PORTFOLIO RECOVERY ASSOCIATES INC (Form: 10-Q, Received: 05/08/2014 15:10:18)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014 .



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-50058

Portfolio Recovery Associates, Inc.

(Exact name of registrant as specified in its charter)



Delaware		75-3078675
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

120 Corporate Boulevard, Norfolk, Virginia		23502
(Address of principal executive offices)		(zip code)

(888) 772-7326

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ý NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ý NO ¨

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,” “non-accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO ý

The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class		Outstanding as of May 1, 2014
Common Stock, $0.01 par value		50,060,005

PORTFOLIO RECOVERY ASSOCIATES, INC.

INDEX



		Page(s)
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Consolidated Balance Sheets (unaudited) as of March 31, 2014 and December 31, 2013	3

	Consolidated Income Statements (unaudited) for the three months ended March 31, 2014 and 2013	4

	Consolidated Statements of Comprehensive Income (unaudited) for the three months ended March 31, 2014 and 2013	5

	Consolidated Statement of Changes in Stockholders’ Equity (unaudited) for the three months ended March 31, 2014	6

	Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2014 and 2013	7

	Notes to Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	47

Item 4.	Controls and Procedures	47

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	47

Item 1A.	Risk Factors	48

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50

Item 3.	Defaults Upon Senior Securities	50

Item 4.	Mine Safety Disclosure	50

Item 5.	Other Information	50

Item 6.	Exhibits	51

SIGNATURES		52

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

PORTFOLIO RECOVERY ASSOCIATES, INC.

CONSOLIDATED BALANCE SHEETS

March 31, 2014 and December 31, 2013

(unaudited)

(Amounts in thousands, except per share amounts)



	March 31, 2014		December 31, 2013
Assets
Cash and cash equivalents	$	191,819	$	162,004
Finance receivables, net	1,253,961		1,239,191
Accounts receivable, net	11,551		12,359
Income taxes receivable	1,015		11,710
Net deferred tax asset	1,369		1,361
Property and equipment, net	35,130		31,541
Goodwill	104,086		103,843
Intangible assets, net	14,714		15,767
Other assets	28,968		23,456
Total assets	$	1,642,613	$	1,601,232
Liabilities and Equity
Liabilities:
Accounts payable	$	24,199	$	14,819
Accrued expenses and other liabilities	28,351		27,655
Accrued compensation	8,684		27,431
Net deferred tax liability	220,883		210,071
Borrowings	450,278		451,780
Total liabilities	732,395		731,756
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock, par value $0.01, authorized shares, 2,000, issued and outstanding shares - 0	—		—
Common stock, par value $0.01, 60,000 authorized shares, 50,060 issued and outstanding shares at March 31, 2014, and 49,840 issued and outstanding shares at December 31, 2013	501		498
Additional paid-in capital	134,892		135,441
Retained earnings	770,345		729,505
Accumulated other comprehensive income	4,480		4,032
Total stockholders’ equity	910,218		869,476
Total liabilities and equity	$	1,642,613	$	1,601,232

The accompanying notes are an integral part of these consolidated financial statements.

PORTFOLIO RECOVERY ASSOCIATES, INC.

CONSOLIDATED INCOME STATEMENTS

For the three months ended March 31, 2014 and 2013

(unaudited)

(Amounts in thousands, except per share amounts)



	Three Months Ended March 31,
	2014			2013
Revenues:
Income recognized on finance receivables, net	$	177,970		$	154,792
Fee income	15,952			14,767
Total revenues	193,922			169,559
Operating expenses:
Compensation and employee services	51,385			44,997
Legal collection fees	10,833			10,529
Legal collection costs	26,533			20,501
Agent fees	1,450			1,609
Outside fees and services	10,791			7,447
Communications	9,154			8,079
Rent and occupancy	2,147			1,687
Depreciation and amortization	3,947			3,366
Other operating expenses	6,092			5,457
Total operating expenses	122,332			103,672
Income from operations	71,590			65,887
Other income and (expense):
Interest income	1			—
Interest expense	(4,860		)	(2,689		)
Income before income taxes	66,731			63,198
Provision for income taxes	25,891			24,681
Net income	$	40,840		$	38,517
Adjustment for loss attributable to redeemable noncontrolling interest	—			83
Net income attributable to Portfolio Recovery Associates, Inc.	$	40,840		$	38,600
Net income per common share attributable to Portfolio Recovery Associates, Inc:
Basic	$	0.82		$	0.76
Diluted	$	0.81		$	0.75
Weighted average number of shares outstanding:
Basic	49,929			50,811
Diluted	50,363			51,273

The accompanying notes are an integral part of these consolidated financial statements.

PORTFOLIO RECOVERY ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the three months ended March 31, 2014 and 2013

(unaudited)

(Amounts in thousands)



	Three Months Ended March 31,
	2014		2013
Net income	$	40,840	$	38,517
Other comprehensive income:
Foreign currency translation adjustments	448		(4,418		)
Total other comprehensive income	448		(4,418		)
Comprehensive income	41,288		34,099
Comprehensive loss attributable to noncontrolling interest	—		83
Comprehensive income attributable to Portfolio Recovery Associates, Inc.	$	41,288	$	34,182

The accompanying notes are an integral part of these consolidated financial statements.

PORTFOLIO RECOVERY ASSOCIATES, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

For the three months ended March 31, 2014

(unaudited)

(Amounts in thousands)



									Accumulated
				Additional					Other		Total
	Common Stock			Paid-in			Retained		Comprehensive		Stockholders’
	Shares	Amount		Capital			Earnings		Income		Equity
Balance at December 31, 2013	49,840	$	498	$	135,441		$	729,505	$	4,032	$	869,476
Components of comprehensive income:
Net income attributable to Portfolio Recovery Associates, Inc.	—	—		—			40,840		—		40,840
Foreign currency translation adjustment	—	—		—			—		448		448
Vesting of nonvested shares	220	3		(3		)	—		—		—
Amortization of share-based compensation	—	—		2,836			—		—		2,836
Income tax benefit from share-based compensation	—	—		4,115			—		—		4,115
Employee stock relinquished for payment of taxes	—	—		(7,497		)	—		—		(7,497		)
Balance at March 31, 2014	50,060	$	501	$	134,892		$	770,345	$	4,480	$	910,218

The accompanying notes are an integral part of these consolidated financial statements.

PORTFOLIO RECOVERY ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended March 31, 2014 and 2013

(unaudited)

(Amounts in thousands)



	Three Months Ended March 31,
	2014			2013
Cash flows from operating activities:
Net income	$	40,840		$	38,517
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of share-based compensation	2,836			2,986
Depreciation and amortization	3,947			3,366
Amortization of debt discount	998			—
Deferred tax expense	10,812			529
Changes in operating assets and liabilities:
Other assets	(5,496		)	(2,070		)
Accounts receivable	821			1,149
Accounts payable	9,361			588
Income taxes	10,695			19,088
Accrued expenses	686			(2,503		)
Accrued compensation	(26,245		)	(3,537		)
Net cash provided by operating activities	49,255			58,113
Cash flows from investing activities:
Purchases of property and equipment	(6,416		)	(2,466		)
Acquisition of finance receivables, net of buybacks	(150,087		)	(212,389		)
Collections applied to principal on finance receivables	135,397			120,671
Net cash used in investing activities	(21,106		)	(94,184		)
Cash flows from financing activities:
Income tax benefit from share-based compensation	4,115			2,207
Proceeds from line of credit	—			95,000
Principal payments on line of credit	—			(50,000		)
Repurchases of common stock	—			(1,912		)
Cash paid for purchase of portion of noncontrolling interest	—			(1,150		)
Distributions paid to noncontrolling interest	—			(51		)
Principal payments on long-term debt	(2,500		)	(1,384		)
Net cash provided by financing activities	1,615			42,710
Effect of exchange rate on cash	51			(215		)
Net increase in cash and cash equivalents	29,815			6,424
Cash and cash equivalents, beginning of period	162,004			32,687
Cash and cash equivalents, end of period	$	191,819		$	39,111
Supplemental disclosure of cash flow information:
Cash paid for interest	$	5,731		$	2,656
Cash paid for income taxes	1,868			2,866
Supplemental disclosure of non-cash information:
Adjustment of the noncontrolling interest measurement amount	$	—		$	(60	)
Distributions payable relating to noncontrolling interest	—			2
Purchase of noncontrolling interest	—			9,162
Employee stock relinquished for payment of taxes	(7,497		)	(4,002		)

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

PORTFOLIO RECOVERY ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


1.	Organization and Business:

Portfolio Recovery Associates, Inc., a Delaware corporation, and its subsidiaries (collectively, the “Company”) is a financial and business service company operating principally in the United States and the United Kingdom. The Company’s primary business is the purchase, collection and management of portfolios of defaulted consumer receivables. The Company also services receivables on behalf of clients and provides class action claims settlement recovery services and related payment processing to corporate clients.

The consolidated financial statements of the Company are prepared in accordance with U.S. generally accepted accounting principles and include the accounts of all of its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Under the guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280 “Segment Reporting” (“ASC 280”), the Company has determined that it has several operating segments that meet the aggregation criteria of ASC 280, and therefore, it has one reportable segment, accounts receivable management, based on similarities among the operating units including homogeneity of services, service delivery methods and use of technology.

The following table shows the amount of revenue generated for the three months ended March 31, 2014 and 2013 and long-lived assets held at March 31, 2014 and 2013 by geographical location (amounts in thousands):



	As Of And For The				As Of And For The
	Three Months Ended March 31, 2014				Three Months Ended March 31, 2013
	Revenues		Long-Lived Assets		Revenues		Long-Lived Assets
United States	$	191,188	$	32,669	$	166,929	$	23,770
United Kingdom	2,734		2,461		2,630		1,700
Total	$	193,922	$	35,130	$	169,559	$	25,470

Revenues are attributed to countries based on the location of the related operations. Long-lived assets consist of net property and equipment.

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”) and, therefore, do not include all information and disclosures required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of the Company, however, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s consolidated balance sheet as of March 31, 2014 , its consolidated income statements and statements of comprehensive income for the three months ended March 31, 2014 and 2013 , its consolidated statement of changes in stockholders’ equity for the three months ended March 31, 2014 , and its consolidated statements of cash flows for the three months ended March 31, 2014 and 2013 . The consolidated income statements of the Company for the three months ended March 31, 2014 may not be indicative of future results. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2013 Annual Report on Form 10-K, filed on February 28, 2014.


2.	Finance Receivables, net:

Changes in finance receivables, net for the three months ended March 31, 2014 and 2013 were as follows (amounts in thousands):



	Three Months Ended March 31, 2014			Three Months Ended March 31, 2013
Balance at beginning of period	$	1,239,191		$	1,078,951
Acquisitions of finance receivables, net of buybacks	150,087			212,389
Foreign currency translation adjustment	80			(922		)
Cash collections	(313,367		)	(275,463		)
Income recognized on finance receivables, net	177,970			154,792
Cash collections applied to principal	(135,397		)	(120,671		)
Balance at end of period	$	1,253,961		$	1,169,747

Table of Contents

PORTFOLIO RECOVERY ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

At the time of acquisition, the life of each pool is generally estimated to be between 60 and 96 months based on projected amounts and timing of future cash collections using the proprietary models of the Company. Based upon current projections, cash collections applied to principal on finance receivables as of March 31, 2014 are estimated to be as follows for the twelve months in the periods ending (amounts in thousands):



March 31, 2015	$	440,446
March 31, 2016	338,324
March 31, 2017	251,391
March 31, 2018	166,246
March 31, 2019	53,679
March 31, 2020	3,875
	$	1,253,961

During the three months ended March 31, 2014 and 2013 , the Company purchased approximately $1.91 billion and $1.85 billion , respectively, in face value of charged-off consumer receivables. At March 31, 2014 , the estimated remaining collections (“ERC”) on the receivables purchased in the three months ended March 31, 2014 and 2013 , were $235.0 million and $266.4 million , respectively. At March 31, 2014 , the Company had unamortized purchased principal (purchase price) in pools accounted for under the cost recovery method of $28.3 million ; at December 31, 2013 , the amount was $26.1 million .



	Three Months Ended March 31,
	2014			2013
Balance at beginning of period	$	1,430,067		$	1,239,674
Income recognized on finance receivables, net	(177,970		)	(154,792		)
Additions	106,197			182,505
Net reclassifications from nonaccretable difference	91,636			53,764
Foreign currency translation adjustment	1,071			(4,007		)
Balance at end of period	$	1,451,001		$	1,317,144

A valuation allowance is recorded for significant decreases in expected cash flows or a change in the expected timing of cash flows which would otherwise require a reduction in the stated yield on a pool of accounts. In any given period, the Company may be required to record valuation allowances due to pools of receivables underperforming previous expectations. Factors that may contribute to the recording of valuation allowances include both internal as well as external factors. External factors that may have an impact on the collectability, and subsequently on the overall profitability of purchased pools of defaulted consumer receivables would include: new laws or regulations relating to collections, new interpretations of existing laws or regulations, and the overall condition of the economy. Internal factors that may have an impact on the collectability, and subsequently the overall profitability of purchased pools of defaulted consumer receivables, would include: necessary revisions to initial and post-acquisition scoring and modeling estimates, non-optimal operational activities (which relate to the collection and movement of accounts on both the collection floor of the Company and external channels), as well as decreases in productivity related to turnover and tenure of the Company’s collection staff. The following is a summary of activity within the Company’s valuation allowance account, all of which relates to loans acquired with deteriorated credit quality, for the three months ended March 31, 2014 and 2013 (amounts in thousands):

Table of Contents

PORTFOLIO RECOVERY ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)



	Three Months Ended March 31, 2014									Three Months Ended March 31, 2013
	Core Portfolio ⁽¹⁾			Purchased Bankruptcy Portfolio ⁽²⁾			Total			Core Portfolio ⁽¹⁾			Purchased Bankruptcy Portfolio ⁽²⁾			Total
Valuation allowance - finance receivables:
Beginning balance	$	65,626		$	25,475		$	91,101		$	74,500		$	18,623		$	93,123
Allowance charges	1,387			—			1,387			300			4,660			4,960
Reversal of previous recorded allowance charges	(3,090		)	(250		)	(3,340		)	(2,700		)	(87		)	(2,787		)
Net allowance (reversals)/charges	(1,703		)	(250		)	(1,953		)	(2,400		)	4,573			2,173
Ending balance	$	63,923		$	25,225		$	89,148		$	72,100		$	23,196		$	95,296
Finance Receivables, net:	$	722,989		$	530,972		$	1,253,961		$	598,870		$	570,877		$	1,169,747


(1)	“Core” accounts or portfolios refer to accounts or portfolios that are defaulted consumer receivables and are not in a bankrupt status upon purchase. For this table, the Core Portfolio also includes accounts purchased in the United Kingdom. These accounts are aggregated separately from purchased bankruptcy accounts.


(2)	“Purchased bankruptcy” accounts or portfolios refer to accounts or portfolios that are in bankruptcy status when purchased, and as such, are purchased as a pool of bankrupt accounts.


3.	Borrowings:

The Company's borrowings consisted of the following as of the dates indicated (in thousands):



	March 31, 2014			December 31, 2013
Line of credit, term loan	$	192,500		$	195,000
Convertible notes	287,500			287,500
Less: Debt discount	(29,722		)	(30,720		)
Total	$	450,278		$	451,780

Revolving Credit and Term Loan Facility

On December 19, 2012, the Company entered into a credit agreement with Bank of America, N.A., as administrative agent, and a syndicate of lenders named therein (the “Credit Agreement”). The Credit Agreement was amended and modified during 2013 and the first quarter of 2014. Under the terms of the Credit Agreement as amended and modified, the credit facility includes an aggregate principal amount available of $628.0 million (subject to the borrowing base and applicable debt covenants), which consists of a $192.5 million floating rate term loan that amortizes and matures on December 19, 2017 and a $435.5 million revolving credit facility that matures on December 19, 2017. The term and revolving loans accrue interest, at the option of the Company, at either the base rate or the Eurodollar rate (as defined in the Credit Agreement) for the applicable term plus 2.50% per annum in the case of the Eurodollar rate loans and 1.50% in the case of the base rate loans. The base rate is the highest of (a) the Federal Funds Rate (as defined in the Credit Agreement) plus 0.50% , (b) Bank of America’s prime rate, and (c) the Eurodollar rate plus 1.00% . The Company’s revolving credit facility includes a $20 million swingline loan sublimit, a $20 million letter of credit sublimit and a $20 million alternative currency equivalent sublimit. The credit facility contains an accordion loan feature that allows the Company to request an increase of up to $214.5 million in the amount available for borrowing under the facility, whether from existing or new lenders, subject to terms of the Credit Agreement.

On April 1, 2014, the Company entered into a Lender Joinder Agreement and Lender Commitment Agreement (collectively, the “Commitment Increase Agreements”) to exercise this accordion feature. The Commitment Increase Agreements expanded the maximum amount of revolving credit availability under the Credit Agreement by $214.5 million , elevated the revolving credit commitments of certain lenders and added three new lenders to the Credit Agreement. Giving effect to the $214.5 million increase in the amount of revolving credit availability pursuant to the Commitment Increase Agreements, the total credit facility under the Credit Agreement now includes an aggregate principal amount of $842.5 million (subject to compliance with a borrowing base), which consists of (i) a fully-funded $192.5 million term loan, (ii) a $630 million domestic revolving credit facility, of which $630 million is available to be drawn, and (iii) a $20 million multi-currency revolving credit facility, of which $20 million is available

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PORTFOLIO RECOVERY ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

to be drawn, all of which mature on December 19, 2017. The Credit Agreement is secured by a first priority lien on substantially all of the Company’s assets. The Credit Agreement, as amended and modified, contains restrictive covenants and events of default including the following:


•	borrowings may not exceed 33% of the ERC of all its eligible asset pools plus 75% of its eligible accounts receivable;


•	the consolidated leverage ratio (as defined in the Credit Agreement) cannot exceed 2.0 to 1.0 as of the end of any fiscal quarter;


•	consolidated tangible net worth (as defined in the Credit Agreement) must equal or exceed $455,091,200 plus 50% of positive cumulative consolidated net income for each fiscal quarter beginning with the quarter ended December 31, 2012, plus 50% of the cumulative net proceeds of any equity offering;


•	capital expenditures during any fiscal year cannot exceed $40 million ;


•	cash dividends and distributions during any fiscal year cannot exceed $20 million ;


•	stock repurchases during the term of the agreement cannot exceed $250 million and cannot exceed $100 million in a single fiscal year;


•	investments in loans and/or capital contributions cannot exceed $950 million to consummate the acquisition of the equity of Aktiv Kapital AS (“Aktiv”);


•	permitted acquisitions (as defined in the Credit Agreement) during any fiscal year cannot exceed $250 million except for the fiscal year ending December 31, 2014, during which fiscal year permitted acquisitions cannot exceed $25 million ;


•	indebtedness in the form of senior, unsecured convertible notes or other unsecured financings cannot exceed $300 million in the aggregate (without respect to the Company’s 3.00% Convertible Senior Notes due 2020);


•	the Company must maintain positive consolidated income from operations (as defined in the Credit Agreement) during any fiscal quarter; and


•	restrictions on changes in control.

The revolving credit facility also bears an unused line fee of 0.375% per annum, payable quarterly in arrears.

The Company's borrowings on its credit facility at March 31, 2014 consisted of $192.5 million outstanding on the term loan with an annual interest rate as of March 31, 2014 of 2.65% . At December 31, 2013, the Company's borrowings on its credit facility consisted of $195.0 million outstanding on the term loan with an annual interest rate as of December 31, 2013 of 2.67% .

Convertible Senior Notes

On August 13, 2013, the Company completed the private offering of $287.5 million in aggregate principal amount of the Company’s 3.00% Convertible Senior Notes due 2020 (the “Notes”). The Notes were issued pursuant to an Indenture, dated August 13, 2013 (the "Indenture") between the Company and Wells Fargo Bank, National Association, as trustee. The Indenture contains customary terms and covenants, including certain events of default after which the Notes may be due and payable immediately. The Notes are senior unsecured obligations of the Company. Interest on the Notes is payable semi-annually, in arrears, on February 1 and August 1 of each year, beginning on February 1, 2014. Prior to February 1, 2020, the Notes will be convertible only upon the occurrence of specified events. On or after February 1, 2020, the Notes will be convertible at any time. Upon conversion, the Notes may be settled, at the Company’s option, in cash, shares of the Company’s common stock, or any combination thereof. Holders of the Notes have the right to require the Company to repurchase all or some of their Notes at 100% of their principal amount, plus any accrued and unpaid interest, upon the occurrence of a fundamental change (as defined in the Indenture). In addition, upon the occurrence of a make-whole fundamental change (as defined in the Indenture), the Company may, under certain circumstances, be required to increase the conversion rate for the Notes converted in connection with such a make-whole fundamental change. The conversion rate for the Notes is initially 15.2172 shares per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $65.72 per share of the Company’s common stock, and is subject to adjustment in certain circumstances pursuant to the Indenture. The Company does not have the right to redeem the Notes prior to maturity. As of March 31, 2014, none of the conditions allowing holders of the Notes to convert their Notes had occurred.

As noted above, upon conversion, holders of the Notes will receive cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election. However, the Company’s current intent is to settle conversions through combination settlement (i.e ., the Notes will be converted into cash up to the aggregate principal amount, and shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election, for the remainder). As a result and in accordance with authoritative guidance related to derivatives and hedging and earnings per share, only the conversion spread is included in the diluted earnings per share calculation, if dilutive. Under such method, the settlement of the conversion spread has a dilutive effect when the average share price of the Company’s common stock during any quarter exceeds $65.72 .

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PORTFOLIO RECOVERY ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The net proceeds from the sale of the Notes were approximately $279.3 million , after deducting the initial purchasers’ discounts and commissions and the estimated offering expenses payable by the Company. The Company used $174.0 million of the net proceeds from this offering to repay the outstanding balance on its revolving credit facility and used $50.0 million to repurchase shares of its common stock.

The Company determined that the fair value of the Notes at the date of issuance was approximately $255.3 million , and designated the residual value of approximately $32.2 million as the equity component. Additionally, the Company allocated approximately $7.3 million of the $8.2 million original Notes issuance cost as debt issuance cost and the remaining $0.9 million as equity issuance cost.

ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”), requires that, for convertible debt instruments that may be settled fully or partially in cash upon conversion, issuers must separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. Additionally, debt issuance costs are required to be allocated in proportion to the allocation of the liability and equity components and accounted for as debt issuance costs and equity issuance costs, respectively.

The balances of the liability and equity components of all of the Notes outstanding were as follows as of the dates indicated (in thousands):



	March 31, 2014			December 31, 2013
Liability component - principal amount	$	287,500		$	287,500
Unamortized debt discount	(29,722		)	(30,720		)
Liability component - net carrying amount	257,778			256,780
Equity component	$	31,306		$	31,306

The debt discount is being amortized into interest expense over the remaining life of the Notes using the effective interest rate, which is 4.92% .

Interest expense related to the Notes was as follows for the periods indicated (in thousands):



	Three Months Ended March 31, 2014		Three Months Ended March 31, 2013
Interest expense - stated coupon rate	$	2,156	$	—
Interest expense - amortization of debt discount	998		—
Total interest expense - convertible notes	$	3,154	$	—

The Company was in compliance with all covenants under its financing arrangements as of March 31, 2014 and December 31, 2013.

The following principal payments are due on the Company's borrowings as of March 31, 2014 for the twelve month periods ending (amounts in thousands):



March 31, 2015	$	11,250
March 31, 2016	16,250
March 31, 2017	25,000
March 31, 2018	140,000
March 31, 2019	—
Thereafter	287,500
Total	$	480,000

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PORTFOLIO RECOVERY ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


4.	Property and Equipment, net:

Property and equipment, at cost, consisted of the following as of the dates indicated (amounts in thousands):



	March 31, 2014			December 31, 2013
Software	$	35,673		$	34,108
Computer equipment	19,039			17,072
Furniture and fixtures	9,007			8,616
Equipment	11,545			10,351
Leasehold improvements	11,974			11,147
Building and improvements	7,054			7,026
Land	1,269			1,269
Accumulated depreciation and amortization	(60,431		)	(58,048		)
Property and equipment, net	$	35,130		$	31,541

Depreciation and amortization expense relating to property and equipment for the three months ended March 31, 2014 and 2013, was $2.8 million and $2.2 million , respectively.

The Company, in accordance with the guidance of FASB ASC Topic 350-40 “Internal-Use Software” (“ASC 350-40”), capitalizes qualifying computer software costs incurred during the application development stage and amortizes them over their estimated useful life of three to seven years on a straight-line basis beginning when the project is completed. Costs associated with preliminary project stage activities, training, maintenance and all other post implementation stage activities are expensed as incurred. The Company’s policy provides for the capitalization of certain direct payroll costs for employees who are directly associated with internal use computer software projects, as well as external direct costs of services associated with developing or obtaining internal use software. Capitalizable personnel costs are limited to the time directly spent on such projects. As of March 31, 2014 and December 31, 2013, the Company incurred and capitalized approximately $10.8 million and $10.3 million , respectively, of these direct payroll costs and external direct costs related to software developed for internal use. Of these costs, at March 31, 2014 and December 31, 2013, approximately $1.5 million and $1.7 million , respectively, was for projects that were in the development stage and, therefore are a component of “Other Assets.” Once the projects are completed, the costs are transferred to Software and amortized over their estimated useful life. Amortization expense for the three months ended March 31, 2014 and 2013, was approximately $0.4 million and $0.3 million , respectively. The remaining unamortized costs relating to internally developed software at March 31, 2014 and December 31, 2013 were approximately $4.7 million and $4.4 million , respectively.


5.	Goodwill and Intangible Assets, net:

In connection with the Company’s previous business acquisitions, the Company acquired certain tangible and intangible assets. Intangible assets purchased included client and customer relationships, non-compete agreements, trademarks and goodwill. Pursuant to ASC 350, goodwill is not amortized but rather is reviewed at least annually for impairment. During the fourth quarter of 2013, the Company underwent its annual review of goodwill. Based upon the results of this review, which was conducted as of October 1, 2013, no impairment charges to goodwill or the other intangible assets were necessary as of the date of this review. The Company believes that nothing has occurred since the review was performed through March 31, 2014 that would indicate a triggering event and thereby necessitate further evaluation of goodwill or other intangible assets. The Company expects to perform its next annual goodwill review during the fourth quarter of 2014.

At March 31, 2014 and December 31, 2013, the carrying value of goodwill was $104.1 million and $103.8 million , respectively. The following table represents the changes in goodwill for the three months ended March 31, 2014 and 2013 (amounts in thousands):



	Three Months Ended March 31,
	2014		2013
Balance at beginning of period	$	103,843	$	109,488
Foreign currency translation adjustment	243		(2,576		)
Balance at end of period	$	104,086	$	106,912

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PORTFOLIO RECOVERY ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Intangible assets, excluding goodwill, consist of the following at March 31, 2014 and December 31, 2013 (amounts in thousands):



	March 31, 2014				December 31, 2013
	Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization
Client and customer relationships	$	40,949	$	27,550	$	40,870	$	26,581
Non-compete agreements	3,896		3,764		3,880		3,723
Trademarks	3,501		2,318		3,491		2,170
Total	$	48,346	$	33,632	$	48,241	$	32,474

Total intangible asset amortization expense for the three months ended March 31, 2014 and 2013 was $1.1 million and $1.2 million , respectively. The Company reviews these intangible assets for possible impairment upon the occurrence of a triggering event.


6.	Share-Based Compensation:

The Company has an Omnibus Incentive Plan to assist the Company in attracting and retaining selected individuals to serve as employees and directors, who are expected to contribute to the Company's success and to achieve long-term objectives that will benefit stockholders of the Company. The 2013 Omnibus Incentive Plan (the “Plan”) was approved by the Company's stockholders at the 2013 Annual Meeting. The Plan enables the Company to award shares of the Company's common stock to select employees and directors, as described in the Plan, not to exceed 5,400,000 shares as authorized by the Plan. The Plan replaced the 2010 Stock Plan.

As of March 31, 2014, total future compensation costs related to nonvested awards of nonvested shares (not including nonvested shares granted under the Long-Term Incentive ("LTI") Program) is estimated to be $6.2 million with a weighted average remaining life for all nonvested shares of 1.9 years (not including nonvested shares granted under the LTI program). As of March 31, 2014, there are no future compensation costs related to stock options and there are no remaining vested stock options to be exercised.

Total share-based compensation expense was $2.8 million and $3.0 million for the three months ended March 31, 2014 and 2013, respectively. Tax benefits resulting from tax deductions in excess of share-based compensation expense (windfall tax benefits) recognized under the provisions of ASC Topic 718 "Compensation-Stock Compensation" ("ASC 718") are credited to additional paid-in capital in the Company's Consolidated Balance Sheets. Realized tax shortfalls, if any, are first offset against the cumulative balance of windfall tax benefits, if any, and then charged directly to income tax expense. The total tax benefit realized from share-based compensation was approximately $7.5 million and $4.0 million for the three months ended March 31, 2014 and 2013, respectively.

All share amounts presented in this Note 6 have been adjusted to reflect the three-for-one stock split by means of a stock dividend declared by the Company's board of directors on June 10, 2013.

Nonvested Shares

With the exception of the awards made pursuant to the LTI program and a few employee and director grants, the nonvested shares vest ratably over three to five years and are expensed over their vesting period.

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PORTFOLIO RECOVERY ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following summarizes all nonvested share transactions, excluding those related to the LTI program, from December 31, 2012 through March 31, 2014 (share amounts in thousands):



	Nonvested Shares Outstanding		Weighted-Average Price at Grant Date
December 31, 2012	288		$	20.84
Granted	110		37.31
Vested	(143	)	19.75
Cancelled	(29	)	20.57
December 31, 2013	226		29.58
Granted	66		48.22
Vested	(93	)	25.85
Cancelled	(2	)	21.90
March 31, 2014	197		$	37.66

The total grant date fair value of shares vested during the three months ended March 31, 2014 and 2013, was $2.4 million and $2.1 million , respectively.

Pursuant to the Plan, the Compensation Committee may grant time-vested and performance based nonvested shares. All shares granted under the LTI program were granted to key employees of the Company. The following summarizes all LTI program share transactions from December 31, 2012 through March 31, 2014 (share amounts in thousands):



	Nonvested LTI Shares Outstanding		Weighted-Average Price at Grant Date
December 31, 2012	497		$	21.71
Granted at target level	124		34.59
Adjustments for actual performance	108		17.91
Vested	(279	)	19.10
Cancelled	(16	)	25.01
December 31, 2013	434		25.79
Granted at target level	97		48.09
Adjustments for actual performance	95		25.17
Vested	(225	)	25.17
March 31, 2014	401		$	31.39

The total grant date fair value of shares vested during the three months ended March 31, 2014 and 2013, was $5.7 million and $2.6 million , respectively.

At March 31, 2014, total future compensation costs, assuming the current estimated performance levels are achieved, related to nonvested share awards granted under the LTI program are estimated to be approximately $9.6 million . The Company assumed a 7.5% forfeiture rate for these grants and the remaining shares have a weighted average life of 1.4 years at March 31, 2014.


7.	Income Taxes:

The Company follows the guidance of FASB ASC Topic 740 “Income Taxes” (“ASC 740”) as it relates to the provision for income taxes and uncertainty in income taxes. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. There were no unrecognized tax benefits at March 31, 2014 and 2013.

The Internal Revenue Service (IRS) examined the Company's tax returns for the 2005 calendar year. The IRS concluded the audit and on March 19, 2009 issued Form 4549-A, Income Tax Examination Changes, for tax years ended December 31, 2007, 2006 and 2005. The IRS has asserted that tax revenue recognition using the cost recovery method does not clearly reflect taxable income, and that unused line fees paid on credit facilities should be capitalized and amortized rather than taken as a current deduction. The Company believes it has sufficient support for the technical merits of its positions and that it is more likely than not these positions will ultimately be sustained; therefore, a reserve for uncertain tax positions is not required. The Company believes cost recovery to be an acceptable tax revenue recognition method for companies in the bad debt purchasing industry. For

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PORTFOLIO RECOVERY ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

tax purposes, collections on finance receivables are applied first to principal to reduce the finance receivables to zero before any taxable income is recognized. On April 22, 2009, the Company filed a formal protest of the findings contained in the examination report prepared by the IRS. On August 26, 2011, the IRS issued a Notice of Deficiency for the tax years ended December 31, 2007, 2006, and 2005. The Company subsequently filed a petition in the United States Tax Court to which the IRS responded on January 12, 2012. If the Company is unsuccessful in the United States Tax Court, it can appeal to the federal Circuit Court of Appeals. Payment of the assessed taxes and interest could have an adverse effect on the Company’s financial condition, be material to the Company’s results of operations, and possibly require additional financing from other sources. In accordance with the Internal Revenue Code, underpayments of federal tax accrue interest, compounded daily, at the applicable federal short term rate plus three percentage points. An additional two percentage points applies to large corporate underpayments of $100,000 or more to periods after the applicable date as defined in the Internal Revenue Code. The Company files taxes in multiple state jurisdictions; therefore, any underpayment of state tax will accrue interest in accordance with the respective state statute. On June 30, 2011, the Company was notified by the IRS that the audit period will be expanded to include the tax years ended December 31, 2009 and 2008.

At March 31, 2014, the tax years subject to examination by the major taxing jurisdictions, including the IRS, are 2003, 2005 and subsequent years. The 2003 tax year remains open to examination because of a net operating loss that originated in that year but was not fully utilized until the 2005 tax year. The examination periods for the 2007, 2006 and 2005 tax years were extended through December 31, 2011; however, because the IRS issued the Notice of Deficiency prior to December 31, 2011, the period for assessment is suspended until a decision of the Tax Court becomes final. The statute of limitations for the 2010, 2009 and 2008 tax years has been extended to September 26, 2014.

ASC 740 requires the recognition of interest if the tax law would require interest to be paid on the underpayment of taxes, and recognition of penalties if a tax position does not meet the minimum statutory threshold to avoid payment of penalties. No interest or penalties were accrued or reversed in the three months ended March 31, 2014 or 2013.


8.	Earnings per Share:

Basic earnings per share (“EPS”) are computed by dividing net income available to common stockholders of Portfolio Recovery Associates, Inc. by weighted average common shares outstanding. Diluted EPS are computed using the same components as basic EPS with the denominator adjusted for the dilutive effect of the Notes and nonvested share awards, if dilutive. For the Notes, only the conversion spread is included in the diluted earnings per share calculation, if dilutive. Under such method, the settlement of the conversion spread has a dilutive effect when the average share price of the Company’s common stock during any quarter exceeds $65.72 , which did not occur during the period from which the Notes were issued on August 13, 2013 through March 31, 2014. The Notes were not outstanding during the three months ending March 31, 2013. Share-based awards that are contingent upon the attainment of performance goals are not included in the computation of diluted EPS until the performance goals have been attained. The dilutive effect of nonvested shares is computed using the treasury stock method, which assumes any proceeds that could be obtained upon the vesting of nonvested shares would be used to purchase common shares at the average market price for the period. The assumed proceeds include the windfall tax benefit that would be received upon assumed exercise.

The following tables provide reconciliation between the computation of basic EPS and diluted EPS for the three months ended March 31, 2014 and 2013 (amounts in thousands, except per share amounts):



	For the Three Months Ended March 31,
	2014					2013
	Net Income attributable to Portfolio Recovery Associates, Inc.		Weighted Average Common Shares	EPS		Net Income attributable to Portfolio Recovery Associates, Inc.		Weighted Average Common Shares	EPS
Basic EPS	$	40,840	49,929	$	0.82	$	38,600	50,811	$	0.76
Dilutive effect of nonvested share awards			434					462
Diluted EPS	$	40,840	50,363	$	0.81	$	38,600	51,273	$	0.75

All prior year share amounts presented in this Note 8 have been adjusted to reflect the three-for-one stock split by means of a stock dividend declared by the Company's board of directors on June 10, 2013.

There were no antidilutive options outstanding for the three months ended March 31, 2014 and 2013.

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PORTFOLIO RECOVERY ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


9.	Commitments and Contingencies:

Business Acquisitions:

Aktiv Kapital, A.S.

On February 19, 2014, the Company entered into an agreement to acquire the equity of Aktiv for approximately $880 million and assume approximately $435 million of Aktiv’s debt, resulting in an acquisition of estimated total enterprise value of $1.3 billion . The transaction is expected to close in the second or third quarter of 2014, upon successful completion of customary closing conditions, including approval of the transaction by applicable competition authorities and our ability to obtain the necessary financing to consummate the transaction.

The Company expects to finance this transaction with a combination of cash, $170 million of seller financing (which will bear interest at a variable rate equal to LIBOR plus 3.75% per annum and will mature 12 months after the date of issuance), and up to $650 million from its domestic revolving credit facility (subject to borrowing base restrictions). The Company may choose to use other debt instruments to expand, replace or pay down any of these financing options. The Company anticipates total transaction costs of approximately $15 million of which $4.4 million was incurred during the first quarter of 2014.

Pamplona Capital Management, LLP

On January 31, 2014, the Company entered into an agreement to acquire certain operating assets from Pamplona Capital Management, LLP ("PCM"). These assets include PCM’s IVA Master Servicing Platform as well as other operating assets associated with PCM’s IVA business. The purchase price of these assets is approximately $5 million and will be paid from the Company’s existing cash balances. The transaction is expected to close on July 1, 2014.

Employment Agreements:

The Company has employment agreements, most of which expire on December 31, 2014 , with all of its executive officers and with several members of its senior management group. Such agreements provide for base salary payments as well as bonuses which are based on the attainment of specific management goals. At March 31, 2014, the estimated future compensation under these agreements is approximately $7.5 million . The agreements also contain confidentiality and non-compete provisions.

Leases:

The Company is party to various operating leases with respect to its facilities and equipment. The future minimum lease payments at March 31, 2014 total approximately $29.7 million .

Forward Flow Agreements:

The Company is party to several forward flow agreements that allow for the purchase of defaulted consumer receivables at pre-established prices. The maximum remaining amount to be purchased under forward flow agreements at March 31, 2014 is approximately $198.9 million .

Contingent Purchase Price:

The asset purchase agreement entered into in connection with the acquisition of certain finance receivables and certain operating assets of National Capital Management, LLC ("NCM") in 2012, includes an earn-out provision whereby the sellers are able to earn additional cash consideration for achieving certain cash collection thresholds over a five year period. The maximum amount of earn-out during the period is $15.0 million . The Company paid the year one earn-out during December 2013 in the amount of $6.2 million . As of March 31, 2014, the Company has recorded a present value amount for the expected remaining liability of $4.0 million .

Finance Receivables:

Certain agreements for the purchase of finance receivables portfolios contain provisions that may, in limited circumstances, require the Company to refund a portion or all of the collections subsequently received by the Company on particular accounts. The potential refunds as of the balance sheet date are not considered to be significant.

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PORTFOLIO RECOVERY ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Litigation:

The Company is from time to time subject to routine legal claims and proceedings, most of which are incidental to the ordinary course of its business. The Company initiates lawsuits against customers and is occasionally countersued by them in such actions. Also, customers, either individually, as members of a class action, or through a governmental entity on behalf of customers, may initiate litigation against the Company in which they allege that the Company has violated a state or federal law in the process of collecting on an account. From time to time, other types of lawsuits are brought against the Company. Additionally, the Company receives subpoenas and other requests or demands for information from regulators or governmental authorities who are investigating the Company's debt collection activities. The Company makes every effort to respond appropriately to such requests.

The Company accrues for potential liability arising from legal proceedings when it is probable that such liability has been incurred and the amount of the loss can be reasonably estimated. This determination is based upon currently available information for those proceedings in which the Company is involved, taking into account the Company's best estimate of such losses for those cases for which such estimates can be made. The Company's estimate involves significant judgment, given the varying stages of the proceedings (including the fact that many of them are currently in preliminary stages), the number of unresolved issues in many of the proceedings (including issues regarding class certification and the scope of many of the claims), and the related uncertainty of the potential outcomes of these proceedings. In making determinations of the likely outcome of pending litigation, the Company considers many factors, including, but not limited to, the nature of the claims, the Company's experience with similar types of claims, the jurisdiction in which the matter is filed, input from outside legal counsel, the likelihood of resolving the matter through alternative mechanisms, the matter's current status and the damages sought or demands made. Accordingly, the Company's estimate will change from time to time, and actual losses could be more than the current estimate.

Subject to the inherent uncertainties involved in such proceedings, the Company believes, based upon its current knowledge and after consultation with counsel, that the legal proceedings currently pending against it, including those that fall outside of the Company's routine legal proceedings, should not, either individually or in the aggregate, have a material adverse impact on the Company's financial condition. However, it is possible in light of the uncertainties involved in such proceedings or due to unexpected future developments, that an unfavorable resolution of a legal proceeding or claim could occur which may be material to the Company's financial condition, results of operations, or cash flows for a particular period.

Excluding the matters described below and other putative class action suits which the Company believes are not material, the high end of the range of potential litigation losses in excess of the amount accrued is estimated by management to be less than $1,000,000 as of March 31, 2014. Notwithstanding our attempt to estimate a range of possible losses in excess of the amount accrued based on current information, actual future losses may exceed both the Company's accrual and the range of potential litigation losses disclosed above.

In certain legal proceedings, the Company may have recourse to insurance or third party contractual indemnities to cover all or portions of its litigation expenses, judgments, or settlements. Loss estimates and accruals for potential liability related to legal proceedings are exclusive of potential recoveries, if any, under the Company's insurance policies or third party indemnities. The Company has not recorded any potential recoveries under the Company's insurance policies or third party indemnities.

The matters described below fall outside of the normal parameters of the Company’s routine legal proceedings.

Telephone Consumer Protection Act Litigation

The Company has been named as defendant in a number of putative class action cases, each alleging that the Company violated the Telephone Consumer Protection Act ("TCPA") by calling consumers' cellular telephones without their prior express consent. On December 21, 2011, the United States Judicial Panel on Multi-District Litigation entered an order transferring these matters into one consolidated proceeding in the United States District Court for the Southern District of California. On November 14, 2012, the putative class plaintiffs filed their amended consolidated complaint in the matter, now styled as In re Portfolio Recovery Associates, LLC Telephone Consumer Protection Act Litigation, case No. 11-md-02295 (the “MDL action”). The Company has filed a motion to stay this litigation until such time as the FCC has ruled on various petitions concerning the TCPA.

Internal Revenue Service Audit

The IRS examined the Company's tax returns for the 2005 calendar year. The IRS concluded the audit and on March 19, 2009 issued Form 4549-A, Income Tax Examination Changes, for tax years ended December 31, 2007, 2006 and 2005. The IRS

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PORTFOLIO RECOVERY ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

has asserted that tax revenue recognition using the cost recovery method does not clearly reflect taxable income, and that unused line fees paid on credit facilities should be capitalized and amortized rather than taken as a current deduction. The Company believes it has sufficient support for the technical merits of its positions and that it is more likely than not these positions will ultimately be sustained; therefore, a reserve for uncertain tax positions is not required. On April 22, 2009, the Company filed a formal protest of the findings contained in the examination report prepared by the IRS. On August 26, 2011, the IRS issued a Notice of Deficiency for the tax years ended December 31, 2007, 2006, and 2005. The Company subsequently filed a petition in the United States Tax Court to which the IRS responded on January 12, 2012. If the Company is unsuccessful in the United States Tax Court, it can appeal to the federal Circuit Court of Appeals. Refer to Note 7 “Income Taxes” for additional information.


10.	Fair Value Measurements and Disclosures:

In accordance with the disclosure requirements of FASB ASC Topic 825, “Financial Instruments” (“ASC 825”), the table below summarizes fair value estimates for the Company’s financial instruments. The total of the fair value calculations presented does not represent, and should not be construed to represent, the underlying value of the Company. The carrying amounts in the table are recorded in the consolidated balance sheet at March 31, 2014 and December 31, 2013, under the indicated captions (amounts in thousands):



	March 31, 2014				December 31, 2013
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	191,819	$	191,819	$	162,004	$	162,004
Finance receivables, net	1,253,961		1,702,786		1,239,191		1,722,100
Financial liabilities:
Long-term debt	192,500		192,500		195,000		195,000
Convertible debt	257,778		339,170		256,780		316,857

As of March 31, 2014, and December 31, 2013, the Company did not account for any financial assets or financial liabilities at fair value. As defined by FASB ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also requires the consideration of differing levels of inputs in the determination of fair values. Those levels of input are summarized as follows:

• Level 1 - Quoted prices in active markets for identical assets and liabilities.


•	Level 2 - Observable inputs other than level 1 quoted prices, such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.


•	Level 3 - Unobservable inputs that are supported by little or no market activity. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The level in the fair value hierarchy within which a fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

Disclosure of the estimated fair values of financial instruments often requires the use of estimates. The Company uses the following methods and assumptions to estimate the fair value of financial instruments:

Cash and cash equivalents: The carrying amount approximates fair value and quoted prices for identical assets can be found in active markets. Accordingly, the Company estimates the fair value of cash and cash equivalents using level 1 inputs.

Finance receivables, net: The Company records purchased receivables at cost, which represents a significant discount from the contractual receivable balances due. The Company computed the estimated fair value of these receivables using proprietary pricing models that the Company utilizes to make portfolio purchase decisions. Accordingly, the Company's fair value estimates use level 3 inputs as there is little observable market data available and management is required to use significant judgment in its estimates.

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PORTFOLIO RECOVERY ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Revolving credit: The carrying amount approximates fair value due to the short-term nature of the interest rate periods and the observable quoted prices for similar instruments in active markets. Accordingly, the Company uses level 2 inputs for its fair value estimates.

Long-term debt: The carrying amount approximates fair value due to the short-term nature of the interest rate periods and the observable quoted prices for similar instruments in active markets. Accordingly, the Company uses level 2 inputs for its fair value estimates.

Convertible debt: The Notes are carried at historical cost, adjusted for debt discount. The fair value estimate for these Notes incorporates quoted market prices which were obtained from secondary market broker quotes which were derived from a variety of inputs including client orders, information from their pricing vendors, modeling software, and actual trading prices when they occur. Accordingly, the Company uses level 2 inputs for its fair value estimates.


11.	Recent Accounting Pronouncements:

In March 2013, the FASB issued ASU 2013-05, "Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity," which defines the treatment of the release of cumulative translation adjustments upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted and prior periods should not be adjusted. The Company adopted ASU 2013-05 in the first quarter of 2014 which had no material impact on its consolidated financial statements.

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statements Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995:

This report contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements involve risks, uncertainties and assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements, other than statements of historical fact, are forward-looking statements, including statements regarding overall trends, gross margin trends, operating cost trends, liquidity and capital needs and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends, and similar expressions concerning matters that are not historical facts. The risks, uncertainties and assumptions referred to above may include the following:


•	a prolonged economic recovery or a deterioration in the economic or inflationary environment in the United States or the European Union, particularly the United Kingdom, including the interest rate environment, may have an adverse effect on our collections, results of operations, revenue and stock price or on the stability of the financial system as a whole;


•	changes in the credit or capital markets, which affect our ability to borrow money or raise capital;


•	our ability to successfully close the Aktiv acquisition and subsequently integrate the Aktiv business;


•	our ability to manage risks associated with our international operations, which risks will increase as a result of the Aktiv Acquisition;


•	our ability to recognize the anticipated synergies and benefits of the Aktiv acquisition;


•	our ability to purchase defaulted consumer receivables at appropriate prices;


•	our ability to replace our defaulted consumer receivables with additional receivables portfolios;


•	our ability to obtain accurate and authentic account documents relating to accounts that we acquire and the possibility that documents that we provide could contain errors;


•	our ability to successfully acquire receivables of new asset types;


•	our ability to collect sufficient amounts on our defaulted consumer receivables;


•	changes in tax laws regarding earnings of our subsidiaries located outside of the United States;


•	changes in bankruptcy or collection laws that could negatively affect our business, including by causing an increase in certain types of bankruptcy filings involving liquidations, which may cause our collections to decrease;


•	changes in state or federal laws or the administrative practices of various bankruptcy courts, which may impact our ability to collect on our defaulted receivables;


•	our ability to collect and enforce our finance receivables may be limited under federal and state laws;


•	our ability to employ and retain qualified employees, especially collection personnel, and our senior management team;


•	our work force could become unionized in the future, which could adversely affect the stability of our production and increase our costs;


•	the degree, nature, and resources of our competition;


•	the possibility that we could incur goodwill or other intangible asset impairment charges;


•	our ability to retain existing clients and obtain new clients for our fee-for-service businesses;


•	our ability to comply with existing and new regulations of the collection industry, the failure of which could result in penalties, fines, litigation, damage to our reputation or the suspension or termination of our ability to conduct our business;


•	changes in governmental laws and regulations which could increase our costs and liabilities or impact our operations;


•	the possibility that new business acquisitions prove unsuccessful or strain or divert our resources;


•	our ability to maintain, renegotiate or replace our credit facility;


•	our ability to satisfy the restrictive covenants in our debt agreements;


•	our ability to manage risks associated with our international operations;


•	the possibility that compliance with foreign and U.S. laws and regulations that apply to our international operations could increase our cost of doing business in international jurisdictions;


•	the imposition of additional taxes on us;


•	changes in interest or exchange rates, which could reduce our net income, and the possibility that future hedging strategies may not be successful, which could adversely affect our results of operations and financial condition, as could our failure to comply with hedge accounting principles and interpretations;


•	the possibility that we could incur significant allowance charges on our finance receivables;


•	our loss contingency accruals may not be adequate to cover actual losses;


•	our ability to manage growth successfully;


•	the possibility that we could incur business or technology disruptions or cyber incidents, or not adapt to technological advances;


•	the possibility that we or our industry could experience negative publicity or reputational attacks; and


•	the risk factors listed from time to time in our filings with the Securities and Exchange Commission (the “SEC”).

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You should assume that the information appearing in this quarterly report is accurate only as of the date it was issued. Our business, financial condition, results of operations and prospects may have changed since that date.

For a discussion of the risks, uncertainties and assumptions that could affect our future events, developments or results, you should carefully review the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as the discussion of “Business” and “Risk Factors” described in our 2013 Annual Report on Form 10-K, filed on February 28, 2014.

Our forward-looking statements could be wrong in light of these and other risks, uncertainties and assumptions. The future events, developments or results described in this report could turn out to be materially different. Except as required by law, we assume no obligation to publicly update or revise our forward-looking statements after the date of this report and you should not expect us to do so.

Investors should also be aware that while we do, from time to time, communicate with securities analysts and others, we do not, by policy, selectively disclose to them any material nonpublic information or other confidential commercial information. Accordingly, stockholders should not assume that we agree with any statement or report issued by any analyst regardless of the content of the statement or report. We do not, by policy, confirm forecasts or projections issued by others. Thus, to the extent that reports issued by securities analysts contain any projections, forecasts or opinions, such reports are not our responsibility.

Definitions

We use the following terminology throughout this document:


•	“Allowance charges” refers to a reduction in income recognized on finance receivables on pools of finance receivables whose cash collection estimates are not received or projected to not be received.


•	“Amortization rate” refers to cash collections applied to principal on finance receivables as a percentage of total cash collections.


•	“Buybacks” refers to purchase price refunded by the seller due to the return of non-compliant accounts.


•	“Cash collections” refers to collections on our owned portfolios.


•	“Cash receipts” refers to collections on our owned portfolios plus fee income.


•	“Core” accounts or portfolios refer to accounts or portfolios that are defaulted consumer receivables and are not in a bankrupt status upon purchase. These accounts are aggregated separately from purchased bankruptcy accounts. Unless otherwise noted, Core accounts do not include the accounts we purchase in the United Kingdom.


•	“Estimated remaining collections” or "ERC" refers to the sum of all future projected cash collections on our owned portfolios.


•	“Fee income” refers to revenues generated from our fee-for-service businesses.


•	“Income recognized on finance receivables” refers to income derived from our owned debt portfolios.


•	“Income recognized on finance receivables, net” refers to income derived from our owned debt portfolios and is shown net of allowance charges.


•	“Net finance receivable balance” is recorded on our balance sheet and refers to the purchase price less principal amortization and net allowance charges.


•	“Principal amortization” refers to cash collections applied to principal on finance receivables.


•	“Purchase price” refers to the cash paid to a seller to acquire defaulted consumer receivables, plus certain capitalized costs, less buybacks.


•	“Purchase price multiple” refers to the total estimated collections on owned debt portfolios divided by purchase price.


•	“Purchased bankruptcy” accounts or portfolios refer to accounts or portfolios that are in bankruptcy when we purchase them and as such are purchased as a pool of bankrupt accounts.


•	“Total estimated collections” refers to the actual cash collections, including cash sales, plus estimated remaining collections.

Overview

The Company is a financial and business services company. Our primary business is the purchase, collection and management of portfolios of defaulted consumer receivables. We also service receivables on behalf of clients on either a commission or transaction-fee basis and provide class action claims settlement recovery services and related payment processing to corporate clients.

The Company is headquartered in Norfolk, Virginia, and employs approximately 3,621 team members. The Company's shares of common stock are traded on the NASDAQ Global Select Market under the symbol “PRAA.”

On February 19, 2014, we entered into an agreement to acquire the equity of Aktiv Kapital AS (“Aktiv”), a Norway-based company specializing in the acquisition and servicing of non-performing consumer loans throughout Europe and in Canada, for approximately $880 million, we also agreed to assume approximately $435 million of Aktiv's corporate debt, resulting in an acquisition of estimated total enterprise value of $1.3 billion. This acquisition will provide us entry into thirteen new markets,

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providing us additional geographical diversity in portfolio purchasing and collection, and with entry into new growth markets. We expect Aktiv's Chief Executive Officer and his executive team and the more than 400 Aktiv employees to join our workforce upon the closing of the transaction. The transaction is expected to close in the second or third quarter of 2014, upon successful completion of customary closing conditions, including approval of the transaction by applicable financial supervisory or competition authorities and our ability to obtain the necessary financing to consummate the transaction.

We expect to finance this transaction with a combination of cash, $170 million of seller financing (which will bear interest at a variable rate equal to LIBOR plus 3.75% per annum and will mature 12 months after the date of issuance) and $650 million from our domestic revolving credit facility. We may choose to use other debt instruments to expand, replace or pay down any of these financing options. We anticipate total transaction costs of approximately $15 million, which we expect to incur between both the first and second quarters of 2014. During the first quarter of 2014, we incurred approximately $4.4 million of the total estimated transaction costs of $15 million. Our total borrowings are projected to be approximately $1.8 billion after closing the Aktiv acquisition, compared to PRA’s total borrowings of $450 million at March 31, 2014.

A publicly traded company from 1997 until early 2012, Aktiv has developed a mixed in-house and outsourced collection strategy. It maintains in-house servicing platforms in eight markets, and owns portfolios in fifteen markets. Aktiv has more than 20 years of experience and data in a wide variety of consumer asset classes, across an extensive geographic background. Aktiv has acquired more than 2,000 portfolios, with a face value of more than $38 billion. In 2013, Aktiv collected $318 million on its portfolios and purchased $248 million in new portfolios, up from $222 million in 2012. Aktiv’s total assets were approximately $900 million at December 31, 2013.

Earnings Summary

During the first quarter of 2014 , net income attributable to the Company was $40.8 million, or $0.81 per diluted share, compared with $38.6 million, or $0.75 per diluted share, in the first quarter of 2013 . Total revenue was $193.9 million in the first quarter of 2014 , up 14.3% from the first quarter of 2013 . Revenues in the first quarter of 2014 consisted of $178.0 million in income recognized on finance receivables, net of allowance charges, and $16.0 million in fee income. Income recognized on finance receivables, net of allowance charges, in the first quarter of 2014 increased $23.2 million, or 15.0%, over the first quarter of 2013 , primarily as a result of a significant increase in cash collections. Cash collections, which drives our finance receivable income, were $313.4 million in the first quarter of 2014 , up 13.8%, or $37.9 million, as compared to the first quarter of 2013 . During the first quarter of 2014 , we incurred $2.0 million in net allowance charge reversals, compared with $2.2 million of net allowance charges in the first quarter of 2013 . Our performance has been positively impacted by operational efficiencies surrounding the cash collections process, including the continued refinement of account scoring analytics as it relates to both legal and non-legal collection channels. Additionally, we have continued to develop our internal legal collection staff resources, which enables us to place accounts into that channel that otherwise would have been prohibitively expensive for legal action and to collect these accounts more efficiently and profitably.

Fee income increased to $16.0 million in the first quarter of 2014 from $14.8 million in the first quarter of 2013 , primarily due to higher fee income generated by Claims Compensation Bureau, LLC ("CCB") and PRA Government Services, LLC ("PGS"). This was partially offset by lower fee income generated in the first quarter of 2014 by Mackenzie Hall Holdings, Limited, ("PRA UK") and PRA Location Services (“PLS”) when compared to the first quarter of 2013.

A summary of how our income was generated during the three months ended March 31, 2014 and 2013 is as follows:



	For the Three Months Ended March 31,
($ in thousands)	2014			2013
Cash collections	$	313,367		$	275,463
Amortization of finance receivables	(137,350		)	(118,498		)
Net allowance reversals/(charges)	1,953			(2,173		)
Finance receivable income	177,970			154,792
Fee income	15,952			14,767
Total revenue	$	193,922		$	169,559

Operating expenses were $122.3 million in the first quarter of 2014 , up 17.9% over the first quarter of 2013, due primarily to increases in compensation expense, legal collection costs and outside fees and services. Compensation expense increased primarily as a result of larger staff sizes, increases in incentive compensation paid as a result of collector performance and normal pay increases. Compensation and employee services expenses increased as total employees grew 11.4% to 3,621 as of March 31,

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2014 , from 3,250 as of March 31, 2013 . Legal collection costs increased from $20.5 million in the first quarter of 2013 to $26.5 million in the first quarter of 2014 , an increase of $6.0 million, or 29.4%. This increase was the result of our continued expansion of the accounts brought into the legal collection process. Outside fees and services expenses increased $3.4 million, or 46.0%, mainly attributable to the transaction costs incurred in the first quarter of 2014 related to the pending Aktiv acquisition.

During the three months ended March 31, 2014 , we acquired defaulted consumer receivables portfolios with an aggregate face value amount of $1.91 billion at a cost of $152.7 million. During the three months ended March 31, 2013 , we acquired defaulted consumer receivable portfolios with an aggregate face value of $1.85 billion at a cost of $214.9 million. In any period, we acquire defaulted consumer receivables that can vary dramatically in their age, type and ultimate collectability. We may pay significantly different purchase rates for purchased receivables within any period as a result of this quality fluctuation. In addition, market forces can drive pricing rates up or down in any period, irrespective of other quality fluctuations. As a result, the average purchase rate paid for any given period can fluctuate dramatically based on our particular buying activity in that period. However, regardless of the average purchase price and for similar time frames, we intend to target a similar internal rate of return, after direct expenses, in pricing our portfolio acquisitions; therefore, the absolute rate paid is not necessarily relevant to the estimated profitability of a period's buying.

Results of Operations

The results of operations include the financial results of the Company and all of our subsidiaries.

The following table sets forth certain operating data as a percentage of total revenues for the periods indicated:



	For the Three Months Ended March 31,
	2014		2013
Revenues:
Income recognized on finance receivables, net	91.8	%	91.3	%
Fee income	8.2	%	8.7	%
Total revenues	100.0	%	100.0	%
Operating expenses:
Compensation and employee services	26.5	%	26.5	%
Legal collection fees	5.6	%	6.2	%
Legal collection costs	13.7	%	12.1	%
Agent fees	0.7	%	0.9	%
Outside fees and services	5.6	%	4.4	%
Communication expenses	4.7	%	4.8	%
Rent and occupancy	1.1	%	1.0	%
Depreciation and amortization	2.0	%	2.0	%
Other operating expenses	3.1	%	3.2	%
Total operating expenses	63.0	%	61.1	%
Income from operations	37.0	%	38.9	%
Other expense:
Interest expense	2.5	%	1.6	%
Income before income taxes	34.5	%	37.3	%
Provision for income taxes	13.4	%	14.6	%
Net income	21.1	%	22.7	%
Adjustment for loss attributable to redeemable noncontrolling interest	—	%	—	%
Net income attributable to Portfolio Recovery Associates, Inc.	21.1	%	22.6	%

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Three Months Ended March 31, 2014 Compared To Three Months Ended March 31, 2013

Revenues

Total revenues were $193.9 million for the three months ended March 31, 2014 , an increase of $24.3 million, or 14.3%, compared to total revenues of $169.6 million for the three months ended March 31, 2013 .

Income Recognized on Finance Receivables, net

Income recognized on finance receivables, net was $178.0 million for the three months ended March 31, 2014 , an increase of $23.2 million, or 15.0%, compared to income recognized on finance receivables, net of $154.8 million for the three months ended March 31, 2013 . The increase was primarily due to an increase in cash collections on our finance receivables to $313.4 million for the three months ended March 31, 2014 , from $275.5 million for the three months ended March 31, 2013 , an increase of $37.9 million, or 13.8%. Our finance receivables amortization rate, including net allowance charges, was 43.2% for the three months ended March 31, 2014 compared to 43.8% for the three months ended March 31, 2013 .

Accretable yield represents the amount of income recognized on finance receivables the Company can expect to generate over the remaining life of its existing portfolios based on estimated future cash flows as of the balance sheet date. Additions represent the original expected accretable yield, on portfolios purchased during the period, to be earned by the Company based on its proprietary buying models. Net reclassifications from nonaccretable difference to accretable yield primarily result from the Company’s increase in its estimate of future cash flows. Increases in future cash flows may occur as portfolios age and actual cash collections exceed those originally expected. If those cash flows are determined to be incremental to the portfolio’s original forecast, future projections of cash flows are generally increased resulting in higher expected revenue and hence increases in accretable yield. During the three months ended March 31, 2014 and 2013, the Company reclassified amounts from nonaccretable difference to accretable yield due primarily to increased cash collection forecasts relating to pools acquired from 2009-2012. When applicable, net reclassifications to nonaccretable difference from accretable yield result from the Company’s decrease in its estimates of future cash flows and allowance charges that exceed the Company’s increase in its estimate of future cash flows.

Income recognized on finance receivables, net, is shown net of changes in valuation allowances recognized under FASB ASC Topic 310-30 “ Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”), which requires that a valuation allowance be recorded for significant decreases in expected cash flows or a change in timing of cash flows which would otherwise require a reduction in the stated yield on a pool of accounts. For the three months ended March 31, 2014 , we recorded net allowance charge reversals of $2.0 million. On our Core portfolios, we recorded net allowance reversals of $3.1 million on portfolios purchased between 2005 and 2008, offset by net allowance charges of $0.9 million on portfolios purchased in 2010. On our purchased bankruptcy portfolios, we recorded net allowance charge reversals of $0.3 million on portfolios primarily purchased in 2007. We also recorded a net allowance charge of $0.5 million on our UK portfolios purchased in 2012. For the three months ended March 31, 2013 , we recorded net allowance charges of $2.2 million, of which $4.6 million related to purchased bankruptcy portfolios primarily purchased in 2007 and 2008, offset by reversals of $2.4 million related to Core portfolios primarily purchased in 2005 and 2008. In any given period, we may be required to record valuation allowances due to pools of receivables underperforming our previous expectations. Factors that may contribute to the recording of valuation allowances may include both internal as well as external factors. External factors which may have an impact on the collectability, and subsequently to the overall profitability, of purchased pools of defaulted consumer receivables include: new laws or regulations relating to collections, new interpretations of existing laws or regulations, and the overall condition of the economy. Internal factors which may have an impact on the collectability, and subsequently the overall profitability, of purchased pools of defaulted consumer receivables would include: necessary revisions to initial and post-acquisition scoring and modeling estimates, non-optimal operational activities (relating to the collection and movement of accounts on both our collection floor and external channels), and decreases in productivity related to turnover of our collection staff.

Fee Income

Fee income increased to $16.0 million for the three months ended March 31, 2014 , from $14.8 million for the three months ended March 31, 2013 , primarily due to higher fee income generated by CCB and PGS. This was partially offset by lower fee income generated in the first quarter of 2014 by PRA UK and PLS when compared to the prior year period.

Income from Operations

Income from operations was $71.6 million for the three months ended March 31, 2014 , an increase of $5.7 million or 8.7% compared to income from operations of $65.9 million for the three months ended March 31, 2013 . Income from operations was 37.0% of total revenue for the three months ended March 31, 2014 compared to 38.9% for the three months ended March 31, 2013 .

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Operating Expenses

Total operating expenses were $122.3 million for the three months ended March 31, 2014 , an increase of $18.6 million or 17.9% compared to total operating expenses of $103.7 million for the three months ended March 31, 2013 . Total operating expenses were 37.1% of cash receipts for the three months ended March 31, 2014 compared to 35.7% for the three months ended March 31, 2013 .

Compensation and Employee Services

Compensation and employee services expenses were $51.4 million for the three months ended March 31, 2014 , an increase of $6.4 million, or 14.2%, compared to compensation and employee services expenses of $45.0 million for the three months ended March 31, 2013 . Compensation expense increased primarily as a result of larger staff sizes in addition to increases in incentive compensation and normal pay increases. Compensation and employee services expenses increased as total employees grew 11.4% to 3,621 as of March 31, 2014 , from 3,250 as of March 31, 2013 . Compensation and employee services expenses as a percentage of cash receipts increased to 15.6% for the three months ended March 31, 2014 , from 15.5% of cash receipts for the three months ended March 31, 2013 .

Legal Collection Fees

Legal collection fees represent contingent fees incurred for the cash collections generated by our independent third party attorney network. Legal collection fees were $10.8 million for the three months ended March 31, 2014 , an increase of $0.3 million, or 2.9%, compared to legal collection fees of $10.5 million for the three months ended March 31, 2013 . This increase was the result of an increase in cash collections from outside attorneys from $47.9 million in the three months ended March 31, 2013 to $51.0 million for the three months ended March 31, 2014 , an increase of $3.1 million, or 6.5%. Legal collection fees for the three months ended March 31, 2014 were 3.3% of cash receipts, compared to 3.6% for the three months ended March 31, 2013 .

Legal Collection Costs

Legal collection costs consist of costs paid to courts where a lawsuit is filed and the cost of documents received from sellers of defaulted consumer receivables. Legal collection costs were $26.5 million for the three months ended March 31, 2014 , an increase of $6.0 million, or 29.3%, compared to legal collection costs of $20.5 million for the three months ended March 31, 2013 . Since the beginning of 2012, as a result of the refinement of our internal scoring methodology that expanded our account selections for legal action, we expanded the accounts brought into the legal collection process which resulted in significant initial expenses, which we expect to drive additional future cash collections and revenue. Legal collection costs for the three months ended March 31, 2014 were 8.1% of cash receipts, compared to 7.1% for the three months ended March 31, 2013 .

Agent Fees

Agent fees primarily represent costs paid to repossession agents to repossess vehicles. Agent fees were $1.5 million and $1.6 million for the three months ended March 31, 2014 and 2013 , respectively.

Outside Fees and Services

Outside fees and services expenses were $10.8 million for the three months ended March 31, 2014 , an increase of $3.4 million, or 46.0%, compared to outside fees and services expenses of $7.4 million for the three months ended March 31, 2013 . The increase of $3.3 million was mainly attributable to the transaction costs incurred in the first quarter of 2014 related to the pending Aktiv acquisition.

Communication Expenses

Communication expenses were $9.2 million for the three months ended March 31, 2014 , an increase of $1.1 million, or 13.6%, compared to communications expenses of $8.1 million for the three months ended March 31, 2013 . The increase was primarily due to additional postage expense resulting from an increase in special collection letter campaigns as well as a larger customer base. The remaining increase was attributable to higher telephone expenses. Expenses related to customer mailings were responsible for 52.2%, or $0.6 million, of this increase, and the remaining 47.8%, or $0.5 million, was attributable to increases in telephone related charges.

Rent and Occupancy

Rent and occupancy expenses were $2.1 million for the three months ended March 31, 2014 , an increase of $0.4 million, or 23.5%, compared to rent and occupancy expenses of $1.7 million for the three months ended March 31, 2013 . The increase

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was primarily due to the additional space leased at our Norfolk headquarters during the second half of 2013 and the additional space leased as a result of the opening of our North Richland Hills, Texas, call center in December of 2013.

Depreciation and Amortization

Depreciation and amortization expenses were $3.9 million for the three months ended March 31, 2014 , an increase of $0.5 million, or 14.7%, compared to depreciation and amortization expenses of $3.4 million for the three months ended March 31, 2013 . The increase was primarily due to a large investment in capital expenditures resulting from the additional space leased at our Norfolk headquarters during the second half of 2013 and the additional space leased as a result of the opening of our North Richland Hills, Texas, call center in December of 2013.

Other Operating Expenses

Other operating expenses were $6.1 million for the three months ended March 31, 2014 , an increase of $0.6 million, or 10.9%, compared to other operating expenses of $5.5 million for the three months ended March 31, 2013 . Of the $0.6 million increase, $0.4 million was due to an increase in repairs and maintenance expenses, $0.3 million was due to an increase in insurance costs and $0.3 million was due to an increase in general office expenses. This was partially offset by a $0.9 million reversal of accrued estimated contingent payments related to a previous acquisition. None of the remaining $0.5 million increase was attributable to any significant identifiable items.

Interest Expense

Interest expense was $4.9 million and $2.7 million for the three months ended March 31, 2014 and 2013 , respectively. The increase was primarily due to the completion on August 13, 2013, through a private offering of $287.5 million in aggregate principal amount of the Company’s 3.00% Convertible Senior Notes due 2020, offset by a decrease in average borrowings under our variable rate credit facility for the three months ended March 31, 2014 compared to the same prior year period. The average borrowings on our variable rate credit facility were $195.0 million and $359.6 million for the three months ended March 31, 2014 and 2013 , respectively.

Provision for Income Taxes

Provision for income taxes was $25.9 million for the three months ended March 31, 2014 , an increase of $1.2 million, or 4.9%, compared to provision for income taxes of $24.7 million for the three months ended March 31, 2013 . The increase is primarily due to an increase of 5.5% in income before taxes for the three months ended March 31, 2014 , compared to the three months ended March 31, 2013 , offset by a decrease in the effective tax rate to 38.8% for the three months ended March 31, 2014 , compared to an effective tax rate of 39.1% for the three months ended March 31, 2013 . The decrease in the effective tax rate is primarily attributable to state revenue apportionment changes and tax credits.

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Below are certain key financial data and ratios for the periods indicated:



	Three Months Ended
	March 31,						%
	2014			2013			Change
EARNINGS (in thousands)
Income recognized on finance receivables, net	$	177,970		$	154,792		15	%
Fee income	15,952			14,767			8	%
Total revenues	193,922			169,559			14	%
Operating expenses	122,332			103,672			18	%
Income from operations	71,590			65,887			9	%
Net interest expense	4,859			2,689			81	%
Net income	40,840			38,517			6	%
Net income attributable to Portfolio Recovery Associates, Inc.	40,840			38,600			6	%

PERIOD-END BALANCES (in thousands)
Cash and cash equivalents	$	191,819		$	39,111		390	%
Finance receivables, net	1,253,961			1,169,747			7	%
Goodwill and intangible assets, net	118,800			125,462			(5	)%
Total assets	1,642,613			1,382,739			19	%
Borrowings	450,278			371,159			21	%
Total liabilities	732,395			621,413			18	%
Total equity	910,218			750,990			21	%

FINANCE RECEIVABLE COLLECTIONS (dollars in thousands)
Cash collections	$	313,367		$	275,463		14	%
Cash collections on fully amortized pools	16,516			6,345			160	%
Principal amortization without allowance charges	137,350			118,498			16	%
Principal amortization with allowance charges	135,397			120,671			12	%
Principal amortization w/ allowance charges as % of cash collections:
Including fully amortized pools	43.2		%	43.8		%	(1	)%
Excluding fully amortized pools	45.6		%	44.8		%	2	%

ALLOWANCE FOR FINANCE RECEIVABLES (dollars in thousands)
Allowance (reversal)/charge	$	(1,953	)	$	2,173		(190	)%
Allowance (reversal)/charge to period-end net finance receivables	(0.2		)%	0.2		%	(184	)%
Allowance (reversal)/charge to net finance receivable income	(1.1		)%	1.4		%	(178	)%
Allowance (reversal)/charge to cash collections	(0.6		)%	0.8		%	(179	)%

PURCHASES OF FINANCE RECEIVABLES (dollars in thousands)
Cash paid - core	$	79,085		$	126,951		(38	)%
Face value - core	837,036			1,398,960			(40	)%
Cash paid - bankruptcy	65,501			86,595			(24	)%
Face value - bankruptcy	557,220			436,508			28	%
Cash paid - other	8,128			1,387			486	%
Face value - other	519,118			18,570			2,695	%
Cash paid - total	152,714			214,933			(29	)%
Face value - total	1,913,374			1,854,038			3	%
Number of portfolios - total	104			91			14	%

ESTIMATED REMAINING COLLECTIONS (in thousands)
Estimated remaining collections - core	$	1,891,511		$	1,547,644		22	%
Estimated remaining collections - bankruptcy	788,774			924,520			(15	)%
Estimated remaining collections - other	24,439			14,739			66	%
Estimated remaining collections - total	2,704,724			2,486,903			9	%

SHARE DATA (7) (share amounts in thousands)
Net income per common share - diluted	$	0.81		$	0.75		8	%
Weighted average number of shares outstanding - diluted	50,363			51,273			(2	)%
Shares repurchased	—			48			(100	)%
Average price paid per share repurchased (including acquisitions costs)	$	—		$	39.34		(100	)%
Closing market price	$	57.86		$	42.31		37	%

RATIOS AND OTHER DATA (dollars in thousands)
Return on average equity (1)	18.2		%	21.1		%	(14	)%
Return on revenue (2)	21.1		%	22.7		%	(7	)%
Return on average assets (3)	10.0		%	11.3		%	(12	)%
Operating margin (4)	36.9		%	38.9		%	(5	)%
Operating expense to cash receipts (5)	37.1		%	35.7		%	4	%
Debt to equity (6)	49.5		%	49.4		%	—	%
Number of collectors	2,379			2,159			10	%
Number of full-time equivalent employees	3,621			3,250			11	%
Cash receipts (5)	$	329,319		$	290,230		13	%
Line of credit - unused portion at period end	435,500			228,000			91	%
(1) Calculated as annualized net income divided by average equity for the period
(2) Calculated as net income divided by total revenues
(3) Calculated as annualized net income divided by average assets for the period
(4) Calculated as income from operations divided by total revenues
(5) "Cash receipts" is defined as cash collections plus fee income
(6) For purposes of this ratio, "debt" equals borrowings
(7) Share data has been adjusted to reflect the three-for-one stock split by means of a stock dividend which was declared on June 10, 2013 and
paid August 1, 2013

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	Quarter Ended
	March 31,			December 31,			September 30,			June 30,			March 31,
	2014			2013			2013			2013			2013
EARNINGS (in thousands)
Income recognized on finance receivables, net	$	177,970		$	168,728		$	171,456		$	168,570		$	154,792
Fee income	15,952			16,125			26,306			14,391			14,767
Total revenues	193,922			184,853			197,762			182,961			169,559
Operating expenses	122,332			106,503			118,294			109,135			103,672
Income from operations	71,590			78,350			79,468			73,826			65,887
Net interest expense	4,859			4,860			3,995			2,923			2,689
Net income	40,840			45,777			49,211			43,414			38,517
Net income attributable to Portfolio Recovery Associates, Inc.	40,840			45,777			47,338			43,599			38,600

PERIOD-END BALANCES (in thousands)
Cash and cash equivalents	$	191,819		$	162,004		$	108,705		$	43,459		$	39,111
Finance receivables, net	1,253,961			1,239,191			1,256,822			1,236,859			1,169,747
Goodwill and intangible assets, net	118,800			119,610			119,636			124,349			125,462
Total assets	1,642,613			1,601,232			1,547,985			1,457,246			1,382,739
Borrowings	450,278			451,780			452,229			413,774			371,159
Total liabilities	732,395			731,756			721,001			655,012			621,413
Total equity	910,218			869,476			816,647			791,898			750,990

FINANCE RECEIVABLE COLLECTIONS (dollars in thousands)
Cash collections	$	313,367		$	278,926		$	291,651		$	296,397		$	275,463
Cash collections on fully amortized pools	16,516			9,801			8,762			10,612			6,345
Principal amortization without allowance charges	137,350			110,626			122,776			129,012			118,498
Principal amortization with allowance charges	135,397			110,197			120,195			127,827			120,671
Principal amortization w/ allowance charges as % of cash collections:
Including fully amortized pools	43.2		%	39.5		%	41.2		%	43.1		%	43.8		%
Excluding fully amortized pools	45.6		%	40.9		%	42.5		%	44.7		%	44.8		%

ALLOWANCE FOR FINANCE RECEIVABLES (dollars in thousands)
Allowance (reversal)/charge	$	(1,953	)	$	(429	)	$	(2,581	)	$	(1,185	)	$	2,173
Allowance (reversal)/charge to period-end net finance receivables	(0.2		)%	—		%	(0.2		)%	(0.1		)%	0.2		%
Allowance (reversal)/charge to net finance receivable income	(1.1		)%	(0.3		)%	(1.5		)%	(0.7		)%	1.4		%
Allowance (reversal)/charge to cash collections	(0.6		)%	(0.2		)%	(0.9		)%	(0.4		)%	0.8		%

PURCHASES OF FINANCE RECEIVABLES (dollars in thousands)
Cash paid - core	$	79,085		$	65,759		$	89,044		$	113,314		$	126,951
Face value - core	837,036			774,543			1,352,877			1,178,229			1,398,960
Cash paid - bankruptcy	65,501			31,987			41,794			82,273			86,595
Face value - bankruptcy	557,220			235,064			215,957			1,926,515			436,508
Cash paid - other	8,128			1,763			11,037			4,881			1,387
Face value - other	519,118			22,493			218,528			81,852			18,570
Cash paid - total	152,714			99,509			141,875			200,468			214,933
Face value - total	1,913,374			1,032,100			1,787,362			3,186,596			1,854,038
Number of portfolios - total	104			83			79			94			91

ESTIMATED REMAINING COLLECTIONS (in thousands)
Estimated remaining collections - core	$	1,891,511		$	1,824,132		$	1,762,369		$	1,694,262		$	1,547,644
Estimated remaining collections - bankruptcy	788,774			822,988			877,722			925,223			924,520
Estimated remaining collections - other	24,439			22,150			32,272			16,744			14,739
Estimated remaining collections - total	2,704,724			2,669,270			2,672,363			2,636,229			2,486,903

SHARE DATA (7) (share amounts in thousands)
Net income per common share - diluted	$	0.81		$	0.91		$	0.93		$	0.85		$	0.75
Weighted average number of shares outstanding - diluted	50,363			50,375			50,660			51,183			51,273
Shares repurchased	—			—			989			166			48
Average price paid per share repurchased (including acquisitions costs)	$	—		$	—		$	50.55		39.82			$	39.34
Closing market price	$	57.86		$	52.84		$	59.93		$	51.21		$	42.31

RATIOS AND OTHER DATA (dollars in thousands)
Return on average equity (1)	18.2		%	21.5		%	23.5		%	22.5		%	21.1		%
Return on revenue (2)	21.1		%	24.8		%	24.9		%	23.7		%	22.7		%
Return on average assets (3)	10.0		%	11.5		%	12.5		%	12.1		%	11.3		%
Operating margin (4)	36.9		%	42.4		%	40.2		%	40.4		%	38.9		%
Operating expense to cash receipts (5)	37.1		%	36.1		%	37.2		%	35.1		%	35.7		%
Debt to equity (6)	49.5		%	52.0		%	55.4		%	52.3		%	49.4		%
Number of collectors	2,379			2,313			2,054			2,190			2,159
Number of full-time equivalent employees	3,621			3,543			3,223			3,362			3,250
Cash receipts (5)	$	329,319		$	295,051		$	317,957		$	310,788		$	290,230
Line of credit - unused portion at period end	435,500			435,500			435,500			184,000			228,000
(1) Calculated as annualized net income divided by average equity for the period
(2) Calculated as net income divided by total revenues
(3) Calculated as annualized net income divided by average assets for the period
(4) Calculated as income from operations divided by total revenues
(5) "Cash receipts" is defined as cash collections plus fee income
(6) For purposes of this ratio, "debt" equals borrowings
(7) Share data has been adjusted to reflect the three-for-one stock split by means of a stock dividend which was declared on June 10, 2013 and paid August 1, 2013

Table of Contents

Supplemental Performance Data

Domestic Finance Receivables Portfolio Performance:

The following tables show certain data related to our domestic finance receivables portfolio. These tables describe the purchase price, actual cash collections and future estimates of cash collections, income recognized on finance receivables (gross and net of allowance charges), principal amortization, allowance charges, net finance receivable balances, and the ratio of total estimated collections to purchase price (which we refer to as purchase price multiple).

Further, these tables disclose our entire domestic portfolio, as well as its subsets: the portfolio of purchased bankrupt accounts and our Core portfolio. The accounts represented in the purchased bankruptcy tables are those portfolios of accounts that were bankrupt at the time of purchase. This contrasts with accounts that file for bankruptcy after we purchase them, which continue to be tracked in their corresponding Core portfolio. Core customers sometimes file for bankruptcy protection subsequent to our purchase of the related Core portfolio. When this occurs, we adjust our collection practices accordingly to comply with bankruptcy procedures; however, for accounting purposes, these accounts remain in the related Core portfolio. Conversely, bankrupt accounts may be dismissed voluntarily or involuntarily subsequent to our purchase of the related bankrupt portfolio. Dismissal occurs when the terms of the bankruptcy are not met by the petitioner. When this occurs, we are typically free to pursue collection outside of bankruptcy procedures; however, for accounting purposes, these accounts remain in the related bankruptcy pool.

Our United Kingdom and Canadian portfolios are not significant and are therefore not included in these tables.

Purchase price multiples can vary over time due to a variety of factors including pricing competition, supply levels, age of the receivables purchased, and changes in our operational efficiency. For example, increased pricing competition during the 2005 to 2008 period negatively impacted purchase price multiples of our Core portfolio compared to prior years. During the 2009 to 2010 period, for example, pricing disruptions occurred as a result of the economic downturn. This created unique and advantageous purchasing opportunities, particularly within the bankruptcy receivables market, relative to the prior four years.

When competition increases and/or supply decreases, pricing often becomes negatively impacted relative to expected collections, and yields tend to trend lower. The opposite tends to occur when competition decreases and/or supply increases.

Purchase price multiples can also vary among types of finance receivables. For example, we incur lower collection costs on our bankruptcy portfolio compared with our Core portfolio. This allows us in general to pay more for a bankruptcy portfolio, experience lower purchase price multiples, and yet generate similar internal rates of return when compared with a Core portfolio.

Within a given portfolio type, to the extent that lower purchase price multiples are the result of more competitive pricing and lower yields, this will generally lead to higher amortization rates (payments applied to principal as a percentage of cash collections) and lower profitability. As portfolio pricing becomes more favorable on a relative basis, our profitability will tend to increase. Profitability within given Core portfolio types may also be impacted by the age and quality of the receivables, which impact the cost to collect those accounts.

The numbers presented in the following tables represent gross cash collections and do not reflect any costs to collect; therefore, they may not represent relative profitability. We continue to make enhancements to our analytical abilities, with the intent to collect more cash at a lower cost. To the extent we can improve our collection operations by collecting additional cash from a discrete quantity and quality of accounts, and/or by collecting cash at a lower cost structure, we can positively impact profitability.

Additionally, purchase price multiples can vary among periods due to our implementation of required accounting standards. Revenue recognition under ASC 310-30 is driven by estimates of total collections as well as the timing of those collections. We record new portfolio purchases using a higher confidence level for both estimated collection amounts and timing. Subsequent to the initial booking, as we gain collection experience and confidence with a pool of accounts, we continuously update ERC. These processes, along with the aforementioned operational enhancements, have tended to cause the ratio of ERC to purchase price for any given year of buying to gradually increase over time. As a result, our estimate of total collections to purchase price has generally, but not always, increased as pools have aged. Thus, all factors being equal in terms of pricing, one would typically tend to see a higher collection to purchase price ratio from a pool of accounts that was six years from purchase than say a pool that was just two years from purchase.

Due to all the factors described above, readers should be cautious when making comparisons of purchase price multiples among periods and between types of receivables.

Table of Contents

Domestic Portfolio Data – Life-to-Date

Entire Domestic Portfolio



			Inception through March 31, 2014										As of March 31, 2014
($ in thousands)			Actual Cash Collections Including Cash Sales		Income Recognized on Finance Receivables ⁽¹⁾		Principal Amortization		Allowance Charges		Income Recognized on Finance Receivables, Net ⁽¹⁾		Net Finance Receivables Balance		Estimated Remaining Collections		Total Estimated Collections		Total Estimated Collections to Purchase Price
Purchase Period	Purchase Price
1996	$	3,080	$	10,211	$	7,131	$	3,080	$	—	$	7,131	$	—	$	16	$	10,227	332%
1997	7,685		25,521		17,836		7,685		—		17,836		—		79		25,600		333%
1998	11,089		37,384		26,295		11,089		—		26,295		—		197		37,581		339%
1999	18,898		69,433		50,535		18,898		—		50,535		—		403		69,836		370%
2000	25,020		116,918		91,898		25,020		—		91,898		—		1,760		118,678		474%
2001	33,481		176,364		142,883		33,481		—		142,883		—		2,572		178,936		534%
2002	42,325		199,228		156,903		42,325		—		156,903		—		4,751		203,979		482%
2003	61,447		266,348		204,901		61,447		—		204,901		—		7,371		273,719		445%
2004	59,176		199,213		141,237		57,976		1,200		140,037		—		7,081		206,294		349%
2005	143,167		313,029		185,556		127,473		9,970		175,586		5,725		15,047		328,076		229%
2006	107,667		210,205		128,312		81,893		19,895		108,417		5,878		12,553		222,758		207%
2007	258,367		484,621		265,795		218,826		20,445		245,350		19,091		42,356		526,977		204%
2008	275,121		480,864		264,486		216,378		34,145		230,341		24,564		52,757		533,621		194%
2009	281,333		776,617		518,026		258,591		—		518,026		22,742		135,913		912,530		324%
2010	357,810		786,876		498,374		288,502		1,215		497,159		68,117		261,134		1,048,010		293%
2011	392,929		606,679		356,180		250,499		—		356,180		142,431		412,152		1,018,831		259%
2012	508,683		419,298		210,043		209,255		—		210,043		299,429		598,999		1,018,297		200%
2013	627,917		235,921		116,569		119,352		—		116,569		508,564		897,259		1,133,180		180%
YTD 2014	144,899		10,167		3,617		6,550		—		3,617		138,336		227,885		238,052		164%
Total	$	3,360,094	$	5,424,897	$	3,386,577	$	2,038,320	$	86,870	$	3,299,707	$	1,234,877	$	2,680,285	$	8,105,182	241%


(1)	For purposes of the this table, income recognized on finance receivables also includes approximately $1.7 million in gains on sales of finance receivables acquired between 1996 and 2001 and sold between 1999 and 2002.

Purchased Bankruptcy Portfolio



			Inception through March 31, 2014										As of March 31, 2014
($ in thousands)			Actual Cash Collections Including Cash Sales		Income Recognized on Finance Receivables		Principal Amortization		Allowance Charges		Income Recognized on Finance Receivables, Net		Net Finance Receivables Balance		Estimated Remaining Collections		Total Estimated Collections		Total Estimated Collections to Purchase Price
Purchase Period	Purchase Price
1996- 2003	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	—%
2004	7,468		14,520		8,252		6,268		1,200		7,052		—		60		14,580		195%
2005	29,301		43,673		14,782		28,891		395		14,387		16		101		43,774		149%
2006	17,627		31,659		14,860		16,799		780		14,080		47		298		31,957		181%
2007	78,526		104,337		35,632		68,705		9,600		26,032		221		1,840		106,177		135%
2008	108,586		164,846		71,324		93,522		13,250		58,074		1,814		3,995		168,841		155%
2009	156,030		425,189		275,612		149,577		—		275,612		6,453		46,061		471,250		302%
2010	209,164		417,853		246,609		171,244		—		246,609		37,920		102,111		519,964		249%
2011	181,897		185,643		81,058		104,585		—		81,058		77,312		124,454		310,097		170%
2012	252,383		145,384		49,771		95,613		—		49,771		156,771		201,944		347,328		138%
2013	234,193		71,823		22,530		49,293		—		22,530		184,899		232,266		304,089		130%
YTD 2014	65,501		6,022		712		5,310		—		712		60,192		75,644		81,666		125%
Total	$	1,340,676	$	1,610,949	$	821,142	$	789,807	$	25,225	$	795,917	$	525,645	$	788,774	$	2,399,723	179%

Table of Contents

Core Portfolio



			Inception through March 31, 2014										As of March 31, 2014
($ in thousands)			Actual Cash Collections Including Cash Sales		Income Recognized on Finance Receivables ⁽¹⁾		Principal Amortization		Allowance Charges		Income Recognized on Finance Receivables, Net ⁽¹⁾		Net Finance Receivables Balance		Estimated Remaining Collections		Total Estimated Collections		Total Estimated Collections to Purchase Price
Purchase Period	Purchase Price
1996	$	3,080	$	10,211	$	7,131	$	3,080	$	—	$	7,131	$	—	$	16	$	10,227	332%
1997	7,685		25,521		17,836		7,685		—		17,836		—		79		25,600		333%
1998	11,089		37,384		26,295		11,089		—		26,295		—		197		37,581		339%
1999	18,898		69,433		50,535		18,898		—		50,535		—		403		69,836		370%
2000	25,020		116,918		91,898		25,020		—		91,898		—		1,760		118,678		474%
2001	33,481		176,364		142,883		33,481		—		142,883		—		2,572		178,936		534%
2002	42,325		199,228		156,903		42,325		—		156,903		—		4,751		203,979		482%
2003	61,447		266,348		204,901		61,447		—		204,901		—		7,371		273,719		445%
2004	51,708		184,693		132,985		51,708		—		132,985		—		7,021		191,714		371%
2005	113,866		269,356		170,774		98,582		9,575		161,199		5,709		14,946		284,302		250%
2006	90,040		178,546		113,452		65,094		19,115		94,337		5,831		12,255		190,801		212%
2007	179,841		380,284		230,163		150,121		10,845		219,318		18,870		40,516		420,800		234%
2008	166,535		316,018		193,162		122,856		20,895		172,267		22,750		48,762		364,780		219%
2009	125,303		351,428		242,414		109,014		—		242,414		16,289		89,852		441,280		352%
2010	148,646		369,023		251,765		117,258		1,215		250,550		30,197		159,023		528,046		355%
2011	211,032		421,036		275,122		145,914		—		275,122		65,119		287,698		708,734		336%
2012	256,300		273,914		160,272		113,642		—		160,272		142,658		397,055		670,969		262%
2013	393,724		164,098		94,039		70,059		—		94,039		323,665		664,993		829,091		211%
YTD 2014	79,398		4,145		2,905		1,240		—		2,905		78,144		152,241		156,386		197%
Total	$	2,019,418	$	3,813,948	$	2,565,435	$	1,248,513	$	61,645	$	2,503,790	$	709,232	$	1,891,511	$	5,705,459	283%


(1)	For purposes of the this table, income recognized on finance receivables also includes approximately $1.7 million in gains on sales of finance receivables acquired between 1996 and 2001 and sold between 1999 and 2002.

Domestic Portfolio Data – Current Quarter

Entire Domestic Portfolio



			Quarter Ended March 31, 2014											As of March 31, 2014
($ in thousands)			Actual Cash Collections Including Cash Sales		Income Recognized on Finance Receivables		Principal Amortization		Allowance Charges			Income Recognized on Finance Receivables, Net		Net Finance Receivables Balance		Estimated Remaining Collections		Total Estimated Collections		Total Estimated Collections to Purchase Price
Purchase Period	Purchase Price
1996	$	3,080	$	3	$	3	$	—	$	—		$	3	$	—	$	16	$	10,227	332%
1997	7,685		15		15		—		—			15		—		79		25,600		333%
1998	11,089		33		33		—		—			33		—		197		37,581		339%
1999	18,898		78		78		—		—			78		—		403		69,836		370%
2000	25,020		253		253		—		—			253		—		1,760		118,678		474%
2001	33,481		457		457		—		—			457		—		2,572		178,936		534%
2002	42,325		751		751		—		—			751		—		4,751		203,979		482%
2003	61,447		1,143		1,143		—		—			1,143		—		7,371		273,719		445%
2004	59,176		937		937		—		—			937		—		7,081		206,294		349%
2005	143,167		1,927		980		947		(785		)	1,765		5,725		15,047		328,076		229%
2006	107,667		1,754		834		920		(820		)	1,654		5,878		12,553		222,758		207%
2007	258,367		5,809		3,248		2,561		(235		)	3,483		19,091		42,356		526,977		204%
2008	275,121		7,169		3,478		3,691		(1,500		)	4,978		24,564		52,757		533,621		194%
2009	281,333		30,634		23,232		7,402		—			23,232		22,742		135,913		912,530		324%
2010	357,810		43,637		32,815		10,822		890			31,925		68,117		261,134		1,048,010		293%
2011	392,929		52,989		35,171		17,818		—			35,171		142,431		412,152		1,018,831		259%
2012	508,683		67,810		33,954		33,856		—			33,954		299,429		598,999		1,018,297		200%
2013	627,917		81,779		34,275		47,504		—			34,275		508,564		897,259		1,133,180		180%
YTD 2014	144,899		10,167		3,617		6,550		—			3,617		138,336		227,885		238,052		164%
Total	$	3,360,094	$	307,345	$	175,274	$	132,071	$	(2,450	)	$	177,724	$	1,234,877	$	2,680,285	$	8,105,182	241%

Table of Contents

Purchased Bankruptcy Portfolio



			Quarter Ended March 31, 2014											As of March 31, 2014
($ in thousands)			Actual Cash Collections Including Cash Sales		Income Recognized on Finance Receivables		Principal Amortization		Allowance Charges			Income Recognized on Finance Receivables, Net		Net Finance Receivables Balance		Estimated Remaining Collections		Total Estimated Collections		Total Estimated Collections to Purchase Price
Purchase Period	Purchase Price
1996-2003	$	—	$	—	$	—	$	—	$	—		$	—	$	—	$	—	$	—	—%
2004	7,468		28		28		—		—			28		—		60		14,580		195%
2005	29,301		32		16		16		(15		)	31		16		101		43,774		149%
2006	17,627		94		69		25		(20		)	89		47		298		31,957		181%
2007	78,526		206		74		132		(215		)	289		221		1,840		106,177		135%
2008	108,586		658		143		515		—			143		1,814		3,995		168,841		155%
2009	156,030		20,381		14,933		5,448		—			14,933		6,453		46,061		471,250		302%
2010	209,164		27,131		19,022		8,109		—			19,022		37,920		102,111		519,964		249%
2011	181,897		21,294		9,159		12,135		—			9,159		77,312		124,454		310,097		170%
2012	252,383		24,386		6,917		17,469		—			6,917		156,771		201,944		347,328		138%
2013	234,193		19,295		5,767		13,528		—			5,767		184,899		232,266		304,089		130%
YTD 2014	65,501		6,022		712		5,310		—			712		60,192		75,644		81,666		125%
Total	$	1,340,676	$	119,527	$	56,840	$	62,687	$	(250	)	$	57,090	$	525,645	$	788,774	$	2,399,723	179%

Core Portfolio



			Quarter Ended March 31, 2014											As of March 31, 2014
($ in thousands)			Actual Cash Collections Including Cash Sales		Income Recognized on Finance Receivables		Principal Amortization		Allowance Charges			Income Recognized on Finance Receivables, Net		Net Finance Receivables Balance		Estimated Remaining Collections		Total Estimated Collections		Total Estimated Collections to Purchase Price
Purchase Period	Purchase Price
1996	$	3,080	$	3	$	3	$	—	$	—		$	3	$	—	$	16	$	10,227	332%
1997	7,685		15		15		—		—			15		—		79		25,600		333%
1998	11,089		33		33		—		—			33		—		197		37,581		339%
1999	18,898		78		78		—		—			78		—		403		69,836		370%
2000	25,020		253		253		—		—			253		—		1,760		118,678		474%
2001	33,481		457		457		—		—			457		—		2,572		178,936		534%
2002	42,325		751		751		—		—			751		—		4,751		203,979		482%
2003	61,447		1,143		1,143		—		—			1,143		—		7,371		273,719		445%
2004	51,708		909		909		—		—			909		—		7,021		191,714		371%
2005	113,866		1,895		964		931		(770		)	1,734		5,709		14,946		284,302		250%
2006	90,040		1,660		765		895		(800		)	1,565		5,831		12,255		190,801		212%
2007	179,841		5,603		3,174		2,429		(20		)	3,194		18,870		40,516		420,800		234%
2008	166,535		6,511		3,335		3,176		(1,500		)	4,835		22,750		48,762		364,780		219%
2009	125,303		10,253		8,299		1,954		—			8,299		16,289		89,852		441,280		352%
2010	148,646		16,506		13,793		2,713		890			12,903		30,197		159,023		528,046		355%
2011	211,032		31,695		26,012		5,683		—			26,012		65,119		287,698		708,734		336%
2012	256,300		43,424		27,037		16,387		—			27,037		142,658		397,055		670,969		262%
2013	393,724		62,484		28,508		33,976		—			28,508		323,665		664,993		829,091		211%
YTD 2014	79,398		4,145		2,905		1,240		—			2,905		78,144		152,241		156,386		197%
Total	$	2,019,418	$	187,818	$	118,434	$	69,384	$	(2,200	)	$	120,634	$	709,232	$	1,891,511	$	5,705,459	283%

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The following graph shows the purchase price of our domestic portfolios by year for the last ten years. The purchase price number represents the cash paid to the seller, plus certain capitalized costs, less buybacks.

As shown in the above chart, the composition of our domestic purchased portfolios shifted in favor of bankrupt accounts in 2009 and 2010, before returning to equilibrium with Core in 2011 and 2012. In 2013 and the first quarter of 2014, Core purchases exceeded those of bankrupt accounts. We began buying bankrupt accounts during 2004 and slowly increased the volume of accounts we acquired through 2006 as we tested our models, refined our processes and validated our operating assumptions. After observing a high level of modeling confidence in our early purchases, we began increasing our level of purchases more dramatically commencing in 2007.

Our ability to profitably purchase and liquidate pools of bankrupt accounts provides diversity to our distressed asset acquisition business. Although we generally buy bankrupt portfolios from many of the same consumer lenders from whom we acquire Core customer portfolios, the volumes and pricing characteristics as well as the competitors are different. Based upon market dynamics, the profitability of portfolios purchased in the bankrupt and Core markets may differ over time. We have found periods when bankrupt accounts were more profitable and other times when Core accounts were more profitable. From 2004 through 2008, our bankruptcy buying fluctuated between 13% and 39% of our total portfolio purchasing. In 2009, for the first time in our history, bankruptcy purchasing exceeded that of our Core buying, at 55% of total portfolio purchasing and during 2010 this percentage increased to 59%. This occurred as severe dislocations in the financial markets, coupled with legislative uncertainty, caused pricing in the bankruptcy market to decline substantially, thereby driving our strategy to make advantageous bankruptcy portfolio acquisitions during this period. For 2011, 2012, our bankruptcy buying leveled off and represented 48% and 50% of our total domestic portfolio purchasing and in 2013 and the first quarter of 2014, it declined to 38% and 45%, respectively, of our total domestic portfolio purchasing.

In order to collect our Core portfolios, we generally need to employ relatively higher amounts of labor and incur additional collection costs to generate each dollar of cash collections as compared with bankruptcy portfolios. In order to achieve acceptable levels of net return on investment (after direct expenses), we are generally targeting a total cash collections to purchase price multiple in the 1.75-3.0x range. On the other hand, bankrupt accounts generate the majority of cash collections through the efforts of the U.S. bankruptcy courts and trustees. In this process, cash is remitted to our Company with no corresponding cost other than the cost of filing claims at the time of purchase, court fees associated with the filing of ownership claim transfers and general administrative costs for monitoring the progress of each account through the bankruptcy process. As a result, overall collection costs are much lower for us when liquidating a pool of bankrupt accounts as compared to a pool of Core accounts, but conversely the price we pay for bankrupt accounts is generally higher than Core accounts. We generally target similar returns on investment (measured after direct expenses) for bankrupt and Core portfolios at any given point in the market cycles. However, because of the lower related collection costs, we can pay more for bankrupt portfolios, which causes the estimated total cash collections to purchase price multiples of bankrupt pools generally to be in the 1.2-2.0x range. In summary, compared to a similar investment in a pool of Core accounts, to the extent both pools had identical targeted returns on investment (measured after direct expenses), the bankrupt pool would be expected to generate less revenue, less direct expenses, similar operating income, and a higher operating margin.

In addition, collections on younger, newly filed bankrupt accounts tend to be of a lower magnitude in the earlier months when compared to Core charge-off accounts. This lower level of early period collections is due to the fact that we primarily purchase portfolios of accounts that represent unsecured claims in bankruptcy, and these unsecured claims are scheduled to begin

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paying out after payment of the secured and priority claims. As a result of the administrative processes regarding payout priorities within the court-administered bankruptcy plans, unsecured creditors do not generally begin receiving meaningful collections on unsecured claims until 12 to 18 months after the bankruptcy filing date. Therefore, to the extent that we purchase portfolios with more recent bankruptcy filing dates, as we did to a significant extent commencing in 2009, we would expect to experience a delay in cash collections compared with Core charged-off portfolios.

We utilize a long-term approach to collecting our owned portfolios of receivables. This approach has historically caused us to realize significant cash collections and revenues from purchased portfolios of finance receivables years after they are originally acquired. As a result, we have in the past been able to temporarily reduce our level of current period acquisitions without a corresponding negative current period impact on cash collections and revenue.

The following tables, which exclude any proceeds from cash sales of finance receivables, demonstrate our ability to realize significant multi-year cash collection streams on our domestic portfolios.

Cash Collections By Year, By Year of Purchase – Entire Domestic Portfolio



(in thousands)
Purchase Period	Purchase Price		Cash Collection Period
			1996-2005		2006		2007		2008		2009		2010		2011		2012		2013		YTD 2014		Total
1996	$	3,080	$	9,414	$	237	$	102	$	83	$	78	$	68	$	100	$	39	$	24	$	3	$	10,148
1997	7,685		22,803		597		437		346		215		216		187		112		84		15		25,012
1998	11,089		32,889		1,415		882		616		397		382		332		241		173		33		37,360
1999	18,898		57,198		3,032		2,243		1,533		1,328		1,139		997		709		483		78		68,740
2000	25,020		87,520		8,067		5,202		3,604		3,198		2,782		2,554		1,927		1,349		253		116,456
2001	33,481		119,238		16,048		10,011		6,164		5,299		4,422		3,791		3,104		2,339		457		170,873
2002	42,325		119,570		24,729		16,527		9,772		7,444		6,375		5,844		4,768		3,433		751		199,213
2003	61,447		126,654		43,728		30,695		18,818		13,135		10,422		8,945		7,477		5,331		1,143		266,348
2004	59,176		64,494		40,424		30,750		19,339		13,677		9,944		8,522		6,604		4,522		937		199,213
2005	143,167		18,968		75,145		69,862		49,576		33,366		23,733		17,234		13,302		9,916		1,927		313,029
2006	107,667		—		22,971		53,192		40,560		29,749		22,494		18,190		12,560		8,735		1,754		210,205
2007	258,367		—		—		42,263		115,011		94,805		83,059		67,088		47,136		29,450		5,809		484,621
2008	275,121		—		—		—		61,277		107,974		100,337		89,344		71,806		42,957		7,169		480,864
2009	281,333		—		—		—		—		57,338		177,407		187,119		177,273		146,846		30,634		776,617
2010	357,810		—		—		—		—		—		86,562		218,053		234,893		203,731		43,637		786,876
2011	392,929		—		—		—		—		—		—		77,190		240,840		235,660		52,989		606,679
2012	508,683		—		—		—		—		—		—		—		74,289		277,199		67,810		419,298
2013	627,917		—		—		—		—		—		—		—		—		154,142		81,779		235,921
YTD 2014	144,899		—		—		—		—		—		—		—		—		—		10,167		10,167
Total	$	3,360,094	$	658,748	$	236,393	$	262,166	$	326,699	$	368,003	$	529,342	$	705,490	$	897,080	$	1,126,374	$	307,345	$	5,417,640

Cash Collections By Year, By Year of Purchase – Purchased Bankruptcy Portfolio



(in thousands)
Purchase Period	Purchase Price		Cash Collection Period
			1996-2005		2006		2007		2008		2009		2010		2011		2012		2013		YTD 2014		Total
2004	$	7,468	5,297		3,956		2,777		1,455		496		164		149		108		90		28		$	14,520
2005	29,301		3,777		15,500		11,934		6,845		3,318		1,382		466		250		169		32		43,673
2006	17,627		—		5,608		9,455		6,522		4,398		2,972		1,526		665		419		94		31,659
2007	78,526		—		—		2,850		27,972		25,630		22,829		16,093		7,551		1,206		206		104,337
2008	108,586		—		—		—		14,024		35,894		37,974		35,690		28,956		11,650		658		164,846
2009	156,030		—		—		—		—		16,635		81,780		102,780		107,888		95,725		20,381		425,189
2010	209,164		—		—		—		—		—		39,486		104,499		125,020		121,717		27,131		417,853
2011	181,897		—		—		—		—		—		—		15,218		66,379		82,752		21,294		185,643
2012	252,383		—		—		—				—		—		—		17,388		103,610		24,386		145,384
2013	234,193		—		—		—		—		—		—		—		—		52,528		19,295		71,823
YTD 2014	65,501																				6,022		6,022
Total	$	1,340,676	$	9,074	$	25,064	$	27,016	$	56,818	$	86,371	$	186,587	$	276,421	$	354,205	$	469,866	$	119,527	$	1,610,949

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Cash Collections By Year, By Year of Purchase – Core Portfolio



(in thousands)
Purchase Period	Purchase Price		Cash Collection Period
			1996-2005		2006		2007		2008		2009		2010		2011		2012		2013		YTD 2014		Total
1996	$	3,080	$	9,414	$	237	$	102	$	83	$	78	$	68	$	100	$	39	$	24	$	3	$	10,148
1997	7,685		22,803		597		437		346		215		216		187		112		84		15		25,012
1998	11,089		32,889		1,415		882		616		397		382		332		241		173		33		37,360
1999	18,898		57,198		3,032		2,243		1,533		1,328		1,139		997		709		483		78		68,740
2000	25,020		87,520		8,067		5,202		3,604		3,198		2,782		2,554		1,927		1,349		253		116,456
2001	33,481		119,238		16,048		10,011		6,164		5,299		4,422		3,791		3,104		2,339		457		170,873
2002	42,325		119,570		24,729		16,527		9,772		7,444		6,375		5,844		4,768		3,433		751		199,213
2003	61,447		126,654		43,728		30,695		18,818		13,135		10,422		8,945		7,477		5,331		1,143		266,348
2004	51,708		59,197		36,468		27,973		17,884		13,181		9,780		8,373		6,496		4,432		909		184,693
2005	113,866		15,191		59,645		57,928		42,731		30,048		22,351		16,768		13,052		9,747		1,895		269,356
2006	90,040		—		17,363		43,737		34,038		25,351		19,522		16,664		11,895		8,316		1,660		178,546
2007	179,841		—		—		39,413		87,039		69,175		60,230		50,995		39,585		28,244		5,603		380,284
2008	166,535		—		—		—		47,253		72,080		62,363		53,654		42,850		31,307		6,511		316,018
2009	125,303		—		—		—		—		40,703		95,627		84,339		69,385		51,121		10,253		351,428
2010	148,646		—		—		—		—		—		47,076		113,554		109,873		82,014		16,506		369,023
2011	211,032		—		—		—		—		—		—		61,972		174,461		152,908		31,695		421,036
2012	256,300		—		—		—		—		—		—		—		56,901		173,589		43,424		273,914
2013	393,724		—		—		—		—		—		—		—		—		101,614		62,484		164,098
YTD 2014	79,398		—		—		—		—		—		—		—		—		—		4,145		4,145
Total	$	2,019,418	$	649,674	$	211,329	$	235,150	$	269,881	$	281,632	$	342,755	$	429,069	$	542,875	$	656,508	$	187,818	$	3,806,691

When we acquire a new pool of finance receivables, our estimates typically result in a 60-96 month projection of cash collections, depending on the type of finance receivables acquired. The following chart shows our historical cash collections (including cash sales of finance receivables) in relation to the aggregate of the total estimated collection projections made at the time of each respective pool purchase, adjusted for buybacks, for the last ten years.

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Primarily as a result of the downturn in the economy, the decline in the availability of consumer credit, our efforts to help customers establish reasonable payment plans, and improvements in our collections capabilities which have allowed us to profitably collect on accounts with lower balances or lower quality, the average payment size has decreased over the past several years. However, due to improved scoring and segmentation, together with enhanced productivity, we have been able to realize increased amounts of cash collections by generating enough incremental payments to overcome the decrease in payment size. The decreasing average payment size trend moderated during 2012, and the average payment size was stable during 2013 and the first quarter of 2014.

The following chart illustrates the excess of our cash collections on our owned portfolios over income recognized on finance receivables on a quarterly basis. The difference between cash collections and income recognized on finance receivables is referred to as payments applied to principal. It is also referred to as amortization of purchase price. This amortization is the portion of cash collections that is used to recover the cost of the portfolio investment represented on the balance sheet.


(1)	Includes cash collections on finance receivables only and excludes cash proceeds from sales of defaulted consumer receivables.

Seasonality

Cash collections tend to be higher in the first and second quarters of the year and lower in the third and fourth quarters of the year, due to customer payment patterns in connection with seasonal employment trends, income tax refunds and holiday spending habits. Historically, our growth has partially offset the impact of this seasonality.

The following table displays our quarterly cash collections by source, for the periods indicated.



Cash Collection Source ($ in thousands)	Q12014		Q42013		Q32013		Q22013		Q12013		Q42012		Q32012		Q22012
Call Center and Other Collections	$	97,736	$	84,375	$	89,512	$	90,229	$	89,037	$	72,624	$	72,394	$	73,582
External Legal Collections	50,990		46,066		48,274		50,131		47,910		41,521		39,913		41,464
Internal Legal Collections	43,939		34,101		33,288		30,365		29,283		23,968		25,650		25,361
Bankruptcy Court Trustee Payments	120,702		114,384		120,577		125,672		109,233		91,098		91,095		92,018
Total Cash Collections	$	313,367	$	278,926	$	291,651	$	296,397	$	275,463	$	229,211	$	229,052	$	232,425

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Rollforward of Net Finance Receivables

The following table shows the changes in finance receivables, net, including the amounts paid to acquire new portfolios (amounts in thousands).



	Three Months Ended March 31,
	2014			2013
Balance at beginning of year	$	1,239,191		$	1,078,951
Acquisitions of finance receivables ⁽¹⁾	150,087			212,389
Foreign currency translation adjustment	80			(922		)
Cash collections applied to principal on finance receivables ⁽²⁾	(135,397		)	(120,671		)
Balance at end of period	$	1,253,961		$	1,169,747
Estimated Remaining Collections	$	2,704,274		$	2,486,903


(1)	Acquisitions of finance receivables is net of buybacks and includes certain capitalized acquisition related costs.


(2)	Cash collections applied to principal (also referred to as amortization) on finance receivables consists of cash collections less income recognized on finance receivables, net of allowance charges.

Portfolios by Type and Geography (Domestic Portfolio Only)

The following table categorizes our life to date domestic portfolio purchases as of March 31, 2014 , into the major asset types represented (amounts in thousands):



Account Type	No. of Accounts	%		Face Value ⁽¹⁾		%		Original Purchase Price ⁽²⁾		%
Major Credit Cards	19,220	55	%	$	54,375,091	69	%	$	2,294,576	67	%
Consumer Finance	6,704	19		8,662,030		11		149,220		4
Private Label Credit Cards	8,418	24		11,446,685		14		856,010		25
Auto Deficiency	669	2		4,743,406		6		141,624		4
Total	35,011	100	%	$	79,227,212	100	%	$	3,441,430	100	%


(1)	"Face Value" represents the original face amount purchased from sellers and has not been reduced by any adjustments including payments and buybacks.


(2)	"Original Purchase Price" represents the cash paid to sellers to acquire portfolios of defaulted consumer receivables and has not been reduced by any adjustments, including payments and buybacks.

The following table summarizes our life to date domestic portfolio purchases as of March 31, 2014 , into the delinquency categories represented (amounts in thousands).



Account Type	No. of Accounts	%		Face Value ⁽¹⁾		%		Original Purchase Price ⁽²⁾		%
Fresh	3,375	10	%	$	7,965,408	10	%	$	866,279	25	%
Primary	4,814	14		9,193,673		12		504,570		15
Secondary	6,302	18		9,346,529		12		395,334		11
Tertiary	4,321	12		6,321,309		8		105,806		3
Bankruptcy Trustees	5,595	16		23,054,136		29		1,403,635		41
Other	10,604	30		23,346,157		29		165,806		5
Total	35,011	100	%	$	79,227,212	100	%	$	3,441,430	100	%


(1)	"Face Value" represents the original face amount purchased from sellers and has not been reduced by any adjustments including payments and buybacks.


(2)	"Original Purchase Price" represents the cash paid to sellers to acquire portfolios of defaulted consumer receivables and has not been reduced by any adjustments, including payments and buybacks.

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We review the geographic distribution of accounts within a portfolio because we have found that state specific laws and rules can have an effect on the collectability of accounts located there. In addition, economic factors and bankruptcy trends vary regionally and are factored into our maximum purchase price equation.

The following table summarizes our life to date domestic portfolio purchases as of March 31, 2014 , by geographic location (amounts in thousands):



Geographic Distribution	No. of Accounts	%		Face Value ⁽¹⁾		%		Original Purchase Price ⁽²⁾		%
California	3,777	11	%	$	10,486,895	13	%	$	434,197	13	%
Texas	4,862	14		8,560,640		11		298,005		9
Florida	2,789	8		7,466,473		9		306,508		9
New York	1,979	6		4,634,669		6		178,355		5
Ohio	1,637	5		2,977,400		4		143,251		4
Pennsylvania	1,256	4		2,881,721		4		123,527		4
Illinois	1,327	4		2,837,952		4		136,042		4
North Carolina	1,259	4		2,782,437		4		119,931		3
Georgia	1,150	3		2,618,798		3		136,028		4
Michigan	938	3		2,176,547		3		103,878		3
New Jersey	817	2		2,142,912		3		96,623		3
Arizona	640	2		1,723,415		2		74,295		2
Virginia	924	3		1,672,537		2		80,097		2
Tennessee	753	2		1,646,478		2		81,246		2
Massachusetts	598	2		1,451,393		2		61,112		2
Indiana	641	2		1,425,072		2		75,700		2
Other ⁽³⁾	9,664	25		21,741,873		26		992,635		29
Total	35,011	100	%	$	79,227,212	100	%	$	3,441,430	100	%


(1)	"Face Value" represents the original face amount purchased from sellers and has not been reduced by any adjustments, including payments and buybacks.


(2)	"Original Purchase Price" represents the cash paid to sellers to acquire portfolios of defaulted consumer receivables and has not been reduced by any adjustments, including payments and buybacks.


(3)	Each state included in “Other” represents less than 2% of the face value of total defaulted consumer receivables.

Collections Productivity

The following tables display various collections productivity measures that we track. The tables below contain our collector productivity metrics as defined by calendar quarter.

Cash Collections per Collector Hour Paid (Domestic Portfolio Only)



	Core cash collections ⁽¹⁾
	2014		2013 ⁽⁵⁾		2012		2011		2010
Q1	$	223	$	193	$	166	$	162	$	135
Q2	—		190		169		154		127
Q3	—		191		171		152		127
Q4	—		190		150		137		129

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	Total cash collections ⁽²⁾
	2014		2013 ⁽⁵⁾		2012		2011		2010
Q1	$	337	$	304	$	258	$	241	$	182
Q2	—		315		275		243		188
Q3	—		310		279		249		200
Q4	—		308		245		228		204



	Non-legal cash collections ⁽³⁾
	2014		2013 ⁽⁵⁾		2012		2011		2010
Q1	$	282	$	251	$	216	$	204	$	154
Q2	—		261		225		205		160
Q3	—		259		230		212		170
Q4	—		256		200		194		174



	Non-legal/non-bankruptcy cash collections ⁽⁴⁾
	2014		2013 ⁽⁵⁾		2012		2011		2010
Q1	$	167	$	140	$	125	$	125	$	106
Q2	—		137		120		116		100
Q3	—		140		122		115		97
Q4	—		138		105		103		98

(1)

Represents total cash collections less purchased bankruptcy cash collections from trustee-administered accounts. This metric includes cash collections from purchased bankruptcy accounts administered by the Core call center collection floor as well as cash collections generated by our internal staff of legal collectors. This calculation does not include hours paid to our internal staff of legal collectors or to employees processing the bankruptcy-required notifications to trustees.


(2)	Represents total cash collections (assigned and unassigned) divided by total hours paid (including holiday, vacation and sick time) to collectors (including those in training).


(3)	Represents total cash collections less external legal cash collections. This metric includes internal legal collections and all bankruptcy collections and excludes any hours associated with either of those functions.


(4)	Represents total cash collections less external legal cash collections and less purchased bankruptcy cash collections from trustee-administered accounts. This metric does not include any labor hours associated with the bankruptcy or legal (internal or external) functions but does include internally-driven cash collections from the internal legal channel.


(5)	Due to a change in our calculation methodology, figures for the first and second quarter of 2013 have been revised to conform to current period presentation.

Liquidity and Capital Resources

Historically, our primary sources of cash have been cash flows from operations, bank borrowings, and convertible debt and equity offerings. Cash has been used for acquisitions of finance receivables, corporate acquisitions, repurchase of our common stock, repayments of bank borrowings, operating expenses, purchases of property and equipment, and working capital to support our growth.

As of March 31, 2014 , cash and cash equivalents totaled $191.8 million, compared to $162.0 million at December 31, 2013. We had no debt outstanding on the revolving portion of our credit facility which represents availability of $435.5 million (subject to the borrowing base and applicable debt covenants). In addition, at March 31, 2014 we had $192.5 million outstanding on the floating rate term loan portion of our credit facility.

We have in place forward flow commitments for the purchase of defaulted consumer receivables over the next twelve months of approximately $198.9 million as of March 31, 2014 . Additionally we may enter into new or renewed flow commitments in the next twelve months and close on spot transactions in addition to the aforementioned flow agreements. We believe that funds generated from operations and from cash collections on finance receivables, together with existing cash and available borrowings under our credit facility will be sufficient to finance our operations, planned capital expenditures, the aforementioned forward flow commitments, and additional, normal-course portfolio purchasing during the next twelve months. Business acquisitions or higher than normal levels of portfolio purchasing could require additional financing from other sources. We continue to prepare to finance

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our announced acquisition of Aktiv with a combination of cash, $170 million of seller financing, and $650 million from our domestic revolving credit facility. We may choose to use other debt instruments to expand, replace, or pay down any of these financing options.

For domestic income tax purposes, we recognize revenue using the cost recovery method with respect to our debt purchasing business. The Internal Revenue Service (“IRS”) has audited and issued a Notice of Deficiency for the tax years ended December 31, 2007, 2006 and 2005. It has asserted that tax revenue recognition using the cost recovery method does not clearly reflect taxable income, and that unused line fees paid on credit facilities should be capitalized and amortized rather than taken as a current deduction. We have filed a petition in the United States Tax Court and believe we have sufficient support for the technical merits of our positions. If we are unsuccessful in the United States Tax Court, we can appeal to the federal Circuit Court of Appeals. If judicial appeals prove unsuccessful, we may ultimately be required to pay the related deferred taxes, and possibly interest and penalties, which may require additional financing from other sources. In accordance with the Internal Revenue Code, underpayments of federal tax accrue interest, compounded daily, at the applicable federal short term rate plus three percentage points. An additional two percentage points applies to large corporate underpayments of $100,000 or more to periods after the applicable date as defined in the Internal Revenue Code. Deferred taxes related to this item were $219.1 million at March 31, 2014.

Cash generated from operations is dependent upon our ability to collect on our finance receivables. Many factors, including the economy and our ability to hire and retain qualified collectors and managers, are essential to our ability to generate cash flows. Fluctuations in these factors that cause a negative impact on our business could have a material impact on our future cash flows.

Our operating activities provided cash of $49.3 million and $58.1 million for the three months ended March 31, 2014 and 2013, respectively. In these periods, cash from operations was generated primarily from net income earned through cash collections and fee income received for the period. The decrease was due in part to a decrease in accrued compensation as well as net changes in other accounts related to our operating activities partially offset by an increase in deferred tax expense as well as an increase in net income to $40.8 million for the three months ended March 31, 2014 , from $38.5 million for the three months ended March 31, 2013 .

Our investing activities used cash of $21.1 million and $94.2 million during the three months ended March 31, 2014 and 2013, respectively. Cash provided by investing activities is primarily driven by cash collections applied to principal on finance receivables. Cash used in investing activities is primarily driven by acquisitions of defaulted consumer receivables and purchases of property and equipment. The majority of the decrease was due to a decrease in acquisitions of finance receivables, from $212.4 million for the three months ended March 31, 2013 to $150.1 million for the three months ended March 31, 2014 , partially offset by an increase in collections applied to principal on finance receivables from $120.7 million for the three months ended March 31, 2013 to $135.4 million for the three months ended March 31, 2014 .

Our financing activities provided cash of $1.6 million and $42.7 million during the three months ended March 31, 2014 and 2013, respectively. Cash is primarily provided by draws on our line of credit. Cash used in financing activities is primarily driven by principal payments on our line of credit, principal payments on long-term debt and repurchases of our common stock. The decrease was due primarily due to changes in the net borrowings on our credit facility. We had net borrowings on our credit facility of $45.0 million during the three months ended March 31, 2013 compared to net borrowings of $0 during the three months ended March 31, 2014.

Cash paid for interest was $5.7 million and $2.7 million for the three months ended March 31, 2014 and 2013, respectively. Interest was paid on our revolving credit facility, long-term debt and convertible debt. Cash paid for income taxes was $1.9 million and $2.9 million for the three months ended March 31, 2014 and 2013, respectively.

Borrowings

On December 19, 2012, we entered into a credit agreement with Bank of America, N.A., as administrative agent, and a syndicate of lenders named therein (the “Credit Agreement”). The Credit Agreement was amended and modified during 2013 and the first quarter of 2014. Under the terms of the Credit Agreement, as amended and modified, the credit facility includes an aggregate principal amount available of $628.0 million (subject to the borrowing base and applicable debt covenants), which consists of a $192.5 million floating rate term loan that amortizes and matures on December 19, 2017 and a $435.5 million revolving credit facility that matures on December 19, 2017. Our revolving credit facility includes a $20.0 million swingline loan sublimit, a $20.0 million letter of credit sublimit and a $20.0 million alternative currency equivalent sublimit. It also contains an accordion loan feature that allows us to request an increase of up to $214.5 million in the amount available for borrowing under the revolving credit facility, whether from existing or new lenders, subject to terms of the Credit Agreement.

On April 1, 2014, we entered into a Lender Joinder Agreement and Lender Commitment Agreement (collectively, the “Commitment Increase Agreements”) to exercise this accordion feature. The Commitment Increase Agreements expanded the maximum amount of revolving credit availability under the Credit Agreement by $214.5 million, elevated the revolving credit

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commitments of certain lenders and added three new lenders to the Credit Agreement. Given effect to the $214.5 million increase in the amount of revolving credit availability pursuant to the Commitment Increase Agreements, the total credit facility under the Credit Agreement now includes an aggregate principal amount of $842.5 million (subject to compliance with a borrowing base), which consists of (i) a fully-funded $192.5 million term loan, (ii) a $630 million domestic revolving credit facility, of which $630 million is available to be drawn, and (iii) a $20 million multi-currency revolving credit facility, all of which is available to be drawn. The facilities all mature on December 19, 2017. The Credit Agreement is secured by a first priority lien on substantially all of our assets.

Borrowings outstanding on our credit facility at March 31, 2014 consisted of $192.5 million outstanding on the term loan with an annual interest rate as of March 31, 2014 of 2.65%. The revolving credit facility also bears an unused line fee of 0.375% per annum, payable quarterly in arrears.

On August 13, 2013, we completed the private offering of $287.5 million in aggregate principal amount of our 3.00% Convertible Senior Notes due 2020 (the “Notes”). The Notes were issued pursuant to an Indenture, dated August 13, 2013 (the "Indenture") between us and Wells Fargo Bank, National Association, as trustee. The Indenture contains customary terms and covenants, including certain events of default after which the Notes may be due and payable immediately. The Notes are senior unsecured obligations of the Company. Interest on the Notes is payable semi-annually, in arrears, on February 1 and August 1 of each year, beginning as of February 1, 2014.

We were in compliance with all covenants of our credit facilities and the Indenture as of March 31, 2014 and December 31, 2013.

Undistributed Earnings of Foreign Subsidiaries

We intend to use remaining accumulated and future undistributed earnings of foreign subsidiaries to expand operations outside the United States; therefore, such undistributed earnings of foreign subsidiaries are considered to be indefinitely reinvested outside the United States. Accordingly, no provision for U.S. federal and state income tax has been provided thereon. If management intentions change and eligible undistributed earnings of foreign subsidiaries are repatriated, taxes would be accrued and paid on such earnings.

Stockholders’ Equity

Stockholders’ equity was $910.2 million at March 31, 2014 and $869.5 million at December 31, 2013. The increase was primarily attributable to $40.8 million in net income attributable to PRA during the three months ended March 31, 2014.

Contractual Obligations

Our contractual obligations as of March 31, 2014 were as follows (amounts in thousands):



	Payments due by period
Contractual Obligations	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
Operating Leases	$	29,704	$	6,645	$	11,654	$	7,731	$	3,674
Line of Credit ⁽¹⁾	6,143		1,652		3,266		1,225		—
Long-term Debt ⁽²⁾	557,533		25,445		70,246		161,404		300,438
Purchase Commitments ⁽³⁾	220,427		218,036		2,178		213		—
Employment Agreements	7,517		7,517		—		—		—
Total	$	821,324	$	259,295	$	87,344	$	170,573	$	304,112


(1)	This amount includes estimated unused line fees due on the line of credit and assumes that the balance on the line of credit remains constant from the March 31, 2014 balance of $0.0 million.


(2)	This amount includes scheduled interest and principal payments on our term loan and and our convertible debt.


(3)	This amount includes the maximum remaining amount to be purchased under forward flow contracts for the purchase of charged-off consumer debt in the amount of approximately $198.9 million.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements as defined by Regulation S-K 303(a)(4) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

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Recent Accounting Pronouncements

In March 2013, the FASB issued ASU 2013-05, "Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity," which defines the treatment of the release of cumulative translation adjustments upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. Early adoption is permitted and prior periods should not be adjusted. We adopted ASU 2013-02 in the first quarter of 2014 which had no material impact on our consolidated financial statements.

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Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. Our significant accounting policies are discussed in Note 1 of the Notes to the Consolidated Financial Statements of our 2013 Annual Report on Form 10-K filed on February 28, 2014. Our significant accounting policies are fundamental to understanding our results of operations and financial condition because they require that we use estimates, assumptions and judgments that affect the reported amounts of revenues, expenses, assets, and liabilities.

Three of these policies are considered to be critical because they are important to the portrayal of our financial condition and results, and because they require management to make judgments and estimates that are difficult, subjective, and complex regarding matters that are inherently uncertain.

We base our estimates on historical experience, current trends and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. If these estimates differ significantly from actual results, the impact on our consolidated financial statements may be material.

Management has reviewed these critical accounting policies with the Company's Audit Committee.

Revenue Recognition - Finance Receivables

We account for our investment in finance receivables under the guidance of ASC 310-30. We acquire portfolios of accounts that have experienced deterioration of credit quality between origination and our acquisition of the accounts. The amount paid for a portfolio reflects our determination that it is probable we will be unable to collect all amounts due according to an account's contractual terms. At acquisition, we review the accounts to determine whether there is evidence of deterioration of credit quality since origination, and if it is probable that we will be unable to collect all amounts due according to the loan's contractual terms. If both conditions exist, we then determine whether each such account is to be accounted for individually or whether such accounts will be assembled into pools based on common risk characteristics. We consider expected prepayments and estimate the amount and timing of undiscounted expected principal, interest and other cash flows (expected at acquisition) for each acquired portfolio based on our proprietary models, and then subsequently aggregate portfolios of accounts into pools. We determine the excess of the pool's scheduled contractual principal and contractual interest payments over all cash flows expected at acquisition as an amount that should not be accreted (nonaccretable difference). The remaining amount, representing the excess of the pool's cash flows expected to be collected over the amount paid, is accreted into income recognized on finance receivables over the remaining estimated life of the pool (accretable yield). ASC 310-30 requires that the excess of the contractual cash flows over expected cash flows, based on our estimates derived from our proprietary collection models, not be recognized as an adjustment of revenue or expense or on the balance sheet.

Each static pool is recorded at cost, which may include certain direct costs of acquisition paid to third parties, and is accounted for as a single unit for the recognition of income, payments applied to principal and loss provision. Once a static pool is established for a calendar quarter, individual receivable accounts are not added to the pool (unless replaced by the seller) or removed from the pool (unless sold or returned to the seller). ASC 310-30, utilizing the interest method, initially freezes the yield, estimated when the accounts are purchased, as the basis for subsequent impairment testing. The yield is estimated and periodically recalculated based on the timing and amount of anticipated cash flows using our proprietary collection models. Income on finance receivables is accrued quarterly based on each static pool's effective yield. Significant increases in expected future cash flows may be recognized prospectively, through an upward adjustment of the yield, over a pool's remaining life. Any increase to the yield then becomes the new benchmark for impairment testing. Under ASC 310-30, rather than lowering the estimated yield if the collection estimates are not received or projected to be received, the carrying value of a pool would be written down to maintain the then current yield and is shown as a reduction in revenue in the consolidated income statements with a corresponding valuation allowance offsetting finance receivables, net, on the consolidated balance sheets. Cash flows greater than the interest accrual will reduce the carrying value of the static pool. This reduction in carrying value is defined as payments applied to principal (also referred to as principal amortization). Likewise, cash flows that are less than the interest accrual will accrete the carrying balance. Generally, we do not record accretion in the first six to twelve months of the estimated life of the pool; accordingly, we utilize either the cost recovery method or cash method when necessary to prevent accretion as permitted by ASC 310-30. Under the cash method, revenue is recognized as it would be under the interest method up to the amount of cash collections. Under the cost recovery method, no revenue is recognized until we have fully collected the cost of the pool, or until such time that we consider the collections to be probable and estimable and begin to recognize income based on the interest method as described above. We also use the cost recovery method when collections on a particular pool of accounts cannot be reasonably estimated.

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A pool can become fully amortized (zero carrying balance on the balance sheet) while still generating cash collections. In this case, all cash collections are recognized as revenue when received.

We establish valuation allowances, if necessary, for acquired accounts subject to ASC 310-10. Valuation allowances are established only subsequent to acquisition of the accounts.

We implement the accounting for income recognized on finance receivables under ASC 310-30 as follows. We create each accounting pool using our projections of estimated cash flows and expected economic life. We then compute the effective yield that fully amortizes the pool over a reasonable expectation of its economic life based on the current projections of estimated cash flows. As actual cash flow results are recorded, we balance those results to the data contained in our proprietary models to ensure accuracy, then review each pool watching for trends, actual performance versus projections and curve shape (a graphical depiction of the timing of cash flows), regularly re-forecasting future cash flows utilizing our statistical models. The review process is primarily performed by our finance staff; however, our operational and statistical staff is also involved, providing updated statistical input and cash projections to the finance staff. If there is a significant increase in expected cash flows, we will recognize the effect of the increase prospectively through an increase in yield. If a valuation allowance had been previously recognized for that pool, the allowance is reversed before recording any prospective yield adjustments. If the over performance is considered more of an acceleration of cash flows (a timing difference), we will: a) adjust estimated future cash flows downward which effectively extends the amortization period to fall within a reasonable expectation of the pool's economic life, b) adjust future cash flow projections as noted previously coupled with an increase in yield in order for the amortization period to fall within a reasonable expectation of the pool's economic life, or c) take no action at all if the amortization period falls within a reasonable expectation of the pool's expected economic life. To the extent there is underperformance, we will record an allowance if the underperformance is significant and will also consider revising estimated future cash flows based on current period information, or take no action if the pool's amortization period is reasonable and falls within the currently projected economic life.

Valuation of Acquired Intangibles and Goodwill

In accordance with ASC Topic 350, “Intangibles-Goodwill and Other” (“ASC 350”), we amortize intangible assets over their estimated useful lives. Goodwill, pursuant to ASC 350, is not amortized but rather is reviewed for impairment annually or earlier if indicators of potential impairment exist. The review of goodwill for potential impairment is highly subjective and requires that: (1) goodwill is allocated to various reporting units of our business to which it relates; and (2) we estimate the fair value of those reporting units to which the goodwill relates and then determine the book value of those reporting units. During the review, we also consider qualitative factors that may have an impact on the final assessment regarding potential impairment. If the estimated fair value of reporting units with allocated goodwill is determined to be less than their book value, we are required to estimate the fair value of all identifiable assets and liabilities of those reporting units in a manner similar to a purchase price allocation for an acquired business.

This may require independent valuation of certain unrecognized assets. Once this process is complete, the amount of goodwill impairment, if any, can be determined.

Income Taxes

We follow the guidance of FASB ASC Topic 740 “Income Taxes” (“ASC 740”) as it relates to the provision for income taxes and uncertainty in income taxes. Accordingly, we record a tax provision for the anticipated tax consequences of the reported results of operations. In accordance with ASC 740, the provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating losses and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. The evaluation of a tax position in accordance with the guidance is a two-step process. The first step is recognition: the enterprise determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluating whether a tax position has met the more-likely-than-not recognition threshold, the enterprise should presume that the position will be examined by the appropriate taxing authority that would have full knowledge of all relevant information. The second step is measurement: a tax position that meets the more-likely-than-not recognition threshold is measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. We record interest and penalties related to unrecognized tax benefits as a component of income tax expense.

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In the event that all or part of the deferred tax assets are determined not to be realizable in the future, a valuation allowance would be established and charged to earnings in the period such determination is made. If we subsequently realize deferred tax assets that were previously determined to be unrealizable, the respective valuation allowance would be reversed, resulting in a positive adjustment to earnings or a decrease in goodwill in the period such determination is made. The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with our expectations could have a material impact on our results of operations and financial position.

For domestic income tax purposes, we recognize revenue using the cost recovery method with respect to our debt purchasing business. We believe cost recovery to be an acceptable method for companies in the bad debt purchasing industry. Under the cost recovery method, collections on finance receivables are applied first to principal to reduce the finance receivables to zero before any income is recognized.



Item 3.	Quantitative and Qualitative Disclosure About Market Risk

Interest Rate Risk

We are subject to interest rate risk from outstanding borrowings on our variable rate credit facility. We assess this interest rate risk by estimating the increase in interest expense that would occur due to an increase in short-term interest rates. The average borrowings on our variable rate credit facility were $195.0 million and $359.6 million for the three months ended March 31, 2014 and 2013, respectively. Assuming a 200 basis point increase in interest rates, for example, interest expense would have increased by $1.0 million and $1.8 million for the three months ended March 31, 2014 and 2013, respectively, resulting in a decrease in income before income taxes of 1.4% and 2.8%, respectively. As of March 31, 2014 and December 31, 2013, we had $192.5 million and $195.0 million, respectively, of variable rate debt outstanding on our credit facility. We did not have any other variable rate debt outstanding as of March 31, 2014 . We had no interest rate hedging programs in place for the three months ended March 31, 2014 and 2013. Significant increases in future interest rates on our variable rate credit facility could lead to a material decrease in future earnings assuming all other factors remained constant.

Currency Exchange Risk

We are subject to currency exchange risk from our UK subsidiary, PRA UK. It conducts business in the Pound Sterling, but we report our financial results in U.S. dollars. Significant fluctuations in exchange rates between the U.S. dollar and the Pound Sterling may adversely affect our net income. We may or may not implement a hedging program related to currency exchange rate fluctuation. In the three months ended March 31, 2014 and 2013, PRA UK revenues were 1.4% and 1.6% of consolidated revenues, respectively. We had no currency exchange risk hedging programs in place for the three months ended March 31, 2014 or 2013.



Item 4.	Controls and Procedures

Evaluation of Disclosure Controls and Procedures. We maintain disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial and Administrative Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, controls may become inadequate because of changes in conditions and the degree of compliance with the policies or procedures may deteriorate. We conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial and Administrative Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial and Administrative Officer have concluded that, as of March 31, 2014 , our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting. There was no change in our internal control over financial reporting that occurred during the quarter ended March 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are from time to time subject to routine legal claims and proceedings, most of which are incidental to the ordinary course of our business. We initiate lawsuits against customers and are occasionally countersued by them in such actions. Also, customers, either individually, as members of a class action, or through a governmental entity on behalf of customers, may initiate litigation against us in which they allege that we have violated a state or federal law in the process of collecting on an account. From time to time, other types of lawsuits are brought against us.

No legal proceedings were commenced during the period covered by this report that the Company believes could reasonably be expected to have a material adverse effect on its financial condition, results of operations and cash flows. Refer to Note 9 “Commitments and Contingencies” of our Consolidated Financial Statements for material developments with respect to legal proceedings previously disclosed with respect to prior periods.

Item 1A. Risk Factors

An investment in our common stock involves a high degree of risk. You should carefully consider the specific risk factors listed under Part I, Item 1A of our 2013 Annual Report on Form 10-K filed on February 28, 2014, together with all other information included herein or incorporated in our reports filed with the SEC. Any such risks may materialize, and additional risks not known to us, or that we now deem immaterial, may arise. In such event, our business, financial condition, results of operations or prospects could be materially adversely affected. If that occurs, the market price of our common stock could fall, and you could lose all or part of your investment.

Our potential acquisition of Aktiv exposes us to risks which could harm our business, operating results, and financial condition.

On February 19, 2014, we entered into an agreement pursuant to which we are to acquire the equity of Aktiv. The announcement and pendency of the Aktiv acquisition could cause disruptions in and create uncertainty surrounding our business. In addition, we have incurred, and will continue to incur, significant costs in connection with the Aktiv acquisition and we have diverted, and will continue to divert, significant management resources in an effort to complete the Aktiv acquisition. This could have a negative impact on our ability to manage our existing operations or pursue alternative strategic transactions, which could have a negative effect on our business, results of operations and financial condition.

The Aktiv acquisition is expected to close in the second or third quarter of 2014 upon successful completion of customary closing conditions, including approval of the Aktiv acquisition by applicable competition authorities and our ability to obtain the necessary financing to consummate the Aktiv acquisition. No assurances can be given that we will be able to close the Aktiv acquisition on the terms and conditions contemplated by the Aktiv agreement in accordance with the anticipated timing, or at all. If the Aktiv acquisition is not consummated, investors could react negatively and could become concerned about our growth prospects over the next several years, which could negatively impact the price of our common stock.

We expect to finance the Aktiv acquisition with a combination of cash, seller financing and funding from our domestic revolving credit facility. Additionally, we have agreed to assume Aktiv’s current corporate debt.

As a result of the financing of the Aktiv acquisition, we expect our debt to increase significantly, both in terms of the total amount of our borrowings and as a percentage of the equity of the combined company. This increase in our indebtedness could increase our vulnerability to general adverse economic and industry conditions, make it more difficult for us to satisfy obligations with respect to our indebtedness, require us to dedicate a substantial portion of our cash flow from operations to service payments on our debt, limit our flexibility to react to changes in our business and the industry in which we operate, place us at a competitive disadvantage with our competitors that have less debt and limit our ability to borrow additional funds.

Other than our existing UK business, PRA UK, which we acquired in 2012, we have limited operating experience in international markets. If consummated, the international nature of the Aktiv acquisition expands the risks and uncertainties described elsewhere in this section, including the following:


•	changes in local political, economic, social and labor conditions in Europe and Canada;


•	foreign exchange controls that might prevent us from repatriating cash earned in countries outside the United States;


•	currency exchange rate fluctuations and our ability to manage these fluctuations through a foreign exchange risk management program;


•	different employee/employer relationships, laws and regulations and existence of employment tribunals;


•	laws and regulations imposed by foreign governments, including those relating to governing data security, sharing and transfer;


•	potentially adverse tax consequences resulting from changes in tax laws in the foreign jurisdictions in which we operate;


•	logistical, communications and other challenges caused by distance and cultural and language differences, making it harder to do business in certain jurisdictions; and


•	risks related to crimes, strikes, riots, civil disturbances, terrorist attacks and wars in a variety of new geographical locations.

Any one of these factors could have an adverse effect on our business, results of operations and financial condition.

If we do not successfully integrate Aktiv into our business operations, our business could be adversely affected.

Upon the close of the Aktiv acquisition, we will need to successfully integrate the operations of Aktiv with our business operations. Integrating the operations of Aktiv with that of our own will be a complex and time-consuming process. Prior to the Aktiv acquisition, Aktiv operated independently, with its own business, corporate culture, locations, employees and systems. There may be substantial difficulties, costs and delays involved in any integration of the business of Aktiv with that of our own. These may include:


•	distracting management from day-to-day operations;


•	potential incompatibility of corporate cultures;


•	an inability to achieve synergies as planned;


•	changes in the combined business due to potential divestitures or other requirements imposed by antitrust regulators;


•	costs and delays in implementing common systems and procedures; and


•	increased difficulties in managing our business due to the addition of international locations.

Many of these risks may be accentuated because the vast majority of Aktiv’s operations, employees and customers are located outside of the United States. Any one or all of these factors may increase operating costs or lower anticipated financial performance. Many of these factors are also outside of our control. Achieving anticipated synergies and the potential benefits underlying our reasons for the Aktiv Acquisition will depend on successful integration of the businesses. The failure to integrate the business operations of Aktiv successfully could have a material adverse effect on our business, financial condition and results of operations.

Compliance with complex foreign and U.S. laws and regulations that apply to our international operations, which will be expanded as a result of the Aktiv acquisition, could increase our cost of doing business in international jurisdictions.

Although we currently have international operations, upon the consummation of the Aktiv acquisition, we will operate on an expanded international basis with additional offices or activities in a number of new jurisdictions throughout Europe. We will face increased exposure to risks inherent in conducting business internationally, including compliance with complex foreign and U.S. laws and regulations that apply to our international operations, which could increase our cost of doing business in international jurisdictions. These laws and regulations include anti-corruption laws such as the Foreign Corrupt Practices Act (“FCPA”), the UK Bribery Act of 2010 and other local laws prohibiting corrupt payments to governmental officials, and those related to taxation. The FCPA and similar antibribery laws in other jurisdictions generally prohibit U.S.-based companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. The U.K. Bribery Act of 2010 prohibits certain entities from making improper payments to governmental officials and to commercial entities. Given the high level of complexity of these laws, there is a risk that we may inadvertently breach certain provisions of these laws, for example through fraudulent or negligent behavior of individual employees, our failure to comply with certain formal documentation requirements, or otherwise. Violations of these laws and regulations could result in fines and penalties; criminal sanctions against us, our officers, or our employees; prohibitions on the conduct of our business and on our ability to offer our products and services in one or more countries, and could also adversely affect our brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results. Although we have implemented, and, with respect to new jurisdictions we will enter as a result of the Aktiv acquisition, will implement, policies and procedures designed to ensure compliance with these laws and regulations, there can be no assurance that our employees, contractors or agents will not violate our policies.

Exchange rate fluctuations could adversely affect our results of operations and financial position.

Because we conduct business in currencies other than U.S. dollars but report our financial results in U.S. dollars, we face exposure to fluctuations in currency exchange rates. This exposure is likely to increase as a result of the Aktiv acquisition, as a larger portion of our operating expenses will likely be incurred in non-U.S. dollar currencies. As a result, significant fluctuations in exchange rates between the U.S. dollar and foreign currencies may adversely affect our net income. We may or may not implement a hedging program related to currency exchange rate fluctuations. Additionally, if implemented, such hedging programs could expose us to additional risks that could adversely affect our financial condition and results of operations.

We will incur significant transaction, integration and restructuring costs in connection with the Aktiv acquisition.

We will incur significant transaction costs related to the Aktiv acquisition. In addition, the combined business will incur integration and restructuring costs following the completion of the Aktiv acquisition as we integrate the Aktiv businesses with our businesses. Although we expect that the realization of benefits and efficiencies related to the integration of the businesses may offset these costs over time, no assurances can be made that this net benefit will be achieved in the near term, or at all, which could adversely affect our financial condition and results of operations.

A write-off of a significant portion of the goodwill recorded in connection with the Aktiv acquisition would negatively affect the combined company’s financial results.

We expect to record a significant amount of goodwill as a result of the Aktiv acquisition. On at least an annual basis, we assess whether there has been an impairment in the value of goodwill. If the carrying value of goodwill exceeds its estimated fair value, impairment is deemed to have occurred, and the carrying value of goodwill is written down to fair value. Under current accounting rules, this would result in a charge to the combined company’s operating earnings. Accordingly, any determination requiring the write-off of a significant portion of goodwill recorded in connection with the Aktiv acquisition would negatively affect our results of operations.

The Aktiv acquisition may not close as anticipated.

While we expect that the Aktiv acquisition will close during the second or third quarter of 2014, the closing of the Aktiv acquisition may not occur when anticipated, if at all. The closing of the Aktiv acquisition is subject to, among other things, financial supervisory authority and antitrust approval, certain third-party consents being obtained, the absence of a material adverse change to the assets, liabilities, results of operations or financial condition of Aktiv and its subsidiaries, taken as a whole, and the parties’ compliance with other requirements contained in the Agreement. A delay in the closing of the Aktiv acquisition or a failure to consummate the Aktiv acquisition may inhibit our ability to execute our business plan.

Upon the close of the Aktiv acquisition, we may have exposure to additional tax liabilities.

As a multinational corporation, we are subject to income taxes as well as non-income based taxes, in both the United States and various foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes and other tax liabilities. Changes in tax laws or tax rulings may have a significant adverse impact on our effective tax rate. Recent proposals by the current U.S. administration for fundamental U.S. international tax reform, including without limitation provisions that would limit the ability of U.S. multinationals to defer U.S. taxes on foreign income, if enacted, could have a significant adverse impact on our effective tax rate following the Aktiv acquisition.

Prior to the Aktiv acquisition, Aktiv has been a privately-held company and its new obligations of being a part of a public company may require significant resources and management attention.

Upon consummation of the Aktiv acquisition, Aktiv and its subsidiaries will become subsidiaries of our consolidated company and will need to comply with the Sarbanes-Oxley Act of 2002 and the rules and regulations subsequently implemented by the SEC and the Public Company Accounting Oversight Board. We will need to ensure that Aktiv establishes and maintains effective disclosure controls as well as internal controls and procedures for financial reporting, and such compliance efforts may be costly and may divert the attention of management.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits



10.1	Deed of Novation, Amendment and Restatement, dated May 5, 2014, by and between Geveran Trading Co. Ltd and Portfolio Recovery Associates, Inc., PRA Holding IV, LLC and Tekagel Invest 742 AS.



10.2	Novated, Amended and Restated Sale and Purchase Agreement, dated May 5, 2014, for the Sale and Purchase of Aktiv Kapital AS.



10.3	Second Amendment, entered into as of February 19, 2014, to Credit Agreement dated as of December 19, 2012 by and among the Company, the domestic wholly-owned subsidiaries of the Company as guarantors, Bank of America, N.A. as administrative agent, swing line lender, and l/c issuer, Wells Fargo Bank, N.A. and SunTrust Bank as co-syndication agents, KeyBank, National Association, as documentation agent, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Wells Fargo Securities, LLC, and SunTrust Robinson Humphrey, Inc. as joint lead arrangers and joint book managers, and the lenders named therein. (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed on March 20, 2014).



31.1	Section 302 Certifications of Chief Executive Officer.



31.2	Section 302 Certifications of Chief Financial and Administrative Officer.



32.1	Section 906 Certifications of Chief Executive Officer and Chief Financial and Administrative Officer.



101.INS	XBRL Instance Document



101.SCH	XBRL Taxonomy Extension Schema Document



101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document



101.LAB	XBRL Taxonomy Extension Label Linkbase Document



101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document



101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




	PORTFOLIO RECOVERY ASSOCIATES, INC.
	(Registrant)

Date: May 8, 2014	By:	/s/ Steven D. Fredrickson
		Steven D. Fredrickson Chief Executive Officer, President and Chairman of the Board of Directors (Principal Executive Officer)

Date: May 8, 2014	By:	/s/ Kevin P. Stevenson
		Kevin P. Stevenson Chief Financial and Administrative Officer, Executive Vice President, Treasurer and Assistant Secretary (Principal Financial and Accounting Officer)

DATED 5 MAY 2014

------------

DEED OF NOVATION, AMENDMENT AND RESTATEMENT

between

GEVERAN TRADING CO. LTD

and

PORTFOLIO RECOVERY ASSOCIATES, INC

and

PRA HOLDING IV, LLC

and

TEKÅGEL INVEST 742 AS

CONTENTS

CLAUSE



PREAMBLE		3
1.	Definitions and interpretation......................................................	4
2.	Novation of the Original SPA......................................................	4
3.	Amendment of the Original SPA.................................................	5
4.	Warranties....................................................................................	5
5.	Further Assurance........................................................................	6
6.	Variations.....................................................................................	6
7.	Invalidity......................................................................................	6
8.	Miscellaneous..............................................................................	6
9.	Third Party Rights.......................................................................	7
10.	Whole Agreement........................................................................	7
11.	Governing law and jurisdiction...................................................	8
APPENDIX 1		10

THIS DEED is dated 5 May 2014

PARTIES


(1)	GEVERAN TRADING CO. LTD , a company incorporated under the laws of Cyprus, with address at Deana Beach Apartments, Block 1, 4th Floor, Promachon Eleftherias Street, Ayios Athanasios, CY-4103 Limassol, Cyprus (the Seller );


(2)	PRA HOLDING IV, LLC , a limited liability company organised under the laws of Virginia, with address at 120 Corporate Boulevard, Norfolk, VA 23502, United States of America (the Exiting Purchaser );


(3)	TEKÅGEL INVEST 742 AS , a company incorporated under the laws of Norway with registration number 913 269 128 with address at c/o Ståle R Kristiansen, Haakon VII’s gate 10, 0161 Oslo, Norway (the Incoming Purchaser ); and


(4)	PORTFOLIO RECOVERY ASSOCIATES, INC. , a company incorporated under the laws of Delaware, with address at 120 Corporate Boulevard, Norfolk, VA 23502, United States of America (the Purchaser Guarantor ),

(each a Party in this Deed and together, the Parties ).

PREAMBLE

(A) The Seller, the Exiting Purchaser and the Purchaser Guarantor (the Original SPA Parties ) entered into a sale and purchase agreement dated 19 February 2014 (the Original SPA ) pursuant to which the Seller agreed to sell, and the Exiting Purchaser agreed to purchase (or procure the purchase of), the Shares on the terms and subject to the conditions of the Original SPA.

(B) At the time of execution of the Original SPA, it was contemplated by the Original SPA Parties that, at any time prior to Closing, the Exiting Purchaser may transfer its rights and obligations as purchaser under the Original SPA (and its rights under the disclosure letter dated 19 February 2014 (the Disclosure Letter )) to a wholly owned subsidiary of the Purchaser Guarantor. The Incoming Purchaser is a wholly owned subsidiary of the Purchaser Guarantor.

(C) The Parties have agreed that the Original SPA (and the Disclosure Letter) shall be novated on the terms set out in this deed of novation, amendment and restatement (this Deed ) such that the Exiting Purchaser shall be released and discharged from its obligations under, and the Incoming Purchaser shall have the rights and benefits and assume the obligations of the Exiting Purchaser under, the Original SPA (and the Disclosure Letter, as applicable) on an ab initio basis as if the Incoming Purchaser had at all times been a party to the Original SPA (and the Disclosure Letter) as the purchaser under the Original SPA.

(D) The Parties have agreed to amend and restate the Original SPA in the form set out in Appendix A to this Deed (the Amended and Restated SPA ) such that the Amended and Restated SPA shall replace the Original SPA as if the Original SPA was in the form of the Amended and Restated SPA when originally entered into.

AGREED TERMS


1.	DEFINITIONS AND INTERPRETATION

Unless otherwise defined herein, defined words and expressions used in this Deed shall have the meaning given to them in Schedule 14 of the Amended and Restated SPA.


2.	NOVATION OF THE ORIGINAL SPA

In consideration of the mutual undertakings contained in this Deed, and with effect from the date of this Deed (the Effective Date ):


(a)	the Original SPA Parties and the Incoming Purchaser agree that:


(i)	the Exiting Purchaser shall cease to be a party to the Original SPA and the Incoming Purchaser shall become a party to the Original SPA in place of the Exiting Purchaser (as the purchaser under the Original SPA) on an ab initio basis as if the Incoming Purchaser had at all times been a party to the Original SPA instead of the Exiting Purchaser;


(ii)	the Exiting Purchaser is hereby released and discharged from all claims, demands, liabilities and obligations under the Original SPA (howsoever arising and whether arising on, before or after the Effective Date); and


(iii)	the Incoming Purchaser shall enjoy all the rights and benefits of the Exiting Purchaser (including any accrued rights or claims as at the Effective Date);


(b)	the Incoming Purchaser undertakes to the Seller to accept, observe, perform and discharge all the liabilities and obligations of the Exiting Purchaser under the Original SPA (however arising and whether arising on, before or after the Effective Date) in place of, and as if it had always been a party thereto instead of, the Exiting Purchaser;

(c)

the Purchaser Guarantor reconfirms its guarantee to the Seller in respect of the purchaser under, and on the terms set out in, the Original SPA (the Guarantee ) and undertakes to observe, perform and discharge all its liabilities and obligations under the Guarantee in respect of the liabilities and obligations of the Incoming Purchaser under the Original SPA (however arising and whether arising on, before or after the Effective Date) in place of, and as if the Incoming Purchaser had always been a party thereto instead of, the Exiting Purchaser; and


(d)	the Seller, the Exiting Purchaser and the Incoming Purchaser agree that the Exiting Purchaser shall cease to be a party to the Disclosure Letter and the Incoming Purchaser shall become a party to the Disclosure Letter in place of

the Exiting Purchaser on an ab initio basis as if the Incoming Purchaser had at all times been a party to the Disclosure Letter instead of the Exiting Purchaser.


3.	AMENDMENT OF THE ORIGINAL SPA AND CROSS REFERENCES

3.1

With effect from the Effective Date, and following the novation of the Original SPA set out in clause 2 above, each of the Seller, the Incoming Purchaser and the Purchaser Guarantor agree that the Amended and Restated SPA shall amend and restate the Original SPA in its entirety. The rights and obligations of each of the Seller, the Incoming Purchaser and the Purchaser Guarantor under the Amended and Restated SPA shall be as if the Original SPA was in the form of the Amended and Restated SPA when originally entered into.


3.2	For the avoidance of doubt, the Parties agree that references in the Disclosure Letter to the Original SPA shall be deemed to be references to the Original SPA as novated and amended and restated by this Deed, and that references in the Amended and Restated SPA to the Disclosure Letter shall be deemed to be references to the Disclosure Letter as novated by this Deed.


4.	WARRANTIES

4.1

The Seller acknowledges and accepts that the Incoming Purchaser is replacing the Exiting Purchaser in respect of the Original SPA and is acting in reliance upon the warranties and undertakings given in the Original SPA. If, notwithstanding the novation set out in clause 2 above, the Exiting Purchaser retains any rights or benefits under the Original SPA, it hereby irrevocably assigns such rights or benefits to the Incoming Purchaser and hereby releases the Seller from any liabilities or obligations to it in respect of such rights or benefits.


4.2	Each Party warrants to the other Party that each of the warranties set out below is true and accurate in all respects and not misleading as at the date of this Deed in respect of itself (only) by reference to the facts and circumstances existing on the Effective Date:


(a)	it is validly incorporated, in existence and duly registered under the laws of its jurisdiction and has full power to conduct its business as conducted at the date of this Deed;


(b)	it has obtained all corporate authorisations and other governmental, statutory, regulatory or other consents, licences and authorisations required to empower it to enter into and perform its obligations under this Deed;


(c)	entry into and performance of this Deed will not: (i) breach any provision of its Constitutional Documents; or (ii) result in a breach of any laws or regulations

in its jurisdiction of incorporation or of any order, decree or judgment of any court or any governmental or regulatory authority;

(d)

it is not insolvent or bankrupt under the laws of its jurisdiction of incorporation, unable to pay its debts as they fall due or has proposed or is liable to any arrangement (whether by court process or otherwise) under which its creditors (or any group of them) would receive less than the amounts due to them. There are no proceedings in relation to any compromise or arrangement with creditors or any winding up, bankruptcy or insolvency proceedings concerning it and no events have occurred which would justify such proceedings. No steps have been taken to enforce any security over any of its assets and no event has occurred to give the right to enforce such security; and


(e)	so far as it is aware, it is not subject to any order, judgment, direction, investigation or other proceedings by any Governmental Entity which will, or are likely to, prevent or delay the fulfilment of this Deed.


5.	FURTHER ASSURANCE

Each Party shall perform, or procure the performance of, all further acts and things and execute and deliver, or procure the execution and delivery of, such further documents as may be required by law or be necessary or reasonably desirable to implement and give effect to this Deed.


6.	VARIATIONS

No amendment of this Deed shall be valid unless it is in writing and duly executed by or on behalf of all of the Parties to it.


7.	INVALIDITY

Each of the provisions of this Deed is severable. If any such provision is held to be or becomes invalid or unenforceable under the law of any jurisdiction, the Parties shall use all reasonable endeavours to replace it with a valid and enforceable substitute provision the effect of which is as close to its intended effect as possible.


8.	MISCELLANEOUS

This Deed may be executed in any number of counterparts and by each Party on separate counterparts, but all the counterparts together shall constitute one and the same agreement. Delivery of a counterpart of this Deed by e-mail attachment or telecopy shall be an effective mode of delivery.


9.	THIRD PARTY RIGHTS

A person who is not a Party to this Deed shall not have any rights under the Contracts (Rights of Third Parties) Act 1999 to enforce, or enjoy the benefit of, any term of this Deed.


10.	WHOLE AGREEMENT

This Deed and the other Transaction Documents together set out the whole agreement between the Parties in respect of the sale and purchase of the Shares and supersede any prior agreement (whether oral or written) relating to the Proposed Transaction. It is agreed that:


(a)	no Party shall have any claim or remedy in respect of any statement, representation, warranty or undertaking made by or on behalf of the other Party (or any of its Connected Persons) in relation to the Proposed Transaction which is not expressly set out in this Deed or any other Transaction Document;


(b)	any terms or conditions implied by law in any jurisdiction in relation to the Proposed Transaction are excluded to the fullest extent permitted by law or, if incapable of exclusion, any right, or remedies in relation to them are irrevocably waived;


(c)	the only right or remedy of a Party in relation to any provision of this Deed or any Transaction Document shall be for breach of this Deed or the relevant Transaction Document and/or a claim under any indemnity, undertaking or covenant in this Deed or the relevant Transaction Document; and


(d)	except for any liability in respect of a breach of this Deed or any Transaction Document, no Party (or any of its Connected Persons) shall owe any duty of care or have any liability in tort or otherwise to the other Party (or its respective Connected Persons) in relation to the Proposed Transaction,

provided that this clause shall not exclude any liability for (or remedy in respect of) fraud or fraudulent misrepresentation. Each Party agrees to the terms of this clause 10 on its own behalf and as agent for each of its Connected Persons. For the purpose of this clause, Connected Persons means (in relation to a Party) the officers, employees, agents and advisers of that Party or any of its Affiliates.


11.	GOVERNING LAW AND JURISDICTION


11.1	This Deed and any non-contractual obligations arising out of or in connection with this Deed shall be governed by, and interpreted in accordance with, English law.

11.2

The English courts shall have exclusive jurisdiction in relation to all disputes arising out of or in connection with this Deed (including claims for set-off and counterclaims), including disputes arising out of or in connection with: (i) the creation, validity, effect, interpretation, performance or non-performance of, or the legal relationships established by, this Deed; and (ii) any non-contractual obligations arising out of or in connection with this Deed. For such purposes each Party irrevocably submits to the jurisdiction of the English courts, waives any objections to the jurisdiction of those courts and irrevocably agrees that a judgment or order of the English courts in connection with this Deed is conclusive and binding on it and may be enforced against it in the courts of any other jurisdiction.

11.3

The Seller shall at all times maintain an agent for service of process and any other documents in proceedings in England or any other proceedings in connection with this Deed. Such agent shall be Frontline Corporate Services Limited (London) of 13 ^th Floor, One America Square, 17 Crosswell, London EC3N 2LB and any claim form, judgment or other notice of legal process shall be sufficiently served on the Seller if delivered to such agent at its address for the time being. The Seller irrevocably undertakes not to revoke the authority of this agent and if the Purchaser, acting reasonably, requests the Seller to do so it shall promptly appoint another such agent with an address in England and advise the Purchaser. If, following such a request, the Seller fails to appoint another agent, the Purchaser shall be entitled to appoint one on behalf of the Seller at the Seller’s expense.

11.4

The Purchaser shall at all times maintain an agent for service of process and any other documents in proceedings in England or any other proceedings in connection with this Deed. Such agent shall be Portfolio Recovery Associates UK Ltd of 58 Portland Street, Kilmarnock, KA1 1JG and any claim form, judgment or other notice of legal process shall be sufficiently served on the Purchaser if delivered to such agent at its address for the time being. The Purchaser irrevocably undertakes not to revoke the authority of this agent and if the Seller, acting reasonably, requests the Purchaser to do so it shall promptly appoint another such agent with an address in England and advise the Seller. If, following such a request, the Purchaser fails to appoint another agent, the Seller shall be entitled to appoint one on behalf of the Purchaser at the Purchaser’s expense.

This Agreement is executed and delivered as a DEED by duly authorised representatives of the Parties on the Effective Date.

SIGNATURE

EXECUTED and DELIVERED as a DEED                 )
for and on behalf of GEVERAN TRADING CO. LTD      )
a company incorporated in Cyprus,                               )
in accordance with the laws of that territory                      )           …/s/..Dimitris Hannas

EXECUTED and DELIVERED as a DEED                 )
for and on behalf of PRA HOLDING IV, LLC          )
a company incorporated in the United States of America )
in accordance with the laws of that territory                      )           …/s/Judith Scott

EXECUTED and DELIVERED as a DEED                 )
for and on behalf of TEKÅGEL INVEST 742 AS      )
a company incorporated in Norway             )
in accordance with the laws of that territory                      )           …/s/.Steven D. Fredrickson

EXECUTED and DELIVERED as a DEED )
for and on behalf of

PORTFOLIO RECOVERY ASSOCIATES, INC.      )
a company incorporated in the United States of America      )
in accordance with the laws of that territory                      )           …/s/.Steven D. Fredrickson

APPENDIX 1

AMENDED AND RESTATED SPA

Attached.

19 February 2014

As novated, amended and restated on 5 May 2014

GEVERAN TRADING CO. LTD

PORTFOLIO RECOVERY ASSOCIATES, INC

TEKÅGEL INVEST 742 AS

NOVATED, AMENDED AND RESTATED AGREEMENT

for the sale and purchase of
Aktiv Kapital AS

CONTENTS



PREAMBLE		1

1.	Sale and Purchase	2

2.	Price	2

3.	No Leakage Undertaking	2

4.	Pre-Closing Seller Undertakings	3

5.	Conditions to Closing	3

6.	Closing	7

7.	No Rights of Rescission or Termination	8

8.	Seller Warranties and indemnities	8

9.	Purchaser and Purchaser Guarantor Warranties	11

10.	Purchaser Guarantee	11

11.	Conduct of Third Party Claims	12

12.	Business Protection Undertakings	13

13.	Tax	14

14.	Information, Records and Assistance Post-Closing	14

15.	Payments	15

16.	Costs	16

17.	Announcements	16

18.	Confidentiality	16

19.	Assignment	18

20.	Further Assurances	18

21.	Notices	19

22.	Conflict with other Agreements	20

23.	Whole Agreement	20

24.	Waivers, Rights and Remedies	20

25.	Counterparts	21

26.	Variations	21



27	Invalidity	21

28.	Third Party Enforcement Rights	21

29.	Governing Law and Jurisdiction	21

30.	Amendment and Restatement	22

Schedule 1 Permitted Leakage		23

Schedule 2 Locked Box Accounts		24

Schedule 3 Conduct of the Target Companies Pre Closing		27

Schedule 4 Closing Arrangements		30

Schedule 5 Seller Warranties		32

Schedule 6 Limitations on Liability		44

Schedule 7 Purchaser Warranties		49

Schedule 8 Tax		50

Schedule 9 Target Company Information		72

Schedule 10 Registered Owned IP		86

Schedule 11 Properties		88

Schedule 12 Key Managers		92

Schedule 13 Key Portfolios		93

Schedule 14 Definitions and Interpretation		94

AGREED FORM DOCUMENTS REFERRED TO IN THIS AGREEMENT

Description Clause/Schedule

Metrogas Loan Agreement Amendment Agreement Paragraph 1(e) of Part A of Schedule 4

Data Room index Paragraph 1 of Schedule 14

Loan Note Clause 2.2(b)

Crystal Productions Dispute Letter Paragraph 1(e) of Part A of Schedule 4

AGREEMENT

19 February 2014

as novated, amended and restated on 5 May 2014

PARTIES


(1)	GEVERAN TRADING CO. LTD , a company incorporated under the laws of Cyprus, with address at Deana Beach Apartments, Block 1, 4th Floor, Promachon Eleftherias Street, Ayios Athanasios, CY-4103 Limassol, Cyprus (the Seller );


(2)	TEKÅGEL INVEST 742 AS , a company incorporated under the laws of Norway with registration number 913 269 128 with address at c/o Ståle R Kristiansen, Haakon VII’s gate 10, 0161 Oslo, Norway (the Purchaser ); and


(3)	PORTFOLIO RECOVERY ASSOCIATES, INC. , a company incorporated under the laws of Delaware, with address at 120 Corporate Boulevard, Norfolk, VA 23502, United States of America (the Purchaser Guarantor ),

(each a Party in this Agreement and together, the Parties ).

Words and expressions used in this Agreement shall be interpreted in accordance with Schedule 14.

IT IS AGREED :

PREAMBLE

(A) The Seller is the sole legal and beneficial shareholder of the entire issued share capital of the Company.

(B) The Company is engaged in the business of the acquisition and servicing of non‑performing unsecured consumer loans. Brief particulars of the Company and its Subsidiaries are set out in Schedule 9.

(C) The Seller, the Exiting Purchaser and the Purchaser Guarantor entered into an agreement for the sale and purchase of the Shares on 19 February 2014 (the Original SPA ). At the time of execution of the Original SPA, it was contemplated by the Seller, the Exiting Purchaser and the Purchaser Guarantor that the Exiting Purchaser could transfer its rights and obligations as purchaser under the Original SPA to a wholly owned subsidiary of the Purchaser Guarantor. The Purchaser is a wholly owned subsidiary of the Purchaser Guarantor.

(D) Pursuant to a deed of novation, amendment and restatement entered on 5 May 2014 (the Deed of Novation and Amendment ), the Seller, the Exiting Purchaser, the Purchaser and the Purchaser Guarantor novated the Original SPA such that the Exiting Purchaser was released and discharged from its obligations under, and the Purchaser assumed the rights, benefits and obligations of the Exiting Purchaser under, the Original SPA on an ab initio basis as if the Purchaser had at all times been a party to the Original SPA in place of the Exiting Purchaser.

(E) The Seller intends to sell the Shares and the Purchaser intends to purchase the Shares on the terms and subject to the conditions of this Agreement.

(F) The Purchaser Guarantor has agreed to guarantee the obligations of the Purchaser in the manner set out in this Agreement (and in accordance with the terms of the Deed of Novation and Amendment).

1. SALE AND PURCHASE

1.1 The Seller shall sell, and transfer (with full title guarantee) and the Purchaser shall purchase, the legal and beneficial title to the Shares free from all Third Party Rights with effect from Closing and with all rights attaching or accruing to them including the right to receive all distributions, any return of capital and dividends declared, paid or made in respect of the Shares on or after Closing. The sale and purchase of the Shares shall be on the terms set out in this Agreement.

1.2 The Purchaser shall not be obliged to complete the purchase of any of the Shares unless the purchase of all of the Shares is completed simultaneously.

2. PRICE

2.1 The price for the Shares shall be an amount in Euros equal to € 643,000,000 less an amount in Euros equal to the sum of (i) the Option Holder Payment Amount; and (ii) the Transaction Advisory Fees (if any) (the Price ).

2.2 At Closing, the Purchaser shall satisfy its obligation to pay the Price as follows:


(a)	by the payment to the Seller in cash of an aggregate amount in Euros equal to the Price less the Loan Note Amount; and


(b)	by procuring the issuance by the Purchaser Guarantor and delivery to the Seller of the Loan Note.

2.3 Any payment made in satisfaction of a Liability arising under a Seller Obligation or a Purchaser Obligation shall to the extent permissible under applicable Law adjust the Price to the extent of such payment.

2.4 To the extent permitted by applicable Law, any payment by, or on behalf of, the Purchaser of any Crystal Productions Cash Refund after Closing shall increase the Price by an amount equal to the amount so received.

3. NO LEAKAGE UNDERTAKING

3.1 The Seller warrants and undertakes to the Purchaser that:


(a)	since the Locked Box Accounts Date, there has not been any Leakage; and


(b)	prior to Closing, there will not be any Leakage,

other than Permitted Leakage.

3.2 Subject to clause 3.4, the Seller undertakes to the Purchaser that if there is a breach of any of the warranties or undertakings set out in clause 3.1, it shall, with effect from Closing, promptly pay in cash to the Purchaser on demand a sum equal to the amount of such Leakage.

3.3 The Seller undertakes to notify the Purchaser in writing promptly, and in any event at least two Business Days prior to the Closing Date, of any Leakage or any Permitted Leakage, together with the amount of such Leakage or Permitted Leakage, that has occurred on or prior to the date that is three Business Days prior to the Closing Date.

3.4 The liability of the Seller pursuant to this clause 3 shall terminate on the date falling six (6) months after Closing unless before that date the Purchaser has notified the Seller of a breach of the warranties and undertakings set out in clause 3.1, in which case, in relation to any relevant breaches notified, the Seller shall remain liable until any relevant Claims have been satisfied, settled or withdrawn.

3.5 For the avoidance of doubt, the sole remedy of the Purchaser for a breach by the Seller of the warranties and undertakings set out in clause 3.1 shall be a claim or demand for payment pursuant to clause 3.2.

4. PRE-CLOSING SELLER UNDERTAKINGS

4.1 Subject to clause 4.2, to the extent permissible under applicable Law, during the Pre-Closing Period, the Seller shall (except as may be approved by the Purchaser), ensure that the business of each Target Company is carried on in compliance with the obligations set out in Schedule 3 and in all material respects only in the ordinary course of business.

4.2 The provisions of clause 4.1 and Schedule 3 shall not prevent or prohibit the Seller or any Target Company from carrying out or undertaking any of the following matters:


(a)	complying with, or otherwise carrying out any action expressly permitted by the terms of, any Transaction Document, including the payment of any Permitted Leakage;


(b)	any matter as may be approved in writing by the Purchaser, such approval not to be unreasonably withheld or delayed, or at the Purchaser’s written request (including providing information to any regulatory body or government agency);


(c)	acquiring any non-performing loan portfolio in the ordinary course of business of the Target Companies, provided that the acquisition price in respect of any individual non-performing loan portfolio does not exceed US$20,000,000 in any one instance and the aggregate price of all such acquired non-performing loan portfolios does not exceed US$100,000,000 (a Permitted Portfolio Acquisition );


(d)	increasing the amount drawn under the Existing Financing Agreement up to a maximum aggregate amount of two billion NOK in connection with making any Permitted Portfolio Acquisition;


(e)	Aktiv Kapital Investment AS making any investments provided that the aggregate value of all investments shall not exceed US$18,500,000; and


(f)	the Subsidiary Rationalisation Process.

5. CONDITIONS TO CLOSING

5.1 Closing shall be conditional on the following Conditions being fulfilled prior to and remaining fulfilled at Closing or waived in writing in accordance with the terms of this Agreement:


(a)	each Target Company has obtained from DNB Bank ASA (as facility agent) a written waiver of the mandatory prepayment obligations under the Existing Financing Agreements arising in respect of the Proposed Transaction (and such waiver not having been withdrawn or varied) on terms satisfactory to the Purchaser acting reasonably;

(b)

the indirect acquisition by the Purchaser of the entire issued share capital of AK Nordic AB pursuant to this Agreement having been approved (or having been deemed to be approved as a result of the lapse, expiration or termination of the applicable waiting periods, or otherwise) by the Financial Supervisory Authority of Sweden (the SFSA ) according to chapter 14 of the Swedish Banking and Financing Business Act (2004:297) on terms which include:


(i)	each of:


(A)	Aktiv Kapital Portfolio AS and, if so required by the SFSA, the Seller and the Seller’s ultimate owners,


(B)	the current members of the board of directors of each of Aktiv Kapital Portfolio AS, Aktiv Kapital AS, AK Portfolio Holding AB and, if so required by the SFSA, the Seller, and


(C)	all other entities and/or individuals being subject to any ownership assessment and/or ownership management assessment requirement(s) regarding their direct or indirect, as applicable, qualified holding of shares in AK Nordic AB,

being approved by the SFSA regarding each such person’s direct or indirect, as applicable, qualified holding of shares in AK Nordic AB according to the Swedish Banking and Financing Business Act (2004:297), and

(ii)

no revocation or adverse amendment to the terms of any material licence or authorisation of AK Nordic AB and the imposition of no conditions, penalties or other remedies on any member of the Purchaser Group or any Target Company that could, in the reasonable opinion of the Purchaser, materially and adversely affect the business or operations of the Target Group or the financial benefits, taken as a whole, which the Purchaser reasonably expects to derive from the consummation of the transactions contemplated by this Agreement,

(the Swedish FSA Condition );

(c)

the indirect acquisition by the Purchaser of the entire issued share capital of Aktiv Kapital Portfolio Collection AS having been approved (or having been deemed to be approved as a result of the lapse, expiration or termination of the applicable waiting periods, or otherwise) by the Financial Supervisory Authority of Norway according to section 5 of the Act of 13 May 1988 no.26 on debt collection and other recovery of overdue pecuniary claims (the Norwegian FSA Condition );


(d)	clearance of the Proposed Transaction by the Austrian competition authorities in accordance with the requirements of the Austrian Cartel Act 2005 (sec 11 para 1, 1a and 4; sec 12, 14 and 17) (the Austrian Competition Condition );


(e)	there shall not have occurred and not be continuing any Material Adverse Change;


(f)	the Purchaser shall have obtained the funds necessary to consummate the Proposed Transaction and to pay all related fees and expenses (the Acquisition Financing Condition );


(g)	no order or judgement of any Governmental Entity having been issued or made in the Pre-Closing Period which has the effect of making the sale and purchase of the Shares or any of them unlawful or otherwise prohibiting the Purchaser from acquiring the Shares or any of them on the Closing Date (the General Illegality Condition ); and


(h)	no amendment is made to any Management Service Contract.

5.2 The Parties shall, at their own Costs, use reasonable endeavours to ensure, and the Seller will procure that the Target Companies will use reasonable endeavours to ensure, that the Swedish FSA Condition, the Norwegian FSA Condition and the Austrian Competition Condition are fulfilled promptly after the date of this Agreement, including providing to each other such reasonable assistance (including any necessary information and documents reasonably required for the purpose of making any submissions, notifications and filings to any relevant Governmental Entity) in connection with the satisfaction of the Swedish FSA Condition, the Norwegian FSA Condition and the Austrian Competition Condition, as any Party may reasonably request.

5.3 The Purchaser shall, at its own Cost, use its reasonable efforts to ensure that the Acquisition Financing Condition is fulfilled promptly after the date of this Agreement, including using its reasonable efforts to:


(a)	negotiate and enter into as promptly as practicable definitive agreements (the Definitive Financing Agreements ) with respect to the Acquisition Financing Condition on terms that are acceptable in good faith to the Purchaser;


(b)	comply on a timely basis with all covenants, and satisfy on a timely basis all conditions, required to be complied with or satisfied by the Purchaser in such Definitive Financing Agreements;


(c)	cause the acquisition financing to be consummated at such time or from time to time as is necessary for Purchaser to satisfy its obligations under this Agreement; and


(d)	enforce its rights under the Definitive Financing Agreements, as applicable,

provided, however, that, notwithstanding anything to the contrary contained herein, the Purchaser shall not be required to accept any terms or conditions in the Definitive Financing Agreements that are not to the satisfaction of the Purchaser and, to the extent any Definitive Financing Agreements have been entered into, the Purchaser shall have the right to substitute other debt or equity financing for all or any portion of the acquisition financing from the same or alternative financing sources. In the event that all conditions to funding contained in the Definitive Financing Agreements (if they have been entered into) have been satisfied, the Purchaser shall use its reasonable efforts to cause the lenders to fund the acquisition financing on the Closing Date. The Purchaser shall keep the Seller reasonably informed with respect to all material activity concerning the status of the Acquisition Financing Condition, including notifying the Seller promptly (and in any case within three Business Days) after signing of the Definitive Financing Agreements, and shall give the Seller prompt notice of any event or change that the Purchaser determines will materially and adversely affect the ability of the Purchaser to satisfy the Acquisition Financing Condition. The Seller shall cooperate reasonably, and shall cause the

Target Companies to cooperate reasonably, with the Purchaser in connection with the satisfaction of the Acquisition Financing Condition, provided that such cooperation shall not unduly disrupt the conduct or management of the business of the Seller or the Target Companies.

5.4 All Conditions other than the Acquisition Financing Condition and the General Illegality Condition may be waived, in whole or in part, by the Purchaser at its absolute discretion by written notice to the Seller, with or without the consent or agreement of the Seller. The Acquisition Financing Condition and the General Illegality Condition may only be waived, in whole or in part, by agreement in writing of the Seller and the Purchaser.

5.5 Each Party undertakes promptly to disclose in writing to the other anything which will or may prevent any of the Conditions from being satisfied on or prior to the Longstop Date.

5.6 The Seller and the Purchaser shall each notify the other promptly upon becoming aware that any of the Conditions have been fulfilled. The first Business Day on or by which all Conditions have been fulfilled (or waived in accordance with clause 5.4) is the Unconditional Date .

5.7 If the Unconditional Date has not occurred on or before 5.00 p.m. on the Longstop Date and:


(a)	the Acquisition Financing Condition is the only Condition that has not been fulfilled, then the Seller may, at its sole discretion, by written notice to the Purchaser, extend the Longstop Date by a period of up to ten Business Days; and


(b)	the Swedish FSA Condition is the only Condition that has not been fulfilled, then the Purchaser may, at its sole discretion, by written notice to the Seller, extend the Longstop Date by a period of up to ten Business Days,

(such new date being the Extended Longstop Date ).

5.8 If the Unconditional Date has not occurred on or before the Longstop Date and:


(a)	the Longstop Date is not extended by the Seller or the Purchaser in accordance with clause 5.7, this Agreement shall automatically terminate (other than the Surviving Provisions) on the date immediately following the fifth Business Day after the Longstop Date; or


(b)	the Longstop Date is extended by the Seller or Purchaser in accordance with clause 5.7, but the Unconditional Date does not occur on or before the Extended Longstop Date, this Agreement shall automatically terminate (other than the Surviving Provisions) on the Business Day immediately following the Extended Longstop Date.

5.9 In addition to and without prejudice to other rights and remedies available, this Agreement may be terminated prior to or at Closing by notice in writing by the Purchaser to the Seller, if:


(a)	the Seller:


(i)	is in breach of any of its obligations under this Agreement or any Transaction Document (including any Warranty given as at the date of this Agreement), or the effect of Closing would be to put the Seller in such breach, and such breach

is not capable of remedy or is not actually remedied to the reasonable satisfaction of the Purchaser no later than three Business Days prior to Closing (an Actual Warranty Claim );

(ii) would be in breach of the Warranties if the Warranties were to be (or were deemed to be) repeated at Closing by reference to the facts and circumstances then existing (and as if reference in the Warranties to the date of this Agreement were reference to the date of Closing) and such deemed breach is not capable of remedy or is not actually remedied to the reasonable satisfaction of the Purchaser no later than three Business Days prior to Closing (a Deemed Warranty Claim ); or

(iii) would be liable at or after Closing under the Tax Covenant and/or any Seller Indemnity (an Indemnity Claim ),

and the aggregate amount for which the Seller could reasonably be expected to be liable in respect of all breaches and payments in clause 5.9(a), if Closing were to take place and all Deemed Warranty Claims were to be treated as Actual Warranty Claims, is equal to or greater than €50,000,000;


(b)	the 2013 Accounts show equity attributable to equity holders at 31 December 2013 of less than € 290,000,000; or


(c)	adjusted EBITDA for the year ended 31 December 2013 calculated by reference to the 2013 Accounts (and on the same basis and using the same methodology as the adjusted EBITDA shown in the Locked Box Accounts) is equal to or less than 90 per cent. of the adjusted EBITDA shown in the Locked Box Accounts.

If this Agreement terminates pursuant to clauses 5.8 or 5.9, neither Party (nor any of its Affiliates) shall have any claim under the Transaction Documents of any nature whatsoever against the other Party (or any of its Affiliates) except in respect of any rights and Liabilities which have accrued before termination or under any of the Surviving Provisions.

6. CLOSING

6.1 Closing shall take place at such place as the Seller and the Purchaser (each acting reasonably) may agree or, failing such agreement, at the offices of Advokatfirmaet Wiersholm in Oslo on the fifth Business Day after the Unconditional Date.

6.2 At Closing each of the Seller and the Purchaser shall deliver or perform (or ensure that there is delivered or performed) all those documents, items and actions respectively listed in relation to that Party or any of its Affiliates (as the case may be) in Schedule 4.

6.3 If the Seller or the Purchaser, as applicable, fails to comply with any material obligation in Schedule 4, then the other Party shall be entitled (in addition to and without prejudice to other rights and remedies available), by written notice to the Party in default on the date Closing would otherwise have taken place, to:


(a)	require Closing to take place so far as practicable having regard to the defaults which have occurred;


(b)	notify the Party in default of a new date for Closing (being not more than ten Business Days after the original date for Closing) in which case the provisions of this clause 6

and Schedule 4 shall apply to Closing as so deferred but on the basis that such deferral may only occur once; or


(c)	terminate this Agreement (other than the Surviving Provisions) by notice in writing to the other Party.

If this Agreement is terminated in accordance with clause 6.3(c), neither Party nor any of its Affiliates shall have any claim under this Agreement of any nature against the other Party or its Affiliates (except in respect of any rights and Liabilities which have accrued before termination or under any of the Surviving Provisions). For the purpose of this clause 6.3 and clause 6.4, a failure to satisfy the obligation set out in paragraph 1(c) of Part A of Schedule 4 shall not be deemed material if the relevant director has previously confirmed in writing that he agrees to resign and intends to resign promptly after Closing and without any claim against any Target Company or any member of the Purchaser Group. All other obligations under Schedule 4 shall be material obligations.

6.4 If in accordance with clause 6.3(b), Closing is deferred and at such deferred Closing a Party fails to comply with its obligations in Schedule 4, then the Purchaser, if the defaulting Party is the Seller, or the Seller, if the defaulting Party is the Purchaser, may by written notice to the other terminate this Agreement (other than the Surviving Provisions) and neither Party nor any of its Affiliates shall have any claim under this Agreement of any nature against the other Party or its Affiliates (except in respect of any rights and Liabilities which have accrued before termination or under any of the Surviving Provisions).

6.5 No later than ten Business Days before Closing, the Seller shall deliver to the Purchaser an accurate and complete calculation of:


(a)	the Option Holder Payments Amount; and


(b)	the Transaction Advisory Fees.

7. NO RIGHTS OF RESCISSION OR TERMINATION

Other than in accordance with clauses 5.8, 5.9, and 6.3(c), no Party shall be entitled to rescind or terminate this Agreement in any circumstances whatsoever (whether before or after Closing). This shall not exclude any Liability for (or remedy in respect of) fraud or fraudulent misrepresentation.

8. SELLER WARRANTIES AND INDEMNITIES

8.1 The Seller warrants to the Purchaser that:


(a)	each of the Warranties is true and accurate in all respects and not misleading; and


(b)	at Closing, each of the Fundamental Warranties will be true and accurate in all respects and not misleading by reference to the facts and circumstances then existing as if references in the Fundamental Warranties to the date of this Agreement were references to the date of Closing.


8.2	The Warranties, the Tax Covenant and the Seller Indemnities are given subject to the provisions of this clause 8 and the limitations set out in Schedule 6.

8.3 None of the limitations in this clause 8 or Schedule 6 shall apply to any Claim which arises as a consequence of fraud or fraudulent misrepresentation by any member of the Seller Group or any Seller Related Person.

8.4 Each of the Warranties shall be construed separately and independently. If a there is a breach of a Warranty that is expressed to be qualified by any concept of “materiality” or “material”, then solely for the purposes of calculating the amount of any Loss suffered by the Purchaser arising from such breach (and, for the avoidance of doubt, not for determining whether such breach has actually occurred), the relevant Warranty shall be read as if it were not so qualified.

8.5 The Purchaser acknowledges and agrees that, except as provided under the Warranties, no other statement, promise or forecast made by or on behalf of the Seller or any member of the Seller Group or the Target Companies may form the basis of any Claim by the Purchaser or any other member of the Purchaser Group under or in connection with this Agreement or any Transaction Document. In particular, except as provided under the Warranties, the Seller does not make any representation or warranty as to the accuracy of any forecasts, estimates, projections, statements of intent or opinion provided to the Purchaser, its Affiliates or to its or their advisors on or before the date of this Agreement (including any documents in the Data Room).

8.6 Except in the case of and as against any individual or entity who has acted fraudulently:

(a)

the Purchaser agrees and undertakes with the Seller (the Seller contracting for itself and on behalf of each individual or entity referred to in this clause 8.6) that neither it nor any other member of the Purchaser Group has any rights against, and will waive and shall not make any claim against, any employee, director, officer, adviser or agent of: (i) any of the Target Companies; or (ii) any member of the Seller Group on whom the Purchaser may have relied before agreeing to any term of this Agreement or any other Transaction Document or before entering into this Agreement or any other Transaction Document; and

(b)

the Seller agrees and undertakes with the Purchaser (the Purchaser contracting for itself and on behalf of each individual or entity referred to in this clause 8.6) that neither it nor any other member of the Seller Group has any rights against, and will waive and shall not make any claim against, any employee, director, officer, adviser or agent of (i) any of the Target Companies; or (ii) any member of the Purchaser Group on whom the Seller may have relied before agreeing to any term of this Agreement or any other Transaction Document or before entering into this Agreement or any other Transaction Document.

8.7 The Seller agrees and undertakes with the Purchaser (the Purchaser contracting for itself and on behalf of each entity referred to in this clause 8.7) that, save in respect of any rights or claims it or any other member of the Seller Group has under the Transaction Documents (including, for the avoidance of doubt, the Metrogas Loan Agreement), neither it nor any other member of the Seller Group has any rights against, and will waive and shall not make any claim against, any of the Target Companies on whom the Seller may have relied before agreeing to any term of this Agreement or any other Transaction Document.

8.8 Notwithstanding clause 28, the provisions of clauses 8.6 and 8.7 may be relied upon and enforced by each individual or entity for whose benefit it is expressed or intended to be given.

8.9 The Warranties shall continue in full force and effect notwithstanding Closing and shall bind the successors in title of the Seller. Closing shall not in any way constitute a waiver of the Purchaser’s rights under this Agreement or any Claim or potential Claim.

8.10 Any Warranty qualified by reference to the Seller’s knowledge (or similar phrase) shall be deemed to refer to:


(a)	the actual knowledge of the following persons Harald Thorstein, Geir Olsen, Henning Dokset and Dianne Schepers; and


(b)	the knowledge they ought to have had if they had made due and careful enquiry of Tiku Patel, Martin Sjölund, Ingvald Sikveland, Alexander Holzgreve, Jan Husby, Tom Haugerud.

8.11 If in the Pre-Closing Period or at Closing the Seller becomes actually aware:


(a)	that any of the Warranties was untrue or inaccurate or misleading as at the date of this Agreement;


(b)	of any event or circumstance that could reasonably be expected to be deemed to constitute a breach of Warranty if the Warranties were deemed repeated at any time prior to or at Closing by reference to the facts and circumstances then existing as if reference in the Warranties to the date of this Agreement were reference to the date of deemed repetition, or


(c)	of any event or circumstance that could reasonably be expected to give rise to a Seller Indemnity Claim or a Tax Covenant Claim,

and, as a result, the Purchaser would be entitled to bring a Claim, Seller Indemnity Claim or Tax Covenant Claim (and, for these purposes only, as if any deemed breach of repeated Warranty under clause 8.11(b) would, subject to the provisions of this clause 8 and Schedule 6, entitle the Purchaser to bring a Claim), the Seller shall promptly notify the Purchaser in writing setting out reasonable details of the matter. Any notification pursuant to this clause 8.11 shall not operate as a disclosure and the Warranties shall not be subject to such notification.

8.12 The Seller undertakes to pay to each member of the Purchaser Group an amount equal to any Loss it may suffer in respect of:

(a)

any failure by Aktiv Kapital Portfolio AS, the Seller, their ultimate owners or any other entity and/or individual being subject to any ownership assessment requirements regarding their indirect qualified holding of shares in AK Nordic AB, to subject themselves to and duly fulfil the ownership assessments as required by the SFSA in connection with their indirect interest in AK Nordic AB, and be approved as owners;


(b)	any current or past officers or directors of Aktiv Kapital Portfolio AS, Aktiv Kapital AS, AK Portfolio Holding AB or any other individuals being subject to any ownership management assessment requirements failing to have been ownership management assessed by the SFSA; and


(c)	the failure by Aktiv Kapital UK Limited to obtain a Consumer Credit 1974 licence or Financial Conduct Authority authorisation for the activity of “debt administration”, as

defined in the Section 145(7A) of the Consumer Credit 1974 and Article 39G of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001,

(each a Seller Indemnity ).

9. PURCHASER AND PURCHASER GUARANTOR WARRANTIES

9.1 The Purchaser warrants to the Seller that each of the warranties set out in Schedule 7 is true and accurate in all respects and not misleading as at the date of this Agreement, save for the warranty set out in paragraph 2 of Schedule 7 which shall be true and accurate in all respects and not misleading as at 5 May 2014, and as at the date of Closing by reference to the facts and circumstances then existing as if references to the date of this Agreement were references to the date of Closing.

9.2 The Purchaser Guarantor warrants to the Seller that each of the warranties set out in Schedule 7 is true and accurate in all respects and not misleading as at the date of this Agreement and as at the date of Closing by reference to the facts and circumstances then existing as if references to the date of this Agreement were references to the date of Closing and, in each case, as if references in those warranties to the “Purchaser” were references to the “Purchaser Guarantor”.

10. PURCHASER GUARANTEE

10.1 Subject to the terms of this Agreement, in consideration of the Seller entering into this Agreement, the Purchaser Guarantor unconditionally and irrevocably guarantees to the Seller as a continuing obligation that the Purchaser will comply properly and punctually with its obligations under this Agreement and each of the other Transaction Documents (the Purchaser’s Guaranteed Obligations ) and promises to pay on demand to the Seller each sum which the Purchaser is liable to pay under this Agreement or any other Transaction Document but fails to pay when due.

10.2 The Purchaser Guarantor’s liability under clause 10.1 above shall not be discharged or impaired by:


(a)	any amendment, variation or assignment of this Agreement or any Transaction Document or any waiver of its or their terms, unless agreed in writing between the Parties;


(b)	any release of, or granting of time or other indulgence to, the Purchaser or any third party;


(c)	any winding up, dissolution, reconstruction, legal limitation, incapacity or lack of corporate power or authority or other circumstances affecting the Purchaser (or any act taken by the Seller in relation to any such event); or


(d)	any other act, event, neglect or omission (whether or not known to the Purchaser, the Seller or the Purchaser Guarantor) which would or might (but for this clause) operate to impair or discharge the Purchaser Guarantor’s liability or afford the Purchaser Guarantor or the Purchaser any legal or equitable defence;

except, with respect to clauses 10.2(a), 10.2(b) and 10.2(d) only (and not, for the avoidance of doubt, clause 10.2(c)), to the same extent that such clauses would discharge or impair the Purchaser’s liability or afford the Purchaser any legal or equitable defence.

10.3 In consideration of the Seller entering into this Agreement, as a separate, additional continuing and primary obligation, the Purchaser Guarantor undertakes to indemnify the Seller and each of its Affiliates against any Costs or Losses suffered or incurred by any of them as a result of the Purchaser’s failure to comply properly and punctually with its obligations under this Agreement or any Transaction Document (provided that the Purchaser Guarantor shall not, pursuant to this clause 10.3, be required to pay to the Seller any amount in excess of what the Purchaser would be required to pay to the Seller as a result of such failure).

11. CONDUCT OF THIRD PARTY CLAIMS

11.1 If the Purchaser becomes aware that any claim in writing by a third party might reasonably be expected to result in a Non-Tax Claim or a Seller Indemnity Claim being made by the Purchaser (a Third Party Claim ), the Purchaser shall, subject to the Purchaser being indemnified to the Purchaser’s reasonable satisfaction by the Seller against any Costs:


(a)	give notice of the Third Party Claim to the Seller and ensure that the Seller and its representatives are given all reasonable information and facilities to investigate it;


(b)	not (and shall ensure that each member of the Purchaser Group shall not) admit liability or make any agreement or compromise in relation to the Third Party Claim without the prior written approval of the Seller (not to be unreasonably withheld or delayed);


(c)	keep the Seller informed as to the progress of, and consult regularly with the Seller in relation to the conduct of, the Third Party Claim;


(d)	use its reasonable efforts to mitigate any Liability of the Seller in respect of the Third Party Claim;


(e)	provide such information and assistance as the Seller may reasonably request in connection with the preparation or progress of any action in respect of the Third Party Claim as described in clause 11.1(f) below;

(f)

save in respect of any Third Party Claim made by any Governmental Entity and subject to the Purchaser, and each relevant member of the Purchaser Group, being indemnified to the Purchaser’s reasonable satisfaction by the Seller against any Losses suffered or incurred by them as a result of the Third Party Claim or compliance with the provisions of this clause 11.1(f) (including any Losses arising from or in connection with the relevant Non-Tax Claim), ensure that each member of the Purchaser Group shall:


(i)	take such action as the Seller may reasonably request to avoid, resist, dispute, appeal, compromise or defend the Third Party Claim; and

(ii)allow the Seller (if it elects to do so) to take over the conduct of all proceedings and/or negotiations arising in connection with the Third Party Claim, so long as the Seller (A) keeps the Purchaser reasonably informed of the developments in respect of such Third Party Claim; and (B) enables the Purchaser (at its own Cost) to participate in any such proceedings or negotiations.

11.2 Nothing in clause 11.1 will require the Purchaser or any member of the Purchaser Group to take any action or omission that might reasonably be expected to result in:


(a)	the loss of any legal privilege;


(b)	the loss of, or any material adverse amendment to, any approval or authorisation of a Governmental Entity which is material to the business of the relevant member of the Purchaser Group;


(c)	prejudices the ability of the Purchaser to bring a claim against the Seller;


(d)	any award of punitive damages against the Purchaser or any other member of the Purchaser Group; or


(e)	in the reasonable opinion of the Purchaser, any effect which is materially prejudicial to the goodwill of the business of any Target Company.

12. BUSINESS PROTECTION UNDERTAKINGS

12.1 The Seller undertakes with the Purchaser and the Target Companies that it shall not, and shall procure that no other member of the Seller Group nor any Seller Related Party shall, directly or indirectly:


(a)	for a period of three years after the Closing Date, carry on, be engaged in or be economically interested, in any Competing Business in the Protected Territories; and/or


(b)	in the Pre‑Closing Period and for a period of 3 years after the Closing Date, induce or seek to induce any Key Manager to become employed (whether as employee, consultant or otherwise) by any member of the Seller Group or any Seller Related Party, whether or not such Key Manager would thereby commit a breach of his contract of service.

12.2 Nothing in this clause 12 shall prevent, after Closing, any member of the Seller Group or any Seller Related Party from:


(a)	owning securities, shares or similar interests in any company or partnership that do not exceed 5 per cent. in nominal value of the securities, shares or similar interests of that company or partnership or othe rwise grant (directly or indirectly) management functions or any material influence in that company or partnership beyond that of other holders of similar securities; or


(b)	performing its obligations under the Transaction Documents and/or under any other agreement which it may enter into with a member of the Purchaser Group.

12.3 The Seller agrees and acknowledges that if there is a breach of any of the undertakings in clause 12.1, the remedies which may be otherwise available to the Purchaser may be inadequate to fully compensate the Company for any Loss caused by such breach of undertaking and, therefore, the Seller agrees that, in addition to any other rights or remedies that the Purchaser may have under any applicable Law, the Purchaser shall be entitled to seek injunctive relief in respect of any breach by the Seller of clause 12.1.

12.4 The Seller agrees and acknowledges that the restrictions contained in this clause 12 are fair and reasonable and necessary to assure to the Purchaser the full value and benefit of the

business, goodwill and Intellectual Property Rights of the Target Companies. Accordingly, if one or more such undertakings is held to be against the public interest or unlawful or in any way an unreasonable restraint of trade, the remaining undertakings shall continue to bind the Seller.

13. TAX

13.1 The provisions of Schedule 8 shall apply in relation to Taxation.

13.2 Part A, Part C and Part D of Schedule 8 shall come into effect on the date of this Agreement.

13.3 Part B of Schedule 8 shall come into effect on the Closing Date.

14. INFORMATION, RECORDS AND ASSISTANCE POST-CLOSING

14.1 For five years following the Closing Date:

(a)

each member of the Purchaser Group shall provide the Seller (at the Seller’s cost) with reasonable access at reasonable times to (and the right to take copies of) the books, accounts, customer lists and all other records that continue to be held by it after Closing to the extent that they relate to the Target Companies and to the period up to Closing (the Purchaser Records ) but only for the purposes of the preparation or settlement of any Tax return or regulatory filing by the Seller (or any member of the Seller Group); and

(b)

each member of the Seller Group shall provide the Purchaser (at the Purchaser’s cost) with reasonable access at reasonable times to (and the right to take copies of) the books, accounts, customer lists and all other records that continue to be held by it after Closing to the extent that they relate to the Target Companies (the Seller Records ) but only for the purposes of the preparation or settlement of any Tax return or regulatory filing by the Purchaser (or any member of the Purchaser Group).

These obligations are subject to the provisions of clause 18.

14.2 For ten years following the Closing Date in respect of the Norwegian Tax Resident Companies and, in respect of the other Target Companies, for five years following the Closing Date or, if later, the date that is three months after the expiry of any relevant statute of limitations applicable to any Tax Claim in respect of such Target Companies:

(a)

no member of the Purchaser Group shall dispose of, or destroy any of, the Purchaser Records which the Purchaser (having made reasonable enquiry of the Seller) is aware will be necessary for the preparation or settlement of any Tax return or regulatory filing by the Seller (or any member of the Seller Group) without first giving the Seller at least two months’ notice of its intention to do so and giving the Seller a reasonable opportunity to remove and retain (or, if appropriate, take a copy of) any of them (at the Seller’s expense); and


(b)	no member of the Seller Group shall dispose of or destroy any of the Seller Records which the Seller (having made reasonable enquiry of the Purchaser) is aware will be necessary for the preparation or settlement of any Tax return or regulatory filing by the Purchaser (or any member of the Purchaser Group) without first giving the Purchaser

at least two months’ notice of its intention to do so and giving the Purchaser a reasonable opportunity to remove and retain (or, if appropriate, take a copy of) any of such records (at the Purchaser’s expense).

14.3 Subject to the provisions of Schedule 8, following the Closing Date and only in respect of third party claims that are not likely to give rise to a Claim under this Agreement:

(a)

subject to the Seller first agreeing to indemnify the Purchaser and all members of the Purchaser Group against any Costs suffered or incurred by any of them as a result of the Purchaser’s fulfilment of its obligations under this clause 14.3(a) and the Purchaser being satisfied (acting reasonably) that the Seller will have the necessary funds to make good on that indemnity, each member of the Purchaser Group shall (at the Seller’s expense) give such assistance to any member of the Seller Group as the Seller may reasonably request in relation to any third party proceedings by or against any member of the Seller Group so far as they relate to the Target Companies, including proceedings relating to employees’ claims or Taxation;

(b)

subject to the Purchaser Guarantor first agreeing to indemnify the Seller and all members of the Seller Group against any Costs suffered or incurred by any of them as a result of the Seller’s fulfilment of its obligations under this clause 14.3(b) and the Seller being satisfied (acting reasonably) that the Purchaser Guarantor will have the necessary funds to make good on that indemnity, each member of the Seller Group shall (at the Purchaser’s expense) give such assistance to any member of the Purchaser Group as the Purchaser may reasonably request in relation to any third party proceedings by or against any member of the Purchaser Group so far as they relate to the Target Companies, including proceedings relating to employees’ claims or Taxation;


(c)	the Seller shall promptly give to the Purchaser all written notices, correspondence, information or inquiries received by it in relation to the Target Companies; and


(d)	the Purchaser shall promptly give to the Seller all written notices, correspondence, information or inquiries received by in relation to any business of the Seller Group not comprised within the Target Companies.

15. PAYMENTS

15.1 Any payment to be made pursuant to this Agreement by the Purchaser (or any member of the Purchaser Group) shall be made to the Seller’s Bank Account. The Seller agrees to pay each member of the Seller Group that part of each payment to which it is entitled.

15.2 Any payment to be made pursuant to this Agreement by the Seller (or any member of the Seller Group) shall be made to the Purchaser’s Bank Account. The Purchaser agrees to pay each member of the Purchaser Group that part of each payment to which it is entitled.

15.3 Payments under clauses 15.1 and 15.2 shall be in immediately available funds by electronic transfer on the due date for payment. Receipt of the amount due shall be an effective discharge of the relevant payment obligation.

15.4 If any sum due for payment in accordance with this Agreement is not paid on the due date for payment, the person in default shall pay Default Interest on that sum from, but excluding, the due date to, and including, the date of actual payment calculated on a daily basis.

16. COSTS

16.1 Except as otherwise provided in this Agreement (or any other Transaction Document), the Seller and the Purchaser shall each be responsible for its own Costs and charges incurred in connection with the Proposed Transaction.

16.2 The Purchaser and the Seller shall each bear 50 per cent. of all transfer, stamp, stamp duty land, conveyance, recording, registration, documentary, transaction or filing tax, notarisation fees and any other transfer taxes including in each case any related interest or penalties arising as a result of this Agreement or of the transfer of the Shares to the Purchaser under this Agreement.

17. ANNOUNCEMENTS

17.1 Notwithstanding clause 18, neither the Seller nor the Purchaser (nor any of their respective Affiliates) shall make any announcement or issue any communication to shareholders in connection with the existence or subject matter of this Agreement (or any other Transaction Document) without the prior written approval of the other (such approval not to be unreasonably withheld or delayed).

17.2 The restriction in clause 17.1 shall not apply to the extent that the announcement or communication to shareholders is required by law, by any stock exchange or any regulatory or other supervisory body or authority of competent jurisdiction, whether or not the requirement has the force of law. If this exception applies, the Party making the announcement or issuing the communication to shareholders shall use all reasonable endeavours to consult with the other Party in advance as to its form, content and the timing of issue.

18. CONFIDENTIALITY

18.1 For the purposes of this clause 18:


(a)	Confidential Information means:


(i)	information relating to the provisions of, and negotiations leading to, this Agreement and the other Transaction Documents;

(ii)(in relation to the obligations of the Purchaser) any information received or held by the Purchaser (or any of its Representatives) relating to the Seller Group or, before Closing, any of the Target Companies; and

(iii)(in relation to the obligations of the Seller) any information received or held by the Seller (or any of its Representatives) relating to the Purchaser Group or, following Closing, any of the Target Companies,

and includes written information and information transferred or obtained orally, visually, electronically or by any other means and any information which the Party has determined from information it has received including any forecasts or projections; and


(b)	Representatives means, in relation to a Party, its Affiliates and the directors, officers, employees, agents, advisers, accountants and consultants of that Party and/or of its Affiliates.

18.2 Each of the Seller and the Purchaser shall (and shall ensure that each of its Representatives shall) maintain Confidential Information in confidence and not disclose Confidential Information to any person except: (i) as this clause 18 permits; or (ii) as the other Party approves in writing.

18.3 Clause 18.2 shall not prevent disclosure by a Party or any of its Representatives to the extent it can demonstrate that:

(a)

disclosure is required by law or by any stock exchange or any regulatory, governmental or antitrust body having applicable jurisdiction or is reasonably necessary in connection with dealings with any Tax Authority having applicable jurisdiction (provided, in each case, that the disclosing Party shall to the extent legally permissible first inform the other Party of its intention to disclose such information and take into account the reasonable comments of the other Party);


(b)	disclosure is of Confidential Information which was lawfully in the possession of that Party or any of its Representatives (in either case as evidenced by written records) without any obligation of secrecy before its being received or held;


(c)	disclosure is of Confidential Information which has previously become publicly available other than through that Party’s action or failure to act (or that of its Representatives);


(d)	disclosure is required for the purpose of any arbitral or judicial proceedings arising out of this Agreement (or any other Transaction Document);


(e)	the other Party has given prior written consent to the disclosure; or


(f)	disclosure is reasonably necessary in order to manage the Tax affairs of the Seller, any member of the Seller Group, the Purchaser or any member of the Purchaser Group.

18.4 Each of the Seller and the Purchaser undertakes that it (and its Affiliates) shall only disclose Confidential Information as permitted by this clause 18 if it is reasonably required and, in the case of disclosures under clause 18.3, only if the recipient is informed of the confidential nature of the Confidential Information and is subject to an obligation to keep confidential (which can include an obligation which arises or operates as a matter of applicable Law, practice or otherwise) any information so disclosed.

18.5 If this Agreement terminates, the Purchaser shall as soon as practicable on request by the Seller:


(a)	return to the Seller all written documents and other materials relating to the Seller, any Target Company or this Agreement (including any Confidential Information) which the Seller (or its Representatives) have provided to the Purchaser (or its Representatives) without keeping any copies thereof;


(b)	destroy all information or other documents derived from such Confidential Information; and


(c)	so far as it is practicable to do so, expunge such Confidential Information from any computer, word processor or other device.

19. ASSIGNMENT

19.1 Except as provided in this clause 19 or unless the Seller and the Purchaser specifically agree in writing, no person shall assign, transfer, hold on trust or encumber all or any of its rights under this Agreement nor grant, declare, create or dispose of any right or interest in it. Any purported assignment in contravention of this clause 19 shall be void.

19.2 Any member of the Purchaser Group may without requiring the Seller’s consent assign (in whole or in part) any of its rights under the Transaction Documents (including the benefit of the Warranties, the Tax Covenant and the Seller Indemnities):


(a)	to any bank(s) and/or any financial institution lending money or making financing available to the Purchaser in connection with the Proposed Transaction;

(b)

on or before Closing to any subsidiary (directly or indirectly) wholly owned by the Purchaser Guarantor which has been newly incorporated in an EEA jurisdiction for the purposes of the Proposed Transaction provided that the assignee shall assume in writing the Purchaser’s obligations to the Seller hereunder and neither the Purchaser nor the Purchaser Guarantor shall be released from any of their respective obligations hereunder by reason of such assignment; and


(c)	thereafter:


(i)	to any other member of the Purchaser Group which is the legal and beneficial owner from time to time of any or all of the Shares as if it were the Purchaser under this Agreement; or

(ii) to Aktiv Kapital AS in accordance with the amendment agreement in the Agreed Form in respect of the Metrogas Loan Agreement.

If an assignment takes place in accordance with clauses 19.2(b) or 19.2(c), the Purchaser shall ensure that it is a term of such assignment that before any such assignee subsequently ceases to be a member of the Purchaser Group it shall re-assign that benefit to the Purchaser or to another continuing member of the Purchaser Group.

19.3 Subject to paragraph 1.6 of Part C of Schedule 8, if an assignment is made in accordance with this clause 19, the Liabilities of the members of the Seller Group to the Purchaser Group, or the Purchaser Group to the Seller Group, as applicable, under this Agreement shall be no greater than such Liabilities would have been if the assignment had not occurred.

20. FURTHER ASSURANCES

20.1 Each of the Seller and the Purchaser shall, from the Closing Date, perform, or procure the performance of, all further acts and things and execute, or procure the execution of, such further documents as may be required by law or be necessary to implement and give effect to the Transaction Documents.

20.2 Each of the Seller and the Purchaser shall procure that its Affiliates comply with all obligations under the Transaction Documents that are expressed to apply to any such Affiliates.

21. NOTICES

21.1 Any notice in connection with this Agreement shall be in writing in English and delivered by hand, fax, e-mail, registered post or courier using an internationally recognised courier company. A notice shall be effective upon receipt and shall be deemed to have been received: (i) at the time of delivery, if delivered by hand, registered post or courier; or (ii) at the time of transmission if delivered by fax provided that in either case, where delivery occurs outside Working Hours, notice shall be deemed to have been received at the start of Working Hours on the next following Business Day.

21.2 The addresses and fax numbers of the Parties for the purpose of clause 21.1 are:



Seller
For the attention of:	Address:	Fax / E-mail:
	Geveran Trading Co. Limited
Harald Thorstein	Deana Beach Apartments, Block 1, 4 ^th Floor, Promachon Eleftherias Street, Ayios Athanasios, CY-4103 Limassol, Cyprus	+357 25 323770 / seatank@seatankers.com.cy
With a copy to:
For the attention of:	Address:	Fax / Email:
Erling Lind	Advokatfirmaet Wiersholm AS	+ 47 21021010 / el@wiersholm.no
	Ruseløkkveien 26 P.O. Box 1400 Vika NO-0115 Oslo Norway
Purchaser
For the attention of:	Address:	Fax: (to be notified)
Judith Scott, General Counsel	120 Corporate Boulevard Norfolk VA 23502 United States of America	E-mail: (to be notified)

Purchaser Guarantor
For the attention of:	Address:	Fax: (to be notified)
Judith Scott, General Counsel	120 Corporate Boulevard Norfolk VA 23502 United States of America	E-mail: (to be notified)

22. CONFLICT WITH OTHER AGREEMENTS

If there is any conflict between the terms of this Agreement and any other agreement, this Agreement shall prevail (as between the Parties and as between any members of the Seller Group and any members of the Purchaser Group) unless: (i) such other agreement expressly states that it overrides this Agreement in the relevant respect; and (ii) the Seller and the Purchaser are either also parties to that other agreement or otherwise expressly agree in writing that such other agreement shall override this Agreement in that respect.

23. WHOLE AGREEMENT

This Agreement and the other Transaction Documents together set out the whole agreement between the Parties in respect of the sale and purchase of the Shares and supersede any prior agreement (whether oral or written) relating to the Proposed Transaction. It is agreed that:


(a)	no Party shall have any claim or remedy in respect of any statement, representation, warranty or undertaking made by or on behalf of the other Party (or any of its Connected Persons) in relation to the Proposed Transaction which is not expressly set out in this Agreement or any other Transaction Document;


(b)	any terms or conditions implied by law in any jurisdiction in relation to the Proposed Transaction are excluded to the fullest extent permitted by law or, if incapable of exclusion, any right, or remedies in relation to them are irrevocably waived;


(c)	the only right or remedy of a party in relation to any provision of this Agreement or any other Transaction Document shall be for breach of this Agreement or the relevant Transaction Document and/or a claim under any indemnity, undertaking or covenant in this Agreement or the relevant Transaction Document; and


(d)	except for any liability in respect of a breach of this Agreement or any other Transaction Document, no Party (or any of its Connected Persons) shall owe any duty of care or have any liability in tort or otherwise to the other Party (or its respective Connected Persons) in relation to the Proposed Transaction,

provided that this clause shall not exclude any liability for (or remedy in respect of) fraud or fraudulent misrepresentation. Each Party agrees to the terms of this clause 23 on its own behalf and as agent for each of its Connected Persons. For the purpose of this clause, Connected Persons means (in relation to a Party) the officers, employees, agents and advisers of that party or any of its Affiliates.

24. WAIVERS, RIGHTS AND REMEDIES

Except as expressly provided in this Agreement, no failure or delay by any party in exercising any right or remedy relating to this Agreement or any of the Transaction Documents shall affect or operate as a waiver or variation of that right or remedy or preclude its exercise at any subsequent time. No single or partial exercise of any such right or remedy shall preclude any further exercise of it or the exercise of any other remedy.

25. COUNTERPARTS

This Agreement may be executed in any number of counterparts, and by each Party on separate counterparts. Each counterpart is an original, but all counterparts shall together constitute one and the same instrument. Delivery of a counterpart of this Agreement by e‑mail attachment or telecopy shall be an effective mode of delivery.

26. VARIATIONS

No amendment of this Agreement (or of any other Transaction Document) shall be valid unless it is in writing and duly executed by or on behalf of all of the Parties to it.

27. INVALIDITY

Each of the provisions of this Agreement and the other Transaction Documents is severable. If any such provision is held to be or becomes invalid or unenforceable under the law of any jurisdiction, the Parties shall use all reasonable endeavours to replace it with a valid and enforceable substitute provision the effect of which is as close to its intended effect as possible.

28. THIRD PARTY ENFORCEMENT RIGHTS

28.1 The persons referred to in clause 8.8 and the Connected Persons specified in clause 23 shall have the right to enforce the relevant terms of clause 8 and clause 23, respectively, by reason of the Contracts (Rights of Third Parties) Act 1999. This right is subject to: (i) the rights of the Parties to amend or vary this Agreement without the consent of any person referred to in clause 8.8 or any Connected Person; and (ii) the other terms and conditions of this Agreement.

28.2 Except as provided in clause 28.1, a person who is not a party to this Agreement shall have no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any of its terms.

28.3 Save in respect of rights or claims against any member of the Purchaser Group or any Target Company, neither the Seller nor any other member of the Seller Group nor any Seller Related Party shall have any rights or claims, or will support any claim, against any financing source or lender (or any related person thereof) to the Purchaser in connection with this Agreement, including the Acquisition Financing Condition, or the transactions contemplated hereby or thereby, whether at law or in equity, in contract, in tort or otherwise.

29. GOVERNING LAW AND JURISDICTION

29.1 The parties agree that all matters related to the interpretation of the defined term Material Adverse Change (including the occurrence of a Material Adverse Change hereunder, but not, for the avoidance of doubt, any matter related to any other materiality or similar qualifier, which shall be governed by English law in accordance with the following sentence) shall be governed by, and interpreted in accordance with, the law of the State of Delaware, United States. Except as provided in the immediately preceding sentence, this Agreement and any non-contractual obligations arising out of or in connection with this Agreement shall be governed by, and interpreted in accordance with, English law.

29.2 The English courts shall have exclusive jurisdiction in relation to all disputes arising out of or in connection with this Agreement (including claims for set-off and counterclaims), including disputes arising out of or in connection with: (i) the creation, validity, effect, interpretation, performance or non-performance of, or the legal relationships established by, this Agreement; and (ii) any non-contractual obligations arising out of or in connection with this Agreement. For such purposes each Party irrevocably submits to the jurisdiction of the English courts, waives any objections to the jurisdiction of those courts and irrevocably agrees that a judgment or order of the English courts in connection with this Agreement is conclusive and binding on it and may be enforced against it in the courts of any other jurisdiction.

29.3 The Seller shall at all times maintain an agent for service of process and any other documents in proceedings in England or any other proceedings in connection with this Agreement. Such agent shall be Frontline Corporate Services Limited (London) of 13 ^th Floor, One America Square, 17 Crosswell, London EC3N 2LB and any claim form, judgment or other notice of legal process shall be sufficiently served on the Seller if delivered to such agent at its address for the time being. The Seller irrevocably undertakes not to revoke the authority of this agent and if the Purchaser, acting reasonably, requests the Seller to do so it shall promptly appoint another such agent with an address in England and advise the Purchaser. If, following such a request, the Seller fails to appoint another agent, the Purchaser shall be entitled to appoint one on behalf of the Seller at the Seller’s expense.

29.4 The Purchaser shall at all times maintain an agent for service of process and any other documents in proceedings in England or any other proceedings in connection with this Agreement. Such agent shall be Portfolio Recovery Associates UK Ltd of 58 Portland Street, Kilmarnock, KA1 1JG and any claim form, judgment or other notice of legal process shall be sufficiently served on the Purchaser if delivered to such agent at its address for the time being. The Purchaser irrevocably undertakes not to revoke the authority of this agent and if the Seller, acting reasonably, requests the Purchaser to do so it shall promptly appoint another such agent with an address in England and advise the Seller. If, following such a request, the Purchaser fails to appoint another agent, the Seller shall be entitled to appoint one on behalf of the Purchaser at the Purchaser’s expense.

30. AMENDMENT AND RESTATEMENT

30.1 This amended and restated agreement (this Agreement ) amends and restates the Original SPA in relation to the sale and purchase of the Shares. The rights and obligations of the Seller, the Purchaser and the Seller Guarantor under this Agreement shall be as if the Original SPA was in this form when originally entered into.

30.2 For the avoidance of doubt, but without limitation, the Warranties as set out in this Agreement shall be treated as having been given in the terms set out in this Agreement in relation to the Target Companies and the Shares as at the date of the Original SPA.

Schedule 1

PERMITTED LEAKAGE

1. Any payment of interest only by Aktiv Kapital Investment AS to Metrogas Holdings Inc. under the Metrogas Loan Agreement.

2. Any payment (including any VAT, if applicable) by the Company to Seadrill Management Ltd of rent pursuant to the lease for office space at Building 11, Chiswick Park, 566 Chiswick High Road, London, England W4 5YS effective from 1 July 2013 between the Company and Seadrill Management Ltd.

3. Any payment (including any VAT, if applicable) of the Transaction Advisory Fees up to an aggregate maximum amount of € 2,000,000.

4. Entering into, and payments of amounts under, the Option Termination Agreements.

5. Any other items agreed in writing by the Purchaser from time to time to be Permitted Leakages.

SCHEDULE 2

LOCKED BOX ACCOUNTS

CONSOLIDATED STATEMENT OF FINANCIAL POSITION



(all amounts in NOK thousand)	Notes	31 Dec 2013	31 Dec 2012
Assets
Non-current assets
Tangible assets		15,822	15,382
Intangible assets		78,792	72,887
Loans and receivables		4,831,976	3,688,056
Deferred tax assets		-	-
Other financial assets		113,384	56,034
Total non-current assets		5,039,974	3,832,359

Current assets
Trade and other receivables		220,209	158,957
Prepayments		10,169	7,956
Cash and short-term deposits		262,766	225,929
Total current assets		493,144	392,842

Total assets		5,533,118	4,225,201

Equity and liabilities
Equity
Share capital		4,505	4,505
Treasury shares		-	-
Share premium fund		-	-
Other paid in capital		4,800	3,367
Foreign currency translation reserve		9,857	-168,239
Available-for-sale reserve		12,855	5,160
Net investment hedge reserve		-11,342	-1,741
Retained earnings		2,637,722	1,923,200
Total equity attributable to equity holders of the parent		2,658,397	1,766,253

Liabilities
Non-current liabilities
Interest-bearing loans and borrowings		1,910,816	1,323,555
Pension liabilities		1,856	4,060
Deferred tax liabilities		25,279	116,468
Total non-current liabilities		1,937,951	1,444,084

Current liabilities
Multicurrency credit facility and junior facility		-	-
Overdraft facility		-	120,606
Interest-bearing loans and borrowings		528,154	529,122
Interest-bearing deposits		208,699	107,859
Trade and other payables		92,022	112,526
Current income tax liabilities		31,901	43,251



(all amounts in NOK thousand)	Notes	31 Dec 2013	31 Dec 2012
Dividends payable		-	-
Other current liabilities		75,995	101,501
Total current liabilities		936,771	1,014,865

Total liabilities		2,874,721	2,458,949

Total equity and liabilities		5,533,118	4,225,201

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME



(all amounts in NOK thousand)	Notes	Year 2013	Year 2012

Interest income on portfolios		1,236,322	1,101,889
Other operating revenue		156,989	25,736
Total operating revenue		1,393,310	1,127,625
Change in portfolio collection estimates		49,289	18,743	B
Net operating revenue		1,442,599	1,146,368
Payroll expenses		-249,791	-223,530
Depreciation and amortisation of assets		-12,867	-18,717	C
Other operating expenses		-346,094	-321,806
Total operating expenses		-608,752	-564,053
Operating profit		833,847	582,315	A
Interest and other financial income/(-)expense		-106,865	-122,479
Foreign exchange gain/(-)loss		52,127	-3,424
Net financial items		-54,737	-125,904
Profit before tax		779,109	456,411
Income tax income/(-)expense		34,418	-153,104
Profit after tax for the period		813,527	303,307

Other comprehensive income, net of tax
Exchange differences on translation of foreign operations		177,984	-57,440
Net change in fair value of available-for-sale financial assets		7,694	4,101
Net gain/(-)loss on hedge of net investment in foreign operations		-9,601	3,960

Total comprehensive income for the period, net of tax		989,605	253,929

Profit attributable to
Equity holders of the parent		813,527	303,307

Total comprehensive income attributable to
Equity holders of the parent		989,605	253,929

Earnings per share in NOK
- basic		18.06	6.73
- diluted		17.46	6.58

EBITDA
Amortisation on portfolios		-631,272	-532,633	D
Adjusted EBITDA (A-B-C-D)		1,428,698	1,114,921

SCHEDULE 3

CONDUCT OF THE TARGET COMPANIES PRE CLOSING

1. From the date of this Agreement until Closing, the Seller shall, to the extent permissible under applicable Law, ensure that:


(a)	the Purchaser is kept reasonably informed of the business and affairs of the Target Companies;

(b)

reasonable advance notice is given to the Purchaser of any meeting of the board of directors of the Company and that, subject to the Purchaser providing to the Company a confidentiality undertaking (in form reasonably acceptable to the Company), an appropriate representative of the Purchaser (who is acceptable to the Seller, acting reasonably) is permitted to attend any such meeting save for any part of such meeting which the Company reasonably considers to address matters of a commercially sensitive nature (including any potential acquisition by a Target Company in which any member of the Purchaser Group may be interested) or which may give rise to any conflict of interest;


(c)	each Target Company maintains and complies in all material respects with all licences, consents, permits and authorities necessary for the carrying on of its business;


(d)	no Target Company makes any material change to the nature and scope of its business as carried on immediately before the date of this Agreement;


(e)	each Target Company manages its business in all material respects in accordance with its current policies and practices in a manner consistent with its past practice immediately before the date of this Agreement;


(f)	no Target Company disposes, creates, allots, issues, acquires, reduces, repays or redeems any of its share or loan capital or other securities (except, with the prior written consent of the Purchaser, such consent not to be unreasonably withheld or delayed, to another Target Company);


(g)	no Target Company declares, pays or makes a dividend or distribution (whether in cash, stock or in kind) to any person who is not a Target Company;


(h)	no Target Company acquires or disposes of (including the creation of Third Party Rights over) any assets with a value in excess of NOK 5,000,000 individually or NOK 10,000,000 in aggregate;


(i)	no Target Company incurs any capital expenditure in excess of NOK 5,000,000 in any individual case or NOK 10,000,000 in the aggregate;


(j)	no Target Company incurs or assumes, or agrees to incur or assume, any Liability (whether contingent or actual) with a value in excess of NOK 5,000,000 individually or NOK 10,000,000 in aggregate;


(k)	it shall not, and shall procure that no Target Company shall, change any rights attaching to, create any options over, grant any rights to acquire, transfer or approve any transfer

of, or create any Third Party Right over, any shares in any Target Company (except to another Target Company);


(l)	all transactions between any Target Company and any member of the Seller Group take place substantially in a manner and on terms substantially consistent with previous practice in the 12 month period prior to the date of this Agreement;


(m)	no Target Company makes changes (other than those required by law) in terms of employment (including pension fund commitments), in circumstances which are likely to increase in aggregate the total staff costs of each Target Company by more than 7.5 per cent. per annum in the aggregate;


(n)	no amendments are made to any Existing Financing Arrangements or other indebtedness or borrowing arrangements of the Target Companies;


(o)	no Target Company enters into or creates any lending or borrowing arrangements or debts with any member of the Seller Group or any Affiliate of the Seller (excluding any Target Company);


(p)	no Target Company starts any litigation or arbitration or other legal proceedings which would not reasonably be expected to be settled for less than NOK 1,000,000 (other than for the collection of debts (including any put-back to vendors) in the ordinary course of business) without the consent of the Purchaser (not to be unreasonably withheld);


(q)	no Target Company enters into any contract or commitment (i) with a value exceeding NOK 1,000,000 in any one instance; or (ii) which by its terms is capable of lasting more than 18 months after the date on which it is entered into or undertaken or cannot be terminated on less than 18 months’ notice;


(r)	no Target Company compromise or settles any litigation with a value exceeding NOK 1,000,000 in any one instance;


(s)	the debt collection operations of the Target Companies are carried out in a manner materially consistent with the manner in which they were carried out in the 24 month period prior to the date of this Agreement;


(t)	no Target Company gives any guarantee, indemnity or other agreement to secure an obligation of a third party (excluding, for the avoidance of doubt, another Target Company);


(u)	unless such alteration, amendment or variation is required by law or applicable accounting requirements, no alteration, amendment or variation is made to the accounting policies of the Target Companies;


(v)	no Target Company makes changes (other than those required by law) to any arrangements under or in connection with which benefits are payable on death, leaving employment or retirement for or in respect of any of the Key Managers;


(w)	other than any non-material amendments made in connection with the Target Companies’ policy to standardise the terms of employment of the Employees or in connection with any annual salary increase in the ordinary course of business, no Target Company amends

the terms of employment of any Employee of a Target Company whose basic annual salary is in excess of € 100,000;


(x)	no change is made to any Management Service Contract;


(y)	no Key Manager is given notice of termination of employment or is dismissed (other than for cause);


(z)	no Target Company enters into any agreement with trade unions or work councils without the prior written consent of the Purchaser (not to be unreasonably withheld);


(aa)	no Target Company enters into any agreement, contract, obligation or arrangement (conditional or otherwise) to do any of the foregoing; and


(bb)	no member of the Seller Group nor any Target Company will make any formal admission to, or settlement with, any Tax Authority in relation to any matter or instance that would or may give rise to a Tax Claim of an amount in excess of NOK 1,000,000.

2. Each of the sub-paragraphs in this Schedule is a separate undertaking and shall not be restricted in its extent or application by any other such paragraphs.

SCHEDULE 4

CLOSING ARRANGEMENTS

Part A : Seller Obligations

1. At Closing, the Seller shall deliver or ensure that there is delivered to the Purchaser (or made available to the Purchaser’s reasonable satisfaction):


(a)	a copy (certified by a duly appointed officer as true and correct) of a resolution of the board of directors of the Seller authorising the execution of and the performance by the relevant company of its obligations under this Agreement and each of the Transaction Documents to be executed by it;


(b)	documentary evidence from its account operator (Norwegian: “ kontofører ”) in the Norwegian Central Securities Depository (Norwegian: “VPS”) that the Shares have been irrevocably transferred to the Purchaser’s VPS Account;


(c)	(in respect of each Target Company) the resignation of each director and auditor of that Target Company as may be notified by the Purchaser not later than five Business Days prior to Closing;


(d)	copies (certified by a duly appointed officer as true and correct) of the Option Termination Agreements in a form reasonably acceptable to the Purchaser;


(e)	the amendment agreement in the Agreed Form in respect of the Metrogas Loan Agreement and the Crystal Productions Dispute Letter, in each case duly executed by all parties thereto other than the Purchaser and the Purchaser Guarantor; and


(f)	a copy (certified by a duly appointed officer as true and correct) of minutes of a meeting of the board of directors of the Company resolving to call an extraordinary general meeting of the Company for the purposes of electing a new board of directors, such extraordinary general meeting to be convened immediately following Closing.

Part B : Purchaser Obligations

1. At Closing, the Purchaser shall:

(a)

deliver (or ensure that there is delivered to the Seller) a copy of a resolution (certified by a duly appointed officer as true and correct) of the board or, as applicable, supervisory board of directors of the Purchaser (or, if required by the law of its jurisdiction or its articles of association, by-laws or equivalent constitutional documents, of its shareholders) authorising the execution of and the performance by the relevant company of its obligations under this Agreement and each of the Transaction Documents to be executed by it;

(b)

deliver (or ensure that there is delivered to the Seller) a copy of a resolution (certified by a duly appointed officer as true and correct) of the board or, as applicable, supervisory board of directors of the Purchaser Guarantor (or, if required by the law of its jurisdiction or its articles of association, by-laws or equivalent constitutional documents, of shareholders) authorising the execution of and the performance by the relevant company

of its obligations under this Agreement and each of the Transaction Documents to be executed by it;


(c)	deliver (or ensure that there is delivered to the Seller) a legal opinion issued by legal counsel to the Purchaser Guarantor as to the laws of Delaware as to the capacity and authority of the Purchaser Guarantor to issue the Loan Note, in a form reasonably satisfactory to the Seller;


(d)	deliver, and shall procure the delivery by the Purchaser Guarantor of, the amendment agreement in the Agreed Form in respect of the Metrogas Loan Agreement and the Crystal Productions Dispute Letter, in each case duly executed by the Purchaser and the Purchaser Guarantor;


(e)	pay to the Seller the Price in accordance with clauses 2.1, 2.2, 15.1 and 15.3; and


(f)	procure that the Loan Note is issued by the Purchaser Guarantor and delivered to the Seller in accordance with clauses 2.1 and 2.2.

2. On Closing, or as soon as practicable thereafter, the Purchaser shall procure that the Target Companies satisfy their obligations to pay any amounts due to the Option Holders under the Option Termination Agreements (to the extent that such obligations have not been satisfied prior to Closing).

Part C : General

1. At or before Closing, the Seller and the Purchaser shall execute and deliver to each other (or procure that their relevant Affiliates shall execute and deliver) the Disclosure Letter.

2. If any document listed in this Schedule 4 is required to be notarised, the Parties shall execute such document at a location notified by the Seller to the Purchaser at least four Business Days before Closing where a notary with the required qualification will be present.

3. All documents and items delivered at Closing pursuant to this Schedule 4 shall be held by the recipient to the order of the person delivering the same until such time as Closing shall be deemed to have taken place. Simultaneously with:


(a)	delivery of all documents and all items required to be delivered at Closing (or waiver of the delivery of it by the person entitled to receive the relevant document or item); and


(b)	receipt of an electronic funds transfer to the Seller’s Bank Account in immediately available funds of the Price,

the documents and items delivered in accordance with this Schedule 4 shall cease to be held to the order of the person delivering them and Closing shall be deemed to have taken place.

SCHEDULE 5

SELLER WARRANTIES

Part A : General/Commercial

1. THE SELLER GROUP AND THE SHARES

1.1 Authorisations, valid obligations, filings and consents.

(a)

The Seller has the requisite power and authority to enter into and perform this Agreement and the Transaction Documents and has obtained all corporate authorisations and (other than to the extent relevant to the Conditions) all other governmental, statutory, regulatory or other consents, licences or authorisations required to empower it to enter into and perform its obligations under this Agreement.

(b)

Entry into and performance by the Seller of this Agreement and/or any Transaction Document will not: (i) breach any provision of its Constitutional Documents; (ii) (subject to fulfilment of the Conditions) result in a breach of any laws or regulations in its jurisdiction of incorporation or of any order, decree or judgment of any court or any governmental or regulatory authority; or (iii) breach any provision of any agreement or arrangement by which the Seller is bound.


(c)	This Agreement and the Transaction Documents will, when executed, constitute valid and binding obligations of the Seller.

1.2 The Seller Group, the Shares and the Target Companies.


(a)	Each of the Seller and the Target Companies is validly incorporated, in existence and duly registered under the laws of its jurisdiction of incorporation. Each of the Target Companies has full power under its Constitutional Documents to conduct its business as conducted at the date of this Agreement.


(b)	The Shares constitute the whole of the issued share capital of the Company and have been properly issued. All the Shares are or are deemed to be fully paid and the Seller is or will at Closing be: (i) the sole legal and beneficial owner of the Shares free from all Third Party Rights; and (ii) entitled to transfer or procure the transfer of the Shares on the terms of this Agreement.


(c)	No person has the right (exercisable now or in the future and whether contingent or not) to call for the issue or transfer of any share or loan capital in any Target Company under any option or other agreement or otherwise howsoever.


(d)	There is no litigation, arbitration, prosecution, contentious administrative or other legal proceedings or dispute in existence or threatened in writing in respect of the Shares or the shares in any Target Company and there are no facts which might reasonably be expected to give rise to any such proceedings or any such dispute.


(e)	The information on the Target Companies set out in Schedule 9 is true and accurate. All the issued shares in each Subsidiary are properly issued and legally and beneficially held by Target Companies free of Third Party Rights except as set out in Schedule 9.


(f)	No Target Company owns any shares in any undertaking (other than another Target Company) and no Target Company is a member of any partnership or joint venture or other unincorporated association and no Target Company has agreed to do or become any of the above.


(g)	The copy of the Constitutional Documents of each Target Company in the Data Room is true, complete and up to date.


(h)	AKNRM de Mexico S.A. DE C.V., (i) is a non‑trading subsidiary of a Target Companies; and (ii) has no material assets or liabilities.

2. FINANCIAL MATTERS

2.1 The Locked Box Accounts . The Locked Box Accounts have been prepared in good faith and with all due care and attention in accordance with IFRS and the accounting policies, principles, estimation techniques, measurement bases, practices and procedures used in preparing the Last Accounts (in each case applied on a consistent basis) and fairly present the state of affairs and financial position, profits, losses, assets and liabilities of the Target Companies as at the Locked Box Accounts Date and the results thereof for the financial year ended on the Locked Box Accounts Date, provided that this Warranty shall not apply in respect of deferred tax in the Locked Box Accounts.

2.2 Position since Locked Box Accounts Date . Since the Locked Box Accounts Date:


(a)	the Target Companies have carried on their business in all material respects in the ordinary and usual course of business as such business was carried on in the 12 month period immediately before the Locked Box Accounts Date so as to maintain the same as a going concern and without any material interruption or alteration to the nature or manner of the business of the Target Companies;


(b)	no Target Company has declared, authorised, paid or made any dividend or other distribution, nor has any Target Company reduced its paid-up share capital; and


(c)	no Target Company has issued or agreed to issue any share or loan capital and no loan capital of any Target Company has become due;


(d)	the value of the Company’s net assets has not been reduced below that shown in the Locked Box Accounts;


(e)	each Target Company has continued to pay its creditors in the ordinary and usual course of business, consistent with past practice; and


(f)	no Target Company has increased any wages, salaries or any other form of compensation or remuneration to any material extent.

2.3 The Last Accounts . The Last Accounts comply with applicable Law. They have been prepared with all due care and attention in accordance with IFRS in a manner consistent with past practice and fairly present the state of affairs and financial position, profits, losses, assets and liabilities of the Target Companies to which they relate as at the Last Accounts Date and of the results thereof for the financial year ended on the Last Accounts Date.

2.4 Statutory books and Accounts . The statutory books of each Target Company required to be kept by applicable laws in its jurisdiction of incorporation have been maintained in

accordance with such laws. All books of account and further accounting records of each Target Company required to be kept by applicable Law in its jurisdiction of incorporation have been maintained in all material respects in accordance with applicable Law and kept on a consistent basis in accordance with generally accepted accounting principles applicable to such records and contain the information required by applicable Law.

2.5 Bank Accounts . A list of the credit or debit balances on the accounts within the cash pool of the Target Companies as at a date not more than seven days before the date of this Agreement is annexed to the Disclosure Letter.

3. FINANCIAL DEBT

3.1 No Target Company owes any Financial Debt to any person other than Financial Debt details of which are set out in Data Room folders 4.1.1, 4.1.2, 4.1.4, 4.1.7 and 4.1.9.

3.2 No Target Company has provided or granted, or entered into any arrangement, contract, undertaking or agreement to provide or grant, any guarantee, security or indemnity in respect of any Liabilities of any person other than another Target Company.

4. REGULATORY MATTERS

4.1 Licences . No Target Company has received any written notice from a Governmental Entity in the 12 months before the date of this Agreement alleging that any Target Company does not have any licence, permission, authorisation (public or private) or consent required for carrying on its business effectively in the places and in the manner in which it is carried on at the date of this Agreement in accordance with all applicable Law.

4.2 All licences, consents, approvals, permissions, permits and authorities (public and private) necessary for a Target Company to carry on its business in the places and materially in the manner in which such business is carried on as at the date of this Agreement have been obtained by each Target Company and are valid and subsisting and (other than as set out in the Conditions), no licence, consent, approval, permission, permit or authority is required to be obtained by any Target Company from any person (including any Governmental Entity) either in order to implement the transaction contemplated by this Agreement or as a result of such transaction. So far as the Seller is aware, there are no facts or circumstances which would be likely to give rise to any such licence, consent, approval, permission, permit or authority being suspended, cancelled or revoked or not renewed.

4.3 Compliance with Law . In the 24 months before the date of this Agreement there has been no material default by any Target Company under any order, decree or judgement of any court or any governmental or regulatory authority in the jurisdiction in which it is incorporated which applies to the Target Company.

4.4 Each Target Company:


(a)	has at all times complied materially with all applicable Law; and


(b)	is not subject to, and so far as the Seller is aware, no circumstances exist that are reasonably likely to give rise to, any internal investigation or any investigation or proceedings by any Governmental Entity.

5. ASSETS

5.1 Except for assets disposed of by a Target Company in the ordinary course of trading and the Accounts, a Target Company is the owner of and has good and marketable title to all assets included the Locked Box Accounts and all assets (other than the Accounts) that have been acquired by any Target Company since the Locked Box Accounts Date are all in the relevant Target Company’s possession or control and there is no outstanding Third Party Rights (or agreement to grant any Third Party Rights) over the whole or any part of the undertaking, property or assets (other than the Accounts) (or any of them) of any Target Company.

5.2 All assets (other than the Accounts) necessary for the continuation of the business of the Target Companies in a manner materially consistent with the manner in which it was carried on in the 12 month period prior to the date of this Agreement are both legally and beneficially owned by a Target Company.

6. PORTFOLIO AND PORTFOLIO INFORMATION

6.1 Ownership of Accounts : The Accounts are legally and beneficially owned by a Target Company free of any Collection Impacting Third Party Right and are not subject to any legal proceeding, set-off or counterclaim, other than in connection with litigation with an Account Holder in the ordinary course of debt collection nor, so far as the Seller is aware, are any of the same threatened in respect of the Accounts.

6.2 Servicing of Accounts : Since the date of acquisition of the Accounts by the Target Companies, the Accounts have been serviced and collected by the Target Companies in all material respects in compliance with applicable Law and the relevant Portfolio Acquisition Agreement.

6.3 Third party service providers : Each agreement entered into between any Target Company and any third party servicer provider that has been appointed to administer any Account for and on behalf of the relevant Target Company contains an obligation on the relevant third party service provider to, at all relevant times, hold all licences, consents, approvals, permissions, permits and authorities (public or private) necessary for the provision of the services under such agreement.

6.4 Discounts and settlements : Other than customary discount campaigns in the ordinary course of business, no Target Company has agreed any mass settlement deal in the twenty-four (24) months prior to the date of this Agreement.

6.5 Portfolio Documentation : Data Room folder 4.5.1, 12.1 and 12.2 contains the Portfolio Documentation relating to the Key Portfolios. All Account Level Data collected or originated by any Target Company is complete and accurate in all material respects. So far as the Seller is aware, all Account Level Data that has not been collected or originated by any Target Company is complete and accurate in all material respects. The Target Companies have account level data in respect of all Accounts equivalent to the Account Level Data, and such account level data is complete and accurate in all material respects. Complete and accurate copies of all Portfolio Acquisition Agreements entered into in the last three years are kept by a Target Company.

6.6 Key Portfolios : As at the Locked Box Account Date, the Key Portfolios (i) represent 64 per cent. or more of total ERC of the Portfolios of the Target Companies; and (ii) are the only Portfolios that represent individually one per cent. or more of total ERC of the Portfolios of the Target Companies.

6.7 Seller audits : So far as the Seller is aware, no Target Company has since 31 December 2005 been excluded from a portfolio sale process as a result of an audit or investigation of that Target Company by the portfolio seller.

7. INSURANCE

The Data Room contains a summary of the material insurance maintained by or covering each Target Company and copies of the material insurance policies in respect of the Target Companies are set out in the Data Room. Those insurances are in full force and effect and are not void or voidable, all premiums payable to date have been paid and, so far as the Seller is aware, there are no circumstances which might lead to the insurers avoiding any liability under them or the premiums being increased. No member of the Seller Group or Target Company has made any claim in excess of € 100,000 under any such policy of insurance or which is still outstanding.

8. CONTRACTUAL MATTERS

8.1 Material contracts . No Target Company is a party to any agreement, contract, transaction, arrangement or obligation:


(a)	under the terms of which, as a direct result of the entry into and performance of the Transaction Documents: (i) any other party will be entitled to be relieved of any material obligation or become entitled to exercise any material right (including any termination or pre-emption right or other option); or (ii) any Target Company will be in material default; or


(b)	which is with any member of the Seller Group or any of their Affiliates;


(c)	restricts the ability of any Target Company to conduct any business activity in any part of the world (other than pursuant to undertakings with respect to non-disclosure and non-solicitation of employees entered into in the ordinary course);


(d)	which is with a third party and not on an arm’s length basis and in the ordinary and usual course of business; or


(e)	which is with a Seller Related Party.

8.2 Complete and accurate copies of the material contracts (other than any Non-Key Portfolio Acquisition Agreement but including any material IT Contract) to which any Target Companies is a party are contained in the Data Room and identified in the Disclosure Letter and the terms thereof have been complied with in all material respects by the relevant Target Company.

8.3 Defaults . No Target Company has received written notice in the 24 months before the date of this Agreement that it is in default under any material contract (other than any Portfolio Acquisition Agreement but including any material IT Contract) to which it is a party and no written notice of termination or written intention to terminate has been received by any Target Company in respect of any of them and, so far as the Seller is aware, there are no facts or circumstances which would be reasonably likely to give rise to the termination of any of such contracts or matters.

9. LITIGATION

9.1 Litigation and arbitration : No Target Company is involved as a party in any litigation, arbitration or contentious administrative proceedings which when determined is likely to incur a cost, benefit or value to the Target Companies of €25,000 or more individually or €50,000 or more in the aggregate, other than proceedings for the collection by a Target Company of debts arising in the ordinary course of business and no Target Company has received or issued any threat in writing in respect of such proceedings and, so far as the Seller is aware, no facts or circumstances exist which could reasonably be expected to give rise to such proceedings.

9.2 Investigations and inquiries : No governmental, administrative, regulatory or other official investigation or inquiry concerning any Target Company is in progress, threatened in writing or pending and, so far as the Seller is aware, there are no circumstances likely to lead to any such investigation or inquiry.

10. INSOLVENCY ETC.

10.1 Winding up . No order has been made, petition presented or resolution passed for the winding up of the Seller or the Target Companies or for the appointment of a liquidator or provisional liquidator to the Seller or the Target Companies.

10.2 Administration . No administrator has been appointed in relation to the Seller or the Target Companies. No notice has been given or filed with the court of an intention to appoint an administrator. No petition or application has been presented or order made for the appointment of an administrator in respect of the Seller or the Target Companies.

10.3 Receivership . No receiver or administrative receiver has been appointed, nor any notice given of the appointment of any such person, over the whole or part of the Seller or the Target Companies’ business or assets.

10.4 Moratorium . No moratorium has been sought or has been granted in respect of the Seller or the Target Companies.

10.5 Voluntary arrangements . No voluntary arrangement has been proposed in respect of the Seller or the Target Companies.

10.6 Scheme of arrangement . No compromise or arrangement has been proposed, agreed to or sanctioned in respect of the Seller or the Target Companies, nor has any application been made to, or filed with, the court for permission to convene a meeting to vote on a proposal for any such compromise or arrangement.

10.7 Informal arrangements with creditors . The Seller and the Target Companies have not proposed or agreed to a general composition, compromise, assignment or arrangement with any of its creditors.

10.8 Inability to pay debts . None of the Seller or the Target Companies is unable to pay its debts within the meaning of section 123 of the Insolvency Act 1986. There are no unsatisfied written demands that have been served on the Seller pursuant to section 123(1)(a) of the Insolvency Act 1986. There is no unsatisfied judgement or court order outstanding against the Seller or the Target Companies.

10.9 Analogous proceedings . The Seller and the Target Companies are not, in any jurisdiction, subject to or threatened by any other procedures or steps which are analogous to those set out above.

11. POWERS OF ATTORNEY

No Target Company has given a power of attorney.

Part B

1. IP/IT

1. Owned IP and material licences . Schedule 10 sets out a list of the registered Owned IP. The licences of Intellectual Property Rights granted to, and by, any Target Company, and which are material to the business of any Target Company ( Material IP Licences ), are contained in folder 4.6 of the Data Room. Such Material IP Licences are valid and subsisting in accordance with their terms.

2. A Target Company is the sole legal and beneficial owner of the registered IPR listed in Schedule 10 and all such IPR is valid and subsisting and free of Third Party Rights. In addition, so far as the Seller is aware:


(a)	each Target Company has validly executed all documents and instruments necessary to apply for, register and maintain registrations for its registered Owned IP and it has filed those documents with the relevant registries; and


(b)	each Target Company has taken commercially reasonable steps to maintain the confidentiality of all Confidential Information belonging to such Target Company.

3. Complete and accurate copies of the Material IP Licences, are contained in folder 6.1 of the Data Room and the terms thereof have in the 12 months prior to the date of this Agreement, been complied with in all material respects by the relevant Target Company.

4. No infringement . Neither the Seller nor a Target Company has, in the last 24 months, received a written notice alleging that the operations of a Target Company infringe the Intellectual Property Rights of a third party or sent a written notice alleging that a third party is infringing the Owned IP. So far as the Seller is aware, no Target Company’s operations or activities infringe, or in the 24 months prior to the date of this Agreement have infringed any Intellectual Property Rights of any other person.

5. Information technology . Copies or details of all material IT Contracts have been disclosed in the Data Room. No Target Company has, in the last 24 months, received written notice from a third party alleging that a Target Company is in default under any IT Contract. The IT Systems have not, in the last twenty four 24 months, failed to any material extent and the data that they process has not been corrupted or compromised to any material extent.

6. No Seller Group IP : No Intellectual Property Right used by any Target Company and which is material to the business of the Target Companies is owned by any member of the Seller Group or any Seller Related Party.

2. DATA PROTECTION

1. Each Target Company has in the last 18 months complied in all material respects with applicable data protection Laws, including by adopting appropriate safety measures and obtaining and maintaining in full force and effect all registrations and/or notifications required under applicable data protection Laws.

2. In the past 12 months:


(a)	no Target Company has received a written notice (including, without limitation, any enforcement notice) from a data protection commissioner alleging breach by it of any applicable data protection Laws;


(b)	no individual has been awarded compensation by a data protection commissioner or by a court of law from any Target Company under any applicable data protection Laws; and


(c)	no order has been made by a data protection commissioner or a court of law against any Target Company for the rectification, blocking, erasure or destruction of any personal data under any applicable data protection Laws.

Part C : Real Estate

The Properties comprise all the material land and buildings owned, leased, controlled, occupied or used by any Target Company. The information in respect of the Properties set out in Schedule 11 is accurate in all material respects.

Part D : Environmental

1. Compliance with Environmental Laws . So far as the Seller is aware:


(a)	there are no material claims or proceedings pending against any Target Company with respect to any breach of or liability under Environmental Laws relating to the Target Companies; and


(b)	no Target Company has received any written statutory complaints or statutory notices alleging or specifying any material breach of or material liability under any Environmental Laws relating to the Target Companies.

2. Environmental Consents . So far as the Seller is aware, all Environmental Consents required for any activities at any Property have been obtained and are in full force and effect.

Part E : Employment

1. Folder 5 of the Data Room contains:


(a)	full and accurate details of the contracts of employment for all the Key Managers (including details of their respective salaries, length of service and notice periods);


(b)	copies of the standard terms and conditions of employment applicable to Employees of the Target Companies and, save for terms contained in applicable Law, they contain all material details of the current contractual terms and benefits of each of the Employees, whether or not recorded in writing;


(c)	details of material share incentive schemes, profit sharing, bonus or other incentive schemes applicable to Employees; and


(d)	details of all material agreements which each Target Company has entered into with any trade union, works council or similar body representing Employees.

2. The Employees listed in folders 5.21, 5.3 and 5.12 of the Data Room are the only employees, directors and officers of, and persons employed by or otherwise appointed by, any Target Company.

3. The contractors . The persons who are engaged by or provide services, either directly or indirectly, to any Target Company as an independent contractor or consultant on a self-employed basis account for less than ten per cent of the total workforce by head count of the Target Companies.

4. Key Manager . No Key Manager has given notice which has not yet expired terminating his or her employment and, as far as the Seller is aware, no such Key Manager has any current intention of giving such notice and no Target Company has any proposal to terminate the employment of any Key Manager or to materially vary or amend their terms of employment or engagement (whether to their detriment or benefit) prior to Closing.

5. Remuneration . No Target Company is obliged to or has made any provision to increase or vary any Employee’s salary, bonus, or other remuneration which could increase the Target Companies’ total costs in respect of Employees by more than 5 per cent. per annum.

6. Collective dismissals . Within the period of 1 year before the date of this Agreement, the Target Companies have not initiated or completed the implementation of any collective dismissals (being any dismissals of a group of 20 or more individuals in any period of ninety consecutive days) or implemented or entered into a social plan and there is no plan or intention to do so.

7. There are no outstanding offers of employment or engagement to provide consultancy or contractor services to any Target Company and no person has accepted such an offer of employment or engagement but has not yet taken up the position accepted.

8. The contract of employment of each Employee or contractor is terminable by the relevant Target Company at any time on not more than three months’ notice without damages or compensation (other than compensation payable pursuant to applicable Law or any liability on the part of any target Company other than accrued and unpaid wages, commission or pension).

9. Other than as implied by applicable Law, there are no terms of employment for any Employee which provide that a change of control or ownership of his employer (however change of control may be defined in the said document, if at all) shall entitle them to treat the change in control as amounting to a breach of contract or entitling him to any payment or benefit whatsoever or entitling him to treat himself as redundant or dismissed or released from any obligation.

10. In the two years prior to the date of this Agreement, none of the Employees has transferred to the relevant Target Company as a result of a relevant transfer as defined in the Transfer of Undertakings (Protection of Employment) Regulations 2006 or any analogous legislation in the relevant jurisdiction.

11. There is no material obligation or amount due from any Target Company to or in respect of any Employee or contractor in connection with or arising from his employment or engagement or termination of his employment or engagement which is in arrear or unsatisfied other than the reimbursement of expenses in the ordinary course, normal salary or remuneration for the part month as at the date of this Agreement and accrued holiday pay for the current holiday year or for reimbursement of business expenses).

12. Other than the incentive plans set out in folders 5.6 and 5.12 of the Data Room, (i) there are no material incentive schemes or arrangements (including, without limitation, any share option or share award plan, commission, profit shares or bonus scheme) established by any Target Company, any shareholder of any Target Company or the Seller in which any Employee or Key Manager participates and for which any Target Company is liable; and (ii) so far as the Seller is aware, there are no material incentive schemes of arrangements established by any other person in which any Employee or Key Manager participates.

13. In relation to any Employee, contractor or former employee, director, officer, contractor or consultant, works council, trade union, group or organisation, there are no current, pending or threatened material disputes, claims or proceedings whether individual or collective against any Target Company, or, so far as the Seller is aware , matters which may give rise to such dispute, claim or proceeding.

14. Other than pursuant to applicable Law or any applicable notice periods , no Target Company has any obligation, whether contractual or otherwise, to pay any sum in the event of redundancy or severance.

15. There is no Key Manager that is bound by or otherwise subject to any contract, agreement or arrangement which restricts him from performing his duties for any Target Company or in breach of any contract with any former employer or any other person concerning Intellectual Property Rights or confidentiality as a result of his duties to or employment with any Target Company. There is no other Employee that is bound by or otherwise subject to any contract, agreement or arrangement with any member of the Seller Group or a Seller Related Party which restricts him from performing his duties for any Target Company or in breach of any contract with any former employer or any other person concerning Intellectual Property Rights or confidentiality as a result of his duties to or employment with any Target Company.

16. Each of the Target Companies has complied in all material respects with its contractual obligations to each Employee and contractor and with all applicable Law and rules relating to employment.

17. There is no recognised trade union, staff association, staff council, works council or other worker representatives relating to any Employee.

18. There is no obligation, whether legally binding or not, to inform or consult with any trade union, staff association, staff council, works council or other worker representative in relation to this Agreement.

Part F : Retirement Benefits

1. Other than the Target Pension Schemes, the Contractual Employment Benefits and any state pension arrangement, there is not in operation a superannuation, pension, life assurance, death benefit or other arrangement in respect of which any Target Company has or may have any liability or obligation to provide or contribute towards any pension, lump-sum or death

benefit in respect of any Employee, (or any dependant of any Employee) , director or officer or their dependants, and no proposal or announcement has been made to enter into or establish any scheme or arrangement of that kind.

2. Copies of all material governing documentation in relation to the Target Pension Schemes are set out in the Data Room.

3. The Target Pension Schemes have formal approval or qualification by and/or due registration with the appropriate Tax Authorities, social security, supervisory, fiscal and other applicable regulatory authorities in the relevant state or jurisdiction in order to obtain Tax exemption (or partial Tax exemption) on contributions, benefits and/or investments.

4. The Target Pension Schemes currently comply with its governing documents and all applicable Law, regulations and requirements in all material respects and each Target Company has complied in all material respects with any mandatory obligations in relation to the provision of pension or retirement arrangements in respect of the Employees.

5. All amounts due and payable on or before the date of this Agreement by any Target Company in relation to the Target Pension Schemes have been duly paid in full on the due dates for such payments.

6. No Target Company has received notice in writing of any material dispute in relation to any of the Target Pension Schemes in respect of any Employee or former employee of any Target Company which has not been finally settled or terminated.

7. No Target Company has been a party to, a sponsoring employer of, or otherwise is under any liability or obligation with respect to any defined benefit pension scheme, final salary scheme or any death, disability or retirement benefit calculated by reference to age, salary or length of service or any of them.

Part G : Anti Bribery and Corruption

1. No Target Company has:

(a)

authorised, offered, promised or given any financial or other advantage (including, without limitation any payment, loan, gift or transfer of anything of value), directly or indirectly, to or for the use or benefit of any Government Official (or to another person at the request or with the assent or acquiescence of such Government Official), or any other natural or legal person, in order to assist any Target Company in improperly obtaining or retaining business for or with any person, in improperly directing business to any person, or in securing any improper advantage; or


(b)	taken any other action which would violate Anti-Bribery Law.

2. Each Target Company has in place adequate policies, systems, controls and procedures designed to prevent it and its Associated Persons from violating any Anti-Bribery Law.

3. None of the Target Companies is or has been the subject of any investigation, inquiry or litigation, administrative or enforcement proceedings by any Governmental Entity or any customer regarding any offence or alleged offence under Anti-Bribery Law, and no such investigation, inquiry or proceedings have been threatened or are pending.

4. No Target Company is ineligible or treated by any Governmental Entity as ineligible to tender for any contract or business with, or be awarded any contract or business by, such Governmental Entity, or to tender for or perform any sub-contracting work under a contract with such Governmental Entity.

SCHEDULE 6

LIMITATIONS ON LIABILITY

1. Time Limits . The Seller shall not be liable for any of the following Claims unless the Seller receives from the Purchaser written notice of the Claim before:


(a)	the date that is 18 months after the Closing Date, in the case of (i) a Warranty Claim in respect of the General Warranties; or (ii) a Claim in respect of a breach by the Seller of clause 4.1 or Schedule 3; or


(b)	in the case of a Tax Claim, the date that falls three months after the expiry of any relevant statute of limitations, in respect of the Liability or circumstance that gives rise to the relevant Tax Claim.

2. Thresholds for Claims . The Seller shall not be liable for any Warranty Claim (other than a Warranty Claim in respect of the Fundamental Warranties):


(a)	other than a Warranty Claim under paragraph 6 of Part A of Schedule 5:


(i)	unless the amount of the Liability pursuant to any single such Warranty Claim exceeds € 25,000 (in which case the Purchaser shall be entitled to claim the whole amount of such Claim and not merely the excess). For the purposes of this sub‑paragraph 2(a)(i), all Warranty Claims arising from substantially the same facts or circumstances shall be treated as a single Warranty Claim; and


(ii)	unless the aggregate amount of the Liability of the Seller for all such Warranty Claims not excluded by sub‑paragraph 2(a) exceeds € 5,000,000 (in which case the Purchaser shall be entitled to claim the whole amount of such Warranty Claim and not merely the excess); and


(b)	in the case of any Warranty Claim under paragraph 6 of Part A of Schedule 5, unless the aggregate amount of the Liability of the Seller for all such Warranty Claims exceeds € 7,500,000 (in which case the Purchaser shall be entitled to claim only for the excess over € 7,500,000).

3. Maximum limit for all Claims . The aggregate amount of the Liability of the Seller for:


(a)	all Warranty Claims (other than a Claim in respect of the Fundamental Warranties), Tax Covenant Claims and Seller Indemnity Claims, shall not exceed € 135,000,000; and


(b)	subject to paragraph 3(a) above, in respect of all Claims, Tax Covenant Claims and Seller Indemnity Claims shall not exceed the Price.

4. Claim to be withdrawn unless litigation commenced . Any Claim (other than a Tax Claim) shall (if it has not been previously satisfied, settled or withdrawn) be deemed to have been withdrawn:


(a)	in the case of a General Warranty Claim, 12 months after the notice is given pursuant to paragraph 1 of this Schedule 6; and


(b)	in the case of any other Claim, 18 months after the notice is given pursuant to paragraph 1 of this Schedule 6;

unless in each case, legal proceedings in respect of it have been commenced by being both issued and served. No new Claim may be made in respect of the facts, matters, events or circumstances giving rise to any such withdrawn Claim.

5. Claims only to be brought under relevant Warranties . The Purchaser acknowledges and agrees that the only Warranties given in relation to:


(a)	Taxation are the Boxed Tax Warranties (and no other warranty is given in relation to Tax); and


(b)	the Accounts are those set out in paragraphs 2, 4.1, 4.2, 6 and 9.2 of Part A of Schedule 5 (and no other warranty is given in relation to the Accounts).

6. Matters fairly disclosed . The Seller shall not be liable for any Warranty Claim if and to the extent that the fact, matter, event or circumstance giving rise to such Warranty Claim is fairly disclosed by this Agreement, any other Transaction Document or the Disclosure Letter.

7. Matters Disclosed in the Data Room . The Seller shall not be liable for any Warranty Claim (other than a Warranty Claim in respect of the Fundamental Warranties) to the extent that the fact, matter, event or circumstance giving rise to such Warranty Claim is Disclosed in the Data Room.

8. Matters provided for or taken into account in the Locked Box Accounts . The Seller shall not be liable for any Non-Tax Warranty Claim if and to the extent that the fact, matter, event or circumstance giving rise to the Non-Tax Warranty Claim is specifically provided or reserved for in the Locked Box Accounts.

9. Contingent Liabilities . If any Warranty Claim is based upon a Liability which is contingent only, the Seller shall not be liable in respect of such Warranty Claim unless and until such contingent Liability gives rise to an obligation to make a payment (but the Purchaser has the right under paragraph 1 of this Schedule 6 to give notice of that Warranty Claim before such time) and the time limits set out in paragraph 4 of this Schedule 6 shall not begin to run until such Warranty Claim ceases to be contingent).

10. No liability for Claims arising from acts or omissions of Purchaser : The Seller shall not be liable for any Non-Tax Warranty Claim to the extent that it would not have arisen but for, or has been increased or not reduced as a result of, any voluntary act, omission or transaction carried out after Closing by the Purchaser or any member of the Purchaser Group (or their respective directors, employees or agents or successors in title) which:

(a)

was outside the ordinary and usual course of business of a member of the Purchaser Group from time to time (and, for these purposes, the ordinary and usual course of business of the Purchaser Group shall be deemed to include any development, growth, expansion or rationalisation of the business of the Purchaser Group, any group reorganisation or restructuring undertaken by any member of the Purchaser Group, any defence or pursuit of claims by any member of the Purchaser Group and/or any member of the Purchaser Group obtaining or raising any financing);


(b)	the Purchaser knew would be likely to cause or give rise to a breach of any of the Non Tax Warranties or any increase in any liability in respect of any such breach; and


(c)	was not required to comply with any applicable law, the terms of any Transaction Document, accounting standard or any pre-Closing obligation of any Target Company.

11. Purchaser’s duty to mitigate . The Purchaser shall procure that reasonable steps are taken to mitigate any Loss which it may suffer in consequence of any breach by the Seller of any Warranty (other than a Fundamental Warranty).

12. Insured Claims . If, in respect of any matter which would give rise to a Non-Tax Warranty Claim, the Purchaser is entitled to make a claim under any policy of insurance maintained in effect by the Purchaser or a Target Company at the applicable time (such policy a Maintained Insurance Policy ) or would have been so entitled to make a claim if the policies of insurance effected by or for the benefit of the Target Companies had been maintained after Closing on no less favourable terms than those existing at the date of this Agreement (such policies Equivalent Insurance Policies ), then the amount of the Warranty Claim shall be reduced by any amount recovered by the Purchaser under a Maintained Insurance Policy in respect of that matter (or any amount which would have been recoverable by the Purchaser if it had maintained Equivalent Insurance Policies), less all Costs incurred by the Purchaser in recovering that sum from the relevant insurers. The Purchaser shall, or shall procure that the relevant Target Company shall, make a claim under any Maintained Insurance Policy in respect of any matter which would give rise to a Warranty Claim.

13. Recovery from third party after payment from Seller . Where the Seller has made a payment to the Purchaser in settlement of any Non-Tax Warranty Claim (a Seller Payment ), and the Purchaser or any member of the Purchaser Group is entitled to recover (whether by insurance, payment, discount, credit, relief or otherwise) from a third party a sum which indemnifies or compensates the Purchaser or any member of the Purchaser Group (in whole or in part) in respect of the Losses which are the subject of that Warranty Claim (a Third Party Payment ), the Purchaser shall:


(a)	promptly notify the Seller of the fact and provide such information as the Seller may reasonably require;


(b)	subject to the Purchaser or the relevant member of the Purchaser Group being indemnified against all Costs incurred as a consequence of any action taken under this paragraph 13, take, or procure that the relevant member of the Purchaser Group takes, such steps as may be reasonably requested by the Seller to enforce such right; and


(c)	provided no other Claims are outstanding, pay to the Seller as soon as practicable after receipt an amount equal to the lesser of:


(i)	the amount by which the total recovery of the Purchaser Group (for the avoidance of doubt, the Seller Payment and Third Party Payment less the Costs incurred in that recovery (including any Tax payable in respect of these recoveries and any Costs which have not been paid to the Purchaser under paragraph 13(b) of this Schedule)) exceeds the aggregate of its actual Losses; and

(ii)the Seller Payment less any amount of the Seller Payment previously repaid to the Seller.

14. No liability for legislation . The Seller shall not be liable for any Non-Tax Warranty Claim if and to the extent it is attributable to, or the amount of such Claim is increased as a result of, any:


(a)	legislation which is both announced and coming into force after Closing;


(b)	change of law (or any change in interpretation on the basis of case law), regulation, directive or published administrative practice both announced and coming into force after Closing;


(c)	changes in the rates of Taxation in force at Closing or any imposition of any Taxation or any withdrawal of relief from Taxation not in effect at the date of Closing; or

(d)

changes in accounting policy or Tax reporting practice of the Purchaser or any of the Target Companies introduced or having effect after Closing other than where such changes were required to be made by a Target Company to comply with applicable Law in effect from time-to-time in the pre-Closing period or generally accepted accounting principles applicable to the Target Companies in effect from time-to-time in the pre-Closing period.

15. No double recovery . The Purchaser shall not be entitled to recover damages or obtain payment, reimbursement, restitution or indemnity more than once in respect of any Loss.

16. Punitive damages . No party under this Agreement shall be entitled to claim for any punitive damages.

17. Purchaser’s knowledge . The Seller shall not be liable for any Warranty Claim if and to the extent that Steve Fredrickson, Kevin Stevenson, Neal Stern, Chris Graves, Kent McCammon, and Chris Lagow is actually aware at the date of this Agreement:


(a)	of the fact, matter, event or circumstance which is the subject matter of the Claim; and


(b)	that the fact, matter, event or circumstance constitutes a breach of Warranty.

18. Waiver of right of set-off . Other than where specifically provided for in Schedule 8 or the Metrogas Loan Agreement, the Purchaser waives and relinquishes any right of set-off or counterclaim, deduction or retention which the Purchaser might otherwise have in respect of any Claim against or out of any payments which the Purchaser may be obliged to make (or procure to be made) to the Seller pursuant to this Agreement.

19. Seller to have opportunity to remedy breaches . If a breach of the Warranties is capable of remedy, the Purchaser shall only be entitled to compensation if it gives the Seller written notice of the breach and the breach is not remedied within 30 days after the date on which such notice is served on the Seller. Without prejudice to its duty to mitigate any loss, the Purchaser shall (or shall procure that any relevant member of the Purchaser Group shall) at Seller’s Cost provide all reasonable assistance to the Seller to remedy any such breach.

20. Prompt notice . The Purchaser shall provide written notice to the Seller within 45 days of becoming aware of any fact, matter or circumstance reasonably likely to give to rise to a Non-Tax Warranty Claim containing reasonable details of the Non-Tax Warranty Claim including the Purchaser’s then estimate (on a without prejudice basis) of the amount of the Non-Tax Warranty Claim provided that, other than as set out in paragraph 1 of this Schedule 6, the failure to provide

any notice of Claim under this Agreement in accordance with a specified time limit (if any) shall not invalidate any Non-Tax Warranty Claim except to the extent the Seller’s liability is increased by any non-compliance.

SCHEDULE 7

PURCHASER WARRANTIES

1. The Purchaser is validly incorporated, in existence and duly registered under the laws of its jurisdiction and has full power to conduct its business as conducted at the date of this Agreement.

2. The Purchaser is resident for Tax purposes only in its jurisdiction of incorporation.

3. The Purchaser has obtained all corporate authorisations and (other than to the extent relevant to the Conditions) all other governmental, statutory, regulatory or other consents, licences and authorisations required to empower it to enter into and perform its obligations under this Agreement.

4. Entry into and performance by each member of the Purchaser Group of this Agreement and/or any Transaction Document to which it is a party will not: (i) breach any provision of its Constitutional Documents; or (ii) (subject, where applicable, to fulfilment of the Conditions) result in a breach of any laws or regulations in its jurisdiction of incorporation or of any order, decree or judgment of any court or any governmental or regulatory authority.

5. Neither the Purchaser nor any member of the Purchaser Group which is a party to any Transaction Document is insolvent or bankrupt under the laws of its jurisdiction of incorporation, unable to pay its debts as they fall due or has proposed or is liable to any arrangement (whether by court process or otherwise) under which its creditors (or any group of them) would receive less than the amounts due to them. There are no proceedings in relation to any compromise or arrangement with creditors or any winding up, bankruptcy or insolvency proceedings concerning the Purchaser or any of its Affiliates and no events have occurred which would justify such proceedings. No steps have been taken to enforce any security over any assets of the Purchaser or any of its Affiliates and no event has occurred to give the right to enforce such security.

6. So far as the Purchaser is aware, neither the Purchaser nor any member of the Purchaser Group is subject to any order, judgment, direction, investigation or other proceedings by any Governmental Entity which will, or are likely to, prevent or delay the fulfilment of any of the Conditions.

SCHEDULE 8

TAX

Part A : Tax Warranties

1. Locked Box Accounts . All liabilities (other than liabilities in respect of deferred Tax) of each Target Company for Tax measured by reference to income, profits or gains earned, accrued or received on or before the Locked Box Accounts Date or arising in respect of an Event occurring on or before the Locked Box Accounts Date are provided for or, in accordance with generally accepted accounting practice applicable to the relevant Target Company, disclosed in the Locked Box Accounts.

2. Position since Locked Box Accounts Date . Since the Locked Box Accounts Date no Tax Liability in respect of any Target Company has arisen in respect of any Event occurring and no profits, losses or gains have been earned, accrued or received other than in the ordinary course of the business of the Target Company to which the Tax Liability relates.

3. Returns . Each Target Company has in the last 4 years and within applicable time limits filed or made all returns, and supplied all other material information required to be supplied to all relevant Tax Authorities and maintained all material records in relation to Tax required to be made or maintained by it. All such returns and information were and remain, complete, up to date and accurate in all material respects and were made on a proper basis.

4. Payments . Each Target Company has paid all material amounts of Tax which it has become liable to pay in the last 4 years and no Target Company has in that period become liable to pay a material penalty, surcharge, fine or interest in connection with a liability to Tax.

5. Disputes, investigations . Other than the Crystal Productions Dispute, UK VAT Cases and Finnish Tax Matter, the Disclosure Letter contains details of: (a) any material current dispute, action, suit, investigation or enquiry with any Tax Authority in which a Target Company is involved; (b) any material dispute, action, suit, investigation, enquiry or non routine visit by any Tax Authority to which a Target Company is or has been subject in the last 4 years; and (c) in relation to each Target Company any planned action, suit, investigation, enquiry or non-routine visit by any Tax Authority of which the Seller is aware. All deficiencies asserted or assessments made as a result of any dispute, action, suit, investigation, enquiry, audit or non routine visit by any Tax Authority in the last 4 years have been paid in full. No Target Company has waived or been requested to waive any statute of limitations in respect of Tax which waiver is currently in effect.

6. Special arrangements and rulings . Other than the Norway Ruling and the Swiss Rulings, no Tax Authority has operated or agreed to operate any ruling, special arrangement or concession (being a ruling, an arrangement or concession which is not based on relevant legislation or any published practice or concession) in relation to any Target Company's Tax affairs; and each Target Company has fully complied with the requirements and terms of all special arrangements, concessions and rulings to the extent applicable to it.

7. Company residence . Each Target Company is and has in the last 4 years been resident in its country of incorporation for Tax purposes and is not and has not in the last 4 years been treated:


(i)	as resident in any other jurisdiction for any Tax purpose (including any double taxation arrangement); or

(ii)save in connection with any Permanent Establishment Liabilities, as carrying on a business in any other jurisdiction through a permanent establishment; or

(iii)so far as the Seller is aware and save in connection with any Permanent Establishment Liabilities or any Transfer Pricing Liabilities, other than those jurisdictions covered by (i) and (ii) above, as having any presence for Tax purposes in any jurisdiction which requires it to make any material payment of Tax in that jurisdiction.

8. Withholdings . Each Target Company has made all deductions and retentions of or on account of Tax as it was or is required to make and all such payments of or on account of Tax as were required to have been made to any Tax Authority.

9. Employees, pensions . All amounts in respect of any Employee (including any social security, social fund, superannuation or similar contributions) payable to any Tax Authority due and payable by any Target Company up to the date hereof have been paid and each Target Company has made all such deductions and retentions as should have been made.

10. Value Added Tax . For the purposes of paragraph 11 of this Part A of this Schedule, the expression "VAT legislation" shall include the VAT Directive and all other enactments in relation to VAT in all relevant jurisdictions and all notices, provisions and conditions made or issued thereunder including the terms of any agreement relating to VAT reached with any relevant Tax Authority.

11. Save for matters arising in relation to the UK VAT Case and in connection with any Permanent Establishment Liabilities, each Target Company has complied with and observed in all material respects the terms of VAT legislation in the last 4 years.

12. Stamp duty, transfer taxes, etc . All documents in the possession of any Target Company or to the production of which a Target Company is entitled and which attract stamp duty, or other stamp, documentary, transfer or registration taxes or duties (together Duties ) and which are necessary for any Target Company in proving title to any material asset have been properly stamped.

13. Arm's Length Dealings . Other than in connection with any Transfer Pricing Liabilities, all transactions or arrangements made by any Target Company with a related person (under applicable law as it relates to transfer pricing or its equivalent in any jurisdiction) have been made on arm's length terms. So far as the Seller is aware, no notice or enquiry has been made by any Tax Authority in connection with any such transactions or arrangements.

14. Anti-avoidance . No Target Company has been involved in any transaction or arrangements (or any series of transactions or arrangements) which, or any part of which is or was required to be disclosed by a Target Company to, or registered by a Target Company with, any Tax Authority under the provisions of Part 7 of the UK Finance Act 2004 (as amended) or any regulations made thereunder or any similar registration scheme or similar legislation in any jurisdiction.

Part B : Tax Covenant


1.	COVENANT TO PAY

1.1 The Seller hereby covenants with the Purchaser to pay to the Purchaser an amount equivalent to:


(a)	any Actual Tax Liability arising in respect of, by reference to or in consequence of:


(i)	any income, profits or gains earned, accrued or received on or before Closing; or

(ii)any Event which occurred on or before Closing;


(b)	any Deemed Tax Liability;


(c)	any Actual Tax Liability arising in respect of, by reference to or in consequence of: (i) the implementation of the Subsidiary Rationalisation Process; and/or (ii) the Subsidiary Rationalisation Process (or any part of it) subsequently being unwound by, and/or declared void by, any court of competent jurisdiction;


(d)	any Actual Tax Liability arising in respect of, by reference to or in consequence of the exercise, cancellation or cash-out of any share option issued on or before Closing under the Share Option Scheme;

(e)

any Actual Tax Liability arising in respect of, by reference to or in consequence of: (i) a failure by any member of the Seller’s Tax Group to discharge any Tax; or (ii) any Target Company at any time before Closing being: (X) a member of the same group for Tax purposes as any person other than another Target Company; or (Y) treated on or before Closing for the purposes of any Tax as having control of, being controlled by, or being otherwise connected with, any person other than another Target Company; and


(f)	any Actual Tax Liability which arises in respect of, by reference to or in consequence of any Leakage.

1.2 Each of the covenants in paragraph 1.1 above shall be construed as a separate and independent covenant and shall not be limited or restricted by reference to or inference from the terms of any other provision of this Agreement.

1.3 Save with respect to the covenants in paragraphs 1.1(c) and 1.1(e), paragraph 1.1 above shall not apply to any Tax Liability arising in respect of, by reference to or in consequence of any income, profits or gains earned accrued or received after Closing (whether or not as a result of an Event which occurred on or before Closing), or any Event occurring after Closing. With respect to the covenant in paragraph 1.1(c), paragraph 3.3 will apply and with respect to the covenant in paragraph 1.1(d), paragraph 3.4 will apply.


2.	COSTS AND EXPENSES

The covenants contained in paragraph 1 shall extend to all reasonable costs and expenses properly incurred by the Purchaser in connection with a successful claim made under paragraph 1, or in

investigating, dealing with and/or settling any Tax Liability in accordance with paragraph 4 in respect of which a successful claim is made under Part B of this Schedule.


3.	EXCLUSIONS

3.1 Subject to this paragraph 3, the covenants contained in paragraph 1.1 shall not cover any Tax Liability to the extent that:


(a)	provision or reserve in respect of that Tax Liability has been reflected in the Locked Box Accounts; or


(b)	the Tax Liability was paid or discharged before the Locked Box Accounts Date and such payment or discharge was taken into account in the preparation of the Locked Box Accounts; or


(c)	the Tax Liability arises in respect of, by reference to or in consequence of:

(i)

any income, profits or gains earned, accrued or received in respect of the period (or part period) commencing immediately following the Locked Box Accounts Date and ending on Closing either: (aa) in the ordinary course of business of the Target Company to which the Tax Liability relates; or (bb) to the extent that (X) the Target Company to which the Tax Liability relates retains the economic benefit of such income, profit or gains at Closing (and so is ultimately for the benefit of the Purchaser and not the Seller) and is not required, after Closing, to pay or otherwise transfer the value of such income, profits or gains to any of the Seller, other member of the Seller Group or any other person (other than a member of the Purchaser Group) and (Y) the amount of the income, profit or gains so retained exceeds the amount of the Tax Liability which arises in respect of, by reference to or in consequence of such income, profit or gains; or

(ii)any Event occurring in the period (or part period) commencing immediately following the Locked Box Accounts Date and ending on Closing in the ordinary course of business of the Target Company to which the Tax Liability relates; or


(d)	the Tax Liability arises in respect of, by reference to or in consequence of the Portfolio Owners being subject to Tax on a basis inconsistent with the Norway Ruling; or


(e)	a Tax Authority disputes, challenges or overrules the Tax treatment, from a transfer pricing perspective, of intra-group arrangements between the Portfolio Owners and the Debt Collection Companies and the Tax Liability arises in respect of, by reference to or in consequence of any transfer pricing adjustment to such intra-group arrangements (a Transfer Pricing Liability ); or


(f)	the Tax Liability arises in respect of, by reference to or in consequence of any Tax arising for a Portfolio Owner on the basis that any Debt Collection Company constitutes a permanent establishment of any Portfolio Owner or constitutes a business or fixed establishment of any Portfolio Owner for VAT purposes (a Permanent Establishment Liability ); or


(g)	the Tax Liability arises as a result of any change in rates of Tax or of any change in law (including a change in interpretation on the basis of case law), regulation, directive, or the published practice of any Tax Authority, in each case both announced and occurring after Closing; or

(h)

the Tax Liability is a Transfer Pricing Liability or a Permanent Establishment Liability and such Tax Liability: (i) did not exist (actually or contingently) on or before Closing; and (ii) comes into existence solely and directly as a result of, and would not have come into existence but for, a reorganisation or restructuring which is implemented by or in respect of the Target Companies and/or the Purchaser Group post-Closing but, so that this paragraph 3.1(h) shall not apply to exclude liability of the Seller for either of the Transfer Pricing Liability or Permanent Establishment Liability to the extent that such reorganisation: (W) implements in whole or part the Subsidiary Rationalisation Process; (X) is implemented pursuant to any legally binding agreement or arrangement entered into by the Target Group prior to Closing; (Y) is required to be implemented by applicable Law, and for the avoidance of doubt this paragraph 3.1(h) shall not apply to any Tax Liability which arises in respect of, by reference to or as a consequence of any Tax Authority launching or initiating an audit, enquiry, or other investigation following implementation of such reorganisation or restructuring; or

(i)

the Tax Liability comprises interest or penalties arising by virtue of an underpayment of Tax (by way of an instalment or other payment on account of Tax) prior to Closing, insofar as such underpayment would not have been an underpayment but for a bona fide estimate made prior to Closing of the amount of income, profits or gains to be earned, accrued or received after Closing proving to be incorrect; or

(j)

the Tax Liability arises as a result of a change after Closing in the length of any accounting period for Tax purposes of any Target Company other than a change pursuant to a decision of the Seller or any relevant Target Company on or before Closing, or (other than a change which is necessary in order to comply with applicable law in effect from time-to-time, in any pre-Closing period, or generally accepted accounting principles applicable to that Target Company from time to time in any pre-Closing period) a change after Closing in any accounting policy or Tax reporting practice of any Target Company; or

(k)

the Tax Liability arises as a result of the failure of the Purchaser to comply with any of its obligations contained in paragraphs 4 (other than paragraph 4.6), 9 or 10 or the Crystal Productions Dispute Letter otherwise than where such failure results from or is materially contributed to by any default or failure of the Seller and/or any other member of the Seller Group in carrying out, or in failing to carry out, its obligations under paragraphs 4 (other than paragraph 4.6), 9 or 10 or the Crystal Productions Dispute Letter; or


(l)	the Tax Liability would not have arisen but for, or has been increased as a result of, a voluntary act or omission carried out after Closing by the Purchaser or any other member of the Purchaser Group which the Purchaser or such member of the Purchaser Group knew would be likely to give rise to or increase such Tax Liability but only to the extent that such voluntary act or omission was:

(i) outside the ordinary and usual course of business of the relevant Target Company from time to time and, for these purposes, the ordinary and usual course of business of such Target Company shall be deemed to include any development, growth, expansion or rationalisation of the business of the Target Companies or any group reorganisation or restructuring undertaken by or in respect of the Target Companies and/or the Purchaser Group;

(ii) not required in order to comply with any applicable Law, the terms of any Transaction Document, accounting standard or any legally binding obligation of any Target Company in force or entered into on or before Closing;

(iii) not carried out or omitted at the written request or written direction or with the written consent of the Seller or its' authorised representative; or

(iv) not the presentation for stamping of any instrument which was entered into on or before Closing; or

(v) otherwise than in the course of management of the Tax affairs of a Target Company and/or the Purchaser Group in relation to any period (or part period) after Closing (the Purchaser, relevant Target Company or other relevant member of the Purchaser Group acting in good faith and reasonably); or


(m)	the Tax Liability is included in the description of Permitted Leakage.

3.2 The provisions of paragraph 3.1 and 3.9 shall also operate to limit or reduce the liability of the Seller in respect of claims under the Boxed Tax Warranties.

3.3 The covenant in paragraph 1.1(c) shall not apply to the extent that the Tax Liability in question arises after Closing as a result of the implementation of the Subsidiary Rationalisation Process (or any part of it) post-Closing (or the unwind or voiding of any implementation of the Subsidiary Rationalisation Process (or any part of it) that occurred post-Closing) save to the extent that such implementation (or part thereof) or such unwind or voiding (or part thereof) of any implementation within (ii) or (iii) below: (i) was required by applicable Law; (ii) was pursuant to a legal obligation created on or before Closing; or (iii) was commenced or triggered pre-Closing by the Seller or other member of the Seller Group and the Purchaser could not terminate or otherwise forgo such implementation or unwind or voiding post-Closing (either in whole or in part) without prejudice, save as to de minimis prejudice, to the Purchaser and/or other member of the Purchaser Group.

3.4 The covenant in paragraph 1.1(d) shall not apply to the extent that the Purchaser has already been compensated for the Actual Tax Liability to the extent reflected in the Option Holder Payment Amount.

3.5 For the avoidance of doubt: (a) nothing in paragraphs 3.1(e), 3.1(f) or 3.7 shall apply to limit or exclude the liability of the Seller for any Tax Liability arising in respect of, by reference to or in consequence of the UK VAT Cases; and (b) paragraphs 3.1(e) and 3.1(f) are expressly subject to paragraph 3.7.

3.6 The provisions of Schedule 6 to this Agreement (Limitations on Liability) shall, to the extent provided for in that Schedule, also apply to limit or reduce the liability of the Seller under this Schedule.

3.7 If the aggregate amount of the Transfer Pricing Liability and Permanent Establishment Liability (the Combined TP/PE Liabilities ):


(a)	is equal to an amount between €0 and €10 million (inclusive) (the First €10 Million ), the exclusions set out at paragraphs 3.1(e) and 3.1(f) shall apply to each and any part of the First €10 Million;


(b)	is equal to an amount greater than €10 million and less than or equal to €20 million (the excess above €10 million being the Second €10 Million ), the exclusions set out at

paragraphs 3.1(e) and 3.1(f) shall apply to each and any part of the First €10 Million, and shall apply to 50 per cent. of each and any part of the Second €10 Million;


(c)	is greater than €20 million (the amount in excess of €20 million being the Excess ), the exclusions at paragraphs 3.1(e) and 3.1(f) shall apply to each and any part of the First €10 Million, shall apply to 50 per cent. of each and any part of the Second €10 Million, and shall not apply to any of the Excess,

and for the avoidance of doubt, and, subject to paragraph 3.8, this paragraph 3.7 shall have no effect on the application of paragraph 3.1 other than paragraphs 3.1(e) and 3.1(f).

3.8 The exclusion in paragraph 3.1(a) shall not operate so as to exclude or otherwise limit the ability of the Purchaser to bring a Claim with respect to the Combined TP/PE Liabilities .

3.9 Where the Tax Liability which is the subject of a Claim by the Purchaser in connection with the UK VAT Cases is a liability for output VAT, the amount payable by the Seller to the Purchaser in respect of such Tax Liability shall be reduced by a net amount equal to (i) the amount of input VAT (if any) which has been withheld by the UK Tax Authority pending the outcome of the UK VAT Cases and which is off-set or credited against (and so reduces) the amount of any output VAT payable to the UK Tax Authority (or which is repaid to a Target Company or other member of the Purchaser Group to the extent that in respect of a repayment to a Target Company, the relevant Target Company retains the economic benefit of such repayment (notwithstanding the provisions of this paragraph 3.9) at Closing (in a case where such repayment was received on or before Closing) and to the extent such Target Company is not required to pay or otherwise transfer the value of such repayment to any of the Seller, other member of the Seller Group or any other person (other than a member of the Purchaser Group) pursuant to an obligation entered into on or before Closing) less (ii) any liability to Tax which arises for the relevant Target Company in respect of, by reference to or as a consequence of such set-off, credit or repayment of input VAT.

3.10 The exclusions and limitations set out in paragraph 3.1 shall not apply to exclude or limit the liability of the Seller under the covenants contained in paragraphs 1.1(c), 1.1(d) and 1.1(e), other than the exclusions and limitations set out in paragraphs 3.1(a) and 3.1(b).

3.11 None of the exclusions or limitations in this paragraph 3 (other than paragraph 3.9) shall apply to any Claim which arises as a consequence of fraud or fraudulent misrepresentation by any member of the Seller Group or any Seller Related Party.

3.12 The limitation in paragraph 3.1(l) shall not apply to limit or exclude the liability of the Seller with respect to a Transfer Pricing Liability or a Permanent Establishment Liability.


4.	NOTIFICATION OF CLAIMS AND CONDUCT OF DISPUTES

4.1 If the Purchaser or any of the Target Companies become aware of any Tax Demand, which could result in a liability for the Seller under Part A or Part B of this Schedule, the Purchaser shall give notice to the Seller of that Tax Demand (including such reasonably sufficient details of such Tax Demand as are then known) as soon as reasonably practicable (and in any event not more than ten Business Days after the Purchaser or the Target Company concerned becomes aware of such Tax Demand). For the avoidance of doubt, any failure or delay to provide such notice shall not in itself discharge the Seller from any liability under this Agreement save to the extent that the Seller is materially prejudiced as a result of such failure or delay.

4.2 The Purchaser shall take (or procure that the Target Company concerned shall take) such action as the Seller may reasonably request to avoid, dispute, resist, appeal, compromise or defend any Tax Demand or Existing Matter which could give rise to a liability for the Seller under Part A or Part B of this Schedule (whether notified by the Purchaser, or being a Tax Demand of which the Seller was already aware), and any adjudication in respect thereof, subject to the Purchaser and the relevant Target Company being indemnified to the Purchaser's reasonable satisfaction against any Liabilities which are reasonably incurred by the Purchaser or any other member of the Purchaser Group in connection with taking such action.

4.3 Subject to this paragraph 4 and to the Purchaser and the relevant Target Company being indemnified to the Purchaser's reasonable satisfaction against any Liabilities which are reasonably incurred by the Purchaser or any other member of the Purchaser Group, the Seller shall have the right (if it so wishes) to control any proceedings taken in connection with the action referred to in paragraph 4.2, and shall in any event be kept informed of any actual or proposed material developments (including any meetings) and shall be provided with copies of all material correspondence and material documentation relating to any Tax Demand, Existing Matter, or such matter or action and such other information, assistance and access to records and personnel as it reasonably requires.

4.4 Subject to this paragraph 4, if the Seller takes control of any proceedings pursuant to paragraph 4.3, the Seller shall:


(a)	keep the Purchaser informed of all actual or proposed material developments known to it concerning the relevant proceedings;


(b)	give reasonable prior notice to the Purchaser of any intended material oral communication or any meeting with a relevant Tax Authority in relation to the relevant proceedings, including details of the proposed agenda and allow the Purchaser to participate in any such communication and/or any such meeting;


(c)	as soon as reasonably practicable provide the Purchaser with copies of or extracts from all material documents (including, if requested, copies of any notes relating to any oral communication or meeting in (b) above) and material correspondence insofar as they relate to the relevant proceedings;

(d)

at least ten Business Days prior to the date of any intended formal submission to a Tax Authority, provide the Purchaser with an opportunity to comment on any material document or correspondence related to the relevant proceedings which is to be submitted to the relevant Tax Authority and shall take the Purchaser's reasonable comments into account in finalising such submission provided that such comments are notified to Seller on a timely basis; and


(e)	subject to prior written approval by the Purchaser (not to be unreasonably withheld or delayed and having particular regard to any regulatory and/or reporting requirements to which any Target Company and/or other member of the Purchaser Group may be subject), be entitled to appoint such person or persons to deal directly with the relevant Tax Authority.

4.5 The Purchaser shall procure that no Tax Demand or Existing Matter in respect of which the Seller could be required to make a payment under this Schedule is settled or otherwise compromised without the Seller’s prior written consent, such consent not to be unreasonably withheld or delayed (a Settlement Consent ).

4.6 The Purchaser shall, and shall procure that each Target Company and any of their respective advisers shall, not submit any correspondence or return or send any other document to any Tax Authority where the Purchaser or relevant Target Company is aware that the effect of submitting such correspondence or return or sending such document would, or could reasonably be expected to, put such Tax Authority on notice of any matter which could give rise to, or could increase, a claim under this Schedule, without first affording the Seller a reasonable opportunity to comment thereon and without taking account of Seller's reasonable comments provided that such comments are notified to the Purchaser on a timely basis. For the avoidance of doubt, any failure by the Purchaser or any Target Company (or any of their respective advisers) to comply with the provisions of this paragraph 4.6 shall not give rise to any exclusion from or limitation of the liability of the Seller under this Agreement in respect of such claim and Seller shall have no claim otherwise against the Purchaser or any member of the Purchaser Group in respect of, by reference to on in consequence of any such failure.

4.7 If the Seller does not request the Purchaser to take any appropriate action within ten Business Days of any notice given to the Seller pursuant to paragraph 4.1, the Purchaser shall not satisfy, settle or otherwise compromise the relevant Tax Liability without first having requested a Settlement Consent. If the Seller does not respond to such Settlement Consent request within ten Business Days of the Purchaser having made such request, the Purchaser shall be free to satisfy or settle the relevant Tax Liability on such terms as it may reasonably think fit.

4.8 The Purchaser and the relevant Target Company shall also be free to satisfy or settle the relevant liability on such terms as the Purchaser may reasonably think fit where the liability derives from or arises out of any dishonest or fraudulent act or omission by the Seller or by the relevant Target Company (on or before Closing) or, in either case, any director or officer thereof.

4.9 Nothing in this paragraph 4 shall require the Purchaser to, or procure that the relevant Target Company shall, and the Seller shall not and shall procure that no member of the Seller Group shall, in connection with any Tax Demand:


(a)	do anything which is not true and accurate in all material respects; and/or

(b)

do anything which could reasonably be expected either to give rise to or increase a liability to Tax or result in a loss, reduction, non-availability or deferral of any Purchaser’s Relief for or by any member of the Purchaser Group (a consequential tax liability ) in circumstances where the Seller has not agreed fully to indemnify the relevant member of the Purchaser Group against such consequential tax liability; and/or


(c)	do anything which could reasonably be expected to have the effect that a liability to Tax arises in a post-Locked Box Accounts Date period rather than a pre-Locked Box Accounts Date period or in a post-Closing period rather than a pre-Closing period (as the case may be) in circumstances where the Seller has not agreed fully to indemnify the relevant Target Company against such liability; and/or


(d)	take any action if the Purchaser is able to demonstrate (acting reasonably and in good faith) that to do so would have material adverse Tax consequences for any member of the Purchaser Group; and/or


(e)	take any action to the extent that it could reasonably be expected to involve a Target Company contesting any Tax Demand before any court or other appellate body (excluding the Tax Authority which has made the Tax claim) unless Tax counsel (of at least ten years' experience) appointed by agreement between the Seller and the Purchaser

and instructed jointly by the Seller and the Purchaser opines, in writing, that such appeal is more likely to succeed than not. The fees of such Tax counsel shall be shared equally between the Purchaser and the Seller.

4.10 This paragraph 4 shall not apply to the Crystal Productions Dispute.


5.	DUE DATE OF PAYMENT AND INTEREST

5.1 The Seller shall pay to the Purchaser any amount payable under this Part of this Schedule on or before the date which is the later of the date ten Business Days after demand is made therefor by the Purchaser and two Business Days before the first date on which the Tax in question is payable to the relevant Tax Authority.

5.2 Where a claim under this Part of this Schedule relates to the use or set off of a Purchaser’s Relief, the Seller shall pay to the Purchaser the amount due under this Part of this Schedule in respect thereof on the later of the date which is two Business Days before the first date on which Tax first becomes payable to the relevant Tax Authority being Tax that would not have been payable but for such use or set off, and ten Business Days after demand is made therefor by the Purchaser.

5.3 Where a claim under this Part of this Schedule relates to costs and expenses referred to in paragraph 2, the Seller shall pay the relevant amount to the Purchaser on or before the date which is the later of ten Business Days after written demand is made therefor by the Purchaser, accompanied by reasonably satisfactory evidence of the nature of the costs and expenses in question, and the fifth Business Day prior to the date when the Target Company concerned becomes liable to pay or incur such costs or expenses.


6.	CRYSTAL PRODUCTIONS DISPUTE

[ Intentionally left blank. ]


7.	RECOVERY FROM THIRD PARTIES/TAX SAVINGS FOLLOWING A CLAIM

7.1 Paragraph 7.2 shall apply to recovery from third parties and paragraph 7.4 shall apply to benefits.

7.2 Subject to this paragraph 7, in circumstances where the Seller has made a payment to the Purchaser in settlement of a Claim under this Schedule in respect of a Tax Liability (and such payment has not been refunded by the Purchaser) and any member of the Purchaser Group either receives or has received, or is entitled to recover, from any person (other than any other member of the Purchaser Group, but including for the avoidance of doubt any Tax Authority) a payment which would not have arisen but for that Tax Liability or the circumstances giving rise thereto, then:

(a)

as the Seller may reasonably request to enforce recovery of such payment (keeping the Seller informed of the progress of any material action taken including the provision of copies of all material correspondence and documentation), provided that neither the Purchaser nor any member of the Purchaser Group shall be obliged to take any action which the Purchaser (acting in good faith and reasonably) demonstrates would have material adverse tax consequences for any member of the Purchaser Group; and


(b)	if the Purchaser or the relevant member of the Purchaser Group receives a payment in respect of the relevant Tax Liability (including by way of credit or set-off), the Purchaser shall account to the Seller in accordance with paragraph 7.3 below for a sum equal to the lesser of (being the third party amount ):


(i)	a sum equal to the payment so recovered (less, (x) any Tax actually suffered thereon and (y) any Liabilities incurred in establishing or obtaining such refund which are within the indemnity referred to in paragraph 7.2(a) but have not yet been reimbursed by the Seller (and for the avoidance of doubt, such indemnity shall be satisfied by this deduction, to the extent of this deduction); and

(ii)the amount paid by the Seller in respect of the relevant Tax Liability or other matter (and not previously refunded).

7.3 Any sum to be accounted for under paragraph 7.2(b) above shall be dealt with as follows:


(a)	it shall be set against any payment then due from the Seller under this Agreement; and


(b)	to the extent of any excess it shall, if no other Claims are outstanding against the Seller, be paid to the Seller as soon as practicable after receipt of the amount or, if Claims are outstanding against the Seller, following resolution of all such outstanding Claims against the Seller (as the case may be).

7.4 Subject to this paragraph 7, in circumstances where the Seller has made a payment to the Purchaser in settlement of a Claim under this Schedule in respect of a Tax Liability (and such payment has not been refunded by the Purchaser) and any member of the Purchaser Group either receives, or has received, or is entitled to obtain a Relief in respect of that Tax Liability which would not have arisen but for that Tax Liability or the circumstances giving rise thereto (a Benefit ), then:

(a)

upon the Purchaser becoming so aware, the Purchaser shall notify the Seller of that fact as soon as reasonably practicable and if so required by the Seller shall (subject to the Purchaser and the relevant member of the Purchaser Group being indemnified to the Purchaser's reasonable satisfaction against any Liabilities which may be thereby incurred by the Purchaser or any member of the Purchaser Group, acting reasonably) take (or shall procure that the relevant member of the Purchaser Group shall take) such action as the Seller may reasonably request to obtain such Relief (keeping the Seller informed of the progress of any action taken including the provision of copies of all material correspondence and documentation), provided that neither the Purchaser nor any member of the Purchaser Group shall be obliged to take any action which the Purchaser (acting in good faith and reasonably) demonstrates would have material adverse tax consequences for any member of the Purchaser Group; and


(b)	if the Purchaser or the relevant member of the Purchaser Group receives or obtains a Benefit which has been utilised to give rise to an actual cash Tax saving to such relevant

member of the Purchaser Group, the Purchaser shall pay to the Seller a sum equal to the lesser of (being the tax saving amount ):

(i)

the amount of the actual cash Tax saving to the relevant member of the Purchaser Group less any Liabilities incurred in establishing, obtaining or so utilising the relevant Benefit which are within the indemnity referred to in paragraph 7.4(a) but have not yet been reimbursed by the Seller (and for the avoidance of doubt, such indemnity shall be satisfied by this deduction, to the extent of this deduction); and

(ii)the amount paid by the Seller in respect of the relevant Tax Liability (and not previously refunded),

except where any amount so saved would otherwise have given rise to a claim under this Agreement (in which event no such claim shall be made).

7.5 The Purchaser shall only be obliged to account to the Seller in accordance with paragraph 7.4(b) in respect of a Benefit to the extent that the Purchaser is satisfied (acting reasonably and in good faith) that such accounting will not:


(a)	prejudice any of the entitlement of the relevant person to such Benefit (other than through accounting for it to the Seller); nor


(b)	result in the loss, reduction or non-availability of the actual Tax saving obtained from the utilisation of such Benefit.

7.6 Any sum to be accounted for under paragraph 7.4 above shall, if no other Claims are outstanding against Seller, be due as follows:


(a)	in a case where the relevant member of the Purchaser Group receives a payment, within ten Business Days of the receipt thereof; and


(b)	in a case where the relevant member of the Purchaser Group is required to pay a tax saving amount to the Seller in respect of a Benefit, within ten Business Days of the date on which Tax would have become payable to a Tax Authority but for the use of such Benefit.

7.7 No member of the Purchaser Group shall be obliged to utilise a Benefit in priority to the utilisation of competing Reliefs (if any) but the Purchaser shall, and shall procure that the relevant member of the Purchaser Group shall, approach the utilisation of such Reliefs in a commercially reasonable manner, without reference to the obligation provided for in this paragraph 7 to pass back Benefits to the Seller.

7.8 For the purposes of this paragraph, any payment or Benefit shall not include any Crystal Productions Cash Refund.


8.	PURCHASER COVENANT

8.1 The Purchaser covenants with the Seller to pay to the Seller an amount equivalent to any Tax or any amount on account of Tax which any member of the Seller’s Tax Group is required to pay as a result of a failure by any Target Company, or any other member of the Purchaser’s Tax Group, to discharge that Tax.

8.2 The covenant contained in paragraph 8.1 shall:


(a)	extend to any reasonable costs and expenses properly incurred by the Seller in connection with a successful claim made under paragraph 8.1;

(b)

not apply to Tax to the extent that the Purchaser could claim in respect of it under this Schedule (or would have been able to claim but for paragraph 1(b) of Schedule 6, except to the extent a payment has been made to the Purchaser pursuant to this Schedule in discharge of such claim (and not previously refunded) and the Tax to which such payment relates was not paid by the Target Company concerned;


(c)	not apply to Tax to the extent it has been recovered under any relevant statutory provision (and the Seller shall procure that no such recovery is sought to the extent that payment is made hereunder);


(d)	not apply to Tax which would not have arisen but for the Seller failing to make payment (or failing to procure that a member of the Seller Group makes payment) to the relevant Tax Authority of an amount of Tax equal to the payment made by the Purchaser to the Seller hereunder in respect of such tax not later than 5 Business Days following the date such payment is made hereunder; and


(e)	not apply unless the Purchaser receives from the Seller written notice of the Claim before the date that falls three months after the expiry of the relevant statute of limitation in respect of the Liability or circumstance which gives rise to the Claim under paragraph 8.1.

8.3 Paragraphs 4.1 to 4.4, 4.7 to 4.8 and 5 (conduct of disputes and due date for payment) shall apply to the covenant contained in paragraph 8.1 as they apply to the covenants contained in paragraph 1.1, replacing references to the Seller by the Purchaser (and vice versa) where appropriate, and making any other necessary modifications.

8.4 Notwithstanding any other provision of this Agreement, where the same Relief, benefit or advantage gives rise to an entitlement of the Seller under two or more provisions of this Agreement, the Seller shall not be entitled to repayment, recovery of, exclusion or limitation of liability in respect of, or credit or set-off for, the same amount in respect of such Relief, benefit or advantage more than once.


9.	CONDUCT OF PRE‑CLOSING TAX AFFAIRS

9.1 Interpretation . In this paragraph 9 and in paragraph 10:

Pre‑Closing Tax Affairs means the Tax affairs of the Target Companies for which the Seller is responsible under this paragraph 9;

Tax Documents means the Tax Returns, claims and other documents which the Seller is required to prepare on behalf of the Target Companies under paragraph 9.2(a) and 9.2(b);

Tax Return means any return required to be made to any Tax Authority of income, profits or gains or of any other amounts or information relevant for the purposes of Tax, including any related accounts, computations and attachments; and

Time Limit means the latest date on which a Tax Document can be executed or delivered to a relevant Tax Authority either without incurring interest or a penalty, or in order to ensure that such Tax Document is effective.

Rights and Obligations of the Seller

9.2 Subject to and in accordance with the provisions of this paragraph 9 the Seller or its duly authorised agents shall, in respect of all Accounting Periods ending on or before Closing, and at its own cost:


(a)	prepare and submit the Tax Returns of each of the Target Companies;


(b)	prepare and submit on behalf of each of the Target Companies all claims, elections, surrenders, disclaimers, notices, consents and other relevant filings for the purposes of Corporate Income Tax; and


(c)	(subject to paragraphs 4 and the terms of the Crystal Productions Dispute Letter) deal with all matters relating to Tax which concern or affect the Target Companies, including the conduct of all negotiations and correspondence and the reaching of all agreements relating thereto or to any Tax Documents, but excluding payment of Tax.

9.3 The Seller or its duly authorised agents shall deliver all Tax Documents which are required to be signed by or on behalf of any Target Company to the Purchaser for authorisation and signing. If a Time Limit applies in relation to any Tax Document, the Seller shall ensure that the Purchaser receives the Tax Document no later than ten Business Days before the expiry of the Time Limit.

9.4 The Seller shall procure that:


(a)	the Purchaser receives copies of all written correspondence or documentation from any Tax Authority (including, if requested, copies of any notes relating to any oral communication or meeting in (e) below) insofar as it is relevant to the Pre‑Closing Tax Affairs, as soon as reasonably practicable following receipt of such correspondence by the Seller or the relevant Target Company;


(b)	the Purchaser is kept properly informed of any actual or proposed material progress or developments in agreeing and finalising the Tax Affairs of the Target Companies for which it is responsible under paragraph 9.2;

(c)

within a reasonable period of time (and in any event not less than ten Business Days prior to the date of intended submission to the relevant Tax Authority), the Purchaser is provided with an opportunity to comment on any Tax Document to be submitted to such Tax Authority and that reasonable consideration is given to such comments in finalising such Tax Document (provided such amendments are notified to the Seller on a timely basis);


(d)	the Purchaser receives copies of all written correspondence sent to any Tax Authority insofar as it is relevant to the Pre-Closing Tax Affairs, promptly after despatch of such correspondence by the Seller or the relevant Target Company;


(e)	the Purchaser is given reasonable prior notice of any intended oral communication or meeting with a relevant Tax Authority in relation to agreeing and finalising the Tax affairs of the relevant Target Company, including details of the proposed agenda and

allow the Purchaser or its representatives to listen live to such communication and attend any such meeting; and


(f)	no Tax Document is submitted to any Tax Authority which is not true and accurate in all respects, and not misleading.

Obligations of the Purchaser

9.5 The Purchaser shall procure that:

(a)

the Seller and its duly authorised agents are afforded such access (including the taking of copies) to the books, accounts and records of the Target Companies and such other assistance as it or they reasonably require to enable the Seller to discharge its obligations under paragraph 9.2 and to enable the Seller and any member of the Seller’s Tax Group (acting reasonably) to comply with its own Tax obligations or facilitate the management or settlement of its own Tax affairs in respect of the pre-Closing period, subject to the Seller having agreed to reimburse the Purchaser and any relevant Target Company for its out of pocket costs and expenses reasonably incurred in providing such access and assistance;


(b)	the Seller is promptly sent a copy of any communication received by the Purchaser or a Target Company from any Tax Authority insofar as it relates to the Pre‑Closing Tax Affairs; and

(c)

following prior approval by the Purchaser (not to be unreasonably withheld or delayed and having particular regard to any regulatory and/or reporting requirements to which any Target Company and/or other member of the Purchaser's Tax Group may be subject) of the nominated person or persons, there is given to such person or persons as may for the time being be nominated by the Seller authority to conduct the Pre-Closing Tax Affairs in accordance with the provisions of this Schedule, and that such authority is confirmed to any relevant Tax Authority.

9.6 The Purchaser shall (subject to this paragraph below) be obliged to procure that each of the Target Companies shall cause any Tax Document delivered to it under paragraph 9.3 to be authorised and signed without delay and without amendment, and returned to the Seller for submission.

Rights of the Purchaser

9.7 Nothing in this paragraph 9 shall require the Purchaser to, or procure that the relevant Target Company shall, and the Seller shall not and shall procure that no member of the Seller Group shall:


(a)	do anything which is not true and accurate in all material respects; and/or


(b)	do anything which could reasonably be expected to give rise to a consequential tax liability (as defined in paragraph 4.9(b) above) in circumstances where the Seller has not agreed fully to indemnify the relevant member of the Purchaser Group against such consequential tax liability; and/or


(c)	do anything which could reasonably be expected to have the effect that a Tax Liability arises in a post-Locked Box Accounts Date period rather than a pre-Locked Box Accounts Date period or a post-Closing period rather than a pre-Closing period (as the

case may be) in circumstances where the Seller has not agreed fully to indemnify the relevant Target Company against such Tax Liability; and/or


(d)	take any action if the Purchaser is able to demonstrate (acting reasonably and in good faith) that to do so would have material adverse Tax consequences for any member of the Purchaser Group.

9.8 The Purchaser shall be under no obligation to procure the authorisation or signing of any Tax Document delivered to it under paragraph 9.3 which it considers in its reasonable opinion to be false or misleading in any respect, or to be contrary to applicable law in any respect, but for the avoidance of doubt shall be under no obligation to make any enquiry as to the completeness or accuracy thereof and shall be entitled to rely entirely on the Seller and its agents.

9.9 For the avoidance of doubt, paragraph 4 applies in relation to any Tax Demand and in the event of any conflict between paragraph 4 and this paragraph 9, paragraph 4 shall prevail.


10.	CONDUCT OF OTHER TAX AFFAIRS

10.1 Subject to paragraph 4 and the terms of the Crystal Productions Dispute Letter, and subject to this paragraph 10, the Purchaser or its duly authorised agents shall have sole conduct of all Tax affairs of each of the Target Companies which are not Pre‑Closing Tax Affairs and shall be entitled to deal with such Tax affairs in any way in which it, in its absolute discretion, subject to paragraph 10.2, considers fit.

10.2 In respect of any Accounting Period commencing prior to Closing and ending after Closing (a Straddle Period ) the Purchaser shall procure that the Tax Returns of each Target Company shall be prepared on a basis which is consistent with the manner in which those Tax Returns were prepared for all Accounting Periods ending prior to Closing, unless a different basis is required by applicable law and/or generally accepted accounting principles. If in the case of a Target Company the manner in which the Tax Returns for periods ending prior to Closing were prepared is not consistent, such Tax Returns for that Target Company in respect of the Straddle Period shall be prepared on a basis which is consistent with the manner in which the Tax Returns for the Accounting Period ending immediately before the Straddle Period have been prepared, unless a different basis is required by applicable law and/or generally accepted accounting principles.

10.3 The Purchaser shall procure that the Target Companies provide to the Seller a reasonable opportunity to review all Tax Returns for Tax purposes to the extent that such Tax Returns relate to the pre-Closing part of the Straddle Period no later than ten Business Days before the date on which such Tax Returns are required to be filed with the appropriate Tax Authority. The Purchaser shall further procure that the Target Companies shall take the Seller’s reasonable comments into account before the Tax Returns are submitted to the appropriate Tax Authority provided that such comments are notified to the Purchaser on a timely basis and to the extent that such comments relate to the pre-Closing part of the Straddle Period.

10.4 The Seller shall provide such assistance as the Purchaser shall reasonably request in preparing all Tax Returns relating to the Straddle Period.

Part C : Withholdings, Gross Up and VAT


1.	WITHHOLDINGS

1.1 All sums payable under this Agreement or for breach of any of the Warranties shall be paid free and clear of all deductions or withholdings whatsoever, save only as provided in this Agreement or as required by law.

1.2 If any deduction or withholding is required by law from any payment in respect of a Seller Obligation or a Purchaser Obligation then, except in relation to interest, the payer shall pay the payee such additional amount as will, after such deduction or withholding has been made, leave the payee with the same amount as it would have been entitled to receive in the absence of any such requirement to make a deduction or withholding.

1.3 If any sum paid in respect of a Seller Obligation or a Purchaser Obligation is required by law to be brought into charge to Tax then, except in relation to interest, the payer shall pay such additional amount as shall be required to ensure that the total amount paid, less the Tax chargeable on such total amount, is equal to the amount that would otherwise be payable.

1.4 To the extent that any deduction, withholding or Tax in respect of which an additional amount has been paid under paragraphs 1.2 or 1.3 above results in the payee obtaining a Relief (all reasonable endeavours having been used to obtain such Relief), the payee shall pay to the payer, within ten Business Days of obtaining the benefit of the Relief, an amount equal to the lesser of the actual cash Tax saving to the payee arising from the utilisation of such Relief obtained and the additional sum paid under paragraph 1.2 or 1.3 (the withholding relief ). The payee shall only be obliged to account to payer for the withholding relief to the extent that the payee is satisfied (acting reasonably and in good faith) that such accounting will not: (a) prejudice any of the entitlement of the payee to the relief (other than through accounting for it to the payer); nor (b) result in the loss, reduction or non-availability of the actual Tax saving obtained by the payee from the utilisation of such Relief.

1.5 The quantum of the Purchaser's obligation under paragraphs 1.2 and 1.3 shall not exceed the Price.

1.6 Notwithstanding clause 19.3, paragraphs 1.2 and 1.3 above shall not apply to the extent that the deduction, withholding or Tax would not have arisen but for an assignment by the payee of any of its rights under this Agreement.

Part D : Definitions and Interpretation


1.	DEFINITIONS

1.1 In this Schedule the following definitions shall have the following meanings:

Accounting Period means any period by reference to which any income, profits or gains, or any other amounts relevant for the purposes of Tax, are measured or determined;

Actual Tax Liability means a liability of any Target Company to make or suffer an actual payment of Tax or an amount in respect of Tax (whether or not it is directly or primarily the liability of or chargeable against or to the Target Company and whether or not the Target Company has, or may have, a right of recovery or reimbursement from any other person);

Corporate Income Tax means any tax on income, profits or gains;

Crystal Productions Cash Refund means any amount received by a Target Company as a refund of any Tax (for the avoidance of doubt, whether by payment, credit or set-off), including penalties and interest, previously paid to a Tax Authority in connection with the subject matter of the Crystal Productions Dispute (and does not include, for the avoidance of doubt, any other losses or Reliefs);

Debt Collection Companies means Aktiv Kapital Financial Services AS (979 112 300), Aktiv Kapital Sverige Services AB (556189-4493), Aktiv Kapital Deutschland GmbH (HRB 18837), Aktiv Kapital OY (Finland) (1569394-6), Aktiv Kapital Acquisitions Inc. (86585 0879, Aktiv Kapital Portfolio Collection AS (995 262 584), Aktiv Kapital Collection SLU (B-80568769), Aktiv Kapital Inkasso GmbH (FN 207430 w) and Aktiv Kapital (UK) Ltd. (4267803);

Deemed Tax Liability means the use or set off of any Purchaser’s Relief in circumstances where, but for such use or set off, an Actual Tax Liability would have arisen in respect of which the Purchaser would have been able to bring a successful claim against the Seller under this Schedule 8 (the amount of the Tax Liability for these purposes being deemed to be equal to the amount of the Actual Tax Liability that is saved by the use or set off of the Purchaser’s Relief), save that although no member of the Purchaser Group shall be obliged to utilise a Relief other than a Purchaser’s Relief in priority to the utilisation of any Purchaser’s Relief, the Purchaser shall, and shall procure that the relevant member of the Purchaser Group shall, approach the utilisation of such Reliefs in a commercially reasonable manner and without reference to the covenant provided for at paragraph 1.1(b) of Part B of this Schedule;

Event means any payment, act, transaction, omission or occurrence of whatever nature and includes the death of any person, any person ceasing to be treated as resident for Tax purposes in any jurisdiction, the entry into and completion of this Agreement, a company becoming, being or ceasing to be a member of a group of companies (however defined) for the purposes of any Tax and a company ceasing to be connected or associated with any other person for the purposes of any Tax;

Existing Matters means the Finnish Tax Matter and the UK VAT Cases;

Finnish Tax Matter means the pending tax audit of Aktiv Kapital Portfolio OY regarding Finnish business income tax, VAT and tax prepayment for the tax year 2009 and subsequent years;

Norway Ruling means the 18 June 2009 assessment decision for Aktiv Kapital First Investment Ltd (case number 2004-054 KV);

Permanent Establishment Liability has the meaning given to it in paragraph Part B3.1(f);

Portfolio Owners means Aktiv Kapital Portfolio AS (942 464 347), its Swiss branch; Aktiv Kapital Portfolio AS, Oslo, Zweigniederlassung ZUG (CH-400.9.032.183-7), Aktiv Kapital Holding AG (CHE-116.343.570), AK Portfolio Holding AB (994 932 462), AK Nordic AB (987 710 128) and Aktiv Kapital Portfolio Oy (994 952 420);

Purchaser's Relief means:


(a)	any Relief arising to any Target Company to the extent that it arises in respect of an Event occurring or period after the Locked Box Accounts Date; and


(b)	any Relief arising to any member of the Purchaser’s Group (other than any Target Company);

Purchaser’s Tax Group means the Purchaser and any other company or companies which either are or become after Closing, or have previously been, treated as members of the same group as, or otherwise connected or associated in any way with, the Purchaser for any Tax purpose, including, following Closing, the Target Companies;

Relief includes any allowance, credit, deduction, exemption or set‑off in respect of any Tax or relevant to the computation of any income, profits or gains for the purposes of any Tax, or any right to or actual repayment of or saving of Tax (including any repayment supplement, fee or interest in respect of Tax) and any reference to the use or set off of Relief shall be construed accordingly;

Seller’s Tax Group means the Seller and any other company or companies (other than any Target Company) which either are or become after Closing, or have previously been, treated as members of the same group as, or otherwise connected or associated in any way with, the Seller for any Tax purpose;

Swiss Rulings means the following rulings or tax agreements for Aktiv Kapital Holding AG and Aktiv Kapital Portfolio AS, Oslo, Zweigniederlassung Zug:


(a)	Aktiv Kapital Holding AG (AKH), Schöftland/Canton of Aargau (CHE-161.343.570):


(i)	Confirmation from the Swiss Federal Tax Administration dated October 10, 2013 that the double tax treaty between Switzerland and Norway is applicable and the notification procedure applicable on dividends distributed by AKH;


(ii)	Tax ruling regarding income and capital taxes for the canton of Argovia (confirmed by tax authority of the canton of Aargau on January 7, 2014); and


(iii)	Confirmation from the Swiss Federal Tax Administration with regard to the tax treatment of depreciations dated January 15, 2014;


(b)	Aktiv Kapital Portfolio AS, Oslo, Zweigniederlassung Zug (AK ZN Zug), Zug/Canton of Zug (CHE-115.187.385):


(i)	Tax ruling on cantonal level regarding privileged status as mixed company for income and capital taxes in the canton of Zug (submitted to the tax authority of the canton of Zug on February 4, 2014; with confirmation received on 5 February 2014);


(ii)	Tax ruling on Cantonal level regarding income and capital taxes confirmed by tax authority of the canton of Zug on February 15, 2011 (replaced by ruling dated February 4, 2014); and


(iii)	Ruling with the Swiss Federal Tax Administration dated September 17, 2009 regarding withholding tax and double tax treaty aspects of the reorganization and liquidation of Aktiv Kapital Portfolio Investments AG; and


(c)	Swiss subsidiaries - Transfer pricing: Aktiv Kapital Holding AG and Aktiv Kapital Portfolio AS, Oslo, Zweigniederlassung Zug: Tax rulings regarding income taxes (applied for November 30, 2012; confirmed by tax authority of the canton of Argovia on December 11, 2012, by tax authority of the canton of Zug on December 20, 2012, by the Federal tax authority on December 20, 2012);

Tax Demand means the issue of any notice, demand, assessment, letter or other document or communication issued by or on behalf of any Tax Authority or the taking of any other action by or on behalf of any Tax Authority (including the imposition, or any document referring to the possible imposition, of any withholding of or on account of Tax) from which it appears that a Tax Liability may be incurred by or may be imposed on any Target Company, being a Tax Liability which could give rise to a liability for the Seller under Part A or Part B of this Schedule (whether alone or in conjunction with other Claims);

Tax Liability means an Actual Tax Liability or a Deemed Tax Liability;

Transfer Pricing Liability has the meaning given to it in paragraph 3.1(e) of Part B of this Schedule;

UK VAT Cases means the ongoing dispute between Aktiv Kapital (UK) Ltd and HM Revenue & Customs (HMRC) regarding UK VAT on collections services to Aktiv Kapital First Investment Ltd (Bermuda); and

VAT Directive means the council directive of 28 November 2006 on the common system of value added tax (EC Directive 2006/112) including any legislation and regulations supplemental thereto.


2.	INTERPRETATION

2.1 General . In this Schedule references to:


(a)	claims, liabilities or payments under this Schedule shall include, for the avoidance of doubt, claims, liabilities and payments in respect of a breach of any of the Tax Warranties.


(b)	any liability to or in respect of Tax includes any liability to Tax whether or not it is directly or primarily the liability of or chargeable against or to a Target Company (whether or not such Target Company has or may have a right of recovery or reimbursement from any other person);

(c)

income, profits or gains earned, accrued or received shall include income, profits or gains which are deemed to have been earned, accrued or received for the relevant Tax purpose and income profits or gains earned, accrued or received on or before a relevant time or in respect of a period ending on or before a relevant time shall include income, profits or gains deemed or treated for the relevant Tax purpose to have or as having been earned, accrued or received on or before such relevant time or in respect of that period;


(d)	any Event includes any actual Event or any deemed Event (for the purposes of any relevant Tax) and any Event occurring or commencing on or before a particular date or time shall include the case where such Event is deemed or treated for the relevant Tax purpose as having occurred or commenced on or before that date or time;


(e)	"in respect of Tax" includes:


(i)	a payment pursuant to a group, affiliated, consolidated, unitary or other combined filing, Tax pooling, Tax indemnity or Tax sharing arrangement (or any similar or equivalent arrangement in any relevant jurisdiction) in existence prior to Closing but only to the extent the amount of any such liability relates to Tax;


(ii)	a payment to a member of the Seller’s Tax Group, or a repayment to a member of the Seller’s Tax Group of the whole or part of any payment, for or in respect of any Relief; and


(iii)	a payment pursuant to any warranty, covenant, indemnity or reimbursement obligation in respect of Tax (other than to another Target Company) but only to the extent the amount of any such liability relates to Tax;


(f)	any pre-Closing period in this Schedule shall include any period (or part of any period) ending on or before Closing;


(g)	any post-Closing period in this Schedule shall include any period (or part of any period) commencing after Closing;


(h)	any pre-Locked Box Accounts Date period in this Schedule shall include any period (or part of any period) ending on or before the Locked Box Accounts Date; and


(i)	any post-Locked Box Accounts Date period in this Schedule shall include any period (or part of any period) commencing after the Locked Box Accounts Date.

2.2 Ordinary course . In this Schedule the following shall not be considered to be in the ordinary course of business:

(a) the declaration or payment of any dividend or the making of any distribution or deemed distribution or the repayment of other return of any share capital except for any group contributions (“konsernbidrag”) declared, made or given by a Target Company and except in connection with the Subsidiary Rationalisation Process;

(b) a Target Company ceasing (or being deemed to cease) or becoming (or being deemed to become) for Tax purposes to be a member of any group or associated with any person;

(c) any Event in circumstances where the consideration (if any) received by or as the case may be, paid by the relevant Target Company in respect thereof is less than the consideration deemed to have been received or more than the consideration deemed to have been paid for Tax purposes (as the case may be) and otherwise, any Event which, for Tax purposes, gives rise to deemed rather than actual income, profits, gains or supplies;

(d) any Event which gives rise to a liability to or in respect of Tax in respect of the income, profits or gains, whether actual or deemed, of any non-resident person or any other person other than the Target Company in question;

(e) the change in any of, the accounting reference date of a member of any Target Company, any accounting policies of any Target Company or any Tax reporting or Tax policies of any Target Company;

(f) the failure by any Target Company to deduct or withhold any Tax from any payment (deemed to be made or otherwise) to the extent required by law or, if due, to account to any Tax Authority for such Tax;

(g) any cessation of trade by, or any major change in the nature or conduct of trade of any Target Company;

(h) any failure by any Target Company to comply with the provisions of applicable Tax law, the entry into any Tax avoidance scheme by any Target Company or any Event where the sole or a main purpose of which was the avoidance of Tax;

(i) a Target Company: (i) ceasing to be or becoming (or being deemed to cease to be or being deemed to become) resident for Tax purposes; (ii) ceasing to or starting to (or being deemed to cease to or being deemed to start to) carry on a trade through a branch, agency or permanent establishment; or (iii) ceasing to be or becoming (or being deemed to cease to be or being deemed to become) subject to Tax, in each case in any jurisdiction; or

(j) the liquidation, winding up, dissolution or event of insolvency in respect of a Target Company except as part of the Subsidiary Rationalisation Process,

but, for the avoidance of doubt, the method of amortisation of any debt portfolio of a Target Company shall, to the extent it is consistent with such treatment in the accounting period ending immediately prior to the relevant period, be treated as being in the ordinary course of business.

2.4 Part B: deemed end of Accounting Period . In Part B of this Schedule:


(a)	for the purposes of determining whether:


(i)	a Tax Liability or Relief has arisen, or

(ii)any Target Company is or becomes entitled to a right to repayment or receives an actual repayment of Tax

in either case, in respect of a period ended on or before Closing or in respect of a period commencing after Closing, an Accounting Period of the Target Company concerned shall be deemed to have ended on Closing; and


(b)	for the purposes of determining whether:

(i)any income, profits or gains have been earned, accrued or received, or

(ii)an Event has occurred

in either case, on or before Closing or after Closing, an Accounting Period of the Target Company concerned shall be deemed to have ended on Closing.

2.3 Part B: paragraph references . References in Part B of this Schedule to paragraphs are, unless otherwise stated, references to paragraphs in Part B.

SCHEDULE 9

TARGET COMPANY INFORMATION

Part A :Details of the Company



Name:	Aktiv Kapital AS
Type of Company:	Private Limited Liability Company (Norwegian: “ aksjeselskap ”)
Date of Incorporation:	19 March 1991
Registered Number:	960 545 397
Registered Office:	Christian Krohgs gate 16, 0186 Oslo, Norway
Directors:	Harald Lauritz Thorstein Per-Erik Åsmyr Geir Langfeldt Olsen
Company Secretary:	Not applicable
Issued Capital:	NOK 4,504,749.90
Shareholders:	Geveran Trading Company Ltd.

Part B : Details of the Subsidiaries

Norway



	Name:	Aktiv Kapital Financial Services AS
	Type of Company:	Private Limited Liability Company (Norwegian: “ aksjeselskap ”)
	Date of Incorporation:	29 July 1997
	Registered Number:	979 112 300
	Registered Office:	Christian Krohgs gate 16, 0186 Oslo, Norway
	Director:	Jan Husby
	Company Secretary:	Not applicable
	Issued Capital:	NOK 1,000,000.00
	Shareholders:	Aktiv Kapital AS



	Name:	Aktiv Kapital Portfolio AS
	Type of Company:	Private Limited Liability Company (Norwegian: “ aksjeselskap ”)
	Date of Incorporation:	14 October 1986
	Registered Number:	942 464 347
	Registered Office:	Christian Krohgs gate 16, 0186 Oslo, Norway
	Directors:	Jan Husby Ingvald Sikveland Leif Jarl
	Company Secretary:	Not applicable
	Issued Capital:	NOK 13,787,878.00
	Shareholders:	Aktiv Kapital AS



	Name:	Aktiv Kapital Investment AS
	Type of Company:	Private Limited Liability Company (Norwegian: “ aksjeselskap ”)
	Date of Incorporation:	31 May 2011
	Registered Number:	997 016 556
	Registered Office:	Christian Kroghs gate 16, 0186 Oslo, Norway
	Directors:	Jan Husby Øystein Sindre Dannevig Tom Stian Haugerud
	Company Secretary:	Not applicable
	Issued Capital:	NOK 350,000.00
	Shareholders:	Aktiv Kapital AS



	Name:	Aktiv Kapital Portfolio Collection AS
	Type of Company:	Private Limited Liability Company (Norwegian: “ aksjeselskap ”)
	Date of Incorporation:	15 February 2010
	Registered Number:	995 262 584
	Registered Office:	Christian Krohgs gate 16, 0186 Oslo, Norway
	Directors:	Jan Husby Leif Jarl Ingvald Sikveland
	Company Secretary:	Not applicable
	Issued Capital:	NOK 100,000.00
	Shareholders:	Aktiv Kapital Financial Services AS



	Name:	Aktiv Kapital Sourcing AS
	Type of Company:	Private Limited Liability Company (Norwegian: “ aksjeselskap ”)
	Date of Incorporation:	02 June 1997
	Registered Number:	879 174 392
	Registered Office:	Christian Krohgs gate 16, 0186 Oslo, Norway
	Directors:	Jan Husby Leif Jarl Ingvald Sikveland
	Company Secretary:	Not applicable
	Issued Capital:	NOK 1,000,000.00
	Shareholders:	Aktiv Kapital Portfolio AS



	Name:	Crystal Production AS
	Type of Company:	Private Limited Liability Company (Norwegian: “ aksjeselskap ”)
	Date of Incorporation:	18 April 1989
	Registered Number:	851 634 142
	Registered Office:	Christian Krohgs gate 16, 0186 Oslo, Norway
	Directors:	Jan Husby Ingvald Sikveland Leif Jarl
	Company Secretary:	Not Applicable
	Issued Capital:	NOK 6,498,301.50
	Shareholders:	Aktiv Kapital Portfolio AS



	Name:	Crystal Ocean AS
	Type of Company:	Private Limited Liability Company (Norwegian: “ aksjeselskap ”)
	Date of Incorporation:	12 December 1997
	Registered Number:	979 470 932
	Registered Office:	Christian Krohgs gate 16, 0186 Oslo, Norway
	Directors:	Jan Husby
	Company Secretary:	Not Applicable
	Issued Capital:	NOK 100,000,000.00
	Shareholders:	Crystal Production AS



	Name:	Green Sea AS
	Type of Company:	Private Limited Liability Company (Norwegian: “ aksjeselskap ”)
	Date of Incorporation:	8 December 1993
	Registered Number:	968 253 980
	Registered Office:	Christian Krohgs gate 16, 0186 Oslo, Norway
	Directors:	Jan Husby Leif Jarl Ingvald Sikveland
	Company Secretary:	Not Applicable
	Issued Capital:	NOK 361,500,000.00
	Shareholders:	Crystal Production AS

Sweden



	Name:	AK Portfolio Holding AB
	Type of Company:	Private Limited Liability Company
	Date of Incorporation:	2 August 2002
	Registered Number:	556631-8712
	Registered Office:	753 83 Uppsala, Uppsala län, Uppsala kommun, Sweden
	Directors:	Jan Husby Leif Jarl Ingvald Sikveland
	Company Secretary:	Not Applicable
	Issued Capital:	SEK 1,000,100
	Shareholders:	Aktiv Kapital Portfolio AS



	Name:	AK Nordic AB
	Type of Company:	Private Limited Liability Company
	Date of Incorporation:	1 August 1978
	Registered Number:	556197-8825
	Registered Office:	753 83 Uppsala, Uppsala län, Uppsala kommun, Sweden
	Directors:	Henning Dokset Per Kumle Tom Stian Haugerud
	Company Secretary:	Not Applicable
	Issued Capital:	SEK 53,840,000
	Shareholders:	AK Portfolio Holding AB



	Name:	Aktiv Kapital Sverige Services AB
	Type of Company:	Private Limited Liability Company
	Date of Incorporation:	1 April 1975
	Registered Number:	556189-4493
	Registered Office:	753 83 Uppsala, Uppsala län, Uppsala kommun, Sweden
	Directors:	Jorund Granholt Lena Eriksson
	Company Secretary:	Not applicable
	Issued Capital:	SEK 100,000.00
	Shareholders:	Aktiv Kapital Financial Services AS



	Name:	AK Sverige AB
	Type of Company:	Private Limited Liability Company
	Date of Incorporation:	7 January 1935
	Registered Number:	556033-8104
	Registered Office:	753 83 Uppsala, Sweden
	Directors:	Ingvald Sikveland Öystein Sindre Dannevig Leif Jarl
	Company Secretary:	Not Applicable
	Issued Capital:	SEK 5,000,000
	Shareholders:	Aktiv Kapital Financial Services AS



	Name:	Global Finance Scandinavia AB
	Type of Company:	Private Limited Liability Company
	Date of Incorporation:	1 March 1989
	Registered Number:	556355-9094
	Registered Office:	753 83 Uppsala, Sweden
	Directors:	Sven Håkan Bernhard
	Company Secretary:	Not Applicable
	Issued Capital:	SEK 100,000
	Shareholders:	AK Sverige AB



	Name:	Aktiv Kapital (UK) Ltd
	Type of Company:	Private Limited Company
	Date of Incorporation:	9 August 2001
	Registered Number:	4267803
	Registered Office:	Wells House 15/17 Elmfield Road Bromley Kent, BR1 1LT, United Kingdom
	Directors:	Tiku Patel David Sheridan
	Company Secretary:	SP Legal Secretaries Limited
	Issued Capital:	GBP 400,000
	Shareholders:	Aktiv Kapital Financial Services AS



	Name:	Aktiv Kapital Asset Investments Ltd (UK)
	Type of Company:	Private Limited Company
	Date of Incorporation:	13 August 2001
	Registered Number:	4269175
	Registered Office:	c/o Ernst & Young LLP 1 More London Place London SE1 2AF
	Directors:	Jan Husby
	Company Secretary:	SP Legal Secretaries Limited
	Issued Capital:	GBP 11,199,999
	Shareholders:	Aktiv Kapital Portfolio AS

Canada



	Name:	Aktiv Kapital Canada Ltd
	Type of Company:	Private Limited Liability Company
	Date of Amaglamation:	1 January 2008
	Registered Number:	4461045
	Registered Office:	1001-130 Dufferin Ave, London, Canada ON N6A 5R2
	Directors:	Tiku Patel Rod Hooktwith
	Company Secretary:	Rod Hooktwith
	Issued Capital:	100 Common Shares 12,396,819.27 Preference Shares
	Shareholders:	Aktiv Kapital Financial Services AS



	Name:	Aktiv Kapital Acquisition Inc.
	Type of Company:	Private Limited Liability Company
	Date of Amalgamation:	1 January 2009
	Registered Number:	4508343
	Registered Office:	1001-130 Dufferin Ave, London, Canada ON N6A 5R2
	Directors:	Tiku Patel Rod Hooktwith James Gignac
	Company Secretary:	Rod Hooktwith
	Issued Capital:	1,000 Common Shares
	Shareholders:	Aktiv Kapital Canada Ltd

Finland



	Name:	Aktiv Kapital Portfolio Oy
	Type of Company:	Private Limited Liability Company
	Date of Registration:	10 December 1999
	Registered Number:	1569399-7
	Registered Office:	Yliopistonkatu 7, 00100 Helsinki / PL 274, 00101 Helsinki, Finland
	Directors:	Jan Husby Leif Jarl Ingvald Sikveland
	Company Secretary:	Not Applicable
	Issued Capital:	EUR 5,066,184.00
	Shareholders:	Aktiv Kapital Portfolio AS



	Name:	Aktiv Kapital Oy
	Type of Company:	Private Limited Liability Company
	Date of Incorporation:	10 December 1999
	Registered Number:	1569394-6
	Registered Office:	Yliopistonkatu 7, 00100 Helsinki / PL 274, 00101 Helsinki, Finland
	Directors:	Tiku Patel Jørund Grandholt Mikko Pärssinen
	Company Secretary:	Not applicable
	Issued Capital:	EUR 168.187,93
	Shareholders:	Aktiv Kapital Financial Services AS

Switzerland



	Name:	Aktiv Kapital Holding AG
	Type of Company:	Private Limited Liability Company
	Date of Incorporation:	10 December 2010
	Registered Number:	CHE-116.343.570
	Registered Office:	Holzikerstrasse 2, 5040 Schöftland, Switzerland
	Directors:	Henning Dokset
	Company Secretary:	Not applicable
	Issued Capital:	CHF 100,000.00
	Shareholders:	Aktiv Kapital Portfolio AS

Germany



	Name:	Aktiv Kapital Deutschland GmbH
	Type of Company:	Private Limited Liability Company
	Date of Incorporation:	18 March 2002
	Registered Number:	HRB 18837
	Registered Office:	Am Silberpalais 1, 47057 Duisburg, Germany
	Directors:	N/A
	Company Secretary:	Not applicable
	Issued Capital:	EUR 25,000.00
	Shareholders:	Aktiv Kapital Financial Services AS

Austria



	Name:	Aktiv Kapital Inkasso GmbH
	Type of Company:	Private Limited Liability Company
	Date of Incorporation:	22 March 2001
	Registered Number:	FN 207430 w
	Registered Office:	Marktstrasse 3A-7000 Eisenstadt, Austria
	Directors:	N/A
	Company Secretary:	Not applicable
	Issued Capital:	EUR 35,000
	Shareholders:	Aktiv Kapital Financial Services AS

Spain



	Name:	Aktiv Kapital Collections SLU
	Type of Company:	Limited Liability Company
	Date of Incorporation:	24 March 1993
	Tax Identification Number:	B-80568769
	Registry details:	Commercial Registry of Madrid: Volume 5807, Sheet 72, Page M-94984
	Registered Office:	C/Albasanz, no. 16, 2ª planta 28037 Madrid, Spain
	Directors:	Jan Husby Tiku Patel Ingvald Sikveland
	Company Secretary:	Mr. Vicente Luis Martínez (Secretary non-member of the Board of Directors)
	Issued Capital:	EUR 3,606.07
	Shareholders:	Aktiv Kapital Financial Services AS

Bermuda



	Name:	AKCL Investments Ltd (Bermuda) (in the process of being liquidated)
	Type of Company:	Exempt
	Date of Incorporation:	19 December 2006
	Registered Number:	39393
	Registered Office:	Third Floot, Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton HM 08, Bermuda
	Directors:	Arthur E. M. Jones Jan Husby Håkon Bernhard
	Company Secretary:	Shelley R. Durrant
	Issued Capital:	USD 12,000.00
	Shareholders:	Crystal Productions AS



	Name:	Aktiv Kapital First Investment Ltd (Bermuda) (in the process of being liquidated)
	Type of Company:	Exempt
	Date of Incorporation:	29 March 2004
	Registered Number:	35101
	Registered Office:	Third Floot, Par-la-Ville Place, 14 Par-la-Ville Road, Hamilton HM 08, Bermuda
	Directors:	Arthur E. M. Jones Jan Husby Håkon Bernhard
	Company Secretary:	Shelley R. Durrant
	Issued Capital:	USD 32,419,200
	Shareholders:	Crystal Productions AS

Cyprus



	Name:	AK Portfolio Holding Ltd (Cyprus)
	Type of Company:	Limited Liability Company
	Date of Incorporation:	30 December 2005
	Registered Number:	HE 170500
	Registered Office:	John Kennedy, Iris House, Seventh Floor, Flat/Office 740B, 3106 Limassol, Cyprus
	Directors:	Scott Bjorn Danielsen May Kristin Haugen Jan Husby
	Company Secretary:	Marios Saveriades
	Issued Capital:	EUR 17,100.00
	Shareholders:	Aktiv Kapital ASA

SCHEDULE 10

REGISTERED OWNED IP

Part A : Registered trademarks



No.	Jurisdiction	Mark	Classes	Date registered
260312	Norway		Local Class 36	8 June 2011
967054	Spain		Local Class 36	8 April 2008
967054	Turkey		Local Class 36	8 April 2008
967054	Switzerland		Local Class 36	8 April 2008
967,054	Macedonia		Local Class 36	8 April 2008
967054	EU		Local Class 36	8 April 2008
967054	Croatia		Local Class 36	8 April 2008
TMA824,580	Canada		Local Class 36	23 May 2012
712503	Switzerland		Local Class 36	8 April 1999
712503	Spain		Local Class 36	8 April 1999
201562	Norway		Local Class 36	17 February 2000
1120187	EU		Local Class 36	19 June 2000

Part B : Domain names



Domain name	Owner	Created/Updated
aktivkapital.com	Aktiv Kapital ASA	25 September 1998
aktivkapital.net	Aktiv Kapital ASA	30 November 2005
aktivkapital.org	Aktiv Kapital ASA	30 November 2005
aktivkapital.info	Aktiv Kapital ASA	30 November 2005
aktivkapital.eu	AK Sverige AB	18 April 2006
aktivkapital.no	Aktiv Kapital AS	15 November 1999
aktivkapital.se	Aktiv Kapital ASA	23 April 2003
aktivkapital.fi	Aktiv Kapital Oy	19 January 2011
aktivkapital.de	Aktiv Kapital Deutschland GmbH	10 February 2012 (last updated)
aktivkapital.at	Aktiv Kapital ASA	unknown
aktivkapital.co.uk	Aktiv Kapital (UK) Ltd	8 September 2001
aktivkapital.es	Aktiv Kapital Collections, SLU	10 November 2005
aktivkapital.ca	Aktiv Kapital Canada Ltd.	19 October 2005
aktivkapital.it	Aktiv Kapital ASA	13 June 2012
aktivkapital.pl	Aktiv Kapital ASA	20 December 2002
aktivkapital.pt	Aktiv Kapital ASA	5 December 2011
aktivkapital.ie	Aktiv Kapital ASA	31 July 2012
aktivkapital.nl	Aktiv Kapital ASA	28 February 2012
aktivkapital.ch	Aktiv Kapital AG	unknown

SCHEDULE 11

PROPERTIES



Property Address	Owned/leased	Date of lease	Parties	Term
100 King Street West, Suite 5600, Toronto, ON M6X 1C9	Leased	8 August 2013	Aktiv Kapital Sourcing AS, Canada branch (lessee) and ON, Toronto – First Canadian Place (lessor)	1 September 2013-31 August 2014
130 Dufferin Avenue, 11 ^th Floor, London, Ontario, N6A 5, Canada	Leased	11/14/15 March 2013	Aktiv Kapital Canada Ltd. (lessee) and BlueStone Properties Inc. (lessor)	1 July 2013- 30 June 2018
Calle Albasanz, 16, Second Floor, 28037 Madrid, Spain	Leased	8 January 2013	Aktiv Kapital Collection, SLU (lessee) and Hermanos Revilla S.A. (lessor)	1 April 2013 – 31 March 2016
Christian Krohgs gate 16, 0186 Oslo, Norway	Leased	22 December 2009	Aktiv Kapital AS (lessee) and Akerselva Atrium AS (lessor)	25 March 2010 – 24 March 2015
Dragarbrunnsgatan 46, 753 83 Uppsala, Sweden	Leased	10 April/3 May 2011	Aktiv Kapital Sverige Services AB (lessee) and Vasakronan Uppsala City AB (lessor)	1 January 2012 - 31 December 2016



Property Address	Owned/leased	Date of lease	Parties	Term
Bredgränd 18, Uppsala, Sweden	Leased	26/27 October 2011	Aktiv Kapital Sverige Services AB (lessee) and Vasakronan Uppsala City AB (lessor)	1 November 2011 – 31 January 2012 (still in use)
Sörnäostenkatu 1, 00580 Helsinki, Finland (storage room)	Lease	28 December 2010	Aktiv Kapital Oy (lessee) and Keskinäinen Eläkevakuutu-syhtiö Ihmarinen (lessor)	1 June 2011 - until terminated
Helsingin Mikonkatu 9, 00100 Helsinki, Finland	Leased	23 December 2010	Aktiv Kapital Oy (lessee) and Keskinäinen Eläkevakuutu-syhtiö Ihmarinen (lessor)	1 April 2011 - until terminated
"CityPalais Duisburg", König-Heinrich-Platz 2 and 4, Landfermannstrasse 6 and 8, Königstrasse 39, 55 and 55a, 47057 Duisburg, Germany	Leased	14 August 2012	Aktiv Kapital Deutschland GmbH (lessee) and CityPalais Duisburg GmbH & Co. KG (lessor)	1 August 2014 - 31 July 2019 with options to extend
"Silberpalais", Am Silberpalais 1, 47057 Duisburg, Germany	Leased	20/26 July 2007	Aktiv Kapital Deutschland GmbH (lessee) and Nude Estates Ltd. (lessor)	16 November 2009 - 16 December 2014
Haus Technologiezentrum, 7000 Eisenstadt, Marktstrasse 3, A-7000 Eisenstadt, Austria	Leased	25/26 March 2009 (as amended 31 March 2013) 12 June 2013	Aktiv Kapital Inkasso GmbH (lessee) and Technologie-zentrum Eisenstadt Ges. mbH (lessor)	1 May 2009 - until terminated and 1 August 2013 - until terminated



Property Address	Owned/leased	Date of lease	Parties	Term
Holzikerstrasse 2, Schöftland, Switzerland	Leased	14/19 August 2013	AK Holding AG (lessee) and W Quadrat Treuhand AG (lessor)	15 August 2013 - until terminated
Zeughausgasse 3, 6300 Zug, Switzerland	Leased	3/10 February 2011	Aktiv Kapital Portfolio AS, Zug branch (lessee) and Gebäudever-sicherung Zug (lessor)	16 February 2011 - until terminated
Second Floor, Building 11, Chiswick Business Park, 566 Chiswick High Road, London W4 5YS, United Kingdom	Leased	Unsigned	Aktiv Kapital AS (lessee) and Seadrill Management Ltd.(lessor)	1 July 2013 – 1 July 2016
Ground, Part Street and Third Floor, Wells House, 15-17 Elmfield Road, Bromley, Kent, BTR1 1LS, United Kingdom	Leased	29 August 2008	Aktiv Kapital (UK) Limited (lessee) and Bedell Corporate Trustees Limited and Atrium Trustees Limited (as trustees of the Well House Unit Trust) (lessor)	29 August 2008-28 August 2018
Part Third Floor, Wells House, 15-17 Elmfield Road, Bromley, Kent, BTR1 1LS, United Kingdom	Underlease	4 July 2012	Aktiv Kapital (UK) Limited (lessor) and Bridges Logistics and Fulfilment Limited (lessee)	4 July 2012 – 28 February 2018

SCHEDULE 12

KEY MANAGERS

1. Geir Olsen

2. Henning Dokset

3. Tiku Patel

4. Martin Sjolund

5. Jan Husby

6. Alexander Holzgreve

7. Øystein Dannevig

SCHEDULE 13

KEY PORTFOLIOS



UID1
AKCA0251	AKCA0283
AKFI0018	AKNO0001
AKNO0049	AKSE0001
AKSP0041	AKUK0442
AKUK0473	OLAT0120
OLAT0133	OLCH0022
OLDE0014	OLDE0042
OLSE0594	OLSE0710
AKNO0002	AKSE0003
AKSP0043	AKSP0044
AKUK0443	AKUK0444
AKUK0445	AKUK0446
AKUK0447	AKUK0448
AKUK0449	AKUK0450
AKUK0451	AKUK0452
AKUK0453	AKUK0454
AKUK0455	AKUK0456
AKUK0457	AKUK0458
AKUK0459	AKUK0460
AKUK0461	AKUK0462
AKUK0463	OLAT0001
OLAT0127	OLAT0129
OLAT0134	OLDE0012

SCHEDULE 14

DEFINITIONS AND INTERPRETATION

1. Definitions . In this Agreement, the following words and expressions shall have the following meanings:

2013 Accounts means the audited balance sheet of the Company (and, where relevant, the audited consolidated balance sheet of the Company and its subsidiary undertakings) and the audited profit and loss account of the Company (and, where relevant, the audited consolidated profit and loss account of the Company and its subsidiary undertakings), in each case as at 31 December 2013 in respect of that financial year, together with any notes, reports, statements or documents included in or annexed or attached to them;

Account means each outstanding non-settled active claim under a Portfolio acquired or purported to be acquired by a Target Company after 31 December 2005 and Accounts shall be construed accordingly;

Account Holder means any obligor, or guarantor or surety of, or any party liable for the payment of, an Account or, if there are multiple persons or entities obligated to repay an Account, all such persons or entities collectively;

Account Level Data means account level data relating to the Accounts which is set out in folders 12.1 and 12.2 of the Data Room;

Acquisition Financing Condition has the meaning given in clause 5.1(f);

Actual Warranty Claim has the meaning given in clause 5.9(a)(i);

Advokatfirmaet Wiersholm means Advokatfirmaet Wiesholm AS whose offices are at Rueslokkveien 26, P.O. Box 1400 Vika, NO-0115, Oslo, Norway;

Affiliate means in relation to any Party, any subsidiary or Parent Company of that Party and any subsidiary of any such Parent Company, in each case from time to time;

Agreed Form means, in relation to a document, the form of that document which has been initialled for the purpose of identification by or on behalf of the Seller and the Purchaser (in each case with such amendments as may be agreed in writing by or on behalf of the Seller and the Purchaser);

Anti-Bribery Law means any Law that relates to bribery or corruption, including (without limitation) the US Foreign Corrupt Practices Act of 1977 and the UK Bribery Act 2010, in each case as amended, re-enacted or replaced from time to time;

Austrian Competition Condition has the meaning given in clause 5.1(d);

Boxed Tax Warranties means: (i) the Tax Warranties; and (ii) the Warranties in paragraphs 2.1 and 2.3 of Part A of Schedule 5 as such Warranty applies to Tax;

Business Day means a day other than a Saturday or Sunday or public holiday in Oslo or New York on which banks are open in Oslo or New York for general commercial business;

Claim means any claim under or for breach of this Agreement;

Closing means completion of the sale and purchase of the Shares in accordance with the provisions of this Agreement;

Closing Date means the date on which Closing occurs;

Collection Impacting Third Party Right means any Third Party Right in respect of an Account which materially impacts the net collections of a Target Company in respect of such Account;

Company means Aktiv Kapital AS, a company incorporated under the laws of Norway, with company number 960 545 397 and registered office at Christian Krohgs gate 16, 0186 Oslo, Norway;

Competing Business means a business which acquires and services non-performing unsecured consumer loans;

Conditions means the conditions set out in clause 5.1, and Condition means any of them;

Confidential Information has the meaning given in clause 18.1(a);

Connected Persons has the meaning given in clause 23;

Constitutional Documents means with respect to an entity its memorandum and articles of association, by-laws or equivalent constitutional documents;

Contractual Employment Benefits means the contractual employment benefits of the Employees as set out in Data Room folder 5.4.3;

Costs means reasonable out-of-pocket costs (including legal and other professional costs) and expenses (including travel, accommodation, Taxation), in each case of any nature whatsoever;

Crystal Productions Cash Refund has the meaning given in Schedule 8;

Crystal Productions Dispute means the ongoing dispute between Crystal Production AS, Green Sea AS and Crystal Ocean AS and Norwegian tax authorities regarding tax losses carried forward occurred before Aktiv Kapital acquired the Crystal Production Group in 2003;

Crystal Productions Dispute Letter means the letter in the Agreed Form in respect of the handling of the Crystal Productions Dispute;

Data Room means the data room comprising the documents and other information relating to the Target Companies made available by the Seller as listed on the data room index in the Agreed Form;

Deed of Novation and Amendment has the meaning given in Recital (D);

Deemed Warranty Claim has the meaning given in clause 5.9(a)(ii);

Default Interest means interest at EURIBOR plus three per cent.;

Definitive Financing Agreements has the meaning given in clause 5.3(a);

Disclosed means disclosure with sufficient detail to identify to the Purchaser the nature and scope of the matter disclosed, provided that:

(a)

such disclosure shall only be deemed to be Disclosed to the extent the disclosure would allow a diligent person literate in the language in which the disclosure was made and reasonably skilled in the field to which the information relates (e.g. business administration, accounting, regulatory, legal, etc.) to reasonably discern the relevance of such matter based on reading and analysing such information; and


(b)	any contract or other document referred to, but not included in, the Data Room shall only be deemed to be Disclosed if the material terms of such contract or other document been included in the Data Room;

Disclosure Letter means the letter from the Seller to the Purchaser executed and delivered immediately before the signing of this Agreement;

EEA means the European Economic Area comprising Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Demark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lichtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom;

Employees means the employees of the Target Companies;

Environment means all or any of the following media, namely air (including the air within buildings or other natural or man-made structures above or below ground), water or land;

Environmental Consents means any material permit, licence, authorisation, approval or consent required under Environmental Laws for the carrying on the business of the Target Companies or the use of, or any activities or operations carried out at, any site owned or occupied by any Target Company;

Environmental Laws means all international, European Union, national, state, federal, regional or local laws (including common law, statute law, civil and criminal law) which are in force and binding at the date of this Agreement, to the extent that they relate to Environmental Matters;

Environmental Matters means all matters relating to the pollution or protection of the Environment;

Equivalent Insurance Policies has the meaning given in paragraph 12 of Schedule 6;

ERC means the estimated remaining collections in respect of a Portfolio over the next seven years;

EURIBOR means the display rate per annum of the European interbank interest rate for credit in Euro with an interest period of one month, published on the appropriate page of the Reuters screen at 11.00 a.m. CET on the date on which payment of the sum under this Agreement was due but not paid;

Exchange Rate means, with respect to a particular currency for a particular day, the spot rate of exchange (the closing midpoint) for that currency into Euro on such date as published in the London edition of the Financial Times first published thereafter or, where no such rate is published

in respect of that currency for such date, at the rate quoted by HSBC Bank Plc as at the close of business in London on such date;

Existing Financing Agreements means (i) the amendment and restatement agreement dated 28 June 2013 between, amongst others, the Company (as borrower) and DNB Bank ASA (as facility agent, security agent, term loan facility agent and revolving credit facility agent, DNB Markets and Merchant Banking, Skandinaviska Enskilda Banken AB (PUBL) as mandated lead arrangers, DNB Markets as bookrunner and the Lenders (as defined therein), for the fifth amendment and restatement agreement to a EUR 100,000,000, GBP 45,000,000, NOK 365,000,000, SEK 500,000,000 term loan facility, the first amendment and restatement agreement to a NOK 1,000,000,000 (as increased to NOK 1,500,000,000 by agreement dated 28 June 2013) revolving credit facility and the second amendment and restatement to an intercreditor agreement; and (ii) the multicurrency overdraft facility agreement dated 1 December 2011 between the Company (as borrower) and DNB Bank ASA (as bank) in the amount of up to NOK 150,000,000;

Exiting Purchaser means PRA Holding IV, LLC, a company incorporated under the laws of Virginia, with address at 120 Corporate Boulevard, Norfolk, VA 23502, United States of America;

Extended Longstop Date has the meaning given in clause 5.7;

Financial Debt means borrowings and indebtedness in the nature of borrowings (including by way of acceptance credits, discounting or similar facilities, loan stocks, bonds, debentures, notes, overdrafts or any similar arrangements the purpose of which is to raise money) owed to any banking, financial, acceptance credit, lending or other similar institution or organisation;

Fundamental Warranties means the warranties set out in paragraph 1 of Part A of Schedule 5;

General Illegality Condition has the meaning given in clause 5.1(g);

General Warranties means the Warranties other than the Fundamental Warranties and the Tax Warranties;

Governmental Entity means any supra-national, national, state, municipal or local government (including any subdivision, court, administrative agency or commission or other authority thereof) or any quasi-governmental or private body exercising any regulatory, taxing, importing or other governmental or quasi-governmental authority, including the European Union;

Intellectual Property Rights or IPR means:


(a)	patents, utility models and rights in inventions;


(b)	rights in each of know-how, Confidential Information and trade secrets;


(c)	trade marks, service marks, rights in logos, trade names, rights in each of get-up and trade dress and domain names;


(d)	copyright, moral rights, database rights, rights in designs, and semiconductor topography rights;


(e)	any other intellectual property rights; and


(f)	all rights or forms of protection, subsisting now or in the future, having equivalent or similar effect to the rights referred to in paragraphs (a) to (e) above,

in each case: (i) anywhere in the world; (ii) whether unregistered or registered (including all applications, rights to apply and rights to claim priority); and (iii) including all divisionals, continuations, continuations-in-part, reissues, extensions, re-examinations and renewals;

IT Contract means any third party contract under which an IT System is licensed, leased, supplied maintained or supported;

IT Systems means the material information and communications technologies used by the Target Companies;

Key Managers means those Employees whose names are set out in Schedule 12;

Key Portfolios means the Portfolios acquired by the Target Companies the UID1 reference for which are listed in Schedule 13;

Last Accounts means the audited balance sheet of the Company (and, where relevant, the audited consolidated balance sheet of the Company and its subsidiary undertakings) and the audited profit and loss account of the Company (and, where relevant, the audited consolidated profit and loss account of the Company and its subsidiary undertakings), in each case as at the Last Accounts Date in respect of that financial year, as set out in the Data Room, together with any notes, reports, statements or documents included in or annexed or attached to them;

Last Accounts Date means 31 December 2012;

Law means any statute, law, rule, regulation, guideline, ordinance, code, policy or rule of common law issued, administered or enforced by any Governmental Entity, or any judicial or administrative interpretation thereof;

Leakage means any of the following which occurs after the Locked Box Accounts Date and on or before Closing:


(a)	any dividend or distribution (whether in cash or in kind) or any return of capital (whether by reduction of capital or redemption or purchase of shares) declared, paid or made by or from any Target Company;


(b)	any payment of interest or principal in respect of any indebtedness owed, guaranteed or indemnified by any Target Company to, or on behalf of, or for the benefit of, the Seller or any member of the Seller Group or any Seller Related Party;


(c)	any payment by any Target Company of any Costs arising in connection with the preparation for, negotiation or consummation of the transactions contemplated in this Agreement or the Transaction Documents (including professional fees, management advisory fees, option payments and transaction bonuses);


(d)	any other payment, assumption of liability or transfer of value (including the waiver, forgiveness, discharge or discount by any Target Company of any amount owed to it) in each case to, or on behalf of, or for the benefit of, the Seller or any member of the Seller Group or any Seller Related Party less any cash consideration received by the Target Companies in respect of the same; and


(e)	the agreement or undertaking by any Target Company to do any of the matters set out in (a) to (d) above,

but does not include any payment, assumption of liability, transfer of value, dividend or distribution (or any agreement or undertaking to do any of the same) by any Target Company to, or behalf of, or for the benefit of, any other Target Company;

Liabilities means all liabilities, damages, Costs, duties, interest, penalties and obligations of every description (including, for the avoidance of doubt, any liability to Tax and any and all other costs, expenses and fees), whether deriving from contract, the common law, equity, statute or otherwise, whether present or future, actual or contingent, ascertained or unascertained, or disputed or deriving from any settlement thereof, and whether owed or incurred severally or jointly and as principal or surety, and Liability means any one of them;

Loan Note means the US Dollar denominated loan note of the Purchaser Guarantor in an amount of US Dollars equal to the Loan Note Amount based on the Exchange Rate as at one Business Days prior to the Closing Date in the Agreed Form;

Loan Note Amount means € 125,000,000;

Locked Box Accounts means the unaudited consolidated accounts of the Company and its subsidiary undertakings in respect of the 12 month period ended on the Locked Box Accounts Date as set out in Schedule 2;

Locked Box Accounts Date means 31 December 2013;

Longstop Date means 30 June 2014 or, if the only Condition that has not been satisfied (or waived) on 30 June 2014 is the Swedish FSA Condition, 30 August 2014;

Losses means all losses including damages, shortfalls, diminutions in value, destruction and Liabilities and Loss means any one of them;

Maintained Insurance Policy has the meaning given in paragraph 12 of Schedule 6;

Management Service Contracts means the service contracts, each dated 19 February 2014, entered into between:

(a) Aktiv Kapital AS and Geir Olsen;

(b) Aktiv Kapital AS and Henning Dokset;

(d) Aktiv Kapital UK Ltd and Tiku Patel;

Material Adverse Change means any event, occurrence, fact, condition or change that is, individually or in the aggregate, materially adverse to the assets, liabilities, results of operations or financial condition of the Target Companies, taken together, provided that none of the following shall constitute, shall be considered or shall otherwise be taken into account in determining whether there has occurred, and no event, occurrence, fact, condition or change resulting from or arising out of any of the following shall constitute, a Material Adverse Change:


(a)	any event, occurrence, fact, condition or change relating to or resulting from:


(i)	changes in economic conditions or financial, security or credit markets in general, or changes affecting the availability or cost of financing (except, in any

such case, to the extent disproportionately impacting the Target Companies, taken together, as compared to other businesses operating in the same industry (and in such case, only such disproportionate impact shall be considered or otherwise taken into account in determining if a Material Adverse Change has occurred));

(ii)

changes generally applicable to the industries in which the Target Companies operate (except, in any such case, to the extent disproportionately impacting the Target Companies, taken together, as compared to other businesses operating in the same industry (and in such case, only such disproportionate impact shall be considered or otherwise taken into account in determining if a Material Adverse Change has occurred));


(iii)	changes in prevailing interest or currency exchange rates;


(iv)	changes in national or international social and political conditions, including any engagement in or escalation of war, civil unrest or other hostilities;


(v)	seasonal changes or any hurricane, tornado, flood, earthquake, volcanic eruption, other consequence of weather or any other natural disaster, or any acts of God, terrorist attacks, or any caution or recommendation against travel by any Governmental Entity, for whatever reason;


(vi)	changes in applicable laws or in applicable accounting standards, principles or interpretations which have at the date of this Agreement already been announced or promulgated;

(vii)

the transactions contemplated by this Agreement, including the public announcement thereof and acts of competitors or loss or threatened loss or change in status of suppliers, customers, vendors, distributors, landlords, agents or employees (including the threatened or actual termination, suspension, modification or reduction of such relationships) to the extent relating to or resulting there from; or


(viii)	actions (X) required, permitted or consented to by the Purchaser under or in connection with this Agreement, (Y) taken or not taken at the written request of the Purchaser or (Z) taken by the Purchaser or any of its Affiliates after the date of this Agreement; or


(b)	any fact, matter, event or circumstance fairly disclosed by this Agreement, any other Transaction Document or the Disclosure Letter or any document Disclosed or deemed to be Disclosed in the Data Room or that is otherwise reasonably foreseeable to the Purchaser as of the date hereof.

For the avoidance of doubt, this definition shall be interpreted in accordance with the law of the State of Delaware in accordance with the first sentence of clause 29 hereof;

Metrogas Loan Agreement means the subordinated loan agreement between Aktiv Kapital Investment AS (as borrower) and Metrogas Holdings Inc. (as lender) dated 27 December 2013 (as may be amended pursuant to the amendment agreement in the Agreed Form with respect to the Metrogas Loan Agreement);

Non-Key Portfolio Acquisition Agreements means the Portfolio Acquisition Agreements relating to the Portfolios acquired by the Target Companies other than the Key Portfolios;

Non-Tax Claim means a Claim other than a Tax Claim;

Non-Tax Warranty Claim means a Warranty Claim other than a Claim for breach of a Boxed Tax Warranty;

Norwegian FSA Condition has the meaning given in clause 5.1(c);

Norwegian Tax Resident Companies means Aktiv Kapital AS, Aktiv Kapital Financial Services AS, Aktiv Kapital Portfolio AS, Aktiv Kapital Investment AS, Aktiv Kapital Portfolio Collection AS, Aktiv Kapital Sourcing AS, Crystal Production AS, Crystal Ocean AS, Green Sea AS, AK Nordic AB, AK Portfolio Holding AB and Aktiv Kapital Portfolio Oy;

Option Holder Payment Amount means the amount in Euros equal to the aggregate of the Option Holder Payments together with any amount payable by any Target Company in respect of social security contributions or equivalent taxes in connection with any Option Holder Payment;

Option Holder Payments means the payments to be made by the Target Companies to the Option Holders under the Option Termination Agreements in consideration for the cancellation of the options held by the Option Holders;

Option Holders means the holders of options under the Share Option Schemes;

Option Termination Agreements means the agreements to be entered into between the Target Companies and Option Holders in the Pre-Closing Period pursuant to which all of the options under the Share Option Schemes are to be cancelled and terminated;

Original SPA has the meaning given in Recital (C);

Owned IP means (a) all the registered Intellectual Property Rights owned by the Target Companies and (b) any other Intellectual Property Rights which are owned by a Target Company and are material to the operations of that Target Company;

Parent Company means any company which holds a majority of the voting rights in another company, or which is a shareholder of another company and has the right to appoint or remove a majority of its board of directors, or which is a shareholder of another company and controls a majority of the voting rights in it under an agreement with other shareholders, in each case whether directly or indirectly through one or more companies;

Permitted Leakage means the payments made, or to be made, by the Company or any other Target Company from the Locked Box Accounts Date up to and including the Closing Date which are set out in Schedule 1;

Permitted Portfolio Acquisition has the meaning given in clause 4.2(c);

Portfolio means a non-performing unsecured consumer loan portfolio;

Portfolio Acquisition Agreements means the agreements in respect of the acquisition of the Portfolios entered into by the Target Companies;

Portfolio Documentation means the Portfolio Acquisition Agreements and the Account Level Data;

Pre-Closing Period means the period from and including the date of this Agreement to and including the Closing Date;

Price has the meaning given in clause 2.1;

Properties means the land and buildings which are set out in Schedule 11 and all of which are either owned or leased by any of the Target Companies;

Proposed Transaction means the transaction contemplated by the Transaction Documents;

Protected Territories means Austria, Canada, Denmark, Finland, France, Germany, Italy, the Netherlands, Norway, Portugal, Republic of Ireland, Russia, Spain, Sweden, Switzerland and the UK;

Purchaser Conditions means the Conditions set out in clauses 5.1(a), 5.1(c), 5.1(d) and 5.1(f);

Purchaser Group means the Purchaser and its Affiliates from time to time, which from Closing shall include the Target Companies;

Purchaser Obligation means any warranty or undertaking to indemnify given by the Purchaser to the Seller under this Agreement, and the guarantee and indemnity given by the Purchaser Guarantor pursuant to clause 10, including, for the avoidance of doubt, any covenant to pay given by the Purchaser to the Seller under paragraph 8 of Part B of Schedule 8;

Purchaser Records has the meaning given in clause 14.1(a);

Purchaser’s Bank Account means the Purchaser’s bank account, details of which shall be notified in writing by the Purchaser to the Seller prior to Closing;

Purchaser’s Guaranteed Obligations has the meaning given in clause 10.1;

Purchaser’s VPS Account means the Purchaser’s VPS account, details of which shall be notified in writing by the Purchaser to the Seller prior to Closing;

Representatives has the meaning given in clause 18.1(b);

Seller’s Bank Account means the Seller’s bank account at Nordea Bank Norge ASA; account name Geveran Trading Co. Ltd; account number NO5060190497243(EURO); swift code WIFT NDEANOKKXXX (and/or such other account(s) as the Seller and Purchaser may agree in writing);

Seller Group means the Seller and its Affiliates from time to time but excludes the Target Companies;

Seller Indemnity has the meaning given in clause 8.12;

Seller Indemnity Claim means a claim by the Purchaser (or any other member of the Purchaser Group) in respect of or under a Seller Indemnity;

Seller Obligation means any warranty, undertaking or indemnity given by the Seller to the Purchaser and/or any other member of the Purchaser Group under this Agreement, including, for the avoidance of doubt, any covenant to pay given by the Seller to the Purchaser under Schedule 8;

Seller Payment has the meaning given in Schedule 6.

Seller Records has the meaning given in clause 14.1(b);

Seller Related Parties means, in relation to the Seller, John Fredriksen and his immediate family (being his two daughters), and any entity controlled by John Fredriksen and/or his immediate family. For the purposes of this definition, control shall mean the possession, directly or indirectly of (i) the power to direct the majority of voting rights in an entity; (ii) the power to appoint or remove a majority of the directors of an entity; or (iii) the power to direct the management, financial and operating activities of an entity, and controlled shall be construed accordingly;

SFSA has the meaning given in clause 5.1(b);

Share Option Schemes means the Company’s existing share option schemes, details of which are set out in folder 5.6.3 of the Data Room;

Shares means the shares comprising the entire issued share capital of the Company;

Subsidiaries means the companies details of which are set out in Part B of Schedule 9 and Subsidiary means any one of them;

Subsidiary Rationalisation Process means the ongoing process being carried out by the Target Companies to wind up or otherwise liquidate the following Subsidiaries: AK Portfolio Holding Ltd (Cyprus), AK Sverige AB (Sweden), Global Finance Scandinavia AB (Sweden), Aktiv Kapital Asset Investments Ltd (UK), AK First Investment Ltd (Bermuda), AKCL Investments Ltd (Bermuda) and AKNRM De Mexico, S.A. DE C.V. (Mexico);

Surviving Provisions means clauses 16 ( Costs ), 17 ( Announcements ), 18 ( Confidentiality ), 19 ( Assignment ), 21 ( Notices ), 22 ( Conflict with other Agreements ), 23 ( Whole Agreement ), 24 ( Waivers, Rights and Remedies ), 26 ( Variations ), 27 ( Invalidity ), 28 ( Third Party Enforcement Rights ), 29 ( Governing Law and Jurisdiction ), Schedule 6 ( Limitations on Liability ) and Schedule 14 ( Definitions and Interpretation );

Swedish FSA Condition has the meaning given in clause 5.1(b);

Target Companies means the Company and the Subsidiaries, and Target Company means any of them;

Target Pension Schemes means the pension schemes disclosed at Data Room folder 5.8;

Tax or Taxation means: (i) taxes on income, profits and gains, (ii) all other taxes, levies, duties, imposts, charges and withholdings in the nature of taxation, including any excise, customs, property, capital, value added, goods and services, sales, use, occupation, transfer, documentary, registration, stamp, real estate transfer, franchise and payroll taxes and any national insurance and social security contributions, and (iii) all penalties, administrative fines, charges and interest relating to any of the items listed in (i) or (ii), or to any late or incorrect return in respect of any of the items listed in (i) or (ii);

Tax Authority means any taxing or other authority (in any jurisdiction) competent to impose any Tax liability, or assess or collect any Tax;

Tax Claim means a claim for a breach of any of the Boxed Tax Warranties or a Tax Covenant Claim;

Tax Covenant means the Seller’s covenant to pay set out in Part B of Schedule 8;

Tax Covenant Claim means a claim by the Purchaser under Part B of Schedule 8;

Tax Warranties means the warranties set out in Part A of Schedule 8;

Third Party Claim has the meaning given in clause 11;

Third Party Right means any interest (in law or in equity) of any person, including any right to acquire, option and right of pre-emption, and any mortgage, charge, pledge, lien, assignment, hypothecation, security interest (including any created or imposed by law), title retention and any other encumbrance and any other security agreement or arrangement and rental, title purchase and other agreements for payment on deferred terms or any agreement to create any of the above;

Transaction Advisory Fees means the amount in Euros equal to the professional fees of Deloitte, Ernst & Young and LEK Consulting incurred or agreed to be incurred by the Target Companies in connection with the Proposed Transaction;

Transaction Documents means this Agreement, the Disclosure Letter, the Loan Notes, the Metrogas Loan Agreement, the Crystal Productions Dispute Letter, the Deed of Novation and Amendment and any other documents in Agreed Form;

Unconditional Date has the meaning given in clause 5.6;

VAT means:


(a)	any tax imposed in compliance with the council directive of 28 November 2006 on the common system of value added tax (EC Directive 2006/112) including any legislation and regulations supplemental thereto;


(b)	any other value added tax and any sales tax, turnover tax, use tax, harmonised sales tax, consumption tax or goods and services tax; and

Warranties means the warranties given pursuant to clause 8 and set out in Schedule 5 and the Tax Warranties;

Warranty Claim means a Claim in respect of any Warranty; and

Working Hours means 9.30 a.m. to 5.30 p.m. on a Business Day in the place of receipt of a notice.

2. Interpretation . In this Agreement, unless the context otherwise requires:


(a)	references to a person include any individual, firm, body corporate (wherever incorporated), government, state or agency of a state or any joint venture, association,

partnership, works council or employee representative body (whether or not having separate legal personality);


(b)	references to a paragraph, clause or Schedule shall refer to those of this Agreement unless stated otherwise;


(c)	headings do not affect the interpretation of this Agreement; the singular shall include the plural and vice versa; and references to one gender include all genders;


(d)	references to any English law legal term or concept shall, in respect of any jurisdiction other than England and Wales, be construed as references to the term or concept which most nearly corresponds to it in that jurisdiction;


(e)	references to € or Euro are references to the lawful currency from time to time of the member states of the European Union;


(f)	references to NOK are references to the lawful currency from time to time of Norway;


(g)	references to US$ or US Dollars are references to the lawful currency from time to time of the United States of America;


(h)	for the purposes of applying a reference to a monetary sum expressed in Euro, an amount in a different currency shall be deemed to be an amount in Euro translated at the Exchange Rate at the relevant date (which in relation to a Claim, shall be the date of the receipt of notice of that Claim under Schedule 6); and


(i)	any phrase introduced by the terms including , include , in particular or any similar expression shall be construed as illustrative and shall not limit the sense of the words preceding those terms.

3. Enactments . Except as otherwise expressly provided in this Agreement, any express reference to an enactment (which includes any legislation in any jurisdiction) includes references to: (i) that enactment as amended, consolidated or re-enacted by or under any other enactment before or after the date of this Agreement; (ii) any enactment which that enactment re‑enacts (with or without modification); and (iii) any subordinate legislation (including regulations) made (before or after the date of this Agreement) under that enactment, as amended, consolidated or re-enacted as described at (i) or (ii) above, except to the extent that any of the matters referred to in (i) to (iii) occurs after the date of this Agreement and increases or alters the liability of the Seller or the Purchaser under this Agreement.

4. Schedules . The Schedules comprise schedules to this Agreement and form part of this Agreement.

5. Inconsistencies . Where there is any inconsistency between the definitions set out in this Schedule 14 and the definitions set out in any clause or any other Schedule, then, for the purposes of construing such clause or Schedule, the definitions set out in such clause or Schedule shall prevail.

Exhibit 31.1

I, Steven D. Fredrickson, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of Portfolio Recovery Associates, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date: May 8, 2014	By:	/s/ Steven D. Fredrickson
		Steven D. Fredrickson
		Chief Executive Officer, President and Chairman of the Board of Directors (Principal Executive Officer)

Exhibit 31.2

I, Kevin P. Stevenson, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of Portfolio Recovery Associates, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and


1.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.



Date: May 8, 2014	By:	/s/ Kevin P. Stevenson
		Kevin P. Stevenson
		Chief Financial and Administrative Officer, Executive Vice President, Treasurer and Assistant Secretary (Principal Financial and Accounting Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Portfolio Recovery Associates, Inc. (the "Company") on Form 10-Q for the quarter ended March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Steven D. Fredrickson, Chief Executive Officer, President and Chairman of the Board of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.



Date: May 8, 2014	By:	/s/ Steven D. Fredrickson
		Steven D. Fredrickson
		Chief Executive Officer, President and
		Chairman of the Board of Directors
		(Principal Executive Officer)

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Portfolio Recovery Associates, Inc. (the "Company") on Form 10-Q for the quarter ended March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kevin P. Stevenson, Chief Financial and Administrative Officer, Executive Vice President, Treasurer and Assistant Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.



Date: May 8, 2014	By:	/s/ Kevin P. Stevenson
		Kevin P. Stevenson
		Chief Financial and Administrative Officer,
		Executive Vice President, Treasurer and Assistant Secretary
		(Principal Financial and Accounting Officer)