders to commence and prosecute any action to collect any
Guaranteed Obligations or the failure to enforce or collect any judgment obtained by
the Agent and/or Lenders;
(ix) the dissolution, sale or other disposition of all or substantially all of
the assets of the Borrowers, liquidation, marshalling of assets and liabilities,
receivership, insolvency, assignment for the benefit of creditors, bankruptcy,
reorganization, arrangement, adjustment, composition or other similar proceedings
affecting the Borrowers; or
(x) to the extent permitted by law, any event or, action or circumstance that
would, in, the absence of this clause, result in the release or discharge of the
Guarantor from the performance or observance of any obligation, covenant or
agreement contained in this Guaranty, it being the intent of the parties to this
Guaranty that the obligations of the Guarantor hereunder shall be absolute and
unconditional under any circumstances.
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(b) The Guarantor hereby agrees that the Agent and/or the Lenders may at any time, or from
time to time, in the Agents or such Lenders discretion, (i) renew and/or extend or accelerate the
time of payment and/or the manner, place or terms of payment of all of the Guaranteed Obligations,
or any part or parts thereof or any renewal or renewals thereof or the obligations of any other
guarantor of the Guaranteed Obligations, (ii) release or surrender any other guaranty of the
Guaranteed Obligations, (iii) exchange, release and/or surrender all or any of the collateral
security, or any part or parts thereof, that is now or may hereafter be held by or on behalf of the
Agent in connection with this Guaranty or any or all of the Guaranteed Obligations, (iv) sell
and/or purchase any or all such collateral at public or private sale or at any brokers board and,
after deducting all reasonable costs and expenses of every kind for collection, sale or delivery,
apply the proceeds of any such sale or sales upon any of the Guaranteed Obligations, (v) settle or
compromise any and all of the Guaranteed Obligations with the Borrowers and/or any other Person
liable thereon and/or subordinate the payment of same or any part thereof to the payment of any
other debts or claims that may at any time be due or owing to the Agent and/or any other Person;
all in such manner and upon such terms as the Agent may see fit, and without notice to or further
assent from the Guarantor, who hereby agrees to be and remain bound upon this Guaranty in
accordance with the terms hereof, irrespective of the existence, value or condition of any
collateral and notwithstanding any such change, exchange, settlement, compromise, surrender,
release, sale, application, renewal, extension or any other action hereinbefore mentioned.
1.3
Waiver of Notice, Etc., Exhaustion of Remedies.
The Guarantor waives all notices
of the creation, renewal, extension or accrual of any of the Guaranteed Obligations and notice or
proof of reliance by the Agent upon this Guaranty or acceptance of this Guaranty. The Guaranteed
Obligations shall conclusively be deemed to have been created, contracted or incurred in reliance
upon this Guaranty, and all dealings between the Borrowers or the Guarantor and the Agent or any
Lender shall likewise be conclusively presumed to have been had or consummated in reliance upon
this Guaranty. The Guarantor also waives diligence, presentment, demand for payment, protest and
notice of nonpayment or dishonor and all other notices and demands whatsoever relating to the
Guaranteed Obligations that are not specifically required by this Guaranty or the requirement that
the Agent and/or any Lender file a claim with a court in the event of the bankruptcy of the
Borrowers or that the Agent and/or any Lender proceed first against the Borrowers or any other
guarantor of, or collateral for, the Guaranteed Obligations or otherwise exhaust any right, power
or remedy under the Loan Agreement or any other Loan Document before proceeding hereunder.
1.4
Waiver of Defenses.
No set-off, counterclaim, reduction or diminution of an
obligation or any defense of any kind or nature (other than payment and performance of the
Guaranteed Obligations) that the Borrowers may have or assert against the Agent and/or any Lender
shall be available hereunder to the Guarantor against the Agent and/or any Lender.
1.5
Reinstatement.
The Guarantor further agrees that if at any time all or any part
of any payment of the Guaranteed Obligations received by the Agent and/or any Lender is or must be
rescinded or returned to the Borrowers for any reason whatsoever (including, without limitation,
the insolvency, bankruptcy or reorganization of the Borrowers), this Guaranty shall be reinstated
with respect to such payment so rescinded or returned as though such payment had
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never been received by the Agent and/or any Lender and notwithstanding the occurrence of the
Release Date prior to the recision or return of such payment.
1.6
No Subrogation.
No payment by the Guarantor pursuant to any provision of this
Guaranty or other satisfaction of any of the Guarantors liabilities under this Guaranty shall
entitle the Guarantor, by subrogation or otherwise, to any rights or remedies of the Agent and/or
any Lender against the Borrowers, except after the Release Date.
1.7
Stay of Acceleration.
If demand for, or acceleration of the time for, payment by
the Borrowers of any Guaranteed Obligations is stayed upon the insolvency, bankruptcy or
reorganization of the Borrowers, all such indebtedness otherwise subject to demand for payment or
acceleration under the terms of the Loan Agreement shall nonetheless be payable by the Guarantor
hereunder forthwith on demand by the Agent.
1.8
Subordination.
The Guarantor agrees that (i) all existing and future indebtedness
of the Borrowers to the Guarantor shall be subject and subordinate to the obligations and
indebtedness of the Borrowers to the Agent and Lenders under the Loan Agreement and the other Loan
Documents and (ii) so long as there exists any Event of Default under the Loan Agreement, unless
the Agent and Lenders otherwise agree, the Borrowers shall not be required to pay to the Guarantor
any indebtedness owing by the Borrowers to the Guarantor until the Release Date.
1.9
Continuing Guaranty.
This is a continuing guaranty of the Guaranteed Obligations,
and this Guaranty shall remain in full force and effect and be binding upon the Guarantor and its
successors and assigns so long as the Lenders have an obligation to make Loans under the Loan
Agreement and until the Release Date.
Section 2.
REPRESENTATIONS AND WARRANTIES.
The Guarantor hereby represents and
warrants that:
2.1
Due Organization.
The Guarantor (a) is a duly organized and validly existing
[corporation] [limited liability company] [limited partnership] in good standing under the laws of
the State of [_________________], and (b) has the power and authority to own its property and
assets and to transact the business in which it is engaged in each jurisdiction where the
ownership, leasing or operation of property or the conduct of its business requires such
qualification, except for such qualifications the lack of which has not had and is not reasonably
likely to have a material adverse effect on the business or condition (financial or otherwise) of
the Guarantor (a Material Adverse Effect).
2.2
Valid Execution: Binding Effect.
The Guarantor has the [corporate] [limited
liability company] [limited partnership] power to execute, deliver and perform this Guaranty and
each of the other Loan Documents to which it is a party and has taken all necessary [corporate]
[limited liability company] [limited partnership] action to authorize the execution, delivery and
performance by it of this Guaranty. The Guarantor has duly executed and delivered this Guaranty and
each of the other Loan Documents to which it is a party, and this Guaranty constitutes its legal,
valid and binding obligation enforceable in accordance with its terms, subject, as to
enforceability, to applicable bankruptcy, insolvency and similar laws affecting
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creditors rights generally and to general principles of equity (regardless of whether enforcement
is sought in a proceeding in equity or at law).
2.3
No Violation.
Neither the execution, delivery or performance by the Guarantor of
this Guaranty or of any other Loan Documents to which it is a party, nor compliance by it with the
terms and provisions hereof or thereof, (a) will violate any provision of the charter documents or
organizational documents of the Guarantor or (b) except to the extent the same is not known to a
responsible officer of the Guarantor and would not have a Material Adverse Effect, (i) will
contravene any provision of any law, statute, rule or regulation or any order, writ, injunction or
decree of any court or governmental instrumentality or (ii) will conflict or be inconsistent with
or result in any breach of any of the terms, covenants, conditions or provisions of, or constitute
a default under, or result in the creation or imposition of (or the obligation to create or impose)
any Lien upon any of the property or assets of the Guarantor pursuant to the terms of any
indenture, mortgage, deed of trust, credit agreement, loan agreement or any other agreement,
contract or instrument to which the Guarantor is a party or by which it or any of its property or
assets is bound or to which it may be subject.
2.4
No Consents.
No order, consent, approval, license, authorization or validation
of, or filing, recording or registration with, or exemption by, any governmental or public body or
authority, or any subdivision thereof, is required to authorize, or is required in connection with
(other than as have been obtained or made prior to the date hereof, or if not obtained, would not
have a Material Adverse Effect), (a) the execution, delivery and performance by the Guarantor of
this Guaranty and each of the other Loan Documents to which it is a party or (b) the legality,
validity, binding effect or enforceability of this Guaranty or any of the other Loan Documents to
which the Guarantor is a party.
2.5
Ranking of Obligations.
The obligations of the Guarantor to make payments as
provided in this Guaranty rank, as to right of payment, at least equally with the general unsecured
debt of the Guarantor.
2.6
Restrictive Agreements.
As of the date hereof, the Guarantor is not a party to
any agreement, and is not subject to any [corporate] [limited liability company] [limited
partnership] restriction, which adversely affects its ability to execute, deliver, and perform this
Guaranty or the Loan Documents to which it is a party and repay the Guaranteed Obligations
guarantied by it or which is reasonably likely to have a Material Adverse Effect.
Section 3.
DEFAULT AND REMEDIES.
3.1
Enforcement.
The Agent shall have the right, power and authority to do all things
it deems necessary or advisable to enforce the provisions of this Guaranty in the event of a
default in payment of the Guaranteed Obligations when and as the same shall become due after
expiration of any grace period expressly granted in the Loan Documents. The Agent may institute or
appear in such judicial proceedings as the Agent shall deem most effective to protect and enforce
any of the Agents rights, whether for the specific enforcement of any covenant or agreement in
this Guaranty or in aid of the exercise of any power granted herein, or to enforce any other proper
remedy.
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3.2
Cumulative Remedies.
No remedy conferred upon or reserved to the Agent or any
Lender herein is intended to be exclusive of any other available remedy or remedies, but each and
every such remedy shall be cumulative and shall be in addition to every other remedy given under
the Guaranty, any other Loan Document or any other document or instrument or provided by law.
3.3
Separate Causes of Action; Exhaustion of Remedies.
Each and every default in
payment of the Guaranteed Obligations shall give rise to a separate cause of action hereunder, and
separate suits may be brought hereunder as each cause of action arises. In the event of such a
default, the Agent shall have the right to enforce this Guaranty, first and directly against the
Guarantor without proceeding against the Borrowers or against any other guarantor under any other
guaranty covering the Guaranteed Obligations, against any other Person or against any security for
the Guaranteed Obligations or exhausting any other remedies which it may have and without resorting
to any security held by it. All payments by the Guarantor under this Guaranty shall be made on the
same basis as payments by the Borrowers under Paragraph 2.10 of the Loan Agreement or as otherwise
specified by the Agent by a notice in writing to the Guarantor.
3.4
Costs, Expenses and Fees.
The Guarantor hereby agrees to pay all reasonable
costs, expenses and fees, and all reasonable attorneys fees, which may be incurred by the Agent in
preparing this Guaranty or any amendments, waivers or consents with respect hereto or incurred by
the Agent and Lenders in enforcing or attempting to enforce this Guaranty or in protecting the
rights of the Agent and Lenders under this Guaranty following any default on the part of the
Guarantor hereunder, whether the same shall be enforced by suit or otherwise. The covenants and
agreements contained in this Section 3.4 shall survive the payment of the Guaranteed Obligations
and the Guarantors obligations hereunder.
Section 4.
MISCELLANEOUS.
4.1
Notices.
(a) Any notice, request, direction, demand or communication hereunder
shall be given to or made upon the Guarantor or the Agent in writing (including facsimile
transmission) and mailed or delivered in accordance with subsection (b) of this Section to each
such party at the address set forth in subsection (c) of this Section, or to such other address as
may be designated by any such party by a written notice delivered to the other such parties in
accordance with this Section 4.1.
(b) All notices given under this Section 4.1 shall be effective only (i) if given by facsimile
transmission, when transmitted to the applicable facsimile number, if confirmation of receipt is
received (except that, if not given during normal business hours for the recipient, such notice
shall be deemed to have been given at the opening of business on the next business day for the
recipient); (ii) if given by certified or registered U.S. mail, upon receipt, with first-class
postage pre-paid, addressed to the applicable address; or (iii) if given by personal delivery, when
duly delivered to the notice address with receipt acknowledged. Any written notice, request or
other communication that is not sent in conformity with this Section 4.1 shall nevertheless be
effective on the date actually received by the noticed party. Any notice received by Regional
shall be deemed received by all Borrowers.
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(c) Notices to the Agent shall be addressed to it at Bank of America, N.A., 335 Madison
Avenue, New York, New York 10017. Notices to the Guarantor shall be addressed to it at
____________________, __________, ______________ ____.
4.2
Waivers and Amendments.
No failure on the part of the Agent or any Lender to
exercise, and no delay in exercising, and no course of dealing with respect to, any right, power or
remedy hereunder shall operate as a waiver thereof or of any default hereunder or any Event of
Default, nor shall any single or partial exercise by the Agent or any Lender of any right, power or
remedy hereunder preclude any other or further exercise thereof or the exercise of any other right,
power or remedy of the Agent or any Lender. No modification or waiver of any provision of this
Guaranty nor consent to any departure herefrom shall in any event be effective unless the same
shall be in writing and signed by the Agent or any Lender, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No notice to or demand
on the Borrowers or the Guarantor in any case shall, of itself, entitle the Guarantor to any other
or further notice or demand in similar or other circumstances. If notice, whether before or after
an Event of Default has occurred, is required by law to be given by the Agent or any Lender to the
Guarantor, the Guarantor agrees that ten (10) days notice given in the manner provided in Section
4.1 hereof shall be reasonable notice.
4.3
Successors and Assigns.
(a) This Guaranty shall be binding upon the Guarantor and
its successors, transfers, administrators, legal representatives and assigns, and shall inure to
the benefit of, and be enforceable by, the Agent and Lenders and their successors, transfers and
assigns. Without limiting the generality of the foregoing, any Lender may assign or otherwise
transfer its rights and obligations under the Loan Agreement to any other Person or entity and such
Person or entity shall thereupon become vested with all the benefits in respect thereof granted to
such Lender, herein or otherwise, all as provided in, and to the extent set forth in, the Loan
Agreement.
(b) In connection with any assignment permitted by the Loan Agreement, the Agent may assign
all or any portion of its rights and powers under this Guaranty to the extent permitted in the Loan
Agreement and, in the event of such assignment, the assignee of such rights and powers, to the
extent of such assignment, shall have the same rights and remedies as the Agent. The Guarantor may
not assign its rights or obligations hereunder without the prior written consent of the Agent.
4.4
Set-Off.
In addition to any rights now or hereafter granted under applicable law
and not by way of limitation of such rights, upon the occurrence and during the continuance of an
Event of Default, the Agent and each Lender is hereby authorized at any time or from time to time,
without notice to the Guarantor or to any other Person (any such notice being hereby expressly
waived) to set off and to appropriate and apply any and all deposits (general or special) and any
other indebtedness at any time held or owing by the Agent and each Lender to or for the credit or
the account of the Guarantor against and on account of the Guaranteed Obligations. The Agent and
each Lender agrees promptly to notify the Guarantor after any such set-off and application made by
the Agent or such Lender, provided that the failure to give such notice shall not affect the
validity of such set- off and application.
4.5
Transactions Permitted under the Loan Documents.
Nothing contained in this
Agreement shall in any manner prohibit or restrict the Guarantor from consummating any
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transaction, entering into any agreement or otherwise taking any other action expressly permitted
under the Loan Agreement.
4.6
Termination.
Subject to Section 1.5 hereof, this Guaranty and the obligations of
the parties hereunder shall terminate on the date the Loan Agreement is terminated and the
Obligations have been fully repaid, unless otherwise expressly provided for herein.
4.7
Credit Agreement Prevails.
To the extent there are express provisions of the Loan
Agreement which conflict with the provisions hereof, the provisions contained in the Loan Agreement
shall prevail.
4.8
SUBMISSION TO JURISDICTION.
PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL
OBLIGATIONS LAW, THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK SHALL HAVE
JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES AMONG ANY GUARANTOR, AGENT AND LENDERS,
PERTAINING TO THIS GUARANTY. EACH GUARANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH COURTS.
4 .9
WAIVER OF JURY TRIAL.
THE GUARANTOR AND THE AGENT HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE (TO THE FULLEST EXTENT PERMITTED BY LAW) TRIAL BY JURY IN ANY JUDICIAL
PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR
OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS GUARANTY, THE GUARANTEED
OBLIGATIONS OR ANY DOCUMENTS OR INSTRUMENTS DELIVERED PURSUANT HERETO OR THERETO OR THE
RELATIONSHIP ESTABLISHED HEREUNDER OR THEREUNDER, OR ANY ACT, OMISSION OR EVENT OCCURRING IN
CONNECTION THEREWITH. THE GUARANTOR AND THE AGENT CONFIRM THAT THE FOREGOING WAIVERS ARE INFORMED
AND FREELY GIVEN
.
4.10
GOVERNING LAW.
PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS
LAW, THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK, WITHOUT GIVING EFFECT TO ITS CONFLICT OF LAWS RULES.
4.11
Acknowledgments by Guarantor.
The Guarantor acknowledges and confirms to the
Agent that the Guarantor has not been induced to execute and deliver this Guaranty as a result of,
and is not relying upon, any representations, warranties, agreements or conditions, whether express
or implied or written or oral, by the Agent or any Lender, the Borrowers or any other Person.
Without limiting the generality of the foregoing or any other provision of this Guaranty, insofar
as the Guarantor is concerned:
(a) the Agent and Lenders are not obligated to give or continue any financial accommodations
to the Borrowers (except to the extent required to do so under the Loan Agreement) or any other
Person, including (without limitation) pursuant to this Guaranty, or to
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change or extend the time of payment of, or renew or alter, any liability of the Borrowers or of
any other Person, any security therefor or any liability incurred directly or indirectly in respect
thereof;
(b) no Person, including (without limitation) the Agent or any Lender and the Borrowers, has
made any representations to the Guarantor as to any matter which may affect or in any way relate to
the financial condition, relationships or transactions of the Borrowers or any other Person,
including (without limitation) the business, assets, liabilities, type or value of any security
therefor, financial condition, management or control of the Borrowers or any other Person (except
that, to the extent required to do so under the Loan Agreement, the Agent and Lenders have agreed
to make Loans to the Borrowers and issue Letters of Credit for the account of Borrowers);
(c) the Agent and Lenders are not obligated to notify the Guarantor or any other Person of any
change in the business, assets, liabilities, type or value of any security therefor, financial
condition, management or control of the Borrowers or any other Person, and none of such changes
shall release or otherwise impair any of the rights of the Agent and Lenders against the Guarantor;
and
(d) no failure by the Agent and Lenders to obtain, perfect, protect, insure or realize upon
any security for any of the liabilities of the Borrowers or of any other Person or no other act or
failure to act by the Agent and Lenders shall release or otherwise impair any of the obligations of
the Guarantor hereunder.
4.12
Severability.
If any part of this Guaranty is contrary to, prohibited by or
deemed invalid under any applicable law of any jurisdiction, such provision shall, as to such
jurisdiction, be inapplicable and deemed omitted to the extent so contrary, prohibited or invalid,
without invalidating the remainder hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
4 .13
Section headings
. Section Headings used in this Guaranty are for convenience
only and shall not affect the construction of this Guaranty.
4 .14.
Counterparts
. This Guaranty may be executed in several counterparts, each of
which shall be deemed an original, but all of which together shall constitute one and the same
instrument. Delivery of an executed counterpart of a signature page of this Guaranty by facsimile
or electronic mail shall be effective as delivery of a manually executed counterpart of this
Guaranty.
[ INTENTIONALLY LEFT BLANK ]
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IN WITNESS WHEREOF, the Guarantor has duly executed this Guaranty as of the date first above
written.
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[INSERT NAME OF GUARANTOR]
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Accepted and Agreed to:
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BANK OF AMERICA, N.A., as Agent
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SCHEDULE 4.4
LOCATIONS OF BOOKS AND RECORDS AND COLLATERAL
Location of Records Concerning Collateral
509 West Butler Road, Greenville, South Carolina 29607
Location of Collateral and Places of Business
509 West Butler Road, Greenville, South Carolina 29607; see also attached List of Branches.
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List of Branches
1 Windsor Cove, Suite 205, Columbia, SC 29223
845 LowCountry Blvd., Suite B, Mt. Pleasant, SC 29464
141 S.W. Laurens Street, Aiken, SC 29801
2705 N. Main St., Suite C, Anderson, SC 29621
104 Main St., Barnwell, SC 29812
112D West Church St., Batesburg, SC 29006
2303 Boundary St., Suite 3, Beaufort, SC 29902
145 Hwy 15 & 401 Bypass, Suite 6, Bennettsville, SC 29512
3906 Hwy 9, Suite C, Boiling Springs, SC 29316
1047 Broad St., Camden, SC 29020
528 Knox Abbott Dr., Cayce, SC 29033
567 King St., Charleston, SC 29403
233 Second St., Cheraw, SC 29520
6729 L Two Notch Rd., Columbia, SC 29223
2101 Main St., Unit D, Columbia, SC 29201
302 Main St., Conway, SC 29526
220 East Main St., Dillon, SC 29536
6932 Calhoun Memorial Hwy., Suite G, Easley, SC 29640
355 West Evans St., Florence, SC 29501
515 North Limestone St., Gaffney, SC 29340
1113 North Fraser St., Georgetown, SC 29440
1414 E Washington St., Suite K, Greenville, SC 29607
1414 E Washington St., Suite G, Greenville 29607
718A Montague Avenue, Greenwood, SC 29649
1309 B West Poinsett St., Greer, SC 29650
129 Lee Avenue, Hampton, SC 29924
112 East Carolina Ave., Hartsville, SC 29550
475 N. Main St., Suite D, Hemingway, SC 29554
109 East Main St., Lake City, SC 29560
226 South Main St., Lancaster, SC 29720
507 N. Harper St., Suite D, Laurens, SC 29360
103 South Brooks St., Manning, SC 29102
1107 East Godbold Street, Marion, SC 29571
100-C Fairground Road, Moncks Corner, SC 29461
605 Broadway Street, Myrtle Beach, SC 29577
1337 Wilson Road, Newberry, SC 29108
1920 Remount Road, North Charleston, SC 29406
642 John C. Calhoun Drive, Orangeburg, SC 29115
592 North Anderson Road, Rock Hill, SC 29730
195 A South Converse St., Spartanburg, SC 29306
115 East Richardson Avenue, Summerville, SC 29483
304 Broad Street, Sumter, SC 29150
410 N. Duncan Bypass, Suite D, Union, SC 29379
110A N. Memorial Ave., Walterboro, SC 29488
622 Twelfth Street, West Columbia, SC 29169
153 N. Congress Street, Winnsboro, SC 29180
509 West Butler Rd., Greenville, SC 29607
106
2705 North Main Street, Suite G, Anderson, SC 29621
473 Hendersonville Rd., Suite A, Asheville, NC 28803
1300 Savannah Highway, Suite 12, Charleston, SC 29407
6729 Two Notch Rd., Unit B, Columbia, SC 29223
716 South Pendleton St., Easley, SC 29640
145 North Irby St., Florence, SC 29501
2301 Wade Hampton Blvd., Suite 3, Greenville, SC 29615
726-A Montague Avenue, Greenwood, SC 29649
2442-B Hwy. 70 Southeast, Hickory, NC 28602
205-J Columbia Avenue, Lexington, SC 29072
1922 Remount Rd., North Charleston, SC 29406
1291 John C. Calhoun Drive, Orangeburg, SC 29115
600 North Anderson Road, Rock Hill, SC 29730
211 Oconee Square Dr., Seneca, SC 29678
110 Garner Rd., Suite 10, Merchants Plaza, Spartanburg, SC 29303
272 Broad Street, Sumter, SC 29150
3466 Main Hwy., Bamberg, SC 29003
[closed 1/31/07]
110-C West Church Street, Batesburg, SC 29006
905-E West Dekalb Street, Camden, SC 29020
1344 Knox Abbott Dr., Unit 1, Cayce, SC 29033
1319 Assembly St., Columbia, SC 29201
726 West Main St., Lexington, SC 29072
1507 Russell St., Orangeburg, SC 29115
1224 Augusta Road, W. Columbia, SC 29169
507 W. Butler Rd., Greenville, SC 29607
1780 Asheville Hwy, Spartanburg, SC 29303
701 Brazos, Suite 500, Austin, TX 78701
260 South Texas Blvd., Suite 307, Weslaco, TX 78596
1818 South New Braunfels, Second Floor, Suites 2-3, San Antonio, TX 78210
6615 Airport Blvd., Austin, TX 78752
857 E. Washington St., Suite D, Brownsville, TX 78520
4918 Ayers Rd., Ayers Plaza, Ste. 136, Corpus Christi, TX 78415
Suite 10, LaVillita Shopping Center, 2400 Veterans Blvd., Del Rio, TX 78840
220 Jefferson St., Eagle Pass, TX 78852
1518 Pennsylvania Avenue, Fort Worth, TX 76104
318 E. Jackson St., Harlingen, TX 78550
218 E. Kleberg Ave., Kingsville, TX 78363
502 W. Calton Rd., Suite 109, Laredo, TX 78041
1104-B North Meadow, Laredo, TX 78040
110 E. Tyler Street, Longview, TX 75601
1313 Dallas Street, McAllen, TX 78501
2708 H E. Griffin Pkwy., Mission, TX 78572
4761 E. Hwy 83, Ste. B, Plaza Del Mar, Rio Grande City, TX 78582
1121 SW Military Dr., Suite 101, San Antonio, TX 78221
14145 Nacogdoches Rd., Suite 1, San Antonio, TX 78247
3221 Wurzbach Rd., San Antonio, TX 78238
206-B West San Antonio St., San Marcos, TX 78666
2523 East Fifth Street, Tyler, TX 75701
2912 N. Laurent Street, Victoria, TX 77901
107
1025 North Texas Blvd., Suite 17, Weslaco, TX 78596
4401 East Independence Blvd., Suite 102, Charlotte, NC 28205
5210 North Tryon St., Unit B, Charlotte, NC 28213
2568 West Franklin Blvd., Gastonia, NC 28052
3733 B Farmington Dr., Greensboro, NC 27407
2108 N. Centennial St., Suite 114, High Point, NC 27265
811 S. Jake Alexander Blvd., Salisbury, NC 28147
230 Signal Hill Dr., Statesville, NC 28625
3193-D Peters Creek Parkway, Winston-Salem, NC 27127
108
SCHEDULE 7.6
GAAP EXCEPTIONS
Regional amended its group health insurance plan November 1, 2003 to permit certain retired
employees to receive coverage under the plan. Regional amended the plan October 5, 2006 to
eliminate this retiree coverage. The Borrowers financial statements do not include accruals in
accordance with GAAP for the contingent liability associated with this retiree medical coverage.
No former employee of Regional or any of its Subsidiaries is receiving or has ever received
coverage under the plan pursuant to this retiree coverage provision.
Regional amended the plan again on January 4, 2007 effective November 1, 2006 to provide coverage
to a closed class of retirees comprised of Brenda Kinlaw, Richard Godley and Jerry Shirley, but
amended the plan again on March 1, 2007 to be effective November 1, 2006 to revoke the January 4,
2007 amendment. No former employee of Regional or any of its Subsidiaries is receiving or has ever
received coverage under the plan pursuant to this retiree coverage provision.
109
SCHEDULE 7.9
PERMITTED LIENS
Liens created by the following documents and any financing
statements now existing or hereafter filed related thereto
:
1.
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Mortgage and Assignment of Rents dated October 11, 2005, made by Regional in favor of
Wachovia Bank, NA, securing the Wachovia Revolver (as defined in
Schedule 8.6
),
related to certain real and personal property (as described therein) located at 507 and 509 W.
Butler Road, Mauldin, South Carolina, as the same has been amended, modified or supplemented.
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2.
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Mortgage and Assignment of Rents dated October 11, 2005, made by Regional in favor of
Wachovia Bank, NA, securing the Wachovia Term Loan (as defined in
Schedule 8.6
),
related to certain real and personal property (as described therein) located at 507 and 509 W.
Butler Road, Mauldin, South Carolina, as the same has been amended, modified or supplemented.
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3.
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Mortgage and Assignment of Rents dated October 11, 2005, made by Regional in favor of
Wachovia Bank, NA, securing the Wachovia Term Loan (as defined in
Schedule 8.6
),
related to certain real and personal property (as described therein) located at 145 N. Irby
Street, Florence, South Carolina, as the same has been amended, modified or supplemented.
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4.
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Mortgage and Assignment of Rents dated October 11, 2005, made by RFCSC in favor of Wachovia
Bank, NA, securing the Wachovia Revolver (as defined in
Schedule 8.6
), related to
certain real and personal property (as described therein) located at 145 N. Irby Street,
Florence, South Carolina, as the same has been amended, modified or supplemented.
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5.
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Mortgage and Assignment of Rents dated October 11, 2005, made by RFCSC in favor of Wachovia
Bank, NA, securing the Wachovia Term Loan (as defined in
Schedule 8.6
), related to
certain real and personal property (as described therein) located at 145 N. Irby Street,
Florence, South Carolina, as the same has been amended, modified or supplemented.
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110
SCHEDULE 7.10
LICENSES
RFCTN is planning to open an office in Tennessee. RFCTN expects to submit an application to the
State of Tennessee to obtain the appropriate license to engage in consumer lending in Tennessee.
If the office is successful, Regional currently expects that RFCTN will open additional offices,
each of which will require a license from the State of Tennessee.
RFCA plans to apply with the State of Alabama for a license to open an office to engage in consumer
lending in Alabama. If the office is successful, Regional currently expects that RFCA will open
additional offices, each of which will require a license from the State of Alabama.
111
SCHEDULE 7.13
COMPLIANCE WITH LAWS
The IRS completed an audit of Regionals 2004 federal income tax return. The Examining Officer for
the IRS has sent Regional a letter stating that the officer has recommended that no changes be made
with respect to the Regionals 2004 tax return.
In August 2006, RFCNC mailed a live check solicitation in North Carolina that resulted in a total
of 150 live checks being cashed. The solicitation materials did not include the specific, two-part
opt-out language required under August 2005 amendments to the Fair Credit Reporting Act. Since
that solicitation, if and when RFCNC conducts live check solicitations, it is complying with the
specific, two-part opt-out language required under August 2005 amendments to the Fair Credit
Reporting Act.
Regional and its Subsidiaries currently are not screening their customers and transactions as
contemplated by applicable regulations and executive orders administered by the U.S. Department of
the Treasury Office of Foreign Asset Control.
112
SCHEDULE 7.16
SUBSIDIARIES
Regional Management Corp. is the direct parent of each of the entities listed below. Each of the
entities listed below is a wholly owned subsidiary of Regional Management Corp.
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Regional Finance Corporation of South Carolina
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Regional Finance Corporation of Georgia
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Regional Finance Corporation of Texas
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Regional Finance Corporation of North Carolina
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Regional Finance Corporation of Alabama
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Regional Finance Corporation of Tennessee
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R.M.C. Financial Services Corp.
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FirstRegional Mortgage Corporation
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113
SCHEDULE 7.19
BANK ACCOUNTS
SEE ATTACHED
114
SCHEDULE 8.3
GUARANTIES
Guaranty dated March 2, 1998 by Regional for the benefit of Covington Credit of Texas, Inc.
115
SCHEDULE 8.6
DEBT
Promissory Note, dated October 11, 2005, in an aggregate principal amount not to exceed $750,000
made by Regional payable to the order of Wachovia Bank, National Association (the
Wachovia
Revolver
), as the same has been amended, modified or supplemented.
Promissory Note, dated October 11, 2005, in the initial principal amount of $520,000 made by
Regional payable to the order of Wachovia Bank, National Association (the
Wachovia Term
Loan
), as the same has been amended, modified or supplemented.
Fixed Rate 10% Senior Debenture dated April 1, 1994, in an aggregate initial principal amount of
$100,000 issued by Regional to Consumer Insurance Associates, Inc., as the same has been amended,
modified or supplemented.
116
Table of Contents
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Section
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Page No.
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SECTION ONE DEFINITIONS; INTERPRETATION OF THIS AGREEMENT
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2
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1.1 Terms Defined
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2
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1.2 Interpretive Provisions
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19
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SECTION TWO LOANS AND LETTERS OF CREDIT AND TERMS OF PAYMENT
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20
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2.1 Total Facility
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20
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2.2 Revolving Loans
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20
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2.3 Books and Records; Monthly Statements
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26
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2.4 Apportionment Application and Reversal of Payments
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26
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2.5 Interest
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27
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2.6 Conversion and Continuation Elections
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28
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2.7 Maximum Interest Rate
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29
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2.8 Unused Line Fee
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29
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2.9 Payment of Revolving Loans
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29
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2.10 Payments by Borrower
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30
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2.11 Taxes
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30
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2.12 Illegality
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31
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2.13 Increased Costs and Reduction of Return
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32
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2.14 Funding Losses
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32
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2.15 Inability to Determine Rates
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33
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2.16 Certificates of Lenders
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33
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2.17 Survival
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33
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2.18 Letters of Credit
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33
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2.19 Letter of Credit Fee
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38
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2.20 Bank Products
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38
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SECTION THREE TERM
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39
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3.1 Term of Agreement and Loan Repayment
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39
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3.2 Termination of Security Interests
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39
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SECTION FOUR SECURITY INTEREST IN COLLATERAL
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39
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4.1 Creation of Security Interest in Collateral
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39
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4.2 Borrowers Representations and Warranties Re Collateral
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40
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4.3 Financing Statements
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40
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4.4 Location of Collateral
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40
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4.5 Protection of Collateral; Reimbursement
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41
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4.6 Release of Collateral
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41
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SECTION FIVE RECORDS AND SERVICING OF CONTRACTS
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42
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5.1 Records of Contracts
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42
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5.2 Servicing of Contracts
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42
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Section
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Page No.
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SECTION SIX CONDITIONS PRECEDENT TO ADVANCES
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43
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6.1 Conditions Precedent to Initial Loans
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43
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6.2 Conditions to all Advances and Letters of Credit
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44
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SECTION SEVEN REPRESENTATIONS, WARRANTIES AND COVENANTS
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45
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7.1 Representations and Warranties Reaffirmed
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45
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7.2 Warranties and Representations Re Contracts
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45
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7.3 Warranties and Representations Re Collateral Generally
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45
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7.4 Solvent Financial Condition
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46
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7.5 Organization and Authority
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46
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7.6 Financial Statements
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46
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7.7 Full Disclosure
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46
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7.8 Pending Litigation
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46
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7.9 Titles to Properties
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47
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7.10 Licenses
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47
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7.11 Transaction is Legal and Authorized; Restrictive Agreements
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47
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7.12 Taxes
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47
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7.13 Compliance with Law
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47
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7.14 Borrowers Office and Names
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48
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7.15 [Intentionally Omitted]
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48
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7.16 Subsidiaries
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48
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7.17 No Default
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48
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7.18 Use of Proceeds
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48
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7.19 Bank Accounts
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48
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7.20 Proper Contract Documentation
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49
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7.21 Credit File
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49
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7.22 Assignments of Contracts and Security Documents
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49
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7.23 Pledging of Contracts
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49
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7.24 Accurate Records Re Collateral
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49
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SECTION EIGHT FINANCIAL AND OTHER COVENANTS
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50
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8.1 Payment of Taxes and Claims
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50
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8.2 Maintenance of Properties and Existence
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50
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8.3 Guaranties
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50
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8.4 Borrowing Base Ratio
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50
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8.5 Business Conducted
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51
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8.6 Debt
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51
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8.7 Further Assurances
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52
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8.8 [Intentionally Omitted]
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52
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8.9 Interest Coverage Ratio
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52
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8.10 Loss Reserve
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52
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8.11 Charge-Off Policy
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53
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8.12 Prohibition on Distributions; Equity Capital Changes
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53
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8.13 Limitation on Bulk Purchases
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54
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8.14 Transactions with Affiliates
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54
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8.15 Accounting Changes
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55
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8.16 Bank Accounts
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55
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ii
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Section
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Page No.
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SECTION NINE INFORMATION AS TO BORROWER
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55
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9.1 Financial Statements
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55
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9.2 Inspection
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56
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SECTION TEN EVENTS OF DEFAULT; REMEDIES
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57
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10.1 Events of Default
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57
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10.2 Default Remedies
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58
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SECTION ELEVEN AMENDMENTS; WAIVERS; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS
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60
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11.1 Amendments and Waivers
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60
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11.2 Assignments; Participations
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61
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SECTION TWELVE THE AGENT
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63
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12.1 Appointment and Authorization
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63
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12.2 Delegation of Duties
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63
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12.3 Liability of Agent
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63
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12.4 Reliance by Agent
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64
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12.5 Notice of Default
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64
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12.6 Indemnification
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65
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12.7 Agent in Individual Capacity
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65
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12.8 Successor Agent
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65
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12.9 Withholding Tax
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65
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12.10 Collateral Matters
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66
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12.11 Restrictions on Actions by Lenders; Sharing of Payments
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67
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12.12 Agency for Perfection
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67
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12.13 Payments by Agent to Lenders
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67
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12.14 Concerning the Collateral and the Related Loan Documents
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68
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12.15 Field Audit and Examination Reports; Disclaimer by Lenders
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68
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12.16 Relation Among Lenders
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68
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SECTION THIRTEEN GENERAL
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69
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13.1 Expenses
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69
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13.2 Invalidated Payments
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69
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13.3 Application of Code to Agreement
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69
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13.4 Parties, Successors and Assigns
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69
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13.5 Notices and Communications
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70
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13.6 Accounting Principles
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70
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13.7 Total Agreement; References
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70
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13.8 Governing Law
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71
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13.9 Survival
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71
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13.10 Power of Attorney
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71
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13.11 Litigation
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72
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13.12 Severability
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72
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13.13 Jury Trial Waiver
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72
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13.14 Indemnity of Agent and Lenders by Borrower
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73
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13.15 Limitation of Liability
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73
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13.16 Right of Setoff
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74
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iii
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Section
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Page No.
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13.17 Joint and Several Liability
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74
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13.18 Counterparts
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76
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13.19 Headings
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76
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13.20 No Waivers; Cumulative Remedies
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76
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13.21 Other Security and Guarantees
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76
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13.22 NO ORAL AGREEMENTS
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76
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13.23 Patriot Act Notice
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77
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13.24 Replacement of Lenders
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77
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iv
EXHIBITS AND SCHEDULES
EXHIBIT A FORM OF NOTICE OF BORROWING
EXHIBIT B FORM OF NOTICE OF CONTINUATION/CONVERSION
EXHIBIT C FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT
EXHIBIT D FORM OF GUARANTY
SCHEDULE 4.4 LOCATIONS OF BOOKS AND RECORDS AND COLLATERAL
SCHEDULE 7.6 GAAP EXCEPTIONS
SCHEDULE 7.9 PERMITTED LIENS
SCHEDULE 7.10 LICENSES
SCHEDULE 7.13 COMPLIANCE WITH LAWS
SCHEDULE 7.16 SUBSIDIARIES
SCHEDULE 7.19 BANK ACCOUNTS
SCHEDULE 8.3 GUARANTIES
SCHEDULE 8.6 DEBT
AMENDMENT NO. 1 TO THE THIRD AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This AMENDMENT NO. 1, dated as of June 29, 2007 (this Amendment), to the Third Amended and
Restated Loan and Security Agreement, dated as of March 21, 2007 (as heretofore or hereafter
amended, supplemented and otherwise modified, the
Agreement
), among Regional Management
Corp., Regional Finance Corporation of South Carolina, Regional Finance Corporation of Georgia,
Regional Finance Corporation of Texas, Regional Finance Corporation of North Carolina, Regional
Finance Corporation of Alabama, Regional Finance Corporation of Tennessee, and R.M.C. Financial
Services Corp. (each individually a Borrower and collectively the Borrowers), the financial
institutions listed therein (such financial institutions, together with their respective successors
and assigns, are referred to hereinafter each individually as a Lender and collectively as the
Lenders) and Bank of America, N.A. as agent for the Lenders (in its capacity as agent, the
Agent).
W I T N E S S E T H:
WHEREAS, the Borrowers, the Agent and the Lenders are parties to the Agreement;
WHEREAS, the Borrowers have requested that the undersigned Lenders modify certain provisions
of the Agreement and the Lenders are willing to do so on the terms and conditions as hereinafter
set forth.
NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1.
Defined Terms
. Unless otherwise defined herein, capitalized terms used herein have
the respective meanings ascribed thereto in the Agreement.
2.
Amendments to the Agreement
. The Agreement is hereby amended as follows:
(a) Section 1.1 of the Agreement is hereby amended by deleting the definitions of
Affiliate Subordinated Debt
,
Affiliate Subordinated Debt Agent
,
Affiliate Subordinated Debt Documents
,
Affiliate Subordinated Loan
Agreement
,
Affiliate Subordinated Notes
,
Borrowing Base
,
Change of Control
,
Continuing Shareholder Lender Representative
,
Intercreditor Agreement
,
Regional Mezzanine
and
Subordinated Debt
and replacing them with the following definitions (to be
listed alphabetically within the other definitions in Section 1.1 of the
Agreement):
Borrowing Base
shall mean the sum of the Adjusted Tangible Net Worth of
Borrowers, plus all Subordinated Debt of Borrowers.
Change in Control
shall mean, as of any date of determination, any of the
following: (a) Parallel and Palladium, taken together as a whole, shall fail to own
or hold at least fifty-one percent (51%) of the equity interest in Regional
Investment, (b) neither Parallel nor Palladium serves as a managing member of
Regional Investment, (c) Regional Investment shall fail to own at least ninety
percent (90%) of the issued and outstanding voting membership interests in Regional
Holdings, (d) Regional Holdings shall fail to own at least ninety percent (90%) of
the issued and outstanding shares of Regional Holdings I Corp.s voting stock, (e)
Regional Holdings I Corp. shall fail to own at least seventy percent (70%) of the
issued and outstanding shares of Regionals voting stock or (f) Regional shall fail
to own 100% of the issued and outstanding voting stock of any of the other
Borrowers, other than as a result of intercompany mergers of such Subsidiaries with
each other or Regional where the survivor of such merger with Regional is Regional
and except as otherwise permitted pursuant to this Agreement.
Intercreditor Agreement
shall mean the Intercreditor and Lien Subordination
Agreement dated as of June 29, 2007, among the Prospect Subordinated Debt Agent, the
lenders party to the Prospect Subordinated Loan and Security Agreement, the
Borrowers and the Agent, as the same may be amended, modified, restated, replaced or
supplemented from time to time.
Prospect
shall mean Prospect Capital Corporation, a Maryland corporation.
Prospect Subordinated Debt
shall mean the Debt of the Borrowers pursuant to
the Prospect Subordinated Debt Documents.
Prospect Subordinated Debt Agent
shall mean Prospect Capital Corporation in
its capacity as agent for the holders of the Prospect Subordinated Debt, and any
successor agent.
Prospect Subordinated Debt Documents
shall mean the Prospect Subordinated
Loan and Security Agreement, the Prospect Subordinated Notes and any other
documents, instruments or agreements that from time to time evidence the Prospect
Subordinated Debt or secure or support payment or performance thereof, as each of
the foregoing may be amended, modified, restated, replaced or supplemented from time
to time.
Prospect Subordinated Loan and Security Agreement
shall mean the Prospect
Subordinated Loan and Security Agreement, dated as of June 29, 2007, among the
Prospect Subordinated Debt Agent, the Borrowers and the lenders from time to time
party thereto, as the same may be amended, modified, restated, replaced or
supplemented from time to time.
Prospect Subordinated Notes
shall mean the promissory notes issued by the
Borrowers from time to time pursuant to the Prospect Subordinated Loan and Security
Agreement, as the same may be amended, modified, restated, replaced or supplemented
from time to time.
Regional Holdings I Corp.
shall mean Regional Holdings I Corp., a Delaware
limited liability company.
2
Subordinated Debt
shall mean all Debt of Borrowers, including, but not
limited to, the Prospect Subordinated Debt and the Debt of Borrowers owed or owing
to Federal Warranty incurred both prior to and after the Closing Date, which at all
times during the term of this Agreement is (a) subordinated to Borrowers
Obligations hereunder pursuant to a written subordination agreement or in
subordination provisions in the documents governing such Debt, the terms of which
are satisfactory to Required Lenders in their reasonable discretion as of the date
of such subordination agreement or as of the date such documents governing such Debt
are entered into; or (b) subordinated, in a manner reasonably satisfactory to
Required Lenders as of the date such Debt is incurred, to Borrowers Obligations
hereunder;
provided
that
, with respect to any Debt of Borrowers
owing to Federal Warranty after the Closing Date, a written subordination agreement
containing the same terms (except that the principal amount of the Debt to Federal
Warranty may be increased to $2,750,000.00) and conditions set forth in the
Subordination Agreement dated as of March 10, 2000 among Agent, certain of the
Borrowers party thereto and Federal Warranty, shall be satisfactory to Required
Lenders.
(b) Section 1.1 of the Agreement is hereby amended by deleting subsection (m) of
the definition of
Permitted Liens
and replacing it with the following new
subsection (m):
(m) (1) Liens in favor of Federal Warranty securing Subordinated Debt pursuant
to a security agreement containing substantially the same terms and conditions set
forth in the security agreement between Voyager Life Insurance Company (a
predecessor in interest to Federal Warranty) and Regional, dated November 22, 1999
and amended on September 1, 2002 or such other security agreement reasonably
satisfactory to the Required Lenders or (2) Liens pursuant to the Intercreditor
Agreement.
(c) Section 8.4 (Borrowing Base Ratio) of the Agreement is hereby deleted in its
entirety and replaced with the following new section:
Borrowing Base Ratio
. Borrowers shall not permit the ratio of (a) all Debt
(other than Subordinated Debt), including Borrowers Obligations (excluding any Bank
Product Obligations) to Agent and Lenders (numerator), to (b) Borrowing Base
(denominator), to exceed 4:1, at any time. All amounts calculated under this
Paragraph 8.4
shall be calculated on a consolidated basis for all
corporations comprising Borrowers and RMC Reinsurance.
(d) Section 8.6 (
Debt
) of the Agreement is hereby deleted in its entirety
and replaced with the following new section:
8.6
Debt
. Except as previously and expressly consented to in writing
by Agent, no Borrower shall, directly or indirectly, permit, incur or maintain any
Debt, other than (a) the Obligations, (b) Debt set forth on
Schedule 8.6
,
(c) Debt evidencing intercompany loans among Borrowers and Guarantors, (d) the
3
Subordinated Debt and (e) the South Carolina Notes, (f) current accounts
payable, accrued expenses and customer advance payments incurred in the ordinary
course of business, (g) Debt secured by Permitted Liens; (h) Debt permitted under
Paragraph 8.3
, (i) unsecured Debt in addition to the foregoing in an
aggregate amount not to exceed $250,000 at any one time outstanding, and (j) any
Debt representing a Permitted Refinancing of the foregoing or, with respect to the
Prospect Subordinated Debt, a refinancing permitted by the Intercreditor Agreement
(collectively, Permitted Debt). No Borrower shall (i) make any payments (A) in
respect of any Subordinated Debt (except that Borrowers may make any regularly
scheduled payments of principal and interest due under such Borrowers Subordinated
Debt so long as no Default or Event of Default then exists or would result therefrom
and such payments are made in accordance with the terms and conditions of any
subordination agreement among the holder or holders of such Subordinated Debt, Agent
and/or Lenders or the subordination provisions set forth in such Subordinated Debt
documents), and (B) in respect of any Prospect Subordinated Debt (except that
Borrowers may make payments in accordance with the Intercreditor Agreement), (ii)
amend, modify or rescind any provisions of any of Borrowers (A) Subordinated Debt
in such a manner as to affect adversely Agents liens on the Collateral or the prior
position of the Notes or accelerate the date upon which any installment of principal
and interest of any Subordinated Debt is due or make the covenants and obligations
of the Borrowers contained in such Subordinated Debt documents materially more
restrictive than those set forth in the Loan Documents as of the date of such
amendment or modification, or (B) Prospect Subordinated Debt except as permitted by
the Intercreditor Agreement, or (iii) permit the prepayment or redemption of all or
any part of any Subordinated Debt or any Prospect Subordinated Debt, except (A) with
respect to Subordinated Debt in connection with a Permitted Refinancing as permitted
by clause (j) above and, with respect to Prospect Subordinated Debt, in accordance
with the Intercreditor Agreement, (B) in connection with a prepayment or redemption
of the South Carolina Notes and other Subordinated Debt from time to time so long as
no Default or Event of Default then exists or would result therefrom and such
payments are made in accordance with the terms and conditions of any subordination
agreement among the holder or holders of such Subordinated Debt, Agent and/or
Lenders or the subordination provisions set forth in such Subordinated Debt
documents, (C) in connection with a prepayment or redemption on the Closing Date of
Subordinated Debt pursuant to the Stock Purchase Agreement, and (D) with respect to
all of the Subordinated Debt owed to Federal Warranty as of the Closing Date,
payments of all such Debts on the Closing Date in an amount not to exceed
$2,038,211.17.
(e) Section 8.14 (Transactions with Affiliates) of the Agreement is hereby amended
by deleting subsection (f) through the end of such section and replacing it with the
following:
(f) Regional may issue stock options and stock pursuant to the Management
Incentive Plan, and, provided that no Event of Default exists or would result
therefrom, may purchase and repurchase any stock issued pursuant to
4
such Management Incentive Plan, and (g) Regional may pay to the Prospect
Subordinated Debt Agent and the holders of the Prospect Subordinated Debt fees
(including but not limited to any arrangement or similar fee payable upon the
closing date of such Prospect Subordinated Debt), costs and expenses pursuant to the
Prospect Subordinated Debt Documents provided that such payments are made in
accordance with the Intercreditor Agreement. Regional may sell its division,
Regional Check Advance, and its subsidiaries, FirstRegional Mortgage Corporation and
Upstate Motor Company, provided that Agent receives the net cash sale proceeds of
any such sale to be applied to the Revolving Loans (without any reduction in the
Total Credit Facility).
(f) Section 10.1 of the Agreement is hereby amended by replacing the reference to
Affiliated Subordinated Debt Documents and replacing it with the words Prospect
Subordinated Debt Documents.
3.
Representations and Warranties
. The Borrowers hereby represent and warrant as
follows, with the same effect as if such representations and warranties were set forth in the
Agreement:
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(i)
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Borrowers hereby reaffirm that all representations and
warranties are true and correct under the Loan Documents and that there are no
existing Events of Default under the Agreement or the other Loan Documents as
of the date hereof. Except as otherwise expressly set forth herein, nothing
herein shall be deemed to constitute an amendment, modification or waiver of
any of the provisions of the Agreement or the other Loan Documents, all of
which remain in full force and effect as of the date hereof.
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(ii)
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The Borrowers have the power and authority to enter into this
Amendment and have taken all corporate action required to authorize the
Borrowers execution, delivery and performance of this Amendment. This
Amendment has been duly executed and delivered by the Borrowers, and the
Agreement, as amended hereby, constitutes the valid and binding obligation of
the Borrowers, enforceable against each Borrower in accordance with its terms.
The execution, delivery, and performance of this Amendment and the Agreement,
as amended hereby, by the Borrowers will not violate any Borrowers certificate
of incorporation or by-laws or any material agreement or legal requirement
binding on the Borrowers.
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(iii)
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On the date hereof and after giving effect to the terms of
this Amendment, (A) the Agreement, and the other Loan Documents are in full
force and effect and constitute binding obligations, enforceable against the
Borrowers in accordance with their respective terms; (B) no Default or Event of
Default has occurred and is continuing; and (C) the Borrowers have no defense
to or setoff, counterclaim or claim against payment of the
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5
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Obligations and enforcement of the Loan Documents based upon a fact or
circumstance existing or occurring on or prior to the date hereof.
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4.
Fees
. The Borrowers shall pay at the time this Amendment is executed and delivered
all fees, commissions, costs, charges, taxes and other expenses incurred by the Lenders and their
respective counsel in connection with this Amendment, including, but not limited to, reasonable
fees and expenses of the Lenders counsel and all recording fees, taxes and charges.
5.
Limited Effect
. Except as expressly amended hereby, all of the covenants,
representations and warranties and provisions of the Agreement are and shall continue to be in full
force and effect. Upon the effectiveness of this Amendment, each reference in the Agreement to
this Agreement, hereunder, hereof, herein or words of like import and each reference in the
other Loan Documents to the Agreement shall mean and be a reference to the Agreement as amended
hereby.
6.
Conditions of Effectiveness
. This Amendment shall become effective when and only
when (a) this Amendment shall be executed and delivered by the Borrowers and the Lenders, (b) the
Agent shall have received a certificate of the Secretary of each Borrower as to (x) resolutions of
its Board of Directors then in full force and effect authorizing the execution, delivery and
performance of this Amendment and (y) the incumbency signatures of those of its officers authorized
to act with respect to this Amendment, (c) the Agent shall have received all of the Prospect
Subordinated Debt Documents (in form and content satisfactory to Agent), (d) Agent shall have
received a fully executed copy of the Intercreditor Agreement, in form and substance satisfactory
to the Majority Lenders and (d) the Agent shall have received such additional closing documents as
it shall reasonably specify in connection with the transactions contemplated hereby.
7.
GOVERNING LAW
. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED
IN ACCORDANCE WITH, THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE
OF NEW YORK.
8.
Counterparts
. This Amendment may be executed by the parties hereto in any number of
separate counterparts, each of which shall be an original, and all of which taken together shall be
deemed to constitute one and the same instrument.
9.
Amendment
. No modification or waiver of any provision of this Amendment, or any
consent to any departure by the Borrower therefrom, shall in any event be effective unless the same
shall be in writing, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
6
IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date first above
written.
BORROWERS
REGIONAL MANAGEMENT CORP.
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By:
Name:
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/s/ Robert D. Barry
Robert D. Barry
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Title:
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Chief Financial Officer
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REGIONAL FINANCE CORPORATION OF SOUTH CAROLINA
REGIONAL FINANCE CORPORATION OF GEORGIA
REGIONAL FINANCE CORPORATION OF TEXAS
REGIONAL FINANCE CORPORATION OF NORTH CAROLINA
REGIONAL FINANCE CORPORATION OF ALABAMA
REGIONAL FINANCE CORPORATION OF TENNESSEE
R.M.C. FINANCIAL SERVICES CORP.
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By:
Name:
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/s/ Eric A. Anderson
Eric A. Anderson
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Title:
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Chief Financial Officer of each of the
above-listed corporations
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AGENT
BANK OF AMERICA, N.A.
,
as Agent
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By:
Name:
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/s/ George C. Markowsky
George C. Markowsky
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Title:
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Senior Vice President
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LENDERS
BANK OF AMERICA, N.A.
,
as a Lender and Letter of Credit Issuer
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By:
Name:
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/s/ George C. Markowsky
George C. Markowsky
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Title:
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Senior Vice President
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7
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BMO CAPITAL MARKETS FINANCING, INC.
,
as a Lender
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By:
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/s/ Michael S. Cameli
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Name:
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Michael S. Cameli
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Title:
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Director
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FIRST TENNESSEE BANK NATIONAL ASSOCIATION
,
as a Lender
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By:
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/s/ David Perry
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Name:
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David Perry
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Title:
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Senior Vice President
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CAPITAL ONE, N.A.
,
as a Lender
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By:
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/s/ Paul Rubrich
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Name:
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Paul Rubrich
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Title:
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Vice President
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BoS (USA) INC.
as a Lender
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By:
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/s/ Percy Ngai
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Name:
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Percy Ngai
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Title:
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Assistant Vice President
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8
CONSENT AND AMENDMENT NO. 2
TO
THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This Consent and Amendment No. 2 (this Amendment) is made as of November 21, 2007 to the
Third Amended and Restated Loan and Security Agreement, among Regional Management Corp., Regional
Finance Corporation of South Carolina, Regional Finance Corporation of Georgia, Regional Finance
Corporation of Texas, Regional Finance Corporation of North Carolina, Regional Finance Corporation
of Alabama, Regional Finance Corporation of Tennessee, and R.M.C. Financial Services Corp. (each
individually a Borrower and collectively the Borrowers), the financial institutions listed
therein (such financial institutions, together with their respective successors and assigns, are
referred to hereinafter each individually as a Lender and collectively as the Lenders) and Bank
of America, N.A. as agent for the Lenders (in its capacity as agent, the Agent).
RECITALS
WHEREAS, the Borrowers, Lenders and Agent are parties to a Third Amended and Restated Loan and
Security Agreement dated as of March 21, 2007 and amended on June 29, 2007, (as amended, restated,
modified, substituted, extended, or renewed from time to time, the Loan Agreement);
WHEREAS, the Borrowers acknowledge that there is currently outstanding the aggregate principal
amount of $106,976,821.06 under the revolving credit facility.
WHEREAS, the Borrowers have requested that the Lenders modify certain provisions of the
Agreement and the Lenders are willing to do so on the terms and conditions as hereinafter set
forth, including but not limited to temporarily increasing the amount of the Total Credit Facility
(as defined in the Loan Agreement).
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good
and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties
hereto hereby agree as follows:
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1.
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The Borrowers, Lenders and Agent agree that the Recitals above are a part of this
Amendment. Unless otherwise expressly defined in this Amendment, terms defined in the Loan
Agreement shall have the same meaning under this Amendment.
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2.
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The Borrowers represent and warrant to the Lenders as follows:
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(a) Each Borrower is a corporation duly organized and validly existing in good standing under
the laws of the state in which it was organized.
(b) Each Borrower has the power and authority to execute and deliver this Amendment and
perform its obligations hereunder and has taken all necessary and appropriate corporate action to
authorize the execution, delivery and performance of this Amendment.
(c) The Loan Agreement, as amended by this Amendment, the Second Amended and Restated Pledge
Agreement and each of the other Loan Documents are each hereby ratified, each remain in full force
and effect, and each constitutes the valid and legally binding obligation of the Borrower,
enforceable in accordance with its terms.
(d) All of the Borrowers representations and warranties contained in the Loan Agreement and
the other Loan Documents are true and correct on and as of the date of the Borrowers execution of
this Amendment.
(e) No Event of Default and no event which, with notice, lapse of time or both would
constitute an Event of Default, has occurred and is continuing under the Loan Agreement or the
other Loan Documents.
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3.
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The Loan Agreement is hereby amended as follows:
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(a) Section 1.1 of the Agreement is hereby amended by deleting the definition of
Total
Credit Facility
and replacing it with the following definition:
Total Credit Facility
means (i) $130,000,000.00 from the date hereof
through and including November 14, 2007; (ii) $145,000,000.00 from November 15, 2007
through and including February 29, 2008 and (iii) $130,000,000.00 from March 1, 2008
through and including the Maturity Date.
(b) Section 1.1 of the Agreement is hereby amended by adding the following definition of
Temporary Increase Period
(to be listed alphabetically within the other definitions in
Section 1.1 of the Agreement):
Temporary Increase Period
means the period from November 15, 2007 through
and including February 29, 2008.
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4.
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Intentionally Omitted
.
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5.
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This Amendment shall become effective when and only when (a) this Amendment
shall be executed and delivered by each Borrower and the Lenders, (b) the Agent shall
have received a certificate of the Secretary of each Borrower as to (x) resolutions of
its Board of Managers then in full force and effect authorizing the execution, delivery
and performance of this Amendment and (y) the incumbency signatures of those of its
officers authorized to act with respect to this Amendment, (c) the Agent shall have
received an executed Reaffirmation of Guarantors, (d) the Agent shall have received
executed each of the Notes, as amended and restated and (e) the Agent shall have
received such additional closing documents as it shall reasonably specify in connection
with the transactions contemplated hereby.
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-2-
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6.
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The Borrowers hereby issue, ratify and confirm the representations, warranties
and covenants contained in the Loan Agreement, as amended hereby and each of the other
Loan Documents given by the Borrowers to the Lenders in favor of the Lenders. The
Borrowers agree that this Amendment is not intended to and shall not cause a novation
with respect to any or all of the Obligations.
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7.
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The Borrowers acknowledge and warrant that the Lenders have acted in good faith
and has conducted itself in a commercially reasonable manner in its relationships with
the Borrowers in connection with this Amendment and generally in connection with the
Loan Agreement and the Obligations, the Borrowers hereby waiving and releasing any
claims to the contrary.
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8.
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The Borrowers shall pay at the time this Amendment is executed (or as otherwise
provided for in this Agreement) and delivered all fees, commissions, costs, charges,
taxes and other expenses incurred by the Lenders and their counsel in connection with
this Amendment, including, but not limited to, reasonable fees and expenses of the
Lenders counsel and all recording fees, taxes and charges.
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9.
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This Amendment is one of the Loan Documents. This Amendment may be executed in
any number of duplicate originals or counterparts, each of such duplicate originals or
counterparts shall be deemed to be an original and taken together shall constitute but
one and the same instrument. The parties agree that their respective signatures may be
delivered by fax. Any party who chooses to deliver its signature by fax agrees to
provide a counterpart of this Amendment with its inked signature promptly to each other
party.
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10.
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This Amendment shall be governed by and interpreted in accordance with the laws
of the State of New York, except that no doctrine of choice of law shall be used to
apply the laws of any other state or jurisdiction to this Amendment.
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11.
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The Borrowers have requested that Lenders consent to a one-time distribution of
$2,000,000.00 by Regional Management Corp. to Regional Holdings to pay for the costs
associated with Regional Holdings attempted acquisitions of First Heritage and Southern
Management Corporation, which distribution would be a violation of the negative
covenant against distributions in Section 8.12 and the prohibition against transactions
with affiliates in Section 8.14. Borrowers acknowledge that this distribution would
constitute an Event of Defaults under the Agreement and the Loan Documents. In reliance
upon the Borrowers representations and warranties and subject to the terms and
conditions herein set forth, the Lenders hereby agree to consent to the
above-referenced distribution, solely for the purposes described above. The Borrowers
agree that they will hereafter comply fully with all covenants and all provisions of
the Agreement and the other Loan Documents, which remain in full force and effect. This
consent shall not constitute (a) a modification or an alteration of the terms,
conditions or covenants of the Agreement or the other Loan Documents or (b) a waiver,
release or limitation upon the Lenders exercise of any of its rights and remedies
thereunder, which are hereby expressly reserved. This consent shall not relieve or
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-3-
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release the Borrowers in any way from any of its respective duties, obligations,
covenants or agreements under the Loan Documents or from the consequences of any
Event of Default thereunder, except as expressly described above. This consent shall
not obligate the Lender, or be construed to require the Lender, to waive any other
Event of Default or default, whether now existing or which may occur after the date
of this waiver.
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12.
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EACH BORROWER WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY
HAVE TO A TRIAL BY JURY OF ANY CLAIM, COUNTERCLAIM, ACTION OR OTHER PROCEEDING ARISING
UNDER OR RELATING TO THIS AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
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-4-
IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date
first above written.
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BORROWERS
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REGIONAL MANAGEMENT CORP.
|
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By:
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/s/ Robert D. Barry
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Name:
|
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Robert D. Barry
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Title:
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Chief Financial Officer
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REGIONAL FINANCE CORPORATION OF SOUTH CAROLINA
REGIONAL FINANCE CORPORATION OF GEORGIA
REGIONAL FINANCE CORPORATION OF TEXAS
REGIONAL FINANCE CORPORATION OF NORTH CAROLINA
REGIONAL FINANCE CORPORATION OF ALABAMA
REGIONAL FINANCE CORPORATION OF TENNESSEE
R.M.C. FINANCIAL SERVICES CORP.
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By:
|
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/s/ Eric A. Anderson
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Name:
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Eric A. Anderson
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Title:
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Chief Financial Officer of each of the above-listed
corporations
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AGENT
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BANK OF AMERICA, N.A.
,
as Agent
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By:
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/s/ Bruce Jenks
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Name:
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Bruce Jenks
|
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Title:
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Vice President
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LENDERS
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BANK OF AMERICA, N.A.
,
as a Lender and Letter of Credit Issuer
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By:
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/s/ Bruce Jenks
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Name:
|
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Bruce Jenks
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Title:
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Vice President
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Commitment = $50,000,000.00 ($55,769,231.00 during Temporary Increase Period)
-5-
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BMO CAPITAL MARKETS FINANCING, INC.
,
as a Lender
|
|
|
|
|
|
|
|
By:
|
|
/s/ Michael S. Cameli
|
|
|
|
|
|
|
|
Name:
|
|
Michael S. Cameli
|
|
|
Title:
|
|
Director
|
|
|
|
|
|
|
|
Commitment = $22,500,000.00 ($25,096,154.00 during Temporary Increase Period)
|
|
|
|
|
|
FIRST TENNESSEE BANK NATIONAL ASSOCIATION
,
as a Lender
|
|
|
|
|
|
|
|
By:
|
|
/s/ David Perry
|
|
|
|
|
|
|
|
Name:
|
|
David Perry
|
|
|
Title:
|
|
Senior Vice President
|
|
|
|
|
|
|
|
Commitment = $22,500,000.00 ($25,096,154.00 during Temporary Increase Period)
|
|
|
|
|
|
CAPITAL ONE, N.A.
,
as a Lender
|
|
|
|
|
|
|
|
By:
|
|
/s/ Paul J. Rubrich
|
|
|
|
|
|
|
|
Name:
|
|
Paul J. Rubrich
|
|
|
Title:
|
|
Vice President
|
|
|
Commitment = $20,000,000.00 ($22,307,692.00 during Temporary Increase Period)
|
|
|
|
|
BoS (USA) INC.
as a Lender
|
|
|
|
|
|
|
|
By:
|
|
/s/ Joseph Fratus
|
|
|
|
|
|
|
|
Name:
|
|
Joseph Fratus
|
|
|
Title:
|
|
First Vice President
|
|
|
Commitment = $15,000,000.00 ($16,730,769.00 during Temporary Increase Period)
-6-
AMENDMENT NO. 3
TO
THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This Amendment No. 3 (this Amendment) is made as of May 27, 2008 to the Third Amended and
Restated Loan and Security Agreement, among Regional Management Corp., Regional Finance Corporation
of South Carolina, Regional Finance Corporation of Georgia, Regional Finance Corporation of Texas,
Regional Finance Corporation of North Carolina, Regional Finance Corporation of Alabama, Regional
Finance Corporation of Tennessee, and R.M.C. Financial Services Corp. (each individually a
Borrower and collectively the Borrowers), the financial institutions listed therein (such
financial institutions, together with their respective successors and assigns, are referred to
hereinafter each individually as a Lender and collectively as the Lenders) and Bank of America,
N.A. as agent for the Lenders (in its capacity as agent, the Agent).
RECITALS
WHEREAS, the Borrowers, Lenders and Agent are parties to a Third Amended and Restated Loan and
Security Agreement dated as of March 21, 2007 and amended in June, 2007 and November, 2007, (as
amended, restated, modified, substituted, extended, or renewed from time to time, the Loan
Agreement);
WHEREAS, the Borrowers acknowledge that there is currently outstanding the aggregate principal
amount of $126,296,206.60 under the revolving credit facility.
WHEREAS, the Borrowers have requested that the Lenders modify certain provisions of the
Agreement and the Lenders are willing to do so on the terms and conditions as hereinafter set
forth, including but not limited to increasing the amount of the Total Credit Facility (as defined
in the Loan Agreement).
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good
and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties
hereto hereby agree as follows:
|
1.
|
|
The Borrowers, Lenders and Agent agree that the Recitals above are a part of
this Amendment. Unless otherwise expressly defined in this Amendment, terms defined in
the Loan Agreement shall have the same meaning under this Amendment.
|
|
|
2.
|
|
The Borrowers represent and warrant to the Lenders as follows:
|
(a) Each Borrower is a corporation duly organized and validly existing in good standing under
the laws of the state in which it was organized.
(b) Each Borrower has the power and authority to execute and deliver this Amendment and
perform its obligations hereunder and has taken all necessary and appropriate corporate action to
authorize the execution, delivery and performance of this Amendment.
(c) The Loan Agreement, as amended by this Amendment and each of the other Loan Documents are
each hereby ratified, each remain in full force and effect, and each constitutes the valid and
legally binding obligation of the Borrower, enforceable in accordance with its terms.
(d) All of the Borrowers representations and warranties contained in the Loan Agreement and
the other Loan Documents are true and correct on and as of the date of the Borrowers execution of
this Amendment.
(e) No Event of Default and no event which, with notice, lapse of time or both would
constitute an Event of Default, has occurred and is continuing under the Loan Agreement or the
other Loan Documents.
|
3.
|
|
The Loan Agreement is hereby amended as follows:
|
(a) Section 1.1 of the Agreement is hereby amended by deleting the definition of
Total
Credit Facility
and replacing it with the following definition:
Total Credit Facility
means (i) $130,000,000.00 from the date hereof
through and including November 14, 2007; (ii) $145,000,000.00 from November 15, 2007
through and including February 29, 2008; (iii) $130,000,000.00 from March 1, 2008
through and including May 26, 2008; and (iv) $142,500,000.00 from May 27, 2008
through and including the Maturity Date.
|
4.
|
|
This Amendment shall become effective when and only when (a) this Amendment
shall be executed and delivered by each Borrower and the Lenders, (b) the Agent shall
have received a certificate of the Secretary of each Borrower as to (x) resolutions of
its Board of Managers then in full force and effect authorizing the execution, delivery
and performance of this Amendment and (y) the incumbency signatures of those of its
officers authorized to act with respect to this Amendment, (c) the Agent shall have
received an executed Reaffirmation of Guarantors, (d) the Agent shall have received
executed each of the Notes, as amended and restated and (e) the Agent shall have
received such additional closing documents as it shall reasonably specify in connection
with the transactions contemplated hereby. Agent hereby reserves the right to require
opinions with respect to this Amendment if it so requests subsequent to the
effectiveness of this Amendment.
|
|
|
5.
|
|
The Borrowers hereby issue, ratify and confirm the representations, warranties
and covenants contained in the Loan Agreement, as amended hereby and each of the other
Loan Documents given by the Borrowers to the Lenders in favor of the Lenders. The
Borrowers agree that this Amendment is not intended to and shall not cause a novation
with respect to any or all of the Obligations.
|
-2-
|
6.
|
|
The Borrowers acknowledge and warrant that the Lenders have acted in good faith
and has conducted itself in a commercially reasonable manner in its relationships with
the Borrowers in connection with this Amendment and generally in connection with the
Loan Agreement and the Obligations, the Borrowers hereby waiving and releasing any
claims to the contrary.
|
|
|
7.
|
|
The Borrowers shall pay at the time this Amendment is executed (or as otherwise
provided for in this Agreement) and delivered all fees, commissions, costs, charges,
taxes and other expenses incurred by the Agent, Lenders and their respective counsel in
connection with this Amendment, including, but not limited to, reasonable fees and
expenses of the Lenders counsel and all recording fees, taxes and charges.
|
|
|
8.
|
|
This Amendment is one of the Loan Documents. This Amendment may be executed in
any number of duplicate originals or counterparts, each of such duplicate originals or
counterparts shall be deemed to be an original and taken together shall constitute but
one and the same instrument. The parties agree that their respective signatures may be
delivered by fax. Any party who chooses to deliver its signature by fax agrees to
provide a counterpart of this Amendment with its inked signature promptly to each other
party.
|
|
|
9.
|
|
This Amendment shall be governed by and interpreted in accordance with the laws
of the State of New York, except that no doctrine of choice of law shall be used to
apply the laws of any other state or jurisdiction to this Amendment.
|
|
|
10.
|
|
EACH BORROWER WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY
HAVE TO A TRIAL BY JURY OF ANY CLAIM, COUNTERCLAIM, ACTION OR OTHER PROCEEDING ARISING
UNDER OR RELATING TO THIS AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
|
-3-
IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date first above
written.
|
|
|
|
|
BORROWERS
|
|
|
|
|
|
|
|
REGIONAL MANAGEMENT CORP.
|
|
|
|
|
|
|
|
By:
|
|
/s/ Robert D. Barry
|
|
|
|
|
|
|
|
Name:
|
|
Robert D. Barry
|
|
|
Title:
|
|
Chief Financial Officer/EVP
|
|
|
|
|
|
|
|
REGIONAL FINANCE CORPORATION OF SOUTH CAROLINA
REGIONAL FINANCE CORPORATION OF GEORGIA
REGIONAL FINANCE CORPORATION OF TEXAS
REGIONAL FINANCE CORPORATION OF NORTH CAROLINA
REGIONAL FINANCE CORPORATION OF ALABAMA
REGIONAL FINANCE CORPORATION OF TENNESSEE
R.M.C. FINANCIAL SERVICES CORP.
|
|
|
|
|
|
|
|
By:
|
|
/s/ Robert D. Barry
|
|
|
|
|
|
|
|
Name:
|
|
Robert D. Barry
|
|
|
Title:
|
|
Chief Financial Officer/EVP of each of the above-listed
corporations
|
|
|
|
|
|
|
|
AGENT
|
|
|
|
|
|
|
|
BANK OF AMERICA, N.A.
,
as Agent
|
|
|
|
|
|
|
|
By:
|
|
/s/ Bruce Jenks
|
|
|
|
|
|
|
|
Name:
|
|
Bruce Jenks
|
|
|
Title:
|
|
Vice President
|
|
|
|
|
|
|
|
LENDERS
|
|
|
|
|
|
|
|
BANK OF AMERICA, N.A.
,
as a Lender and Letter of Credit Issuer
|
|
|
|
|
|
|
|
By:
|
|
/s/ Bruce Jenks
|
|
|
|
|
|
|
|
Name:
|
|
Bruce Jenks
|
|
|
Title:
|
|
Vice President
|
|
|
Commitment = $55,000,000.00
-4-
|
|
|
|
|
BMO CAPITAL MARKETS FINANCING, INC.
,
as a Lender
|
|
|
|
|
|
|
|
By:
|
|
/s/ Michael S. Cameli
|
|
|
|
|
|
|
|
Name:
|
|
Michael S. Cameli
|
|
|
Title:
|
|
Director
|
|
|
|
|
|
|
|
Commitment = $22,500,000.00
|
|
|
|
|
|
|
|
FIRST TENNESSEE BANK NATIONAL ASSOCIATION
,
as a Lender
|
|
|
|
|
|
|
|
By:
|
|
/s/ David Perry
|
|
|
|
|
|
|
|
Name:
|
|
David Perry
|
|
|
Title:
|
|
Senior Vice President
|
|
|
|
|
|
|
|
Commitment = $25,000,000.00
|
|
|
|
|
|
|
|
CAPITAL ONE, N.A.
,
as a Lender
|
|
|
|
|
|
|
|
By:
|
|
/s/ Paul Rubrich
|
|
|
|
|
|
|
|
Name:
|
|
Paul Rubrich
|
|
|
Title:
|
|
Vice President
|
|
|
|
|
|
|
|
Commitment = $25,000,000.00
|
|
|
|
|
|
|
|
BoS (USA) INC.
as a Lender
|
|
|
|
|
|
|
|
By:
|
|
/s/ Julia Franklin
|
|
|
|
|
|
|
|
Name:
|
|
Julia Franklin
|
|
|
Title:
|
|
Assistant Vice President, Loan Documentation
|
|
|
Commitment = $15,000,000.00
-5-
JOINDER AND AMENDMENT NO. 4
TO
THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This Joinder and Amendment No. 4 (this Amendment) is made as of July 28, 2008 to the Third
Amended and Restated Loan and Security Agreement, among Regional Management Corp., Regional Finance
Corporation of South Carolina, Regional Finance Corporation of Georgia, Regional Finance
Corporation of Texas, Regional Finance Corporation of North Carolina, Regional Finance Corporation
of Alabama, Regional Finance Corporation of Tennessee, and R.M.C. Financial Services Corp. (each
individually a Borrower and collectively the Borrowers), the financial institutions listed
therein (such financial institutions, together with their respective successors and assigns, are
referred to hereinafter each individually as a Lender and collectively as the Lenders) and Bank
of America, N.A. as agent for the Lenders (in its capacity as agent, the Agent).
RECITALS
WHEREAS, the Borrowers have requested that the Lenders modify certain provisions of the
Agreement, including, but not limited to, increasing the amount of the Total Credit Facility to
$167,500,000.00 and the Lenders are willing to do so on the terms and conditions as hereinafter set
forth.
WHEREAS, the Borrowers, Lenders and Agent are parties to a Third Amended and Restated Loan and
Security Agreement dated as of March 21, 2007 and amended in June, 2007, November, 2007 and May,
2008, (as amended, restated, modified, substituted, extended, or renewed from time to time, the
Loan Agreement);
WHEREAS, the Borrowers acknowledge that BoS (USA), Inc. is no longer a Lender under the Loan
Agreement;
WHEREAS, the Borrowers, Agent and Lenders acknowledge that BoS (USA) Inc., pursuant to that
certain Assignment and Acceptance Agreement, sold, transferred and assigned its interest in its
portion of the Commitment and the Loans made under the Loan Agreement to Texas Capital Bank, N.A.
Accordingly, Texas Capital Bank, N.A. has become a Lender under the Loan Agreement;
WHEREAS, the Borrowers, Agent and Lenders acknowledge that Wells Fargo Preferred Capital, Inc.
(Wells Fargo), pursuant to this Agreement will now be a Lender under the Loan Agreement; and
WHEREAS, the Borrowers acknowledge that (as of July 24, 2008), there is currently outstanding
the aggregate principal amount of $137,926,359.33 under the revolving credit facility.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good
and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties
hereto hereby agree as follows:
1
|
1.
|
|
The Borrowers, Lenders and Agent agree that the Recitals above are a part of
this Amendment. Unless otherwise expressly defined in this Amendment, terms defined in
the Loan Agreement shall have the same meaning under this Amendment.
|
|
|
2.
|
|
The Borrowers represent and warrant to the Lenders as follows:
|
(a) Each Borrower is a corporation duly organized and validly existing in good standing under
the laws of the state in which it was organized.
(b) Each Borrower has the power and authority to execute and deliver this Amendment and
perform its obligations hereunder and has taken all necessary and appropriate corporate action to
authorize the execution, delivery and performance of this Amendment.
(c) The Loan Agreement, as amended by this Amendment and each of the other Loan Documents are
each hereby ratified, each remain in full force and effect, and each constitutes the valid and
legally binding obligation of the Borrower, enforceable in accordance with its terms.
(d) All of the Borrowers representations and warranties contained in the Loan Agreement and
the other Loan Documents are true and correct on and as of the date of the Borrowers execution of
this Amendment.
(e) No Event of Default and no event which, with notice, lapse of time or both would
constitute an Event of Default, has occurred and is continuing under the Loan Agreement or the
other Loan Documents.
|
3.
|
|
The Loan Agreement is hereby amended as follows:
|
(a) Section 1.1 of the Agreement is hereby amended by deleting the definition of
Total
Credit Facility
and replacing it with the following definitions:
Total Credit Facility
means (i) $130,000,000.00 from the
date hereof through and including November 14, 2007; (ii)
$145,000,000.00 from November 15, 2007 through and including
February 29, 2008; (iii) $130,000,000.00 from March 1, 2008 through
and including May 26, 2008; (iv) $142,500,000.00 from May 27, 2008
through and including July 25, 2008; and (v) $167,500,000.00 from
July 26, 2008 through and including the Maturity Date.
(b) Section 2.2(g)(i) of the Agreement is hereby amended by changing the reference of 1:00
p.m., (New York, New York time) to 2:00 p.m., (New York, New York time).
(c) Section 3.1 of the Agreement is hereby deleted in its entirety and replaced with the
following:
Term of Agreement and Loan Repayment
. This agreement shall
have a term commencing on the date this Agreement becomes effective,
and ending on March 21, 2011 (Maturity Date). The Loan shall be
due and payable in full on the Maturity Date without notice or
demand and shall be repaid to Agent, for the account of Lenders, by
a wire transfer of immediately available funds. Borrowers
2
may
terminate this Agreement prior to the Maturity Date by: (a) giving
Agent and Lenders at least thirty (30) days prior notice of
intention to terminate this Agreement; (b) paying and performing, as
appropriate, all Obligations on or prior to the effective date of
termination; (c) paying to Agent, for the account of the Lenders, an
early termination fee equal to (i) three-quarters of one percent
(0.75%) of the outstanding Obligations in the event the effective
date of termination occurs at any time on or prior to the second
anniversary of the Closing Date, and (ii) one-half of one percent
(0.50%) of the outstanding Obligations in the event the effective
date of termination occurs at any time after the second anniversary
of the Closing Date and prior to the forty-fifth (45th) month after
the Closing Date; and (d) with respect to any LIBOR Revolving Loans
prepaid in connection with such termination prior to the expiration
date of the Interest Period applicable thereto, the payment of the
amounts described in
Paragraph 2.14
. Notwithstanding the
foregoing, upon the occurrence of an Event of Default, Agent may
(and shall, at the direction of Majority Lenders) immediately
terminate further performance under this Agreement without notice or
demand.
(d) Reserved.
(e) Section 10.1(d) of the Agreement is hereby deleted in its entirety and replaced with the
following:
Other Covenants
. Failure by any Borrower or any Guarantor
to comply with any other covenants or agreements relating to any
Borrower or any Guarantor as contained in this Agreement, any
Guaranty, or any other agreement executed in connection herewith or
therewith (excluding in respect of any Bank Products) for more than
30 days (to the extent such failure can be cured and such Borrower
or Guarantor, as applicable, is actively pursuing such cure in good
faith but otherwise immediately) after such failure
shall first become known to any Borrower or to any Guarantor; or
failure by any Borrower to comply with any covenant or agreement
relating to such Borrower as contained in any agreement in respect
of Bank Products beyond the applicable grace or cure period, if any,
applicable thereto.
(f) Section 10.1(g) of the Agreement is hereby amended by deleting the proviso in such Section
and replacing it with the following new proviso:
provided
,
however
, no Event of Default shall
result hereunder if such Borrower or Guarantor cures such other
default (in accordance with the cure provisions of such other
agreement) or if the Person to whom such Debt is owed waives such
default.
(g) Section 10.2(a) of the Agreement is hereby amended by deleting the language prior to the
proviso and replacing it with the following:
Upon the occurrence and during the continuance of an Event of
Default as provided in
Paragraph 10.1
above, all of the
Obligations due from Borrowers to Agent and Lenders, at the option
of Majority Lenders, and upon written notice thereof to Borrowers by
Agent or any Lender, shall accelerate and become at once
3
due and
payable and the Commitments shall immediately terminate; Borrowers
shall forthwith pay to Agent, in addition to any and all sums and
charges due, the entire principal of and accrued interest on the
Notes and all other Obligations...
(h) Section 11.1 of the Agreement is hereby deleted in its entirety and replaced with the
following:
11.1 Amendments and Waivers
. No amendment or waiver of any
provision of this Agreement or any other Loan Document, and no
consent with respect to any departure by Borrowers therefrom, shall
be effective unless the same shall be in writing and signed by
Majority Lenders (or by Agent at the written request of Majority
Lenders) and Borrowers, and then any such waiver or consent shall be
effective only in the specific instance and for the specific purpose
for which given;
provided
,
however
, that no such
waiver, amendment, or consent shall, unless in writing and signed by
all the Lenders and Borrowers and acknowledged by Agent, do any of
the following:
(a) extend the Maturity Date of this Agreement;
(b) increase the Commitment of any Lender such that the Total Credit Facility
after such increase is greater than $182,500,000.00;
(c) increase the Commitment of any Lender without such Lenders consent;
(d) postpone or delay any date fixed by this Agreement or any other Loan
Document for any payment of principal, interest, fees or other amounts due to the
Lenders (or any of them) hereunder or under any other Loan Document (other than any
election not to impose a default rate or to withdraw the imposition of such default
rate);
(e) reduce the principal of or the rate of interest specified herein on any
Loan, or any fees or other amounts payable hereunder or under any other Loan
Document;
(f) change the percentage of the Commitments or of the aggregate unpaid
principal amount of the Loans which is required for the Lenders or any of them to
take any action hereunder;
(g) increase any of the percentages set forth in the definition of Advance
Rate;
(h) amend this
Paragraph 11.1
or any provision of this Agreement
providing for consent or other action by all Lenders, Required Lenders or Majority
Lenders;
(i) release Collateral other than as permitted by
Paragraph 12.10
or
release any Guarantor; or
(j) change the definitions of Availability, Majority Lenders or Required
Lenders;
4
provided
,
however
, Agent may, in its sole discretion
and notwithstanding the limitations contained in
clauses (b)
and
(g)
above and any other terms of this Agreement, make
Agent Advances in accordance with the provisions of
Paragraph
2.2(i)
in an amount not to exceed five percent (5%) of the
Availability and,
provided
further
, that no
amendment, waiver or consent shall, unless in writing and signed by
Agent, affect the rights or duties of Agent under this Agreement or
any other Loan Document.
(i) Section 12.5 of the Agreement is hereby amended by deleting the
third sentence of such Section and replacing it with the following:
Upon the written request of any Lender, Agent shall send notice of
such Default or Event of Default under this Agreement to the
Borrowers within ten (10) Business Days, with a copy provided to
each of the Lenders, unless such Default is cured within the
applicable cure period or such Event of Default is waived.
(j) Section 13.21 of the Agreement is hereby amended by deleting the
last sentence of such Section and replacing it with the following:
Upon request by Agent at any time, the Majority Lenders will
confirm in writing Agents authority to release any Guarantor from
its obligations under the Guaranty pursuant to this
Paragraph
13.21
.
(k) Subject to clause (e) of Section 4 below, Section 1.1 of the
Agreement is hereby amended by deleting the definitions of
Applicable Margin and Change in Control and replacing it with the
following definitions:
Applicable Margin
shall mean with respect to Base Rate
Revolving Loans and LIBOR Revolving Loans, the margins set forth
below, as determined by the Borrowing Base Ratio for the last
calendar month:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Rate
|
|
LIBOR Revolver
|
Level
|
|
Ratio
|
|
Revolver Loans
|
|
Loans
|
I
|
|
> 4.00 to 1.00
|
|
|
.50
|
%
|
|
|
2.50
|
%
|
II
|
|
> 3.00 to 1.00
<
4.00 to 1.00
|
|
|
.25
|
%
|
|
|
2.25
|
%
|
III
|
|
<
3.00 to 1.00
|
|
|
0
|
%
|
|
|
2.00
|
%
|
Until July 31, 2008, margins shall be determined as if Level II were
applicable. Thereafter, the margins shall be subject to increase or
decrease upon receipt by Agent pursuant to
Section 9.1
of the
financial statements and corresponding Borrowing Base Certificate
for the last calendar month, which change shall be effective on the
first day of the calendar month following receipt. If, by the first
day of a month, any financial statements and Borrowing Base
Certificate due in the preceding month have not been received, then
the margins shall be determined as if Level I were applicable, from
such day until the first day of the calendar month following actual
receipt.
If, as a result of any restatement of or other adjustment to the
financial statements of the Borrowers or for any other reason, the
Borrowers or the Lenders determine
5
that (i) the Leverage Ratio as
calculated by the Borrowers as of any applicable date was inaccurate
and (ii) a proper calculation of the Borrowing Base Ratio would have
resulted in higher pricing for such period, the Borrowers shall
immediately and retroactively be obligated to pay to the Agent for
the account of the applicable Lenders, promptly on
demand by the Agent (or, after the occurrence of an actual or deemed
entry of an order for relief with respect to the Borrowers under the
Bankruptcy Code of the United States, automatically and without
further action by the Agent, any Lender or the L/C Issuer), an
amount equal to the excess of the amount of interest and fees that
should have been paid for such period over the amount of interest
and fees actually paid for such period. This paragraph shall not
limit the rights of the Agent, any Lender or the L/C Issuer, as the
case may be, under this Agreement. The Borrowers obligations under
this paragraph shall survive the termination of the Aggregate
Commitment and the repayment of all other Obligations hereunder.
Change in Control means, as of any date of determination, any of
the following: (a) Parallel and Palladium, taken together as a
whole, ceases to own and control, beneficially and of record,
directly or indirectly, at least 51% of the voting equity interests
in Regional or (b) Regional ceases to own and control, beneficially
and of record, 100% of the voting stock of any of the other
Borrowers, other than as a result of intercompany mergers of such
Subsidiaries with each other or Regional where the survivor of such
merger with Regional is Regional and such intercompany merger is
otherwise permitted pursuant to this Agreement.
(1) Subject to clause (e) of Section 4 below, Section 8.4 of the
Agreement is hereby deleted and replaced with the following:
8.4 Borrowing Base Ratio. Borrowers shall not permit the ratio
of (a) all Debt (other than Subordinated Debt), including Borrowers
Obligations (excluding any Bank Product Obligations) to Agent and
Lenders (numerator), to (b) Borrowing Base (denominator), (i) to
exceed 4.25:1, for the period beginning December 1 and ending on the
last calendar day of February of the following year and (ii) to
exceed 4:00:1, at all other times. All amounts calculated under this
Paragraph 8.4 shall be calculated on a consolidated basis for all
corporations comprising Borrowers and RMC Reinsurance.
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4.
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This Amendment shall become effective when and only when (a) this Amendment
shall be executed and delivered by each Borrower and the Lenders, (b) the Agent shall
have received a certificate of the Secretary of each Borrower as to (x) resolutions of
its Board of Directors then in full force and effect authorizing the execution,
delivery and performance of this Amendment and (y) the incumbency signatures of those
of its officers authorized to act with respect to this Amendment, (c) the Agent shall
have received an executed Reaffirmation of Guarantors, (d) the Agent shall have
received executed each of the Notes, as amended and restated, as applicable, (e) the
Agent shall have received an
executed amendment to the Intercreditor Agreement and any required amendments to the
Prospect Subordinated Debt Documents, each in form and content satisfactory to
Agent, and with respect to the amendments contained in paragraphs (k) and (1) of
Section 3 above, such amendments shall not become effective unless and until
amendments to the Prospect Subordinated Debt
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6
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Documents are received which reflect
parallel changes to those documents on or prior to August 6, 2008, and in form and
content reasonably satisfactory to the Agent, (f) the Agent shall have received
opinions from Borrowers Counsel with respect to this Amendment, in form and content
satisfactory to Agent, (g) the Agent shall have received an executed Assignment and
Acceptance Agreement between Bank of Scotland, as assignee and Texas Capital Bank,
N.A., as assignor and (h) the Agent shall have received such additional closing
documents as it shall reasonably specify in connection with the transactions
contemplated hereby. Notwithstanding the foregoing, Agent and Lenders shall consider
this Amendment effective without the conditions in Section 4(f) above being met;
provided, however, that such conditions in Section 4(f) shall be satisfied on or
prior to August 6, 2008. The parties agree that it shall be an Event of Default if
such conditions in Section 4(f) have not been satisfied prior to such date.
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5.
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The Borrowers hereby issue, ratify and confirm the representations, warranties
and covenants contained in the Loan Agreement, as amended hereby and each of the other
Loan Documents given by the Borrowers to the Lenders in favor of the Lenders. The
Borrowers agree that this Amendment is not intended to and shall not cause a novation
with respect to any or all of the Obligations.
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6.
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The Borrowers acknowledge and warrant that the Lenders have acted in good faith
and has conducted itself in a commercially reasonable manner in their relationships
with the Borrowers in connection with this Amendment and generally in connection with
the Loan Agreement and the Obligations, the Borrowers hereby waiving and releasing any
claims to the contrary.
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7.
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The Borrowers shall pay at the time this Amendment is executed (or as otherwise
provided for in this Agreement) and delivered all fees, commissions, costs, charges,
taxes and other expenses incurred by the Agent, Lenders and their respective counsel in
connection with this Amendment, including, but not limited to, reasonable fees and
expenses of the Lenders counsel and all recording fees, taxes and charges.
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8.
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This Amendment is one of the Loan Documents. This Amendment may be executed in
any number of duplicate originals or counterparts, each of such duplicate originals or
counterparts shall be deemed to be an original and taken together shall constitute but
one and the same instrument. The parties agree that their respective signatures may be
delivered by fax. Any party who chooses to deliver its signature by fax agrees to
provide a counterpart of this Amendment with its inked signature promptly to each other
party.
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9.
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This Amendment shall be governed by and interpreted in accordance with the laws
of the State of New York, except that no doctrine of choice of law shall be used to
apply the laws of any other state or jurisdiction to this Amendment.
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10.
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EACH BORROWER WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY
HAVE TO A TRIAL BY JURY OF ANY CLAIM, COUNTERCLAIM, ACTION OR OTHER PROCEEDING ARISING
UNDER OR RELATING TO THIS AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
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7
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11.
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Joinder of Wells Fargo to Loan and Security Agreement
. By executing
and delivering this Agreement, Wells Fargo hereby becomes a party to the Loan
Agreement, as a Lender thereunder, with the same force and effect as if originally
named therein as a Lender, and, without limiting the generality of the foregoing,
hereby expressly assumes all rights, obligations and liabilities of a Lender
thereunder.
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8
IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date first above
written.
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BORROWERS
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REGIONAL MANAGEMENT CORP.
REGIONAL FINANCE CORPORATION OF SOUTH CAROLINA
REGIONAL FINANCE CORPORATION OF GEORGIA
REGIONAL FINANCE CORPORATION OF TEXAS
REGIONAL FINANCE CORPORATION OF NORTH CAROLINA
REGIONAL FINANCE CORPORATION OF ALABAMA
REGIONAL FINANCE CORPORATION OF TENNESSEE
R.M.C. FINANCIAL SERVICES CORP.
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By:
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/s/ Robert D. Barry
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Name:
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Robert D. Barry
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Title:
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Chief Financial Officer/EVP of
each of the above-listed corporations
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AGENT
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BANK OF AMERICA, N.A.,
as Agent
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By:
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/s/ Bruce Jenks
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Name:
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Bruce Jenks
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Title:
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Vice President
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LENDERS
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BANK OF AMERICA, N.A.,
as a Lender and Letter of Credit Issuer
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By:
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/s/ Bruce Jenks
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Name:
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Bruce Jenks
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Title:
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Vice President
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Commitment = $55,000,000.00
9
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BMO CAPITAL MARKETS FINANCING, INC.,
as a Lender
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By:
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/s/ Michael S. Cameli
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Name:
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Michael S. Cameli
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Title:
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Director
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Commitment = $22,500,000.00
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FIRST TENNESSEE BANK NATIONAL ASSOCIATION,
as a Lender
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By:
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/s/ David Perry
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Name:
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David Perry
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Title:
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Senior Vice President
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Commitment = $25,000,000.00
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CAPITAL ONE, N.A.,
as a Lender
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By:
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/s/ Paul Rubrich
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Name:
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Paul Rubrich
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Title:
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Vice President
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Commitment = $25,000,000.00
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TEXAS CAPITAL BANK, N.A.,
as a Lender
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By:
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/s/ Stephanie Hopkins
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Name:
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Stephanie Hopkins
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Title:
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Vice President
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Commitment = $15,000,000.00
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WELLS FARGO PREFERRED CAPITAL, INC.
as a Lender
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By:
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/s/ William M. Laird
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Name:
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William M. Laird
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Title:
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Senior Vice President
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Commitment = $25,000,000.00
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10
EXTENSION AND AMENDMENT NO. 5
TO
THIRD AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This Extension and Amendment No. 5 (this Amendment) is made as of August 25, 2010 to the
Third Amended and Restated Loan and Security Agreement, among Regional Management Corp.
(Regional), Regional Finance Corporation of South Carolina (Regional SC), Regional Finance
Corporation of Georgia, Regional Finance Corporation of Texas, Regional Finance Corporation of
North Carolina, Regional Finance Corporation of Alabama and Regional Finance Corporation of
Tennessee (each individually a Borrower and collectively the Borrowers), the financial
institutions listed therein (such financial institutions, together with their respective successors
and assigns, are referred to hereinafter each individually as a Lender and collectively as the
Lenders) and Bank of America, N.A. as agent for the Lenders (in its capacity as agent, the
Agent).
RECITALS
WHEREAS, the Borrowers have requested that the Agent and Lenders modify certain provisions of
the Loan Agreement (as hereinafter defined), including, but not limited to (i) increasing the
amount of the Total Credit Facility to $225,000,000.00 and (ii) extending the period of time during
which the Borrowers may borrow under the revolving line of the credit facility and the Agent and
Lenders are willing to do so on the terms and conditions as hereinafter set forth.
WHEREAS, the Borrowers, Lenders and Agent are parties to a Third Amended and Restated Loan and
Security Agreement dated as of March 21, 2007 and amended in June, 2007, November, 2007, May, 2008
and July, 2008, (as amended, restated, modified, substituted, extended, or renewed from time to
time, the Loan Agreement); and
WHEREAS, the Borrowers acknowledge that (as of August 24, 2010), there is currently
outstanding the aggregate principal amount of $145,055,011.37 under the revolving credit facility.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained herein and for other good
and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties
hereto hereby agree as follows:
1. The Borrowers, Lenders and Agent agree that the Recitals above are a part of this
Amendment. Unless otherwise expressly defined in this Amendment, terms defined in the Loan
Agreement shall have the same meaning under this Amendment.
2.
The Borrowers represent and warrant to the Lenders as follows:
(a) Each Borrower is a corporation duly organized and validly existing in good standing under
the laws of the state in which it was organized.
(b) Each Borrower has the power and authority to execute and deliver this Amendment and
perform its obligations hereunder and has taken all necessary and appropriate corporate action to
authorize the execution, delivery and performance of this Amendment.
(c) The Loan Agreement, as amended by this Amendment and each of the other Loan Documents are
each hereby ratified, each remain in full force and effect, and each constitutes the valid and
legally binding obligation of each Borrower, enforceable in accordance with its terms. Without
limiting the foregoing, Regional hereby ratifies and reaffirms that certain Second Amended and
Restated Pledge Agreement dated March 21, 2007, and the stock powers given with respect thereto,
and such document and instruments are in full force and effect, and constitute the valid and
legally binding obligation of Regional, enforceable in accordance with their terms.
(d) All of the Borrowers representations and warranties contained in the Loan Agreement and
the other Loan Documents are true and correct on and as of the date of the Borrowers execution of
this Amendment.
(e) No Event of Default and no event which, with notice, lapse of time or both would
constitute an Event of Default, has occurred and is continuing under the Loan Agreement or the
other Loan Documents.
(f) FirstRegional Mortgage Corporation was sold on or about December 2009 and its assets
applied in reduction of the outstanding principal amount of the Revolving Loans in accordance with
Section 8.14
of the Loan Agreement. The Amended and Restated Guaranty made by
FirstRegional Mortgage Corporation has been terminated.
(g) As of February, 2009, R.M.C. Financial Services Corp. was merged with and into Regional SC
(with Regional SC as the surviving entity).
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3.
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The Loan Agreement is hereby amended as follows:
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a. The Schedules to the Loan Agreement are hereby deleted in their entirety and replaced with
revised Schedules to the Loan Agreement, updated as of the date hereof, annexed hereto and made a
part hereof as
Exhibit A
. Notwithstanding that any such schedules are required to be
updated as of the Closing Date, such schedules shall be updated as of the date hereof.
b. Section 1.1 of the Agreement is hereby amended by deleting the definitions of:
Prospect
,
Prospect Subordinated Debt
,
Prospect Subordinated Debt
Agent
,
Prospect Subordinated Debt Documents
,
Prospect Subordinated Loan and
Security Agreement
,
Prospect Subordinated Notes
and
Temporary Increase
Period
in their entirety.
c. Section 1.1 of the Agreement is hereby amended by deleting the definition of
Applicable Margin
and replacing it with the following:
Applicable Margin
shall mean with respect to Base Rate Revolving Loans and
LIBOR Revolving Loans, the margins set forth below, as determined by the Borrowing
Base Ratio for the last calendar month:
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Borrowing
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Base Rate
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LIBOR
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Base
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Revolver
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Revolver
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Level
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Ratio
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Loans
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Loans
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I
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> 2.75 to 1.00
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2.50
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%
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3.50
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%
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II
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<
2.75 to 1.00
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2.25
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%
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3.25
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%
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-2-
Until September 1, 2010, margins shall be determined as if Level II were applicable.
Thereafter, the margins shall be subject to increase or decrease upon determination
and confirmation by Agent of the Borrowing Base Ratio provided by Borrower in the
financial statements delivered pursuant to Section 9.1 hereof for the preceding
calendar month, which change shall be effective on the first day of the calendar
month following receipt such financial statements. If, by the first day of a month,
the financial statements due in the preceding calendar month have not been received,
then the margins shall be determined as if Level I were applicable, from such day
until the first day of the calendar month following actual receipt.
If, as a result of any restatement of or other adjustment to the financial
statements of the Borrowers or for any other reason, the Borrowers or the Lenders
determine that (i) the Leverage Ratio as calculated by the Borrowers as of any
applicable date was inaccurate and (ii) a proper calculation of the Borrowing Base
Ratio would have resulted in higher pricing for such period, the Borrowers shall
immediately and retroactively be obligated to pay to the Agent for the account of
the applicable Lenders, promptly on demand by the Agent (or, after the occurrence of
an actual or deemed entry of an order for relief with respect to the Borrowers under
the Bankruptcy Code of the United States, automatically and without further action
by the Agent, any Lender or the L/C Issuer), an amount equal to the excess of the
amount of interest and fees that should have been paid for such period over the
amount of interest and fees actually paid for such period. This paragraph shall not
limit the rights of the Agent, any Lender or the L/C Issuer, as the case may be,
under this Agreement. The Borrowers obligations under this paragraph shall survive
the termination of the Aggregate Commitment and the repayment of all other
Obligations hereunder.
d. Section 1.1 of the Agreement is hereby amended by deleting the definition of
Bank
Products
in its entirety and replacing it with the following:
Bank Products
shall mean any one or more of credit cards services, ACH
Transactions, Hedge Agreements and Cash Management Services extended by either (i)
Bank of America or any affiliate of Bank of America in reliance on Bank of Americas
agreement to indemnify such affiliate, or (ii) in Agents sole, but reasonable
discretion, other Lenders.
e. Section 1.1 of the Agreement is hereby amended by deleting the definition of
Base
Rate
and replacing it with the following definition:
Base Rate
for any day, a per annum rate equal to the greater of (a) the
Prime Rate for such day; (b) the Federal Funds Rate for such day, plus 0.50%; or (c)
LIBOR for a 30 day interest period as determined on such day, plus 1.0%.
-3-
f. Section 1.1 of the Agreement is hereby amended by deleting the definition of
Change in
Control
and replacing it with the following definition:
Change in Control
shall mean, as of any date of determination, any of the
following: (a) Parallel and Palladium, taken together as a whole, ceases to own and
control, beneficially and of record, directly or indirectly, at least 51% of the
voting equity of Regional; (b) Regional ceases to own and control, beneficially and
of record, directly or indirectly, 100% of the voting stock of any of the other
Borrowers; or (c) any holder of voting equity of any Borrower (other than Regional)
is not a borrower or guarantor under this Agreement.
g.
Section 1.1 of the Agreement is hereby amended by deleting the definition of
Federal
Funds Rate
in its entirety and replacing it with the following:
Federal Funds Rate
: (a) the weighted average of interest rates on overnight
federal funds transactions with members of the Federal Reserve System arranged by
federal funds brokers on the applicable Business Day (or on the preceding Business
Day, if the applicable day is not a Business Day), as published by the Federal
Reserve Bank of New York on the next Business Day; or (b) if no such rate is
published on the next Business Day, the average rate (rounded up, if necessary, to
the nearest 1/8 of 1%) charged to Bank of America on the applicable day on such
transactions, as determined by Agent.
h. Section 1.1 of the Agreement is hereby amended by deleting the definition of
Intercreditor Agreement
in its entirety and replacing it with the following:
Intercreditor Agreement
shall mean the Intercreditor and Lien Subordination
Agreement dated as of August 25, 2010, among the Replacement Subordinated Debt
Agent, the lenders party to the Affiliated Subordinated Loan and Security Agreement,
the Borrowers and the Agent, as the same may be amended, modified, restated,
replaced or supplemented from time to time.
i. Section 1.1 of the Agreement is hereby amended by deleting the definition of
LIBOR
Rate
in its entirety and replacing it with the following:
LIBOR Rate
shall mean, for any Interest Period, with respect to LIBOR
Revolving Loans comprising part of the same Borrowing, the rate of interest per
annum (rounded upward to the next 1/8th of 1.0%) determined by Agent as follows:
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LIBOR Rate
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=
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LIBOR
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1.00 - Eurodollar Reserve Percentage
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Where,
Eurodollar Reserve Percentage
shall mean for any day for any Interest
Period the maximum reserve percentage (expressed as a decimal, rounded upward to the
next 1/100th of 1.0%) in effect on such day (whether or not applicable to any
Lender) under regulations issued from time to time by the Federal Reserve Board for
determining the maximum reserve requirement (including any emergency, supplemental
or other marginal reserve requirement) with respect to Eurocurrency funding
(currently referred to as Eurocurrency liabilities); and
-4-
LIBOR
shall mean for any Interest Period with respect to a LIBOR Loan, the
per annum rate of interest (rounded up, if necessary, to the nearest 1/8th of 1%),
determined by Agent at approximately 11:00 a.m. (London time) two Business Days
prior to commencement of such Interest Period, for a term comparable to such
Interest Period, equal to (a) the British Bankers Association LIBOR Rate (
BBA
LIBOR
), as published by Reuters (or other commercially available source
designated by Agent); or (b) if BBA LIBOR is not available for any reason, the
interest rate at which Dollar deposits in the approximate amount of the LIBOR Loan
would be offered by Agents London branch to major banks in the London interbank
Eurodollar market.
j. Section 1.1 of the Agreement is hereby amended by deleting the definition of
Loss
Reserve Percent
in its entirety and replacing it with the following (to be placed in the
Agreement in alphabetical order):
Small Contracts Reserve Percent
shall mean, calculated as of the first day
of each month, the percent obtained by dividing (i) the aggregate amount of Net
Charge Offs for small loan Contracts (less than $2,500.00) and live check Contracts
during each of the eight (8) months immediately preceding the date of calculation,
by (ii) the average aggregate amount of the Net Balance owing under such Contracts
outstanding as of the last day of each of the previous eight (8) months. For
example, if the Borrowers charged off (a) $1,000.00 of small loan Contracts and live
check Contracts each month for eight (8) months and if the average aggregate Net
Balance outstanding at the end of the previous eight (8) months was $2,000,000.00
for four (4) months and $2,500,000.00 for four (4) months ($8,000.00/$2,250,000.00
(being $18,000,000.00 divided by 8)), the Small Contract Loss Reserve Percent would
be 0.356%.
Other Loss Reserve Percent
shall mean, calculated as of the first day of
each month, the percent obtained by dividing (i) the aggregate amount of Net Charge
Offs for all Contracts other than small loan Contracts (less than $2,500.00) and
live check Contracts during each of the twelve (12) months immediately preceding the
date of calculation, by (ii) the average aggregate amount of the Net Balance owing
under such Contracts outstanding as of the last day of each of the previous twelve
(12) months. For example, if the Borrowers charged off (a) $10,000.00 for such
Contracts each month for twelve (12) months and if the aggregate Net Balance
outstanding at the end of the previous twelve (12) months was $2,000,000.00 for
eight (8) months and $2,500,000.00 for four (4) months ($120,000.00/$2,166,667
(being $26,000,000.00 divided by 12)), the Other Loss Reserve Percent would be
5.54%.
k. Section 1.1 of the Agreement is hereby amended by deleting the definition of
Notes
and replacing it with the following:
Notes
shall mean, collectively, all promissory notes executed and delivered
by Borrowers to Lender pursuant to this Agreement, as the same may be amended,
extended, increased, supplemented or otherwise modified from time to time.
l. Section 1.1 of the Agreement is hereby amended by deleting the word Prospect in the
definition of
Subordinated Debt
and replacing it with the word Replacement.
m. Section 1.1 of the Agreement is hereby amended by deleting the definition of
Total
Credit Facility
and replacing it with the following definition:
-5-
Total Credit Facility
shall mean $225,000,000.00.
n. Section 1.1 of the Agreement is hereby amended by adding the following definitions (to be
listed alphabetically within the other definitions of Section 1.1 of the Agreement):
Cash Management Services
means any services provided to Borrowers in
connection with operating, collections, payroll, trust, or other depository or
disbursement accounts, including automated clearinghouse, e-payable, electronic
funds transfer, wire transfer, controlled disbursement, overdraft, depository,
information reporting, lockbox and stop payment services.
ERISA
means the Employee Retirement Income Security Act of 1974, as
amended and supplemented from time to time.
ERISA Affiliate
means any trade or business (whether or not
incorporated) under common control with any Borrower or guarantor within the meaning
of Section 414(b) or (c) of the IRS Code (and Sections 414(m) and (o) of the IRS
Code for purposes of provisions relating to Section 412 of the IRS Code).
Foreign Plan
means any employee benefit plan or arrangement (a)
maintained or contributed to by any Borrower or Subsidiary that is not subject to
the laws of the United States; or (b) mandated by a government other than the United
States for employees of any Borrower or Subsidiary.
Multiemployer Plan
means any employee benefit plan of the type described in
Section 4001(a)(3) of ERISA, to which any Borrower, guarantor or ERISA Affiliate
makes or is obligated to make contributions, or during the preceding five plan
years, has made or been obligated to make contributions.
PBGC
means the Pension Benefit Guaranty Corporation.
Pension Plan
means any employee pension benefit plan (as such term
is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is
subject to Title IV of ERISA and is sponsored or maintained by any Borrower,
guarantor or ERISA Affiliate or to which the any Borrower, guarantor or ERISA
Affiliate contributes or has an obligation to contribute, or in the case of a
multiple employer or other plan described in Section 4064(a) of ERISA, has made
contributions at any time during the preceding five plan years.
Plan
means any employee benefit plan (as such term is defined in Section
3(3) of ERISA) established by a Borrower or guarantor or, with respect to any such
plan that is subject to Section 412 of the IRS Code or Title IV of ERISA, an ERISA
Affiliate.
Prime Rate
means the rate of interest announced by Bank of America from time
to time as its prime rate. Such rate is set by Bank of America on the basis of
various factors, including its costs and desired return, general economic conditions
and other factors, and
-6-
is used as a reference point for pricing some loans, which may be priced at, above
or below such rate. Any change in such rate announced by Bank of America shall take
effect at the opening of business on the day specified in the public announcement of
such change.
Replacement Subordinated Debt
shall mean the Debt of the Borrowers pursuant
to the Replacement Subordinated Debt Documents.
Replacement Subordinated Debt Agent
shall mean Palladium Capital Management
III, L.L.C. in its capacity as agent for the holders of the Replacement Subordinated
Debt, and any successor agent.
Replacement Subordinated Debt Documents
shall mean the Replacement
Subordinated Loan and Security Agreement, the Replacement Subordinated Notes and any
other documents, instruments or agreements that from time to time evidence the
Replacement Subordinated Debt or secure or support payment or performance thereof,
as each of the foregoing may be amended, modified, restated, replaced or
supplemented from time to time.
Replacement Subordinated Loan and Security Agreement
shall mean the Senior
Subordinated Loan and Security Agreement, dated as of August 25, 2010, among the
Replacement Subordinated Debt Agent, the Borrowers and the lenders from time to time
party thereto, as the same may be amended, modified, restated, replaced or
supplemented from time to time.
Replacement Subordinated Notes
shall mean the promissory notes issued by the
Borrowers from time to time pursuant to the Replacement Subordinated Loan and
Security Agreement, as the same may be amended, modified, restated, replaced or
supplemented from time to time.
Super-Majority Lenders
shall mean at any time Lenders whose Pro Rata Shares
aggregate more than seventy-five percent (75%) as such percentage is determined
under the definition of Pro Rata Share set forth herein.
o. Section 2.5 of the Agreement is hereby amended by deleting subsection (ii) of such section
and replacing it with the following:
(ii) For all Revolving Loans and such other Obligations which are LIBOR Revolving
Loans, then at a per annum rate equal to the LIBOR Rate (but no less than 1.00%)
plus
the Applicable Margin.
p. Section 2.8 of the Agreement is hereby amended by deleting the reference in the third and
fourth lines thereof of one quarter of one percent (0.25%) and replacing it with one-half of one
percent (0.50%).
q. Section 2.20 of the Agreement is hereby deleted and replaced in its entirety with the
following:
-7-
2.20.
Bank Products
. Borrowers may request and Bank of America may, in its
sole and absolute discretion, arrange for Borrowers to obtain, from Bank of America,
Bank of Americas Affiliates or the other Lenders, Bank Products although Borrowers
are not required to do so. To the extent Bank Products are provided by an Affiliate
of Bank of America or an Affiliate of a Lender, Borrowers agree to indemnify and
hold Bank of America and the Lenders harmless from any and all costs and obligations
now or hereafter incurred by Bank of America or any of the Lenders which arise from
the indemnity given by Bank of America to its Affiliates or a Lender to its
Affiliates related to such Bank Products except for costs or obligations resulting
from the gross negligence or willful misconduct of Bank of America or any of the
Lenders. The agreement contained in this Paragraph shall survive termination of
this Agreement. Each Borrower acknowledges and agrees that the obtaining of Bank
Products from Bank of America, Bank of Americas Affiliates or any other Lender (a)
is in the sole and absolute discretion of Bank of America, Bank of Americas
Affiliates, or other Lender, as applicable and (b) is subject to all rules and
regulations of Bank of America, Bank of Americas Affiliates or such other Lender,
as applicable.
r. Section 3.1 of the Agreement is hereby deleted in its entirety and replaced with the
following:
Term of Agreement and Loan Repayment.
This agreement shall have a term
commencing on the date this Agreement becomes effective, and ending on August 25,
2013 (Maturity Date). The Loan shall be due and payable in full on the Maturity
Date without notice or demand and shall be repaid to Agent, for the account of
Lenders, by a wire transfer of immediately available funds. Borrowers may terminate
this Agreement prior to the Maturity Date by: (a) giving Agent and Lenders at
least thirty (30) days prior notice of intention to terminate this Agreement; (b)
paying and performing, as appropriate, all Obligations on or prior to the effective
date of termination; (c) paying to Agent, for the account of the Lenders, an early
termination fee equal to (i) three-quarters of one percent (0.75%) of the
outstanding Obligations in the event the effective date of termination occurs at any
time on or prior to August 25, 2011, and (ii) one-half of one percent (0.50%) of the
outstanding Obligations in the event the effective date of termination occurs at any
time after August 25, 2011 and prior to May 25, 2013; and (d) with respect to any
LIBOR Revolving Loans prepaid in connection with such termination prior to the
expiration date of the Interest Period applicable thereto, the payment of the
amounts described in
Paragraph 2.14.
Notwithstanding the foregoing, upon the
occurrence of an Event of Default, Agent may (and shall, at the direction of
Majority Lenders) immediately terminate further performance under this Agreement
without notice or demand.
s. A new Section 7.26 to the Agreement is added as follows:
7.26
ERISA
. No Borrower or any of its Subsidiaries
maintains or sponsors, or has past, present or future obligations of contribution to
a Plan or a Pension Plan or is a participating employer in, or has past, present or
future obligations of contribution to, a Multiemployer Plan. No Borrower or any of
its Subsidiaries has an ERISA Affiliate.
t. A new Section 7.27 to the Agreement is added as follows:
-8-
7.27
Labor Relations
. No Borrower or Subsidiary is party to or bound by any
collective bargaining agreement. There are no material grievances, disputes or
controversies with any union or other organization of any Borrowers or Subsidiarys
employees, or, to any Borrowers knowledge, any asserted or threatened strikes, work
stoppages or demands for collective bargaining which would reasonably be expected to
result in a material adverse change in the financial condition of the Borrowers
taken as a whole. No Borrower or Subsidiary is party to or bound by any management
or consulting agreement, the breach or termination of which would reasonably be
expected to result in a material adverse change in the financial condition of the
Borrowers taken as a whole.
u. Section 8.4 of the Agreement is hereby deleted in its entirety and replaced with the
following:
8.4 Borrowing Base Ratio. Borrowers shall not permit the
ratio of (a) all Debt (other than Subordinated Debt), including Borrowers
Obligations (excluding any Bank Product Obligations) to Agent and Lenders
(numerator), to (b) Borrowing Base (denominator) (such ratio, the Borrowing Base
Ratio), to exceed 3.50:1, at any time. All amounts calculated under this Paragraph
8.4 shall be calculated on a consolidated basis for all corporations comprising
Borrowers and RMC Reinsurance.
v. Section 8.6 of the Agreement is hereby amended by deleting the word Prospect throughout
such section and replacing it with the word Replacement.
w. Section 8.6 of the Agreement is hereby amended by deleting the amount of $250,000 in the
8th line of such section and replacing it with $500,000.00.
x. Section 8.10(c) of the Agreement is hereby amended as follows:
(c) Borrowers shall maintain an aggregate loss reserve in an amount which shall not
be less than the sum of (x) the current Small Contracts Reserve Percent of the
remainder of (i) the aggregate amount of all presently due and future, unpaid,
noncancellable installment payments to be made under all of Borrowers then-owned
small loan Contracts (less than $2,500.00) and live check Contracts, minus (ii) the
sum of all unearned finance charges (if any) included therein, unearned acquisition
charges, and unearned maintenance fees and (y) the Other Loss Reserve Percent of the
remainder of (i) the aggregate amount of all presently due and future, unpaid,
noncancellable installment payments to be made under all of Borrowers then-owned
Contracts other than small loan Contracts (less than $2,500.00) and live check
Contracts, minus (ii) the sum of all unearned finance charges (if any) included
therein, unearned acquisition charges, and unearned maintenance fees.
y. Section 8.13 of the Agreement is hereby amended by deleting the amount of greater than
$1,200,000 (Bulk Purchase Limit) in the 2nd line of such section and replacing it with equal to
the lesser of $3,000,000.00 or 10% of Availability (Bulk Purchase Limit).
z. Section 8.14 of the Agreement is hereby amended by deleting the word Prospect throughout
such section and replacing it with the word Replacement.
-9-
aa. Section 8.14 of the Agreement is hereby amended by adding the following sentence to the
end of such section:
For any transaction with or among Affiliates permitted by this Agreement, Borrowers
shall deliver to Agent at least seven (7) Business Days prior to the consummation
of such transaction; (i) written notice describing the transaction, including,
without limitation, information that would be reasonably required for Agent to
determine whether additional documentation is required to maintain perfected
security interests in the Collateral; and (ii) a reaffirmation by all Borrowers of
the representations, warranties, covenants and other agreements contained in the
Agreement.
bb. A new Section 8.17 is hereby added to the Agreement as follows:
8.17
Plans
. No Borrower or Borrower Affiliate shall become a party to any
Multiemployer Plan or Foreign Plan.
cc. Section 10.1(g) of the Agreement is hereby amended by deleting the word Prospect and
replacing it with the word Replacement in such section.
dd. A new Section 10.1(o) is hereby added to the Agreement as follows:
(o) Any Borrower or Guarantor or any of
its Senior Officers is criminally
indicted or convicted for (i) a felony
committed in the conduct of any
Borrowers or Guarantors business, or
(ii) violating any state or federal
law (including the Controlled
Substances Act, Money Laundering
Control Act of 1986 and Illegal
Exportation of War Materials Act) that
could lead to forfeiture of any
material Property or any Collateral;
or
ee. A new Section 10.1(p) is hereby added to the Agreement as follows:
(p) An ERISA Event occurs with respect to
a Pension Plan or Multiemployer Plan
that has resulted or could reasonably
be expected to result in liability of
a Borrower or Guarantor to a Pension
Plan, Multiemployer Plan or PBGC, or
that constitutes grounds for
appointment of a trustee for or
termination by the PBGC of any Pension
Plan or Multiemployer Plan; any
Borrower, Guarantor or ERISA Affiliate
fails to pay when due any installment
payment with respect to its withdrawal
liability under Section 4201 of ERISA
under a Multiemployer Plan; or any
event similar to the foregoing occurs
or exists with respect to a Foreign
Plan;
ff. Section 11.1 of the Agreement is hereby deleted in its entirety and replaced with the
following:
11.1 Amendments and Waivers
. No amendment or waiver of any
provision of this Agreement or any other Loan Document, and no consent with respect
to any departure by Borrowers therefrom, shall be effective unless the same shall be
in writing and signed by Majority Lenders (or by Agent at the written request of
Majority Lenders) and Borrowers, and then any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given;
provided
,
however
, that no such waiver, amendment, or consent shall,
unless in writing and signed by all the Lenders and Borrowers and acknowledged by
Agent, do any of the following:
-10-
(a) extend the Maturity Date of this Agreement;
(b) increase the Commitment of any Lender such that the Total Credit
Facility after such increase is greater than $225,000,000.00;
(c) increase the Commitment of any Lender without such Lenders consent;
(d) postpone or delay any date fixed by this Agreement or any other Loan
Document for any payment of principal, interest, fees or other amounts due
to the Lenders (or any of them) hereunder or under any other Loan Document
(other than any election not to impose a default rate or to withdraw the
imposition of such default rate);
(e) reduce the principal of, or the rate of interest specified herein on
any Loan, or any fees or other amounts payable hereunder or under any other
Loan Document;
(f) change the percentage of the Commitments or of the aggregate unpaid
principal amount of the Loans which is required for the Lenders or any of
them to take any action hereunder;
(g) increase any of the percentages set forth in the definition of
Advance Rate;
(h) amend this
Paragraph 11.1
or any provision of this Agreement
providing for consent or other action by all Lenders, Required Lenders or
Majority Lenders;
(i) release Collateral other than as permitted by
Paragraph 12.10
or release any Guarantor; or
(j) change the definitions of Availability, Majority Lenders or
Required Lenders or Super-Majority Lenders; or
(k) amend or waive any provision dealing with Borrowing Base Ratio,
Debt to Worth Ratio or Interest Coverage Ratio; provided, however, that the
Majority Lenders have a right to waive any such provision for a period of
120 days following the date of such waiver, after which waiver, the consent
of all Lenders is required to waive any such provision;
provided
,
further
,
however
, that no such waiver, amendment,
or consent shall, unless in writing and signed by Super-Majority Lenders and
Borrowers and acknowledged by Agent:
(l) approve a Change in Control.
-11-
Notwithstanding the foregoing, Agent may, in its sole discretion and notwithstanding
the limitations contained in
clauses (b)
and
(g)
above and any other
terms of this Agreement, Notwithstanding the foregoing, Agent may, in its sole
discretion and notwithstanding the limitations contained in
clauses (b)
and
(g)
above and any other terms of this Agreement, make Agent Advances in
accordance with the provisions of
Paragraph 2.2(i)
in an amount not to
exceed five percent (5%) of the Availability.
It is understood and agreed that no amendment, waiver or consent shall, unless in
writing and signed by Agent, affect the rights or duties of Agent under this
Agreement or any other Loan Document.
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4.
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This Amendment shall become effective when and only when (a) this Amendment
shall be executed and delivered by each Borrower, the Agent and the Lenders, (b) the
Agent shall have received a certificate of the Secretary of each Borrower as to (x)
resolutions of its Board of Directors then in full force and effect authorizing the
execution, delivery and performance of this Amendment and (y) the incumbency signatures
of those of its officers authorized to act with respect to this Amendment, (c) the
Agent shall have received an executed Reaffirmation of Guarantors, (d) the Agent shall
have received executed each of the Notes, as amended and restated, as applicable, (e)
the Agent shall have received executed copies of each of the Replacement Subordinated
Debt Documents and an Intercreditor Agreement in connection therewith, each in form and
content satisfactory to Agent
,
(f) the Agent shall have received opinions from
Borrowers Counsel with respect to this Amendment, in form and content satisfactory to
Agent, (g) the Borrowers shall have paid to Agent a non-refundable fee, in full in cash
equal to $225,000.00, to be distributed by Agent to the Lenders as follows: (i)
$75,000.00 to Bank of America, N.A. (ii) $52,500.00 to Wells Fargo Preferred Capital,
Inc., (iii) $27,500.00 to BMO Capital Markets Financing, Inc., (iv) $30,000.00 to
Capital One, N.A., (v) $15,000.00 to Texas Capital Bank, N.A. and (vi) $25,000.00 to
First Tennessee Bank National Association and (h) the Agent shall have received such
additional closing documents as it shall reasonably specify in connection with the
transactions contemplated hereby.
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5.
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The Borrowers hereby issue, ratify and confirm the representations, warranties
and covenants contained in the Loan Agreement, as amended hereby and each of the other
Loan Documents given by the Borrowers to the Lenders in favor of the Lenders. The
Borrowers agree that this Amendment is not intended to and shall not cause a novation
with respect to any or all of the Obligations.
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6.
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The Borrowers acknowledge and warrant that the Lenders have acted in good faith
and has conducted itself in a commercially reasonable manner in their relationships
with the
Borrowers in connection with this Amendment and generally in connection with the
Loan Agreement and the Obligations, the Borrowers hereby waiving and releasing any
claims to the contrary.
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7.
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The Borrowers shall pay at the time this Amendment is executed (or as otherwise
provided for in this Agreement) and delivered all fees, commissions, costs, charges,
taxes and other expenses incurred by the Agent and its counsel in connection with this
Amendment, including, but not limited to, reasonable fees and expenses of the Lenders
counsel and all recording fees, taxes and charges.
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-12-
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8.
|
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This Amendment is one of the Loan Documents. This Amendment may be executed in
any number of duplicate originals or counterparts, each of such duplicate originals or
counterparts shall be deemed to be an original and taken together shall constitute but
one and the same instrument. The parties agree that their respective signatures may be
delivered by fax. Any party who chooses to deliver its signature by fax agrees to
provide a counterpart of this Amendment with its inked signature promptly to each other
party.
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9.
|
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This Amendment shall be governed by and interpreted in accordance with the laws
of the State of New York, except that no doctrine of choice of law shall be used to
apply the laws of any other state or jurisdiction to this Amendment.
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10.
|
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EACH BORROWER WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT IT MAY
HAVE TO A TRIAL BY JURY OF ANY CLAIM, COUNTERCLAIM, ACTION OR OTHER PROCEEDING ARISING
UNDER OR RELATING TO THIS AMENDMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
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-13-
IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date first above
written.
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BORROWERS
|
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REGIONAL MANAGEMENT CORP.
REGIONAL FINANCE CORPORATION OF SOUTH CAROLINA
REGIONAL FINANCE CORPORATION OF GEORGIA
REGIONAL FINANCE CORPORATION OF TEXAS
REGIONAL FINANCE CORPORATION OF NORTH CAROLINA
REGIONAL FINANCE CORPORATION OF ALABAMA
REGIONAL FINANCE CORPORATION OF TENNESSEE
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By:
|
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/s/ Robert D. Barry
|
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|
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Name:
|
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Robert D. Barry
|
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Title:
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Chief Financial Officer of each of the above listed corporations
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AGENT
|
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|
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BANK OF AMERICA, N.A.
,
as Agent
|
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By:
|
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/s/ Bruce Jenks
|
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Name:
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Bruce Jenks
|
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Title:
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Vice President
|
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LENDERS
|
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BANK OF AMERICA, N.A.
,
as a Lender and Letter of Credit Issuer
|
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By:
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/s/ Bruce Jenks
|
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|
|
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Name:
|
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Bruce Jenks
|
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Title:
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Vice President
|
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Commitment = $75,000,000.00
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BMO CAPITAL MARKETS FINANCING, INC.
,
as a Lender
|
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|
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By:
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/s/ Michael S. Cameli
|
|
|
|
|
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Name:
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|
Michael S. Cameli
|
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|
Title:
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Vice President
|
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|
Commitment = $27,500,000.00
-14-
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FIRST TENNESSEE BANK NATIONAL ASSOCIATION
,
as a Lender
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|
|
|
|
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|
By:
|
|
/s/ Patrick Green
|
|
|
|
|
|
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Name:
|
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Patrick Green
|
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|
Title:
|
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Vice President
|
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|
|
|
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|
Commitment = $25,000,000.00
|
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CAPITAL ONE, N.A.
,
as a Lender
|
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|
|
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By:
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/s/ Paul Rubrich
|
|
|
|
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Name:
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Paul Rubrich
|
|
|
Title:
|
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Vice President
|
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|
|
|
|
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|
Commitment = $30,000,000.00
|
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TEXAS CAPITAL BANK, N.A.,
as a Lender
|
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|
|
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By:
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/s/ Stephanie Hopkins
|
|
|
|
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Name:
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Stephanie Hopkins
|
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|
Title:
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Senior Vice President
|
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|
|
|
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|
Commitment = $15,000,000.00
|
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WELLS FARGO PREFERRED CAPITAL, INC.,
as a Lender
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By:
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/s/ William M. Laird
|
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Name:
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William M. Laird
|
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Title:
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Senior Vice President
|
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Commitment = $52,500,000.00
-15-
EXHIBIT A
UPDATED SCHEDULES
-16-
SCHEDULE 4.4
LOCATIONS OF BOOKS AND RECORDS AND COLLATERAL
Location of Records Concerning Collateral
509 West Butler Road, Greenville, South Carolina 29607
Location of Collateral and Places of Business
509 West Butler Road, Greenville, South Carolina 29607; see also attached List of Branches.
-17-
LIST OF BRANCHES
141 S.W. Laurens Street, Aiken, SC 29801
2705 N. Main St., Suite C, Anderson, SC 29621
104 Main St., Barnwell, SC 29812
112D West Church St., Batesburg, SC 29006
2303 Boundary St., Suite 3, Beaufort, SC 29006
145 Hwy 15 & 401 Bypass, Suite 6, Bennettsville, SC 29512
3906 Hwy 9, Suite C, Boiling Springs, SC 29902
1047 Broad St., Camden, SC 29020
528 Knox Abbott Dr., Cayce, SC 29033
567 King St., Charleston, SC 29403
233 Second St., Cheraw, SC 29520
6729 L Two Notch Rd., Columbia, SC 29223
2101 Main St., Unit D, Columbia, SC 29201
302 Main St., Conway, SC 29526
220 East Main St., Dillon, SC 29536
6932 Calhoun Memorial Hwy., Suite G, Easley, SC 29640
355 West Evans St., Florence, SC 29501
515 North Limestone St., Gaffney, SC 29340
1113 North Fraser St., Georgetown, SC 29440
1414 E Washington St., Suite G, Greenville 29607
718A Montague Avenue, Greenwood, SC 29649
1309 B West Poinsett St., Greer, SC 29650
129 Lee Avenue, Hampton, SC 29924
112 East Carolina Ave., Hartsville, SC 29550
475 N. Main St., Suite D, Hemingway, SC 29554
109 East Main St., Lake City, SC 29560
226 South Main St., Lancaster, SC 29720
507 N. Harper St., Suite D, Laurens, SC 29360
103 South Brooks St., Manning, SC 29102
1107 East Godbold Street, Marion, SC 29571
104 Bi-Lo Way, Suite A2, Moncks Corner, SC 29461
605 Broadway Street, Myrtle Beach, SC 29577
1337 Wilson Road, Newberry, SC 29108
1924 Remount Road, North Charleston, SC 29406
642 John C. Calhoun Drive, Orangeburg, SC 29115
592 North Anderson Road, Rock Hill, SC 29730
195 A South Converse St., Spartanburg, SC 29306
115 East Richardson Avenue, Summerville, SC 29483
251 Broad Street, Sumter, SC 29150
410 N. Duncan Bypass, Suite D, Union, SC 29379
110A N. Memorial Ave., Walterboro, SC 29488
622 Twelfth Street, West Columbia, SC 29169
153 N. Congress Street, Winnsboro, SC 29180
2705 North Main Street, Suite G, Anderson, SC 29621
473 Hendersonville Rd., Suite A, Asheville, NC 28803
-18-
1300 Savannah Highway, Suite 12, Charleston, SC 29407
6729 Two Notch Rd., Unit B, Columbia, SC 29223
710 South Pendleton St., Easley, SC 29640
2301 Wade Hampton Blvd., Suite 3, Greenville, SC 29615
726-A Montague Avenue, Greenwood, SC 29649
2442-B Hwy. 70 Southeast, Hickory, NC 28602
205-J Columbia Avenue, Lexington, SC 29072
1922 Remount Rd., North Charleston, SC 29406
1291 John C. Calhoun Drive, Orangeburg, SC 29115
600 North Anderson Road, Rock Hill, SC 29730
211 Oconee Square Dr., Seneca, SC 29678
110 Garner Rd., Suite 10, Merchants Plaza, Spartanburg, SC 29303
6615 Airport Blvd., Austin, TX 78752
857 E. Washington St., Suite D, Brownsville, TX 78520
4918 Ayers Rd., Ayers Plaza, Ste. 136, Corpus Christi, TX 78415
2400 Veterans Blvd., Suite 10, LaVillita Shopping Center, Del Rio, TX 78840
220 Jefferson St., Eagle Pass, TX 78852
1518 Pennsylvania Avenue, Fort Worth, TX 76104
318 E. Jackson St., Harlingen, TX 78550
218 E. Kleberg Ave., Kingsville, TX 78363
502 W. Calton Rd., Suite 109, Laredo, TX 78041
1104-B North Meadow, Laredo, TX 78040
110 E. Tyler Street, Longview, TX 75601
2708 H E. Griffin Pkwy., Mission, TX 78572
4761 E. Hwy 83, Ste. B, Plaza Del Mar, Rio Grande City, TX 78582
1121 SW Military Dr., Suite 101, San Antonio, TX 78221
14145 Nacogdoches Rd., Suite 1, San Antonio, TX 78247
3221 Wurzbach Rd., San Antonio, TX 78238
206-B West San Antonio St., San Marcos, TX 78666
2523 East Fifth Street, Tyler, TX 75701
2912 N. Laurent Street, Victoria, TX 77901
1025 North Texas Blvd., Suite 17, Weslaco, TX 78596
4401 East Independence Blvd., Suite 102, Charlotte, NC 28205
5210 North Tryon St., Unit B, Charlotte, NC 28213
2568 West Franklin Blvd., Gastonia, NC 28052
3733 B Farmington Dr., Greensboro, NC 27407
2108 N. Centennial St., Suite 114, High Point, NC 27265
811 S. Jake Alexander Blvd., Salisbury, NC 28147
230 Signal Hill Dr., Statesville, NC 28625
3193-D Peters Creek Parkway, Winston-Salem, NC 27127
8144 U.S. Highway 431, Albertsville, AL 35950
840 Secretary Drive, Arlington, TX 76015
1337 C East Dixie Drive, Asheboro, NC 27203
719 West William Cannon, Suite 112, Austin, TX 78745
1135 Volunteer Parkway, Suite 1, Bristol, TN 37620
1710 C South Texas Avenue, Suite 101, TX 77802
-19-
2140 South Church Street, Burlington, NC 27216
6407 M South Blvd., NC 28217
5716 Ringgold Road, Unit 106, Chattanooga, TN 37412
891 Keith Street, Suite 6, Cleveland, TN 37311
2700 D Broad River Road, Columbia, SC 29210
516 S. Willow Avenue, Cookeville, TN 38501
126 The Crossings, Crossville, TN 38555
1710 2
nd
Avenue SW, Suite 5, Cullman, AL 35055
2699 Sandlin Road, Suite B-2, Decatur, AL 35601
710 Pendleton Street, Easley, SC 29640
613 East University Drive, Edinburg, TX 78539
2801 Mall Road, Suite 9, Florence, AL 35630
1222 West Evans Street, Florence, SC 29501
2725 NE 28
th
Street, Suite 130, Fort Worth, TX 76111
449 George Wallace Drive, Gadsden, AL 35630
3115 South 1
st
Street, Suite 300, Garland, TX 75041
808 East Franklin Blvd., Gastonia, NC 28054
817 West Pioneer Parkway, Suite 156, Grand Prairie, TX 75051
2403 Battleground Avenue, Suite 6, Greensboro, SC 29607
1414 H East Washington Street, Greenville, SC 29607
512 South Main Street, Hendersonville, NC 28792
3659 Lorna Road, Suite 125, Hoover, AL 35216
1804 Wirt Road, Houston, TX 77055
5517 Airline Drive, Suite E, Houston, TX 77076
4925 University Drive, Suite 110, Huntsville, AL 38516
1918 North Story Road, Irving, TX 75061
3014 Bristol Highway, Suite 3, Johnson City, TN 37601
3379 Cloverleaf Parkway, NC 28083
421 West Stone Drive, Suite 3, Kingsport, TN 37601
7118 Maynardville Highway, Knoxville, TN 37660
1645 Downtown West Blvd., Unit 11, Knoxville, TN 37919
348 North Highway 701, Unit 1, Loris, SC 29569
509 S. Bicentennial Blvd., McAllen, TX 78501
3306 D Highway 74 West, Monroe, NC 28110
1631 E. Andrew Johnson Highway, TN 37814
404 E. Martintown Road, Suite 4, North Augusta, SC 29841
1225 Snow Street, Suite 4, Oxford, AL 36203
704 C East Broad Avenue, Rockingham, NC 28379
3655 Fredricksburg Road, Suite 119, San Antonio, TX 78201
211 Oconee Square Drive, Seneca, SC 29678
708 Bultman Drive, Sumter, SC 29150
2314 C West Adams Avenue, Temple, TX 76504
2001 Skyland Blvd. East, Suite C-1, Tuscaloosa, AL 35405
1615 North Valley Mills Drive, Waco, TX 76710
710 E. Liberty Street, Suite 102, York, SC 28745
-20-
SCHEDULE 7.6
GAAP EXCEPTIONS
Regional amended its group health insurance plan November 1, 2003 to permit certain retired
employees to receive coverage under the plan. Regional amended the plan October 5, 2006 to
eliminate this retiree coverage. The Borrowers financial statements do not include accruals in
accordance with GAAP for the contingent liability associated with this retiree medical coverage.
No former employee of Regional or any of its Subsidiaries is receiving or has ever received
coverage under the plan pursuant to this retiree coverage provision.
Regional amended the plan again on January 4, 2007 effective November 1, 2006 to provide coverage
to a closed class of retirees comprised of Brenda Kinlaw, Richard Godley and Jerry Shirley, but
amended the plan again on March 1, 2007 to be effective November 1, 2006 to revoke the January 4,
2007 amendment. No former employee of Regional or any of its Subsidiaries is receiving or has ever
received coverage under the plan pursuant to this retiree coverage provision.
-21-
SCHEDULE 7.9
PERMITTED LIENS
Liens created by the following documents and any financing statements now existing or hereafter
filed related thereto
:
Mortgage and Assignment of Rents dated October 11, 2005, made by Regional in favor of Wachovia
Bank, NA, securing the Wachovia Revolver (as defined in
Schedule 8.6
), related to certain
real and personal property (as described therein) located at 507 and 509 W. Butler Road, Mauldin,
South Carolina, as the same has been amended, modified or supplemented.
-22-
SCHEDULE 7.10
LICENSES
None.
-23-
SCHEDULE 7.13
COMPLIANCE WITH LAWS
None.
-24-
SCHEDULE 7.16
SUBSIDIARIES
Regional Management Corp. is the direct parent of each of the entities listed below. Each of the
entities listed below is a wholly owned subsidiary of Regional Management Corp.
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Regional Finance Corporation of South Carolina
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Regional Finance Corporation of Georgia
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Regional Finance Corporation of Texas
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Regional Finance Corporation of North Carolina
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Regional Finance Corporation of Alabama
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Regional Finance Corporation of Tennessee
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R.M.C. Financial Services Corp.
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FirstRegional Mortgage Corporation
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-25-
SCHEDULE 7.19
BANK ACCOUNTS
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Company Name
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Bank Name
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Account Number
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Purpose
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Regional Finance of SC
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First Citizens/ Williamsburg 1
st
National
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079021391201
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Depository
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Regional Management Corp
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First Citizens/ Williamsburg 1
st
National
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620513879
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Depository
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Regional Management Corp
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BB&T
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0005121078874
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Depository
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Regional Finance Corp of TN
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BB&T
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115665804
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Depository
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Regional Finance Corp of SC
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NBSC
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021-407-4401
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Depository
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Regional Finance Corp of TX
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Southside
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1422340
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Depository
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Regional Finance Corp of TX
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Compass Bank
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51115751
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Depository
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Regional Finance Corp of TX
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Compass Bank
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0270014337
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Depository
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Regional Finance Corp of TX
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First National International Bank
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40802761
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Depository
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Regional Finance Corp of TX
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Commerce International Bank
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6001755817
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Depository
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Regional Finance Corp of TX
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Commerce International Bank
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6001755736
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Depository
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Regional Finance Corp of TX
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Commerce
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2511526972
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Depository
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-26-
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Company Name
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Bank Name
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Account Number
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Purpose
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Regional Finance Corp of TN
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First National Bank of TN
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5153937
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Depository
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Regional Finance Corp of TN
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First Tennessee Bank
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175587910
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Depository
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RMC Reinsurance
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Grand South
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2006476
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Reinsurance
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Regional Management Corp
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Bank of America
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3359-00-0828
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Payroll
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Regional Management Corp
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Bank of America
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3299-129611
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Loan Disbursement
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Regional Management Corp
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Bank of America
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4426400808
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Master Depository
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Regional Management Corp
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Bank of America
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442640-5900
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Master Funding
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Regional Management Corp
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Wachovia/Wells Fargo
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200002781131
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Used to transfer all non-Wachovia deposits to main SC checking
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Regional Management Corp of SC
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Wachovia/Wells Fargo
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207990055-2661
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SC Checking/ Depository (main)
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Regional Management Corp of SC
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Wachovia/Wells Fargo
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2079900-58-7018
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SC Checking/ Depository (sweep account)
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Regional Management Corp of SC
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Wachovia/Wells Fargo
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2079900-58-7021
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SC Checking/ Depository (sweep account)
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RMC Financial Services Corp
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Wachovia/Wells Fargo
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2079900-55-3385
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SC Checking/ Depository (sweep account)
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Regional Management Corp of TX
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Wachovia/Wells Fargo
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2079900-552658
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TX Checking/ Depository (sweep account)
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Regional Management Corp of NC
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Wachovia/Wells Fargo
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2079900-55-3356
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NC Checking/ Depository (sweep account)
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-27-
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Company Name
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Bank Name
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Account Number
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Purpose
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Regional Management Corp of TN
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Wachovia/Wells Fargo
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2079900-59-8816
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TN Checking/ Depository (sweep account)
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Regional Management Corp of AL
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Wachovia/Wells Fargo
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2079900-62-0784
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AL Checking/ Depository (sweep account)
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Regional Management Corp
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Wachovia/Wells Fargo
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2079900-55-2771
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Corporate Loan Solicitation
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Regional Finance Corp of SC
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Wachovia/Wells Fargo
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2079900-55-2975
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SC Loan Solicitation
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Regional Finance Corp of TN
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Wachovia/Wells Fargo
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2079900-55-2962
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TN Loan Solicitation
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Regional Finance Corp of TX
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Wachovia/Wells Fargo
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2079900-55-2632
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TX Loan Solicitation
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Regional Finance Corp of NC
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Wachovia/Wells Fargo
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2079900-55-3369
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NC Loan Solicitation
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Regional Management Corp
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Wachovia/Wells Fargo
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2079900-55-3424
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Corporate AP
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Regional Finance Corp of TX
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Wachovia/Wells Fargo
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769-8988222
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Depository
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Regional Finance Corp of TX
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Wachovia/Wells Fargo
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870-5321662
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Depository
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Regional Finance Corp of TX
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Wachovia/Wells Fargo
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642-6784598
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Depository
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Regional Finance Corp of TX
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Wachovia/Wells Fargo
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199-2590412
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Depository
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Regional Finance Corp of TX
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Wachovia/Wells Fargo
|
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914-3032259
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Depository
|
-28-
SCHEDULE 8.3
GUARANTIES
None.
-29-
SCHEDULE 8.6
DEBT
Promissory Note, dated July 22, 2010, in an aggregate principal amount not to exceed $500,000 made
by Regional payable to the order of Wachovia Bank, National Association (the
Wachovia
Revolver
), as the same has been amended, modified or supplemented.
-30-