As filed with the Securities and Exchange Commission on July 31, 2014
File No. []
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934
ENOVA INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware | 45-3190813 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
200 West Jackson Boulevard Chicago, Illinois |
60606 | |
(Address of Principal Executive Offices) | (Zip Code) |
(312) 568-4200
(Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class to be registered |
Name of exchange on which each class is to be registered |
|
Common Stock, par value $0.00001 per share | New York Stock Exchange |
Securities to be registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | x (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
INFORMATION REQUIRED IN REGISTRATION STATEMENT
Certain information required to be included herein is incorporated by reference to the specifically identified portions of the information statement filed herewith as Exhibit 99.1. None of the information contained in the information statement shall be incorporated by reference herein or deemed to be a part hereof unless such information is specifically incorporated by reference.
Item 1. | Business. |
The information required by this item is contained under the sections Information Statement Summary, Risk Factors, Cautionary Note Regarding Forward-Looking Statements, The Separation and the Distribution, Business, Capitalization, Managements Discussion and Analysis of Financial Condition and Results of Operations, Certain Relationships and Related-Party Transactions and Where You Can Find More Information of the information statement and is hereby incorporated by reference.
Item 1A. | Risk Factors. |
The information required by this item is contained under the sections Risk Factors and Cautionary Note Regarding Forward-Looking Statements of the information statement and is hereby incorporated by reference.
Item 2. | Financial Information. |
The information required by this item is contained under the sections Capitalization, Unaudited Pro Forma Consolidated Financial Statements, Selected Historical Financial and Other Data, Managements Discussion and Analysis of Financial Condition and Results of Operations, and Index to Financial Statements and the financial statements referenced therein of the information statement and is hereby incorporated by reference.
Item 3. | Properties. |
The information required by this item is contained under the section Business of the information statement and is hereby incorporated by reference.
Item 4. | Security Ownership of Certain Beneficial Owners and Management. |
The information required by this item is contained under the section Security Ownership of Certain Beneficial Owners and Management of the information statement and is hereby incorporated by reference.
Item 5. | Directors and Executive Officers. |
The information required by this item is contained under the section Corporate Governance and Management of the information statement and is hereby incorporated by reference.
Item 6. | Executive Compensation. |
The information required by this item is contained under the sections Corporate Governance and ManagementDirector Compensation, Corporate Governance and ManagementCompensation Committee Interlocks and Insider Participation, Executive Compensation and Compensation Discussion and Analysis of the information statement and is hereby incorporated by reference.
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Item 7. | Certain Relationships and Related Transactions, and Director Independence. |
The information required by this item is contained under the sections Certain Relationships and Related-Party Transactions and Corporate Governance and Management of the information statement and is hereby incorporated by reference.
Item 8. | Legal Proceedings. |
The information required by this item is contained under the sections Regulation and Legal ProceedingsLegal Proceedings of the information statement and is hereby incorporated by reference.
Item 9. | Market Price of and Dividends on the Registrants Common Equity and Related Stockholder Matters. |
The information required by this item is contained under the sections Information Statement Summary, The Separation and the Distribution, Dividend Policy, Capitalization and Description of Capital Stock of the information statement and is hereby incorporated by reference.
Item 10. | Recent Sales of Unregistered Securities. |
The information required by this item is contained under the section Recent Sales of Unregistered Securities of the information statement and is hereby incorporated by reference.
Item 11. | Description of Registrants Securities to be Registered. |
The information required by this item is contained under the sections Dividend Policy and Description of Capital Stock of the information statement and is hereby incorporated by reference.
Item 12. | Indemnification of Directors and Officers. |
The information required by this item is contained under the section Description of Capital StockLimitation on Liability of Directors, Indemnification of Directors and Officers, and Insurance of the information statement and is hereby incorporated by reference.
Item 13. | Financial Statements and Supplementary Data. |
The information required by this item is contained under the sections Unaudited Pro Forma Consolidated Financial Statements and Index to Financial Statements and the financial statements referenced therein of the information statement and is hereby incorporated by reference.
Item 14. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
None.
Item 15. | Financial Statements and Exhibits. |
(a) | Financial Statements |
The following financial statements are included in the information statement and are hereby incorporated by reference:
| Unaudited Pro Forma Consolidated Financial Statements |
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| Annual Audited Consolidated Financial Statements: |
| Report of Independent Registered Public Accounting Firm |
| Consolidated Balance Sheets as of December 31, 2013 and 2012 |
| Consolidated Statements of Income for the years ended December 31, 2013, 2012 and 2011 |
| Consolidated Statements of Comprehensive Income for the years ended December 31, 2013, 2012 and 2011 |
| Consolidated Statements of Stockholders Equity for the years ended December 31, 2013, 2012 and 2011 |
| Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011 |
| Notes to Consolidated Financial Statements for the years ended December 31, 2013, 2012 and 2011 |
| Unaudited Consolidated Financial Statements: |
| Consolidated Balance Sheets as of June 30, 2014 and 2013 and December 31, 2013 |
| Consolidated Statements of Income for the six months ended June 30, 2014 and 2013 |
| Consolidated Statements of Comprehensive Income for the six months ended June 30, 2014 and 2013 |
| Consolidated Statements of Stockholders Equity for the Six Months ended June 30, 2014 and 2013 |
| Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 |
| Notes to Consolidated Financial Statements for the six months ended June 30, 2014 and 2013 |
(b) | Exhibits |
The following documents are filed as exhibits to this Registration Statement:
Exhibit
|
Exhibit Description |
|
2.1 | Form of Separation and Distribution Agreement between Cash America International, Inc. and Enova International, Inc.* | |
3.1 | Form of Enova International, Inc. Amended and Restated Certificate of Incorporation* | |
3.2 | Form of Enova International, Inc. Amended and Restated Bylaws* | |
4.1 | Specimen common stock certificate* | |
4.2 | Form of Stockholders and Registration Rights Agreement between Cash America International, Inc. and Enova International, Inc.* | |
4.3 | Indenture, dated May 30, 2014, between Enova International, Inc., the U.S. subsidiaries of Enova International, Inc., as guarantors, and U.S. Bank National Association, as trustee | |
10.1 | Form of Transition Services Agreement between Cash America International, Inc. and Enova International, Inc.* | |
10.2 | Form of Tax Matters Agreement between Cash America International, Inc. and Enova International, Inc.* | |
10.3 | Form of Credit Underwriting Services Agreement between Cash America International, Inc. and Enova International, Inc.* |
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10.4 | Form of Marketing and Customer Referral Agreement between Cash America International, Inc. and Enova International, Inc.* | |
10.5 | Enova International, Inc. Supplemental Executive Retirement Plan | |
10.6 | Enova International, Inc. Nonqualified Savings Plan | |
10.7 | Continued Employment and Separation Agreement between Enova Financial Holdings, LLC, a subsidiary of the Company, and Timothy S. Ho dated January 29, 2013 | |
10.8 | Letter Agreement by and among Springleaf Holdings, Inc., Timothy S. Ho and Enova Financial Holdings, LLC dated January 7, 2014 | |
10.9 | Registration Rights Agreement, dated May 30, 2014, between Enova International, Inc., the U.S. subsidiaries of Enova International, Inc., and Jefferies LLC | |
10.10 | Credit Agreement, dated as of May 14, 2014, by and among Enova International, Inc., as borrower, the U.S. subsidiaries of Enova International, Inc., as guarantors, Jefferies Finance LLC, as administrative agent, and Jefferies Group LLC, as lender | |
21.1 | Subsidiaries of Enova International, Inc. | |
99.1 | Information Statement of Enova International, Inc., preliminary and subject to completion, dated July 31, 2014 |
* | To be filed by amendment. |
| Schedules and exhibits thereto to be omitted. A copy of any omitted schedule or exhibit will be furnished to the Securities and Exchange Commission supplementally upon request. |
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
ENOVA INTERNATIONAL, INC. | ||
By: | /s/ David Fisher | |
Name: David Fisher | ||
Title: President and Chief Executive Officer |
Date: July 31, 2014
6
Exhibit 4.3
ENOVA INTERNATIONAL, INC.
as Issuer
the Guarantors party hereto
and
U.S. BANK NATIONAL ASSOCIATION
as Trustee
Indenture
Dated as of May 30, 2014
9.75% Senior Notes Due 2021
CROSS-REFERENCE TABLE
TIA Sections | Indenture Sections | |
§ 310 (a) | 7.10 | |
(b) | 7.08 | |
§ 311 | 7.03 | |
§ 312 | 11.02 | |
§ 313 | 7.06 | |
§ 314 (a) | 4, 4.02 | |
(c) | 11.04 | |
(e) | 11.05 | |
§ 315 (a) | 7.01, 7.02 | |
(b) | 7.02, 7.05 | |
(c) | 7.01 | |
(d) | 7.02 | |
(e) | 6.12, 7.02 | |
§ 316 (a) | 2.05, 6.02, 6.04, 6.05 | |
(b) | 6.06, 6.07 | |
(c) | 11.02 | |
§ 317 (a) (1) | 6.08 | |
(a) (2) | 6.09 | |
(b) | 2.03 | |
§ 318 | 11.01 |
TABLE OF CONTENTS
P AGE | ||||||
ARTICLE 1 | ||||||
D EFINITIONS AND I NCORPORATION BY R EFERENCE | ||||||
Section 1.01. |
Definitions |
1 | ||||
Section 1.02. |
Rules of Construction |
29 | ||||
ARTICLE 2 | ||||||
T HE N OTES | ||||||
Section 2.01. |
Form, Dating and Denominations 144A, Reg S; Legends |
29 | ||||
Section 2.02. |
Execution and Authentication; Exchange Notes; Additional Notes |
30 | ||||
Section 2.03. |
Registrar, Paying Agent and Authenticating Agent; Paying Agent to Hold Money in Trust |
32 | ||||
Section 2.04. |
Replacement Notes |
32 | ||||
Section 2.05. |
Outstanding Notes |
32 | ||||
Section 2.06. |
Temporary Notes |
33 | ||||
Section 2.07. |
Cancellation |
33 | ||||
Section 2.08. |
CUSIP and CINS Numbers |
33 | ||||
Section 2.09. |
Registration, Transfer and Exchange |
34 | ||||
Section 2.10. |
Restrictions on Transfer and Exchange |
36 | ||||
Section 2.11. |
Reg. S Temporary Offshore Global Notes |
38 | ||||
ARTICLE 3 | ||||||
O PTIONAL R EDEMPTION ; O FFER TO P URCHASE | ||||||
Section 3.01. |
Optional Redemption on or after June 1, 2017 |
39 | ||||
Section 3.02. |
Optional Redemption with Proceeds of Certain Equity Offerings |
39 | ||||
Section 3.03. |
Optional Redemption at Make-Whole Price |
40 | ||||
Section 3.04. |
Special Redemption |
40 | ||||
Section 3.05. |
Method and Effect of Redemption |
40 | ||||
Section 3.06. |
Offer to Purchase |
42 | ||||
ARTICLE 4 | ||||||
C OVENANTS | ||||||
Section 4.01. |
Payment of Notes |
44 | ||||
Section 4.02. |
Maintenance of Office or Agency |
44 | ||||
Section 4.03. |
Existence |
45 | ||||
Section 4.04. |
Payment of Taxes and other Claims |
45 | ||||
Section 4.05. |
Maintenance of Properties and Insurance |
45 | ||||
Section 4.06. |
Restricted Payments |
46 | ||||
Section 4.07. |
Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock |
50 | ||||
Section 4.08. |
Designation of Restricted and Unrestricted Subsidiaries |
54 |
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Section 4.09. |
Liens |
55 | ||||
Section 4.10. |
Dividend and Other Payment Restrictions Affecting Subsidiaries |
55 | ||||
Section 4.11. |
Transactions with Affiliates |
58 | ||||
Section 4.12. |
Limitation on Issuances and Sales of Equity Interests in Wholly-Owned Subsidiaries |
59 | ||||
Section 4.13. |
Business Activities |
59 | ||||
Section 4.14. |
Additional Note Guarantees |
59 | ||||
Section 4.15. |
Repurchase of Notes Upon a Change of Control |
60 | ||||
Section 4.16. |
Asset Sales |
61 | ||||
Section 4.17. |
Reports |
63 | ||||
Section 4.18. |
Reports to the Trustee |
65 | ||||
ARTICLE 5 | ||||||
M ERGER , C ONSOLIDATION OR S ALE OF A SSETS | ||||||
Section 5.01. |
Merger, Consolidation or Sale of Assets |
65 | ||||
ARTICLE 6 | ||||||
D EFAULT AND R EMEDIES | ||||||
Section 6.01. |
Events of Default |
68 | ||||
Section 6.02. |
Acceleration |
69 | ||||
Section 6.03. |
Other Remedies |
70 | ||||
Section 6.04. |
Waiver of Past Defaults |
70 | ||||
Section 6.05. |
Control by Majority |
70 | ||||
Section 6.06. |
Limitation on Suits |
71 | ||||
Section 6.07. |
Rights of Holders to Receive Payment |
71 | ||||
Section 6.08. |
Collection Suit by Trustee |
71 | ||||
Section 6.09. |
Trustee May File Proofs of Claim |
72 | ||||
Section 6.10. |
Priorities |
72 | ||||
Section 6.11. |
Restoration of Rights and Remedies |
72 | ||||
Section 6.12. |
Undertaking for Costs |
72 | ||||
Section 6.13. |
Rights and Remedies Cumulative |
73 | ||||
Section 6.14. |
Delay or Omission Not Waiver |
73 | ||||
Section 6.15. |
Waiver of Stay, Extension or Usury Laws |
73 | ||||
ARTICLE 7 | ||||||
T HE T RUSTEE | ||||||
Section 7.01. |
General |
73 | ||||
Section 7.02. |
Certain Rights of Trustee |
74 | ||||
Section 7.03. |
Individual Rights of Trustee |
76 | ||||
Section 7.04. |
Trustees Disclaimer |
76 | ||||
Section 7.05. |
Notice of Default |
76 | ||||
Section 7.06. |
Reports by Trustee to Holders |
76 | ||||
Section 7.07. |
Compensation and Indemnity |
77 | ||||
Section 7.08. |
Replacement of Trustee |
77 |
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Section 7.09. |
Successor Trustee by Merger |
78 | ||||
Section 7.10. |
Eligibility |
78 | ||||
Section 7.11. |
Money Held in Trust |
78 | ||||
ARTICLE 8 | ||||||
D EFEASANCE AND D ISCHARGE | ||||||
Section 8.01. |
Discharge of Companys Obligations |
79 | ||||
Section 8.02. |
Legal Defeasance |
80 | ||||
Section 8.03. |
Covenant Defeasance |
81 | ||||
Section 8.04. |
Application of Trust Money |
81 | ||||
Section 8.05. |
Repayment to Company |
82 | ||||
Section 8.06. |
Reinstatement |
82 | ||||
ARTICLE 9 | ||||||
A MENDMENTS , S UPPLEMENTS AND W AIVERS | ||||||
Section 9.01. |
Amendments Without Consent of Holders |
82 | ||||
Section 9.02. |
Amendments With Consent of Holders |
83 | ||||
Section 9.03. |
Effect of Consent |
84 | ||||
Section 9.04. |
Trustees Rights and Obligations |
85 | ||||
Section 9.05. |
Conformity with Trust Indenture Act |
85 | ||||
Section 9.06. |
Payments for Consents |
85 | ||||
Section 9.07. |
Notes Held by the Company |
85 | ||||
ARTICLE 10 | ||||||
G UARANTEES | ||||||
Section 10.01. |
The Guarantees |
85 | ||||
Section 10.02. |
Guarantee Unconditional |
86 | ||||
Section 10.03. |
Discharge; Reinstatement |
87 | ||||
Section 10.04. |
Waiver by the Guarantors |
87 | ||||
Section 10.05. |
Subrogation and Contribution |
87 | ||||
Section 10.06. |
Stay of Acceleration |
87 | ||||
Section 10.07. |
Limitation on Amount of Guarantee |
87 | ||||
Section 10.08. |
Execution and Delivery of Guarantee |
88 | ||||
Section 10.09. |
Release of Guarantee |
88 | ||||
ARTICLE 11 | ||||||
M ISCELLANEOUS | ||||||
Section 11.01. |
Trust Indenture Act of 1939 |
89 | ||||
Section 11.02. | Noteholder Communications ; Noteholder Actions | 89 | ||||
Section 11.03. |
Notices |
90 | ||||
Section 11.04. |
Certificate and Opinion as to Conditions Precedent |
90 | ||||
Section 11.05. |
Statements Required in Certificate or Opinion |
91 | ||||
Section 11.06. |
Payment Date Other Than a Business Day |
91 | ||||
Section 11.07. |
Governing Law |
91 |
iii
Section 11.08. |
No Adverse Interpretation of Other Agreements |
91 | ||
Section 11.09. |
Successors |
91 | ||
Section 11.10. |
Duplicate Originals |
91 | ||
Section 11.11. |
Separability |
92 | ||
Section 11.12. |
Table of Contents and Headings |
92 | ||
Section 11.13. |
No Liability of Directors, Officers, Employees, Incorporators, Members and Stockholders |
92 | ||
Section 11.14. |
U.S.A. Patriot Act |
92 | ||
EXHIBITS | ||||
EXHIBIT A | Form of Note | |||
EXHIBIT B | Form of Supplemental Indenture | |||
EXHIBIT C | Restricted Legend | |||
EXHIBIT D | DTC Legend | |||
EXHIBIT E | Regulation S Certificate | |||
EXHIBIT F | Rule 144A Certificate | |||
EXHIBIT G | Institutional Accredited Investor Certificate | |||
EXHIBIT H | Certificate of Beneficial Ownership | |||
EXHIBIT I | Temporary Offshore Global Note Legend |
iv
INDENTURE, dated as of May 30, 2014, between ENOVA INTERNATIONAL, INC., a Delaware corporation, as the Company, the Guarantors party hereto and U.S. BANK NATIONAL ASSOCIATION, a national banking association, as Trustee.
RECITALS
The Company has duly authorized the execution and delivery of the Indenture to provide for the issuance of up to $500,000,000 aggregate principal amount of the Companys 9.75% Senior Notes Due 2021, and, if and when issued, any Additional Notes, together with any Exchange Notes issued therefor as provided herein (the Notes ). All things necessary to make the Indenture a valid agreement of the Company, in accordance with its terms, have been done, and the Company has done all things necessary to make the Notes (in the case of the Additional Notes, when duly authorized), when executed by the Company and authenticated and delivered by the Trustee and duly issued by the Company, the valid obligations of the Company as hereinafter provided.
In addition, the Guarantors party hereto have duly authorized the execution and delivery of the Indenture as guarantors of the Notes. All things necessary to make the Indenture a valid agreement of each Guarantor, in accordance with its terms, have been done, and each Guarantor has done all things necessary to make the Note Guarantees, when the Notes are executed by the Company and authenticated and delivered by the Trustee and duly issued by the Company, the valid obligations of such Guarantor as hereinafter provided.
This Indenture is subject to, and will be governed by, the provisions of the Trust Indenture Act that are required to be a part of and govern indentures qualified under the Trust Indenture Act.
THIS INDENTURE WITNESSETH
For and in consideration of the premises and the purchase of the Notes by the Holders thereof, the parties hereto covenant and agree, for the equal and proportionate benefit of all Holders, as follows:
ARTICLE 1
D EFINITIONS AND I NCORPORATION BY R EFERENCE
Section 1.01. Definitions .
Acquired Debt means with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person was merged with or into or became a Subsidiary of such specified Person, including Indebtedness Incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person at the time such asset is acquired by such specified Person.
Additional Interest means additional interest owed to the Holders pursuant to (i) a Registration Rights Agreement or (ii) Section 3.03(a) of this Indenture.
Additional Notes means any notes issued under the Indenture in addition to the Original Notes, including any Exchange Notes issued in exchange for such Additional Notes, having the same terms in all respects as the Original Notes, or in all respects except with respect to interest paid or payable on or prior to the first interest payment date after the issuance of such Additional Notes.
Administrative Agent means Jefferies Finance LLC, or any successor thereto, as administrative agent under the Credit Agreement.
Affiliate of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, control (including, with correlative meanings, the terms controlling, controlled by and under common control with), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise.
Affiliate Transaction has the meaning assigned to such term in Section 4.11.
Agent means any Registrar, Paying Agent or Authenticating Agent.
Agent Member means a member of, or a participant in, the Depositary.
Applicable Premium means with respect to a Note at any redemption date, the greater of (i) 1.00% of the principal amount of such Note and (ii) the excess of (A) the present value at such redemption date of (1) the redemption price of such Note on June 1, 2017 (such redemption price being described in Section 3.01(a) exclusive of any accrued interest, if any) plus (2) all required remaining scheduled interest payments due on such Note through June 1, 2017 (but excluding accrued and unpaid interest, if any, to the redemption date), computed using a discount rate equal to the Treasury Rate plus 0.50%, over (B) the principal amount of such Note on such redemption date.
Asset Sale means:
(1) the sale, lease, transfer, conveyance or other disposition of any assets; provided that the sale, lease, transfer, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by Section 4.15 and Article 5 and not Section 4.16 of this Indenture,
(2) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Companys Restricted Subsidiaries; and
(3) an Event of Loss,
2
in the case of either clause (1), (2) or (3), whether in a single transaction or a series of related transactions:
(A) that have a Fair Market Value in excess of $5.0 million; or
(B) for Net Proceeds in excess of $5.0 million.
Notwithstanding the foregoing, none of the following will be deemed to be an Asset Sale:
(1) a transfer of assets (a) to the Company or any Restricted Subsidiary or (b) by a Foreign Subsidiary to another Foreign Subsidiary;
(2) an issuance of Equity Interests by a Restricted Subsidiary to the Company or to a Restricted Subsidiary of the Company;
(3) for purposes of Section 4.16 only, a Restricted Payment that is permitted by Section 4.06 or a Permitted Investment;
(4) the Incurrence of Permitted Liens and the disposition of assets subject to such Liens by or on behalf of the Person holding such Liens;
(5) the sale, transfer or other disposition of overdue and delinquent accounts in the ordinary course of business consistent with past practice;
(6) any disposition of cash or Cash Equivalents;
(7) the lease, assignment or sub-lease of any property in the ordinary course of business;
(8) any surrender or waiver of contract rights or the settlement, release or surrender of contract rights or other litigation claims in the ordinary course of business;
(9) sales of assets that have become worn out, obsolete or damaged or otherwise unsuitable for use in connection with the business of the Company or any of its Restricted Subsidiaries;
(10) the license of patents, trademarks, copyrights and know-how to third Persons in the ordinary course of business; and
(11) sales of accounts receivable, or participations therein, and related assets in connection with a Permitted Receivables Financing.
Authenticating Agent refers to a Person engaged to authenticate the Notes in the stead of the Trustee.
Bankruptcy Code means Title 11 of the United States Code entitled Bankruptcy, as now and hereafter in effect, or any successor statute.
3
bankruptcy default has the meaning assigned to such term in Section 6.01.
Bankruptcy Law means the Bankruptcy Code and all other insolvency, bankruptcy, receivership, liquidation, conservatorship, assignment for the benefit of creditors, moratorium, rearrangement, reorganization, or similar legal requirements of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
Board of Directors means:
(1) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board;
(2) with respect to a partnership, the board of directors or other governing body of the general partner of the partnership;
(3) with respect to a limited liability company, the board of directors, managers or other governing body, and in the absence of the same, the managing member or members or any controlling committee of managing members thereof; and
(4) with respect to any other Person, the board or committee of such Person or other individual or entity serving a similar function.
Business Day means any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed.
Capital Expenditures means, for any period, the sum of
(1) the aggregate amount of all expenditures of the Company and its Restricted Subsidiaries for fixed or capital assets made during such period which, in accordance with GAAP, would be classified as capital expenditures; and
(2) the aggregate amount of all payments in respect of Capital Lease Obligations of the Company and its Restricted Subsidiaries during such period.
Capital Lease Obligation of any Person means the obligations of such Person to pay rent or other amounts under a lease of (or other Indebtedness arrangements conveying the right to use) real or personal property which are required to be classified and accounted for as a capital lease or a liability on the face of a balance sheet of such Person determined in accordance with GAAP and the amount of such obligations shall be the capitalized amount thereof in accordance with GAAP and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease or other arrangement prior to the first date upon which such lease or other arrangement may be terminated by the lessee without payment of a penalty.
Capital Stock means:
(1) in the case of a corporation, corporate stock or shares;
4
(2) in the case of an association or business entity other than a corporation, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and
(4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of the issuing Person.
Cash America means Cash America International, Inc., a Texas corporation.
Cash Equivalents means:
(1) marketable direct obligations issued by, or unconditionally Guaranteed by, the United States or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition;
(2) certificates of deposit, time deposits, eurodollar time deposits, overnight bank deposits or bankers acceptances having maturities of six months or less from the date of acquisition issued by any lender to the Company or any Subsidiary or by any commercial bank organized under the laws of the United States or any state thereof having combined capital and surplus of not less than $500,000,000;
(3) commercial paper of an issuer rated at least A-1 by Standard & Poors Ratings Group ( S&P ) or P-1 by Moodys Investors Service, Inc. ( Moodys ), or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of commercial paper issuers generally, and maturing within six months from the date of acquisition;
(4) repurchase obligations of any financial institution satisfying the requirements of clause (2) of this definition, having a term of not more than 30 days, with respect to securities issued or fully Guaranteed or insured by the United States government;
(5) securities with maturities of one year or less from the date of acquisition issued or fully Guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) have the highest rating obtainable from either S&P or Moodys;
(6) securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by any financial institution satisfying the requirements of clause (2) of this definition;
(7) money market, mutual or similar funds that invest exclusively in assets satisfying the requirements of clauses (1) through (6) of this definition; and
(8) money market funds that (i) comply with the criteria set forth in Rule 2a-7 under the Investment Company Act of 1940, as amended, (ii) are rated AAA by S&P and Aaa by Moodys and (iii) have portfolio assets of at least $5,000,000,000.
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Cash Management Obligations means, with respect to any Person, all obligations of such Person incurred in the ordinary course of business in respect of overdrafts and liabilities owed to any other Person that arise from treasury, depositary or cash management services, including in connection with any automated clearing house transfers of funds, or any similar transactions.
Certificate of Beneficial Ownership means a certificate substantially in the form of Exhibit H.
Certificated Note means a Note in registered individual form without interest coupons.
Change of Control means the occurrence of any of the following:
(1) the direct or indirect sale, conveyance, transfer, lease or other disposition (other than by way of merger or consolidation or as a result of the Spin-Off), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries, taken as a whole, to any person (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act) other than Cash America;
(2) the adoption of a plan relating to the liquidation or dissolution of the Company;
(3) the consummation of any transaction (including any merger or consolidation), other than the Spin-Off, the result of which is that any person (as defined above) other than Cash America, becomes the beneficial owner (as such term is defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that for purposes of this clause (3) such person shall be deemed to have beneficial ownership of all shares that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the voting stock or voting shares of the Company; or
(4) the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors.
Code means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time.
Commission means the Securities and Exchange Commission, or any successor agency thereto.
Company means the party named as such in the first paragraph of the Indenture or any successor obligor under the Indenture and the Notes pursuant to Article 5.
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Consolidated Cash Flow means, with respect to any Person for any period, the Consolidated Net Income of such Person and its Restricted Subsidiaries for such period plus :
(1) an amount equal to any extraordinary or non-recurring loss, to the extent that such losses were deducted in computing such Consolidated Net Income; plus
(2) an amount equal to any net loss realized in connection with an Asset Sale, the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness by such Person or its Restricted Subsidiaries, to the extent such losses were deducted in computing such Consolidated Net Income; plus
(3) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus
(4) Consolidated Interest Expense of such Person and its Restricted Subsidiaries for such period; plus
(5) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) to the extent deducted in computing such Consolidated Net Income; plus
(6) write offs, write downs or impairment of goodwill or other intangible assets, unrealized mark-to-market losses, and other non-cash charges (excluding any such other non-cash charge to the extent that it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent deducted in computing such Consolidated Net Income; minus
(7) all non-cash items to the extent that such non-cash items increased Consolidated Net Income for such period (excluding the recognition of deferred revenue or any items which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges in any prior period and any items for which cash was received in a prior period).
Notwithstanding the foregoing, the provision for taxes based on income or profits of, and the depreciation and amortization and other non-cash charges of, a Restricted Subsidiary of a Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in the same proportion) that the Net Income of such Restricted Subsidiary was included in calculating the Consolidated Net Income of such Person.
Consolidated Interest Expense means, with respect to any Person for any period, the sum of, without duplication:
(1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including amortization of original
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issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges Incurred in respect of letter of credit or bankers acceptance financings, and net payments and receipts (if any) pursuant to interest rate Hedging Obligations), provided that, amortization of debt issuance costs and other debt financing fees and expenses shall be excluded; plus
(2) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person to the extent that such Indebtedness is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on the assets of such Person or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon).
Consolidated Net Income means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided that:
(1) the Net Income of any Person that is not a Restricted Subsidiary of such Person, or that is accounted for by the equity method of accounting shall be included, but only to the extent of the amount of dividends or distributions that have been distributed in cash (or to the extent converted into cash) to the referent Person or a Restricted Subsidiary thereof in respect of such period;
(2) the Net Income of any of its Restricted Subsidiaries shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, unless such restriction has been legally waived; and
(3) the cumulative effect of a change in accounting principles shall be excluded.
Consolidated Total Assets of any Person as of any date of determination means the total assets of such Person and its Restricted Subsidiaries as of the most recent fiscal quarter end for which a consolidated balance sheet of such Person and its Restricted Subsidiaries is available.
Consolidated Total Indebtedness means, as of any date of determination, an amount equal to (a) the sum of (1) the aggregate amount of all outstanding Indebtedness of the Company and its Restricted Subsidiaries on a consolidated basis consisting of Indebtedness for borrowed money, Capital Lease Obligations and debt obligations evidenced by promissory notes and similar instruments (for the avoidance of doubt, excluding any (A) Hedging Obligations and (B) performance bonds or any similar instruments) and (2) the aggregate amount of all outstanding Disqualified Stock of the
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Company and all Preferred Stock of its Restricted Subsidiaries on a consolidated basis, with the amount of such Disqualified Stock and Preferred Stock equal to the greater of their respective voluntary or involuntary liquidation preferences and maximum fixed repurchase prices, in each case determined on a consolidated basis in accordance with GAAP. For the purpose hereof, the maximum fixed repurchase price of any Disqualified Stock or Preferred Stock that does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Stock or Preferred Stock as if such Disqualified Stock or Preferred Stock were purchased on any date on which Consolidated Total Indebtedness shall be required to be determined pursuant to the Indenture.
Continuing Directors means, as of any date of determination, any member of the Board of Directors of the Company who (1) was a member of such Board of Directors on the date of the Indenture, (2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election, or (3) was elected to such Board of Directors by or with the approval of Cash America.
Corporate Trust Office means the office of the Trustee at which the corporate trust business of the Trustee is principally administered, which at the date of the Indenture is located at 190 S. LaSalle Street, 10th Floor, Chicago, IL 60603.
CSO Obligations means obligations to purchase, or other Guarantees of, consumer loans the making of which were facilitated by the Company or a Restricted Subsidiary acting as a credit services organization or other similar service provider.
Credit Agreement means the credit facility, dated as of the date of the Indenture, by and among the Company, the lenders from time to time party thereto and the Administrative Agent, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith.
Credit Facility means one or more debt facilities, including the Credit Agreement, or other financing arrangements (including commercial paper facilities or indentures) providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables and including Permitted Receivables Financing), letters of credit or other long-term indebtedness, including any notes, Guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case, as amended, extended, renewed, restated, supplemented, replaced (whether or not upon termination and whether with the original lenders, institutional investors or otherwise), refinanced (including through the issuance of debt securities), restructured or otherwise modified (in whole or in part, and without limitation as to amount, terms, conditions, covenants and other provisions) from time to time, and any agreement (and related document) governing Indebtedness incurred to refinance, in whole or in part, the borrowings and commitments then outstanding or permitted to be outstanding under such Credit Facility or a successor Credit Facility, whether by the same or any other agent, lender or group of lenders (or institutional investors).
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Default means any event that is or with the passage of time or the giving of notice or both would be an Event of Default.
Depositary means the depositary of each Global Note, which will initially be DTC.
Designated Non-cash Consideration means the Fair Market Value of non-cash consideration received by the Company or a Restricted Subsidiary in connection with an Asset Sale that is so designated as Designated Non-cash Consideration pursuant to an Officers Certificate, setting forth the basis of such valuation, executed by the principal financial officer of the Company, less the amount of cash or Cash Equivalents received in connection with a subsequent sale of or collection on such Designated Non-cash Consideration.
Disqualified Stock means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the Holder) or upon the happening of any event:
(1) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise;
(2) is convertible or exchangeable for Indebtedness or Disqualified Stock (excluding Capital Stock convertible or exchangeable solely at the option of the Company or a Subsidiary; provided that any such conversion or exchange will be deemed an Incurrence of Indebtedness or Disqualified Stock, as applicable); or
(3) is redeemable at the option of the Holder thereof, in whole or in part,
in the case of each of clauses (1), (2) and (3), on or prior to the 91st day after the Stated Maturity of the Notes; provided that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving Holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an asset sale or change of control occurring on or prior to the 91st day after the Stated Maturity of the Notes will not constitute Disqualified Stock if the asset sale or change of control provisions applicable to such Capital Stock are not more favorable to the Holders of such Capital Stock than the provisions of Section 4.15 and Section 4.16 are to the Holders.
Domestic Subsidiary means any Restricted Subsidiaries of the Company other than a Foreign Subsidiary.
DTC means The Depository Trust Company, a New York corporation, and its successors.
DTC Legend means the legend set forth in Exhibit D.
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Equity Interests means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for Capital Stock).
Equity Offering means a sale for cash of either (1) common equity securities of the Company (other than to a Subsidiary of the Company) or (2) common equity securities of a Parent Entity (other than to the Company or a Subsidiary of the Company) to the extent that the net proceeds therefrom are contributed to the common equity capital of the Company.
Event of Default has the meaning assigned to such term in Section 6.01.
Event of Loss means, with respect to any property or asset, any (i) loss or destruction of, or damage to, such property or asset or (ii) condemnation, seizure or taking, by exercise of the power of eminent domain or otherwise, of such property or asset, or confiscation or requisition of the use of such property or asset.
Exchange Act means the U.S. Securities Exchange Act of 1934, as amended.
Exchange Notes means the Notes of the Company issued pursuant to the Indenture in exchange for, and in an aggregate principal amount equal to, the Initial Notes or any Initial Additional Notes in compliance with the terms of a Registration Rights Agreement and containing terms substantially identical to the Initial Notes or any Initial Additional Notes (except that (i) such Exchange Notes will be registered under the Securities Act and will not be subject to transfer restrictions or bear the Restricted Legend, and (ii) the provisions relating to Additional Interest will be eliminated).
Exchange Offer means an offer by the Company to the Holders of the Initial Notes or any Initial Additional Notes to exchange outstanding Notes for Exchange Notes, as provided for in a Registration Rights Agreement.
Exchange Offer Registration Statement means the Exchange Offer Registration Statement as defined in a Registration Rights Agreement.
Excluded Contribution means net cash proceeds or marketable securities received by the Company from:
(1) contributions to its common equity capital, and
(2) the sale (other than to a Subsidiary of the Company or to any management equity plan or stock option plan or any other management or employee benefit plan or agreement of the Company or any of its Subsidiaries) of Capital Stock (other than Disqualified Stock) of the Company,
in each case designated as Excluded Contributions pursuant to an Officers Certificate executed by the principal financial officer of the Company on the date such capital contributions are made or the date such Capital Stock is sold, as the case may be, which are excluded from the calculation set forth in Section 4.06(a)(3).
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Existing Indebtedness means any Indebtedness of the Company or any of its Restricted Subsidiaries outstanding on the date of the Indenture until such Indebtedness is repaid.
Fair Market Value means the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction not involving distress or necessity of either party, determined in good faith by an officer of the Company; provided , however , that, except in the case of determining the Fair Market Value of assets in connection with an Asset Sale not involving the sale of assets to an Affiliate, (i) the determination must be made by the Board of Directors of the Company if the Fair Market Value exceeds $10.0 million and (ii) the determination must be made by the Board of Directors of the Company and based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if the Fair Market Value exceeds $15.0 million.
Fixed Charge Coverage Ratio means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the Company or any of its Restricted Subsidiaries Incurs or redeems any Indebtedness or any Indebtedness is no longer outstanding (other than revolving credit borrowings) or the Company or any of its Restricted Subsidiaries issues or redeems Preferred Stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the Calculation Date ), the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such Incurrence or redemption of Indebtedness, or such issuance or redemption of Preferred Stock (including the application of any proceeds therefrom), as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above:
(1) acquisitions that have been made by the Company or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated to include the Consolidated Cash Flow of the acquired entities (adjusted to exclude (A) the cost of any compensation, remuneration or other benefit paid or provided to any employee, consultant, Affiliate or equity owner of the acquired entities to the extent such costs are eliminated and not replaced and (B) the amount of any reduction in general, administrative or overhead costs of the acquired entities, in each case, as determined in good faith by an officer of the Company);
(2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded;
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(3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date;
(4) any Person that is a Restricted Subsidiary on the Calculation Date will be deemed to have been a Restricted Subsidiary at all times during such four-quarter period;
(5) any Person that is not a Restricted Subsidiary on the Calculation Date will be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and
(6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months).
Fixed Charges means, with respect to any Person for any period, the sum of, without duplication:
(1) the Consolidated Interest Expense of such Person and its Restricted Subsidiaries for such period; plus
(2) the product of (A) all cash dividend payments (and non-cash dividend payments in the case of a Person that is a Restricted Subsidiary) on any series of Preferred Stock of such Person, times (B) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP.
Foreign Subsidiary means any Restricted Subsidiary of the Company incorporated or organized in a jurisdiction other than the United States or any state or commonwealth thereof or the District of Columbia.
GAAP means generally accepted accounting principles in the United States of America as in effect on the date of the Indenture, including those set forth in:
(1) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants;
(2) the statements and pronouncements of the Financial Accounting Standards Board; and
(3) such other statements by such other entity as have been approved by a significant segment of the accounting profession.
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Global Note means a Note in registered global form without interest coupons.
Guarantee by any Person means any obligation, contingent or otherwise, of such Person guaranteeing any Indebtedness or other obligation of any other Person (the primary obligor ) in any manner, whether directly or indirectly, and including any obligation of such Person to:
(1) purchase or pay (or advance or supply funds for the purchase or payment) of such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness;
(2) purchase property, securities or services for the purposes of assuring the Holder of such Indebtedness of the payment of such Indebtedness; or
(3) maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness;
provided , however , that the Guarantee by any Person shall not include endorsements by such Person for collection or deposit, in either case, in the ordinary course of business. The term Guarantee used as a verb has a corresponding meaning.
Guarantor means (i) each Domestic Subsidiary of the Company in existence on the Issue Date and (ii) each Domestic Subsidiary that executes a supplemental indenture in the form of Exhibit B to the Indenture providing for the Guarantee of the payment of the Notes, or any successor obligor under its Note Guarantee pursuant to Article 5, in each case unless and until such Guarantor is released from its Note Guarantee pursuant to the Indenture.
Hedging Obligations has the meaning assigned to such term in the definition of Indebtedness.
Holder or Noteholder means the registered holder of any Note.
IAI Global Note means a Global Note resold to Institutional Accredited Investors bearing the Restricted Legend.
Incur means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume (pursuant to a merger, consolidation, acquisition or other transaction), Guarantee or otherwise become liable in respect of such Indebtedness or other obligation (and Incurrence and Incurred shall have meanings correlative to the foregoing); provided , however , that a change in GAAP that results in an obligation of such Person that exists at such time becoming Indebtedness shall not be deemed an Incurrence of such Indebtedness; provided , further , that none of the following shall be deemed to be an Incurrence of Indebtedness: (i) amortization of debt discount or the accretion of principal with respect to a non-interest bearing or other discount security; (ii) the payment of regularly scheduled interest in the form of additional Indebtedness of the same instrument or the
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payment of regularly scheduled dividends on Capital Stock in the form of additional Capital Stock of the same class and with the same terms; and (iii) the obligation to pay a premium in respect of Indebtedness arising in connection with the issuance of a notice of redemption or the making of a mandatory offer to purchase such Indebtedness. Indebtedness otherwise Incurred by a Person before it becomes a Subsidiary of the Company shall be deemed to have been Incurred at the time it becomes such a Subsidiary.
Indebtedness means (without duplication), with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent:
(1) obligations of such Person in respect of principal for money borrowed;
(2) obligations of such Person in respect of principal evidenced by bonds, debentures, notes or other similar instruments;
(3) every reimbursement obligation of such Person with respect to letters of credit, bankers acceptances or similar facilities issued for the account of such Person, other than obligations with respect to letters of credit securing obligations, other than obligations referred to in clauses (1), (2) and (5), entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the 10th day following payment on the letter of credit;
(4) every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade payables, credit on open account, provisional credit, accrued liabilities or similar terms arising in the ordinary course of business which are not overdue by more than ninety (90) days or which are being contested in good faith);
(5) every Capital Lease Obligation of such Person;
(6) the maximum fixed redemption or repurchase price of Disqualified Stock of such Person at the time of determination plus accrued but unpaid dividends;
(7) every net payment obligation of such Person under interest rate swap, cap, collar or similar agreements or foreign currency hedge, exchange or similar agreements of such Person (collectively, Hedging Obligations ); and
(8) every obligation of the type referred to in clauses (1) through (7) of another Person the payment of which, in either case, such Person has Guaranteed or is liable, directly or indirectly, as obligor, guarantor or otherwise, to the extent of such Guarantee or other liability.
Notwithstanding the foregoing, Indebtedness shall not include CSO Obligations.
Indenture means this Indenture, as amended or supplemented from time to time.
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Indenture Documents means the Notes, the Indenture and the Note Guarantees.
Indenture Obligations means all Obligations in respect of the Notes or arising under the Indenture Documents. Indenture Obligations shall include all interest accrued (or which would, absent the commencement of an insolvency or liquidation proceeding, accrue) after the commencement of an insolvency or liquidation proceeding in accordance with and at the rate specified in the relevant Indenture Document whether or not the claim for such interest is allowed as a claim in such insolvency or liquidation proceeding.
Initial Additional Notes means Additional Notes issued in an offering not registered under the Securities Act and any Notes issued in replacement thereof, but not including any Exchange Notes issued in exchange therefor.
Initial Notes means the Notes issued on the Issue Date and any Notes issued in replacement thereof, but not including any Exchange Notes issued in exchange therefor.
Initial Purchaser or Initial Purchasers means the initial purchaser or initial purchasers party to a purchase agreement with the Company relating to the sale of the Initial Notes or Initial Additional Notes by the Company.
Institutional Accredited Investor means an institutional accredited investor as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
interest , in respect of the Notes, unless the context otherwise requires, refers to interest and Additional Interest, if any.
Interest Payment Date means each June 1 and December 1 of each year, commencing December 1, 2014.
Investments means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the form of direct or indirect loans (including Guarantees of Indebtedness or other obligations), advances or capital contributions (excluding commissions, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities; provided that an acquisition of assets, Equity Interests or other securities by the Company or a Restricted Subsidiary for consideration consisting of common equity securities of the Company or such Restricted Subsidiary shall not be deemed to be an Investment. If the Company or any of its Restricted Subsidiaries of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that after giving effect to any such sale or disposition, such Person is no longer a direct or indirect Restricted Subsidiary of the Company, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Equity Interests of such Restricted Subsidiary not sold or disposed of. For purposes of the definition of Unrestricted Subsidiary and Section 4.06;
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(1) Investments shall include the portion (proportionate to the Companys equity interest in such Subsidiary) of the Fair Market Value of the net assets of a Subsidiary of the Company at the time that such Subsidiary is designated an Unrestricted Subsidiary; provided , that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent Investment in an Unrestricted Subsidiary in an amount (if positive) equal to:
(A) the Companys Investment in such Subsidiary at the time of such redesignation; less
(B) the portion (proportionate to the Companys equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Subsidiary at the time of such redesignation; and
(2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its Fair Market Value at the time of such transfer.
The amount of any Investment outstanding at any time shall be the original cost of such Investment, reduced by any dividend, distribution, interest payment, return of capital, repayment or other amount received in cash by the Company or a Restricted Subsidiary in respect of such Investment.
Issue Date means the date on which the Original Notes are originally issued under the Indenture.
Lien means, with respect to any asset, any mortgage, lien, pledge, charge, security interest, encumbrance or hypothecation of any kind in respect of that asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any other agreement to give a security interest in and any filing of any financing statement under the UCC (or equivalent statutes) of any jurisdiction).
Material Adverse Effect means a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Company and its Subsidiaries taken as a whole, or (b) the ability of the Company or any Guarantor to perform its obligations under the Indenture, the Notes or any supplemental indenture or Registration Rights Agreement with respect to the Notes, or (c) the validity or enforceability of the Indenture, the Notes or any supplemental indenture or Registration Rights Agreement with respect to the Notes.
Material Debt means Indebtedness in an aggregate amount of $1.0 million or more.
Net Income means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends, excluding, however, (1) any net gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (A) any Asset Sale or (B) the disposition of any securities by such Person or any of
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its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries and (2) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss).
Net Proceeds means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale (including legal, accounting and investment banking fees and sales commissions) and any relocation expenses Incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), amounts required to be applied to the repayment of Indebtedness secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP.
Non-Recourse Debt means Indebtedness:
(1) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness) or (b) is directly or indirectly liable as a guarantor or otherwise; and
(2) no default with respect to which (including any rights that the Holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any Holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its Stated Maturity.
Non-U.S. Person means a Person that is not a U.S. person, as defined in Regulation S.
Non-Wholly-Owned Subsidiary means any Subsidiary that is not a Wholly-Owned Subsidiary.
Note Guarantee means the Guarantee of the Notes by a Guarantor pursuant to the Indenture.
Notes has the meaning assigned to such term in the Recitals.
Offering Memorandum means the final offering memorandum, dated May 23, 2014, relating to the offering of the Notes.
Offer to Purchase has the meaning assigned to such term in Section 3.06.
Officers Certificate means a certificate signed by the Chairman of the Board, the President, a Vice President or the Chief Financial Officer, and by the Treasurer or the
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Secretary of the Company and delivered to the Trustee. One of the Officers giving an Officers Certificate pursuant to Section 4.18 shall be the principal executive, financial or accounting officer of the Company.
Offshore Global Note means a Global Note representing Notes issued and sold pursuant to Regulation S.
Opinion of Counsel means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company.
Original Notes means the Initial Notes and any Exchange Notes issued in exchange therefor.
Parent Entity means any Person that is a direct or indirect parent of the Company.
Paying Agent refers to a Person engaged to perform the obligations of the Trustee in respect of payments made or funds held hereunder in respect of the Notes.
Permanent Offshore Global Note means an Offshore Global Note that does not bear the Temporary Offshore Global Note Legend.
Permitted Investments means:
(1) any Investment in the Company or a Restricted Subsidiary;
(2) any Investment in cash or Cash Equivalents;
(3) any Investment by the Company or any of its Restricted Subsidiaries of the Company in a Person, if as a result of such Investment (A) such Person becomes a Restricted Subsidiary or (B) such Person is merged or consolidated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary;
(4) any Investment existing on the date of the Indenture or made pursuant to binding commitments in effect on the date of the Indenture or an Investment consisting of any extension, modification or renewal of any Investment existing on the date of the Indenture; provided that the amount of any such Investment may be increased (x) as required by the terms of such Investment as in existence on the date of the Indenture or (y) as otherwise permitted under the Indenture;
(5) any Restricted Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Section 4.16;
(6) Hedging Obligations that are permitted by the terms of the Indenture to be outstanding;
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(7) Investments in prepaid expenses, negotiable instruments held for collection and lease, utility and workers compensation, performance and other similar deposits;
(8) loans and advances to, or guarantees of Indebtedness of, employees of the Company and its Restricted Subsidiaries in the ordinary course of business not to exceed $5.0 million in the aggregate at any one time outstanding;
(9) any Investment consisting of a Guarantee permitted by Section 4.07;
(10) Investments consisting of non-cash consideration received in the form of securities, notes or similar obligations in connection with dispositions of obsolete or worn out assets permitted pursuant to the Indenture;
(11) Investments received in settlement of bona fide disputes or as distributions in bankruptcy, insolvency or similar proceedings;
(12) Investments in joint ventures not to exceed the greater of (x) $40.0 million (or its foreign currency equivalent) and (y) 6.0% of Consolidated Total Assets in the aggregate at any one time outstanding (net of, with respect to the Investment in any particular Person, the cash return thereon received after the Issue Date as a result of any sale for cash, repayment, redemption or other cash realization (not included in Consolidated Net Income), not to exceed the amount of Investments in such Person made after the Issue Date in reliance on this clause);
(13) other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (13) that are at the time outstanding, not to exceed the greater of $40.0 million and 6.0% of Consolidated Total Assets;
(14) loans and advances to officers, directors and employees for business-related travel expenses, moving expenses and other similar expenses or payroll advances, in each case incurred in the ordinary course of business or consistent with past practices;
(15) advances and extensions of credit by the Company or any Restricted Subsidiary to customers in the ordinary course of business consistent with past practice that are recorded as accounts receivable or consumer loans on the consolidated balance sheet of the Company or any Restricted Subsidiary;
(16) Investments resulting from the Incurrence of CSO Obligations;
(17) Investments in a Securitization Subsidiary that are necessary or desirable to effect any Permitted Receivables Financing; and
(18) Investments in Subsidiaries (other than Investments in the Company or a Restricted Subsidiary) not to exceed $10.0 million in the aggregate at any one time outstanding.
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Permitted Liens means:
(1) Liens in favor of the Company or a Guarantor;
(2) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Company or a Restricted Subsidiary, provided that such Liens were not created in connection with, or in contemplation of, such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company or a Restricted Subsidiary;
(3) Liens on property existing at the time of acquisition thereof by the Company or any of its Restricted Subsidiaries of the Company, provided that such Liens were not created in connection with, or in contemplation of, such acquisition;
(4) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds, workmens compensation or unemployment obligations or other obligations of a like nature, or to secure letters of credit issued with respect to such obligations, Incurred in the ordinary course of business;
(5) Liens consisting of deposits in connection with leases or other similar obligations, or securing letters of credit issued in lieu of such deposits, incurred in the ordinary course of business;
(6) Liens securing Indebtedness (including Capital Lease Obligations) permitted by clause (2) of paragraph (b) of Section 4.07 covering only the assets acquired with such Indebtedness and directly related assets such as proceeds (including insurance proceeds), products, replacements, substitutions and accessions thereto;
(7) Liens existing on the date of the Indenture and replacement Liens that do not encumber additional assets, unless such encumbrance is otherwise permitted;
(8) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent for more than 30 days or that are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor;
(9) Liens securing Permitted Refinancing Debt, provided that the Company was permitted to Incur such Liens with respect to the Indebtedness so refinanced under the Indenture and:
(A) the new Lien is limited to all or part of the same property and assets that secured or, under the written agreements pursuant to which the original Lien arose, could secure the original Lien (plus improvements and accessions to, such property or proceeds or distributions thereof); and
(B) the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (x) the outstanding principal amount, or, if
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greater, committed amount, of the Indebtedness renewed, refunded, refinanced replaced, defeased or discharged with such Permitted Refinancing Debt; and (y) an amount necessary to pay any fees and expenses, including premiums, related to such renewal, refunding, refinancing, replacement, defeasance or discharge;
(10) Statutory and common law Liens of landlords, carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other similar Liens arising in the ordinary course of business with respect to amounts that are not yet delinquent for more than 30 days or that are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor;
(11) Liens arising out of judgments or awards against such Person with respect to which such Person shall then be proceeding with an appeal or other proceedings for review, provided that any reserve or other appropriate provision as shall be required in conformity with GAAP shall have been made therefor;
(12) Liens arising from filings of UCC financing statements or similar documents regarding leases or otherwise for precautionary purposes relating to arrangements not constituting Indebtedness;
(13) Liens that are contractual rights of set-off (i) relating to the establishment of depository relations with banks not given in connection with the issuance of Indebtedness, (ii) relating to pooled deposit or sweep accounts of the Company or any of the Restricted Subsidiaries to permit satisfaction of overdraft or similar obligations incurred in the ordinary course of business of the Company and the Restricted Subsidiaries or (iii) relating to purchase orders and other agreements entered into with customers of the Company or any of the Restricted Subsidiaries in the ordinary course of business;
(14) Liens securing Indenture Obligations (including any Additional Notes);
(15) Liens securing Cash Management Obligations;
(16) Minor survey exceptions, minor encumbrances, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property or Liens incidental to the conduct of the business of such Person or to the ownership of its properties which were not Incurred in connection with Indebtedness and which do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person;
(17) Liens securing Indebtedness of Foreign Subsidiaries to the extent such Indebtedness is permitted under clause (10) of paragraph (b) of Section 4.07; provided, however, that no asset of the Company or any Domestic Subsidiary shall be subject to any such Lien;
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(18) Liens in favor of banking institutions (including the right of setoff) encumbering deposit accounts maintained by the Company or any Guarantor into which any fees or commission paid to the Company or any Guarantor in connection with CSO Obligations are required to be deposited by the lenders of the related consumer loans and that are within the general parameters in the banking industry;
(19) Liens securing Indebtedness permitted by clause (14) of paragraph (b) of Section 4.07;
(20) Liens on accounts receivable and related assets and proceeds thereof arising in connection with a Permitted Receivables Financing; and
(21) other Liens of the Company or any Subsidiary of the Company with respect to obligations in an aggregate principal amount that does not exceed $15.0 million at any one time outstanding.
For purposes of this definition, the term Indebtedness shall be deemed to include interest, fees, expenses and all other amounts owing in connection with or in respect of any referenced Indebtedness.
Permitted Receivables Financing means any receivables financing facility or arrangement pursuant to which a Securitization Subsidiary purchases or otherwise acquires accounts receivable of the Company or any Restricted Subsidiary and enters into a third party financing thereof on terms that the Board of Directors has concluded are customary and market terms fair to the Company and its Restricted Subsidiaries.
Permitted Refinancing Debt means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net cash proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or such Restricted Subsidiaries; provided that:
(1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Debt does not exceed the principal amount and premium, if any, plus accrued interest (or accreted value, if applicable) of the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of any fees and expenses incurred in connection therewith);
(2) such Permitted Refinancing Debt has a final scheduled maturity date later than the final scheduled maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded;
(3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes or any Note Guarantee, such Permitted Refinancing Debt is contractually subordinated in right of payment to, the Notes or such Note Guarantee on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and
(4) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary that is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded or would otherwise be permitted to Incur such Indebtedness.
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Person means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock corporation, trust, unincorporated organization or government or agency or political subdivision thereof or any other entity.
Preferred Stock as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person.
principal of any debt means the principal amount of such debt, (or if such debt was issued with original issue discount, the face amount of such debt less the remaining unamortized portion of the original issue discount of such debt), together with, unless the context otherwise indicates, any premium then payable on such debt.
property or properties means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate.
Refinance means, in respect of any Indebtedness, to refinance, extend, renew, refund, repay, prepay, purchase, redeem, defease or retire, or to issue other Indebtedness in exchange or replacement for, such Indebtedness. Refinanced and refinancing shall have correlative meanings.
Register has the meaning assigned to such term in Section 2.09.
Registrar means a Person engaged to maintain the Register.
Registration Rights Agreement means (i) the Registration Rights Agreement dated on or about the Issue Date between the Company and the Initial Purchaser party thereto with respect to the Initial Notes, and (ii) with respect to any Additional Notes, any registration rights agreements between the Company and the Initial Purchasers party thereto relating to rights given by the Company to the purchasers of Additional Notes to register such Additional Notes or exchange them for Notes registered under the Securities Act.
Regular Record Date for the interest payable on any Interest Payment Date means the May 15 or November 15 (whether or not a Business Day) next preceding such Interest Payment Date.
Regulation S means Regulation S under the Securities Act.
Regulation S Certificate means a certificate substantially in the form of Exhibit E hereto.
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Responsible Officer means the chief executive officer of the Company, any Senior Financial Officer and any other officer of the Company with responsibility for the administration of the Indenture.
Restricted Investment means an Investment other than a Permitted Investment.
Restricted Legend means the legend set forth in Exhibit C.
Restricted Period means the relevant 40-day distribution compliance period as defined in Regulation S.
Restricted Subsidiary means any Subsidiary of the Company that is not an Unrestricted Subsidiary.
Rule 144A means Rule 144A under the Securities Act.
Rule 144A Certificate means (i) a certificate substantially in the form of Exhibit F hereto or (ii) a written certification addressed to the Company and the Trustee to the effect that the Person making such certification (x) is acquiring such Note (or beneficial interest) for its own account or one or more accounts with respect to which it exercises sole investment discretion and that it and each such account is a qualified institutional buyer within the meaning of Rule 144A, (y) is aware that the transfer to it or exchange, as applicable, is being made in reliance upon the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A, and (z) acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A(d)(4) or has determined not to request such information.
Securities Act means the U.S. Securities Act of 1933, as amended.
Securitization Subsidiary means a Subsidiary of the Company:
(1) that is designated a Securitization Subsidiary by the Board of Directors,
(2) that does not engage in, and whose charter prohibits it from engaging in, any activities other than Permitted Receivables Financings and any activity necessary, incidental or related thereto,
(3) no portion of the Indebtedness or any other obligation, contingent or otherwise, of which
(A) is Guaranteed by the Company or any Restricted Subsidiary,
(B) is recourse to or obligates the Company or any Restricted Subsidiary in any way, or
(C) subjects any property or asset of the Company or any Restricted Subsidiary of the Company, directly or indirectly, contingently or otherwise, to the satisfaction thereof,
(4) with respect to which neither the Company nor any Restricted Subsidiary (other than an Unrestricted Subsidiary) has any obligation to maintain or preserve its financial condition or cause it to achieve certain levels of operating results,
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other than, in respect of clauses (3) and (4), pursuant to customary representations, warranties, covenants and indemnities entered into in connection with a Permitted Receivables Financing.
Senior Financial Officer means the chief financial officer, senior vice president-finance, principal accounting officer, treasurer or comptroller of the Company.
Senior Indebtedness means any Indebtedness of the Company other than Indebtedness that is in any manner subordinated in right of payment or security in any respect to Indebtedness evidenced by the Notes.
Shelf Registration Statement means the Shelf Registration Statement as defined in a Registration Rights Agreement.
Significant Subsidiary means any Subsidiary that would be a significant subsidiary as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such regulation is in effect on the date of the Indenture.
Similar Business means any business conducted or proposed to be conducted by the Company and its Restricted Subsidiaries on the date of the Indenture and any business engaged in (1) the business of providing online financial services, (2) the business of originating, arranging, purchasing and collecting consumer and small business loans, and (3) any other activities similar, reasonably related, incidental, complementary or ancillary thereto, or a reasonable extension or expansion thereof.
Spin-Off means the spin-off transaction described in this offering memorandum pursuant to which at least 80% of the common stock of the Company will be distributed to the shareholders of Cash America.
Stated Maturity when used with respect to any security or any installment of interest thereon, means the date specified in such security as the fixed date on which the principal of such security or such installment of interest is due and payable.
Subordinated Indebtedness means any Indebtedness of the Company or any Subsidiary which is subordinated in right of payment to the Notes or the Note Guarantee, as applicable, pursuant to a written agreement to that effect.
Subsidiary means, with respect to any Person, (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the
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election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more Subsidiaries of such Person (or a combination thereof) and (2) any partnership (A) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (B) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof).
Temporary Offshore Global Note means an Offshore Global Note that bears the Temporary Offshore Global Note Legend.
Temporary Offshore Global Note Legend means the legend set forth in Exhibit H.
Treasury Rate means, at any redemption date, the yield to maturity as of such redemption date of constant maturity United States Treasury securities (as compiled and published in the most recent Federal Reserve Statistical Release H.15(519) that has become publicly available at least two business days prior to such redemption date (or, if such statistical release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from such redemption date to June 1, 2017; provided , however , that if no published maturity exactly corresponds with such date, then the Treasury Rate shall be interpolated or extrapolated on a straight-line basis from the arithmetic mean of the yields for the next shortest and next longest published maturities; provided further , however , that if the period from such redemption date to June 1, 2017, is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.
Trustee means the party named as such in the first paragraph of the Indenture or any successor trustee under the Indenture pursuant to Article 7.
Trust Indenture Act means the Trust Indenture Act of 1939.
Trust Officer means any officer of the Trustee having direct responsibility for the administration of the Indenture and the Notes.
UCC means the Uniform Commercial Code as in effect from time to time (except as otherwise specified) in any applicable state or jurisdiction.
Unrestricted Subsidiary means (A) any Securitization Subsidiary or (B) any Subsidiary of the Company that is designated by the Board of Directors of the Company as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors, but only to the extent that such Subsidiary is designated pursuant to this clause (B):
(1) has no Indebtedness other than Non-Recourse Debt;
(2) except as permitted by Section 4.11, is not party to any agreement, contract, arrangement or understanding with the Company or any of the Restricted Subsidiaries of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company;
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(3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Persons financial condition or to cause such Person to achieve any specified levels of operating results; and
(4) has not guaranteed or otherwise directly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries.
U.S. Global Note means a Global Note that bears the Restricted Legend representing Notes issued and sold pursuant to Rule 144A.
U.S. Government Obligation means:
(1) any security which is: a direct obligation of the United States of America the payment of which the full faith and credit of the United States of America is pledged or an obligation of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the payment of which is unconditionally Guaranteed as a full faith and credit obligation of the United States of America, which, in either case, is not callable or redeemable at the option of the issuer thereof; and
(2) any depository receipt issued by a bank (as defined in the Securities Act) as custodian with respect to any U.S. Government Obligation and held by such bank for the account of the Holder of such depository receipt, or with respect to any specific payment of principal of or interest on any U.S. Government Obligation which is so specified and held, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the Holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal or interest evidenced by such depository receipt.
Voting Stock means, with respect to any specified Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of members of the Board of Directors of such Person.
Weighted Average Life to Maturity means, when applied to any Indebtedness at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (A) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (B) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by
(2) the then outstanding principal amount of such Indebtedness.
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Wholly-Owned Subsidiary of any Person means a Subsidiary of such Person all of the outstanding Capital Stock of which (other than directors qualifying shares) shall at the time be owned by such Person or by one or more Wholly-Owned Subsidiaries of such Person (or any combination thereof).
Section 1.02. Rules of Construction . Unless the context otherwise requires or except as otherwise expressly provided,
(1) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;
(2) herein, hereof and other words of similar import refer to the Indenture as a whole and not to any particular Section, Article or other subdivision;
(3) all references to Sections or Articles or Exhibits refer to Sections or Articles or Exhibits of or to the Indenture unless otherwise indicated;
(4) references to agreements or instruments, or to statutes or regulations, are to such agreements or instruments, or statutes or regulations, as amended from time to time (or to successor statutes and regulations); and
(5) in the event that a transaction meets the criteria of more than one category of permitted transactions or listed exceptions the Company may classify such transaction as it, in its sole discretion, determines.
ARTICLE 2
T HE N OTES
Section 2.01. Form, Dating and Denominations 144A, Reg S; Legends . (a) The Notes and the Trustees certificate of authentication will be substantially in the form attached as Exhibit A. The terms and provisions contained in the form of the Notes annexed as Exhibit A constitute, and are hereby expressly made, a part of the Indenture. The Notes may have notations, legends or endorsements required by law, rules of or agreements with national securities exchanges to which the Company is subject, or usage. Each Note will be dated the date of its authentication. The Notes will be issuable in denominations of $2,000 in principal amount and any multiple of $1,000 in excess thereof.
(b) (1) Except as otherwise provided in paragraph (c), Section 2.10(b)(3), (b)(5), or (c) or Section 2.09(b)(4), each Initial Note or Initial Additional Note (other than a Permanent Offshore Note) will bear the Restricted Legend.
(2) Each Global Note, whether or not an Initial Note or Additional Note, will bear the DTC Legend.
(3) Each Temporary Offshore Global Note will bear the Temporary Offshore Global Note Legend.
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(4) Initial Notes and Initial Additional Notes offered and sold in reliance on Regulation S will be issued as provided in Section 2.11(a).
(5) Initial Notes and Initial Additional Notes offered and sold in reliance on any exemption under the Securities Act other than Regulation S and Rule 144A will be issued, and upon the request of the Company to the Trustee, Initial Notes offered and sold in reliance on Rule 144A may be issued, in the form of Certificated Notes.
(6) Initial Notes resold to Institutional Accredited Investors will be in the form of an IAI Global Note.
(7) Exchange Notes will be issued, subject to Section 2.09(b), in the form of one or more Global Notes.
(c) (1) If the Company determines (upon the advice of counsel and such other certifications and evidence as the Company may reasonably require) that a Note is eligible for resale pursuant to Rule 144 under the Securities Act (or a successor provision) without the need for current public information and that the Restricted Legend is no longer necessary or appropriate in order to ensure that subsequent transfers of the Note (or a beneficial interest therein) are effected in compliance with the Securities Act, or
(2) after an Initial Note or any Initial Additional Note is
(x) sold pursuant to an effective registration statement under the Securities Act, pursuant to the Registration Rights Agreement or otherwise, or (y) is validly tendered for exchange into an Exchange Note pursuant to an Exchange Offer
the Company may instruct the Trustee to cancel the Note and issue to the Holder thereof (or to its transferee) a new Note of like tenor and amount, registered in the name of the Holder thereof (or its transferee), that does not bear the Restricted Legend, and the Trustee will comply with such instruction.
(d) By its acceptance of any Note bearing the Restricted Legend (or any beneficial interest in such a Note), each Holder thereof and each owner of a beneficial interest therein acknowledges the restrictions on transfer of such Note (and any such beneficial interest) set forth in this Indenture and in the Restricted Legend and agrees that it will transfer such Note (and any such beneficial interest) only in accordance with the Indenture and such legend.
Section 2.02. Execution and Authentication; Exchange Notes; Additional Notes . (a) A Responsible Officer shall execute the Notes for the Company by facsimile or manual signature in the name and on behalf of the Company. If a Responsible Officer whose signature is on a Note no longer holds that office at the time the Note is authenticated, the Note will still be valid.
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(b) A Note will not be valid until the Trustee manually signs the certificate of authentication on the Note, with the signature conclusive evidence that the Note has been authenticated under the Indenture.
(c) At any time and from time to time after the execution and delivery of the Indenture, the Company may deliver Notes executed by the Company to the Trustee for authentication. The Trustee will authenticate and deliver
(i) Initial Notes for original issue in the aggregate principal amount not to exceed $500,000,000,
(ii) Initial Additional Notes from time to time for original issue in aggregate principal amounts specified by the Company, and
(iii) Exchange Notes from time to time for issue in exchange for a like principal amount of Initial Notes or Initial Additional Notes
after the following conditions have been met:
(1) Receipt by the Trustee of an Officers Certificate specifying
(A) the amount of Notes to be authenticated and the date on which the Notes are to be authenticated,
(B) whether the Notes are to be Initial Notes, Additional Notes or Exchange Notes,
(C) in the case of Initial Additional Notes, that the issuance of such Notes does not contravene any provision of Article 4,
(D) whether the Notes are to be issued as one or more Global Notes or Certificated Notes, and
(E) other information the Company may determine to include or the Trustee may reasonably request.
(2) In the case of Initial Additional Notes, receipt by the Trustee of an Opinion of Counsel confirming that the Holders of the outstanding Notes will be subject to federal income tax in the same amounts, in the same manner and at the same times as would have been the case if such Additional Notes were not issued.
(3) In the case of Exchange Notes, effectiveness of an Exchange Offer Registration Statement and consummation of the exchange offer thereunder (and receipt by the Trustee of an Officers Certificate to that effect). Initial Notes or Initial Additional Notes exchanged for Exchange Notes will be cancelled by the Trustee. The Trustee shall have the right to decline to authenticate and deliver any Additional Notes under this Section if the Trustee, being advised in writing by counsel, determines that such action may not lawfully be taken or if the Trustee in good faith shall determine that such action would expose the Trustee to personal liability based upon the written advice of counsel.
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Section 2.03. Registrar, Paying Agent and Authenticating Agent; Paying Agent to Hold Money in Trust . (a) The Company may appoint one or more Registrars and one or more Paying Agents, and the Trustee may appoint an Authenticating Agent, in which case each reference in the Indenture to the Trustee in respect of the obligations of the Trustee to be performed by that Agent will be deemed to be references to the Agent. The Company may act as Registrar or (except for purposes of Article 8) Paying Agent. In each case the Company and the Trustee will enter into an appropriate agreement with the Agent implementing the provisions of the Indenture relating to the obligations of the Trustee to be performed by the Agent and the related rights. The Company initially appoints the Trustee as Registrar and Paying Agent.
(b) The Company will require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of the Holders or the Trustee all money held by the Paying Agent for the payment of principal of and interest on the Notes and will promptly notify the Trustee of any default by the Company in making any such payment. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and account for any funds disbursed, and the Trustee may at any time during the continuance of any payment default, upon written request to a Paying Agent, require the Paying Agent to pay all money held by it to the Trustee and to account for any funds disbursed. Upon doing so, the Paying Agent will have no further liability for the money so paid over to the Trustee.
Section 2.04. Replacement Notes . If a mutilated Note is surrendered to the Trustee or if a Holder claims that its Note has been lost, destroyed or wrongfully taken, the Company will issue and the Trustee will authenticate a replacement Note of like tenor and principal amount and bearing a number not contemporaneously outstanding. Every replacement Note is an additional obligation of the Company and entitled to the benefits of the Indenture. If required by the Trustee or the Company, an indemnity must be furnished that is sufficient in the judgment of both the Trustee and the Company to protect the Company and the Trustee from any loss they may suffer if a Note is replaced. The Company and the Trustee may charge the Holder for the expenses of the Company and the Trustee in replacing a Note. In case the mutilated, lost, destroyed or wrongfully taken Note has become or is about to become due and payable, the Company in its discretion may pay the Note instead of issuing a replacement Note.
Section 2.05. Outstanding Notes . (a) Notes outstanding at any time are all Notes that have been authenticated by the Trustee except for
(1) Notes cancelled by the Trustee or delivered to it for cancellation;
(2) any Note which has been replaced pursuant to Section 2.04 unless and until the Trustee and the Company receive proof satisfactory to them that the replaced Note is held by a protected purchaser; and
(3) on or after the maturity date or any redemption date or date for purchase of the Notes pursuant to an Offer to Purchase, those Notes payable or to be redeemed or purchased on that date for which the Trustee (or Paying Agent, other than the Company or an Affiliate of the Company) holds money sufficient to pay all amounts then due.
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(b) A Note does not cease to be outstanding because the Company or one of its Affiliates holds the Note, provided that in determining whether the Holders of the requisite principal amount of the outstanding Notes have given or taken any request, demand, authorization, direction, notice, consent, waiver or other action hereunder, Notes owned by the Company or any Affiliate of the Company will be disregarded and deemed not to be outstanding (it being understood that in determining whether the Trustee is protected in relying upon any such request, demand, authorization, direction, notice, consent, waiver or other action, only Notes which the Trustee knows to be so owned will be so disregarded). Notes so owned which have been pledged in good faith may be regarded as outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgees right so to act with respect to such Notes and that the pledgee is not the Company or any Affiliate of the Company.
Section 2.06. Temporary Notes . Until definitive Notes are ready for delivery, the Company may prepare and the Trustee will authenticate temporary Notes. Temporary Notes will be substantially in the form of definitive Notes but may have insertions, substitutions, omissions and other variations determined to be appropriate by the Responsible Officer executing the temporary Notes, as evidenced by the execution of the temporary Notes. If temporary Notes are issued, the Company will cause definitive Notes to be prepared without unreasonable delay. After the preparation of definitive Notes, the temporary Notes will be exchangeable for definitive Notes upon surrender of the temporary Notes at the office or agency of the Company designated for the purpose pursuant to Section 4.02, without charge to the Holder. Upon surrender for cancellation of any temporary Notes the Company will execute and the Trustee will authenticate and deliver in exchange therefor a like principal amount of definitive Notes of authorized denominations. Until so exchanged, the temporary Notes will be entitled to the same benefits under the Indenture as definitive Notes.
Section 2.07. Cancellation . The Company at any time may deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee for cancellation any Notes previously authenticated hereunder which the Company has not issued and sold. Any Registrar or the Paying Agent will forward to the Trustee any Notes surrendered to it for transfer, exchange or payment. The Trustee will cancel all Notes surrendered for transfer, exchange, payment or cancellation and dispose of them in accordance with its normal procedures or the written instructions of the Company. The Company may not issue new Notes to replace Notes it has paid in full or delivered to the Trustee for cancellation.
Section 2.08. CUSIP and CINS Numbers . The Company in issuing the Notes may use CUSIP and CINS numbers, and the Trustee will use CUSIP numbers
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or CINS numbers in notices of redemption or exchange or in Offers to Purchase as a convenience to Holders, the notice to state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of redemption or exchange or Offer to Purchase. The Company will promptly notify the Trustee of any change in the CUSIP or CINS numbers.
Section 2.09. Registration, Transfer and Exchange. (a) The Notes will be issued in registered form only, without coupons, and the Company shall cause the Trustee to maintain a register (the Register ) of the Notes, for registering the record ownership of the Notes by the Holders and transfers and exchanges of the Notes.
(b) (1) Each Global Note will be registered in the name of the Depositary or its nominee and, so long as DTC is serving as the Depositary thereof, will bear the DTC Legend.
(2) Each Global Note will be delivered to the Trustee as custodian for the Depositary. Transfers of a Global Note (but not a beneficial interest therein) will be limited to transfers thereof in whole, but not in part, to the Depositary, its successors or their respective nominees, except (1) as set forth in Section 2.09(b)(4) and (2) transfers of portions thereof in the form of Certificated Notes may be made upon request of an Agent Member (for itself or on behalf of a beneficial owner) by written notice given to the Trustee by or on behalf of the Depositary in accordance with customary procedures of the Depositary and in compliance with this Section and Section 2.10.
(3) Agent Members will have no rights under the Indenture with respect to any Global Note held on their behalf by the Depositary, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner and Holder of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, the Depositary or its nominee may grant proxies and otherwise authorize any Person (including any Agent Member and any Person that holds a beneficial interest in a Global Note through an Agent Member) to take any action which a Holder is entitled to take under the Indenture or the Notes, and nothing herein will impair, as between the Depositary and its Agent Members, the operation of customary practices governing the exercise of the rights of a holder of any security.
(4) If (x) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for a Global Note and a successor depositary is not appointed by the Company within 90 days of the notice or (y) an Event of Default has occurred and is continuing and the Trustee has received a request from the Depositary, the Trustee will promptly exchange each beneficial interest in the Global Note for one or more Certificated Notes in authorized denominations having an equal aggregate principal amount registered in the name of the owner of such beneficial interest, as identified to the Trustee by the Depositary, and thereupon the Global Note will be deemed canceled. If such Note does not bear the Restricted Legend, then the Certificated Notes issued in
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exchange therefor will not bear the Restricted Legend. If such Note bears the Restricted Legend, then the Certificated Notes issued in exchange therefor will bear the Restricted Legend, provided that any Holder of any such Certificated Note issued in exchange for a beneficial interest in a Temporary Offshore Global Note will have the right upon presentation to the Trustee of a duly completed Certificate of Beneficial Ownership after the Restricted Period to exchange such Certificated Note for a Certificated Note of like tenor and amount that does not bear the Restricted Legend, registered in the name of such Holder.
(c) Each Certificated Note will be registered in the name of the holder thereof or its nominee.
(d) A Holder may transfer a Note (or a beneficial interest therein) to another Person or exchange a Note (or a beneficial interest therein) for another Note or Notes of any authorized denomination by presenting to the Trustee a written request therefor stating the name of the proposed transferee or requesting such an exchange, accompanied by any certification, opinion or other document required by Section 2.10. The Trustee will promptly register any transfer or exchange that meets the requirements of this Section by noting the same in the register maintained by the Trustee for the purpose; provided that
(x) no transfer or exchange will be effective until it is registered in such register and
(y) the Trustee will not be required (i) to issue, register the transfer of or exchange any Note for a period of 15 days before a selection of Notes to be redeemed or purchased pursuant to an Offer to Purchase (ii) to register the transfer of or exchange any Note so selected for redemption or purchase in whole or in part, except, in the case of a partial redemption or purchase, that portion of any Note not being redeemed or purchased, or (iii) if a redemption or a purchase pursuant to an Offer to Purchase is to occur after a Regular Record Date but on or before the corresponding Interest Payment Date, to register the transfer of or exchange any Note on or after the Regular Record Date and before the date of redemption or purchase. Prior to the registration of any transfer, the Company, the Trustee and their agents will treat the Person in whose name the Note is registered as the owner and Holder thereof for all purposes (whether or not the Note is overdue), and will not be affected by notice to the contrary.
From time to time the Company will execute and the Trustee will authenticate additional Notes as necessary in order to permit the registration of a transfer or exchange in accordance with this Section.
No service charge will be imposed in connection with any transfer or exchange of any Note, but the Company and the Trustee may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than a transfer tax or other similar governmental charge payable upon exchange pursuant to subsection (b)(4)).
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(e) (1) Global Note to Global Note . If a beneficial interest in a Global Note is transferred or exchanged for a beneficial interest in another Global Note, the Trustee will (x) record a decrease in the principal amount of the Global Note being transferred or exchanged equal to the principal amount of such transfer or exchange and (y) record a like increase in the principal amount of the other Global Note. Any beneficial interest in one Global Note that is transferred to a Person who takes delivery in the form of an interest in another Global Note, or exchanged for an interest in another Global Note, will, upon transfer or exchange, cease to be an interest in such Global Note and become an interest in the other Global Note and, accordingly, will thereafter be subject to all transfer and exchange restrictions, if any, and other procedures applicable to beneficial interests in such other Global Note for as long as it remains such an interest.
(2) Global Note to Certificated Note . If a beneficial interest in a Global Note is transferred or exchanged for a Certificated Note, the Trustee will (x) record a decrease in the principal amount of such Global Note equal to the principal amount of such transfer or exchange and (y) deliver one or more new Certificated Notes in authorized denominations having an equal aggregate principal amount to the transferee (in the case of a transfer) or the owner of such beneficial interest (in the case of an exchange), registered in the name of such transferee or owner, as applicable.
(3) Certificated Note to Global Note . If a Certificated Note is transferred or exchanged for a beneficial interest in a Global Note, the Trustee will (x) cancel such Certificated Note, (y) record an increase in the principal amount of such Global Note equal to the principal amount of such transfer or exchange and (z) in the event that such transfer or exchange involves less than the entire principal amount of the canceled Certificated Note, deliver to the Holder thereof one or more new Certificated Notes in authorized denominations having an aggregate principal amount equal to the untransferred or unexchanged portion of the canceled Certificated Note, registered in the name of the Holder thereof.
(4) Certificated Note to Certificated Note . If a Certificated Note is transferred or exchanged for another Certificated Note, the Trustee will (x) cancel the Certificated Note being transferred or exchanged, (y) deliver one or more new Certificated Notes in authorized denominations having an aggregate principal amount equal to the principal amount of such transfer or exchange to the transferee (in the case of a transfer) or the Holder of the canceled Certificated Note (in the case of an exchange), registered in the name of such transferee or Holder, as applicable, and (z) if such transfer or exchange involves less than the entire principal amount of the canceled Certificated Note, deliver to the Holder thereof one or more Certificated Notes in authorized denominations having an aggregate principal amount equal to the untransferred or unexchanged portion of the canceled Certificated Note, registered in the name of the Holder thereof.
Section 2.10. Restrictions on Transfer and Exchange . (a) The transfer or exchange of any Note (or a beneficial interest therein) may only be made in accordance
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with this Section and Section 2.09 and, in the case of a Global Note (or a beneficial interest therein), the applicable rules and procedures of the Depositary. The Trustee shall refuse to register any requested transfer or exchange that does not comply with the preceding sentence.
(b) Subject to paragraph (c), the transfer or exchange of any Note (or a beneficial interest therein) of the type set forth in column A below for a Note (or a beneficial interest therein) of the type set forth opposite in column B below may only be made in compliance with the certification requirements (if any) described in the clause of this paragraph set forth opposite in column C below.
A | B | C | ||||||
U.S. Global Note | U.S. Global Note | (1) | ||||||
U.S. Global Note | Offshore Global Note | (2) | ||||||
U.S. Global Note | Certificated Note | (3) | ||||||
Offshore Global Note | U.S. Global Note | (4) | ||||||
Offshore Global Note | Offshore Global Note | (1) | ||||||
Offshore Global Note | Certificated Note | (5) | ||||||
Certificated Note | U.S. Global Note | (3) | ||||||
Certificated Note | Offshore Global Note | (2) | ||||||
Certificated Note | Certificated Note | (3) |
(1) No certification is required.
(2) The Person requesting the transfer or exchange must deliver or cause to be delivered to the Trustee a duly completed Regulation S Certificate; provided that if the requested transfer or exchange is made by the Holder of a Certificated Note that does not bear the Restricted Legend, then no certification is required.
(3) The Person requesting the transfer or exchange must deliver or cause to be delivered to the Trustee (x) a duly completed Rule 144A Certificate, (y) a duly completed Regulation S Certificate or (z) a duly completed Institutional Accredited Investor Certificate, and/or an Opinion of Counsel and such other certifications and evidence as the Company may reasonably require in order to determine that the proposed transfer or exchange is being made in compliance with the Securities Act and any applicable securities law of any state of the United States; provided that if the requested transfer or exchange is made by the Holder of a Certificated Note that does not bear the Restricted Legend, then no certification is required. In the event that (i) the requested transfer or exchange takes place after the Restricted Period and a duly completed Regulation S Certificate is delivered to the Trustee or (ii) a Certificated Note that does not bear the Restricted Legend is surrendered for transfer or exchange, upon transfer or exchange the Trustee will deliver a Certificated Note that does not bear the Restricted Legend.
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(4) The Person requesting the transfer or exchange must deliver or cause to be delivered to the Trustee a duly completed Rule 144A Certificate.
(5) Notwithstanding anything to the contrary contained herein, no such exchange is permitted if the requested exchange involves a beneficial interest in a Temporary Offshore Global Note. If the requested transfer involves a beneficial interest in a Temporary Offshore Global Note, the Person requesting the transfer must deliver or cause to be delivered to the Trustee (x) a duly completed Rule 144A Certificate or (y) a duly completed Institutional Accredited Investor Certificate and/or an Opinion of Counsel and such other certifications and evidence as the Company may reasonably require in order to determine that the proposed transfer is being made in compliance with the Securities Act and any applicable securities laws of any state of the United States. If the requested transfer or exchange involves a beneficial interest in a Permanent Offshore Global Note, no certification is required and the Trustee will deliver a Certificated Note that does not bear the Restricted Legend.
(c) No certification is required in connection with any transfer or exchange of any Note (or a beneficial interest therein)
(1) after such Note is eligible for resale pursuant to Rule 144 under the Securities Act (or a successor provision) without the need for current public information; provided that the Company has provided the Trustee with an Officers Certificate to that effect, and the Company may require from any Person requesting a transfer or exchange in reliance upon this clause (1) an opinion of counsel and any other reasonable certifications and evidence in order to support such certificate; or
(2) (x) sold pursuant to an effective registration statement, pursuant to the Registration Rights Agreement or otherwise or (y) which is validly tendered for exchange into an Exchange Note pursuant to an Exchange Offer.
Any Certificated Note delivered in reliance upon this paragraph will not bear the Restricted Legend.
(d) The Trustee will retain copies of all certificates, opinions and other documents received in connection with the transfer or exchange of a Note (or a beneficial interest therein), and the Company will have the right to inspect and make copies thereof at any reasonable time upon written notice to the Trustee.
Section 2.11. Reg. S Temporary Offshore Global Notes . (a) Each Note originally sold by the Initial Purchasers in reliance upon Regulation S will be evidenced by one or more Offshore Global Notes that bear the Temporary Offshore Global Note Legend.
(b) An owner of a beneficial interest in a Temporary Offshore Global Note (or a Person acting on behalf of such an owner) may provide to the Trustee (and the Trustee will accept) a duly completed Certificate of Beneficial Ownership at any time after the
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Restricted Period (it being understood that the Trustee will not accept any such certificate during the Restricted Period). Promptly after acceptance of a Certificate of Beneficial Ownership with respect to such a beneficial interest, the Trustee will cause such beneficial interest to be exchanged for an equivalent beneficial interest in a Permanent Offshore Global Note, and will (x) permanently reduce the principal amount of such Temporary Offshore Global Note by the amount of such beneficial interest and (y) increase the principal amount of such Permanent Offshore Global Note by the amount of such beneficial interest.
(c) Notwithstanding paragraph (b), if after the Restricted Period any Initial Purchaser owns a beneficial interest in a Temporary Offshore Global Note, such Initial Purchaser may, upon written request to the Trustee accompanied by a certification as to its status as an Initial Purchaser, exchange such beneficial interest for an equivalent beneficial interest in a Permanent Offshore Global Note, and the Trustee will comply with such request and will (x) permanently reduce the principal amount of such Temporary Offshore Global Note by the amount of such beneficial interest and (y) increase the principal amount of such Permanent Offshore Global Note by the amount of such beneficial interest.
(d) Notwithstanding anything to the contrary contained herein, any owner of a beneficial interest in a Temporary Offshore Global Note shall not be entitled to receive payment of principal or interest on such beneficial interest or other amounts in respect of such beneficial interest until such beneficial interest is exchanged for an interest in a Permanent Offshore Global Note or transferred for an interest in another Global Note or a Certificated Note.
ARTICLE 3
O PTIONAL R EDEMPTION ; O FFER TO P URCHASE
Section 3.01. Optional Redemption on or after June 1, 2017 . On or after June 1, 2017, the Company may redeem the Notes, in whole or in part, upon not less than 30 nor more than 60 days prior written notice, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of the Notes on the relevant record date to receive interest, if any, due on the relevant interest payment date), if redeemed during the twelve-month period beginning on June 1 of each of the years set forth below.
Year |
Percentage | |||
2017 |
107.313 | % | ||
2018 |
104.875 | % | ||
2019 |
102.438 | % | ||
2020 and thereafter |
100.00 | % |
Section 3.02. Optional Redemption with Proceeds of Certain Equity Offerings . Prior to June 1, 2017, the Company may redeem up to 35% of the aggregate principal amount of the Notes (including Additional Notes) originally issued under the Indenture at a redemption price of 109.75% of the principal amount of the Notes
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redeemed, plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of the Notes on the relevant record date to receive interest, if any, due on the relevant interest payment date) if:
(1) such redemption is made with the proceeds of one or more Equity Offerings;
(2) at least 65% of the aggregate principal amount of the Notes (including Additional Notes) originally issued under the Indenture remain outstanding immediately after the occurrence of such redemption (excluding Notes held by the Company or any of its Subsidiaries); and
(3) the redemption occurs within 90 days of such Equity Offering.
Section 3.03. Optional Redemption at Make-Whole Price. Prior to June 1, 2017, the Company may redeem the Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the Notes plus the Applicable Premium, and accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of the Notes on the relevant record date to receive interest, if any, due on the relevant interest payment date). Notice of such redemption must be mailed by first-class mail to each holders registered address, not less than 30 nor more than 60 days prior to the redemption date.
Section 3.04. Special Redemption . (a) If the Company or any of the Companys Subsidiaries Guarantee any credit facility, term loans, promissory notes or Material Debt of Cash America or any Subsidiary of Cash America (other than the Company and its Subsidiaries) as of the Issue Date and all such Guarantees have not been released and terminated on or before March 31, 2015 (the Cash America Guarantee Release ), the interest rate on the Notes (other than Notes called for redemption pursuant to Section 3.04(b)) will increase by a rate of 2.00% per annum until the Cash America Guarantee Release is effective.
(b) If the Cash America Guarantee Release is not consummated on or before March 31, 2015, the Company, at its sole option, may, within five days following March 31, 2015, mail a notice to redeem all and not less than all of the Notes then outstanding, upon not less than 30 nor more than 60 days prior written notice, at a redemption price equal to 103% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date (subject to the right of Holders of the Notes on the relevant record date to receive interest, if any, due on the relevant interest payment date).
Section 3.05. Method and Effect of Redemption . (a) The Company will send notice of any redemption by first class mail at least 30 days but not more than 60 days before the redemption date to each registered Holder of the Notes to be redeemed at its registered address. Once notice of redemption is sent, the Notes called for redemption will become due and payable on the redemption date at the applicable redemption price, plus accrued and unpaid interest applicable to such Notes to, but excluding, the redemption date.
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(b) The notice of redemption will identify the Notes to be redeemed and will include or state the following:
(1) the redemption date;
(2) the redemption price, including the portion thereof representing any accrued interest;
(3) the place or places where Notes are to be surrendered for redemption;
(4) Notes called for redemption must be so surrendered in order to collect the redemption price;
(5) on the redemption date the redemption price will become due and payable on Notes called for redemption, and interest on Notes called for redemption will cease to accrue on and after the redemption date;
(6) if any Note is redeemed in part, the notice of redemption that relates to such Note shall state the portion of the principal amount of that Note to be redeemed, and on and after the redemption date, upon surrender and cancellation of such Note, new Notes equal in principal amount to the unredeemed portion will be issued; and
(7) if any Note contains a CUSIP or CINS number, no representation is being made as to the correctness of the CUSIP or CINS number either as printed on the Notes or as contained in the notice of redemption and that the Holder should rely only on the other identification numbers printed on the Notes.
(c) Notice of any redemption upon any Equity Offering or other securities offering or financing, or in connection with a transaction (or series of related transactions) that constitute a Change of Control, may, at the Companys discretion, be given prior to the completion thereof and be subject to one or more conditions precedent, including, but not limited to, completion of the related Equity Offering, securities offering, financing or Change of Control.
(d) On and after the redemption date, interest will cease to accrue on the Notes or any portion of the Notes called for redemption (unless the Company defaults in the payment of the redemption price and accrued and unpaid interest). On or before the redemption date, the Company will deposit with a Paying Agent (or the Trustee) money sufficient to pay the redemption price of and accrued and unpaid interest on the Notes to be redeemed on that date. If fewer than all of the Notes are to be redeemed, the Notes to be redeemed shall be selected in accordance with DTCs applicable procedures, in the case of Global Notes, or by the Trustee on a pro rata basis, by lot or by such method the Trustee deems to be fair and appropriate, in the case of Notes that are not Global Notes. Upon surrender of any Note redeemed in part, the Holder will receive a new Note equal in principal amount to the unredeemed portion of the surrendered Note.
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Section 3.06. Offer to Purchase . (a) An Offer to Purchase means an offer by the Company to purchase Notes as required by the Indenture. An Offer to Purchase must be made by written offer (the offer ) sent to the Holders. The Company will notify the Trustee at least 15 days (or such shorter period as is acceptable to the Trustee) prior to sending the offer to Holders of its obligation to make an Offer to Purchase, and the offer will be sent by the Company with a copy to the Trustee or, at the Companys request, by the Trustee in the name and at the expense of the Company.
(b) The offer must include or state the following as to the terms of the Offer to Purchase:
(1) the provision of the Indenture pursuant to which the Offer to Purchase is being made;
(2) the aggregate principal amount of the outstanding Notes offered to be purchased by the Company pursuant to the Offer to Purchase (including, if less than 100%, the manner by which such amount has been determined pursuant to the Indenture) (the purchase amount );
(3) the purchase price, including the portion thereof representing accrued interest;
(4) an expiration date (the expiration date ) not less than 30 days or more than 60 days after the date of the offer, and a settlement date for purchase (the purchase date ) not more than five Business Days after the expiration date;
(5) information concerning the business of the Company and its Subsidiaries which the Company in good faith believes will enable the Holders to make an informed decision with respect to the Offer to Purchase, at a minimum to include
(A) the most recent annual and quarterly financial statements and Managements Discussion and Analysis of Financial Condition and Results of Operations for the Company,
(B) a description of material developments in the Companys business subsequent to the date of the latest of the financial statements (including a description of the events requiring the Company to make the Offer to Purchase), and
(C) if applicable, appropriate pro forma financial information concerning the Offer to Purchase and the events requiring the Company to make the Offer to Purchase;
(6) a Holder may tender all or any portion of its Notes, subject to the requirement that any portion of a Note tendered must be in a multiple of $1,000 principal amount;
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(7) the place or places where Notes are to be surrendered for tender pursuant to the Offer to Purchase;
(8) each Holder electing to tender a Note pursuant to the offer will be required to surrender such Note at the place or places specified in the offer prior to the close of business on the expiration date (such Note being, if the Company or the Trustee so requires, duly endorsed or accompanied by a duly executed written instrument of transfer);
(9) interest on any Note not tendered, or tendered but not purchased by the Company pursuant to the Offer to Purchase, will continue to accrue;
(10) on the purchase date the purchase price will become due and payable on each Note accepted for purchase, and interest on Notes purchased will cease to accrue on and after the purchase date;
(11) Holders are entitled to withdraw Notes tendered by giving notice, which must be received by the Company or the Trustee not later than the close of business on the expiration date, setting forth the name of the Holder, the principal amount of the tendered Notes, the certificate number of the tendered Notes and a statement that the Holder is withdrawing all or a portion of the tender;
(12) (i) if Notes in an aggregate principal amount less than or equal to the purchase amount are duly tendered and not withdrawn pursuant to the Offer to Purchase, the Company will purchase all such Notes, and (ii) if the Offer to Purchase is for less than all of the outstanding Notes and Notes in an aggregate principal amount in excess of the purchase amount are tendered and not withdrawn pursuant to the offer, the Company will purchase Notes having an aggregate principal amount equal to the purchase amount on a pro rata basis, with adjustments so that only Notes of $2,000 and in integral multiples of $1,000 in excess thereof will be purchased;
(13) if any Note is purchased in part, new Notes equal in principal amount to the unpurchased portion of the Note will be issued; and
(14) if any Note contains a CUSIP or CINS number, no representation is being made as to the correctness of the CUSIP or CINS number either as printed on the Notes or as contained in the offer and that the Holder should rely only on the other identification numbers printed on the Notes.
(c) Prior to the purchase date, the Company will accept tendered Notes for purchase as required by the Offer to Purchase and deliver to the Trustee all Notes so accepted together with an Officers Certificate specifying which Notes have been accepted for purchase. On the purchase date the purchase price will become due and payable on each Note accepted for purchase, and interest on Notes purchased will cease to accrue on and after the purchase date. The Trustee will promptly return to Holders any Notes not accepted for purchase and send to Holders new Notes equal in principal amount to any unpurchased portion of any Notes accepted for purchase in part.
(d) The Company will comply with Section 14(e) of, and Rule 14e-1 under, the Exchange Act and all other applicable laws in making any Offer to Purchase, and the above procedures will be deemed modified as necessary to permit such compliance.
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ARTICLE 4
C OVENANTS
Section 4.01. Payment of Notes . (a) The Company agrees to pay the principal of and interest on the Notes on the dates and in the manner provided in the Notes and the Indenture. Not later than 9:00 A.M. (New York City time) on the due date of any principal of or interest on any Notes, or any redemption or purchase price of the Notes, the Company will deposit with the Trustee (or Paying Agent) money in immediately available funds sufficient to pay such amounts, provided that if the Company or any Affiliate of the Company is acting as Paying Agent, it will, on or before each due date, segregate and hold in a separate trust fund for the benefit of the Holders a sum of money sufficient to pay such amounts until paid to such Holders or otherwise disposed of as provided in the Indenture. In each case the Company will promptly notify the Trustee of its compliance with this Section 4.01(a).
(b) An installment of principal or interest will be considered paid on the date due if the Trustee (or Paying Agent, other than the Company or any Affiliate of the Company) holds on that date money designated for and sufficient to pay the installment. If the Company or any Affiliate of the Company acts as Paying Agent, an installment of principal or interest will be considered paid on the due date only if paid to the Holders.
(c) The Company agrees to pay interest on overdue principal, and, to the extent lawful, overdue installments of interest at the rate per annum specified in the Notes.
(d) Payments in respect of the Notes represented by the Global Notes are to be made by wire transfer of immediately available funds to the accounts specified by the Holders of the Global Notes. With respect to Certificated Notes, the Company will make all payments by wire transfer of immediately available funds to the accounts specified by the Holders thereof or, if no such account is specified, by mailing a check to each Holders registered address.
Section 4.02. Maintenance of Office or Agency . The Company will maintain in the Borough of Manhattan, the City of New York, an office or agency where Notes may be surrendered for registration of transfer or exchange or for presentation for payment and where notices and demands to or upon the Company in respect of the Notes and the Indenture may be served. The Company hereby initially designates the office of the Trustee located at 100 Wall Street, Suite 1600, New York, NY 10005, Attention: Global Corporate Trust as such office of the Company. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company fails to maintain any such required office or agency or fails to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served to the Trustee.
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The Company may also from time to time designate one or more other offices or agencies where the Notes may be surrendered or presented for any of such purposes and may from time to time rescind such designations. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.
Section 4.03. Existence . Subject to Article 5, the Company will at all times preserve and keep in full force and effect its corporate existence. Subject to Article 5, the Company will at all times preserve and keep in full force and effect the corporate existence of each of the Guarantors (unless merged into the Company or Guarantor) and all rights and franchises of the Company and the Guarantors unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect.
Section 4.04. Payment of Taxes and other Claims . The Company will, and will cause each of its Subsidiaries to, file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent the same have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of the Company or any Subsidiary, provided that neither the Company nor any Subsidiary need pay any such tax, assessment, charge, levy or claim if (i) the amount, applicability or validity thereof is contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Subsidiary or (ii) the nonpayment of all such taxes, assessments, charges, levies and claims in the aggregate could not reasonably be expected to have a Material Adverse Effect.
Section 4.05. Maintenance of Properties and Insurance . (a) The Company will, and will cause each of its Subsidiaries to, maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section 4.05 shall not prevent the Company or any Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(b) The Company will, and will cause each of its Subsidiaries to, maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated.
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Section 4.06. Restricted Payments . (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly,
(i) declare or pay any dividend on, except as described below, or make any other payment or distribution in respect of, its Equity Interests (including any dividend or distribution payable in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or similar payment to the direct or indirect Holders thereof in their capacity as such (other than any dividends or distributions payable solely in its Equity Interests (other than Disqualified Stock) and dividends or distributions payable to the Company or any of its Restricted Subsidiaries (and, if such Restricted Subsidiary has stockholders, members or partners other than the Company or other Restricted Subsidiaries, to its other stockholders, members or partners on no more than a pro rata basis));
(ii) purchase, redeem or otherwise acquire or retire for value any Equity Interests of the Company held by any Person or any Equity Interests of any of its Restricted Subsidiaries held by any Affiliate of the Company (in each case other than held by the Company or a Restricted Subsidiary), including in connection with any merger or consolidation and including the exercise of any option to exchange any Equity Interests (other than into Equity Interests of the Company that are not Disqualified Stock);
(iii) make any purchase, repurchase, redemption, defeasance or other acquisition or retirement for value, more than 30 days prior to the scheduled maturity, scheduled repayment or scheduled sinking fund payment of any Indebtedness that is contractually subordinated in right of payment to the Notes or any Note Guarantee (other than the purchase, repurchase or other acquisition of such Indebtedness purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of such purchase, repurchase or other acquisition); or
(iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iii) above and this clause (iv) being collectively referred to as Restricted Payments );
unless, at the time of and after giving effect to such Restricted Payment:
(1) | no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; |
(2) | the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.07(a); and |
46
(3) | such Restricted Payment, together with the aggregate of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date of the Indenture (excluding Restricted Payments permitted by clauses (2) through (10) and (12) of Section 4.06(b)), is, at the time of determination, less than the sum of: |
(A) | 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) beginning on the first day of the fiscal quarter immediately preceding the date of the Indenture to the end of the Companys most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus |
(B) | 100% of the aggregate net cash proceeds received by the Company from the issuance or sale of its Equity Interests subsequent to the date of the Indenture (other than an issuance or sale to a Subsidiary of the Company and other than Excluded Contributions) and 100% of any cash capital contribution received by the Company from its shareholders subsequent to the date of the Indenture, plus |
(C) | the amount by which the principal amount of any Indebtedness of the Company or a Restricted Subsidiary is reduced upon the conversion or exchange (other than by a Restricted Subsidiary) subsequent to the date of the Indenture of any Indebtedness of the Company or a Restricted Subsidiary convertible or exchangeable for Equity Interests (other than Disqualified Stock) of the Company (less the amount of any cash, or the fair value of any other property, distributed by the Company or a Restricted Subsidiary upon such conversion or exchange); provided , however , that the foregoing amount shall not exceed the net cash proceeds received by the Company or any of its Restricted Subsidiaries from the sale of such Indebtedness (excluding net cash proceeds from sales to a Restricted Subsidiary); plus |
(D) |
the amount equal to the sum of (x) the net reduction in the Restricted Investments made by the Company or any of its Restricted Subsidiaries in any Person resulting from repurchases, repayments or redemptions of such Investments by such Person, proceeds realized on the sale or other disposition of such Investment and proceeds representing the return of capital (excluding dividends and distributions to the extent included in Consolidated Net Income), in each case realized by the Company or any of its Restricted Subsidiaries, and (y) in the event that any Unrestricted Subsidiary is re-designated as a Restricted Subsidiary, the portion (proportionate to the Companys equity interest in such Subsidiary) of the Fair Market Value of the net assets of such Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated a Restricted Subsidiary; provided , however , that the foregoing sum will not exceed, in the case of any such Person, the amount of Restricted Investments |
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previously made (and treated as a Restricted Payment) by the Company or any of its Restricted Subsidiaries in such Person or Unrestricted Subsidiary; plus |
(E) | 100% of any dividends or distributions received by the Company or any of its Restricted Subsidiaries subsequent to the date of the Indenture from an Unrestricted Subsidiary of the Company, to the extent that such dividends or distributions were not otherwise included in the Consolidated Net Income of the Company for such period. |
(b) The foregoing provisions will not prohibit:
(1) | the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of the Indenture; |
(2) | so long as no Default or Event of Default has occurred and is continuing or would be caused thereby, any Restricted Payment made in exchange for, or with the net cash proceeds from, the substantially concurrent sale of Equity Interests of the Company (other than any Disqualified Stock and other than Equity Interests issued or sold to a Subsidiary of the Company) or a substantially concurrent cash capital contribution received by the Company from its shareholders; provided that the net cash proceeds from such sale or such cash capital contribution (to the extent so used for such Restricted Payment) shall be excluded from clause (3)(B) of the preceding paragraph; |
(3) | the defeasance, redemption, repurchase, retirement or other acquisition of Indebtedness of the Company or any Guarantor that is contractually subordinated in right of payment to the Notes or to any Note Guarantee in exchange for, or with the net cash proceeds from, an Incurrence of Permitted Refinancing Debt; |
(4) | so long as no Default or Event of Default has occurred and is continuing or would be caused thereby, the redemption, repurchase, retirement or other acquisition for value of any Equity Interests of the Company or any of its Restricted Subsidiaries of the Company held by employees, former employees, managers, former managers, consultants or former consultants of the Company (or any of its Subsidiaries); provided that the aggregate amount of such repurchases and other acquisitions (excluding amounts representing cancellation of Indebtedness) shall not exceed $5.0 million (with unused amounts in any calendar year being carried over to succeeding calendar years subject to a maximum (without giving effect to the following parenthetical) of $10.0 million in any calendar year) (in each case plus the amount of net cash and proceeds received by the Company and its Restricted Subsidiaries (x) in respect of key-man life insurance and (y) from the issuance of Equity Interests by the Company to members of management of the Company and its Subsidiaries, to the extent that those amounts did not provide the basis for any previous Restricted Payment); |
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(5) | payments of dividends on Disqualified Stock issued pursuant to Section 4.07; |
(6) | repurchases of Capital Stock deemed to occur upon exercise of stock options if such Capital Stock represents a portion of the exercise price of such options; |
(7) | cash payments in lieu of the issuance of fractional shares in connection with the exercise of warrants, options or other securities convertible into or exchangeable for Capital Stock of the Company; provided , however , that any such cash payment shall not be for the purpose of evading the limitation of this Section 4.06 (as determined in good faith by the Board of Directors); |
(8) | so long as no Default or Event of Default has occurred and is continuing or would be caused thereby, payments of intercompany subordinated Indebtedness, the Incurrence of which was permitted under Section 4.07(b)(4); |
(9) | the repurchase, redemption or other acquisition or retirement for value of any Indebtedness of the Company or any Guarantor that is contractually subordinated in right of payment to the Notes or to any Note Guarantee pursuant to provisions similar to those in Section 4.15; provided that all Notes tendered by Holders in connection with a Change of Control Offer have first been repurchased, redeemed or acquired for value; |
(10) | prior to the consummation of the Spin-Off, the declaration and payment of dividends by the Company to, or the making of loans to, any Parent Entity in amounts required for any such Parent Entity to pay, in each case without duplication, |
(A) | franchise and excise taxes and other fees, taxes and expenses required to maintain their corporate existence; |
(B) | (i) customary salary, bonus and other benefits payable to officers, employees and directors of any Parent Entity and (ii) general corporate operating (including, without limitation, expenses related to legal, administrative, auditing or other accounting matters) and overhead costs and expenses of any Parent Entity, in each case, to the extent such salary, bonus, other benefits, costs and expenses are attributable to the ownership or operation of the Company and the Restricted Subsidiaries, including the Companys proportionate share of such amounts relating to any Parent Entity being a public company; and |
(C) |
the payment of dividends, other distributions or other amounts in amounts required for such Parent Entity to pay federal, state or local income taxes (as the case may be) imposed directly on such Parent Entity to the extent such income taxes are attributable to the income of the Company and its Restricted Subsidiaries by virtue of such Parent Entity being the common parent of a consolidated, combined or similar tax group which the Company and/or any of its Subsidiaries are members; |
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provided , however , the amount of such dividends or other distributions for any taxable period shall not exceed the amount of such taxes that the Company and/or its Subsidiaries, as applicable, would have been required to pay if the Company and/or its Subsidiaries, as applicable, had been a stand-alone corporate taxpayer (or stand-alone corporate group); |
(11) | Restricted Payments in an amount equal to the unused amount of Excluded Contributions received since the date of the Indenture; |
(12) | the repayment of Indebtedness to the Parent Entity and the declaration and payment of a cash dividend to the Parent Entity that is described in the Offering Memorandum under Use of Proceeds; and |
(13) | Restricted Payments in an amount which, when taken together with all Restricted Payments previously made pursuant to this clause (13) and then outstanding, does not exceed $35.0 million. |
The amount of all Restricted Payments (other than cash) shall be the Fair Market Value on the date of the Restricted Payment of the assets proposed to be transferred by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
Section 4.07. Incurrence of Indebtedness and Issuance of Disqualified Stock and Preferred Stock . (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, Incur any Indebtedness (including Acquired Debt) and the Company will not issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of Preferred Stock; provided , however , that the Company and any Restricted Subsidiary may Incur Indebtedness (including Acquired Debt) and the Company may issue shares of Disqualified Stock, and any Restricted Subsidiary may issue Preferred Stock, if the Fixed Charge Coverage Ratio for the Companys most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is Incurred or such Disqualified Stock or such Preferred Stock is issued would have been at least 2.0 to 1.0, determined on a pro forma basis (including a pro forma application of the net cash proceeds therefrom, including the effect of acquisitions or repayments or redemptions of Indebtedness to be funded by such proceeds), as if the additional Indebtedness had been Incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period.
(b) Section 4.07(a) will not prohibit the Incurrence of any of the following items of Indebtedness (collectively, Permitted Debt ):
(1) | the Incurrence by the Company and the Guarantors of Indebtedness represented by the Notes (other than Additional Notes) and the related Note Guarantees; |
(2) |
the Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness (including Capital Lease Obligations, mortgage financings or |
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purchase money obligations) Incurred for the purpose of financing (or refinancing) all or any part of the purchase price or cost of construction or improvement of property (real or personal), plant or equipment used in the business of the Company or such Restricted Subsidiary in an amount that, added to all other Indebtedness Incurred pursuant to this clause (2) and then outstanding, will not exceed the sum of (A) the greater of (x) $15.0 million and (y) 2.0% of Consolidated Total Assets, plus (B) the amount of any fees and expenses incurred in connection with any refinancing; |
(3) | the Incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Debt in exchange for, or the net cash proceeds of which are used to extend, refinance, renew, replace, defease or refund Indebtedness that was Incurred pursuant to paragraph (a) or pursuant to clause (1), (7) or this clause (3) in this Section 4.07(b); |
(4) | the Incurrence of (a) intercompany Indebtedness of the Company, a Guarantor or any other Restricted Subsidiary for so long as such Indebtedness is held by the Company or a Guarantor; provided that (i) such Indebtedness shall be unsecured and if owing by the Company or any Guarantor, contractually subordinated in all respects (other than with respect to the maturity thereof) to the obligations of the Company under the Notes or such Guarantor under its Note Guarantee, as the case may be, and (ii) if as of any date any Person other than the Company or a Guarantor owns or holds any such Indebtedness or holds a Lien in respect of such Indebtedness (other than a Permitted Lien securing Indenture Obligations), such date shall be deemed the incurrence of Indebtedness not permitted under this clause (4) by the issuer of such Indebtedness and (b) intercompany Indebtedness of the Company, any Guarantor or any Foreign Subsidiary for so long as such Indebtedness is held by a Foreign Subsidiary; provided that (i) if such Indebtedness is owing by the Company or any Guarantor, such Indebtedness shall be unsecured and contractually subordinated in all respects (other than with respect to the maturity thereof) to the obligations of the Company under the Notes or such Guarantor under its Note Guarantee, as the case may be, and (ii) if as of any date any Person other than such other Foreign Subsidiary owns or holds any such Indebtedness or holds a Lien in respect of such Indebtedness (other than Permitted Liens of the type described in clause (17)) of the definition thereof), such date shall be deemed the incurrence of Indebtedness not constituting Indebtedness permitted under this clause (4) by the issuer of such Indebtedness; |
(5) |
Guarantees by the Company or any of its Restricted Subsidiaries of Indebtedness or other obligations of the Company or any of its Restricted Subsidiaries otherwise permitted hereunder so long as the Person giving such Guarantee could have Incurred the Indebtedness or other obligations that are being Guaranteed; provided that if the Indebtedness being guaranteed (x) is subordinated to the Notes or a Note Guarantee, then the Guarantee must be subordinated to the same extent as the Indebtedness |
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being guaranteed or (y) is owed by any of its Restricted Subsidiaries that is not a Guarantor, such Guarantee shall be subordinated to the prior payment in full of the Notes in the case of the Company or the Note Guarantees in the case of a Guarantor; |
(6) | the Incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations that are Incurred for the purpose of fixing or hedging interest rate risk with respect to any floating rate Indebtedness that is permitted by the terms of the Indenture to be outstanding; |
(7) | the Incurrence of Existing Indebtedness (other than Indebtedness described in clause (1) or (4) of Section 4.07(b)); |
(8) | the Incurrence of obligations in respect of letters of credit, bank guarantees, performance, bid and surety bonds and completion guarantees provided by the Company or any of its Restricted Subsidiaries in the ordinary course of business or in connection with leases of real or personal property in the ordinary course of business; |
(9) | the Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business; provided , however , that such Indebtedness is extinguished within two business days of its Incurrence; |
(10) | Indebtedness of Foreign Subsidiaries (and any Permitted Refinancing Debt in respect thereof) that, when added together with any other Indebtedness incurred under this clause (10) and then outstanding, will not exceed the greater of (x) $20.0 million (or its foreign currency equivalent) and (y) 3.0% of Consolidated Total Assets; |
(11) | Indebtedness of the Company or any of its Restricted Subsidiaries consisting of the financing of insurance premiums in the ordinary course of business; |
(12) | Indebtedness consisting of promissory notes or similar Indebtedness issued by the Company or any of its Restricted Subsidiaries to current, future or former officers, managers, and employees thereof, or to their respective estates, spouses or former spouses, in each case to finance the purchase or redemption of Equity Interests of the Company or a Restricted Subsidiary to the extent described in clause (4) of the second paragraph in Section 4.06; |
(13) | the Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness, or issuance of Disqualified Stock by the Company (in addition to Indebtedness or Disqualified Stock permitted by any other clause of this paragraph) in an aggregate principal amount (or accreted value, as applicable) that, when added to all other Indebtedness Incurred pursuant to this clause (13) and then outstanding, will not exceed $30.0 million; |
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(14) | the Incurrence by the Company or any Guarantor (including any Guarantees thereof) of Indebtedness pursuant to Credit Facilities in an aggregate principal amount not to exceed as of any date of Incurrence, the sum of (A) the greater of (x) $75.0 million and (y) 11.0% of Consolidated Total Assets, plus (B) in the event of any refinancing of any such Indebtedness, the aggregate amount of fees and other costs and expenses incurred in connection with such refinancing, less the aggregate amount of all Net Proceeds of Asset Sales applied to repay any such Indebtedness pursuant to Section 4.16; |
(15) | the Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness, or issuance of Disqualified Stock by the Company in an aggregate principal amount or liquidation preference up to 100% of the net cash proceeds received by the Company since immediately after the date of the Indenture from the issue or sale of Equity Interests of the Company or cash contributed to the capital of the Company (in each case, other than Excluded Contributions, proceeds of Disqualified Stock and sales of Equity Interests to the Company or any Subsidiary of the Company) as determined in accordance with clause (iv)(3) of the first paragraph of Section 4.06 to the extent such net cash proceeds have not been applied pursuant to such clauses to make Restricted Payments or to make other Investments, payments or exchanges pursuant to the second paragraph of Section 4.06 or to make Permitted Investments (other than Permitted Investments specified in clauses (1) and (3) of the definition thereof); |
(16) | (x) the Incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness, or issuance of Disqualified Stock by the Company, incurred or issued to finance an acquisition or (y) Acquired Debt; provided that after giving pro forma effect to such acquisition, either (a) the Company would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of this covenant, or (b) the Fixed Charge Coverage Ratio of the Company and its Restricted Subsidiaries is greater than such Fixed Charge Coverage Ratio immediately prior to such acquisition; and |
(17) | the Incurrence of Cash Management Obligations. |
(c) |
For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Indebtedness described in clauses (1) through (17) of Section 4.07(b) or under Section 4.07(a), the Company may, in its sole discretion, divide and classify such item of Indebtedness in any manner that complies with this covenant and will only be required to include the amount and type of such Indebtedness in one of such clauses or pursuant to paragraph (a) of this covenant, and may re-classify any such item of Indebtedness from time to time among such clauses or the first paragraph of this covenant, so long as such item meets the applicable criteria for such category. For avoidance of doubt, Indebtedness may be classified as Incurred in part pursuant to one of the clauses (1) through (17) of Section 4.07(b), |
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and in part under one or more other clauses or under Section 4.07(a). Indebtedness outstanding on the date of the Indenture under the Credit Agreement, if any, shall be treated at all times as Incurred pursuant to clause (14) of Section 4.07(b). |
For purposes of determining compliance with any U.S. dollar-denominated restriction on the incurrence of Indebtedness, the U.S. dollar-equivalent principal amount of Indebtedness denominated in a foreign currency shall be calculated based on the relevant currency exchange rate in effect on the date such Indebtedness was incurred, in the case of term debt, or first committed, in the case of revolving credit debt; provided that if such Indebtedness is incurred to refinance other Indebtedness denominated in a foreign currency, and such refinancing would cause the applicable U.S. dollar-denominated restriction to be exceeded if calculated at the relevant currency exchange rate in effect on the date of such refinancing, such U.S. dollar-denominated restriction shall be deemed not to have been exceeded so long as the principal amount of such refinancing Indebtedness does not exceed the principal amount of such Indebtedness being refinanced.
The principal amount of any Indebtedness incurred to refinance other Indebtedness, if incurred in a different currency from the Indebtedness being refinanced, shall be calculated based on the currency exchange rate applicable to the currencies in which such respective Indebtedness is denominated that is in effect on the date of such refinancing.
Accrual of interest and dividends, accretion of accreted value, issuance of securities paid-in-kind, amortization of original issue discount, changes to amounts outstanding in respect of Hedging Obligations solely as a result of fluctuations in foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder shall not be deemed to be an Incurrence of Indebtedness for purposes of this covenant.
(d) | The Company will not incur, and will not permit any Guarantor to incur, any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of the Company or such Guarantor unless such Indebtedness is also contractually subordinated in right of payment to the Notes and the applicable Note Guarantees on substantially identical terms; provided , however , that no Indebtedness will be deemed to be contractually subordinated in right of payment to any other Indebtedness solely by virtue of being unsecured or by virtue of being secured on junior Lien or priority basis. |
Section 4.08. Designation of Restricted and Unrestricted Subsidiaries . (a) The Board of Directors of the Company may designate any of its Restricted Subsidiaries to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by Company and its Restricted Subsidiaries in the Subsidiary designated as an Unrestricted Subsidiary will be deemed to be an Investment made as of the time of the designation and will reduce the
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amount available for Restricted Payments under Section 4.06 or under one or more clauses of the definition of Permitted Investments, as determined by the Company. That designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.
(b) Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary will be evidenced to the Trustee by filing with the Trustee a certified copy of a resolution of the Board of Directors of the Company giving effect to such designation and an Officers Certificate and an Opinion of Counsel certifying that such designation complied with the preceding conditions and was permitted by Section 4.06. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary will be deemed to be Incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be Incurred as of such date under Section 4.07, the Company will be in default of such covenant. The Board of Directors of Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; provided that such designation will be deemed to be an Incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary, and such designation will only be permitted if (1) such Indebtedness is permitted to be Incurred under the covenant in Section 4.07, calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation.
Section 4.09. Liens . The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind on any asset now owned or hereafter acquired, other than Permitted Liens, without effectively providing that the Notes are secured equally and ratably with (or, if the obligation to be secured by the Lien is subordinated in right of payment to the Notes or any Note Guarantee, prior to) the obligations so secured for so long as such obligations are so secured.
Section 4.10. Dividend and Other Payment Restrictions Affecting Subsidiaries . (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or consensual restriction on the ability of any of its Restricted Subsidiaries to:
(1) | pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries with respect to its Capital Stock or any other interest or participation in, or measured by, its profits; |
(2) | pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries; |
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(3) | make any loans or advances to the Company or any of its Restricted Subsidiaries; or |
(4) | sell, lease or transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. |
(b) However, the foregoing restrictions will not apply to encumbrances or restrictions existing under or by reason of:
(1) | any agreements in effect or entered into on the date of the Indenture, including agreements governing Existing Indebtedness as in effect on the date of the Indenture, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof; provided that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the agreements governing such Indebtedness as in effect on the date of the Indenture; |
(2) | the Indenture Documents; |
(3) | applicable law and/or any applicable rule, regulation or order; |
(4) | customary non-assignment provisions in leases, licenses or other agreements entered into in the ordinary course of business; |
(5) | purchase money obligations that impose restrictions of the nature described in clause (4) of Section 4.10 on the property so acquired; |
(6) | any agreement for the sale or other disposition of all or substantially all of the Capital Stock or assets of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale or other disposition thereof; |
(7) | any agreement or other instrument of a Person acquired by the Company or any of its Restricted Subsidiaries in existence at the time of such acquisition (but not created in contemplation thereof), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person and its Subsidiaries, or the property or assets of the Person and its Subsidiaries, so acquired; |
(8) | Liens that limit the right of Company or any of its Subsidiaries to dispose of the asset or assets subject to such Lien; |
(9) | customary provisions limiting the disposition or distribution of assets or property in partnership, joint venture, asset sale agreements, stock sale agreements and other similar agreements entered into in the ordinary course of business, which limitation is applicable only to the assets that are the subject of such agreements; |
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(10) | Permitted Refinancing Debt, provided that the restrictions subject to the limitations of this provision and contained in the agreements governing such Permitted Refinancing Debt are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; |
(11) | any such encumbrance or restriction with respect to any Foreign Subsidiary pursuant to an agreement governing Indebtedness incurred by such Foreign Subsidiary, (i) if the encumbrances and restrictions subject to the limitations of this provision and contained in any such agreement or instrument taken as a whole are not materially more restrictive than the encumbrances and restrictions contained in the agreements described in clause (1) above (as determined in good faith by the Company), or (ii) if such encumbrance or restriction is not materially more restrictive than is customary in comparable financings (as determined in good faith by the Company) and either (x) the Company determines in good faith that such encumbrance or restriction will not materially affect the Companys ability to make the principal or interest payments on the Notes or (y) such encumbrance or restriction applies only if a default occurs in respect of a payment or financial covenant relating to such Indebtedness; |
(12) | the Credit Agreement as in effect as of the date of the Indenture and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof and any additional Credit Facilities permitted under the Indenture; provided , however , that such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements, refinancings or additional facilities are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the Credit Agreement as in effect on the date of the Indenture; |
(13) | agreements governing other Indebtedness permitted to be incurred under the provisions of Section 4.07 and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements; provided that the encumbrances or restrictions therein are not materially more restrictive, taken as a whole, than those contained in the Indenture Documents in the good faith judgment of the Board of Directors of the Company; and |
(14) | customary restrictions pursuant to the terms of a Permitted Receivables Financing. |
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Section 4.11. Transactions with Affiliates . (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, make any payment to, or sell, lease, exchange, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any contract, agreement, understanding, loan, advance or Guarantee with, or for the benefit of, any Affiliate (each of the foregoing, an Affiliate Transaction ), unless:
(1) | such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction at the time in an arms-length transaction with a person who was not an Affiliate; and |
(2) | if such Affiliate Transaction or series of related Affiliate Transactions involves an amount in excess of $10.0 million, the terms of the Affiliate Transaction are set forth in writing and a majority of the Board of Directors of the Company who are disinterested with respect to such Affiliate Transaction has determined in good faith that the criteria set forth in clause (1) are satisfied and has approved the relevant Affiliate Transaction as evidenced by a resolution of the Board of Directors of the Company set forth in an Officers Certificate; and |
(3) | if such Affiliate Transaction or series of related Affiliate Transactions involves an amount in excess of $15.0 million, the Company also obtains an opinion as to the fairness to the Company or such Restricted Subsidiary of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. |
(b) The foregoing provisions will not apply to the following:
(1) | any employment agreement or compensation plan or arrangement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business of the Company or such Restricted Subsidiary; |
(2) | transactions exclusively between or among the Company and/or its Restricted Subsidiaries; provided that such transactions are not otherwise prohibited by the Indenture; |
(3) | any agreement existing on the date of the Indenture and described in the Offering Memorandum, as in effect on the date of the Indenture, or as modified, amended or amended and restated by any modification, amendment or amendment and restatement made in compliance with the applicable provisions of clauses (1), (2) and (3) of Section 4.11(a), and any agreement entered into in connection with the Spin-Off that is described in the Offering Memorandum or otherwise customary to spin-off transactions similar to the Spin-Off (including any modification, amendment or amendment and restatement of any such agreement) on terms that are commercially reasonable to the Company; |
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(4) | reasonable compensation of, and indemnity arrangements in favor of, managers of the Company and its Restricted Subsidiaries; |
(5) | the issuance or sale of any Equity Interests (other than Disqualified Stock) of the Company; |
(6) | Restricted Payments that are permitted by Section 4.06 and Permitted Investments of the type described in clause (8) of the definition thereof; |
(7) | sales of accounts receivable, or participations therein, or any related transaction, in connection with any Permitted Receivables Financing; and |
(8) | the repayment of Indebtedness to the Parent Entity and the declaration and payment of a cash dividend to the Parent Entity that is described in the Offering Memorandum under Use of Proceeds. |
Section 4.12. Limitation on Issuances and Sales of Equity Interests in Wholly-Owned Subsidiaries . The Company will not, and will not permit any of its Restricted Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any Equity Interests in any Wholly-Owned Subsidiary of the Company to any Person (other than the Company or a Wholly-Owned Subsidiary of the Company), unless:
(1) | such transfer, conveyance, sale, lease or other disposition is of all the Equity Interests in such Wholly-Owned Restricted Subsidiary; and |
(2) | the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 4.16. |
In addition, the Company will not permit any Wholly-Owned Subsidiary of the Company to issue any of its Equity Interests (other than, if necessary, shares of its Capital Stock constituting directors qualifying shares) to any Person other than to the Company or a Wholly-Owned Subsidiary of the Company.
Section 4.13. Business Activities . The Company will not and will not permit any of its Restricted Subsidiaries to engage in any business other than Similar Businesses.
Section 4.14. Additional Note Guarantees . If (i) the Company or any of its Restricted Subsidiaries shall acquire or create another Domestic Subsidiary (other than a Securitization Subsidiary) after the date of the Indenture or (ii) any Foreign Subsidiary Guarantees (or otherwise becomes liable for) Indebtedness of the Company, a Guarantor or Cash America, then the Company shall cause such Subsidiary to become a Guarantor and:
(1) | execute a supplemental indenture, in accordance with the terms of the Indenture, pursuant to which such Subsidiary shall unconditionally guarantee, on a senior secured basis, all of the Companys Obligations under the Indenture Documents on the terms set forth in the Indenture; |
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(2) | take such further action and execute and deliver such other documents specified in the Indenture Documents or otherwise reasonably requested by the Trustee to give effect to the foregoing; and |
(3) | deliver to the Trustee an Opinion of Counsel that such supplemental indenture and any other documents required to be delivered have been duly authorized, executed and delivered by such Subsidiary and constitute legal, valid, binding and enforceable obligations of such Subsidiary. |
Section 4.15. Repurchase of Notes Upon a Change of Control . (a) Upon the occurrence of a Change of Control, unless the Company has mailed a redemption notice with respect to all of the outstanding Notes as described in Section 3.01, Section 3.02, Section 3.03 or Section 3.04, each Holder of Notes will have the right to require the Company to repurchase all or any part (equal to $2,000 or an integral multiple of $1,000 in excess thereof) of such Holders Notes pursuant to the offer described below at a purchase price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase (the Change of Control Payment ). Within 30 days following any Change of Control, unless the Company has mailed a redemption notice with respect to all of the outstanding Notes as described in Section 3.01, Section 3.02, Section 3.03 or Section 3.04, the Company will mail a notice to each Holder with a copy to the Trustee (the Change of Control Offer ) stating:
(1) | that a Change of Control has occurred and that such Holder has the right to require the Company to purchase such Holders Notes at a purchase price in cash equal to 101% of the principal amount thereof on the date of purchase, plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of Holders of record on the relevant record date to receive interest on the relevant interest payment date); |
(2) | the circumstances and relevant facts regarding such Change of Control; |
(3) | the purchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and |
(4) | the instructions, as determined by the Company, consistent with this Section 4.15, that a Holder must follow in order to have its Notes purchased. |
(b) The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.
(c) A Change of Control Offer may be made in advance of a Change of Control, and conditioned upon such Change of Control, if a definitive agreement is in place for the Change of Control at the time of making the Change of Control Offer.
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(d) On a date that is at least 30 but no more than 60 days from the date on which the Company mailed notice of the Change of Control (the Change of Control Payment Date ), the Company will, to the extent lawful:
(i) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer;
(ii) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered; and
(iii) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company.
(e) The paying agent will promptly mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book-entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a principal amount of $2,000 or an integral multiple of $1,000 in excess thereof. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.
Section 4.16. Asset Sales . (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, make any Asset Sale (except with respect to an Event of Loss) unless:
(1) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of such Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of; and
(2) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents;
provided that the amount of
(x) any liabilities (as shown on the Companys or such Restricted Subsidiarys most recent balance sheet) of the Company or any of its Restricted Subsidiaries (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Guarantee thereof) that are assumed by the transferee of any such assets pursuant to a customary novation agreement releasing the Company or such Restricted Subsidiary from further liability;
(y) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are contemporaneously, subject to ordinary settlement periods, converted by the Company or such Restricted Subsidiary into cash or Cash Equivalents (to the extent of the cash or Cash Equivalents received in that conversion); and
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(z) any Designated Non-cash Consideration received by the Company or such Restricted Subsidiary in such Asset Sale having an aggregate Fair Market Value, taken together with all other Designated Non-cash Consideration received pursuant to this clause (iii) that is at that time outstanding, not to exceed the greater of $15.0 million and 2.0% of Consolidated Total Assets at the time of the receipt of such Designated Non-cash Consideration, with the Fair Market Value of each item of Designated Non-cash Consideration being measured at the time received and without giving effect to subsequent changes in value,
will be deemed to be cash for purposes of this provision.
(b) Within 365 days after the receipt of any Net Proceeds from an Asset Sale by the Company or a Restricted Subsidiary, the Company or such Restricted Subsidiary may apply such Net Proceeds at its option:
(1) to permanently reduce Indebtedness of the Company or any Guarantor (and in the case of a revolving credit, to correspondingly reduce commitments with respect thereto);
(2) with respect to Asset Sales of assets of a Restricted Subsidiary that is not a Guarantor, to permanently reduce Indebtedness of a Restricted Subsidiary that is not a Guarantor (and in the case of a revolving credit, to correspondingly reduce commitments with respect thereto), other than Indebtedness owed to the Company or another Subsidiary;
(3) to the making of a Capital Expenditure or the acquisition of a controlling interest in another business or other asset, in each case, that is used or useful in a Similar Business or that replaces the assets that are the subject of such Asset Sale; or
(4) to the extent the Asset Sale constituted the sale of consumer loans, or other loans generated through the conduct of Similar Businesses, then to the making of advances and the extension of credit to customers in the ordinary course of business consistent with past practice that are either (A) recorded as accounts receivable or consumer loans on the consolidated balance sheet of the Company or (B) consumer loans the making of which are facilitated by the Company or a Restricted Subsidiary acting as a credit services organization or similar services provider in an amount no greater than the cash used to cash collateralize or repurchase such loans,
provided that, in the case of clause (3) above, a binding commitment to make a Capital Expenditure or acquire a controlling interest shall be treated as a permitted application of the Net Proceeds from the date of such commitment so long as the Company or such Restricted Subsidiary enters into such commitment with the good faith expectation that such Net Proceeds will be applied to satisfy such commitment within 180 days of such
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commitment (an Acceptable Commitment ) and, in the event any Acceptable Commitment is later cancelled or terminated for any reason before the Net Proceeds are applied in connection therewith, then such Net Proceeds shall constitute Excess Proceeds if not actually applied or subject to a binding commitment or otherwise applied under clause (1), (2), (3) or (4) of this paragraph within the applicable 365 day period.
Pending the final application of any such Net Proceeds, the Company or a Restricted Subsidiary may temporarily reduce Indebtedness under the Credit Facilities or invest such Net Proceeds in any manner that is not prohibited by the Indenture.
(c) Any Net Proceeds from Asset Sales that are not applied or invested (by election or as a result of the passage of time) as provided in Section 4.16(b) will be deemed to constitute Excess Proceeds . Excess Proceeds of less than $20.0 million will be carried forward and accumulated. When the aggregate amount of Excess Proceeds exceeds $20.0 million, the Company will be required to make an offer (an Asset Sale Offer ) to all Holders of Notes to purchase Notes having a principal amount equal to (A) accumulated Excess Proceeds, multiplied by (B) a fraction (x) the numerator of which is equal to the outstanding principal amount of the Notes and (y) the denominator of which is equal to the outstanding principal amount of the Notes and all pari passu Indebtedness similarly required to be repaid, redeemed or tendered for in connection with the Asset Sale, rounded down to the nearest $1,000. The offer price for such Asset Sale Offer shall be an amount in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. Any Excess Proceeds remaining after consummation of the Asset Sale Offer may be used by the Company and its Restricted Subsidiaries for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of the Excess Proceeds available to be applied to their repurchase, the Trustee shall select the Notes to be purchased on a pro rata basis based upon principal balance or accreted value, or to the extent that selection on a pro rata basis is not practicable, by lot or by such method as the Trustee considers fair and appropriate in accordance with DTC procedures. Upon completion of such Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
Section 4.17. Reports . (a) Whether or not the Company is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, so long as any Notes are outstanding the Company will furnish to the Holders of the Notes and the Trustee within the time periods specified in those sections:
(1) all quarterly and annual reports that would be required to be filed with the Commission on Forms 10-Q and 10-K if the Company were required to file such reports, including a Managements Discussion and Analysis of Financial Condition and Results of Operations and, with respect to annual information only, a report thereon by the Companys certified independent accountants, and
(2) all current reports under Items 1.01, 1.02, 1.03, 2.01, 2.03, 2.04, 2.06, 3.03, 4.01, 4.02, 5.01, 5.02 or 5.03 of Form 8-K that would be required to be filed with or furnished to the Commission on Form 8-K if the Company were required to file or furnish such reports,
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in each case, prepared on a basis substantially consistent with, and with the same level of detail as, the corresponding information included in the Offering Memorandum or, at the option of the Issuers, the then applicable Commission requirements.
(b) In addition, whether or not required by the Commission, the Company will, after the effectiveness of an exchange offer registration statement or shelf registration statement, if the Commission will accept the filing, file a copy of all of the information and reports referred to in clauses (1) and (2) of Section 4.17(a) with the Commission for public availability within the time periods specified in the Commissions rules and regulations.
(c) If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by the preceding paragraphs will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Managements Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company.
(d) The Company will be deemed to have furnished such reports to the Trustee and the Holders of the Notes if it has filed such reports with the Commission using the EDGAR filing system and such reports are publicly available, provided that the Trustee shall have no responsibility to determine when or whether such filing has occurred.
(e) The Company will post such information and reports on a website no later than the date the Company is required to provide those reports to the Trustee and the Holders of the Notes and maintain such posting for so long as any Notes remain outstanding. Access to such information and reports on such website may be subject to a confidentiality acknowledgment; provided, that no other conditions (except for password protection) may be imposed on access to such information and reports other than a representation by the Person accessing such information and reports that it is the Trustee, a Holder of the Notes, a beneficial owner of the Notes, a bona fide prospective investor, a securities analyst or a market maker.
(f) The Company will, for so long as any Notes remain outstanding, use its commercially reasonable efforts to hold and participate in quarterly conference calls with the Holders of the Notes and securities analysts to discuss such financial information no later than ten business days after distribution of such financial information; provided that if such financial information is discussed during a quarterly conference call of Cash America, the Company need not hold a separate call.
(g) The Company will also, for so long as any Notes remain outstanding and constitute restricted securities under Rule 144, furnish to the Holders of the Notes, securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
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(h) Delivery of these reports, information and documents to the Trustee is for informational purposes only and the Trustees receipt of them will not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Companys compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers Certificates).
Section 4.18. Reports to the Trustee . (a) The Company will deliver to the Trustee within 120 days after the end of each fiscal year a certificate from the principal executive, financial or accounting officer of the Company stating that the officer has conducted or supervised a review of the activities of the Company and its Subsidiaries and their performance under the Indenture and that, based upon such review, the Company has fulfilled its obligations hereunder or, if there has been a Default, specifying the Default and its nature and status.
(b) The Company will deliver to the Trustee, as soon as possible and in any event within 30 days after the Company becomes aware or should reasonably become aware of the occurrence of a Default, an Officers Certificate setting forth the details of the Default, and the action which the Company proposes to take with respect thereto.
ARTICLE 5
M ERGER , C ONSOLIDATION OR S ALE OF A SSETS
Section 5.01. Merger, Consolidation or Sale of Assets. (a) The Company . The Company may not, in any transaction or series of related transactions consolidate with or merge with or into (whether or not the Company survives), or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of the Companys property and assets whether as an entirety or substantially as an entirety (or cause or permit any of its Restricted Subsidiaries to sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the Companys property and assets whether as an entirety or substantially as an entirety), to any Person, unless:
(1) | either: |
(A) | if the transaction or series of transactions is a consolidation of the Company with or a merger of the Company with or into any other Person, the Company shall be the surviving Person of such merger or consolidation; or |
(B) |
the Person formed by any consolidation or merger with or into the Company, or to which all or substantially all of the properties and assets of the Company and its Restricted Subsidiaries, taken as a whole, as the case may be, are sold, assigned, conveyed, transferred, leased or otherwise disposed of, shall be a corporation |
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organized and existing under the laws of the United States, any state or commonwealth thereof or the District of Columbia; provided that such Person shall expressly assume by supplemental indenture executed and delivered to the Trustee, in form satisfactory to the Trustee all of the obligations of the Company under the Indenture and the Notes and the registration rights agreement and the Indenture, as so supplemented, shall remain in full force and effect; |
(2) | immediately before and after giving effect to such transaction or series of transactions on a pro forma basis (including any Indebtedness Incurred or anticipated to be Incurred in connection with or in respect of such transaction or series of transactions), no Default or Event of Default shall have occurred and be continuing; and |
(3) | at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable period (but without giving effect to the costs and expenses of such transaction), (x) the Company or the successor entity to the Company would be permitted to Incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth Section 4.07(a) or (y) the Fixed Charge Coverage Ratio for the Company (or the surviving Person, as applicable) and its Restricted Subsidiaries on a consolidated basis would be greater than the Fixed Charge Coverage Ratio for the Company and its Restricted Subsidiaries on a consolidated basis immediately prior to such transaction. |
The foregoing requirements shall not apply to any transaction or series of transactions involving the sale, assignment, conveyance, transfer, lease or other disposition of any properties or assets by any of its Restricted Subsidiaries to any Guarantor or the consolidation or merger of any of its Restricted Subsidiaries with or into any Guarantor or the Company; provided that the surviving entity shall be a corporation, partnership or limited liability company organized and validly existing under the laws of the United States, any state thereof or the District of Columbia ( provided that, in the case where the surviving entity is not a corporation, a co-obligor of the Notes is a corporation that is a wholly-owned Restricted Subsidiary).
In connection with any consolidation, merger, sale, assignment, conveyance, transfer, lease or other disposition contemplated by the foregoing provisions, the Company shall deliver, or cause to be delivered, to the Trustee an Officers Certificate and an Opinion of Counsel each stating that such consolidation, merger, sale, assignment, conveyance, transfer, lease or other disposition and any supplemental indenture in respect thereof comply with the requirements of the Indenture. Each such Officers Certificate shall set forth the manner of determination of the Companys compliance with clause (3) of the foregoing provisions, if applicable.
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The successor entity shall succeed to, and be substituted for, and may exercise every right and power of the predecessor company under the Indenture Documents, and the predecessor company shall be released from all its obligations and covenants under the Indenture Documents.
(b) The Guarantors . Subject to certain limitations in the Indenture governing release of a Guarantor upon the sale or disposition of a Restricted Subsidiary that is a Guarantor, each Guarantor will not, in any transaction or series of related transactions merge or consolidate with or into (whether or not such Guarantor survives), or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets to, any Person, unless either:
(1) | either: |
(A) | if the transaction or series of transactions is a consolidation of such Guarantor with or a merger of such Guarantor with or into any other Person, such Guarantor shall be the surviving Person of such consolidation or merger; or |
(B) | the Person formed by any consolidation or merger with or into such Guarantor, or to which all or substantially all of the properties and assets of such Guarantor and its Subsidiaries, taken as a whole, as the case may be, are sold, assigned, conveyed, transferred, leased or otherwise disposed of, shall be a corporation, partnership, limited liability company or trust organized and existing under the laws of the United States, any state thereof or the District of Columbia and shall expressly assume by (i) a supplemental indenture executed and delivered to the Trustee, in form satisfactory to the Trustee, all of the obligations of such Guarantor under its Note Guarantee and the Indenture and, in each case, the Indenture, as so supplemented, shall remain in full force and effect and (ii) by amendment, supplement or other instrument (in form and substance reasonably satisfactory to the Trustee), executed and delivered to the Trustee; or |
(2) | the transaction is made in compliance with Section 4.16. |
The foregoing requirements shall not apply to any transaction or series of transactions involving the sale, assignment, conveyance, transfer, lease or other disposition of any properties or assets by any of the Restricted Subsidiaries to any Guarantor or the Company, or the consolidation or merger of any of the Restricted Subsidiaries with or into any other Guarantor or the Company.
In connection with any consolidation, merger, sale, assignment, conveyance, transfer, lease or other disposition contemplated by clause (1) of the foregoing provisions, such Guarantor shall deliver, or cause to be delivered, to the Trustee an Officers Certificate and an Opinion of Counsel stating that such consolidation, merger, sale, assignment, conveyance, transfer, lease or other disposition and the supplemental indenture in respect thereof comply with the requirements of the Indenture.
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The successor entity shall succeed to, and be substituted for, and may exercise every right and power of the predecessor company under the Indenture, and the predecessor company shall (except in the case of a lease) be released from all its obligations and covenants under the Indenture and the Notes.
ARTICLE 6
D EFAULT AND R EMEDIES
Section 6.01. Events of Default . An Event of Default shall exist if any of the following conditions or events shall occur and be continuing:
(1) default for 30 days in the payment when due of interest on the Notes;
(2) default in payment when due of the principal, or premium, if any, of any Note when due at maturity, upon optional redemption, upon required purchase, upon acceleration or otherwise;
(3) failure by the Company or any of its Restricted Subsidiaries to comply with its obligations under Section 4.15, Section 4.16 or Article 5.
(4) failure to perform any other covenant or agreement of the Company or any of its Subsidiaries under the Indenture Documents for 30 days after written notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class;
(5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is Guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or Guarantee now exists, or is created after the date of the Indenture, which default (A) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness on or prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a payment default ) or (B) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a payment default or the maturity of which has been so accelerated, aggregates in excess of $20.0 million (or its foreign currency equivalent);
(6) failure by the Company or any of its Restricted Subsidiaries to pay final judgments which are non-appealable aggregating in excess of $20.0 million (or its foreign currency equivalent) (not covered by independent third-party insurance as to which liability has not been denied by such insurance carrier), which judgments are not paid, discharged or stayed for a period of 60 days following such judgment becoming final, and in the event such judgment is covered by insurance, any enforcement proceeding has been commenced by any creditor upon such judgment or decree which is not promptly stayed;
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(7) except as permitted by the Indenture, any Note Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Guarantor, or any Person acting on behalf of any Guarantor, shall deny or disaffirm its obligations under its Note Guarantee in writing; and
(8) an involuntary case or other proceeding is commenced against the Company or any of its Significant Subsidiaries or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding remains undismissed and unstayed for a period of 60 days; or an order for relief is entered against the Company or any of its Significant Subsidiaries or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, under the federal bankruptcy laws as now or hereafter in effect;
(9) the Company or any of its Significant Subsidiaries or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary, (i) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (ii) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any of its Significant Subsidiaries or for any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary or for all or substantially all of the property and assets of the Company or any of its Significant Restricted Subsidiaries or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary or (iii) effects any general assignment for the benefit of creditors (an event of default specified in clause (8) or (9) a bankruptcy default ).
Section 6.02. Acceleration . (a) If an Event of Default, other than a bankruptcy default, occurs and is continuing under the Indenture, the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding, by written notice to the Company (and to the Trustee if the notice is given by the Holders), may, and the Trustee at the request of such Holders shall, declare the principal of and accrued interest on the Notes to be due and payable immediately. Upon a declaration of acceleration, such principal and interest will become immediately due and payable. If a bankruptcy default occurs, the principal of and accrued interest on the Notes then outstanding will become immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal, premium, if any, interest, if any) if it determines that withholding notice is in their interest.
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(b) The Holders of at least a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of principal, premium, if any, or interest, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration).
(c) In the event of any Event of Default specified in clause (5) above, such Event of Default and all consequences thereof (excluding any resulting payment default, other than as a result of acceleration of the Notes) shall be annulled, waived and rescinded, automatically and without any action by the Trustee or the Holders of Notes, if within 30 days after such Event of Default arose the Company delivers an Officers Certificate to the Trustee stating that:
(1) the Indebtedness or Guarantee that is the basis for such Event of Default has been discharged; or
(2) holders thereof have rescinded or waived the acceleration, notice or action (as the case may be) giving rise to such Event of Default;
(3) the annulment of the acceleration of the Notes would not conflict with any judgment or decree of a court of competent jurisdiction; and
(4) all existing Events of Default, except nonpayment of principal, premium or interest on the Notes that became due solely because of the acceleration of the Notes, have been cured or waived.
Section 6.03. Other Remedies . If an Event of Default occurs and is continuing, the Trustee may pursue, in its own name or as trustee of an express trust, any available remedy by proceeding at law or in equity to collect the payment of principal of and interest on the Notes or to enforce the performance of any provision of the Notes or the Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding.
Section 6.04. Waiver of Past Defaults . Except as otherwise provided in Sections 6.02, 6.07 and 9.02, the Holders of a majority in principal amount of the outstanding Notes may, by notice to the Trustee, waive an existing Default and its consequences. Upon such waiver, the Default will cease to exist, and any Event of Default arising therefrom will be deemed to have been cured, but no such waiver will extend to any subsequent or other Default or impair any right consequent thereon.
Section 6.05. Control by Majority . The Holders of a majority in aggregate principal amount of the outstanding Notes may direct the time, method and
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place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or the Indenture, that may involve the Trustee in personal liability, or that the Trustee determines in good faith may be unduly prejudicial to the rights of Holders of Notes not joining in the giving of such direction, and may take any other action it deems proper that is not inconsistent with any such direction received from Holders of Notes.
Section 6.06. Limitation on Suits . A Holder may not institute any proceeding, judicial or otherwise, with respect to the Indenture or the Notes, or for the appointment of a receiver or trustee, or for any other remedy under the Indenture or the Notes, unless:
(1) the Holder has previously given to the Trustee written notice of a continuing Event of Default;
(2) Holders of at least 25% in aggregate principal amount of outstanding Notes have made written request to the Trustee to institute proceedings in respect of the Event of Default in its own name as Trustee under the Indenture;
(3) Holders have offered to the Trustee indemnity reasonably satisfactory to the Trustee against any costs, liabilities or expenses to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and
(5) during such 60-day period, the Holders of a majority in aggregate principal amount of the outstanding Notes have not given the Trustee a direction that is inconsistent with such written request.
Section 6.07. Rights of Holders to Receive Payment. Notwithstanding anything to the contrary, the right of a Holder of a Note to receive payment of principal of or interest on its Note on or after the Stated Maturities thereof, or to bring suit for the enforcement of any such payment on or after such respective dates, may not be impaired or affected without the consent of that Holder.
Section 6.08. Collection Suit by Trustee . If an Event of Default in payment of principal or interest specified in clause (1) or (2) of Section 6.01 occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust for the whole amount of principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent lawful, overdue installments of interest, in each case at the rate specified in the Notes, and such further amount as is sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amounts due the Trustee hereunder.
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Section 6.09. Trustee May File Proofs of Claim . The Trustee may file proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee hereunder) and the Holders allowed in any judicial proceedings relating to the Company or any Guarantor or their respective creditors or property, and is entitled and empowered to collect, receive and distribute any money, securities or other property payable or deliverable upon conversion or exchange of the Notes or upon any such claims. Any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, if the Trustee consents to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agent and counsel, and any other amounts due the Trustee hereunder. Nothing in the Indenture will be deemed to empower the Trustee to authorize or consent to, or accept or adopt on behalf of any Holder, any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
Section 6.10. Priorities . If the Trustee collects any money pursuant to this Article, it shall pay out the money in the following order:
First: to the Trustee for all amounts due hereunder;
Second: to Holders for amounts then due and unpaid for principal of and interest on the Notes, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal and interest; and
Third: to the Company or as a court of competent jurisdiction may direct.
The Trustee, upon written notice to the Company, may fix a record date and payment date for any payment to Holders pursuant to this Section.
Section 6.11. Restoration of Rights and Remedies . If the Trustee or any Holder has instituted a proceeding to enforce any right or remedy under the Indenture and the proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to the Holder, then, subject to any determination in the proceeding, the Company, any Guarantors, the Trustee and the Holders will be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Company, any Guarantors, the Trustee and the Holders will continue as though no such proceeding had been instituted.
Section 6.12. Undertaking for Costs . In any suit for the enforcement of any right or remedy under the Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court may require any party litigant in such suit (other than the Trustee) to file an undertaking to pay the costs of the suit, and the court may
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assess reasonable costs, including reasonable attorneys fees, against any party litigant (other than the Trustee) in the suit having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section does not apply to a suit by a Holder to enforce payment of principal of or interest on any Note on the respective due dates, or a suit by Holders of more than 10% in principal amount of the outstanding Notes.
Section 6.13. Rights and Remedies Cumulative . No right or remedy conferred or reserved to the Trustee or to the Holders under this Indenture is intended to be exclusive of any other right or remedy, and all such rights and remedies are, to the extent permitted by law, cumulative and in addition to every other right and remedy hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or exercise of any right or remedy hereunder, or otherwise, will not prevent the concurrent assertion or exercise of any other right or remedy.
Section 6.14. Delay or Omission Not Waiver . No delay or omission of the Trustee or of any Holder to exercise any right or remedy accruing upon any Event of Default will impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.
Section 6.15. Waiver of Stay, Extension or Usury Laws . The Company and each Guarantor covenants, to the extent that it may lawfully do so, that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law that would prohibit or forgive the Company or the Guarantor from paying all or any portion of the principal of, or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or that may affect the covenants or the performance of the Indenture. The Company and each Guarantor hereby expressly waives, to the extent that it may lawfully do so, all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.
ARTICLE 7
T HE T RUSTEE
Section 7.01. General . (a) The duties and responsibilities of the Trustee are as provided by the Trust Indenture Act and as set forth herein. Whether or not expressly so provided, every provision of the Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee is subject to this Article.
(b) Except during the continuance of an Event of Default, the Trustee need perform only those duties that are specifically set forth in the Indenture and no others, and no implied covenants or obligations will be read into the Indenture against the Trustee. In case an Event of Default has occurred and is continuing, the Trustee shall
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exercise those rights and powers vested in it by the Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs.
(c) No provision of the Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct, except that:
(1) this paragraph does not limit the effect of Section 7.01(b);
(2) the Trustee shall not be liable for any error in judgment made in good faith by a Trust Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof.
Section 7.02. Certain Rights of Trustee . Subject to Trust Indenture Act Sections 315(a) through (d):
(1) In the absence of bad faith on its part, the Trustee may rely, and will be protected in acting or refraining from acting, upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document, but, in the case of any document which is specifically required to be furnished to the Trustee pursuant to any provision hereof, the Trustee shall examine the document to determine whether it conforms to the requirements of the Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). The Trustee, in its discretion, may make further inquiry or investigation into such facts or matters as it sees fit.
(2) Before the Trustee acts or refrains from acting, it may require an Officers Certificate or an Opinion of Counsel conforming to Section 11.05 and the Trustee will not be liable for any action it takes or omits to take in good faith in reliance on the certificate or opinion.
(3) The Trustee may act through its attorneys and agents and will not be responsible for the misconduct or negligence of any agent appointed with due care.
(4) The Trustee will be under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request or direction of any of the Holders, unless such Holders have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction.
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(5) The Trustee will not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within its rights or powers or for any action it takes or omits to take in accordance with the direction of the Holders in accordance with Section 6.05 relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under the Indenture.
(6) The Trustee may consult with counsel, and the written advice of such counsel or any Opinion of Counsel will be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.
(7) No provision of the Indenture will require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties hereunder, or in the exercise of its rights or powers, unless it receives indemnity satisfactory to it against any loss, liability or expense.
(8) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by a Responsible Officer of the Company.
(9) The Trustee shall not be deemed to have notice of any Default or Event of Default, except a payment default under Sections 6.01(1) or 6.02 hereof, unless written notice of any event which is in fact such a Default or Event of Default is received by a Trust Officer of the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Notes and this Indenture.
(10) The Trustee may request that the Company deliver a certificate setting forth the names of individuals and/or titles of Officers authorized at such time to take specified actions pursuant to this Indenture.
(11) In no event shall the Trustee be liable for any special, indirect, punitive or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action.
(12) The permissive rights of the Trustee enumerated herein shall not be construed as duties.
(13) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder.
(14) The Trustee shall not be responsible for delays or failures in performance resulting from acts beyond its control. Such acts shall include but not be limited to acts of God, strikes, lockouts, riots, acts of war, epidemics, governmental regulations superimposed after the fact, fire, communication line failures, computer viruses, power failures, earthquakes, terrorist attacks or other disasters.
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Section 7.03. Individual Rights of Trustee . The Trustee, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not the Trustee. Any Agent may do the same with like rights. However, the Trustee is subject to Trust Indenture Act Sections 310(b) and 311. For purposes of Trust Indenture Act Section 311(b)(4) and (6):
(a) cash transaction means any transaction in which full payment for goods or securities sold is made within seven days after delivery of the goods or securities in currency or in checks or other orders drawn upon banks or bankers and payable upon demand; and
(b) self-liquidating paper means any draft, bill of exchange, acceptance or obligation which is made, drawn, negotiated or incurred for the purpose of financing the purchase, processing, manufacturing, shipment, storage or sale of goods, wares or merchandise and which is secured by documents evidencing title to, possession of, or a lien upon, the goods, wares or merchandise or the receivables or proceeds arising from the sale of the goods, wares or merchandise previously constituting the security, provided the security is received by the Trustee simultaneously with the creation of the creditor relationship arising from the making, drawing, negotiating or incurring of the draft, bill of exchange, acceptance or obligation.
Section 7.04. Trustees Disclaimer . The Trustee (i) makes no representation as to the validity or adequacy of the Indenture or the Notes, (ii) is not accountable for the Companys use or application of the proceeds from the Notes and (iii) is not responsible for any statement in the Notes other than its certificate of authentication.
Section 7.05. Notice of Default . If any Default occurs and is continuing and is known to the Trustee, the Trustee will send notice of the Default to each Holder within 90 days after it occurs, unless the Default has been cured; provided that, except in the case of a default in the payment of the principal of or interest on any Note, the Trustee may withhold the notice if and so long as the Board of Directors, the executive committee or a trust committee of directors of the Trustee in good faith determines that withholding the notice is in the interest of the Holders. Notice to Holders under this Section will be given in the manner and to the extent provided in Trust Indenture Act Section 313(c).
Section 7.06. Reports by Trustee to Holders . Within 60 days after each May 15, beginning with May 15, 2015, the Trustee will send to each Holder, as provided in Trust Indenture Act Section 313(c), a brief report dated as of such May 15, if required by Trust Indenture Act Section 313(a), and file such reports with each stock exchange upon which its Notes are listed and with the Commission as required by Trust Indenture Act Section 313(d).
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Section 7.07. Compensation and Indemnity . (a) The Company will pay the Trustee compensation as agreed upon in writing for its services. The compensation of the Trustee is not limited by any law on compensation of a Trustee of an express trust. The Company will reimburse the Trustee upon request for all reasonable out-of-pocket expenses, disbursements and advances incurred or made by the Trustee, including the reasonable compensation and expenses of the Trustees agents and counsel.
(b) The Company will indemnify the Trustee for, and defend and hold it harmless against, any loss or liability or expense incurred by it without negligence or bad faith on its part arising out of or in connection with the acceptance or administration of the Indenture and its duties under the Indenture and the Notes, including the costs and expenses of defending itself against any claim or liability and of complying with any process served upon it or any of its officers in connection with the exercise or performance of any of its powers or duties under the Indenture and the Notes.
(c) To secure the Companys payment obligations in this Section, the Trustee will have a lien prior to the Notes on all money or property held or collected by the Trustee, in its capacity as Trustee, except money or property held in trust to pay principal of, and interest on particular Notes.
(d) The obligations of the Company pursuant to this Section 7.07 shall survive the resignation or removal of the Trustee and the satisfaction and discharge of this Indenture. When the Trustee or any Paying Agent incurs expenses after the occurrence of a Default or Event of Default specified in Section 5.01, the expenses are intended to constitute expenses of administration under the Bankruptcy Law.
Section 7.08. Replacement of Trustee . (a) (1) The Trustee may resign at any time by written notice to the Company.
(2) The Holders of a majority in principal amount of the outstanding Notes may remove the Trustee by written notice to the Trustee.
(3) If the Trustee is no longer eligible under Section 7.10 or in the circumstances described in Trust Indenture Act Section 310(b), any Holder that satisfies the requirements of Trust Indenture Act Section 310(b) may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
(4) The Company may remove the Trustee if: (i) the Trustee is no longer eligible under Section 7.10; (ii) the Trustee is adjudged a bankrupt or an insolvent; (iii) a receiver or other public officer takes charge of the Trustee or its property; or (iv) the Trustee becomes incapable of acting.
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A resignation or removal of the Trustee and appointment of a successor Trustee will become effective only upon the successor Trustees acceptance of appointment as provided in this Section.
(b) If the Trustee has been removed by the Holders, Holders of a majority in principal amount of the Notes may appoint a successor Trustee with the consent of the Company. Otherwise, if the Trustee resigns or is removed, or if a vacancy exists in the office of Trustee for any reason, the Company will promptly appoint a successor Trustee. If the successor Trustee does not deliver its written acceptance within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee at the expense of the Company, the Company or the Holders of a majority in principal amount of the outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee.
(c) Upon delivery by the successor Trustee of a written acceptance of its appointment to the retiring Trustee and to the Company, (i) the retiring Trustee will transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 7.07, (ii) the resignation or removal of the retiring Trustee will become effective, and (iii) the successor Trustee will have all the rights, powers and duties of the Trustee under the Indenture. Upon request of any successor Trustee, the Company will execute any and all instruments for fully and vesting in and confirming to the successor Trustee all such rights, powers and trusts. The Company will give notice of any resignation and any removal of the Trustee and each appointment of a successor Trustee to all Holders, and include in the notice the name of the successor Trustee and the address of its Corporate Trust Office.
(d) Notwithstanding replacement of the Trustee pursuant to this Section, the Companys obligations under Section 7.07 will continue for the benefit of the retiring Trustee.
(e) The Trustee agrees to give the notices provided for in, and otherwise comply with, Trust Indenture Act Section 310(b).
Section 7.09. Successor Trustee by Merger . If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or national banking association, the resulting, surviving or transferee corporation or national banking association without any further act will be the successor Trustee with the same effect as if the successor Trustee had been named as the Trustee in the Indenture.
Section 7.10. Eligibility . The Indenture must always have a Trustee that satisfies the requirements of Trust Indenture Act Section 310(a) and has a combined capital and surplus of at least $25,000,000 as set forth in its most recent published annual report of condition.
Section 7.11. Money Held in Trust . The Trustee will not be liable for interest on any money received by it except as it may agree with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law and except for money held in trust under Article 8.
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ARTICLE 8
D EFEASANCE AND D ISCHARGE
Section 8.01. Discharge of Companys Obligations . (a) Subject to paragraph (b), the Companys obligations under the Notes and the Indenture, and each Guarantors obligations under its Note Guarantee, will terminate if:
(1) all Notes previously authenticated and delivered (other than (i) destroyed, lost or stolen Notes that have been replaced or (ii) Notes that are paid pursuant to Section 4.01 or (iii) Notes for whose payment money or U.S. Government Obligations have been held in trust and then repaid to the Company pursuant to Section 8.05) have been delivered to the Trustee for cancellation and the Company has paid all sums payable by it hereunder; or
(2) (A) the Notes mature within one year, or all of them are to be called for redemption within one year under arrangements satisfactory to the Trustee for giving the notice of redemption,
(B) the Company or any Guarantor irrevocably deposits in trust with the Trustee, as trust funds solely for the benefit of the Holders, money or U.S. Government Obligations or a combination thereof sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certificate delivered to the Trustee, without consideration of any reinvestment, to pay principal of and interest on the Notes to maturity or redemption, as the case may be,
(C) the Company has paid all other sums payable by it under the Indenture Documents,
(D) no Default has occurred and is continuing on the date of the deposit,
(E) the deposit will not result in a breach or violation of, or constitute a default under, the Indenture or any other agreement or instrument to which the Company is a party or by which it is bound, and
(F) the Company delivers to the Trustee an Officers Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the satisfaction and discharge of the Indenture have been complied with.
(b) After satisfying the conditions in clause (1), only the Companys obligations under Section 7.07 will survive. After satisfying the conditions in clause (2), only the Companys obligations in Article 2 and Sections 4.01, 4.02, 7.07, 7.08, 8.05 and
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8.06 will survive. In either case, the Trustee upon request will acknowledge in writing the discharge of the Companys obligations under the Notes and the Indenture other than the surviving obligations.
Section 8.02. Legal Defeasance . After the 91st day following the deposit referred to in clause (1), the Company will be deemed to have paid and will be discharged from its obligations in respect of the Notes and the Indenture, other than its obligations in Article 2 and Sections 4.01, 4.02, 7.07, 7.08, 8.05 and 8.06, and each Guarantors obligations under its Note Guarantee will terminate, provided the following conditions have been satisfied:
(1) The Company has irrevocably deposited in trust with the Trustee, as trust funds solely for the benefit of the Holders, money or U.S. Government Obligations or a combination thereof sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certificate thereof delivered to the Trustee, without consideration of any reinvestment, to pay principal of and interest on the Notes to maturity or redemption, as the case may be, provided that any redemption before maturity has been irrevocably provided for under arrangements satisfactory to the Trustee.
(2) No Default has occurred and is continuing on the date of the deposit or occurs at any time during the 91-day period following the deposit.
(3) The deposit will not result in a breach or violation of, or constitute a default under, the Indenture or any other agreement or instrument to which the Company is a party or by which it is bound.
(4) (A) with respect to clause (1), the Company shall have delivered to the Trustee an Opinion of Counsel confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of the Indenture, there has been a change in the applicable United States federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the beneficial owners of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred; or, with respect to clause (2), the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the beneficial owners of the outstanding Notes will not recognize income, gain or loss for United States federal income tax purposes as a result of such deposit and defeasance and will be subject to United States federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred;, and
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(B) an Opinion of Counsel to the effect that (i) the creation of the defeasance trust does not violate the Investment Company Act of 1940, as amended, (ii) the Holders have a valid first priority Note interest in the trust funds (subject to customary exceptions), and (iii) after the passage of 91 days following the deposit, the trust funds will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law.
(5) If the Notes are listed on a national securities exchange, the Company has delivered to the Trustee an Opinion of Counsel to the effect that the deposit and defeasance will not cause the Notes to be delisted.
(6) The Company has delivered to the Trustee an Officers Certificate and an Opinion of Counsel, in each case stating that all conditions precedent provided for herein relating to the defeasance have been complied with.
Prior to the end of the 91-day period, none of the Companys obligations under the Indenture will be discharged. Thereafter, the Trustee upon request will acknowledge in writing the discharge of the Companys obligations under the Notes and the Indenture except for the surviving obligations specified above.
Section 8.03. Covenant Defeasance . After the 91st day following the deposit referred to in clause (1), the Companys obligations set forth in Sections 4.06 through 4.17, inclusive and Article 5, and each Guarantors obligations under its Note Guarantee, will terminate, and clauses (4), (5), (6), (7), (8) and (9) of Section 6.01 will no longer constitute Events of Default, provided the following conditions have been satisfied:
(1) The Company has complied with clauses (1), (2), (3), 4(B), (5) and (6) of Section 8.02; and
(2) the Company has delivered to the Trustee an Opinion of Counsel to the effect that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of the defeasance and will be subject to federal income tax on the same amount and in the same manner and at the same times as would otherwise have been the case.
Except as specifically stated above, none of the Companys obligations under the Indenture will be discharged.
Section 8.04. Application of Trust Money . Subject to Section 8.05, the Trustee will hold in trust the money or U.S. Government Obligations deposited with it pursuant to Section 8.01, 8.02 or 8.03, and apply the deposited money and the proceeds from deposited U.S. Government Obligations to the payment of principal of and interest on the Notes in accordance with the Notes and the Indenture. Such money and U.S. Government Obligations need not be segregated from other funds except to the extent required by law.
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Section 8.05. Repayment to Company . Subject to Sections 7.07, 8.01, 8.02 and 8.03, the Trustee will promptly pay to the Company upon request any excess money held by the Trustee at any time and thereupon be relieved from all liability with respect to such money. The Trustee will pay to the Company upon request any money held for payment with respect to the Notes that remains unclaimed for two years, provided that before making such payment the Trustee may at the expense of the Company publish once in a newspaper of general circulation in New York City, or send to each Holder entitled to such money, notice that the money remains unclaimed and that after a date specified in the notice (at least 30 days after the date of the publication or notice) any remaining unclaimed balance of money will be repaid to the Company. After payment to the Company, Holders entitled to such money must look solely to the Company for payment, unless applicable law designates another Person, and all liability of the Trustee with respect to such money will cease.
Section 8.06. Reinstatement . If and for so long as the Trustee is unable to apply any money or U.S. Government Obligations held in trust pursuant to Section 8.01, 8.02 or 8.03 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Companys obligations under the Indenture and the Notes will be reinstated as though no such deposit in trust had been made. If the Company makes any payment of principal of or interest on any Notes because of the reinstatement of its obligations, it will be subrogated to the rights of the Holders of such Notes to receive such payment from the money or U.S. Government Obligations held in trust.
ARTICLE 9
A MENDMENTS , S UPPLEMENTS AND W AIVERS
Section 9.01. Amendments Without Consent of Holders . (a) The Company and the Trustee may amend or supplement the Indenture or the Notes without notice to or the consent of any Noteholder:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated Notes in addition to or in place of certificated Notes, provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code;
(3) to comply with Article 5;
(4) provide for the assumption of the Companys or any Guarantors obligations to Holders of Notes in the case of a merger or consolidation or sale of all or substantially all of the Companys or such Guarantors assets;
(5) add Guarantees with respect to the Notes or to secure the Notes;
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(6) add to the covenants of the Company or any Guarantor for the benefit of the Holders of the Notes or surrender any right or power conferred upon the Company or any Guarantor;
(7) make any change that would provide any additional rights or benefits to Holders or that does not adversely affect the legal rights of any Holder under the Indenture Documents;
(8) evidence and provide for the acceptance and appointment under the Indenture of a successor trustee pursuant to the requirements hereof;
(9) make any amendment to the provisions of the Indenture relating to the transfer and legending of Notes as permitted by the Indenture, including to facilitate the issuance and administration of the Notes or to comply with the rules of any applicable securities depository; provided , however , that (i) compliance with the Indenture as so amended would not result in Notes being transferred in violation of the Securities Act or any applicable securities law and (ii) such amendment does not materially and adversely affect the rights of Holders to transfer Notes;
(10) to provide for or confirm the issuance of Additional Notes;
(11) to conform their text to any provision of the Description of Notes in the Offering Memorandum to the extent that such provision was intended to be a verbatim recitation of a provision in the Indenture Documents; or
(12) to comply with any requirements of the Commission in connection with the qualification of the Indenture under the Trust Indenture Act
Section 9.02. Amendments With Consent of Holders . (a) Except as otherwise provided in Sections 6.02, 6.04 and 6.07 or paragraph (b) below, the Company and the Trustee may amend the Indenture and the Notes with the written consent of the Holders of at least a majority in aggregate principal amount of the outstanding Notes (including consents obtained in connection with the purchase of, or tender offer or exchange offer for, the Notes), and the Holders of at least a majority in aggregate principal amount of the outstanding Notes by written notice to the Trustee may waive an existing Default or future compliance by the Company with any provision of the Indenture or the Notes (including consents obtained in connection with a purchase of, or tender offer or exchange offer for, the Notes).
(b) Notwithstanding the provisions of paragraph (a), without the consent of each Holder affected, an amendment or waiver may not:
(1) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver;
(2) reduce the principal of, premium, if any, or extend the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes (other than provisions relating to Section 4.15 and Section 4.16 prior to the time at which an obligation to make such an offer has arisen);
83
(3) reduce the rate of or extend the time for payment of interest on any Note;
(4) waive a Default in the payment of principal of, premium, if any, and interest, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration);
(5) make any Note payable in money other than that stated in the Notes;
(6) make any change in the provisions of the Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of, premium, if any, and interest, if any, on the Notes;
(7) release any Guarantor from any of its obligations under its Note Guarantee or the Indenture, except in accordance with the terms of the Indenture; or
(8) make any change in the foregoing or succeeding amendment and waiver provisions.
(c) It is not necessary for Noteholders to approve the particular form of any proposed amendment, supplement or waiver, but is sufficient if their consent approves the substance thereof.
(d) An amendment, supplement or waiver under this Section will become effective on receipt by the Trustee of written consents from the Holders of the requisite percentage in principal amount of the outstanding Notes. After an amendment, supplement or waiver under this Section becomes effective, the Company will send to the Holders affected thereby a notice briefly describing the amendment, supplement or waiver. The Company will send supplemental indentures to Holders upon request. Any failure of the Company to send such notice, or any defect therein, will not, however, in any way impair or affect the validity of any such supplemental indenture or waiver.
Section 9.03. Effect of Consent . (a) After an amendment, supplement or waiver becomes effective, it will bind every Holder unless it is of the type requiring the consent of each Holder affected. If the amendment, supplement or waiver is of the type requiring the consent of each Holder affected, the amendment, supplement or waiver will bind each Holder that has consented to it and every subsequent Holder of a Note that evidences the same debt as the Note of the consenting Holder.
(b) If an amendment, supplement or waiver changes the terms of a Note, the Trustee may require the Holder to deliver it to the Trustee so that the Trustee may place an appropriate notation of the changed terms on the Note and return it to the Holder, or
84
exchange it for a new Note that reflects the changed terms. The Trustee may also place an appropriate notation on any Note thereafter authenticated. However, the effectiveness of the amendment, supplement or waiver is not affected by any failure to annotate or exchange Notes in this fashion.
Section 9.04. Trustees Rights and Obligations . The Trustee is entitled to receive, and will be fully protected in relying upon, in addition to the documents set forth in Section 11.04 an Opinion of Counsel and Officers Certificate each stating that the execution of any amendment, supplement or waiver authorized pursuant to this Article is authorized or permitted by the Indenture. If the Trustee has received such an Opinion of Counsel, it shall sign the amendment, supplement or waiver so long as the same does not adversely affect the rights of the Trustee. The Trustee may, but is not obligated to, execute any amendment, supplement or waiver that affects the Trustees own rights, duties or immunities under the Indenture.
Section 9.05. Conformity with Trust Indenture Act . Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act.
Section 9.06. Payments for Consents . The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Notes or any other Indenture Document unless such consideration is offered to be paid and is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.
Section 9.07. Notes Held by the Company . Solely for the purpose of determining whether the Holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under the Notes, or have directed the taking of any action provided in the Notes to be taken upon the direction of the Holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding.
ARTICLE 10
G UARANTEES
Section 10.01. The Guarantees . (a) Subject to the provisions of this Article, each Guarantor hereby irrevocably and unconditionally guarantees, jointly and severally, on an unsecured basis, the full and punctual payment (whether at Stated Maturity, upon redemption, purchase or acceleration, or otherwise) of the principal of, premium, if any, and interest on, and all other amounts payable under, each Note, and the full and punctual payment of all other amounts payable by the Company under the Indenture. Upon failure by the Company to pay punctually any such amount, each Guarantor shall forthwith on demand pay the amount not so paid at the place and in the manner specified in the Indenture.
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(b) If (i) the Company or any of its Restricted Subsidiaries shall acquire or create another Domestic Subsidiary (other than a Securitization Subsidiary) after the date of the Indenture or (ii) any Foreign Subsidiary Guarantees (or otherwise becomes liable for) Indebtedness of the Company, a Guarantor or Cash America, then the Company shall cause such Subsidiary to become a Guarantor and:
(1) execute a supplemental indenture, in accordance with the terms of the Indenture, pursuant to which such Subsidiary shall unconditionally guarantee, on a senior secured basis, all of the Companys Obligations under the Indenture Documents on the terms set forth in the Indenture;
(2) take such further action and execute and deliver such other documents specified in the Indenture Documents or otherwise reasonably requested by the Trustee to give effect to the foregoing; and
(3) deliver to the Trustee an Opinion of Counsel that such supplemental indenture and any other documents required to be delivered have been duly authorized, executed and delivered by such Subsidiary and constitute legal, valid, binding and enforceable obligations of such Subsidiary.
Section 10.02. Guarantee Unconditional . The obligations of each Guarantor hereunder are unconditional and absolute and, without limiting the generality of the foregoing, will not be released, discharged or otherwise affected by
(1) any extension, renewal, settlement, compromise, waiver or release in respect of any obligation of the Company under the Indenture or any Note, by operation of law or otherwise;
(2) any modification or amendment of or supplement to the Indenture or any Note;
(3) any change in the corporate existence, structure or ownership of the Company, or any insolvency, bankruptcy, reorganization or other similar proceeding affecting the Company or its assets or any resulting release or discharge of any obligation of the Company contained in the Indenture or any Note;
(4) the existence of any claim, set-off or other rights which the Guarantor may have at any time against the Company, the Trustee or any other Person, whether in connection with the Indenture or any unrelated transactions, provided that nothing herein prevents the assertion of any such claim by separate suit or compulsory counterclaim;
(5) any invalidity or unenforceability relating to or against the Company for any reason of the Indenture or any Note, or any provision of applicable law or
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regulation purporting to prohibit the payment by the Company of the principal of or interest on any Note or any other amount payable by the Company under the Indenture; or
(6) any other act or omission to act or delay of any kind by the Company, the Trustee or any other Person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of or defense to such Guarantors obligations hereunder.
Section 10.03. Discharge; Reinstatement . Each Guarantors obligations hereunder will remain in full force and effect until the principal of, premium, if any, and interest on the Notes and all other amounts payable by the Company under the Indenture have been paid in full. If at any time any payment of the principal of, premium, if any, or interest on any Note or any other amount payable by the Company under the Indenture is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Company or otherwise, each Guarantors obligations hereunder with respect to such payment will be reinstated as though such payment had been due but not made at such time.
Section 10.04. Waiver by the Guarantors . Each Guarantor irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any Person against the Company or any other Person.
Section 10.05. Subrogation and Contribution . Upon making any payment with respect to any obligation of the Company under this Article, the Guarantor making such payment will be subrogated to the rights of the payee against the Company with respect to such obligation, provided that the Guarantor may not enforce either any right of subrogation, or any right to receive payment in the nature of contribution, or otherwise, from any other Guarantor, with respect to such payment so long as any amount payable by the Company hereunder or under the Notes remains unpaid.
Section 10.06. Stay of Acceleration . If acceleration of the time for payment of any amount payable by the Company under the Indenture or the Notes is stayed upon the insolvency, bankruptcy or reorganization of the Company, all such amounts otherwise subject to acceleration under the terms of the Indenture are nonetheless payable by the Guarantors hereunder forthwith on demand by the Trustee or the Holders.
Section 10.07. Limitation on Amount of Guarantee . Notwithstanding anything to the contrary in this Article, each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Note Guarantee of such Guarantor not constitute a fraudulent conveyance under applicable fraudulent conveyance provisions of the United States Bankruptcy Code or any comparable provision of state law. To effectuate that intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree that the obligations of each Guarantor under its Note Guarantee are limited to the maximum amount that would not
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render the Guarantors obligations subject to avoidance under applicable fraudulent conveyance provisions of the United States Bankruptcy Code or any comparable provision of state law.
Section 10.08. Execution and Delivery of Guarantee . The execution by each Guarantor of the Indenture (or a supplemental indenture in the form of Exhibit B) evidences the Note Guarantee of such Guarantor, whether or not the person signing as an officer of the Guarantor still holds that office at the time of authentication of any Note. The delivery of any Note by the Trustee after authentication constitutes due delivery of the Note Guarantee set forth in the Indenture on behalf of each Guarantor.
Section 10.09. Release of Guarantee . The Note Guarantee of a Guarantor will terminate upon
(1) any sale or other disposition of all or substantially all of the assets of that Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) the Company or a Restricted Subsidiary of the Company, if the sale or other disposition is otherwise permitted by the Indenture;
(2) in connection with any sale, issuance or other disposition of Capital Stock of that Guarantor to a Person that is not (either before or after giving effect to such transaction) the Company or a Restricted Subsidiary of the Company, if the sale, issuance or other disposition complies with Section 4.16 and the Guarantor ceases to be a Restricted Subsidiary of the Company as a result of such sale, issuance or other disposition;
(3) if the Company designates any of its Restricted Subsidiaries that is a Guarantor to be an Unrestricted Subsidiary in accordance with the applicable provisions of the Indenture;
(4) in the event that such Guarantor was required to become a Guarantor under the provisions of the covenant described under Additional Note Guarantees by virtue of clause (ii) thereof, at such time as such Guarantor shall cease to Guarantee any Indebtedness of the Company or any other Guarantor; or
(5) upon legal defeasance, covenant defeasance or satisfaction or discharge of the Notes, as provided in Article 8.
Upon delivery by the Company to the Trustee of an Officers Certificate and an Opinion of Counsel to the foregoing effect, the Trustee will execute any documents reasonably required in order to evidence the release of the Guarantor from its obligations under its Note Guarantee.
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ARTICLE 11
M ISCELLANEOUS
Section 11.01. Trust Indenture Act of 1939 . The Indenture shall incorporate and be governed by the provisions of the Trust Indenture Act that are required to be part of and to govern indentures qualified under the Trust Indenture Act.
Section 11.02. Noteholder Communications ; Noteholder Actions. (a) The rights of Holders to communicate with other Holders with respect to the Indenture or the Notes are as provided by the Trust Indenture Act, and the Company and the Trustee shall comply with the requirements of Trust Indenture Act Sections 312(a) and 312(b). Neither the Company nor the Trustee will be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act.
(b) (1) Any request, demand, authorization, direction, notice, consent to amendment, supplement or waiver or other action provided by this Indenture to be given or taken by a Holder (an act ) may be evidenced by an instrument signed by the Holder delivered to the Trustee. The fact and date of the execution of the instrument, or the authority of the person executing it, may be proved in any manner that the Trustee deems sufficient.
(2) The Trustee may make reasonable rules for action by or at a meeting of Holders, which will be binding on all the Holders.
(c) Any act by the Holder of any Note binds that Holder and every subsequent Holder of a Note that evidences the same debt as the Note of the acting Holder, even if no notation thereof appears on the Note. Subject to paragraph (d), a Holder may revoke an act as to its Notes, but only if the Trustee receives the notice of revocation before the date the amendment or waiver or other consequence of the act becomes effective.
(d) The Company may, but is not obligated to, fix a record date (which need not be within the time limits otherwise prescribed by Trust Indenture Act Section 316(c)) for the purpose of determining the Holders entitled to act with respect to any amendment or waiver or in any other regard, except that during the continuance of an Event of Default, only the Trustee may set a record date as to notices of default, any declaration or acceleration or any other remedies or other consequences of the Event of Default. If a record date is fixed, those Persons that were Holders at such record date and only those Persons will be entitled to act, or to revoke any previous act, whether or not those Persons continue to be Holders after the record date. No act will be valid or effective for more than 90 days after the record date.
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Section 11.03. Notices . (a) Any notice or communication to the Company will be deemed given if in writing (i) when delivered in person or (ii) five days after mailing when mailed by first class mail, or (iii) when sent by facsimile transmission, with transmission confirmed. Notices or communications to a Guarantor will be deemed given if given to the Company. Any notice to the Trustee will be effective only upon receipt. In each case the notice or communication should be addressed as follows:
if to the Company:
ENOVA INTERNATIONAL, INC.
200 West Jackson, Suite 2400
Chicago, Illinois 60606
Facsimile No.: (312) 962-4931
if to the Trustee:
U.S. BANK NATIONAL ASSOCIATION
190 S. LaSalle Street, 10th Floor
Chicago, Illinois 60603
Facsimile No.: 312-332-8008
Attention: Global Corporate Trust
The Company or the Trustee by notice to the other may designate additional or different addresses for subsequent notices or communications.
(b) Except as otherwise expressly provided with respect to published notices, any notice or communication to a Holder will be deemed given when mailed to the Holder at its address as it appears on the Register by first class mail or, as to any Global Note registered in the name of DTC or its nominee, as agreed by the Company, the Trustee and DTC. Copies of any notice or communication to a Holder, if given by the Company, will be mailed to the Trustee at the same time. Defect in sending a notice or communication to any particular Holder will not affect its sufficiency with respect to other Holders.
(c) Where the Indenture provides for notice, the notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and the waiver will be the equivalent of the notice. Waivers of notice by Holders must be filed with the Trustee, but such filing is not a condition precedent to the validity of any action taken in reliance upon such waivers.
Section 11.04. Certificate and Opinion as to Conditions Precedent . Upon any request or application by the Company to the Trustee to take any action under the Indenture, the Company will furnish to the Trustee:
(1) an Officers Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in the Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that all such conditions precedent have been complied with.
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Section 11.05. Statements Required in Certificate or Opinion . Each certificate or opinion with respect to compliance with a condition or covenant provided for in the Indenture must include:
(1) a statement that each person signing the certificate or opinion has read the covenant or condition and the related definitions;
(2) a brief statement as to the nature and scope of the examination or investigation upon which the statement or opinion contained in the certificate or opinion is based;
(3) a statement that, in the opinion of each such person, that person has made such examination or investigation as is necessary to enable the person to express an informed opinion as to whether or not such covenant or condition has been complied with; and
(4) a statement as to whether or not, in the opinion of each such person, such condition or covenant has been complied with, provided that an Opinion of Counsel may rely on an Officers Certificate or certificates of public officials with respect to matters of fact.
Section 11.06. Payment Date Other Than a Business Day . If any payment with respect to a payment of any principal of, premium, if any, or interest on any Note (including any payment to be made on any date fixed for redemption or purchase of any Note) is due on a day which is not a Business Day, then the payment need not be made on such date, but may be made on the next Business Day with the same force and effect as if made on such date, and no interest will accrue for the intervening period.
Section 11.07. Governing Law . The Indenture, including any Note Guarantees, and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York.
Section 11.08. No Adverse Interpretation of Other Agreements . The Indenture may not be used to interpret another indenture or loan or debt agreement of the Company or any Subsidiary of the Company, and no such indenture or loan or debt agreement may be used to interpret the Indenture.
Section 11.09. Successors . All agreements of the Company or any Guarantor in the Indenture and the Notes will bind its successors. All agreements of the Trustee in the Indenture will bind its successor.
Section 11.10. Duplicate Originals . The parties may sign any number of copies of the Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.
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Section 11.11. Separability . In case any provision in the Indenture or in the Notes is invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby.
Section 11.12. Table of Contents and Headings . The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of the Indenture have been inserted for convenience of reference only, are not to be considered a part of the Indenture and in no way modify or restrict any of the terms and provisions of the Indenture.
Section 11.13. No Liability of Directors, Officers, Employees, Incorporators, Members and Stockholders . No director, officer, employee or stockholder of the Company or any Guarantor, as such, shall have any liability for any obligations of the Company or any Guarantor under the Indenture Documents or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes.
Section 11.14. U.S.A. Patriot Act . The parties hereto acknowledge that in accordance with Section 326 of the U.S.A. Patriot Act, the Trustee is required to obtain, verify, and record information that identifies each person or legal entity that establishes a relationship or opens an account with the Trustee. The parties to this Indenture agree that they will provide the Trustee with such information as is required to satisfy the requirements of the U.S.A. Patriot Act.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused the Indenture to be duly executed as of the date first written above.
ISSUER | ||||
ENOVA INTERNATIONAL, INC. | ||||
By: |
/s/ David A. Fisher |
|||
Name: | David A. Fisher | |||
Title: | Chief Executive Officer | |||
GUARANTORS | ||||
ENOVA ONLINE SERVICES, INC. | ||||
CNU DOLLARSDIRECT INC. | ||||
CNU DOLLARSDIRECT LENDING INC. | ||||
MOBILE LEASING GROUP, INC. | ||||
By: |
/s/ David A. Fisher |
|||
Name: | David A. Fisher | |||
Title: | President | |||
ENOVA FINANCIAL HOLDINGS, LLC | ||||
CNU ONLINE HOLDINGS, LLC | ||||
DEBIT PLUS, LLC | ||||
BILLERS ACCEPTANCE GROUP, LLC | ||||
By: |
/s/ David A. Fisher |
|||
Name: | David A. Fisher | |||
Title: | President | |||
DP LABOR HOLDINGS, LLC | ||||
By: |
/s/ Austin D. Nettle |
|||
Name: | Austin D. Nettle | |||
Title: | Vice President and Treasurer |
[Signature Page to Indenture]
CNU OF ALABAMA, LLC | ||||||
CNU OF ALASKA, LLC | ||||||
CNU OF ARIZONA, LLC | ||||||
CNU OF CALIFORNIA, LLC | ||||||
CNU OF COLORADO, LLC | ||||||
CNU OF DELAWARE, LLC | ||||||
CNU OF FLORIDA, LLC | ||||||
CASHNETUSA OF FLORIDA, LLC | ||||||
CNU OF HAWAII, LLC | ||||||
CNU OF IDAHO, LLC | ||||||
CNU OF ILLINOIS, LLC | ||||||
CNU OF INDIANA, LLC | ||||||
CNU OF KANSAS, LLC | ||||||
CNU OF LOUISIANA, LLC | ||||||
CNU OF MAINE, LLC | ||||||
CASHNET CSO OF MARYLAND, LLC | ||||||
CNU OF MICHIGAN, LLC | ||||||
CNU OF MINNESOTA, LLC | ||||||
CNU OF MISSISSIPPI, LLC | ||||||
CNU OF MISSOURI, LLC | ||||||
CNU OF MONTANA, LLC | ||||||
CNU OF NEVADA, LLC | ||||||
CNU OF NEW HAMPSHIRE, LLC | ||||||
CNU OF NEW MEXICO, LLC | ||||||
By: | CNU Online Holdings, LLC, | |||||
The sole member of each of the foregoing entities | ||||||
By: |
/s/ David A. Fisher |
|||||
Name: | David A. Fisher | |||||
Title: | President |
[Signature Page to Indenture]
CNU OF NORTH DAKOTA, LLC | ||||||
CNU OF OHIO, LLC | ||||||
OHIO CONSUMER FINANCIAL SOLUTIONS, LLC | ||||||
CNU OF OKLAHOMA, LLC | ||||||
CNU OF OREGON, LLC | ||||||
CNU OF RHODE ISLAND, LLC | ||||||
CNU OF SOUTH CAROLINA, LLC | ||||||
CNU OF SOUTH DAKOTA, LLC | ||||||
CNU OF TENNESSEE, LLC | ||||||
CNU OF TEXAS, LLC | ||||||
CNU OF UTAH, LLC | ||||||
CNU OF VIRGINIA, LLC | ||||||
CNU OF WASHINGTON, LLC | ||||||
CNU OF WISCONSIN, LLC | ||||||
CNU OF WYOMING, LLC | ||||||
DOLLARSDIRECT, LLC | ||||||
CNU TECHNOLOGIES OF ALABAMA, LLC | ||||||
CNU TECHNOLOGIES OF ARIZONA, LLC | ||||||
CNU TECHNOLOGIES OF CALIFORNIA, LLC | ||||||
CNU TECHNOLOGIES OF IOWA, LLC | ||||||
CNU TECHNOLOGIES OF NEW MEXICO, LLC | ||||||
CNU TECHNOLOGIES OF SOUTH CAROLINA, LLC | ||||||
CNU TECHNOLOGIES OF WISCONSIN, LLC | ||||||
HEADWAY CAPITAL, LLC | ||||||
CASHEURONET UK, LLC | ||||||
EURONETCASH, LLC | ||||||
ENOVA BRAZIL, LLC | ||||||
AEL NET MARKETING, LLC | ||||||
ENOVA INTERNATIONAL GEC, LLC | ||||||
AEL NET OF MISSOURI, LLC | ||||||
NC FINANCIAL SOLUTIONS, LLC | ||||||
By: | CNU Online Holdings, LLC, | |||||
The sole member of each of the foregoing entities | ||||||
By: |
/s/ David A. Fisher |
|||||
Name: | David A. Fisher | |||||
Title: | President |
[Signature Page to Indenture]
NC FINANCIAL SOLUTIONS OF ALABAMA, LLC | ||||||
NC FINANCIAL SOLUTIONS OF ARIZONA, LLC | ||||||
NC FINANCIAL SOLUTIONS OF CALIFORNIA, LLC | ||||||
NC FINANCIAL SOLUTIONS OF COLORADO, LLC | ||||||
NC FINANCIAL SOLUTIONS OF DELAWARE, LLC | ||||||
NC FINANCIAL SOLUTIONS OF GEORGIA, LLC | ||||||
NC FINANCIAL SOLUTIONS OF IDAHO, LLC | ||||||
NC FINANCIAL SOLUTIONS OF ILLINOIS, LLC | ||||||
NC FINANCIAL SOLUTIONS OF KANSAS, LLC | ||||||
NC FINANCIAL SOLUTIONS OF MARYLAND, LLC | ||||||
NC FINANCIAL SOLUTIONS OF MISSISSIPPI, LLC | ||||||
NC FINANCIAL SOLUTIONS OF MISSOURI, LLC | ||||||
NC FINANCIAL SOLUTIONS OF NEVADA, LLC | ||||||
NC FINANCIAL SOLUTIONS OF NEW MEXICO, LLC | ||||||
NC FINANCIAL SOLUTIONS OF NORTH DAKOTA, LLC | ||||||
NC FINANCIAL SOLUTIONS OF OHIO, LLC | ||||||
NC FINANCIAL SOLUTIONS OF SOUTH CAROLINA, LLC | ||||||
NC FINANCIAL SOLUTIONS OF SOUTH DAKOTA, LLC | ||||||
NC FINANCIAL SOLUTIONS OF TENNESSEE, LLC | ||||||
NC FINANCIAL SOLUTIONS OF TEXAS, LLC | ||||||
NC FINANCIAL SOLUTIONS OF UTAH, LLC | ||||||
NC FINANCIAL SOLUTIONS OF VIRGINIA, LLC | ||||||
NC FINANCIAL SOLUTIONS OF WISCONSIN, LLC | ||||||
By: | NC Financial Solutions, LLC | |||||
The sole member of each of the foregoing entities | ||||||
By: |
/s/ David A. Fisher |
|||||
Name: | David A. Fisher | |||||
Title: | Manager of Sole Member | |||||
DEBIT PLUS TECHNOLOGIES, LLC | ||||||
DEBIT PLUS SERVICES, LLC | ||||||
DEBIT PLUS PAYMENT SOLUTIONS, LLC | ||||||
By: | Debit Plus, LLC, | |||||
The sole member of each of the foregoing entities | ||||||
By: |
/s/ David A. Fisher |
|||||
Name: | David A. Fisher | |||||
Title: | President |
[Signature Page to Indenture]
CASHNETUSA CO LLC | ||||||
CASHNETUSA OR LLC | ||||||
THE CHECK GIANT NM LLC | ||||||
By: | CNU of New Mexico, LLC, | |||||
Manager of each of the foregoing entities | ||||||
By: | CNU Online Holdings, LLC | |||||
Its sole member | ||||||
By: |
/s/ David A. Fisher |
|||||
Name: | David A. Fisher | |||||
Title: | Manager of the Sole Member |
[Signature Page to Indenture]
TRUSTEE | ||||
U.S. BANK NATIONAL ASSOCIATION, as Trustee | ||||
By: |
/s/ Linda E. Garcia |
|||
Name: | Linda E. Garcia | |||
Title: | Vice President |
[Signature Page to Indenture]
EXHIBIT A
[FACE OF NOTE]
ENOVA INTERNATIONAL, INC.
9.75% Senior Note Due 2021
[CUSIP] [CINS] | ||
No. | $ |
ENOVA INTERNATIONAL, INC., a Delaware corporation (the Company , which term includes any successor under the Indenture hereinafter referred to), for value received, promises to pay to , or its registered assigns, the principal sum of DOLLARS ($ ) or such other amount as indicated on the Schedule of Exchange of Notes attached hereto on June 1, 2021.
[Initial] 1 Interest Rate: 9.75% per annum.
Interest Payment Dates: June 1 and December 1, commencing December 1, 2014.
Regular Record Dates: May 15 and November 15.
Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which will for all purposes have the same effect as if set forth at this place.
1 | For Initial Notes or Initial Additional Notes only. |
A-1
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its duly authorized officers.
Date: | ENOVA INTERNATIONAL, INC. | |||||
By: |
|
|||||
Name: | ||||||
Title: |
A-2
(Form of Trustees Certificate of Authentication)
This is one of the 9.75% Senior Notes Due 2021 described in the Indenture referred to in this Note.
Date: |
U.S. BANK NATIONAL ASSOCIATION, as Trustee |
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By: |
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Authorized Signatory |
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[REVERSE SIDE OF NOTE]
ENOVA INTERNATIONAL, INC.
9.75% Senior Note Due 2021
1. | Principal and Interest . |
The Company promises to pay the principal of this Note on June 1, 2021.
The Company promises to pay interest on the principal amount of this Note on each interest payment date, as set forth on the face of this Note, at the rate of 9.75% per annum [(subject to adjustment as provided below)]. 1
Interest will be payable semiannually (to the Holders of record of the Notes at the close of business on the June 1 or December 1 immediately preceding the interest payment date) on each interest payment date, commencing December 1, 2014.
[The Holder of this Note is entitled to the benefits of the Registration Rights Agreement, dated May 30, 2014, between the Company and the Initial Purchasers named therein (the Registration Rights Agreement ). In the event that neither the Exchange Registration Statement (as defined in the Registration Rights Agreement) nor the Shelf Registration (as defined in the Registration Rights Agreement) (i) has been filed with the Commission on or prior to the date that is 300 days after the Issue Date or (ii) is declared effective on or prior to the date that is 360 days after the Issue Date (the Effectiveness Deadline ), the interest rate on this Note will increase by a rate of 0.25% per annum until the date that is 360 days following the Issue Date (in the case of clause (i)) or until the Exchange Registration Statement or the Shelf Registration is declared effective by the Commission (in the case of clause (ii)). If the Exchange Registration Statement is declared effective but the Exchange is not consummated on or prior to 30 Business Days after the date of effectiveness of the Exchange Registration Statement, the interest rate on this Note will increase by a rate of 0.25% per annum until the Exchange Offer is consummated. However, (i) upon filing of the Exchange Registration Statement or the Shelf Registration, (ii) upon the effectiveness of any such registration statement, or (iii) upon consummation of the Exchange Offer, as the case may be, such additional interest shall cease to accrue. The interest rate on this Note will not increase by more than 0.50% per annum notwithstanding the Companys failure to meet more than one of these requirements.] 2
Interest on this Note will accrue commencing on the date of original issue and thereafter from the most recent date to which interest has been paid on this Note [or the Note surrendered in exchange for this Note] 3 (or, if there is no existing default in the
1 | Include only for Initial Note or Initial Additional Note. |
2 | Include only for Initial Note or Initial Additional Note. |
3 | Include only for Exchange Note. |
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payment of interest and if this Note is authenticated between a regular record date and the next interest payment date, from such interest payment date) or, if no interest has been paid, from [the Issue Date]. 4 Interest will be computed in the basis of a 360-day year of twelve 30-day months.
The Company will pay interest on overdue principal, premium, if any, and, to the extent lawful, interest at a rate per annum that is 1% in excess of 9.75%. Interest not paid when due and any interest on principal, premium or interest not paid when due will be paid to the Persons that are Holders on a special record date, which will be the 15th day preceding the date fixed by the Company for the payment of such interest, whether or not such day is a Business Day. At least 15 days before a special record date, the Company will send to each Holder and to the Trustee a notice that sets forth the special record date, the payment date and the amount of interest to be paid.
2. | Indentures; Note Guarantee . |
This is one of the Notes issued under an Indenture dated as of May 30, 2014 (as amended from time to time, the Indenture ), among the Company, the Guarantors party thereto and U.S. Bank National Association, as Trustee. Capitalized terms used herein are used as defined in the Indenture unless otherwise indicated. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act. The Notes are subject to all such terms, and Holders are referred to the Indenture and the Trust Indenture Act for a statement of all such terms. To the extent permitted by applicable law, in the event of any inconsistency between the terms of this Note and the terms of the Indenture, the terms of the Indenture will control.
The Notes are general senior unsecured obligations of the Company. The Indenture limits the original aggregate principal amount of the Notes to $500,000,000 but additional notes ( Additional Notes ) may be issued pursuant to the Indenture, and the originally issued Notes and all such Additional Notes will vote together for all purposes as a single class, provided , however , if the Additional Notes are not fungible with the Notes for U.S. federal income tax purposes, such Additional Notes will have a different CUSIP number. This Note is guarantied as set forth in the Indenture.
3. | Redemption and Repurchase; Discharge Prior to Redemption or Maturity . |
This Note is subject to optional redemption, and may be the subject of an Offer to Purchase, as further described in the Indenture. There is no sinking fund or mandatory redemption applicable to this Note.
If the Company deposits with the Trustee money or U.S. Government Obligations sufficient to pay the then outstanding principal of, premium, if any, and accrued interest on the Notes to redemption or maturity, the Company may in certain circumstances be discharged from the Indenture and the Notes or may be discharged from certain of its obligations under certain provisions of the Indenture.
4 | For Additional Notes, should be the date of their original issue. |
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4. | Registered Form; Denominations; Transfer; Exchange . |
The Notes are in registered form without coupons in denominations of $2,000 principal amount and any multiple of $1,000 in excess thereof, in the form of both Global Notes and Certificated Notes, as provided in the Indenture. A Holder may register the transfer or exchange of Notes in accordance with the Indenture. The Trustee may require a Holder to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. Pursuant to the Indenture, there are certain periods during which the Trustee will not be required to issue, register the transfer of or exchange any Note or certain portions of a Note.
5. | Defaults and Remedies. |
If an Event of Default, as defined in the Indenture, occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the Notes may by written notice, as provided in the Indenture, declare all the Notes to be due and payable. If a bankruptcy or insolvency default with respect to the Company occurs and is continuing, the Notes automatically become due and payable. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Notes. Subject to certain limitations, Holders of a majority in principal amount of the Notes then outstanding may direct the Trustee in its exercise of remedies.
6. | Amendment and Waiver . |
Subject to certain exceptions, the Indenture and the Notes may be amended, or default may be waived, with the consent of the Holders of a majority in principal amount of the outstanding Notes. Without notice to or the consent of any Holder, the Company and the Trustee may amend or supplement the Indenture or the Notes to, among other things, cure any ambiguity, defect or inconsistency in the Indenture or the Notes or other amendments or supplements if such amendments or supplements do not adversely affect the interests of the Holders in any material respect.
7. | Authentication . |
This Note is not valid until the Trustee (or Authenticating Agent) signs the certificate of authentication on the other side of this Note.
8. | Governing Law . |
This Note shall be governed by, and construed in accordance with, the laws of the State of New York.
9. | Abbreviations . |
Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian) and U/G/M/A/ (= Uniform Gifts to Minors Act).
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The Company will furnish a copy of the Indenture to any Holder upon written request and without charge.
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[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No. |
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Please print or typewrite name and address including zip code of assignee |
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the within Note and all rights thereunder, hereby irrevocably constituting and appointing |
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attorney to transfer said Note on the books of the Company with full power of substitution in the premises.
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[THE FOLLOWING PROVISION TO BE INCLUDED ON ALL CERTIFICATES BEARING A RESTRICTED LEGEND]
In connection with any transfer of this Note occurring prior to , the undersigned confirms that such transfer is made without utilizing any general solicitation or general advertising and further as follows:
Check One
¨ (1) This Note is being transferred to a qualified institutional buyer in compliance with Rule 144A under the Securities Act of 1933, as amended and certification in the form of Exhibit F to the Indenture is being furnished herewith.
¨ (2) This Note is being transferred to a Non-U.S. Person in compliance with the exemption from registration under the Securities Act of 1933, as amended, provided by Regulation S thereunder, and certification in the form of Exhibit E to the Indenture is being furnished herewith.
or
¨ (3) This Note is being transferred other than in accordance with (1) or (2) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture.
If none of the foregoing boxes is checked, the Trustee is not obligated to register this Note in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in the Indenture have been satisfied.
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Seller | ||||||||
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NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever. |
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Signature Guarantee: 5 |
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By |
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To be executed by an executive officer |
5 | Signatures must be guaranteed by an eligible guarantor institution meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Association Medallion Program ( STAMP ) or such other signature guarantee program as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. |
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OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have all of this Note purchased by the Company pursuant to Section 4.10 of the Indenture, check the box: 9
If you wish to have a portion of this Note purchased by the Company pursuant to Section 4.10 of the Indenture, state the amount (in original principal amount) below:
$ .
Date: |
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Your Signature: |
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(Sign exactly as your name appears on the other side of this Note) |
Signature Guarantee: 1 |
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1 | Signatures must be guaranteed by an eligible guarantor institution meeting the requirements of the Trustee, which requirements include membership or participation in the Securities Transfer Association Medallion Program ( STAMP ) or such other signature guarantee program as may be determined by the Trustee in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. |
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SCHEDULE OF EXCHANGES OF NOTES 1
The following exchanges of a part of this Global Note for Physical Notes or a part of another Global Note have been made:
Date of Exchange |
Amount of decrease
in principal amount of this Global Note |
Amount of increase
in principal amount of this Global Note |
Principal amount of
this Global Note following such decrease (or increase) |
Signature of
authorized officer of Trustee |
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1 | For Global Notes |
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EXHIBIT B
SUPPLEMENTAL INDENTURE
dated as of ,
among
ENOVA INTERNATIONAL, INC.,
The Guarantor(s) Party Hereto
and
U.S. BANK NATIONAL ASSOCIATION,
as Trustee
9.75% Senior Notes due 2021
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THIS SUPPLEMENTAL INDENTURE (this Supplemental Indenture ), entered into as of , , among ENOVA INTERNATIONAL, INC., a Delaware corporation (the Company ), [insert each Guarantor executing this Supplemental Indenture and its jurisdiction of incorporation] (each an Undersigned ) and U.S. BANK NATIONAL ASSOCIATION, as trustee (the Trustee ).
RECITALS
WHEREAS, the Company, the Guarantors party thereto and the Trustee entered into the Indenture, dated as of May 30, 2014 (the Indenture ), relating to the Companys 9.75% Senior Notes due 2021 (the Notes );
WHEREAS, as a condition to the Trustee entering into the Indenture and the purchase of the Notes by the Holders, the Company agreed pursuant to the Indenture to cause any newly acquired or created Subsidiaries to provide Guarantees in certain circumstances.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained and intending to be legally bound, the parties to this Supplemental Indenture hereby agree as follows:
Section 1. Capitalized terms used herein and not otherwise defined herein are used as defined in the Indenture.
Section 2. Each Undersigned, by its execution of this Supplemental Indenture, agrees to be a Guarantor under the Indenture and to be bound by the terms of the Indenture applicable to Guarantors, including, but not limited to, Article 10 thereof.
Section 3. This Supplemental Indenture shall be governed by and construed in accordance with the laws of the State of New York.
Section 4. This Supplemental Indenture may be signed in various counterparts which together will constitute one and the same instrument.
Section 5. This Supplemental Indenture is an amendment supplemental to the Indenture and the Indenture and this Supplemental Indenture will henceforth be read together.
Section 6. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which are made solely by the Company and the Guarantor.
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IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed as of the date first above written.
ENOVA INTERNATIONAL, INC., as Issuer | ||
By: |
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Name: | ||
Title: | ||
[GUARANTOR] | ||
By: |
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Name: | ||
Title: | ||
U.S. BANK NATIONAL ASSOCIATION, as Trustee | ||
By: |
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Name: | ||
Title: |
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EXHIBIT C
RESTRICTED LEGEND
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF OR OF A BENEFICIAL INTEREST HEREIN, THE ACQUIRER
(1) REPRESENTS THAT
(A) IT AND ANY ACCOUNT FOR WHICH IT IS ACTING IS A QUALIFIED INSTITUTIONAL BUYER (WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT) AND THAT IT EXERCISES SOLE INVESTMENT DISCRETION WITH RESPECT TO EACH SUCH ACCOUNT,
(B) IT IS AN INSTITUTIONAL ACCREDITED INVESTOR (WITHIN THE MEANING OF RULE 501(a) (1), (2), (3) OR (7) UNDER THE SECURITIES ACT) (AN INSTITUTIONAL ACCREDITED INVESTOR) OR
(C) IT IS NOT A U.S. PERSON (WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT) AND
(2) AGREES FOR THE BENEFIT OF THE COMPANY THAT IT WILL NOT OFFER, SELL, PLEDGE OR OTHERWISE TRANSFER THIS NOTE OR ANY BENEFICIAL INTEREST HEREIN, EXCEPT IN ACCORDANCE WITH THE SECURITIES ACT AND ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES AND ONLY
(A) TO THE COMPANY,
(B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BECOME EFFECTIVE UNDER THE SECURITIES ACT,
(C) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(D) IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, OR
(E) IN A PRINCIPAL AMOUNT OF NOT LESS THAN $250,000 TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, DELIVERS TO THE TRUSTEE A DULY COMPLETED AND SIGNED CERTIFICATE (THE FORM OF WHICH MAY BE OBTAINED FROM THE TRUSTEE) RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE, OR
(F) PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT OR ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
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PRIOR TO THE REGISTRATION OF ANY TRANSFER IN ACCORDANCE WITH (2)(E) ABOVE, THE COMPANY RESERVES THE RIGHT TO REQUIRE THE DELIVERY OF SUCH LEGAL OPINIONS, CERTIFICATIONS OR OTHER EVIDENCE AS MAY REASONABLY BE REQUIRED IN ORDER TO DETERMINE THAT THE PROPOSED TRANSFER IS BEING MADE IN COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. NO REPRESENTATION IS MADE AS TO THE AVAILABILITY OF ANY RULE 144 EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
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EXHIBIT D
DTC LEGEND
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ( DTC ), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS A BENEFICIAL INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE ARE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSORS NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE ARE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE TRANSFER PROVISIONS OF THE INDENTURE.
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EXHIBIT E
Regulation S Certificate
,
U.S. Bank National Association
100 Wall Street
Suite 1600
New York, NY 10005
Attention: Global Corporate Trust
Re: |
Enova International, Inc. 9.75% Senior Notes due 2021 (the Notes ) Issued under the Indenture (the Indenture ) dated as as of May 30, 2014 relating to the Notes |
Ladies and Gentlemen:
Terms are used in this Certificate as used in Regulation S (Regulation S) under the Securities Act of 1933, as amended (the Securities Act), except as otherwise stated herein.
[CHECK A OR B AS APPLICABLE.]
¨ A. | This Certificate relates to our proposed transfer of $ principal amount of Notes issued under the Indenture. We hereby certify as follows: |
1. | The offer and sale of the Notes was not and will not be made to a person in the United States (unless such person is excluded from the definition of U.S. person pursuant to Rule 902(k)(2)(vi) or the account held by it for which it is acting is excluded from the definition of U.S. person pursuant to Rule 902(k)(2)(i) under the circumstances described in Rule 902(h)(3)) and such offer and sale was not and will not be specifically targeted at an identifiable group of U.S. citizens abroad. |
2. | Unless the circumstances described in the parenthetical in paragraph 1 above are applicable, either (a) at the time the buy order was originated, the buyer was outside the United States or we and any person acting on our behalf reasonably believed that the buyer was outside the United States or (b) the transaction was executed in, on or through the facilities of a designated offshore securities market, and neither we nor any person acting on our behalf knows that the transaction was pre-arranged with a buyer in the United States. |
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3. | Neither we, any of our affiliates, nor any person acting on our or their behalf has made any directed selling efforts in the United States with respect to the Notes. |
4. | The proposed transfer of Notes is not part of a plan or scheme to evade the registration requirements of the Securities Act. |
5. | If we are a dealer or a person receiving a selling concession, fee or other remuneration in respect of the Notes, and the proposed transfer takes place during the Restricted Period (as defined in the Indenture), or we are an officer or director of the Company or an Initial Purchaser (as defined in the Indenture), we certify that the proposed transfer is being made in accordance with the provisions of Rule 904(b) of Regulation S. |
¨ B. | This Certificate relates to our proposed exchange of $ principal amount of Notes issued under the Indenture for an equal principal amount of Notes to be held by us. We hereby certify as follows: |
1. | At the time the offer and sale of the Notes was made to us, either (i) we were not in the United States or (ii) we were excluded from the definition of U.S. person pursuant to Rule 902(k)(2)(vi) or the account held by us for which we were acting was excluded from the definition of U.S. person pursuant to Rule 902(k)(2)(i) under the circumstances described in Rule 902(h)(3); and we were not a member of an identifiable group of U.S. citizens abroad. |
2. | Unless the circumstances described in paragraph 1(ii) above are applicable, either (a) at the time our buy order was originated, we were outside the United States or (b) the transaction was executed in, on or through the facilities of a designated offshore securities market and we did not pre-arrange the transaction in the United States. |
3. | The proposed exchange of Notes is not part of a plan or scheme to evade the registration requirements of the Securities Act. |
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You and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.
Very truly yours, | ||
[NAME OF SELLER (FOR TRANSFERS) OR OWNER (FOR EXCHANGES)] | ||
By: |
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Name: | ||
Title: | ||
Address: |
Date: |
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EXHIBIT F
Rule 144A Certificate
,
U.S. Bank National Association
100 Wall Street
Suite 1600
New York, NY 10005
Attention: Global Corporate Trust
Re: |
Enova International, Inc. 9.75% Senior Notes due 2021 (the Notes ) Issued under the Indenture (the Indenture ) dated as as of May 30, 2014 relating to the Notes |
Ladies and Gentlemen:
TO BE COMPLETED BY PURCHASER IF (1) ABOVE IS CHECKED.
This Certificate relates to:
[CHECK A OR B AS APPLICABLE.]
¨ A. | Our proposed purchase of $ principal amount of Notes issued under the Indenture. | |
¨ B. | Our proposed exchange of $ principal amount of Notes issued under the Indenture for an equal principal amount of Notes to be held by us. |
We and, if applicable, each account for which we are acting in the aggregate owned and invested more than $100,000,000 in securities of issuers that are not affiliated with us (or such accounts, if applicable), as of , 20 , which is a date on or since close of our most recent fiscal year. We and, if applicable, each account for which we are acting, are a qualified institutional buyer within the meaning of Rule 144A (Rule 144A) under the Securities Act of 1933, as amended (the Securities Act). If we are acting on behalf of an account, we exercise sole investment discretion with respect to such account. We are aware that the transfer of Notes to us, or such exchange, as applicable, is being made in reliance upon the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A. Prior to the date of this Certificate we have received such information regarding the Company as we have requested pursuant to Rule 144A(d)(4) or have determined not to request such information.
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You and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.
Very truly yours, | ||
[NAME OF PURCHASER (FOR TRANSFERS) OR OWNER (FOR EXCHANGES)] | ||
By: |
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Name: | ||
Title: | ||
Address: |
Date: |
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EXHIBIT G
Institutional Accredited Investor Certificate 1
U.S. Bank National Association
100 Wall Street
Suite 1600
New York, NY 10005
Attention: Global Corporate Trust
Re: |
[COMPANY] [INTEREST RATE]% [SENIOR/SUBORDINATED] Notes due [DUE DATE-YEAR] (the Notes ) Issued under the Indenture (the Indenture ) dated as as of [AS OF DATE] relating to the Notes |
Ladies and Gentlemen:
This Certificate relates to:
[CHECK A OR B AS APPLICABLE.]
¨ A. | Our proposed purchase of $ principal amount of Notes issued under the Indenture. | |
¨ B. | Our proposed exchange of $ principal amount of Notes issued under the Indenture for an equal principal amount of Notes to be held by us. |
We hereby confirm that:
1. | We are an institutional accredited investor within the meaning of Rule 501(a)(1), (2), (3) or (7) under the Securities Act of 1933, as amended (the Securities Act) (an Institutional Accredited Investor). |
2. | Any acquisition of Notes by us will be for our own account or for the account of one or more other Institutional Accredited Investors as to which we exercise sole investment discretion. |
3. | We have such knowledge and experience in financial and business matters that we are capable of evaluating the merits and risks of an investment in the Notes and we and any accounts for which we are acting are able to bear the economic risks of and an entire loss of our or their investment in the Notes. |
1 | Reminder: Do not include in global notes only (book-entry) deal. |
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4. | We are not acquiring the Notes with a view to any distribution thereof in a transaction that would violate the Securities Act or the securities laws of any State of the United States or any other applicable jurisdiction; provided that the disposition of our property and the property of any accounts for which we are acting as fiduciary will remain at all times within our and their control. |
5. | We acknowledge that the Notes have not been registered under the Securities Act and that the Notes may not be offered or sold within the United States or to or for the benefit of U.S. persons except as set forth below. |
6. | The principal amount of Notes to which this Certificate relates is at least equal to $250,000. |
We agree for the benefit of the Company, on our own behalf and on behalf of each account for which we are acting, that such Notes may be offered, sold, pledged or otherwise transferred only in accordance with the Securities Act and any applicable securities laws of any State of the United States and only (a) to the Company, (b) pursuant to a registration statement which has become effective under the Securities Act, (c) to a qualified institutional buyer in compliance with Rule 144A under the Securities Act, (d) in an offshore transaction in compliance with Rule 904 of Regulation S under the Securities Act, (e) in a principal amount of not less than $250,000, to an Institutional Accredited Investor that, prior to such transfer, delivers to the Trustee a duly completed and signed certificate (the form of which may be obtained from the Trustee) relating to the restrictions on transfer of the Notes or (f) pursuant to an exemption from registration provided by Rule 144 under the Securities Act or any other available exemption from the registration requirements of the Securities Act.
Prior to the registration of any transfer in accordance with (c) or (d) above, we acknowledge that a duly completed and signed certificate (the form of which may be obtained from the Trustee) must be delivered to the Trustee. Prior to the registration of any transfer in accordance with (e) or (f) above, we acknowledge that the Company reserves the right to require the delivery of such legal opinions, certifications or other evidence as may reasonably be required in order to determine that the proposed transfer is being made in compliance with the Securities Act and applicable state securities laws. We acknowledge that no representation is made as to the availability of any Rule 144 exemption from the registration requirements of the Securities Act.
We understand that the Trustee will not be required to accept for registration of transfer any Notes acquired by us, except upon presentation of evidence satisfactory to the Company and the Trustee that the foregoing restrictions on transfer have been complied with. We further understand that the Notes acquired by us will be in the form of definitive physical certificates and that such certificates will bear a legend reflecting the substance of the preceding paragraph. We further agree to provide to any person acquiring any of the Notes from us a notice advising such person that resales of the Notes are restricted as stated herein and that certificates representing the Notes will bear a legend to that effect.
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We agree to notify you promptly in writing if any of our acknowledgments, representations or agreements herein ceases to be accurate and complete.
We represent to you that we have full power to make the foregoing acknowledgments, representations and agreements on our own behalf and on behalf of any account for which we are acting.
You and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.
Very truly yours, | ||
[NAME OF PURCHASER (FOR TRANSFERS) OR OWNER (FOR EXCHANGES)] | ||
By: |
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Name: | ||
Title: | ||
Address: |
Date: |
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Upon transfer, the Notes would be registered in the name of the new beneficial owner as follows:
By: |
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Date: |
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Taxpayer ID number: |
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EXHIBIT H
[COMPLETE FORM I OR FORM II AS APPLICABLE.]
[FORM I]
Certificate of Beneficial Ownership
To: |
U.S. Bank National Association 100 Wall Street Suite 1600 New York, NY 10005 Attention: Global Corporate Trust OR |
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[Name of DTC Participant]] |
Re: |
Enova International, Inc. 9.75% Senior Notes due 2021 (the Notes ) Issued under the Indenture (the Indenture ) dated as as of May 30, 2014 relating to the Notes |
Ladies and Gentlemen:
We are the beneficial owner of $ principal amount of Notes issued under the Indenture and represented by a Temporary Offshore Global Note (as defined in the Indenture).
We hereby certify as follows:
[CHECK A OR B AS APPLICABLE.]
¨ A. | We are a non-U.S. person (within the meaning of Regulation S under the Securities Act of 1933, as amended). | |
¨ B. | We are a U.S. person (within the meaning of Regulation S under the Securities Act of 1933, as amended) that purchased the Notes in a transaction that did not require registration under the Securities Act of 1933, as amended. |
You and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.
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Very truly yours, | ||
[NAME OF BENEFICIAL OWNER] | ||
By: |
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Name: | ||
Title: | ||
Address: |
Date: |
[FORM II]
Certificate of Beneficial Ownership
To: |
U.S. Bank National Association 100 Wall Street Suite 1600 New York, NY 10005 Attention: Global Corporate Trust |
|
Re: |
Enova International, Inc. 9.75% Senior Notes due 2021 (the Notes ) Issued under the Indenture (the Indenture ) dated as as of May 30, 2014 relating to the Notes |
Ladies and Gentlemen:
This is to certify that based solely on certifications we have received in writing, by tested telex or by electronic transmission from Institutions appearing in our records as persons being entitled to a portion of the principal amount of Notes represented by a Temporary Offshore Global Note issued under the above-referenced Indenture, that as of the date hereof, $ principal amount of Notes represented by the Temporary Offshore Global Note being submitted herewith for exchange is beneficially owned by persons that are either (i) non-U.S. persons (within the meaning of Regulation S under the Securities Act of 1933, as amended) or (ii) U.S. persons that purchased the Notes in a transaction that did not require registration under the Securities Act of 1933, as amended.
We further certify that (i) we are not submitting herewith for exchange any portion of such Temporary Offshore Global Note excepted in such certifications and (ii) as of the date hereof we have not received any notification from any Institution to the effect that the statements made by such Institution with respect to any portion of such Temporary Offshore Global Note submitted herewith for exchange are no longer true and cannot be relied upon as of the date hereof.
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You and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby.
Yours faithfully, | ||
[Name of DTC Participant] | ||
By: |
|
|
Name: | ||
Title: | ||
Address: |
Date: |
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EXHIBIT I
THIS NOTE IS A TEMPORARY GLOBAL NOTE. PRIOR TO THE EXPIRATION OF THE RESTRICTED PERIOD APPLICABLE HERETO, BENEFICIAL INTERESTS HEREIN MAY NOT BE HELD BY ANY PERSON OTHER THAN (1) A NON-U.S. PERSON OR (2) A U.S. PERSON THAT PURCHASED SUCH INTEREST IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT ). BENEFICIAL INTERESTS HEREIN ARE NOT EXCHANGEABLE FOR PHYSICAL NOTES OTHER THAN A PERMANENT GLOBAL NOTE IN ACCORDANCE WITH THE TERMS OF THE INDENTURE. TERMS IN THIS LEGEND ARE USED AS USED IN REGULATION S UNDER THE SECURITIES ACT.
NO BENEFICIAL OWNERS OF THIS TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF PRINCIPAL OR INTEREST HEREON UNTIL SUCH BENEFICIAL INTEREST IS EXCHANGED OR TRANSFERRED FOR AN INTEREST IN ANOTHER NOTE.
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Exhibit 10.5
ENOVA INTERNATIONAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
EFFECTIVE JANUARY 1, 2012
ENOVA INTERNATIONAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective as of the 1st day of January, 2012, Enova International, Inc. (the Controlling Company), hereby establishes the Enova International, Inc. Supplemental Executive Retirement Plan as set forth herein (the Plan).
BACKGROUND AND PURPOSE
A. Goal . The Controlling Company desires to provide certain of its designated key management employees (and those of its affiliated companies that participate in the Plan) with such amounts of deferred compensation as the terms of the Plan may permit and as the Controlling Company may determine.
B. Purpose . The purpose of the Plan document is to set forth the terms and conditions pursuant to which these awards of deferred compensation may be made and to describe the nature and extent of the employees rights to such amounts.
C. Type of Plan . The Plan constitutes an unfunded, nonqualified deferred compensation plan that benefits certain designated employees who are within a select group of key management or highly compensated employees. It is intended that this Plan comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended.
TABLE OF CONTENTS
ARTICLE I DEFINITIONS |
1 | |||||
1.1 |
Account |
1 | ||||
1.2 |
Active Participant |
1 | ||||
1.3 |
Administrative Committee |
1 | ||||
1.4 |
Affiliate |
1 | ||||
1.5 |
Beneficiary |
1 | ||||
1.6 |
Board |
1 | ||||
1.7 |
Cash America SERP |
1 | ||||
1.8 |
Change in Control |
1 | ||||
1.9 |
Code |
2 | ||||
1.10 |
Company |
2 | ||||
1.11 |
Compensation |
2 | ||||
1.12 |
Compensation Committee |
2 | ||||
1.13 |
Controlling Company |
2 | ||||
1.14 |
Discretionary-Eligible Employee |
3 | ||||
1.15 |
Discretionary Contributions |
3 | ||||
1.16 |
Effective Date |
3 | ||||
1.17 |
Eligible Employee |
3 | ||||
1.18 |
ERISA |
3 | ||||
1.19 |
FICA Tax |
3 | ||||
1.20 |
Financial Hardship |
3 | ||||
1.21 |
Investment Election |
3 | ||||
1.22 |
Investment Funds |
3 | ||||
1.23 |
Key Employee |
3 | ||||
1.24 |
Payment Date |
4 | ||||
1.25 |
Participant |
4 | ||||
1.26 |
Plan |
4 | ||||
1.27 |
Plan Year |
4 | ||||
1.28 |
Savings Plan |
4 | ||||
1.29 |
Separate from Service or Separation from Service |
4 | ||||
(a) Leaves of Absence |
4 | |||||
(b) Status Change |
5 | |||||
(c) Termination of Employment |
5 | |||||
1.30 |
Supplemental-Eligible Employee |
5 | ||||
1.31 |
Supplemental Contributions |
5 | ||||
1.32 |
Surviving Spouse |
5 | ||||
1.33 |
Trust or Trust Agreement |
6 | ||||
1.34 |
Trust Fund |
6 | ||||
1.35 |
Trustee |
6 | ||||
1.36 |
Valuation Date |
6 | ||||
1.37 |
Years of Service |
6 | ||||
ARTICLE II ELIGIBILITY AND PARTICIPATION |
6 | |||||
2.1 |
Initial Eligibility Requirements |
6 | ||||
(a) Supplemental Contributions |
6 | |||||
(b) Discretionary Contributions |
6 |
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2.2 |
Procedure for Admission |
6 | ||||
2.3 |
Cessation of Eligibility |
6 | ||||
ARTICLE III PARTICIPANTS ACCOUNTS AND CREDITING OF CONTRIBUTIONS |
7 | |||||
3.1 |
Participants Accounts |
7 | ||||
(a) Establishment of Accounts |
7 | |||||
(b) Nature of Contributions and Accounts |
7 | |||||
(c) Several Liabilities |
7 | |||||
(d) General Creditors |
7 | |||||
3.2 |
Supplemental Contributions |
7 | ||||
(a) Crediting of Supplemental Contributions |
7 | |||||
(b) Amount of Supplemental Contributions |
8 | |||||
3.3 |
Discretionary Contributions |
8 | ||||
3.4 |
Debiting of Distributions |
8 | ||||
3.5 |
Crediting of Earnings |
8 | ||||
3.6 |
Value of Account |
9 | ||||
3.7 |
Vesting |
9 | ||||
(a) Time of Vesting |
9 | |||||
(b) Change in Control |
9 | |||||
(c) Job Abolishment |
9 | |||||
(d) Forfeiture |
9 | |||||
3.8 |
Notice to Participants of Account Balances |
9 | ||||
3.9 |
Good Faith Valuation Binding |
9 | ||||
3.10 |
Errors and Omissions in Accounts |
10 | ||||
ARTICLE IV INVESTMENT FUNDS |
10 | |||||
4.1 |
Selection by Administrative Committee |
10 | ||||
4.2 |
Participant Direction of Deemed Investments |
10 | ||||
(a) Nature of Participant Direction |
10 | |||||
(b) Investment of Contributions |
10 | |||||
(c) Investment of Existing Account Balances |
10 | |||||
(d) Administrative Committee Discretion |
11 | |||||
ARTICLE V PAYMENT OF ACCOUNT BALANCES |
11 | |||||
5.1 |
Amount of Benefit Payments |
11 | ||||
5.2 |
Timing and Form of Distribution |
11 | ||||
(a) General Payment Date |
11 | |||||
(b) General Payment Form |
11 | |||||
(c) Modification of Defaults |
11 | |||||
5.3 |
Cashout of Accounts |
12 | ||||
(a) Generally |
12 | |||||
(b) Documentation of Determination |
12 | |||||
(c) Six Month Delay for Key Employees |
12 | |||||
5.4 |
Medium of Payment |
12 | ||||
5.5 |
Death Benefits |
12 | ||||
5.6 |
Hardship Withdrawals |
13 | ||||
5.7 |
Taxes |
13 | ||||
(a) Amounts Payable Whether or Not Account is in Pay Status |
13 |
ii
(b) Amounts Payable Only if Account is in Pay Status |
13 | |||||
5.8 |
Offset Account by Amounts Owed to the Company |
13 | ||||
5.9 |
No Acceleration of Account Payments |
14 | ||||
5.10 |
Amounts Transferred from the Cash America SERP |
14 | ||||
ARTICLE VI CLAIMS |
14 | |||||
6.1 |
Initial Claim |
14 | ||||
(a) Rights |
14 | |||||
(b) Procedure |
14 | |||||
6.2 |
Appeal |
15 | ||||
6.3 |
Satisfaction of Claims |
15 | ||||
ARTICLE VII SOURCE OF FUNDS; TRUST |
15 | |||||
7.1 |
Source of Funds |
15 | ||||
7.2 |
Trust |
16 | ||||
7.3 |
Funding Prohibition under Certain Circumstances |
16 | ||||
ARTICLE VIII RIGHTS AND DUTIES UNDER THE PLAN |
16 | |||||
8.1 |
Controlling Company Action |
16 | ||||
8.2 |
Administrative Committee Organization and Action |
16 | ||||
8.3 |
Rights and Duties |
17 | ||||
8.4 |
Compensation, Indemnity and Liability |
17 | ||||
ARTICLE IX AMENDMENT AND TERMINATION |
18 | |||||
9.1 |
Amendments |
18 | ||||
9.2 |
Freezing or Termination of Plan |
18 | ||||
(a) Freezing |
18 | |||||
(b) Termination |
18 | |||||
ARTICLE X MISCELLANEOUS |
18 | |||||
10.1 |
Beneficiary Designation |
18 | ||||
(a) General |
18 | |||||
(b) No Designation or Designee Dead or Missing |
18 | |||||
10.2 |
Distribution pursuant to a Domestic Relations Order |
19 | ||||
10.3 |
Taxation |
19 | ||||
10.4 |
No Employment Contract |
19 | ||||
10.5 |
Headings |
19 | ||||
10.6 |
Gender and Number |
20 | ||||
10.7 |
Assignment of Benefits |
20 | ||||
10.8 |
Legally Incompetent |
20 | ||||
10.9 |
Governing Law |
20 | ||||
10.10 |
Exclusive Benefit |
20 | ||||
SCHEDULE A |
21 |
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STATEMENT OF AGREEMENT
To establish the Plan with the purposes and goals as hereinabove described, the Controlling Company hereby sets forth the terms and provisions of the Plan as follows:
ARTICLE I
DEFINITIONS
For purposes of the Plan, the following terms, when used with an initial capital letter, will have the meaning set forth below unless a different meaning plainly is required by the context.
1.1 Account means, with respect to a Participant or Beneficiary, the total dollar amount or value evidenced by the last balance posted and actually credited in accordance with the terms of the Plan to the account record established for such Participant or Beneficiary. As determined by the Administrative Committee, an Account may be subdivided into separate subaccounts.
1.2 Active Participant means any Discretionary-Eligible Employee or Supplemental-Eligible Employee, as applicable, who has become a Participant and who has not been removed from active participation in the Plan as described in Section 2.3.
1.3 Administrative Committee means the administrative committee of the Savings Plan, or such other committee as will be appointed by the Board, which will act on behalf of the Controlling Company to administer the Plan, as provided for in Article VIII.
1.4 Affiliate means any entity that is required to be aggregated with the Controlling Company under Code Sections 414(b) or (c).
1.5 Beneficiary means, with respect to a Participant, the person(s) designated or identified in accordance with Section 10.1 to receive any death benefits that may be payable under the Plan upon the death of the Participant.
1.6 Board means the Board of Directors of the Controlling Company.
1.7 Cash America SERP means the Cash America International, Inc. Supplemental Executive Retirement Plan.
1.8 Change in Control means an event that is a change in the ownership of the Controlling Company, a change in the effective control of the Controlling Company or a change in the ownership of a substantial portion of the assets of the Controlling Company, all as defined in Code Section 409A and guidance issued thereunder. As a general overview, a Change in Control will occur on the date that any of the following events occurs:
(i) Any one person, or more than one person acting as a group (as defined in Code Section 409A), acquires ownership of Controlling Company stock that, together with all other Controlling Company stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Controlling Company. However, if any one person, or more than one person acting as a group, is considered to own
more than 50 percent of the total fair market value or total voting power of the stock of the Controlling Company, the acquisition of additional stock by the same person or persons is not considered to cause a change in the ownership of the Controlling Company or to cause a change in the effective control of the Controlling Company.
(ii) The date any one person, or more than one person acting as a group, acquires (or has acquired, during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Controlling Company possessing 30 percent or more of the total voting power of the stock of the Controlling Company.
(iii) The date that any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Controlling Company that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all of the assets of the Controlling Company immediately before such acquisition or acquisitions.
(iv) The date a majority of the Controlling Companys board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Controlling Companys board of directors before the date of the appointment or election.
Notwithstanding the foregoing provisions, neither a change in ownership under clause (i) nor a change in effective control under clause (ii) shall be considered to have occurred as a result of any acquisition or disposition of the Controlling Companys stock by, or an increase in the percentage of the Controlling Companys stock owned by, Cash America International, Inc. or any entity required to be aggregated with Cash America International, Inc. under Code Sections 414(b) or 414(c). For clarification purposes and without limiting the foregoing, the acquisition of the Controlling Companys stock in a public offering shall not result in a Change-in-Control unless required by Code Section 409A.
1.9 Code means the Internal Revenue Code of 1986, as amended, and any succeeding federal tax provisions.
1.10 Company means the Controlling Company and any of its U.S.-based subsidiaries except any such subsidiaries that affirmatively elect not to participate in the Plan or that the Controlling Company affirmatively designates as not eligible to participate in the Plan.
1.11 Compensation means, for a Participant for any Plan Year, the total of (i) such Participants base salary earned for such Plan Year, plus (ii) the lesser of the amount of his targeted or actual annual cash bonus that was paid during such Plan Year and earned in the preceding Plan Year, under a plan adopted by the Company, which bonus is determined and payable on an annual basis; provided, the amount in (ii) will be deemed earned during the Plan Year in which paid and prorated over each payroll period in such Plan Year.
1.12 Compensation Committee means the Management Development and Compensation Committee of the Board.
1.13 Controlling Company means Enova International, Inc., a Delaware corporation with its principal place of business in Chicago, Illinois.
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1.14 Discretionary-Eligible Employee means, for a Plan Year, an employee who is a member of a select group of key management or highly compensated employees who is selected by the Controlling Company as eligible to receive Discretionary Contributions under the Plan.
1.15 Discretionary Contributions means the amount (if any) credited to a Participants Account pursuant to Section 3.3.
1.16 Effective Date means January 1, 2012.
1.17 Eligible Employee means an individual who is a Discretionary-Eligible Employee or a Supplemental-Eligible Employee.
1.18 ERISA means the Employee Retirement Income Security Act of 1974, as amended.
1.19 FICA Tax means the Federal Insurance Contributions Act tax imposed under Code Sections 3101, 3121(a) and 3121(v)(2).
1.20 Financial Hardship means a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or the Participants dependent (as defined in Code Section 152(a)), loss of the Participants property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. Financial Hardship will be determined by the Administrative Committee on the basis of the facts of each case, including information supplied by the Participant in accordance with uniform guidelines prescribed from time to time by the Administrative Committee; provided, the Participant will be deemed not to have a Financial Hardship to the extent that such hardship is or may be relieved:
(a) Through reimbursement or compensation by insurance or otherwise;
(b) By liquidation of the Participants assets, to the extent the liquidation of assets would not itself cause severe financial hardship; or
(c) By cessation of deferrals under a Company plan.
Examples of what are not considered to be unforeseeable emergencies include the need to send a Participants child to college or the desire to purchase a home.
1.21 Investment Election means a written, electronic or other form of election pursuant to which a Participant may elect the Investment Funds in which the amounts credited to his Account will be deemed to be invested.
1.22 Investment Funds means the investment funds selected from time to time by the Administrative Committee for purposes of determining the rate of return on amounts deemed invested pursuant to the terms of the Plan.
1.23 Key Employee means a Participant who is a specified employee as defined in Code Section 409A as of: (i) for a Participant who Separates from Service on or after the first day of a calendar year and before the first day of the fourth month of such calendar year, the December 31 of the second calendar year preceding the calendar year in which such Participant
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Separates from Service; or (ii) for any other Participant, the preceding December 31. Notwithstanding the foregoing, a Participant who Separates from Service prior to April 1, 2012, will be a Key Employee if such Participant was a specified employee as determined under the Cash America SERP immediately prior to the closing of the Controlling Companys initial public offering of shares of its common stock. For purposes of identifying Key Employees, the Participants compensation will mean all of the items listed in Treasury Regulations Section 1.415(c)-2(b), and excluding all of the items listed in Treasury Regulations Section 1.415(c)-2(c).
1.24 Payment Date means the date on which all or a portion of the Participants benefit is scheduled to be paid (in the case of a lump sum payment) or commenced (in the case of installment payments) pursuant to the terms of the Plan.
1.25 Participant means any person who has been admitted to, and has not been removed from, participation in the Plan pursuant to the provisions of Article II.
1.26 Plan means the Enova International, Inc. Supplemental Executive Retirement Plan, as contained herein and all amendments hereto. For tax purposes and purposes of Title I of ERISA, the Plan is intended to be an unfunded, nonqualified deferred compensation plan covering certain designated employees who are within a select group of key management or highly compensated employees.
1.27 Plan Year means the 12-consecutive-month period ending on December 31 of each year.
1.28 Savings Plan means the defined contribution retirement plan intended to be qualified under Code Sections 401(a) and 401(k) that is maintained by the Controlling Company.
1.29 Separate from Service or Separation from Service means that a Participant separates from service with the Affiliates as defined in Code Section 409A and guidance issued thereunder. Generally, a Participant separates from service if the Participant dies, retires, or otherwise has a termination of employment with the Affiliate that employs the Participant and all entities that would be treated as a single employer with such Affiliate under Code Sections 414(b) or (c), but substituting at least 50 percent instead of at least 80 percent each place it appears in applying such rules, determined in accordance with the following:
(a) Leaves of Absence . The employment relationship is treated as continuing intact while the Participant is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed 6 months, or, if longer, so long as the Participant retains a right to reemployment with the Affiliates under an applicable statute or by contract. A leave of absence constitutes a bona fide leave of absence only while there is a reasonable expectation that the Participant will return to perform services for the Affiliates. If the period of leave exceeds 6 months and the Participant does not retain a right to reemployment under an applicable statute or by contract, the employment relationship is deemed to terminate on the first date immediately following such 6-month period. Notwithstanding the foregoing, where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 6 months, where such impairment causes the Participant to be unable to perform the duties of his position of employment or any substantially similar position of employment, a 29-month period of absence will be substituted for such 6-month period.
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(b) Status Change . Generally, if a Participant performs services both as an employee and an independent contractor, such Participant must separate from service both as an employee, and as an independent contractor pursuant to standards set forth in Treasury Regulations, to be treated as having a Separation from Service. However, if a Participant provides services as an employee and as a member of the Board of Directors, the services provided as a director are not taken into account in determining whether the Participant has a Separation from Service as an employee for purposes of this Plan.
(c) Termination of Employment . Whether a termination of employment has occurred for purposes of this section is determined based on whether the facts and circumstances indicate that the Affiliates and the Participant reasonably anticipate that (i) no further services will be performed after a certain date, or (ii) the level of bona fide services the Participant will perform after such date (whether as an employee or as an independent contractor) will permanently decrease to no more than 20 percent of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding 36-month period (or the full period of services to the Affiliates if the Participant has been providing services to the Affiliates less than 36 months). Facts and circumstances to be considered in making this determination include, but are not limited to, whether the Participant continues to be treated as an employee for other purposes (such as continuation of salary and participation in employee benefit programs), whether similarly situated service providers have been treated consistently, and whether the Participant is permitted, and realistically available, to perform services for other service recipients in the same line of business. For periods during which a Participant is on a paid bona fide leave of absence and has not otherwise terminated employment as described in subsection (a) above, for purposes of this subsection the Participant is treated as providing bona fide services at a level equal to the level of services that the Participant would have been required to perform to receive the compensation paid with respect to such leave of absence. Periods during which a Participant is on an unpaid bona fide leave of absence and has not otherwise terminated employment are disregarded for purposes of this subsection (including for purposes of determining the applicable 36-month (or shorter) period).
1.30 Supplemental-Eligible Employee means an individual who at any time during the Plan Year holds the position of Senior Director or any more senior position with the Company (and thereby is a member of a select group of key management or highly compensated employees of the Company); provided, such individual will be or become a Supplemental-Eligible Employee on the date such criterion is first satisfied during such Plan Year. Notwithstanding the foregoing, Supplemental Eligible Employee does not include an individual for any portion of a Plan Year during which the individual is seconded to the Company and is not entitled to participate in Company retirement plans under the applicable secondment agreement.
1.31 Supplemental Contributions means the amount credited to a Participants Account pursuant to Section 3.2.
1.32 Surviving Spouse means, with respect to a Participant, the person who is treated as married to such Participant under the laws of the state in which the Participant resides. The determination of a Participants Surviving Spouse will be made as of the date of such Participants death.
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1.33 Trust or Trust Agreement means the separate agreement or agreements between the Controlling Company and the Trustee governing the Trust Fund, and all amendments thereto.
1.34 Trust Fund means the total amount of cash and other property held by the Trustee (or any nominee thereof) at any time under the Trust Agreement.
1.35 Trustee means the party or parties so designated from time to time pursuant to the terms of the Trust Agreement.
1.36 Valuation Date means each day on which the Trustee operates, and is open to the public, for its business; provided, the value of an Account on a day other than a Valuation Date will be the value determined as of the immediately preceding Valuation Date.
1.37 Years of Service means, with respect to a Participant, his total number of years of vesting service as determined under the terms of the Savings Plan.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.1 Initial Eligibility Requirements .
(a) Supplemental Contributions . Each individual who becomes a Supplemental-Eligible Employee on or after the Effective Date will become eligible to receive Supplemental Contributions as of the date that such individual becomes a Supplemental-Eligible Employee.
(b) Discretionary Contributions . Each individual who becomes a Discretionary-Eligible Employee on or after the Effective Date will become eligible to receive Discretionary Contributions as of the date that such individual becomes a Discretionary-Eligible Employee.
2.2 Procedure for Admission .
The Administrative Committee may require an Eligible Employee to complete such forms and provide such data as the Administrative Committee determines in its sole discretion. Such forms and data may include, without limitation, the Eligible Employees acceptance of the terms and conditions of the Plan and the designation of a Beneficiary to receive any death benefits payable hereunder.
2.3 Cessation of Eligibility .
Unless otherwise designated by the Controlling Company, in its sole discretion, each Participant who ceases to be an active Discretionary-Eligible Employee or Supplemental-Eligible Employee will cease to be eligible to receive any Discretionary and/or Supplemental Contributions, respectively, under the Plan for any period following such date. The Controlling
6
Company may, in its sole discretion, remove an employee from active participation in the Plan as of the first day of the following Plan Year (or any other date specified by the Controlling Company), if, as of any day during a Plan Year, he ceases to satisfy the criteria which qualified him as an Eligible Employee. Even if his active participation in the Plan ends, an employee will remain an inactive Participant in the Plan until the earlier of (i) the date the full amount of his vested Account (if any) is distributed from the Plan, or (ii) the date he again becomes an Eligible Employee and recommences active participation in the Plan. During the period of time that an employee is an inactive Participant in the Plan, his vested Account will continue to be credited with earnings as provided for in Section 3.5.
ARTICLE III
PARTICIPANTS ACCOUNTS AND CREDITING OF CONTRIBUTIONS
3.1 Participants Accounts .
(a) Establishment of Accounts . The Administrative Committee will establish and maintain an Account on behalf of each Participant. To the extent provided herein, each Account will be credited with Supplemental and Discretionary Contributions and earnings attributable to such Account, and will be debited by the amount of all distributions. A Participants Account may also include amounts transferred from the Cash America SERP. Each Account of a Participant will be maintained until the vested value thereof has been distributed to or on behalf of such Participant or his Beneficiary.
(b) Nature of Contributions and Accounts . The amounts credited to a Participants Account will be represented solely by bookkeeping entries. Except as provided in Article VII, no monies or other assets will actually be set aside for such Participant. All payments to a Participant or Beneficiary under the Plan will be made from the general assets of the Company.
(c) Several Liabilities . The Administrative Committee or the Controlling Company will allocate the total liability to pay benefits under the Plan among the Company in such manner and amount as the Administrative Committee or the Controlling Company (as applicable) in its sole discretion deems appropriate.
(d) General Creditors . Any assets which may be acquired by the Company in anticipation of its obligations under the Plan will be part of the general assets of the Company. The Companys obligation to pay benefits under the Plan constitutes a mere promise of the Company to pay such benefits, and a Participant or Beneficiary will be and remain no more than an unsecured, general creditor of the Company.
3.2 Supplemental Contributions .
(a) Crediting of Supplemental Contributions . As soon as administratively feasible following the last day of each Plan Year (or such other date as determined by the Controlling Company, in its sole discretion), the Controlling Company may direct the Administrative Committee to credit a Supplemental Contribution to the Account of each Participant who was a Supplemental-Eligible Employee for any period during such Plan Year and is employed by the Company on the last day of such Plan Year (or such other period as determined by the Controlling Company).
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(b) Amount of Supplemental Contributions . The Controlling Company will determine the amount, if any, of the Supplemental Contribution to be made for each Plan Year for each Supplemental-Eligible Employee, and may determine different amounts for specified Supplemental-Eligible Employees or groups of Supplemental-Eligible Employees. However, the targeted (but non-binding) amount of Supplemental Contribution for each Plan Year will be determined as a percentage of each Supplemental-Eligible Employees Compensation earned during such Plan Year (or the portion thereof while such Participant was a Supplemental-Eligible Employee), with such targeted percentage determined by the Compensation Committee from time to time. If a Supplemental-Eligible Employee was a member of one group of Supplemental-Eligible Employees for part of the Plan Year and a member of one or more other groups of Supplemental-Eligible Employees for another part of the Plan Year, the applicable percentage for each group will be applied to the portion of his Compensation earned during the portion of the Plan Year he held each such position, with the portion of his Compensation attributable to an annual bonus prorated based on the number of regular payroll periods for which the Participant earned compensation for each eligible position during the year. If a Participant is not a Supplemental-Eligible Employee during the entire Plan Year but remains employed by the Company on the last day of the Plan Year, the applicable percentage for that person will be applied to the portion of his Compensation earned during the portion of the Plan Year during which he was a Supplemental-Eligible Employee. For purposes of this subsection, a Supplemental-Eligible Employee is deemed to earn compensation for a particular payroll period on the regular pay date applicable to that payroll period. Notwithstanding the foregoing, Supplemental Contributions, if any, for the Plan Year that ends on December 31, 2012, will be computed in accordance with Schedule A hereto.
3.3 Discretionary Contributions .
At such time or times, in such amount and under such terms, as the Controlling Company, in its sole discretion, may (but is not required to) determine and direct, the Administrative Committee will credit to the Account of any Discretionary-Eligible Employee a Discretionary Contribution. To the extent any special characteristics are to apply to any Discretionary Contributions, these will be specified on an exhibit to the Plan and/or in the records of the Administrative Committee.
3.4 Debiting of Distributions .
As of each Valuation Date, the Administrative Committee will debit each Participants Account for any amount distributed from such Account since the immediately preceding Valuation Date.
3.5 Crediting of Earnings .
As of each Valuation Date, the Administrative Committee will credit to each Participants Account the amount of earnings and/or losses applicable thereto for the period since the immediately preceding Valuation Date. Such crediting of earnings and/or losses will be effected as of each Valuation Date, based on the investments applicable to the Participants Account pursuant to the terms of Section 4.2.
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3.6 Value of Account .
The value of a Participants Account as of any date will be equal to the aggregate value of all contributions and all investment earnings deemed credited to his Account as of such date, determined in accordance with this Article III.
3.7 Vesting .
(a) Time of Vesting . A Participant will become vested in his Account and the earnings credited with respect thereto in accordance with the following schedule:
Years of Service |
Vested Percentage |
|
Less than 1 Year of Service |
0% | |
1 Year, but less than 2 |
20% | |
2 Years, but less than 3 |
40% | |
3 Years, but less than 4 |
60% | |
4 Years, but less than 5 |
80% | |
5 or more Years of Service |
100% |
(b) Change in Control . If a Change in Control occurs, the Participant will be immediately 100 percent vested in his Account and the earnings credited with respect thereto as of the date of such Change in Control. Any Supplemental or Discretionary Contributions credited to the Participants Account and any earnings credited with respect thereto after the date of a Change in Control will continue to vest in accordance with the vesting schedule set forth in subsection (a) hereof.
(c) Job Abolishment . If a Participants employment is terminated as a result of a job abolishment, the Participant will be immediately 100 percent vested in his Account and the earnings credited with respect thereto.
(d) Forfeiture . For all periods prior to the date a Participant becomes fully vested in his Account, the nonvested portion of such Account will remain forfeitable. Upon a Participants termination of employment with all Affiliates, the unvested portion of his Account will be immediately forfeited.
3.8 Notice to Participants of Account Balances .
At least once for each Plan Year, the Administrative Committee will cause a written statement of a Participants Account balance to be distributed to the Participant.
3.9 Good Faith Valuation Binding .
In determining the value of the Accounts, the Administrative Committee will exercise its best judgment, and all such determinations of value (in the absence of bad faith) will be binding upon all Participants and their Beneficiaries.
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3.10 Errors and Omissions in Accounts .
If an error or omission is discovered in the Account of a Participant, the Administrative Committee, in its sole discretion, will cause appropriate, equitable adjustments to be made as soon as administratively practicable following the discovery of such error or omission.
ARTICLE IV
INVESTMENT FUNDS
4.1 Selection by Administrative Committee .
From time to time, the Administrative Committee will select two or more Investment Funds for purposes of determining the rate of return on amounts deemed invested in accordance with the terms of the Plan; provided, an Investment Fund that is deemed invested primarily in equity securities of the Controlling Company will not be a permitted investment. The Administrative Committee may change, add or remove Investment Funds on a prospective basis at any time and in any manner it deems appropriate.
4.2 Participant Direction of Deemed Investments .
Each Participant generally may direct the manner in which his Account will be deemed invested in and among the Investment Funds. Any Participant investment directions permitted hereunder will be made in accordance with the following terms:
(a) Nature of Participant Direction . The selection of Investment Funds by a Participant will be for the sole purpose of determining the rate of return to be credited to his Account, and will not be treated or interpreted in any manner whatsoever as a requirement or direction to actually invest assets in any Investment Fund or any other investment media. The Plan, as an unfunded, nonqualified deferred compensation plan, at no time will have any actual investment of assets relative to the benefits or Accounts hereunder.
(b) Investment of Contributions . Each Participant may make an Investment Election prescribing the percentage of the future contributions that will be deemed invested in each Investment Fund. An initial Investment Election of a Participant will be made as of the date the Participant commences participation in the Plan and will apply to all contributions credited to such Participants Account after such date. Such Participant may make subsequent Investment Elections as of any Valuation Date, and each such election will apply to all such specified contributions credited to such Participants Account after the Administrative Committee (or its designee) has a reasonable opportunity to process such election pursuant to such procedures as the Administrative Committee may determine from time-to-time. Any Investment Election made pursuant to this subsection with respect to future contributions will remain effective until changed by the Participant.
(c) Investment of Existing Account Balances . Each Participant may make an Investment Election prescribing the percentage of his existing Account balance that will be deemed invested in each Investment Fund. Such Participant may make such Investment Elections as of any Valuation Date, and each such election will be effective after the Administrative Committee (or its designee) has a reasonable opportunity to process such election. Each such election will remain in effect until changed by such Participant.
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(d) Administrative Committee Discretion . The Administrative Committee will have complete discretion to adopt and revise procedures to be followed in making such Investment Elections. Such procedures may include, but are not limited to, the process of making elections, the permitted frequency of making elections, the incremental size of elections, the deadline for making elections, the effective date of such elections and whether, and the extent to which, to charge any Participants Account an administrative fee for making such Investment Elections; provided, no other benefit or payment to a Participant will be increased or decreased in connection with the imposition of, or failure to impose, any fees against the Participants Account. Any procedures adopted by the Administrative Committee that are inconsistent with the deadlines or procedures specified in this Section will supersede such provisions of this Section without the necessity of a Plan amendment. Unless otherwise determined by the Administrative Committee, any investment elections in effect with respect to a Participants contributions and accounts under the Cash America SERP will be deemed to be such Participants initial investment elections under the Plan.
ARTICLE V
PAYMENT OF ACCOUNT BALANCES
5.1 Amount of Benefit Payments .
Payment of a benefit amount as of any Payment Date hereunder will be calculated by determining the total of (i) the entire vested amount credited to the Participants Account that is payable on such Payment Date, determined as of the Valuation Date on which the distribution is processed; plus (ii) the vested amount of Supplemental and Discretionary Contributions made since such Valuation Date. For purposes of this subsection, the Valuation Date on which such distribution is processed refers to the Valuation Date established for such purpose by administrative practice, even if actual payment is made or commenced at a later date due to delays in valuation, administration or any other procedure.
5.2 Timing and Form of Distribution .
(a) General Payment Date . Except as provided in Section 5.3 and subsection (c) hereof, the Payment Date for a Participants Account will be: (i) the 30 th day after the date the Participant Separates from Service, in the case of a Participant who is not a Key Employee on the date he Separates from Service; or (ii) 6 months after the date the Participant Separates from Service, in the case of a Participant who is a Key Employee on the date he Separates from Service.
(b) General Payment Form . Except as provided in subsection (c) hereof, the vested portion of a Participants Account will be distributed in the form of a single-sum payment.
(c) Modification of Defaults . To the extent permitted by the Administrative Committee, a Participant who has not yet Separated from Service may make one election to delay the payment (or commencement) of his Account payable under subsection (a) and/or to change the form of payment to have his Account paid in the form of annual installment
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payments, to change the number of installment payments elected, or to elect a lump sum. In the event of an election under this subsection, the Payment Date for such Participants Account will be delayed to the 5-year anniversary of the Payment Date that would have applied under subsection (a) above. Any election under this subsection will not be effective unless made at least 12 months before the Payment Date applicable under subsection (a) above. The following terms and conditions will apply to installment payment elections made under this Section, if any:
(1) The installment payments will be made in substantially equal annual installments (adjusted for investment earnings between payments in the manner described in Section 3.5) over any period not in excess of 10 years. Any election under this subsection will specify the number of installment payments elected.
(2) The initial value of the obligation for the installment payments will be equal to the amount of the Participants Account balance calculated in accordance with the terms of Section 5.1.
5.3 Cashout of Accounts .
(a) Generally . To the extent permitted under Code Section 409A, if at any time a Participants Account balance (including, for purposes of this section, non-elective deferral accounts under certain other nonqualified deferred compensation plans required to be aggregated with the Plan under Code Section 409A) does not exceed the applicable dollar amount under Code Section 402(g)(1)(B), the Administrative Committee may elect, in its sole discretion, to pay such Participants Account balance in an immediate single-sum payment.
(b) Documentation of Determination . Any exercise of the Administrative Committees discretion pursuant to this subsection will be evidenced in writing no later than the date of the distribution.
(c) Six Month Delay for Key Employees . Notwithstanding the foregoing, to the extent required under Code Section 409A, no payment under this Section will be made within 6 months after the date the Participant Separates from Service, in the case of a payment to a Participant who is a Key Employee on the date he Separates from Service.
5.4 Medium of Payment .
All distributions will be made in the form of cash.
5.5 Death Benefits .
If a Participant dies before full payment of his Account from the Plan is made, the Beneficiary or Beneficiaries designated by such Participant in his latest beneficiary designation form filed with the Administrative Committee will be entitled to receive a distribution of vested amount credited to such Participants Account. The benefit will be distributed to such Beneficiary or Beneficiaries 30 days after the date of the Participants death, in the form of a single-sum payment in cash.
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5.6 Hardship Withdrawals .
Upon receipt of (i) an application for a hardship withdrawal from a Participant who has not yet received a distribution of his entire Account and (ii) the Administrative Committees decision, made in its sole discretion, that a Participant has suffered a Financial Hardship, the Administrative Committee will cause the Company to pay a distribution to such Participant. Such distribution will be paid in a single-sum payment in cash, within 90 days after the date the Administrative Committee determines that a Financial Hardship exists, which must be prior to the Participants Separation from Service. The amount of such single-sum payment will be limited to the vested amount of the Participants Account that is reasonably necessary to meet the Participants requirements resulting from the Financial Hardship. The amount of such distribution will reduce the Participants Account balance as provided in Section 3.4.
5.7 Taxes .
(a) Amounts Payable Whether or Not Account is in Pay Status . If the whole or any part of any Participants or Beneficiarys Account hereunder will become subject to FICA Tax or any state, local or foreign tax obligations, which the Company will be required to pay or withhold prior to the time the Participants Account becomes payable hereunder, the Company will have the full power and authority to withhold and pay such tax and related taxes as permitted under Code Section 409A.
(b) Amounts Payable Only if Account is in Pay Status . If the whole or any part of any Participants or Beneficiarys Account hereunder is subject to any taxes which the Company will be required to pay or withhold at the time the Account becomes payable hereunder, the Company will have the full power and authority to withhold and pay such tax out of any monies or other property that the Company holds for the account of the Participant or Beneficiary, excluding, except as provided in this Section, any portion of the Participants Account that is not then payable.
5.8 Offset Account by Amounts Owed to the Company .
Notwithstanding anything in the Plan to the contrary, the Administrative Committee may, in its sole discretion, offset a Participants Account by any amount owed by such Participant or Beneficiary (whether or not such obligation is related to the Plan) to the Company. Notwithstanding the foregoing, no such offset will apply if such offset will apply before the Account is otherwise payable under the Plan, unless the following requirements are met: (i) the debt owed was incurred in the ordinary course of the relationship between the Participant and the Company, (ii) the entire amount of offset to which this sentence applies in a single taxable year does not exceed $5,000, (iii) the offset occurs at the same time and in the same amount as the debt otherwise would have been due and collected from the Participant or Beneficiary, and (iv) in the case of a Participant who is a Key Employee on the date he Separates from Service, the offset does not occur within six months after the date the Participant Separates from Service.
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5.9 No Acceleration of Account Payments .
Except as otherwise provided in this Section, no payment scheduled to be made under this Article V may be accelerated. Notwithstanding the foregoing, the Administrative Committee, in its sole discretion, may accelerate any payment scheduled to be made under this Article V in accordance with Code Section 409A (for example, upon certain terminations of the Plan, limited cashouts or to avoid certain conflicts of interest); provided, a Participant may not elect whether his scheduled payment will be accelerated pursuant to this sentence.
5.10 Amounts Transferred from the Cash America SERP
Any amounts transferred from the Cash America SERP will be administered in accordance with the terms of the Cash America SERP, including any prior payment elections made by a Participant, to the extent required to avoid income inclusion under Code Section 409A(a)(1). For the avoidance of doubt, the determination of whether amounts transferred from the Cash America SERP become vested as a result of a Change in Control after the Effective Date will be determined under sections 1.8 and 3.7(b) of the Plan.
ARTICLE VI
CLAIMS
6.1 Initial Claim .
(a) Rights . If a Participant or Beneficiary has any grievance, complaint or claim concerning any aspect of the operation or administration of the Plan, including but not limited to claims for benefits (collectively referred to herein as claim or claims), such claimant will submit the claim in accordance with the procedures set forth in this Article. All such claims must be submitted within the applicable limitations period. The applicable limitations period will be 2 years, beginning on (i) in the case of any lump-sum payment, the date on which the payment was made, (ii) in the case of a periodic payment, the date of the first in the series of payments, or (iii) for all other claims, the date on which the action complained of occurred. Additionally, upon denial of an appeal pursuant to Section 6.2, a Participant or Beneficiary will have 90 days within which to bring suit for any claim related to such denied appeal; any such suit initiated after such 90-day period will be precluded.
(b) Procedure . Claims for benefits under the Plan may be filed with the Administrative Committee on forms or in such other written documents as the Administrative Committee may prescribe. The Administrative Committee will furnish to the claimant written notice of the disposition of a claim within 90 days after the application therefor is filed; provided, if special circumstances require an extension of time for processing the claim, the Administrative Committee will furnish written notice of the extension to the claimant prior to the end of the initial 90-day period, and such extension will not exceed one additional, consecutive 90-day period. In the event the claim is denied, the notice of the disposition of the claim will provide the specific reasons for the denial, citations of the pertinent provisions of the Plan, an explanation as to how the claimant can perfect the claim and/or submit the claim for review (where appropriate), and a statement of the claimants right to bring a civil action under ERISA Section 502(a) following an adverse determination on review.
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6.2 Appeal .
Any Participant or Beneficiary who has been denied a benefit will be entitled, upon request to the Controlling Company, to appeal the denial of his claim. The claimant (or his duly authorized representative) may review pertinent documents related to the Plan and in the Controlling Companys possession in order to prepare the appeal. The request for review, together with a written statement of the claimants position, must be filed with the Controlling Company no later than 60 days after receipt of the written notification of denial of a claim provided for in subsection (b). The Controlling Companys decision will be made within 60 days following the filing of the request for review and will be communicated in writing to the claimant; provided, if special circumstances require an extension of time for processing the appeal, the Controlling Company will furnish written notice of the extension to the claimant prior to the end of the initial 60-day period, and such extension will not exceed one additional 60-day period. If unfavorable, the notice of the decision will explain the reasons for denial, indicate the provisions of the Plan or other documents used to arrive at the decision and state the claimants right to bring a civil action under ERISA Section 502(a). Upon denial of an appeal pursuant to this subsection, a Participant will have 90 days within which to bring suit against the Plan for any claim related to such denied appeal; any such suit initiated after such 90-day period will be precluded.
6.3 Satisfaction of Claims .
Any payment to a Participant or Beneficiary will to the extent thereof be in full satisfaction of all claims hereunder against the Administrative Committee and the Company, any of whom may require such Participant or Beneficiary, as a condition to such payment, to execute a receipt and release therefor in such form as will be determined by the Administrative Committee or the Company. If receipt and release is required but the Participant or Beneficiary (as applicable) does not provide such receipt and release in a timely enough manner to permit a timely distribution in accordance with the general timing of distribution provisions in the Plan, such payment will be forfeited.
ARTICLE VII
SOURCE OF FUNDS; TRUST
7.1 Source of Funds .
Except as provided in this Section and Section 7.2, the Company will provide the benefits described in the Plan from the general assets of the Company. In any event, the Company ultimately will have the obligation to pay all benefits due to Participants and Beneficiaries under the Plan. The Company may, but will not be required to, establish a Trust and may pay over funds from time to time to such Trust (as described in Section 7.2), and, to the extent that funds in such Trust allocable to the benefits payable under the Plan are sufficient, the Trust assets will be used to pay benefits under the Plan. If such Trust assets are not sufficient to pay all benefits due under the Plan, then the Company will have the obligation, and the Participant or Beneficiary, who is due such benefits, will look to the Company to provide such benefits.
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7.2 Trust .
The Company may transfer all or any portion of the funds necessary to fund benefits accrued hereunder to the Trustee to be held and administered by the Trustee pursuant to the terms of the Trust Agreement. To the extent provided in the Trust Agreement, each transfer into the Trust Fund will be irrevocable as long as the Company has any liability or obligations under the Plan to pay benefits, such that the Trust property is in no way subject to use by the Company; provided, it is the intent of the Company that the assets held by the Trust are and will remain at all times subject to the claims of the general creditors of the Company. No Participant or Beneficiary will have any interest in the assets held by the Trust or in the general assets of the Company other than as a general, unsecured creditor. Accordingly, the Company will not grant a security interest in the assets held by the Trust in favor of the Participants, Beneficiaries or any creditor.
7.3 Funding Prohibition under Certain Circumstances .
Notwithstanding anything in this Article VII to the contrary, no assets will be set aside to fund benefits under the Plan if such setting aside would be treated as a transfer of property under Code Section 83 pursuant to Code Section 409A(b).
ARTICLE VIII
RIGHTS AND DUTIES UNDER THE PLAN
8.1 Controlling Company Action .
The Controlling Company, as plan sponsor of the Plan, will have all the rights, authority and duties specified hereunder. Unless and until the Board of Directors of the Controlling Company appoints any other or additional person(s) to act on behalf of the Controlling Company with regard to any or all of the items specifically reserved for, or to be directed by, the Controlling Company under the Plan, the Chief Executive Officer of the Controlling Company with the approval of the Compensation Committee is hereby authorized and directed to act on behalf of the Controlling Company or the Company. Notwithstanding the foregoing, if any decision or action could impact or affect solely the benefits or rights under the Plan (if any) of the Chief Executive Officer of the Controlling Company, then the Chief Executive Officer of the Controlling Company will not participate in such decision and the Compensation Committee alone will make such decision; provided, if a member of the Compensation Committee is a Participant or Beneficiary, he will not participate in any decision which solely affects his own benefit under the Plan.
8.2 Administrative Committee Organization and Action .
Action of the Administrative Committee may be taken with or without a meeting of committee members; provided, action will be taken only upon the vote or other affirmative expression of a majority of the committee members qualified to vote with respect to such action. If a member of the committee is a Participant or Beneficiary, he will not participate in any decision which solely affects his own benefit under the Plan. For purposes of administering the Plan, the Administrative Committee will choose a secretary who will keep minutes of the committees proceedings and all records and documents pertaining to the administration of the Plan. The secretary may execute any certificate or any other written direction on behalf of the Administrative Committee.
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8.3 Rights and Duties .
The Administrative Committee will administer the Plan and will have all the powers necessary to accomplish that purpose, including (but not limited to) the following:
(a) To construe, interpret and administer the Plan;
(b) To make determinations required by the Plan, and to maintain records regarding Participants and Beneficiaries benefits hereunder;
(c) To compute and certify to the Company the amount and kinds of benefits payable to Participants and Beneficiaries, and to determine the time and manner in which such benefits are to be paid;
(d) To authorize all disbursements by the Company pursuant to the Plan;
(e) To maintain all the necessary records of the administration of the Plan;
(f) To make and publish such rules for the regulation of the Plan as are not inconsistent with the terms hereof;
(g) To have all powers elsewhere conferred upon it;
(h) To delegate to other individuals or entities from time to time the performance of any of its duties or responsibilities hereunder;
(i) To appoint a Trustee hereunder; and
(j) To hire agents, accountants, actuaries, consultants and legal counsel to assist in operating and administering the Plan.
The Administrative Committee will have the exclusive right to construe and interpret the Plan, to decide all questions of eligibility for benefits and to determine the amount of such benefits, each in its sole discretion, and its decisions on such matters will be final and conclusive on all parties.
8.4 Compensation, Indemnity and Liability .
The Administrative Committee and its members will serve as such without bond and without compensation for services hereunder. All expenses of the Administrative Committee will be paid by the Company. No member of the Administrative Committee will be liable for any act or omission of any other member of the Administrative Committee, or for any act or omission on his own part, excepting his own willful misconduct. The Company will indemnify and hold harmless the Administrative Committee and each member thereof against any and all expenses and liabilities, including reasonable legal fees and expenses, arising out of his membership on the Administrative Committee, excepting only expenses and liabilities arising out of his own willful misconduct.
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ARTICLE IX
AMENDMENT AND TERMINATION
9.1 Amendments .
The Board will have the right, in its sole discretion, to amend the Plan in whole or in part at any time and from time to time. Any amendment will be in writing and executed by a duly authorized officer of the Controlling Company. An amendment to the Plan may modify its terms in any respect whatsoever; provided, no such action may reduce the amount already credited to a Participants Account without the affected Participants written consent. All Participants and Beneficiaries will be bound by such amendment.
9.2 Freezing or Termination of Plan .
(a) Freezing . The Controlling Company, through action of the Board, reserves the right to discontinue and freeze the Plan at any time, for any reason. Any action to freeze the Plan will be taken by the Board in the form of a written Plan amendment executed by a duly authorized officer of the Controlling Company.
(b) Termination . The Controlling Company expects to continue the Plan but reserves the right to terminate the Plan and fully distribute all Accounts under the Plan at any time, for any reason; provided, the distribution of Accounts will be subject to the restrictions provided under Code Section 409A (including, to the extent required by Code Section 409A, the 6-month delay that applies to distributions to Key Employees following Separation from Service). Any action to terminate the Plan will be taken by the Board in the form of a written Plan amendment executed by a duly authorized officer of the Controlling Company. If the Plan is terminated, each Participant will become 100 percent vested in his Account. Such termination will be binding on all Participants and Beneficiaries.
ARTICLE X
MISCELLANEOUS
10.1 Beneficiary Designation .
(a) General . Participants will designate and from time to time may redesignate their Beneficiaries in such form and manner as the Administrative Committee may determine. For a Participant who becomes a Participant on the Effective Date and previously participated in the Cash America SERP, the beneficiary designated under the Cash America SERP will be deemed to be the Participants Beneficiary as of the Effective Date unless a new Beneficiary designation is required by the Administrative Committee.
(b) No Designation or Designee Dead or Missing . In the event that:
(1) A Participant dies without designating a Beneficiary;
(2) The Beneficiary designated by a Participant is not surviving when a payment is to be made to such person under the Plan, and no contingent Beneficiary has been designated; or
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(3) The Beneficiary designated by a Participant cannot be located by the Administrative Committee within a reasonable time following the Participants death, as determined by the Administrative Committee;
then, in any of such events, the Beneficiary of such Participant will be the Participants Surviving Spouse, if any, and if not, then the estate of the Participant; provided, if the Participant does not have a Surviving Spouse (or the Surviving Spouse cannot be located), and no claim has been made on behalf of the Participants estate within a reasonable period of time after the Participants death, then the Beneficiary will be such heirs and/or relatives of the Participant as the Administrative Committee may determine in its sole discretion, and payment to such Beneficiary will be deemed in full satisfaction of the Participants benefits under the Plan, without further liability with respect to such Participants benefits on the part of the Plan, the Controlling Company, any Affiliate, or the Administrative Committee.
10.2 Distribution pursuant to a Domestic Relations Order .
Upon receipt of a valid domestic relations order (determined in accordance with the rules applicable to a tax-qualified retirement plan under Code Section 401(a)) requiring the distribution of all or a portion of a Participants Account to an alternate payee, the Administrative Committee will cause the Company to pay a distribution to such alternate payee. All distributions to alternate payees under the Plan will be in the form of a single lump sum payment.
10.3 Taxation .
It is the intention of the Controlling Company that the benefits payable hereunder will not be deductible by the Company or taxable for federal income tax purposes to Participants or Beneficiaries until such benefits are paid by the Company, or the Trust, as the case may be, to such Participants or Beneficiaries. For purposes of the Federal Insurance Contributions Act (FICA), each Participant will be taxed on contributions and investment earnings attributable thereto based on the year in which occurs the later of (i) the date that the contributions are credited to the Participants Accounts; and (ii) the date that the contributions become vested. When benefits are paid hereunder, it is the intention of the Controlling Company that they will be deductible by the Company under Code Section 162. The Plan is intended to satisfy the requirements of Code Section 409A, and the Administrative Committee will use its reasonable best efforts to interpret and administer the Plan in accordance with such requirements.
10.4 No Employment Contract .
Nothing herein contained is intended to be nor will be construed as constituting a contract or other arrangement between the Company and any Participant to the effect that the Participant will be employed by the Company for any specific period of time.
10.5 Headings .
The headings of the various articles and sections in the Plan are solely for convenience and may not be relied upon in construing any provisions hereof. Any reference to a section refers to a section of the Plan unless specified otherwise.
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10.6 Gender and Number .
Use of any gender in the Plan will be deemed to include both genders when appropriate, and use of the singular number will be deemed to include the plural when appropriate, and vice versa in each instance.
10.7 Assignment of Benefits .
The right of a Participant or his Beneficiary to receive payments under the Plan will not be anticipated, alienated, sold, assigned, transferred, pledged, encumbered, attached or garnished by creditors of such Participant or Beneficiary, except by will or by the laws of descent and distribution and then only to the extent permitted under the terms of the Plan.
10.8 Legally Incompetent .
The Administrative Committee, in its sole discretion, may direct that payment to be made to an incompetent or disabled person, whether because of minority or mental or physical disability, be made instead to the guardian of such person or to the person having custody of such person, without further liability on the part of the Company for the amount of such payment to the person on whose account such payment is made.
10.9 Governing Law .
The Plan will be construed, administered and governed in all respects in accordance with applicable federal law (including ERISA) and, to the extent not preempted by federal law, in accordance with the laws of the State of Illinois. If any provisions of this instrument are held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof will continue to be fully effective.
10.10 Exclusive Benefit .
The benefits payable hereunder will be the exclusive benefit payable to any Participant under the Plan.
IN WITNESS WHEREOF, the Controlling Company has caused the Plan to be executed by its duly authorized officer on the 25th day of June, 2012.
ENOVA INTERNATIONAL, INC. | ||
By: | /s/ Robert Clifton | |
Robert Clifton, Vice President of Accounting |
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ENOVA INTERNATIONAL, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
SCHEDULE A
AMOUNT OF SUPPLEMENTAL CONTRIBUTIONS TO BE
CALCULATED WITH RESPECT TO PLAN YEAR ENDING DECEMBER 31, 2012
If Supplemental Contributions are made with respect to the Plan Year Ending on December 31, 2012, the amount of such Supplemental Contribution for each Supplemental-Eligible Employee will be determined as a percentage of the Supplemental-Eligible Employees Compensation (as defined in the Plan) earned during such Plan Year (or the portion thereof while such Participant was a Supplemental-Eligible Employee), with such percentage determined from the chart below based on the Participants eligible position:
Eligible Position |
Contribution Percentage |
|
Executive Chairman | 10.5% | |
CEO or President | 10.5% | |
Senior Vice President | 7.5% | |
Vice President | 4.5% | |
Senior Director | 2.5% |
If a Supplemental-Eligible Employee was a member of one group of Supplemental-Eligible Employees for part of the Plan Year and a member of one or more other groups of Supplemental-Eligible Employees for another part of the Plan Year, the applicable percentage for each group will be applied to the portion of his Compensation earned during the portion of the Plan Year he held each such position, with the portion of his Compensation attributable to an annual bonus prorated based on the number of regular payroll periods for which the Participant earned compensation for each eligible position during the year.
If a Supplemental-Eligible Employee was a member of one group of Supplemental-Eligible Employees for part of the Plan Year (including at the end of the Plan Year) and not a member of one or more other groups of Supplemental-Eligible Employees for another part of the Plan Year, the applicable percentage for the eligible position he held at the end of the Plan Year will be applied to the portion of his Compensation earned during the portion of the Plan Year he held that position, with the portion of his Compensation attributable to an annual bonus prorated based on the number of regular payroll periods for which the Participant earned compensation for the eligible position during the year.
Except for the Executive Chairman, for any portion the Plan Year that a Supplemental-Eligible Employee was employed by the Company and was an officer of Cash America International, Inc., he is considered for purposes of this Schedule A to have held the equivalent position with the Company, whether or not he was an officer of the Company during such portion of the Plan Year.
21
Exhibit 10.6
ENOVA INTERNATIONAL, INC.
NONQUALIFIED SAVINGS PLAN
As Adopted Effective July 1, 2012
ENOVA INTERNATIONAL, INC.
NONQUALIFIED SAVINGS PLAN
Effective as of the 1 st day of July, 2012, Enova International, Inc. (the Controlling Company) hereby establishes the Enova International, Inc. Nonqualified Savings Plan (the Plan).
BACKGROUND AND PURPOSE
A. Background . The Controlling Company is a subsidiary of Cash America (as defined in Article I below), and certain of its direct and indirect subsidiaries have been participating employers in the Cash America NSP (as defined in Article I below). The Controlling Company and its subsidiaries are part of the CAI Controlled Group (as defined in Article I below), but the Controlling Company desires to establish its own benefit plans and cease participating in the CAI benefit plans, including the Cash America NSP. The Controlling Company established this Plan to (i) accept a transfer of accounts from the Cash America NSP, with respect to active or former employees, for amounts attributable to service with the Controlling Company or its subsidiaries; and (ii) provide an opportunity for valued employees to participate in a nonqualified savings plan following cessation of participation in the Cash America NSP.
B. Goal . The Controlling Company desires to provide its designated key management employees (and those of its affiliated companies that participate in the Plan) with an opportunity to (i) defer the receipt and income taxation of a portion of such employees annual compensation and (ii) receive, on a deferred basis, matching contributions made with respect to at least a portion of such employees own deferrals.
C. Purpose . The purpose of the Plan document is to set forth the terms and conditions pursuant to which deferrals and contributions may be made and to describe the nature and extent of the employees rights to their deferred amounts and employer contributions.
D. Type of Plan . The Plan constitutes an unfunded, nonqualified deferred compensation plan that benefits certain designated employees who are within a select group of key management or highly compensated employees. It is intended that this Plan comply with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended.
STATEMENT OF AGREEMENT
To establish the Plan with the purposes and goals as hereinabove described, the Controlling Company hereby sets forth the terms and provisions of the Plan, as follows:
TABLE OF CONTENTS
ARTICLE I DEFINITIONS |
1 | |||||
1.1 |
Account |
1 | ||||
1.2 |
Administrative Committee |
1 | ||||
1.3 |
Annual Bonus |
1 | ||||
1.4 |
Annual Bonus Deferrals |
1 | ||||
1.5 |
Annual Bonus Election |
1 | ||||
1.6 |
Beneficiary |
1 | ||||
1.7 |
Board |
1 | ||||
1.8 |
Business Day |
1 | ||||
1.9 |
CAI Controlled Group |
1 | ||||
1.10 |
Cash America |
1 | ||||
1.11 |
Cash America NSP |
1 | ||||
1.12 |
Change in Control |
1 | ||||
1.13 |
Code |
2 | ||||
1.14 |
Company |
2 | ||||
1.15 |
Compensation |
3 | ||||
1.16 |
Controlled Group |
3 | ||||
1.17 |
Controlling Company |
3 | ||||
1.18 |
Deferral Contributions |
3 | ||||
1.19 |
Deferral Election |
3 | ||||
1.20 |
Effective Date |
3 | ||||
1.21 |
Eligible Employee |
4 | ||||
1.22 |
ERISA |
4 | ||||
1.23 |
FICA Tax |
4 | ||||
1.24 |
Financial Hardship |
4 | ||||
1.25 |
Investment Election |
4 | ||||
1.26 |
Investment Funds |
5 | ||||
1.27 |
Key Employee |
5 | ||||
1.28 |
Matching Compensation |
5 | ||||
1.29 |
Matching Contributions |
5 | ||||
1.30 |
Participant |
5 | ||||
1.31 |
Payment Date |
5 | ||||
1.32 |
Plan |
5 | ||||
1.33 |
Plan Year |
5 | ||||
1.34 |
Savings Plan |
5 | ||||
1.35 |
Separate from Service or Separation from Service |
5 | ||||
(a) Leaves of Absence |
6 | |||||
(b) Status Change |
6 | |||||
(c) Termination of Employment |
6 | |||||
1.36 |
Surviving Spouse |
7 | ||||
1.37 |
Trust or Trust Agreement |
7 | ||||
1.38 |
Trust Fund |
7 | ||||
1.39 |
Trustee |
7 | ||||
1.40 |
Valuation Date |
7 |
i
ii
(b) Amounts Payable Only if Account is in Pay Status |
21 | |||||
(c) Method of Payment |
21 | |||||
5.7 |
No Acceleration of Account Payments |
21 | ||||
5.8 |
Amounts Transferred from the Cash America NSP |
21 | ||||
ARTICLE VI CLAIMS |
21 | |||||
6.1 |
Rights |
21 | ||||
6.2 |
Claims |
22 | ||||
(a) Initial Claim |
22 | |||||
(b) Appeal |
22 | |||||
(c) Satisfaction of Claims |
22 | |||||
ARTICLE VII SOURCE OF FUNDS; TRUST |
23 | |||||
7.1 |
Source of Funds |
23 | ||||
7.2 |
Trust |
23 | ||||
7.3 |
Funding Prohibition Under Certain Circumstances |
23 | ||||
ARTICLE VIII ADMINISTRATIVE COMMITTEE |
24 | |||||
8.1 |
Action |
24 | ||||
8.2 |
Rights and Duties |
24 | ||||
8.3 |
Compensation, Indemnity and Liability |
25 | ||||
ARTICLE IX AMENDMENT AND TERMINATION |
25 | |||||
9.1 |
Amendments |
25 | ||||
9.2 |
Freezing or Termination of Plan |
25 | ||||
(a) Freezing |
25 | |||||
(b) Termination |
25 | |||||
ARTICLE X MISCELLANEOUS |
26 | |||||
10.1 |
Beneficiary Designation |
26 | ||||
(a) General |
26 | |||||
(b) No Designation or Designee Dead or Missing |
26 | |||||
10.2 |
Distribution Pursuant to a Domestic Relations Order |
26 | ||||
10.3 |
Taxation |
27 | ||||
10.4 |
No Employment Contract |
27 | ||||
10.5 |
Headings |
27 | ||||
10.6 |
Gender and Number |
27 | ||||
10.7 |
Assignment of Benefits |
27 | ||||
10.8 |
Legally Incompetent |
27 | ||||
10.9 |
Governing Law |
27 |
iii
ARTICLE I
DEFINITIONS
For purposes of the Plan, the following terms, when used with an initial capital letter, will have the meaning set forth below unless a different meaning plainly is required by the context.
1.1 Account means, with respect to a Participant or Beneficiary, the total dollar amount or value evidenced by the last balance posted in accordance with the terms of the Plan to the account record established for such Participant or Beneficiary. As determined by the Administrative Committee, an Account may be divided into separate subaccounts.
1.2 Administrative Committee means the administrative committee of the Savings Plan, or such other committee as may be appointed by the Board, which will administer the Plan, all as provided in Article VIII.
1.3 Annual Bonus means that portion of an Eligible Employees Compensation that is an annual cash bonus, determined and payable on an annual basis under a plan adopted by the Company, and payable prior to Separation from Service.
1.4 Annual Bonus Deferrals means, for each Plan Year, that portion of a Participants Annual Bonus deferred under the Plan pursuant to Section 3.2.
1.5 Annual Bonus Election means an election through which a Participant may elect to defer under the Plan all or a portion of his Annual Bonus. Such election may be made in writing, through an interactive telephone or internet-based system or in such other manner as the Administrative Committee may prescribe.
1.6 Beneficiary means, with respect to a Participant, the person(s) designated or identified in accordance with Section 10.1 to receive any death benefits that may be payable under the Plan upon the death of the Participant.
1.7 Board means the Board of Directors of the Controlling Company.
1.8 Business Day means each day on which the Trustee operates, and is open to the public, for its business.
1.9 CAI Controlled Group means Cash America and any other entity that is required to be aggregated with Cash America under Code Sections 414(b) or (c).
1.10 Cash America means Cash America International, Inc., a Texas corporation.
1.11 Cash America NSP means the Cash America International, Inc. Nonqualified Savings Plan.
1.12 Change in Control means an event that is a change in the ownership of the Controlling Company, a change in the effective control of the Controlling Company or a change in the ownership of a substantial portion of the assets of the Controlling Company, all as defined in Code Section 409A and guidance issued thereunder. As a general overview, a Change in Control will occur on the date that any of the following events occurs:
1
(a) Any one person, or more than one person acting as a group (as defined in Code Section 409A), acquires ownership of Controlling Company stock that, together with all other Controlling Company stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Controlling Company. However, if any one person, or more than one person acting as a group, is considered to own more than 50 percent of the total fair market value or total voting power of the stock of the Controlling Company, the acquisition of additional stock by the same person or persons is not considered to cause a change in the ownership of the Controlling Company or to cause a change in the effective control of the Controlling Company.
(b) The date any one person, or more than one person acting as a group, acquires (or has acquired, during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Controlling Company possessing 30 percent or more of the total voting power of the stock of the Controlling Company.
(c) The date that any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Controlling Company that have a total gross fair market value equal to or more than 40 percent of the total gross fair market value of all of the assets of the Controlling Company immediately before such acquisition or acquisitions.
(d) The date a majority of the Controlling Companys board of directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Controlling Companys board of directors before the date of the appointment or election.
Notwithstanding the foregoing provisions, neither a change in ownership under clause (i) nor a change in effective control under clause (ii) shall be considered to have occurred as a result of any acquisition or disposition of the Controlling Companys stock by, or an increase in the percentage of the Controlling Companys stock owned by, Cash America or any member of the CAI Controlled Group other than the Controlling Company and its Controlled Group. For clarification purposes and without limiting the foregoing, the acquisition of the Controlling Companys stock in a public offering shall not result in a Change-in-Control unless required by Code Section 409A.
1.13 Code means the Internal Revenue Code of 1986, as amended, and any succeeding federal tax provisions.
1.14 Company means the Controlling Company and its direct and indirect subsidiaries, except (i) Company subsidiaries that affirmatively elect not to participate in the Plan or that the Controlling Company affirmatively designates as not eligible to participate in the Plan; and (ii) any Company subsidiaries that are not U.S. companies that do not affirmatively elect, with the consent of the Controlling Company, to participate in the Plan.
2
1.15 Compensation means, for a Participant for any Plan Year, the total of:
(a) Such Participants compensation, based on the definition that is used under the Savings Plan for purposes of determining the amount of his before-tax and matching contributions thereunder as of the beginning of the Plan Year based on Savings Plan provisions adopted no later than the last day of the immediately preceding Plan Year, but disregarding the limitation imposed under Code Section 401(a)(17) that establishes, subject to cost-of-living adjustments, the maximum amount of compensation that can be taken into account for any year under the Savings Plan; plus
(b) Deferral Contributions, to the extent otherwise excluded from the compensation determined under subsection (a); plus
(c) Compensation during any portion of the Plan Year while the Participant was not an active participant in the Savings Plan, to the extent otherwise excluded; minus
(d) Severance pay and any other Compensation payable after the date of the Participants Separation from Service.
Compensation payable after the last day of the Plan Year for services performed during the final payroll period described in Code Section 3401(b) containing the last day of the Plan Year will be treated as Compensation for services performed in the Plan Year during which such amount is paid.
1.16 Controlled Group means the Controlling Company and any other entity that is required to be aggregated with the Controlling Company under Code Sections 414(b) or (c).
1.17 Controlling Company means Enova International, Inc., a Delaware corporation with its principal place of business in Chicago, Illinois.
1.18 Deferral Contributions means, for each Plan Year, that portion of a Participants Compensation (including Annual Bonus) deferred under the Plan pursuant to Section 3.2. To the extent appropriate in the context, a reference to Deferral Contributions will also mean, for periods before the Effective Date, amounts deferred under the Cash America NSP at the election of a Participant before the Effective Date that have been transferred to this Plan.
1.19 Deferral Election means an election through which a Participant may elect to defer under the Plan a portion of his Compensation (other than his Annual Bonus). Such election may be made in writing, through an interactive telephone or internet-based system or in such other manner as the Administrative Committee may prescribe.
1.20 Effective Date means July 1, 2012, the date this Plan will be effective.
3
1.21 Eligible Employee means, for a Plan Year, an individual:
(a) Who is a member of a select group of highly compensated or key management employees of the Company; and
(b) Who is a highly compensated employee under the Savings Plan for such Plan Year, or is selected by the Administrative Committee before the beginning of the Plan Year to be an Eligible Employee for such Plan Year; and
(c) Who is not a nonresident alien with no U.S.-source income from employment with the Controlled Group as of the first day of the Plan Year.
For clarity, an individuals status as an Eligible Employee may change from Plan Year to Plan Year.
1.22 ERISA means the Employee Retirement Income Security Act of 1974, as amended.
1.23 FICA Tax means the Federal Insurance Contributions Act tax imposed under Code Sections 3101, 3121(a) and 3121(v)(2).
1.24 Financial Hardship means a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of the Participants dependent (as defined in Code Section 152(a)), loss of the Participants property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. Financial Hardship will be determined by the Administrative Committee on the basis of the relevant facts of each case, including information supplied by the Participant in accordance with uniform guidelines prescribed from time to time by the Administrative Committee; provided, the Participant will be deemed not to have a Financial Hardship to the extent that such hardship is or may be relieved:
(a) Through reimbursement or compensation from insurance or otherwise;
(b) By liquidation of the Participants assets, to the extent the liquidation of assets would not itself cause severe financial hardship; or
(c) By cessation of deferrals under the Plan or the Savings Plan.
Examples of what could not be considered a Financial Hardship include the need to send a Participants child to college or the desire to purchase a home.
1.25 Investment Election means an election, made in such form as the Administrative Committee may direct, pursuant to which a Participant may elect the Investment Funds in which the amounts credited to his Account will be deemed to be invested.
4
1.26 Investment Funds means the investment funds and models selected from time to time by the Administrative Committee for purposes of determining the rate of return on amounts deemed invested pursuant to the terms of the Plan.
1.27 Key Employee means a Participant who is a specified employee as defined in Code Section 409A as of: (i) for a Participant who Separates from Service on or after the first day of a calendar year and before the first day of the fourth month of such calendar year, the December 31 of the second calendar year preceding the calendar year in which such Participant Separates from Service; or (ii) for any other Participant, the preceding December 31. For purposes of identifying Key Employees, the Participants compensation means all of the items listed in Treasury Regulations Section 1.415(c)-2(b), and excluding all of the items listed in Treasury Regulations Section 1.415(c)-2(c).
1.28 Matching Compensation means, for a Participant for a Plan Year, the portion of the Participants Compensation that exceeds the limitation applicable for such Plan Year under Code Section 401(a)(17).
1.29 Matching Contributions means, for each Plan Year, the amount credited to a Participants Account pursuant to Section 3.4. To the extent appropriate in the context, a reference to Matching Contributions will also mean, for a calendar year before the Effective Date, amounts credited under the Cash America NSP before the Effective Date as a company matching contribution that have been transferred to this Plan.
1.30 Participant means any person who has been admitted to, and has not been removed from, participation in the Plan pursuant to the provisions of Article II.
1.31 Payment Date means the date on which all or a portion of the Participants benefit is scheduled to be paid (in the case of a lump sum payment) or commenced (in the case of installment payments) pursuant to the terms of the Plan.
1.32 Plan means the Enova International, Inc. Nonqualified Savings Plan, as contained herein and all amendments hereto. For tax purposes and purposes of Title I of ERISA, the Plan is intended to be an unfunded, nonqualified deferred compensation plan covering certain designated employees who are within a select group of key management or highly compensated employees.
1.33 Plan Year means (i) the period beginning on the Effective Date and ending on December 31, 2012, and (ii) thereafter, the 12-consecutive-month period ending on December 31 of each year. Notwithstanding the foregoing, for the purposes of election timing and irrevocability rules or as otherwise required to comply with Code Section 409A, the initial Plan Year will be the period beginning on January 1, 2012, and ending on December 31, 2012.
1.34 Savings Plan means the defined contribution retirement plan intended to be qualified under Code Sections 401(a) and 401(k) that is maintained by the Controlling Company.
1.35 Separate from Service or Separation from Service means that a Participant separates from service with the Controlled Group as defined in Code Section 409A and guidance issued thereunder. Generally, a Participant separates from service if the Participant dies, retires,
5
or otherwise has a termination of employment with the Controlled Group member that employs the Participant and all entities that would be treated as a single employer with such entity under Code Sections 414(b) or (c) (for clarity, applying an 80% ownership threshold), determined in accordance with the following:
(a) Leaves of Absence . The employment relationship is treated as continuing intact while the Participant is on military leave, sick leave, or other bona fide leave of absence if the period of such leave does not exceed 6 months, or, if longer, so long as the Participant retains a right to reemployment with the Controlled Group under an applicable statute or by contract. A leave of absence constitutes a bona fide leave of absence only while there is a reasonable expectation that the Participant will return to perform services for the Controlled Group. If the period of leave exceeds 6 months and the Participant does not retain a right to reemployment under an applicable statute or by contract, the employment relationship is deemed to terminate on the first date immediately following such 6-month period. Notwithstanding the foregoing, where a leave of absence is due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 6 months, where such impairment causes the Participant to be unable to perform the duties of his or her position of employment or any substantially similar position of employment, a 29-month period of absence will be substituted for such 6-month period.
(b) Status Change . Generally, if a Participant performs services both as an employee and an independent contractor, such Participant must separate from service both as an employee, and as an independent contractor pursuant to standards set forth in Treasury Regulations, to be treated as having a Separation from Service. However, if a Participant provides services as an employee and as a member of the Board of Directors, the services provided as a director are not taken into account in determining whether the Participant has a Separation from Service as an employee for purposes of this Plan.
(c) Termination of Employment . Whether a termination of employment has occurred is determined based on whether the facts and circumstances indicate that the Controlled Group and the Participant reasonably anticipate that (i) no further services will be performed after a certain date, or (ii) the level of bona fide services the Participant will perform after such date (whether as an employee or as an independent contractor) will permanently decrease to no more than 20 percent of the average level of bona fide services performed (whether as an employee or an independent contractor) over the immediately preceding 36-month period (or the full period of services to the Controlled Group if the Participant has been providing services to the Controlled Group less than 36 months). Facts and circumstances to be considered in making this determination include, but are not limited to, whether the Participant continues to be treated as an employee for other purposes (such as continuation of salary and participation in employee benefit programs), whether similarly situated service providers have been treated consistently, and whether the Participant is permitted, and realistically available, to perform services for other service recipients in the same line of business. For periods during which a Participant is on a paid bona fide leave of absence and has not otherwise terminated employment as described in subsection (a) above, for purposes of this subsection the Participant is treated as providing bona fide services at a level equal to the level of services that the Participant would have been required to perform to receive the compensation paid with respect to such leave of absence. Periods during which a Participant is on an unpaid bona fide leave of absence and has not otherwise terminated employment are disregarded for purposes of this subsection (including for purposes of determining the applicable 36-month (or shorter) period).
6
1.36 Surviving Spouse means, with respect to a Participant, the person who is treated as married to such Participant under the laws of the state in which the Participant resides. The determination of a Participants Surviving Spouse will be made as of the date of such Participants death.
1.37 Trust or Trust Agreement means the separate agreement or agreements between the Controlling Company and the Trustee governing the Trust Fund, and all amendments thereto.
1.38 Trust Fund means the total amount of cash and other property held by the Trustee (or any nominee thereof) at any time under the Trust Agreement.
1.39 Trustee means the party or parties so designated from time to time pursuant to the terms of the Trust Agreement.
1.40 Valuation Date means each Business Day; provided, the value of an Account on a day other than a Valuation Date will be the value determined as of the immediately preceding Valuation Date.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
2.1 Eligibility .
Each individual who is both an Eligible Employee and eligible to participate in the Savings Plan as of the first day of a Plan Year (whether or not he elects to make before-tax contributions to the Savings Plan) will be eligible to participate in the Plan for the entire Plan Year.
2.2 Procedure for Admission .
The Administrative Committee may require an Eligible Employee to complete such forms and provide such data as the Administrative Committee determines in its sole discretion. Such forms and data may include, without limitation, the Eligible Employees Deferral Election, Annual Bonus Election, acceptance of the terms and conditions of the Plan and the designation of a Beneficiary to receive any death benefits payable hereunder.
2.3 Cessation of Eligibility .
An employee will cease active participation in the Plan if he ceases to satisfy the criteria which qualified him as an Eligible Employee, in which case his Deferral Election and Annual Bonus Election will not apply to Compensation earned in any Plan Year during which he does not satisfy the requirements as an Eligible Employee. An employee will cease active participation in the Plan upon his Separation from Service, in which case his Deferral Election and Annual Bonus Election will not apply to Compensation payable after Separation from
7
Service. An employee will cease active participation in the Plan upon his transfer to employment with a member of the Controlled Group that is not part of the Company, but only to the extent that his Deferral Election and Annual Bonus Election for the year of transfer continue to apply, under a nonqualified deferred compensation plan sponsored by his new employer, to his Compensation. Even if his active participation in the Plan ends, an employee will remain an inactive Participant in the Plan until the earlier of (i) the date the full amount of his vested Account (if any) is distributed from the Plan, or (ii) the date he again becomes an Eligible Employee and recommences active participation in the Plan. During the period of time that an employee is an inactive Participant in the Plan, his vested Account will continue to be credited with earnings as provided for in Section 3.6.
ARTICLE III
PARTICIPANTS ACCOUNTS; DEFERRALS AND CREDITING
3.1 Participants Accounts .
(a) Establishment of Accounts . The Administrative Committee will establish and maintain an Account on behalf of each Participant. Each Account will be credited with (i) Deferral Contributions, (ii) Matching Contributions, and (iii) earnings attributable to such Account, and will be debited by the amount of any distributions. A Participants Account may also include amounts transferred from the Cash America NSP. Each Account of a Participant will be maintained until the vested value thereof has been distributed to or on behalf of such Participant or his Beneficiary.
(b) Nature of Contributions and Accounts . Deferral Contributions, Matching Contributions and earnings credited to a Participants Account will be represented solely by bookkeeping entries and, except as provided in Article VII, no moneys or other assets will actually be set aside for such Participant. All payments to a Participant under the Plan will be made from the general assets of the Company. The Administrative Committee or the Board will allocate the total liability to pay benefits under the Plan among the Controlling Company and the members of its Controlled Group comprising the Company in such manner and amount as the Administrative Committee or the Board (as applicable) in its sole discretion deems appropriate. Any assets which may be acquired by the Company in anticipation of its obligations under the Plan will be part of the general assets of the Company. The Companys obligation to pay benefits under the Plan constitutes a mere promise of the Company to pay such benefits, and a Participant or Beneficiary will be and remain no more than an unsecured, general creditor of the Company.
3.2 Deferral Contributions .
Each Eligible Employee who is eligible to participate in the Plan for a Plan Year may elect to have Deferral Contributions made on his behalf for such Plan Year by completing and delivering to the Company (or its designee) a Deferral Election and/or, if permitted by the Administrative Committee, an Annual Bonus Election, setting forth the terms of his election(s). Subject to the terms and conditions set forth below, (i) a Deferral Election may provide for (A)
8
the reduction of an Eligible Employees Compensation (exclusive of Annual Bonus amounts) earned during the Plan Year for which the Deferral Election is in effect, or (B) the reduction of an Eligible Employees Compensation (exclusive of Annual Bonus amounts) earned during the Plan Year for which the Deferral Election is in effect, only to the extent such Compensation exceeds the limit applicable for such Plan Year under Code Section 401(a)(17); and (ii) an Annual Bonus Election will provide for the reduction of an Eligible Employees Annual Bonus earned during the Plan Year for which the Annual Bonus Election is in effect. The following terms will apply to such elections:
(a) Deadline . A Participants Deferral Election and Annual Bonus Election for the Compensation earned during a Plan Year must be made within the time period prescribed by the Administrative Committee and before the first day of such Plan Year. An Eligible Employee may change his Deferral Election and/or Annual Bonus Election for the Plan Year any time prior to the deadline specified in this subsection, subject to any restrictions or procedures determined by the Administrative Committee.
(b) Irrevocability and Term of Election .
(1) Generally . Upon the deadline specified in (a) above, an Eligible Employees Deferral Election and Annual Bonus Election, or deemed election upon a failure to submit a timely election, will become irrevocable for the Plan Year except as provided under this subsection. Each Participants Deferral Election and Annual Bonus Election for a Plan Year will remain in effect for such Plan Year and all subsequent Plan Years until the earlier of: (i) the cessation of the Participants deferrals because the Participant is no longer an active Participant as provided in Plan Section 2.3, including upon Separation from Service; (ii) the effective date of the Participants revocation of such Deferral Election or Annual Bonus Election, as applicable, for amounts earned during a subsequent Plan Year; (iii) immediately prior to the beginning of the Plan Year that includes the scheduled payment date for his Deferral Contributions under such Deferral Election or Annual Bonus Election, if such date may occur prior to Separation from Service; or (iv) the date the Participant receives a hardship distribution under the Companys tax-qualified retirement plan that provides that a hardship distribution will be deemed necessary to satisfy an immediate and heavy financial need if the employee is prohibited from making elective contributions and employee contributions to all plans maintained by the Company for a period following the hardship distribution. A Participants Deferral Election and Annual Bonus Election may be cancelled in the discretion of the Administrative Committee as permitted under Code Section 409A (for example, on the date the Participant receives an unforeseeable emergency distribution pursuant to Code Section 409A). For clarity, if a Participants Deferral Election and Annual Bonus Election are cancelled because the Participant is no longer an active Participant as provided in Section 2.3, such individual must submit a new Deferral Election and/or Annual Bonus Election if he again becomes eligible to actively participate in the Plan.
(2) Effect of Transfers Between Related Entities . If a Participant is transferred from the employment of one entity that is part of the Company to another entity that is also part of the Company, his Deferral Election and Annual Bonus Election
9
with the first entity will remain in effect and will apply to his Compensation from the second entity until terminated as set forth in subsection (1) above. If a Participant is transferred from employment with the Company to the employment of a member of the Controlled Group that does not participate in either the Plan or another nonqualified deferred compensation plan, then his Deferral Election and Annual Bonus Election will remain in effect and will apply to his Compensation earned for the Plan Year during which the transfer occurs, and will be automatically cancelled as of the end of such Plan Year. If a Participant is transferred from employment with the Company to the employment of a member of the Controlled Group that does not participate in the Plan but maintains another nonqualified deferred compensation plan, then his Deferral Election and Annual Bonus Election will remain in effect under the Plan and will apply to his Compensation earned for the Plan Year during which the transfer occurs, but only to the extent that his Deferral Election and Annual Bonus Election for the year of transfer do not continue to apply, under a nonqualified deferred compensation plan sponsored by his new employer, to his Compensation; such Deferral Election and Annual Bonus Election will be automatically cancelled as of the end of such Plan Year. If a Participant is transferred to employment with the Company from employment with a member of the Controlled Group that does not participate in the Plan but maintains another nonqualified deferred compensation plan, then (i) his deferral election(s) that would have applied to his Compensation under such other plan had he not transferred employment will transfer to, and be deemed as, a Deferral Election and/or Annual Bonus Election (as applicable) under the Plan with respect to his Compensation earned after such transfer; and (ii) the timing and form of payment that applied to deferrals made pursuant to such transferred Deferral Election and/or Annual Bonus Election under such other plan will transfer to the Plan and apply to deferrals made pursuant to such transferred Deferral Election and/or Annual Bonus Election, subject to modification pursuant to the terms of Section 5.2(c).
(c) Amount .
(1) Deferral Election . A Participant may elect to defer his Compensation in 1% increments, up to a maximum of 50% or such other maximum percentage and/or amount, if any, established by the Administrative Committee from Plan Year to Plan Year.
(2) Annual Bonus Election . If the Administrative Committee permits, the Participant may elect to reduce his Annual Bonus by a fixed dollar amount or in 1% increments, up to 100%, or such other maximum amount, if any, established by the Administrative Committee from Plan Year to Plan Year. Any percentage election will be applied to the Participants gross Annual Bonus without reduction for any FICA Tax applicable to the Annual Bonus, but the deferral amount will be deducted after any FICA Tax applicable to the Annual Bonus and other tax withholding related to the amount of such FICA Taxes as permitted under Code Section 409A, and will not exceed the remaining amount of the Annual Bonus after reduction for FICA Taxes and such related tax withholding.
(d) 2012 Elections . As of the Effective Date, all then-current deferral elections under the Cash America NSP for Participants who had valid deferral elections in effect
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under the Cash America NSP immediately before the Effective Date will transfer to and apply under this Plan. Those transferred elections will be considered Deferral Elections or Annual Bonus Elections, as applicable, under the Plan. All deferral contributions made under the Cash America NSP with respect to the period from January 1, 2012, through the Effective Date will be considered deferrals under this Plan when determining the amount of Compensation and Annual Bonus deferred for 2012 under this Plan.
3.3 Crediting of Deferred Compensation .
For each Plan Year that a Participant has a Deferral Election and/or an Annual Bonus Election in effect, the Administrative Committee will credit the amount of such Participants Deferral Contributions to his Account on, or as soon as practicable after, the Valuation Date on which such amount would have been paid to him but for his Deferral Election and/or Annual Bonus Election.
3.4 Matching Contributions .
As of the end of each payroll period (or such other date or time as the Administrative Committee, in its sole discretion, determines from time to time), the Administrative Committee will credit to each Participants Account for such period a Matching Contribution equal to 50% of the Participants Matching Compensation deferred under the Plan for such period, up to 5% of such Participants Matching Compensation; provided, the total amount of Matching Contributions credited to such Participants Account for any period will not exceed 2.5% of such Participants Matching Compensation for such period.
3.5 Debiting of Distributions .
As of each Valuation Date, the Administrative Committee will debit each Participants Account for any amount distributed from such Account since the immediately preceding Valuation Date.
3.6 Crediting of Earnings .
As of each Valuation Date, the Administrative Committee will credit to each Participants Account the amount of earnings and/or losses applicable thereto for the period since the immediately preceding Valuation Date, based on the investments applicable to the Participants Account pursuant to the terms of Section 4.2.
3.7 Vesting .
(a) General . A Participant will at all times be fully vested in his Deferral Contributions, and the earnings credited to his Account with respect to such Deferral Contributions. The Matching Contributions credited to a Participants Account and the earnings credited with respect thereto will vest in accordance with the vesting schedule, and at the same vesting percentage, as applies to the Participants matching account under the Savings Plan.
(b) Change in Control . If a Change in Control occurs, the Participant will be immediately 100% vested in the Matching Contributions credited to his Account and the
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earnings credited with respect thereto as of the date of such Change in Control. Matching Contributions credited to a Participants account and the earnings credited with respect thereto after the date of a Change in Control will continue to vest in accordance with the vesting schedule, and at the same vesting percentage, as applies to the Participants matching account under the Savings Plan.
(c) Job Abolishment . If a Participants employment is terminated as a result of a job abolishment, the Matching Contributions credited to his Account and the earnings credited with respect thereto will be immediately 100% vested.
3.8 Notice to Participants of Account Balances .
At least once for each Plan Year, the Administrative Committee will cause a written or electronic statement of a Participants Account balance to be distributed or otherwise made available to the Participant.
3.9 Good Faith Valuation Binding .
In determining the value of the Accounts, the Administrative Committee will exercise its best judgment, and all such determinations of value (in the absence of bad faith) will be binding upon all Participants and their Beneficiaries.
3.10 Errors and Omissions in Accounts .
If an error or omission is discovered in the Account of a Participant, the Administrative Committee, in its sole discretion, will cause appropriate, equitable adjustments to be made as soon as administratively practicable following the discovery of such error or omission.
ARTICLE IV
INVESTMENT FUNDS
4.1 Selection by Administrative Committee .
From time to time, the Administrative Committee will select two or more Investment Funds for purposes of determining the rate of return on amounts deemed invested in accordance with the terms of the Plan. The Administrative Committee may change, add or remove Investment Funds on a prospective basis at any time(s) and in any manner it deems appropriate.
4.2 Participant Direction of Deemed Investments .
Each Participant generally may direct the manner in which his Account will be deemed invested in and among the Investment Funds. Any Participant investment directions permitted hereunder will be made in accordance with the following terms:
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(a) Nature of Participant Direction . The selection of Investment Funds by a Participant will be for the sole purpose of determining the rate of return to be credited to his Account, and will not be treated or interpreted in any manner whatsoever as a requirement or direction to actually invest assets in any Investment Fund or any other investment media. The Plan, as an unfunded, nonqualified deferred compensation plan, at no time will have any actual investment of assets relative to the benefits or Accounts hereunder.
(b) Investment of Contributions . Each Participant may make an Investment Election prescribing the percentage of the future contributions that will be deemed invested in each Investment Fund. An initial Investment Election of a Participant will be made as of the date the Participant commences participation in the Plan and will apply to all contributions credited to such Participants Account after such date. Such Participant may make subsequent Investment Elections as of any Business Day, and each such election will apply to all such specified contributions credited to such Participants Account after the Administrative Committee (or its designee) has a reasonable opportunity to process such election pursuant to such procedures as the Administrative Committee may determine from time to time. Any Investment Election made pursuant to this subsection (b) with respect to future contributions will remain effective until changed by the Participant.
(c) Investment of Existing Account Balances . Each Participant may make an Investment Election prescribing the percentage of his existing Account balance that will be deemed invested in each Investment Fund. A Participant may make such Investment Elections as of any Business Day, and each such election will be effective after the Administrative Committee (or its designee) has a reasonable opportunity to process such election. Each such election will remain in effect until changed by such Participant.
(d) Administrative Committee Discretion . The Administrative Committee will have complete discretion to adopt and revise procedures to be followed in making Investment Elections. Such procedures may include, but are not limited to, the process of making elections, the permitted frequency of making elections, the incremental size of elections, the deadline for making elections, the effective date of such elections. Any procedures adopted by the Administrative Committee that are inconsistent with the deadlines or procedures specified in this Section will supersede such provisions of this Section without the necessity of a Plan amendment. Except to the extent otherwise determined by the Administrative Committee, any investment elections in effect with respect to a Participants contributions and accounts under the Cash America NSP will be deemed to be such Participants initial investment elections under the Plan.
ARTICLE V
PAYMENT OF ACCOUNT BALANCES
5.1 Amount of Benefit Payments for Account .
Payment of a benefit amount from the Participants Account as of any Payment Date hereunder will be calculated by determining the total of: (i) the entire vested amount credited to the Participants Account that is payable on such Payment Date, determined as of the
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Valuation Date on which the distribution is processed; plus (ii) the vested amount of any Deferral and Matching Contributions made since such Valuation Date that are payable on such Payment Date. For purposes of this subsection, the Valuation Date on which such distribution is processed refers to the Valuation Date established for such purpose by administrative practice, even if actual payment is made or commenced at a later date due to delays in valuation, administration or any other procedure.
5.2 Timing and Form of Distribution of Account .
(a) Timing of Distributions .
(1) Default Timing of Distribution . Except as provided in Section 5.3, and subsections (a)(2) and (c) hereof, the Payment Date for a Participants Account will be the 30 th day after the date the Participant Separates from Service; provided, in the case of a Participant who is a Key Employee on the date he Separates from Service for any reason other than his death, payments may not be made before the date that is 6 months after the date of Separation from Service.
(2) Payment Date Election .
(A) Generally . A Participant may elect, at the time he makes a Deferral Election and/or Annual Bonus Election for a Plan Year, to have the Payment Date for all or a portion of the part of his Account balance attributable to such elections, including any related vested Matching Contributions, be the earlier of Separation from Service (provided that payments made on account of Separation from Service other than by reason of a Participants death may not be made before 6 months after Separation from Service if the Participant is a Key Employee on the date he or she Separates from Service) or the first day of a specified calendar month. In the event of an election under this subsection, the specified month selected by the Participant must be no earlier than January of the second Plan Year after the year to which the Deferral Election and/or Annual Bonus Election applies. A Participant may elect a different Payment Date with respect to each Plan Year.
(B) Before 2012 . For the portion of a Participants Account transferred from the Cash America NSP, the Payment Date(s) initially will be determined under the provisions and elections applicable to the Participant under the Cash America NSP as in effect on the Effective Date. Furthermore, for the portion of a Participants Account attributable to the 2012 Plan Year, the Payment Date initially will be determined by the provisions and elections applicable to contributions for the 2012 plan year for the Participant under the Cash America NSP as in effect on the Effective Date. Thereafter, modifications will be determined according to subsection (c) of this Section. For plan years beginning before January 1, 2011, under the Cash America NSP, a Participant was permitted to elect to have the Payment Date for the portion of his Account balance attributable to a given years deferrals, including any related vested Matching Contributions, be: (i) a specified date, (ii) the earlier of a specified date or
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Separation from Service (provided that payments made on account of Separation from Service other than by reason of a Participants death may not be made before 6 months after Separation from Service if the Participant is a Key Employee on the date he or she Separates from Service), or (iii) the later of a specified date or Separation from Service (provided that payments made on account of Separation from Service other than by reason of a Participants death may not be made before 6 months after Separation from Service if the Participant is a Key Employee on the date he or she Separates from Service). The specified date selected by the Participant had to be at least one year after the end of the first plan year to which the deferral election applied. Also, the Cash America NSP permitted Participants to elect Payment Dates before January 1, 2009, in accordance with transition rules under Code Section 409A.
(C) New Election Each Year . The prior years Payment Date election will not apply and the Participant must make a new Payment Date election for the benefit attributable to deferrals for each Plan Year.
(b) Form of Distribution for Account Balances .
(1) Single-Sum Payment . Except as provided in subsections (b)(2) and (c) hereof, the portion of a Participants Account payable on a given Payment Date will be distributed in the form of a single lump-sum payment.
(2) Annual Installments .
(A) Election of Annual Installments .
(i) Generally . With respect to the benefit corresponding to a Plan Year, at the time a Participant makes a Deferral Election and/or Annual Bonus Election for the Plan Year, he may elect (I) to receive such benefit in the form of annual installments to the extent that the benefit becomes payable due to Separation from Service, and/or (II) to receive such benefit in the form of annual installments to the extent the benefit becomes payable during a specified calendar month. A Participant may make different installment payment elections with respect to his benefit attributable to deferrals for each Plan Year.
(ii) Before 2012 . For the portion of a Participants Account transferred from the Cash America NSP, the form of payment initially will be determined under the provisions and elections applicable to the Participant under the Cash America NSP as in effect on the Effective Date. Furthermore, for the portion of a Participants Account attributable to the 2012 Plan Year, the form of payment initially will be determined by the provisions and elections applicable to contributions for the 2012 plan year for the Participant under the Cash America NSP as in effect on the Effective Date. Thereafter, modifications will be determined according to subsection (c) of this Section. Under the Cash America NSP, for plan years beginning before January 1, 2011, a Participant was permitted to elect, with respect to the total benefit corresponding to a Payment Date, to receive such benefit in the form of annual installments.
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(iii) Carryover from Year to Year .
1. No Carryover if Deferrals Cancelled . In the event that a Participant revokes his Deferral Election and his Annual Bonus Election (or has such elections cancelled pursuant to the terms of the Plan), any installment payment election(s) under such Deferral Election and/or Annual Bonus Election will not apply to the benefit attributable to deferrals for subsequent Plan Years.
2. Carryover of Separation Election But Not In-Service Election . In the event that the Participant modifies his Deferral Election, his Annual Bonus Election, or both, but does not revoke both his Deferral Election and his Annual Bonus Election, (i) the most recent installment payment election in effect with respect to payment upon Separation from Service, if any, will continue to apply to the benefit attributable to deferrals for the next Plan Year to the extent not modified; and (ii) his installment payment election, if any, for payment during a specified calendar month will not carry over and the Participant must make a new installment payment election for payment during a specified calendar month for the benefit attributable to deferrals for each Plan Year.
(B) Installment Periods . The installment payments will be made in substantially equal annual installments over a period of not less than 2 years and not more than 10 years (adjusted for earnings between payments in the manner described in Section 3.6), beginning on the applicable Payment Date. The number of annual installment payments elected by the Participant will be specified at the time the Participant makes the Deferral Election in which the installment payments are elected.
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(c) Modifications of Form and Timing .
(1) Availability of Election .
(A) Benefits for Years After 2010 . Except as provided in subsection (B), a Participant may make one election for the benefit attributable to each Plan Year that begins on or after January 1, 2011 (including benefits transferred from the Cash America NSP attributable to plan years of the Cash America NSP beginning on or after January 1, 2011), to change the form of payment of his benefit to the extent it becomes payable due to Separation from Service, and one election for each such Plan Years benefit to change the timing and/or form of payment of his benefit to the extent it becomes payable in a specified calendar month. Therefore, a Participant may make one election with respect to each such Plan Years deferrals, to change the form of payment that applies to the extent the benefit attributable to such Plan Year becomes payable due to Separation from Service to: (A) elect annual installment payments as described above, (B) change the number of installment payments elected, or (C) elect a lump sum. In addition, a Participant may make one election with respect to each such Plan Years deferrals, to (i) delay the payment (or commencement) of his benefit attributable to such Plan Year to the extent it becomes payable in a specified calendar month, and/or (ii) change the form of payment that applies to the extent the benefit attributable to such Plan Year becomes payable in a specified calendar month to: (A) elect annual installment payments as described above, (B) change the number of installment payments elected, or (C) elect a lump sum. Any election under this subsection will specify the number of installment payments elected, if any.
(B) Benefits for Years Before 2011 . With respect to benefits transferred from the Cash America NSP attributable to plan years beginning before January 1, 2011, a Participant may make one election per Payment Date to (i) delay the payment (or commencement) of the portion of his Account payable on such Payment Date, and/or (ii) change the form of payment to: (A) have the portion of his Account payable on such Payment Date paid in the form of annual installment payments as described above, (B) change the number of installment payments elected, or (C) elect a lump sum. Any election under this subsection will specify the number of installment payments elected, if any. Notwithstanding the foregoing, a Participant may only make an election under this subsection with respect to benefits payable under (a)(1) above if he does not already have 2 Payment Dates other than the default payment date specified in subsection (a)(1), applicable to his benefits attributable to plan years beginning before January 1, 2011, that were transferred from the Cash America NSP.
(2) Delay in Payment Date .
(A) Payment Date Change Only . In the event of an election under subsection (1) to delay the Payment Date but not to change the form of payment, the Payment Date (or portion of the Payment Date) being altered will be
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delayed for 5 years as follows: (i) if payment upon Separation from Service is being altered, such payment will be delayed to 5 years after the date of payment that would otherwise apply; (ii) if a specified date is being altered, a new date must be specified that is at least 5 years after such originally specified date, and (iii) if a calendar month specified under Section 5.2(a)(2)(A) is being altered, a new calendar month must be specified that is at least 5 years after such originally specified calendar month.
(B) Form of Payment Change for Post-2010 Deferrals . In the event of an election under subsection (1)(A) to change the form of payment that applies to a benefit to the extent it becomes payable in a specified calendar month, a new calendar month will apply that is 5 years after such originally specified calendar month, or such later calendar month as the Participant may elect pursuant to subsection (1)(A). In the event of an election under subsection (1)(A) to change the form of payment that applies to a benefit to the extent it becomes payable due to Separation from Service, payment will be delayed by 5 years after the payment date that would otherwise apply.
(C) Form of Payment Change for Pre-2011 Deferrals . In the event of an election under subsection (1)(B) that includes a change in the form of payment, the Payment Date for such portion of the Participants Account will be delayed to 5 years after the Payment Date that would have applied under subsection (a) above (so that, in the case of an election to be paid on the earlier of or later of Separation from Service or a specified date, payment upon Separation from Service and payment upon the specified date will both be delayed to 5 years after the date payment would otherwise be made).
(3) Restrictions . Any election under this subsection (c) will not take effect until 12 months after the date on which the election is made. In the case of an amount payable on a specified date, an election under this subsection (c) must be made at least 1 year before such specified date.
(d) Medium of Payment . All distributions will be made in the form of cash.
(e) Cash-out .
(1) Employee Deferral Cashout . Except as provided in subsection (4), if at any time a Participants Account balance attributable to Deferral Contributions does not exceed the applicable dollar amount under Code Section 402(g)(1)(B), the Administrative Committee may elect, in its sole discretion, to pay the Participants entire Account balance attributable to Deferral Contributions in an immediate single-sum payment. For purposes of this provision, any deferrals of compensation that the Participant has elected under any other nonqualified deferred compensation plan maintained by a member of the Controlled Group or transferred from a nonqualified deferred compensation plan maintained by Cash America, in each case that is an account balance plan subject to Code Section 409A, will be considered as part of the Participants Account balance attributable to Deferral Contributions hereunder.
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(2) Cashout of Employer Contributions . Except as provided in subsection (4), if at any time a Participants Account balance, other than amounts attributable to Deferral Contributions, does not exceed the applicable dollar amount under Code Section 402(g)(1)(B), the Administrative Committee may elect, in its sole discretion, to pay such portion of the Participants Account balance in an immediate single-sum payment. For purposes of this provision, any deferrals of compensation other than Participant elective deferrals under any other nonqualified deferred compensation plan maintained by a member of the Controlled Group or transferred from a nonqualified deferred compensation plan maintained by Cash America, in each case that is an account balance plan subject to Code Section 409A, will be considered as part of the Participants Account balance other than amounts attributable to elective deferrals of the Participant.
(3) Documentation of Determination . Any exercise of the Administrative Committees discretion pursuant to this subsection (e) will be evidenced in writing no later than the date of the distribution.
(4) Six Month Delay for Key Employees . Notwithstanding the foregoing, to the extent required by Code Section 409A, no payment under this subsection (e) will be made within six months after the date the Participant Separates from Service, in the case of a payment to a Participant who is a Key Employee on the date he Separates from Service.
5.3 Death Benefits .
If a Participant dies before full payment of his Account from the Plan is made, the Beneficiary or Beneficiaries designated by such Participant in his latest beneficiary designation form filed with the Administrative Committee will be entitled to receive a distribution of the Participants vested Account, as determined under Section 5.1. The benefit will be distributed to such Beneficiary or Beneficiaries on the 30 th day after the date of the Participants death, in the form of a single-sum payment in cash.
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5.4 Hardship Withdrawals .
Upon receipt of an application for an in-service hardship distribution and the Administrative Committees decision, made in its sole discretion, that a Participant has suffered a Financial Hardship, the Administrative Committee will cause the Company to pay an in-service distribution to such Participant from the Participants Account. Such distribution will be paid in a single sum payment within 90 days after the Administrative Committee determines that a Financial Hardship exists, which must be prior to the Participants Separation from Service. Such payment will be made in cash. The amount of such single-sum payment will be limited to the amount reasonably necessary to meet the Participants requirements resulting from the Financial Hardship. Determinations of amounts reasonably necessary to satisfy the emergency need will take into account any additional compensation that is available under this Plan due to cancellation of a deferral election upon a payment due to a Financial Hardship. However, the determination of amounts reasonably necessary to satisfy the emergency need will not take into account any additional compensation that due to the Financial Hardship is available under another nonqualified deferred compensation plan but has not actually been paid. If payment is made hereunder upon an unforeseeable emergency, it will be so designated at the time of payment. Such distribution will reduce the Participants Account balance as provided in Section 3.5.
5.5 Offset of Benefit by Amounts Owed to the Company .
Notwithstanding anything in the Plan to the contrary, the Administrative Committee may, in its sole discretion, offset any payment or payments of the Account to a Participant or Beneficiary under the Plan by any amount owed by such Participant or Beneficiary (whether or not such obligation is related to the Plan) to the Controlling Company or any member of the Controlled Group. Notwithstanding the foregoing, no such offset will apply before the amount to be offset is otherwise payable under the Plan, unless the following requirements are met: (i) the debt owed was incurred in the ordinary course of the service relationship between the Participant and the Controlled Group, (ii) the entire amount of offset to which this sentence applies in a single taxable year does not exceed $5,000 (taking into account offsets of any amounts under other nonqualified deferred compensation plans that are required to be aggregated with benefits that would be offset under this Section), (iii) the offset occurs at the same time and in the same amount as the debt otherwise would have been due and collected from the Participant or Beneficiary, and (iv) in the case of a Participant who is a Key Employee on the date he Separates from Service, the offset does not occur within six months after the date the Participant Separates from Service.
5.6 Taxes .
(a) Amounts Payable Whether or Not Account is in Pay Status . If the whole or any part of any Participants or Beneficiarys Account hereunder will become subject to FICA Tax or any state, local or foreign tax obligations, which the Company is required to pay or withhold prior to the time the Participants Account becomes payable hereunder, the Company will have the full power and authority to withhold and pay such tax and related taxes as permitted under Code Section 409A.
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(b) Amounts Payable Only if Account is in Pay Status . If the whole or any part of any Participants or Beneficiarys Account hereunder is subject to any taxes which the Company is required to pay or withhold at the time the Account becomes payable hereunder, the Company will have the full power and authority to withhold and pay such tax out of any monies or other property that the Company holds for the account of the Participant or Beneficiary, excluding, except as provided in this Section, any portion of the Participants Account that is not then payable or other deferrals of compensation under a plan maintained by a member of the Controlled Group that are subject to Code Section 409A and are not then payable.
(c) Method of Payment . The Company may permit, in its sole discretion, a Participant to remit any tax liability via personal check.
5.7 No Acceleration of Account Payments .
Except as otherwise provided in this Section, no payment scheduled to be made under this Article may be accelerated. Notwithstanding the foregoing, the Administrative Committee, in its sole discretion, may accelerate any payment scheduled to be made under this Article in accordance with Code Section 409A (for example, upon certain terminations of the Plan, limited cashouts or to avoid certain conflicts of interest); provided, a Participant may not elect whether his scheduled payment will be accelerated pursuant to this sentence.
5.8 Amounts Transferred from the Cash America NSP .
Any amounts transferred from the Cash America NSP will be administered in accordance with the terms of the Cash America NSP, including any prior payment elections made by a Participant, to the extent required to avoid income inclusion under Code Section 409A. For the avoidance of doubt, the determination of whether amounts transferred from the Cash America NSP become vested as a result of a Change in Control after the Effective Date will be determined under sections 1.12 and 3.7 of the Plan. Furthermore, it is intended that, for the initial Plan Year of the Plan, this Plan will be a continuation of the Cash America NSP with respect to the Participants, including, without limitation, retention of all elections and restrictions required by Code Section 409A, and this Plan will be construed accordingly.
ARTICLE VI
CLAIMS
6.1 Rights .
If a Participant or Beneficiary has any grievance, complaint or claim concerning any aspect of the operation or administration of the Plan, including but not limited to claims for benefits (collectively referred to herein as claim or claims), the Participant will submit the claim in accordance with the procedures set forth in this Article. All such claims must be submitted within the applicable limitations period. The applicable limitations period will be 2 years, beginning (i) in the case of any lump-sum payment, on the date on which the payment was made, (ii) in the case of a periodic payment, the date of the first in the series of payments, or (iii) for all other claims, on the date on which the action complained of occurred. Additionally, upon denial of an appeal pursuant to Section 6.2(b) hereof, a Participant or Beneficiary will have 90 days within which to bring suit against the Plan for any claim related to such denied appeal; any such suit initiated after such 90-day period will be precluded.
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6.2 Claims .
(a) Initial Claim . Claims for benefits under the Plan may be filed with the Administrative Committee on forms or in such other written documents, as the Administrative Committee may prescribe. The Administrative Committee will furnish to the claimant written notice of the disposition of a claim within 90 days after the application therefor is filed; provided, if special circumstances require an extension of time for processing the claim, the Administrative Committee will furnish written notice of the extension to the claimant prior to the end of the initial 90-day period, and such extension will not exceed one additional, consecutive 90-day period. In the event the claim is denied, the notice of the disposition of the claim will provide the specific reasons for the denial, citations of the pertinent provisions of the Plan, where appropriate, an explanation as to how the claimant can perfect the claim and/or submit the claim for review, and a statement of the claimants right to bring a civil action under ERISA Section 502(a) following an adverse determination on review.
(b) Appeal . Any Participant or Beneficiary who has been denied a benefit will be entitled, upon request to the Administrative Committee, to appeal the denial of his claim. The claimant (or his duly authorized representative) may review pertinent documents related to the Plan and in the Administrative Committees possession in order to prepare the appeal. The request for review, together with a written statement of the claimants position, must be filed with the Administrative Committee no later than 60 days after receipt of the written notification of denial of a claim provided for in subsection (a). The Administrative Committees decision will be made within 60 days following the filing of the request for review; provided, if special circumstances require an extension of time for processing the appeal, the Administrative Committee will furnish written notice of the extension to the claimant prior to the end of the initial 60-day period, and such extension will not exceed one additional 60-day period. If unfavorable, the notice of the decision will explain the reasons for denial, indicate the provisions of the Plan or other documents used to arrive at the decision, and state the claimants right to bring a civil action under ERISA Section 502(a).
(c) Satisfaction of Claims . Any payment to a Participant or Beneficiary will to the extent thereof be in full satisfaction of all claims hereunder against the Administrative Committee and the Company, any of whom may require such Participant or Beneficiary, as a condition to such payment, to execute a receipt and release therefor in such form as determined by the Administrative Committee or the Company. If a receipt and release is required but the Participant or Beneficiary (as applicable) does not provide such receipt and release in a timely enough manner to permit a timely distribution in accordance with the general timing of distribution provisions in the Plan, such payment will be forfeited.
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ARTICLE VII
SOURCE OF FUNDS; TRUST
7.1 Source of Funds .
Except as provided in this Section and Section 7.2, the Company will provide the benefits described in the Plan from the general assets of the Company. In any event, the Company ultimately will have the obligation to pay all benefits due to Participants and Beneficiaries under the Plan. The Company may, but will not be required to, establish a Trust and may pay over funds from time to time to such Trust (as described in Section 7.2), and, to the extent that funds in such Trust allocable to the benefits payable under the Plan are sufficient, the Trust assets will be used to pay benefits under the Plan. If such Trust assets are not sufficient to pay all benefits due under the Plan, then the Company will have the obligation, and the Participant or Beneficiary who is due such benefits will look to the Company to provide, such benefits. The Administrative Committee or the Board will allocate the total liability to pay benefits under the Plan among the Controlling Company and the members of its Controlled Group comprising the Company in such manner and amount as the Administrative Committee or the Board (as applicable) in its sole discretion deems appropriate.
7.2 Trust .
The Company may transfer all or any portion of the funds necessary to fund benefits accrued hereunder to the Trustee to be held and administered by the Trustee pursuant to the terms of the Trust Agreement. To the extent provided in the Trust Agreement, each transfer into the Trust Fund will be irrevocable as long as the Company has any liability or obligations under the Plan to pay benefits, such that the Trust property is in no way subject to use by the Company; provided, it is the intent of the Company that the assets held by the Trust are and will remain at all times subject to the claims of the general creditors of the Company. No Participant or Beneficiary will have any interest in the assets held by the Trust or in the general assets of the Company other than as a general, unsecured creditor. Accordingly, the Company will not grant a security interest in the assets held by the Trust in favor of the Participants, Beneficiaries or any creditor.
7.3 Funding Prohibition Under Certain Circumstances .
Notwithstanding anything in this Article to the contrary, no assets will be set aside to fund benefits under the Plan if such setting aside would be treated as a transfer of property under Code Section 83 pursuant to Code Section 409A(b).
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ARTICLE VIII
ADMINISTRATIVE COMMITTEE
8.1 Action .
Action of the Administrative Committee may be taken with or without a meeting of committee members; provided, action will be taken only upon the vote or other affirmative expression of a majority of the committee members qualified to vote with respect to such action. If a member of the committee is a Participant or Beneficiary, he will not participate in any decision which solely affects his own benefit under the Plan. For purposes of administering the Plan, the Administrative Committee will choose a secretary who will keep minutes of the committees proceedings and all records and documents pertaining to the administration of the Plan. The secretary may execute any certificate or any other written direction on behalf of the Administrative Committee.
8.2 Rights and Duties .
The Administrative Committee will administer the Plan and will have all the powers necessary to accomplish that purpose, including (but not limited to) the following:
(a) To construe, interpret and administer the Plan;
(b) To make determinations required by the Plan, and to maintain records regarding Participants and Beneficiaries benefits hereunder;
(c) To compute and certify to the Company the amount and kinds of benefits payable to Participants and Beneficiaries, and to determine the time and manner in which such benefits are to be paid;
(d) To authorize all disbursements by the Company pursuant to the Plan;
(e) To maintain all the necessary records of the administration of the Plan;
(f) To make and publish such rules for the regulation of the Plan as are not inconsistent with the terms hereof;
(g) To have all powers elsewhere conferred upon it;
(h) To appoint a Trustee hereunder;
(i) To delegate to other individuals or entities from time to time the performance of any of its duties or responsibilities hereunder; and
(j) To hire agents, accountants, actuaries, consultants and legal counsel to assist in operating and administering the Plan.
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The Administrative Committee will have the exclusive right in its discretion to construe and interpret the Plan, to decide all questions of eligibility for benefits and to determine the amount of such benefits, and its decisions on such matters will be final and conclusive on all parties.
8.3 Compensation, Indemnity and Liability .
The Administrative Committee and its members will serve as such without bond and without compensation for services hereunder. All expenses of the Administrative Committee will be paid by the Company. No member of the committee will be liable for any act or omission of any other member of the committee, nor for any act or omission on his own part, except with regard to his own willful misconduct. The Company will indemnify and hold harmless the Administrative Committee and each member thereof against any and all expenses and liabilities, including reasonable legal fees and expenses, arising out of his membership on the Administrative Committee, excepting only expenses and liabilities arising out of his own willful misconduct.
ARTICLE IX
AMENDMENT AND TERMINATION
9.1 Amendments .
The Board or the Administrative Committee will have the right, in its sole discretion, to amend the Plan in whole or in part at any time and from time to time; provided, any amendment that may result in significantly increased expenses under the Plan must be approved by the Board. Any amendment will be in writing and executed by a duly authorized officer of the Controlling Company. An amendment to the Plan may modify its terms in any respect whatsoever; provided, no such action may reduce the amount already credited to a Participants Account without the affected Participants written consent. All Participants and Beneficiaries will be bound by such amendment.
9.2 Freezing or Termination of Plan .
(a) Freezing . The Controlling Company, through action of the Board, reserves the right to discontinue and freeze the Plan at any time, for any reason. Any action to freeze the Plan will be taken by the Board in the form of a written Plan amendment executed by a duly authorized officer of the Controlling Company.
(b) Termination . The Controlling Company expects to continue the Plan but reserves the right to terminate the Plan and fully distribute all Accounts under the Plan at any time, for any reason; provided, the distribution of Accounts will be subject to the restrictions provided under Code Section 409A (including, to the extent required by Code Section 409A, the 6-month delay that applies to distributions to Key Employees following Separation from Service). Any action to terminate the Plan will be taken by the Board in the form of a written Plan amendment executed by a duly authorized officer of the Controlling Company. If the Plan is terminated, each Participant will become 100% vested in his Account. Such termination will be binding on all Participants and Beneficiaries.
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ARTICLE X
MISCELLANEOUS
10.1 Beneficiary Designation .
(a) General . Participants will designate and from time to time may redesignate their Beneficiaries in such form and manner as the Administrative Committee may determine. For a Participant who becomes a Participant on the Effective Date and previously participated in the Cash America NSP, the beneficiary designation such Participant had in effect under the Cash America NSP, if any, immediately before the Effective Date, will become such Participants Beneficiary under this Plan as of the Effective Date.
(b) No Designation or Designee Dead or Missing . In the event that:
(1) a Participant dies without designating a Beneficiary;
(2) the Beneficiary designated by a Participant is not surviving when a payment is to be made to such person under the Plan, and no contingent Beneficiary has been designated; or
(3) the Beneficiary designated by a Participant cannot be located by the Administrative Committee;
then, in any of such events, the Beneficiary of such Participant will be the Participants Surviving Spouse, if any, and if not, then the estate of the Participant; provided, if the Participant does not have a Surviving Spouse (or the Surviving Spouse cannot be located), and no claim has been made on behalf of the Participants estate within a reasonable period of time after the Participants death, then the Beneficiary will be such heirs and/or relatives of the Participant as the Administrative Committee may determine in its sole discretion, and payment to such Beneficiary will be deemed in full satisfaction of the Participants benefits under the Plan, without further liability with respect to such Participants benefits on the part of the Plan, the Controlling Company, any affiliate, or the Administrative Committee.
10.2 Distribution Pursuant to a Domestic Relations Order .
Upon receipt of a valid domestic relations order (determined in accordance with the rules applicable to a tax-qualified retirement plan under Code Section 401(a)) requiring the distribution of all or a portion of a Participants Account to an alternate payee, the Administrative Committee will cause the Company to pay a distribution to such alternate payee. All distributions to alternate payees under the Plan will be in the form of a single lump sum payment.
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10.3 Taxation .
It is the intention of the Company that the benefits payable hereunder will not be deductible by the Company nor taxable for federal income tax purposes to Participants or Beneficiaries until such benefits are paid by the Company, or the Trust, as the case may be, to such Participants or Beneficiaries. Without limiting the foregoing, it is intended that the Plan meet the requirements of Code Section 409A, and the Administrative Committee will use its reasonable best efforts to interpret and administer the Plan in accordance with such requirements.
10.4 No Employment Contract .
Nothing herein contained is intended to be nor will be construed as constituting a contract or other arrangement between the Company and any Participant to the effect that the Participant will be employed by the Company for any specific period of time.
10.5 Headings .
The headings of the various articles and sections in the Plan are solely for convenience and may not be relied upon in construing any provisions hereof. Any reference to a section refers to a section of the Plan unless specified otherwise.
10.6 Gender and Number .
Use of any gender in the Plan will be deemed to include both genders when appropriate, and use of the singular number will be deemed to include the plural when appropriate, and vice versa in each instance.
10.7 Assignment of Benefits .
The right of a Participant or Beneficiary to receive payments under the Plan will not be anticipated, alienated, sold, assigned, transferred, pledged, encumbered, attached or garnished by creditors of such Participant or Beneficiary, except by will or by the laws of descent and distribution and then only to the extent permitted under the terms of the Plan.
10.8 Legally Incompetent .
The Administrative Committee, in its sole discretion, may direct that payment be made to an incompetent or disabled person, whether because of minority or mental or physical disability, to the guardian of such person, to the person having custody of such person, to any relative of such person, or to anyone with whom such person lives, without further liability on the part of the Company for the amount of such payment to the person on whose account such payment is made.
10.9 Governing Law .
The Plan will be construed, administered and governed in all respects in accordance with applicable federal law (including ERISA) and, to the extent not preempted by federal law, in accordance with the laws of the State of Illinois. If any provisions of this instrument are held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions hereof will continue to be fully effective.
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IN WITNESS WHEREOF, the Controlling Company has caused the Plan to be executed by its duly authorized officer on the 25th day of June, 2012.
ENOVA INTERNATIONAL, INC. | ||
By: | /s/ Robert S. Clifton | |
Title: | VP of Accounting |
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Exhibit 10.7
CASH AMERICA INTERNATIONAL, INC.
1600 West Seventh Street
Fort Worth, Texas 76102
817.335.1100
January 29, 2013
Timothy S. Ho
740 W. Fulton #710
Chicago, IL 60661
Re: | Continued Employment and Separation Agreement |
Dear Tim:
This letter agreement and release of claims (this Agreement) sets forth the terms and conditions governing (i) your continued employment with Enova Financial Holdings, LLC (Enova), (ii) the termination of your employment relationship with Enova, and any relationship with Cash America International, Inc. (CAI), Enova International, Inc., and all of their affiliates and subsidiaries (collectively, the Company), and (iii) your release of the Company and related parties. Additionally, it is agreed that this Agreement sets forth the entire agreement between you and the Company (the Parties) and its predecessors, directors, officers, employees, agents and representatives relating to the separation of your employment.
Continued Employment. From the date of this letter through March 28, 2013 , your employment with Enova and your relationship with the other companies comprising the Company will continue, with your primary duties to include (i) reporting to, and continuing to manage the business as directed by, the new chief executive officer of the Companys e-commerce segment (the New CEO), (ii) introducing the New CEO to the Companys e-commerce segment, its business and its employees, client base and suppliers; and (iii) helping to methodically transition your duties to the New CEO. During that period, you will continue to work on substantially a full time basis, and both you and the Company reasonably anticipate that, through March 28, 2013 , you will continue to work more than 20% of the average amount you worked over the last 36 months such that you will not have a separation from service (within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (Section409A)).
For all periods through March 28, 2013, you will continue to receive the same compensation and benefits as is currently in effect, subject to any changes that may apply to all other senior executives of Enova.
Severance Arrangement. Except as expressly provided herein, this Agreement is not intended to alter the form or timing of any severance pay or benefits provided to you under any prior arrangement, including, but not limited to, the Cash America International, Inc. Severance Pay Plan for Executives (the Severance Plan) but is intended to provide for certain additional payments and benefits described herein. Your separation from the Company under this Agreement is an Eligible Termination for purposes of, and within the meaning of, Section 2(c) of the Severance Plan.
All of your employment by, and services for, the Company will cease, and you thereby will have a separation from service on, March 29, 2013 (your Severance Date). In consideration of your separation from service, you and the Company agree to the following:
(1) | If you agree to and accept the terms contained in this Agreement, you must sign the Agreement in the space provided below and return one fully executed original of this Agreement to the Company by February 20, 2013, which date is more than 21 days after the date that this Agreement is being delivered to you. In addition, on March 29, 2013 , you must sign the Release Agreement (a copy of which is attached hereto as Exhibit A), which date is more than 21 days after the date that this Agreement and the Release Agreement is being delivered to you. If you elect to sign this Agreement and the Release Agreement and return an original of each to the Company, you will have 7 days after you deliver the original of each of this Agreement and the Release Agreement to the Company during which you may revoke your acceptance. If you choose to revoke your acceptance of either this Agreement or the Release Agreement, you must notify the Company in writing, and the Company must receive the notification by the expiration of the applicable 7-day period. If you do not sign this Agreement and the Release Agreement within the period or on the date, respectively, specified above, or if you revoke your acceptance of either during the applicable revocation period described above, this Agreement will be of no further force or effect, and you will not be entitled to any of the payments or benefits described herein. The signed agreement and any revocation thereof should be sent via US mail or overnight courier to CAIs home office address as shown on this Agreement, with attention to the Companys General Counsel, or via telecopy to the Companys General Counsel at 817.570.1647 (followed by mailing or overnighting the original to the address above). |
(2) | Your separation from all offices and positions held by you in the Company will be effective as your Severance Date. |
(3) | If you sign this Agreement and the Release Agreement in the manner described in paragraph (1) above and you do not thereafter revoke your acceptance, the Company will pay to you severance pay in the gross amount of $860,000.00 (Salary Continuation Pay), less applicable withholdings required by law. Consistent with the terms of Section 3(a)(ii)(B) of the Severance Plan, this Salary Continuation Pay will be paid to you as described below. The Salary Continuation Pay is for the 24-month period commencing on your Severance Date and ending in March 2015 (the Severance Period), and will be paid in substantially equal installments as salary continuation, beginning upon your Severance Date. Such installment payments shall be paid in accordance with the Companys regular payroll procedures for other similarly-situated active employees. Notwithstanding the foregoing, any payment of severance pay shall be delayed until after the expiration of the Release Agreements revocation period described in paragraph (1) above, and any amount of severance pay otherwise due before the end of such revocation period shall be paid upon the day after the end of such period in a single lump-sum payment. In no event shall the first payment be made more than 74 days following your Severance Date. Each payment shall be considered a separate payment for purposes of Section 409A. |
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(4) | The Company will pay to you in a single lump sum an amount equal to the difference between (i) $24,807.69, which reflects the value of 3 weeks of vacation, and (ii) the value of any vacation you take between the date of this Agreement and March 28, 2013. This lump-sum amount will be paid to you within 30 days after your Severance Date. |
(5) | If (i) you sign this Agreement and the Release Agreement in the manner described in paragraph (1) above and you do not thereafter revoke your acceptance of either, and (ii) you elect to continue health coverage ( i.e., medical, dental and vision benefits) under the Companys group health plan pursuant to the continuation provisions of the Consolidated Omnibus Budget Reconciliation Act (COBRA), then, during the first 18 months of your Severance Period while such coverage is in effect, the Company will reimburse you for the portion of the premium for group health plan coverage that you pay and that is in excess of what similarly-situated executives would pay for similar coverage under the Companys group health plan during that period, all as provided under Section 3(a)(iii) of the Severance Plan. In addition, to the extent you would be entitled to COBRA during the last 6 months of your Severance Period if COBRA lasted 24 months (instead of 18 months), then the Company will allow you to continue your group health plan coverage under the Companys group health plan pursuant the same rules and terms as would apply if COBRA had continued; and the Company will reimburse you for the portion of the premium for group health plan coverage that you pay and that is in excess of what similarly-situated executives would pay for similar coverage under the Companys group health plan during that period. Also, the Company will allow you to continue your participation in the Companys Medical Expense Reimbursement Plan (MERP) as long as you are participating in the Companys group medical plan under COBRA or the COBRA-like coverage described in the preceding sentence. Because the reimbursement of the premiums for the group health plan benefits and the reimbursements under the MERP provided to you are discriminatory in favor of a highly compensated individual under Section 105(h) of the Internal Revenue Code of 1986, as amended (the Code), the Company will report the amounts of the premium reimbursements and MERP benefits as taxable income on your Form W-2. Each of the reimbursements will be treated as a separate payment for purposes of Code Section 409A. The Company reserves the right to amend and/or terminate any of the group health plans and the MERP at any time. |
(6) | This Agreement provides for any and all payments to you for any reason associated with your employment with the Company up to and including your Severance Date. You will not be entitled to receive any amounts under any other plan, program or agreement with the Company (including, without limitation, incentive pay under the Companys 2013 Short Term Incentive Plan or any other incentive plan, including any non-vested Units or Performance Units under the Cash America Net Holdings, LLC 2007 Long Term Incentive Plan, the Cash America Net Holdings, LLC 2008 Long Term Incentive Plan, or the Cash America International, Inc. First Amended and Restated 2004 Long-Term Incentive Plan (the LTIP) (including, but not limited to, any grant agreements issued under the LTIP that evidence unvested time-based and/or performance-based restricted stock units or any unvested cash-based performance units previously awarded to you, which agreements and unvested awards shall automatically terminate, forfeit and expire on the Separation Date), or any agreement or arrangement providing benefits or payments in the event of a change in corporate control (including the Executive Change-In-Control Severance Agreement previously executed by you and the Company, which Agreement shall also terminate on the Separation Date)); and all other benefits and perquisites that you are currently receiving will cease on your Severance Date. The foregoing will not, however, affect any vested benefits to which you are entitled after separation under the terms of any Company benefit or compensation plan in which you are a participant. |
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(7) | You agree not to say, write, do, authorize or otherwise create or publish anything that will in any way disparage the Company or any of its employees. You also agree not to interfere with the management of the Company through any contact with shareholders, directors, employees, vendors and others, and not to make any public or private statements or comments that may have the effect of disrupting operations of the Company in any way. The Company agrees not to say, write, do, authorize or otherwise create or publish anything that will in any way disparage you; provided, however, any disclosures requested or required by any court or governmental entity, including without limitation, the Securities and Exchange Commission, or any factual disclosures reasonably necessary to protect or defend the Company shall not be deemed to be disparaging. |
(8) | The Parties agree that the terms and conditions of this Agreement will be filed, and disclosed in filings, with the Securities Exchange Commission to the extent required. To the extent such disclosure is not required, the terms and conditions of this Agreement are to be held in strict confidence by you and characterized as confidential information. The Parties further agree that the terms and conditions of this Agreement will not be further disclosed to any other person or entity (with the exception of the Parties attorneys, accountants and your current spouse, provided such individuals agree to maintain the confidentiality requirements of this paragraph (8)), unless such party is required to do so by a valid order of a court of competent jurisdiction, or as required by law. Any disclosure of confidential information to any third-party not otherwise contemplated herein will be construed as a material breach of this Agreement. |
(9) | It is further agreed that you will return to the Company, on or before your Severance Date, all Company property currently in your possession, including without limitation, computers, PDAs, keys, credit cards, cellular phones, pagers and all papers, lists and other materials that relate to, or involve, the business of the Company and that are in your possession or control. |
(10) | You further agree to give up any claim to reinstatement with the Company. You also agree not to apply for re-employment with the Company or any related Company during the Severance Period. Following the expiration of the Severance Period, you may apply for employment and be evaluated along with all other qualified applicants in accordance with the Companys hiring policies and procedures. |
(11) |
You acknowledge that, during the term of your employment, you have been privy to confidential and proprietary information of the Company. You agree to not disclose to any third party the trade secrets, proprietary information, marketing strategies, business strategies, business plans, pricing data, legal analyses, financial information, insurance information, customer lists, customer information, creditor files, processes, policies, procedures, research, lists, methodologies, specifications, software, software code, computer systems, software and hardware architecture and specifications, customer information systems, point of sale systems, management information systems, software design and development plans and materials, intellectual property, contracts, business records, technical |
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expertise and know-how, and other confidential and proprietary information and trade secrets of the Company (collectively, the Property), which were provided to you by the Company and are confidential and proprietary property of the Company. You further agree (i) that prior to the date you executed this Agreement, you did not intentionally harm, damage or destroy any of the Companys Property, and (ii) not to use any Property to your personal benefit or the benefit of any third party. You also agree to return to the Company by your Severance Date all such Property which is tangible. Notwithstanding the foregoing, the Property protected hereunder does not include any data or information that has been disclosed to the public (except where such public disclosure has been made by you without authorization), that has been independently developed and disclosed by others, or that otherwise enters the public domain through lawful means. The restrictions in this provision are in addition to, and not in lieu of, any rights or remedies the Company may have available pursuant to the laws of the State of Illinois to prevent the disclosure of trade secrets and proprietary information. Your obligations under the nondisclosure provisions hereof (i) will apply to confidential information that does not constitute trade secrets for a period of 36 months after your Severance Date, and (ii) will apply to trade secrets until such Property no longer constitutes trade secrets. |
(12) | You agree that, for 24 months after your Severance Date, you will not, directly or indirectly, solicit, recruit or induce any employee, officer, agent or independent contractor of the Company to terminate such partys engagement with the Company so as to work for any person or business which competes with the Company for talent; provided, the restrictions set forth in this provision (i) will only apply to employees, officers, agents or independent contractors with whom you had business contact during the 12-month period prior to your Severance Date, and (ii) will not apply to any such party that is at the time of contact no longer engaged by the Company and such party initiates contact with you with respect to any opportunity that you would otherwise be able to pursue without the breach of any other terms or covenants in this Agreement. |
(13) | You agree that, for 24 months after your Severance Date, you will not, on your own behalf or on behalf of any other person or entity (including without limitation any entity that you may form, join, consult with, provide services or assistance to or on behalf of, or otherwise become affiliated with), compete with the Company anywhere within the Territory by providing management or consulting services similar to those you provided to the Company with respect to any consumer finance products provided over the Internet or through storefronts or any services related to such products to the extent any of such consumer finance products or related services consist of, facilitate, support, or relate to, consumer finance products that carry an effective total cost of credit of greater than 36% per annum or any services related to any such products (Consumer Finance Products and Services); provided, however, Consumer Finance Products and Services do not include any e-commerce activities or business analytic activities that do not relate to, facilitate or support any Consumer Finance Products and Services. For purposes of this Agreement, the term Territory will mean any territory in which the Company offers Consumer Finance Products and Services on the Severance Date, plus any additional territory into which the Company has actively and directly sought to expand during the 12-month period preceding the Severance Date in which you were involved. |
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(14) | You agree that, for 24 months after your Severance Date, you will not, on your own behalf or on behalf of any other person or entity, solicit, initiate contact, call upon, initiate communication with or attempt to initiate communication with any customer or client of the Company or any representative of any customer or client of the Company, with a view to providing Company Products and Services to such clients or customers; provided, the restrictions set forth in this provision will apply only to customers or clients of the Company with whom you had contact within the 12-month period prior to your Severance Date. |
(15) | You acknowledge and agree that the provisions hereof relating to confidential and proprietary information, nonsolicitation of employees and agents, noncompetition, and nonsolicitation of customers and clients (collectively, the Covenants) are reasonable and valid and do not impose limitations greater than those that are necessary to protect the business interests and confidential information of the Company. You expressly agree and consent that, and represent and warrant to the Company that, the Covenants will not prevent or unreasonably restrict or interfere with your ability to make a fair living. You agree that the invalidity or unenforceability of any one or more of the Covenants, or any part thereof, will not affect the validity or enforceability of the other Covenants, all of which are inserted conditionally on their being valid in law. In case any one or more of the Covenants contained in this Agreement shall be held to be invalid, illegal or unenforceable in any respect for any reason, such invalidity, illegality or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal or unenforceable Covenant had never been contained herein. You also agree that in the event any court of appropriate jurisdiction should determine that any portion or provision of any Covenant is invalid, unenforceable or excessively restrictive, you and the Company will request such court to rewrite such Covenant in order to make such Covenant legal, enforceable and acceptable to such court to the maximum extent permissible under applicable law. You agree that the Covenants contained in this Agreement are severable and divisible; that none of such Covenants depends on any other Covenant for its enforceability; that such Covenants constitute enforceable obligations between you and the Company; that each such Covenant will be construed as an agreement independent of any other Covenant of this Agreement; and that the existence of any claim or cause of action by one party to this Agreement against the other party to this Agreement, whether predicated on this Agreement or otherwise, will not constitute a defense to the enforcement by any party to this Agreement of any such Covenant. |
You agree that any remedy at law for any breach of the Covenants will be inadequate and that the Company will be entitled to apply for injunctive relief in addition to any other remedy the Company might have under this Agreement or applicable law.
You acknowledge that, in addition to seeking injunctive relief, the Company may cease all payments and reimbursements due to you under this Agreement and may bring a cause of action against you for any and all losses, liabilities, damages, deficiencies, costs (including, without limitation, court costs), and expenses (including, without limitation, reasonable attorneys fees), incurred by the Company and arising out of or due to any breach of any of the Covenants. In addition, you agree that either party may bring an action against the other for breach of any other provision of this Agreement.
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(16) | This Agreement is intended to comply with the requirements of Section 409A and guidance issued thereunder (with some of the severance pay and benefits exempt from Section 409A and the remainder in compliance with Section 409A) and shall be construed accordingly. Any payments or distributions payable to you under this Agreement upon your separation from service (as defined for purposes of Section 409A) of amounts classified as nonqualified deferred compensation for purposes of Section 409A, and not exempt from Section 409A, shall in no event be made or commence until 6 months after the date of such separation from service. Each payment under this Agreement (whether of cash, property or benefits) shall be treated as a separate payment for purposes of Section 409A. With respect to payments or benefits provided under this Agreement that are reimbursements or in-kind payments that are not exempt from Section 409A, the amount of such payment(s) or benefit(s) during any calendar year shall not affect payment(s) or benefit(s) provided in any other calendar year, and the right to any payment(s) or benefit(s) shall not be subject to liquidation or exchange for another benefit. Any reimbursements under this Agreement shall be paid as soon as practicable but no later than 90 days after you submit evidence of such expenses to the Company (which payment date shall in no event be later than the last day of the calendar year following the calendar year in which the expense was incurred). |
(17) |
In consideration of the above, including the mutual agreements of the parties hereto and the payments to be made to you hereunder, the receipt and sufficiency of which are hereby acknowledged and confessed by you, you (on behalf of yourself and your successors and assigns) voluntarily and knowingly, fully, completely, and forever release the Company and its officers, directors, employees, stockholders, and legal successors and assigns of the Company (collectively, Released Parties) from all claims, charges, actions and causes of action, whether now known or unknown, which you now have, or at any other time had, or shall or may have against those Released Parties based upon or arising out of any matter, cause, fact, thing, act or omission whatsoever occurring at any time up to and including the date you sign this Agreement, including, but not limited to, any claims for claims based upon or arising under: express or implied contract; wages or benefits owed; covenants of fair dealing and good faith; interference with contract; option grants; wrongful discharge or termination; employment discrimination of any type; the Texas Commission on Human Rights Act (TCHRA), and any similar statute in other states; the Texas Payday Act, the Texas Labor Code, and any similar statute in other states; any claim of employment discrimination based on exercising rights under workers compensation laws; Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e, et seq . (prohibiting discrimination on account of race, sex, national origin or religion); the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. §§ 621, et seq . (prohibiting discrimination on account of age) (ADEA); the Older Workers Benefit Protection Act (OWBPA); the Civil Rights Act of 1991; the Civil Rights Acts of 1866 and 1871, 42 U.S.C. §§ 1981; Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. § 1001, et seq . (ERISA); the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. §§ 12101-12213 (ADA); the Family and Medical Leave Act, 29 U.S.C. § 2601, et seq . (FMLA); the Fair Labor Standards Act, 29 U.S.C. § 201, et seq . (FLSA); the Workers Adjustment and Retraining Notification Act (WARN); any and all state and federal statutes which prohibit discrimination or retaliation in employment based on any protected status (including, without limitation, national origin, race, sex, sexual orientation, disability, workers compensation status, or other protected category) and amendments to these statutes; the common law, negligence, gross negligence or any other tort claim, including |
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but not limited to, intentional infliction of emotional distress, negligent infliction of emotional distress, negligence, defamation, assault, battery, invasion of privacy, false imprisonment, breach of contract, interference with a contract, interference with contractual relations, civil conspiracy, duress, promissory or equitable estoppel, defamation, fraud, misrepresentation, wrongful termination, violation of public policy, retaliation, personal injury, breach of fiduciary duty, loss of consortium, bad faith, and any federal, state or local laws, statutes, regulations, ordinances, or other similar provisions. You understand that you are not releasing any claims that arise after the date you sign this Agreement. |
You understand that following the 7-day revocation period, this release will be final and binding. You promise that you, on behalf of yourself, any representative of yours and any person whose claims derive from yours, will not pursue any claim that you have settled by this release or file any lawsuit or other legal proceeding to assert any such claims and you understand and agree that you will not be entitled hereafter to pursue any claims arising out of any alleged violation of your rights while employed by the Company, including, but not limited to, claims for back pay, losses or other damages. If you break any of the promises set forth in the previous sentence, you agree to pay all of the Companys costs and expenses (including reasonable attorneys fees) related to the defense of any claims except for claims arising under the OWBPA and the ADEA. Although you are releasing claims that you may have under the OWBPA and ADEA, you understand that you may challenge the knowing and voluntary nature of this release before a court, the Equal Employment Opportunity Commission (EEOC), or any other federal, state or local agency charged with the enforcement of any employment laws. You also understand that nothing in this release prevents you from filing a charge or complaint with or from participating in an investigation or proceeding conducted by the EEOC or any other federal, state or local agency charged with the enforcement of any employment laws. You understand, however, that if you pursue a claim against the Company under the OWBPA and/or the ADEA to challenge the validity of this release and prevail on the merits of an ADEA claim, a court has the discretion to determine whether the Company is entitled to restitution, recoupment, or set off (hereinafter reduction) against a monetary award obtained by you in the court proceeding. A reduction never can exceed the amount you recover, or the consideration you received for signing this release, whichever is less. Furthermore, you give up your right to individual damages or remedies in connection with any administrative or judicial proceeding with respect to your employment or termination of employment with the Company. You also recognize that the Company may be entitled to recover costs and attorneys fees incurred by the Company as specifically authorized under applicable law.
(18) | You on behalf of yourself, any representative of yours, and any person whose claims derive from yours, promises that no lawsuit or claim has been or will be filed based on any claims released by this Agreement. If such a lawsuit or claim has been or is filed, you agree to withdraw or dismiss such lawsuit or claims upon signing this Agreement; otherwise, you agree to pay all attorneys fees and court costs incurred by the Company or any other released party in defending against the lawsuit, claim or charge, along with other appropriate damages. |
(19) | This Agreement is not an admission on the Companys part of any liability whatsoever or that it in any way has acted improperly or unlawfully. The Company specifically denies any liability or improper or unlawful conduct. |
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(20) | If any claims are made by or against the Company which arise out of or relate to your employment with the Company, you agree that you will cooperate fully in the investigation and defense of such claims, including but not limited to preparation for and providing truthful testimony and in such event, to the extent allowed by law, the Company will reimburse you for your out-of-pocket expenses associated therewith and will compensate you for your documented time spent in connection therewith at a commercially reasonable hourly rate; provided, however, no such reimbursement or compensation will be payable if the action in question alleges or involves any fraud, bad faith or intentional misconduct on your part during your employment with the Company or if the reimbursements or compensation could, by the nature of the particular action in question, jeopardize the Companys position in such action. Any reimbursements or compensation paid to you pursuant to this paragraph shall be subject to the requirements of Section 409(A). |
(21) | This Agreement is intended by you and the Company to be a legally valid and binding agreement. If any provision of this Agreement is found to be illegal, invalid or unenforceable, such term or provision shall be severable, and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision were never a part hereof; the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance; and in lieu of such illegal, invalid or unenforceable provision, there shall be added as part of this Agreement, a provision as similar in its terms to such illegal, invalid or unenforceable provision, as may be possible and be legal, valid or enforceable. |
(22) | This Agreement shall be construed and enforced in accordance with the laws of the State of Illinois, United States, and venue for any action brought in connection with this Agreement shall lie in Cook County, Illinois, U.S.A. |
The Company wishes you success in your future endeavors.
Very truly yours, | ||||||
Enova Financial Holdings, LLC | ||||||
By: | Enova Online Services, Inc., its sole member | |||||
By: | Enova International, Inc., its sole shareholder | |||||
By: | /s/ Daniel R. Feehan | |||||
Daniel R. Feehan, | ||||||
Executive Chairman of the Board |
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I have read the foregoing Agreement, agree to its terms, and acknowledge receipt of a copy of same, and the sufficiency of the payments recited in it. I understand and acknowledge that I should seek counsel from an attorney with regard to all aspects of this Agreement (including, but not limited to the release contained in it) and that I have had a sufficient opportunity to do so. I hereby voluntarily enter into this Agreement effective as of January 29, 2013, with full knowledge of its meaning and significance. I acknowledge and warrant that I have been given a period of at least 21 days within which to consider this Agreement prior to executing it, if I so desire. This Agreement may be revoked by me for a period of 7 days following its execution. To be effective, the revocation must be in writing and received by the Company by the expiration of this seven-day period.
/s/ Timothy S. Ho |
Timothy S. Ho |
January 29, 2013 |
Date |
10
EXHIBIT A
Release Agreement
In consideration of the severance pay and benefits payable to me pursuant to the terms of the letter agreement, dated January 29, 2013, regarding Continued Employment and Separation Agreement (the Agreement), I, Timothy S. Ho, do hereby agree to the following release as set forth in this Release Agreement:
On behalf of myself and my successors and assigns), I voluntarily and knowingly, fully, completely, and forever release Enova Financial Holdings, LLC (Enova), Cash America International, Inc. (CAI), Enova International, Inc., and all of their affiliates and subsidiaries (collectively, the Company) and the Companys officers, directors, employees, stockholders, and legal successors and assigns (collectively, Released Parties) from all claims, charges, actions and causes of action, whether now known or unknown, which I now have, or at any other time had, or shall or may have against those Released Parties based upon or arising out of any matter, cause, fact, thing, act or omission whatsoever occurring at any time up to and including the date I sign this Release Agreement, including, but not limited to, any claims for claims based upon or arising under: express or implied contract; wages or benefits owed; covenants of fair dealing and good faith; interference with contract; option grants; wrongful discharge or termination; employment discrimination of any type; the Texas Commission on Human Rights Act (TCHRA), and any similar statute in other states; the Texas Payday Act, the Texas Labor Code, and any similar statute in other states; any claim of employment discrimination based on exercising rights under workers compensation laws; Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. § 2000e, et seq . (prohibiting discrimination on account of race, sex, national origin or religion); the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. §§ 621, et seq . (prohibiting discrimination on account of age) (ADEA); the Older Workers Benefit Protection Act (OWBPA); the Civil Rights Act of 1991; the Civil Rights Acts of 1866 and 1871, 42 U.S.C. §§ 1981; Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. § 1001, et seq . (ERISA); the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. §§ 12101-12213 (ADA); the Family and Medical Leave Act, 29 U.S.C. § 2601, et seq . (FMLA); the Fair Labor Standards Act, 29 U.S.C. § 201, et seq . (FLSA); the Workers Adjustment and Retraining Notification Act (WARN); any and all state and federal statutes which prohibit discrimination or retaliation in employment based on any protected status (including, without limitation, national origin, race, sex, sexual orientation, disability, workers compensation status, or other protected category) and amendments to these statutes; the common law, negligence, gross negligence or any other tort claim, including but not limited to, intentional infliction of emotional distress, negligent infliction of emotional distress, negligence, defamation, assault, battery, invasion of privacy, false imprisonment, breach of contract, interference with a contract, interference with contractual relations, civil conspiracy, duress, promissory or equitable estoppel, defamation, fraud, misrepresentation, wrongful termination, violation of public policy, retaliation, personal injury, breach of fiduciary duty, loss of consortium, bad faith, and any federal, state or local laws, statutes, regulations, ordinances, or other similar provisions. I understand that I am not releasing any claims that arise after the date I sign this Release Agreement.
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I understand that I must sign this Release Agreement on March 29, 2013 , which date is more than 21 days after the date that this Release Agreement was delivered to me. If I elect to sign this Release Agreement and return an original of it to the Company, I will have 7 days after I deliver the original of this Release Agreement to the Company during which I may revoke my acceptance. If I choose to revoke my acceptance of this Release Agreement, I must notify the Company in writing, and the Company must receive the notification by the expiration of the 7-day period. If I do not sign this Release Agreement on the date specified above, or if I revoke my acceptance of this Release Agreement during the revocation period described above, the Agreement will be of no further force or effect, and I will not be entitled to any of the payments or benefits described therein. The signed Release Agreement and any revocation thereof should be sent via US mail or overnight courier to Cash America International, Inc.s home office address in Fort Worth, Texas, with attention to the Companys General Counsel, or via telecopy to the Companys General Counsel at 817.570.1647 (followed by mailing or overnighting the original to the address above).
I promise that I, on behalf of myself, any representative or mine and any person whose claims derive from mine, will not pursue any claim that I have settled by this release or file any lawsuit or other legal proceeding to assert any such claims and I understand and agree that I will not be entitled hereafter to pursue any claims arising out of any alleged violation of my rights while employed by the Company, including, but not limited to, claims for back pay, losses or other damages. If I break any of the promises set forth in the previous sentence, I agree to pay all of the Companys costs and expenses (including reasonable attorneys fees) related to the defense of any claims except for claims arising under the OWBPA and the ADEA. Although I am releasing claims that I may have under the OWBPA and ADEA, I understand that I may challenge the knowing and voluntary nature of this release before a court, the Equal Employment Opportunity Commission (EEOC), or any other federal, state or local agency charged with the enforcement of any employment laws. I also understand that nothing in this release prevents me from filing a charge or complaint with or from participating in an investigation or proceeding conducted by the EEOC or any other federal, state or local agency charged with the enforcement of any employment laws. I understand, however, that if I pursue a claim against the Company under the OWBPA and/or the ADEA to challenge the validity of this release and prevail on the merits of an ADEA claim, a court has the discretion to determine whether the Company is entitled to restitution, recoupment, or set off (hereinafter reduction) against a monetary award obtained by me in the court proceeding. A reduction never can exceed the amount I recover, or the consideration I received for signing this release, whichever is less. Furthermore, I give up my right to individual damages or remedies in connection with any administrative or judicial proceeding with respect to my employment or termination of employment with the Company. I also recognize that the Company may be entitled to recover costs and attorneys fees incurred by the Company as specifically authorized under applicable law.
I, on behalf of myself, any representative of mine and any person whose claims derive from mine, promise that no lawsuit or claim has been or will be filed based on any claims released by this Release Agreement or the Agreement. If such a lawsuit or claim has been or is filed, I agree to withdraw or dismiss such lawsuit or claims upon signing this Release Agreement; otherwise, I agree to pay all attorneys fees and court costs incurred by the Company or any other released party in defending against the lawsuit, claim or charge, along with other appropriate damages.
This Release Agreement is not an admission on the Companys part of any liability whatsoever or that it in any way has acted improperly or unlawfully. The Company specifically denies any liability or improper or unlawful conduct.
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This Release Agreement is intended by me and the Company to be a legally valid and binding agreement. If any provision of this Release Agreement is found to be illegal, invalid or unenforceable, such term or provision shall be severable, and this Release Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision were never a part hereof; the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance; and in lieu of such illegal, invalid or unenforceable provision, there shall be added as part of this Release Agreement, a provision as similar in its terms to such illegal, invalid or unenforceable provision, as may be possible and be legal, valid or enforceable.
This Release Agreement shall be construed and enforced in accordance with the laws of the State of Illinois, United States, and venue for any action brought in connection with this Release Agreement shall lie in Cook County, Illinois, U.S.A.
Timothy S. Ho |
Date |
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Exhibit 10.8
January 3, 2014
David Fisher
Enova Financial Holdings, LLC
200 W. Jackson, Suite 2400
Chicago, Illinois 60606
Re: | Tim Ho |
Dear David:
As you know, Springleaf Holdings, Inc. (Springleaf) is considering hiring Tim Ho (Tim), who has entered into a Continued Employment and Separation Agreement (Agreement) with Enova Financial Holdings, LLC (Enova), a subsidiary of Cash America International, Inc. (Cash America). In order to clarify the circumstances around Tims potential employment by Springleaf, we propose the following:
1. | Cash America and Enova (including their affiliates, successors and assigns) will not object to Springleafs hiring Tim; |
2. | Springleaf agrees on its own behalf and on behalf of its subsidiaries that Springleaf and its subsidiaries will not offer loan products whose rate of interest as stated in the loan documents exceed 36% per annum for the remaining period of Tims noncompete as reflected in paragraph 13 of the Agreement; |
3. | Tim agrees to extend the 24 month term of the provisions of paragraphs 12 and 14 of the Agreement to 36 months (the Covenant Period);provided that paragraph 14 is understood to be limited to the solicitation of Enovas or Cash Americas business partners or Enova or Cash America customers with whom Tim has had personal dealings; |
4. | Tim agrees that as of January 3, 2014, Enova has paid Tim approximately $330,000 of the $860,000 Salary Continuation Pay specified in Paragraph 3 of the Agreement, leaving approximately $530,000 of Salary Continuation Pay yet to be paid during the remainder of the Severance Period pursuant to the terms of the Agreement; |
5. | Tim further agrees that for the period between January 4, 2014 and the end of Tims Severance Period (Remaining Severance Period), Enova will only be required to pay $265,000 in Salary Continuation Pay in substantially equal bi-weekly installments over the course of the Remaining Severance Period and Tim agrees to waive Enovas obligation to pay $265,000 of the original Salary Continuation Pay specified in the Agreement and further hereby releases Enova from such obligation; |
6. | Tim agrees that he will remain bound by the provisions regarding non-disclosure of Property and Cash America and Enovas proprietary and confidential information as provided in the Agreement and further agrees that such covenants will also be extended until the end of the Covenant Period unless a longer period is set forth for such non-disclosure provisions of the Agreement; |
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David Fisher
Page 2 of 2
January 3, 2014
7. | Springleaf acknowledges and agrees that it does not desire to have or obtain any Property or any confidential or proprietary information of Enova, Cash America or any of their respective affiliates and that it will not cause Tim to disclose such information; |
8. | If Tim does not commence his employment with Springleaf by January 15, 2014, this letter agreement will terminate and all obligations, including the payment obligations of Enova under the Agreement that pre-existed its execution will be unaffected, remain and be enforceable as if this letter agreement were never executed; provided, however, for such a termination of this letter agreement to be effective, both Tim and Springleaf must each send written notice of any such failure of Tim to commence employment with Springleaf for any reason, with such notices to be received by Enova on or before January 15, 2014; |
9. | Capitalized terms used in this letter agreement and not defined herein shall have the meanings assigned to such terms in the Agreement; and |
10. | Except as expressly set forth in this letter agreement all terms and conditions of the Agreement shall remain in full force and effect as written. |
Each party shown as a signing party below acknowledges and agrees that this letter agreement shall have no force and effect as to any signing party unless all of the signing parties shown below have signed this letter agreement.
Accepted and Agreed By: | Springleaf Holdings, Inc. | |||||
/s/ Timothy S. Ho |
By: | /s/ Jay Levine | ||||
Timothy S. Ho | Jay Levine | |||||
Chief Executive Officer | ||||||
Date of Signature: January 7, 2014 | Date of Signature: January 7, 2014 | |||||
Accepted and Agreed By: | ||||||
Enova Financial Holdings LLC |
By: | Enova Online Services, Inc., | |||||||
its sole member | ||||||||
By: | Enova International, Inc., | |||||||
its sole shareholder | ||||||||
By: |
/s/ David Fisher |
|||||||
David Fisher, | ||||||||
Chief Executive Officer |
Date of Signature: January 7, 2014
Exhibit 10.9
$500,000,000
ENOVA INTERNATIONAL, INC.
9.75% Senior Notes due 2021
REGISTRATION RIGHTS AGREEMENT
May 30, 2014
JEFFERIES LLC
c/o Jefferies LLC
520 Madison Avenue
New York, New York 10022
Ladies and Gentlemen:
Enova International, Inc., a Delaware corporation (the Company ), is issuing and selling to Jefferies LLC (the Initial Purchaser ), upon the terms set forth in the Purchase Agreement dated May 23, 2014, by and among the Company, the Initial Purchaser and the subsidiary guarantors named therein (the Purchase Agreement ), $500,000,000 aggregate principal amount of 9.75% Senior Notes due 2021 issued by the Company (each, a Note and collectively, the Notes ). As an inducement to the Initial Purchaser to enter into the Purchase Agreement, the Company and the subsidiary guarantors listed in the signature pages hereto agree with the Initial Purchaser, for the benefit of the Holders (as defined below) of the Notes (including, without limitation, the Initial Purchaser), as follows:
1. | Definitions |
Capitalized terms that are used herein without definition and are defined in the Purchase Agreement shall have the respective meanings ascribed to them in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:
Additional Interest : See Section 4(a).
Advice : See Section 5(b).
Agreement : This Registration Rights Agreement, dated as of the Closing Date, between the Company and the Initial Purchaser.
Applicable Period : See Section 2(e).
Business Day : A day that is not a Saturday, a Sunday or a day on which banking institutions in the City of New York are authorized or required by law or executive order to be closed.
Closing Date : May 30, 2014.
Company : See the introductory paragraph to this Agreement.
Day : Unless otherwise expressly provided, a calendar day.
Effectiveness Date : The 360th day after the Closing Date (or if such 360th day is not a Business Day, on the next succeeding Business Day).
Effectiveness Period : See Section 3(a).
Event Date : See Section 4(b).
Exchange Act : The Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.
Exchange Notes : Senior Notes due 2021 of the Company, identical in all material respects to the Notes, including the guarantees endorsed thereon, except for references to series and restrictive legends.
Exchange Offer : See Section 2(a).
Exchange Registration Statement : See Section 2(a).
Filing Date : The 300th day after the Closing Date (or if such 300th day is not a Business Day, on the next succeeding Business Day).
FINRA : Financial Industry Regulatory Authority, Inc.
Holder : Any beneficial holder of Registrable Notes.
Indemnified Party : See Section 8(c).
Indemnifying Party : See Section 8(c).
Indenture : The Indenture, dated as of the Closing Date, among the Company, the Subsidiary Guarantors and U.S. Bank National Association, as trustee, pursuant to which the Notes are being issued, as amended or supplemented from time to time in accordance with the terms hereof.
Initial Purchaser : See the introductory paragraph to this Agreement.
Initial Shelf Registration : See Section 3(a).
Inspectors : See Section 6(o).
Lien: Shall have the meaning set forth in the Indenture.
Losses: See Section 8(a).
Notes : See the introductory paragraph to this Agreement.
Participating Broker-Dealer : See Section 2(e).
Person : An individual, trustee, corporation, partnership, limited liability company, joint stock company, trust, unincorporated association, union, business association, firm, government or agency or political subdivision thereof, or other legal entity.
Private Exchange : See Section 2(f).
Private Exchange Notes : See Section 2(f).
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Prospectus : The prospectus included in any Registration Statement (including, without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Notes covered by such Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.
Purchase Agreement : See the introductory paragraph to this Agreement.
Records : See Section 6(o).
Registrable Notes : Notes and Private Exchange Notes; provided, however, that a Note or Private Exchange Note, as applicable, shall cease to be a Registrable Note upon the earliest to occur of the following: (i) in the circumstances contemplated by Section 2(a), the Note has been exchanged for an Exchange Note in an Exchange Offer as contemplated in Section 2(a); (ii) in the circumstances contemplated by Section 3, a Shelf Registration registering such Note or Private Exchange Note, as applicable, under the Securities Act has been declared or becomes effective and such Note or Private Exchange Note, as applicable, has been sold or otherwise transferred by the holder thereof pursuant to and in a manner contemplated by such effective Shelf Registration; (iii) such Note or Private Exchange Note, as applicable, is actually sold by the holder thereof pursuant to Rule 144 under circumstances in which any legend borne by such Note or Private Exchange Note, as applicable, relating to restrictions on transferability thereof, under the Securities Act or otherwise, is removed by the Company or pursuant to the Indenture; or (iv) such Note or Private Exchange Note, as applicable, shall cease to be outstanding.
Registration Statement : Any registration statement of the Company and the Subsidiary Guarantors filed with the SEC under the Securities Act (including, but not limited to, the Exchange Registration Statement, the Shelf Registration and any subsequent Shelf Registration) that covers any of the Registrable Notes pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits and all material incorporated by reference or deemed to be incorporated by reference in such registration statement.
Rule 144 : Rule 144 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144A) or regulation hereafter adopted by the SEC providing for offers and sales of securities made in compliance therewith resulting in offers and sales by subsequent holders that are not affiliates of an issuer or such securities being free of the registration and prospectus delivery requirements of the Securities Act.
Rule 144A : Rule 144A promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule (other than Rule 144) or regulation hereafter adopted by the SEC.
Rule 415 : Rule 415 promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.
Rule 430A : Rule 430A promulgated under the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the SEC.
SEC : The Securities and Exchange Commission.
Securities : The Notes, the Exchange Notes and the Private Exchange Notes.
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Securities Act : The Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.
Shelf Notice : See Section 2(j).
Shelf Registration : See Section 3(b).
Subsequent Shelf Registration : See Section 3(b).
Subsidiary Guarantor : Each subsidiary of the Company that guarantees the obligations of the Company under the Notes and Indenture.
TIA : The Trust Indenture Act of 1939, as amended.
Trustee : The trustee under the Indenture and, if existent, the trustee under any indenture governing the Exchange Notes and Private Exchange Notes (if any).
Underwritten Registration or Underwritten Offering : A registration in which securities of the Company are sold to an underwriter for reoffering to the public.
2. | Exchange Offer |
(a) | Unless the Exchange Offer would not be permitted by applicable laws or a policy of the SEC, the Company shall (and shall cause each Subsidiary Guarantor to) (i) prepare and file with the SEC promptly after the date hereof, but in no event later than the Filing Date, a registration statement (the Exchange Registration Statement ) on an appropriate form under the Securities Act with respect to an offer (the Exchange Offer ) to the Holders of Notes to issue and deliver to such Holders, in exchange for the Notes, a like principal amount of Exchange Notes, (ii) use its commercially reasonable efforts to cause the Exchange Registration Statement to become effective as promptly as practicable after the filing thereof, but in no event later than the Effectiveness Date, (iii) use its commercially reasonable efforts to keep the Exchange Registration Statement effective until the consummation of the Exchange Offer in accordance with its terms, and (iv) commence the Exchange Offer and use its commercially reasonable efforts to issue on or prior to 30 Business Days after the date on which the Exchange Registration Statement is declared effective, Exchange Notes in exchange for all Notes tendered prior thereto in the Exchange Offer. The Exchange Offer shall not be subject to any conditions, other than that the Exchange Offer does not violate applicable law or any applicable interpretation of the staff of the SEC. |
(b) | The Exchange Notes shall be issued under, and entitled to the benefits of, the Indenture or a trust indenture that is identical to the Indenture (other than such changes as are necessary to comply with any requirements of the SEC to effect or maintain the qualifications thereof under the TIA). |
(c) | Interest on the Exchange Notes and Private Exchange Notes will accrue from the last interest payment due date on which interest was paid on the Notes surrendered in exchange therefor or, if no interest has been paid on the Notes, from the date of original issue of the Notes. Each Exchange Note and Private Exchange Note shall bear interest at the rate set forth thereon; provided , that interest with respect to the period prior to the issuance thereof shall accrue at the rate or rates borne by the Notes from time to time during such period. |
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(d) | The Company may require each Holder as a condition to participation in the Exchange Offer to represent (which representation may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement) (i) that any Exchange Notes received by it will be acquired in the ordinary course of its business, (ii) such Holder has no arrangement or understanding with any Person to participate in the distribution (within the meaning of the Securities Act) of the Exchange Notes in violation of the provisions of the Securities Act, (iii) that it is not engaged in, and does not intend to engage in, the distribution of the Notes, (iv) that it is not an affiliate (as defined in Rule 405 under the Securities Act) of the Company, (v) that the Exchange Notes to be received by such Holder are not in exchange for Notes acquired directly from the Company or an affiliate thereof, and (vi) if such Holder is a Participating Broker-Dealer, that it will comply with the prospectus delivery requirements of the Securities Act in connection with any resale of the Exchange Notes. |
(e) | The Company shall (and shall cause each Subsidiary Guarantor to) include within the Prospectus contained in the Exchange Registration Statement a section entitled Plan of Distribution reasonably acceptable to the Initial Purchaser which shall contain a summary statement of the positions taken or policies made by the staff of the SEC with respect to the potential underwriter status of any broker-dealer that is the beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange Notes received by such broker-dealer in the Exchange Offer for its own account in exchange for Notes that were acquired by it as a result of market-making or other trading activity (a Participating Broker-Dealer ), whether such positions or policies have been publicly disseminated by the staff of the SEC or such positions or policies, in the judgment of the Initial Purchaser, represent the prevailing views of the staff of the SEC. Such Plan of Distribution section shall also allow, to the extent permitted by applicable policies and regulations of the SEC, the use of the Prospectus by all Persons subject to the prospectus delivery requirements of the Securities Act, including, to the extent so permitted, all Participating Broker-Dealers, and include a statement describing the manner in which Participating Broker-Dealers may resell the Exchange Notes. The Company shall use its commercially reasonable efforts to keep the Exchange Registration Statement effective and to amend and supplement the Prospectus contained therein, in order to permit such Prospectus to be lawfully delivered by all Persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such Persons must comply with such requirements in order to resell the Exchange Notes (the Applicable Period ). |
(f) | If, upon consummation of the Exchange Offer, the Initial Purchaser holds any Notes acquired by it and having the status of an unsold allotment in the initial distribution, the Company (upon the written request from the Initial Purchaser) shall, simultaneously with the delivery of the Exchange Notes in the Exchange Offer, issue and deliver to the Initial Purchaser, in exchange (the Private Exchange ) for the Notes held by the Initial Purchaser, a like principal amount of Notes that are identical to the Exchange Notes except for the existence of restrictions on transfer thereof under the Securities Act and securities laws of the several states of the United States (the Private Exchange Notes ) (and which are issued pursuant to the same indenture as the Exchange Notes). The Private Exchange Notes shall bear the same CUSIP number as the Exchange Notes. |
(g) | In connection with the Exchange Offer, the Company shall (and shall cause each Subsidiary Guarantor to): |
(i) | mail to each Holder a copy of the Prospectus forming part of the Exchange Registration Statement, together with an appropriate letter of transmittal that is an exhibit to the Exchange Offer Registration Statement, and any related documents; |
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(ii) | keep the Exchange Offer open for not less than 20 days after the date notice thereof is mailed to the Holders (or longer if required by applicable law); |
(iii) | utilize the services of a depository for the Exchange Offer with an address in the Borough of Manhattan, the City of New York, which may be the Trustee or an affiliate thereof; |
(iv) | permit Holders to withdraw tendered Registrable Notes at any time prior to the close of business, New York City time, on the last Business Day on which the Exchange Offer shall remain open; and |
(v) | otherwise comply in all material respects with all applicable laws. |
(h) | As soon as practicable after the close of the Exchange Offer or the Private Exchange, as the case may be, the Company shall (and shall cause each Subsidiary Guarantor to): |
(i) | accept for exchange all Registrable Notes validly tendered pursuant to the Exchange Offer or the Private Exchange, as the case may be, and not validly withdrawn; |
(ii) | deliver to the Trustee for cancellation all Registrable Notes so accepted for exchange; and |
(iii) | cause the Trustee to authenticate and deliver promptly to each Holder tendering such Registrable Notes, Exchange Notes or Private Exchange Notes, as the case may be, equal in principal amount to the Notes of such Holder so accepted for exchange. |
(i) | The Exchange Notes and the Private Exchange Notes may be issued under (i) the Indenture or (ii) an indenture identical to the Indenture (other than such changes as are necessary to comply with any requirements of the SEC to effect or maintain the qualification thereof under the TIA), which in either event will provide that the Exchange Notes will not be subject to the transfer restrictions set forth in the Indenture, that the Private Exchange Notes will be subject to the transfer restrictions set forth in the Indenture, and that the Exchange Notes, the Private Exchange Notes and the Notes, if any, will be deemed one class of security (subject to the provisions of the Indenture) and entitled to participate in any Subsidiary Guarantee (as such terms are defined in the Indenture) on an equal and ratable basis. |
(j) |
If: (i) prior to the consummation of the Exchange Offer, the Holders of a majority in aggregate principal amount of Registrable Notes determine in its or their reasonable judgment that the Exchange Notes would not, upon receipt, be tradeable by the Holders thereof without restriction under the Securities Act and the Exchange Act and without material restrictions under applicable Blue Sky or state securities laws, (ii) applicable interpretations of the staff of the SEC would not permit the Company to consummate the Exchange Offer prior to the Effectiveness Date; (iii) subsequent to the consummation of the Private Exchange, any Holder of Private Exchange Notes so requests; (iv) the Exchange Offer is not consummated within 390 days of the Closing Date (or if the 390th day is not a Business Day, the next succeeding Business Day) for any reason; or (v) in the case of (A) any Holder not permitted by applicable law or SEC policy to participate in the Exchange Offer, (B) any Holder participating in the Exchange Offer that receives Exchange Notes that may not be sold without restriction under state and federal securities laws (other than due solely to the status of such Holder as an affiliate of the Company within the meaning of the |
6
Securities Act) or (C) any broker-dealer that holds Notes acquired directly from the Company or any of its affiliates and, in each such case contemplated by this clause (v), such Holder notifies the Company prior to the 20th day following the consummation of the Exchange Offer, then the Company shall promptly (and in any event within five Business Days) deliver to the Holders (or in the case of an occurrence of any event described in clause (v) of this Section 2(j), to any such other Holders) and the Trustee notice thereof (the Shelf Notice ) and shall use its commercially reasonable efforts to file promptly an Initial Shelf Registration pursuant to Section 3. |
3. | Shelf Registration |
If a Shelf Notice is delivered pursuant to Section 2(j), then this Section 3 shall apply to all Registrable Notes; provided, however, upon consummation of the Exchange Offer in accordance with Section 2, the provisions of Section 3 shall apply solely with respect to (i) Notes held by any Holder thereof not permitted to participate in the Exchange Offer, (ii) Notes held by any broker-dealer that acquired such Notes directly from the Company or any of its affiliates (as defined in Rule 405 of the Securities Act) and (iii) Exchange Notes that are not freely tradeable as contemplated by Section 2(j)(v) hereof, provided in each case that the relevant Holder has duly notified the Company prior to the 20th day following the consummation of the Exchange Offer as required by Section 2(j)(v).
(a) | Initial Shelf Registration . The Company shall (and shall cause each Subsidiary Guarantor to), as promptly as practicable, file with the SEC a Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 covering all of the Registrable Notes (the Initial Shelf Registration ). The Company shall (and shall cause each Subsidiary Guarantor to) file with the SEC the Initial Shelf Registration on or prior to the later of (i) the Filing Date and (ii) 90 days after delivery of the Shelf Notice (or if such 90th day is not a Business Day, on the next succeeding Business Day), and shall use its commercially reasonable efforts to cause such Initial Shelf Registration to be declared effective under the Securities Act on or prior to the Effectiveness Date. The Initial Shelf Registration shall be on Form S-3 or another appropriate form permitting registration of such Registrable Notes for resale by Holders as specified in the Plan of Distribution section of the registration statement, as such section is furnished by the Initial Purchaser in accordance with Section 2(e). The Company and Subsidiary Guarantors shall not permit any securities other than the Registrable Notes to be included in any Shelf Registration. The Company shall (and shall cause each Subsidiary Guarantor to) use its commercially reasonable efforts to keep the Initial Shelf Registration continuously effective under the Securities Act until the date which is two years from the Closing Date (subject to extension pursuant to Section 5(b) (the Effectiveness Period ), or such shorter period ending when (i) all Registrable Notes covered by the Initial Shelf Registration have been sold in the manner set forth and as contemplated in the Initial Shelf Registration (ii) a Subsequent Shelf Registration covering all of the Registrable Notes covered by and not sold under the Initial Shelf Registration or an earlier Subsequent Shelf Registration has been declared effective under the Securities Act or (iii) there cease to be any outstanding Registrable Notes. |
(b) |
Subsequent Shelf Registrations . If the Initial Shelf Registration or any Subsequent Shelf Registration (as defined below) ceases to be effective for any reason at any time during the Effectiveness Period (other than because of the sale of all of the securities registered thereunder or because such securities cease to be outstanding), the Company shall (and shall cause each Subsidiary Guarantor to) use its commercially reasonable efforts to obtain the prompt withdrawal of any order suspending the effectiveness thereof, and in any event shall within 30 days of such cessation of effectiveness amend such Shelf Registration in a manner to obtain the withdrawal of the order suspending the effectiveness thereof, or file (and cause |
7
each Subsidiary Guarantor to file) an additional shelf Registration Statement pursuant to Rule 415 covering all of the Registrable Notes (a Subsequent Shelf Registration ). If a Subsequent Shelf Registration is filed, the Company shall (and shall cause each Subsidiary Guarantor to) use its commercially reasonable efforts to cause the Subsequent Shelf Registration to be declared effective as soon as practicable after such filing and to keep such Subsequent Shelf Registration continuously effective for a period equal to the number of days in the Effectiveness Period less the aggregate number of days during which the Initial Shelf Registration or any Subsequent Shelf Registration was previously continuously effective. As used herein the term Shelf Registration means the Initial Shelf Registration and any Subsequent Shelf Registrations |
(c) | Supplements and Amendments . The Company shall promptly supplement and amend any Shelf Registration if required by the rules, regulations or instructions applicable to the registration form used for such Shelf Registration, if required by the Securities Act. |
(d) | Provision of Information. No Holder of Registrable Notes shall be entitled to include any of its Registrable Notes in any Shelf Registration pursuant to this Agreement unless such Holder furnishes to the Company and the Trustee in writing, within 20 days after receipt of a written request therefor, such information as the Company and the Trustee after conferring with counsel with regard to information relating to Holders that would be required by the SEC to be included in such Shelf Registration or Prospectus included therein, may reasonably request for inclusion in any Shelf Registration or Prospectus included therein, and no such Holder shall be entitled to Additional Interest pursuant to Section 4 hereof unless and until such Holder shall have provided such information. |
4. | Additional Interest |
(a) | The Company and each Subsidiary Guarantor acknowledges and agrees that the Holders of Registrable Notes will suffer damages if the Company or any Subsidiary Guarantor fails to fulfill its material obligations under Section 2 or Section 3 hereof and that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, the Company and the Subsidiary Guarantors agree to pay additional cash interest on the Notes ( Additional Interest ) under the circumstances and to the extent set forth below (each of which shall be given independent effect): |
(i) | if neither the Exchange Registration Statement nor the Initial Shelf Registration has been filed on or prior to the Filing Date, Additional Interest shall accrue on the Notes over and above any stated interest at a rate of 0.25% per annum of the principal amount of such Notes until the Effectiveness Date of the Exchange Registration Statement or the Initial Shelf Registration, as the case may be; |
(ii) | if neither the Exchange Registration Statement nor the Initial Shelf Registration is declared effective on or prior to the Effectiveness Date, Additional Interest shall accrue on the Notes over and above any stated interest at a rate of 0.25% per annum of the principal amount of such Notes until the Exchange Registration Statement or the Initial Shelf Registration, as the case may be, is declared effective; |
(iii) |
if (A) the Exchange Offer has not been consummated on or prior to the 30 Business Days after the Effectiveness Date, (B) the Exchange Registration Statement ceases to be effective at any time prior to the time that the Exchange Offer is consummated, (C) if applicable, a Shelf Registration has been declared effective and such Shelf Registration ceases to be effective at any time prior to the |
8
second anniversary of its effective date (other than such time as all Notes have been disposed of thereunder) and is not declared effective again within 60 days, or (D) pending the announcement of a material corporate transaction, the Company issues a written notice pursuant to Section 6(e)(v) or (vi) that a Shelf Registration Statement or Exchange Registration Statement is unusable and the number of days in any 365-day period for which all such notices issued or required to be issued, have been, or were required to be, in effect exceeds 120 days in the aggregate or 60 days consecutively, in the case of a Shelf Registration statement, or 30 days in the aggregate in the case of an Exchange Registration Statement, then Additional Interest shall accrue on the Notes, over and above any stated interest, at a rate of 0.25% per annum of the principal amount of such Notes commencing on (w) the 31st Business Day after the Effectiveness Date, in the case of (A) above, or (x) the date the Exchange Registration Statement ceases to be effective without being declared effective again within 30 days, in the case of clause (B) above, or (y) the day such Shelf Registration ceases to be effective in the case of (C) above and has not been declared effective again within 60 days, or (z) the day the Exchange Registration Statement or Shelf Registration ceases to be usable in the case of clause (D) above; |
provided, however , that the maximum Additional Interest rate on the Notes may not exceed at any one time in the aggregate 0.50% per annum; and provided further , that (1) upon the filing of the Exchange Registration Statement or Initial Shelf Registration (in the case of (i) above), (2) upon the effectiveness of the Exchange Registration Statement or Initial Shelf Registration (in the case of (ii) above), or (3) upon the exchange of Exchange Notes for all Notes tendered (in the case of (iii)(A) above), or upon the effectiveness of the Exchange Registration Statement that had ceased to remain effective (in the case of clause (iii)(B) above), or upon the effectiveness of a Shelf Registration which had ceased to remain effective (in the case of (iii)(C) above), Additional Interest on the Notes as a result of such clause (or the relevant subclause thereof) or upon the filing of a post-effective amendment or supplement to the Registration Statement or an additional Registration Statement that causes a Shelf Registration or Exchange Registration Statement to again be declared effective or made useable (in the case of clause (iii)(D) above), as the case may be, shall cease to accrue.
(b) | The Company shall notify the Trustee within 3 Business Days after each and every date on which an event occurs in respect of which Additional Interest is required to be paid (an Event Date ). Any amounts of Additional Interest due pursuant to clause (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be payable in cash , on the dates and in the manner provided in the Indenture and whether or not any cash interest would then be payable on such date, commencing with the first such semi-annual date occurring after any such Additional Interest commences to accrue. The amount of Additional Interest will be determined by multiplying the applicable Additional Interest rate by the principal amount of the Notes, multiplied by a fraction, the numerator of which is the number of days such Additional Interest rate was applicable during such period (determined on the basis of a 360-day year comprised of twelve 30-day months and, in the case of a partial month, the actual number of days elapsed), and the denominator of which is 360. |
9
5. | Registration Procedures for Holders |
In connection with the filing of any Registration Statement pursuant to Sections 2 or 3 hereof:
(a) | As a condition to its inclusion of any Registrable Notes in any registration statement, the Company may require each seller of Registrable Notes or Participating Broker-Dealer as to which any registration is being effected to furnish to the Company such information regarding such seller or Participating Broker-Dealer and the distribution of such Registrable Notes as the Company may, from time to time, reasonably request in writing. The Company may exclude from such registration the Registrable Notes of any seller who fails to furnish such information within a reasonable time (which time in no event shall exceed 20 days, subject to Section 3(d)) hereof) after receiving such request. Each seller of Registrable Notes or Participating Broker-Dealer as to which any registration is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished by such seller not materially misleading. |
(b) | Each Holder of Registrable Notes and each Participating Broker-Dealer agrees by acquisition of such Registrable Notes or Exchange Notes to be sold by such Participating Broker-Dealer, as the case may be, that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 6(e)(ii), 6(e)(iv), 6(e)(v), or 6(e)(vi), such Holder will forthwith discontinue disposition of such Registrable Notes covered by a Registration Statement and such Participating Broker-Dealer will forthwith discontinue disposition of such Exchange Notes pursuant to any Prospectus and, in each case, forthwith discontinue dissemination of such Prospectus until such Holders or Participating Broker-Dealers receipt of the copies of the supplemented or amended Prospectus contemplated by Section 6(k), or until it is advised in writing (the Advice ) by the Company and the Subsidiary Guarantors that the use of the applicable Prospectus may be resumed, and has received copies of any amendments or supplements thereto and, if so directed by the Company and the Subsidiary Guarantors, such Holder or Participating Broker-Dealer, as the case may be, will deliver to the Company all copies, other than permanent file copies, then in such Holders or Participating Broker-Dealers possession, of the Prospectus covering such Registrable Notes current at the time of the receipt of such notice. In the event the Company and the Subsidiary Guarantors shall give any such notice, the Applicable Period shall be extended by the number of days during such periods from and including the date of the giving of such notice to and including the date when each Participating Broker-Dealer shall have received (x) the copies of the supplemented or amended Prospectus contemplated by Section 6(k) or (y) the Advice. |
6. | Registration Procedures for the Company and the Subsidiary Guarantors |
In connection with the filing of any Registration Statement pursuant to Sections 2 or 3 hereof, the Company shall (and shall cause each Subsidiary Guarantor to) effect such registrations to permit the sale of such securities covered thereby in accordance with the intended method or methods of disposition thereof, and pursuant thereto and in connection with any Registration Statement filed by the Company hereunder, the Company shall (and shall cause each Subsidiary Guarantor to):
(a) |
Prepare and file with the SEC as soon as practicable after the date hereof but in any event on or prior to the Filing Date, the Exchange Registration Statement or if the Exchange Registration Statement is not filed because of the circumstances contemplated by Section 2(j), a Shelf Registration as prescribed by Section 3, and use its commercially reasonable efforts to cause each such Registration Statement to become effective and remain effective as provided herein; provided that, if (1) a Shelf Registration is filed pursuant to Section 3 or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period relating thereto, before filing any Registration Statement or Prospectus or any amendments or supplements thereto the |
10
Company shall (and shall cause each Subsidiary Guarantor to), if requested, furnish to and afford the Holders of the Registrable Notes to be registered pursuant to such Shelf Registration Statement, each Participating Broker-Dealer, the managing underwriters, if any, and each of their respective counsel, a reasonable opportunity to review copies of all such documents (including copies of any documents to be incorporated by reference therein and all exhibits thereto) proposed to be filed for a period of five Business Days prior to such filing. The Company and each Subsidiary Guarantor shall not file any such Registration Statement or Prospectus or any amendments or supplements thereto in respect of which the Holders must provide information for the inclusion therein without the Holders being afforded an opportunity, for a period of five Business Days, to review such documentation if the holders of a majority in aggregate principal amount of the Registrable Notes covered by such Registration Statement, or any such Participating Broker-Dealer, as the case may be, the managing underwriters, if any, or any of their respective counsel shall reasonably object in writing on a timely basis. A Holder shall be deemed to have reasonably objected to such filing if, within such five Business Day period, such Holder shall have informed the Company that it reasonably believes that such Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains an untrue statement of a material fact or omits to state any material fact necessary to make the statements therein not misleading or fails to comply with the applicable requirements of the Securities Act. |
(b) | Provide an indenture trustee for the Registrable Notes, the Exchange Notes or the Private Exchange Notes, as the case may be, and cause the Indenture (or other indenture relating to the Registrable Notes) to be qualified under the TIA not later than the effective date of the first Registration Statement; and in connection therewith, to cooperate with the Trustee and the Holders to effect such changes to such indenture as may be required for such indenture to be so qualified in accordance with the terms of the TIA; and execute, and use its commercially reasonable efforts to cause such trustee to execute, all documents as may be required to effect such changes, and all other forms and documents required to be filed with the SEC to enable such indenture to be so qualified in a timely manner. |
(c) | Prepare and file with the SEC such pre-effective amendments and post-effective amendments to each Shelf Registration or Exchange Registration Statement, as the case may be, as may be necessary to keep such Registration Statement continuously effective for the Effectiveness Period or the Applicable Period, as the case may be (or such shorter period expiring when all of the Notes covered by such Registration Statement have been sold or there cease to be any outstanding Notes); cause the related Prospectus to be supplemented by any Prospectus supplement required by applicable law, and as so supplemented to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; and comply with the provisions of the Securities Act and the Exchange Act applicable to them with respect to the disposition of all securities covered by such Registration Statement as so amended or in such Prospectus as so supplemented in accordance with the intended method or methods of distribution by the sellers set forth in such Registration Statement or supplement to such Prospectus. Except as provided in Section 5(b), the Company and each Subsidiary Guarantor shall not, during the Applicable Period, voluntarily take any action that would result in selling Holders of the Registrable Notes covered by a Registration Statement or Participating Broker-Dealers seeking to sell Exchange Notes not being able to sell such Registrable Notes or such Exchange Notes during that period, unless such action is required by applicable law, rule or regulation or permitted by this Agreement. |
11
(d) | Furnish to such selling Holders and Participating Broker-Dealers who so request in writing (i) upon the Companys receipt, a copy of the order of the SEC declaring such Registration Statement and any post effective amendment thereto effective, (ii) such reasonable number of copies of such Registration Statement and of each amendment and supplement thereto (in each case including any documents incorporated therein by reference and all exhibits), (iii) such reasonable number of copies of the Prospectus included in such Registration Statement (including each preliminary Prospectus) and each amendment and supplement thereto, and such reasonable number of copies of the final Prospectus as filed by the Company and each Subsidiary Guarantor pursuant to Rule 424(b) under the Securities Act, in conformity with the requirements of the Securities Act and each amendment and supplement thereto, and (iv) such other documents (including any amendments required to be filed pursuant to clause (c) of this Section), as any such Person may reasonably request in writing. Subject to the provisions of Section 5(b) hereof, the Company and the Subsidiary Guarantors hereby consent to the use of the Prospectus by each of the selling Holders of Registrable Notes or each such Participating Broker-Dealer, as the case may be, and the underwriters or agents, if any, and dealers, if any, in connection with the offering and sale of the Registrable Notes covered by, or the sale by Participating Broker-Dealers of the Exchange Notes pursuant to, such Prospectus and any amendment or supplement thereto. |
(e) |
If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period relating thereto, the Company shall notify in writing the selling Holders of Registrable Notes, or each such Participating Broker-Dealer, as the case may be, the managing underwriters, if any, and each of their respective counsel promptly (but in any event within 2 Business Days) (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective (including in such notice a written statement that any Holder may, upon request, obtain, without charge, one conformed copy of such Registration Statement or post-effective amendment including financial statements and schedules, documents incorporated or deemed to be incorporated by reference and exhibits), (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any Prospectus or the initiation of any proceedings for that purpose, (iii) if at any time when a Prospectus is required by the Securities Act to be delivered in connection with sales of the Registrable Notes the representations and warranties of the Company and any Subsidiary Guarantor contained in any agreement (including any underwriting agreement) contemplated by Section 6(n) hereof cease to be true and correct, (iv) of the receipt by the Company or any Subsidiary Guarantor of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose, (v) of the happening of any event, the existence of any condition or any information becoming known that makes any statement of a material fact made in such Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires the making of any changes in, or amendments or supplements to, such Registration Statement, Prospectus or documents so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein to make the statement not misleading, or in the case of a Prospectus or documents incorporated or deemed to be incorporated by reference, it will not contain any untrue statement of a material fact or omit to state any |
12
material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, (vi) of any reasonable determination by the Company or any Subsidiary Guarantor that a post-effective amendment to a Registration Statement would be appropriate and (vii) of any request by the SEC for amendments to the Registration Statement or supplements to the Prospectus or for additional information relating thereto. |
(f) | Use its commercially reasonable efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of a Prospectus or suspending the qualification (or exemption from qualification) of any of the Registrable Notes or the Exchange Notes to be sold by any Participating Broker-Dealer, for sale in any jurisdiction, and, if any such order is issued, to use its commercially reasonable efforts to obtain the withdrawal of any such order at the earliest possible date. |
(g) | If (A) a Shelf Registration is filed pursuant to Section 3, (B) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period or (C) reasonably requested in writing by the managing underwriters, if any, or the Holders of a majority in aggregate principal amount of the Registrable Notes being sold in connection with an underwritten offering, (i) promptly incorporate in a Prospectus supplement or post-effective amendment such information or revisions to information therein relating to such underwriters or selling Holders as the managing underwriters, if any, or such Holders or any of their respective counsel reasonably request in writing to be included or made therein and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplements or post-effective amendment. |
(h) | Prior to any public offering of Registrable Notes or any delivery of a Prospectus contained in the Exchange Registration Statement by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, use its commercially reasonable efforts to register or qualify, and to cooperate with the selling Holders of Registrable Notes or each such Participating Broker-Dealer, as the case may be, the underwriters, if any, and their respective counsel in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Notes or Exchange Notes, as the case may be, for offer and sale under the securities or Blue Sky laws of such jurisdictions within the United States as any selling Holder, Participating Broker-Dealer or any managing underwriter or underwriters, if any, reasonably request in writing; provided , that where Exchange Notes held by Participating Broker-Dealers or Registrable Notes are offered other than through an underwritten offering, the Company and each Subsidiary Guarantor agree, if reasonably requested, to cause its counsel to perform Blue Sky investigations and file any registrations and qualifications required to be filed pursuant to this Section 6(h), keep each such registration or qualification (or exemption therefrom) effective during the period such Registration Statement is required to be kept effective and do any and all other acts or things reasonably necessary or advisable to enable the disposition in such jurisdictions of the Exchange Notes held by Participating Broker-Dealers or the Registrable Notes covered by the applicable Registration Statement; provided that neither the Company nor any Subsidiary Guarantor shall be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any such jurisdiction where it is not then so subject or (C) subject itself to taxation in any such jurisdiction where it is not then so subject. |
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(i) | If (A) a Shelf Registration is filed pursuant to Section 3 or (B) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is requested to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, if requested, cooperate with the selling Holders of Registrable Notes and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Notes to be sold, which certificates shall not bear any restrictive legends and shall be in a form eligible for deposit with The Depository Trust Company, and enable such Registrable Notes to be in such denominations and registered in such names as the managing underwriter or underwriters, if any, or Holders may reasonably request. |
(j) | Use its commercially reasonable efforts to cause the Registrable Notes covered by any Registration Statement to be registered with or approved by such governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriter, if any, to consummate the disposition of such Registrable Notes, except as may be required solely as a consequence of the nature of such selling Holders business, in which case the Company shall (and shall cause each Subsidiary Guarantor to) cooperate in all reasonable respects with the filing of such Registration Statement and the granting of such approvals; provided that neither the Company nor any existing Subsidiary Guarantor shall be required to (A) qualify generally to do business in any jurisdiction where it is not then so qualified, (B) take any action that would subject it to general service of process in any jurisdiction where it is not then so subject or (C) subject itself to taxation in any such jurisdiction where it is not then so subject. |
(k) | If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, upon the occurrence of any event contemplated by paragraph 6(e)(v) or 6(e)(vi) hereof, as promptly as practicable, prepare and file with the SEC, at the expense of the Company and the Subsidiary Guarantors, a supplement or post-effective amendment to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, or file any other required document so that, as thereafter delivered to the purchasers of the Registrable Notes being sold thereunder or to the purchasers of the Exchange Notes to whom such Prospectus will be delivered by a Participating Broker-Dealer, such Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein to make the statements not misleading or such Prospectus or documents incorporated by reference or deemed to be incorporated by reference will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and, if SEC review is required, use its commercially reasonable efforts to cause such post-effective amendment to be declared effective as soon as possible. |
(l) | [Intentionally omitted] |
(m) | Prior to the initial issuance of the Exchange Notes, (i) provide the Trustee with one or more certificates for the Registrable Notes in a form eligible for deposit with The Depository Trust Company and (ii) provide a CUSIP number for the Exchange Notes. |
(n) |
If a Shelf Registration is filed pursuant to Section 3, enter into such agreements (including an underwriting agreement in form, scope and substance as is customary in underwritten |
14
offerings of debt securities similar to the Notes, as may be appropriate in the circumstances) and take all such other actions in connection therewith (including those reasonably requested in writing by the managing underwriters, if any, or the Holders of a majority in aggregate principal amount of the Registrable Notes being sold) in order to expedite or facilitate the registration or the disposition of such Registrable Notes, and in such connection, whether or not an underwriting agreement is entered into and whether or not the registration is an Underwritten Registration, (i) make such representations and warranties to the Holders and the underwriters, if any, with respect to the business of the Company and its subsidiaries as then conducted, and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers to underwriters in underwritten offerings of debt securities similar to the Notes, as may be appropriate in the circumstances, and confirm the same if and when reasonably required; (ii) use its commercially reasonable efforts to obtain an opinion of counsel to the Company and the Subsidiary Guarantors and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters, if any, and the Holders of a majority in aggregate principal amount of the Registrable Notes being sold), addressed to each selling Holder and each of the underwriters, if any, covering the matters customarily covered in opinions of counsel to the Company and the Subsidiary Guarantors requested in underwritten offerings of debt securities similar to the Notes, as may be appropriate in the circumstances; (iii) use its commercially reasonable efforts to obtain cold comfort letters and updates thereof (which letters and updates (in form, scope and substance) shall be reasonably satisfactory to the managing underwriters) from the independent certified public accountants of the Company and the Subsidiary Guarantors (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement), addressed to each of the underwriters, such letters to be in customary form and covering matters of the type customarily covered in cold comfort letters in connection with underwritten offerings of debt securities similar to the Notes, as may be appropriate in the circumstances, and such other matters as reasonably requested in writing by the underwriters; and (iv) deliver such documents and certificates as may be reasonably requested in writing by the Holders of a majority in aggregate principal amount of the Registrable Notes being sold and the managing underwriters, if any, to evidence the continued validity of the representations and warranties of the Company and its subsidiaries made pursuant to clause (i) above and to evidence compliance with any conditions contained in the underwriting agreement or other similar agreement entered into by the Company or any Subsidiary Guarantor. |
(o) |
If (1) a Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus contained in an Exchange Registration Statement filed pursuant to Section 2 is required to be delivered under the Securities Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period, make available for inspection by any selling Holder of such Registrable Notes being sold, or each such Participating Broker-Dealer, as the case may be, any underwriter participating in any such disposition of Registrable Notes, if any, and any attorney, accountant or other agent retained by any such selling Holder or each such Participating Broker-Dealer, as the case may be, or underwriter (collectively, the Inspectors ), at the offices where normally kept, during reasonable business hours, all financial and other records and pertinent corporate documents of the Company and its subsidiaries (collectively, the Records ) as shall be reasonably necessary to enable them to exercise any applicable due diligence responsibilities, and cause the officers, directors and employees of the Company and its subsidiaries to supply all information reasonably requested in writing by any such Inspector in connection with such Registration Statement. |
15
Each Inspector shall agree in writing that it will keep the Records confidential and not disclose any of the Records unless (i) the disclosure of such Records is necessary to avoid or correct a material misstatement or omission in such Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, (iii) the information in such Records is public or has been made generally available to the public other than as a result of a disclosure or failure to safeguard by such Inspector or (iv) disclosure of such information is, in the reasonable written opinion addressed to the Company of counsel for any Inspector, necessary or advisable in connection with any action, claim, suit or proceeding, directly or indirectly, involving or potentially involving such Inspector and arising out of, based upon, related to, or involving this Agreement, or any transaction contemplated hereby or arising hereunder; provided , however, (A) prior to any disclosure pursuant to clause (ii), the Inspectors shall promptly provide written notice of such subpoena or court order, shall cooperate reasonably with the Company to obtain a protective order to protect such information and to disclose only such information as may be required by order of a court of competent jurisdiction, and (B) in the case of clause (iv), the Inspectors shall provide to the Company written notice of the information proposed to be disclosed, and shall make no disclosure as to which the Company reasonably objects. Each selling Holder of such Registrable Notes and each such Participating Broker-Dealer will be required to agree that information obtained by it as a result of such inspections shall be deemed confidential and shall not be used by it as the basis for any market transactions in the securities of the Company unless and until such is made generally available to the public. Each Inspector, each selling Holder of such Registrable Notes and each such Participating Broker-Dealer will be required to further agree that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and, to the extent practicable, use its best efforts to allow the Company, at its expense, to undertake appropriate action to prevent disclosure of the Records deemed confidential at its expense. |
(p) | Comply with all applicable rules and regulations of the SEC and make generally available to the security holders of the Company with regard to any Applicable Registration Statement earning statements satisfying the provisions of section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule promulgated under the Securities Act) no later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Notes are sold to underwriters in a firm commitment or best efforts underwritten offering and (ii) if not sold to underwriters in such an offering, commencing on the first day of the first fiscal quarter of the Company after the effective date of a Registration Statement, which statements shall cover said 12-month periods. |
(q) | Upon consummation of an Exchange Offer or Private Exchange, obtain an opinion of counsel to the Company and the Subsidiary Guarantors (in form, scope and substance reasonably satisfactory to the Initial Purchaser), addressed to the Trustee for the benefit of all Holders participating in the Exchange Offer or Private Exchange, as the case may be, to the effect that (i) the Company and the Subsidiary Guarantors have duly authorized, executed and delivered the Exchange Notes or the Private Exchange Notes, as the case may be, and the Indenture, and (ii) the Exchange Notes or the Private Exchange Notes, as the case may be, and the Indenture constitute legal, valid and binding obligations of the Company and the Subsidiary Guarantors, enforceable against the Company and the Subsidiary Guarantors in accordance with their respective terms, except as such enforcement may be subject to customary United States and foreign exceptions. |
(r) | [Intentionally omitted] |
16
(s) | Cooperate with each seller of Registrable Notes covered by any Registration Statement and each underwriter, if any, participating in the disposition of such Registrable Notes and their respective counsel in connection with any filings required to be made with FINRA. |
(t) | If similar debt securities issued by the Company are listed on any securities exchange, use its commercially reasonable efforts to cause all Securities covered by a Registration Statement to be listed on each securities exchange, if any, on which such similar debt securities issued by the Company are then listed. |
(u) | Use its commercially reasonable efforts to take all other steps reasonably necessary to effect the registration of the Registrable Notes covered by a Registration Statement contemplated hereby. |
7. | Registration Expenses |
(a) | All fees and expenses incident to the performance of or compliance with this Agreement by the Company and the Subsidiary Guarantors shall be borne by the Company and the Subsidiary Guarantors, whether or not the Exchange Offer or a Shelf Registration is filed or becomes effective, including, without limitation, (i) all registration and filing fees, including, without limitation, (A) fees with respect to filings required to be made with FINRA in connection with any underwritten offering and (B) fees and expenses of compliance with state securities or Blue Sky laws as provided in Section 6(h) hereof (including, without limitation, reasonable fees and disbursements of counsel in connection with Blue Sky qualifications of the Registrable Notes or Exchange Notes and determination of the eligibility of the Registrable Notes or Exchange Notes for investment under the laws of such jurisdictions (x) where the Holders are located, in the case of the Exchange Notes, or (y) as provided in Section 6(h), in the case of Registrable Notes or Exchange Notes to be sold by a Participating Broker-Dealer during the Applicable Period)), (ii) printing expenses, including, without limitation, expenses of printing Prospectuses if the printing of Prospectuses is requested by the managing underwriter or underwriters, if any, or by the Holders of a majority in aggregate principal amount of the Registrable Notes being sold in any Registration Statement or by any Participating Broker-Dealer during the Applicable Period, as the case may be, (iii) messenger, telephone and delivery expenses incurred in connection with the performance of their obligations hereunder, (iv) fees and disbursements of counsel for the Company, the Subsidiary Guarantors and, subject to 7(b), the Holders, (v) fees and disbursements of all independent certified public accountants referred to in Section 6 (including, without limitation, the expenses of any special audit and cold comfort letters required by or incident to such performance), (vi) the fees and expenses incurred in connection with the listing of the Securities to be registered on any securities exchange, (vii) Securities Act liability insurance, if the Company and the Subsidiary Guarantors desire such insurance, (viii) fees and expenses of all other Persons retained by the Company and the Subsidiary Guarantors, (ix) fees and expenses of any qualified independent underwriter or other independent appraiser participating in an offering pursuant to Section 3 of Schedule E to the By-laws of FINRA, but only where the need for such a qualified independent underwriter arises due to a relationship with the Company and the Subsidiary Guarantors, (x) internal expenses of the Company and the Subsidiary Guarantors (including, without limitation, all salaries and expenses of officers and employees of the Company or the Subsidiary Guarantors performing legal or accounting duties), (xi) the expense of any annual audit, (xii) the fees and expenses of the Trustee and the Exchange Agent and (xiii) the expenses relating to printing, word processing and distributing all Registration Statements, underwriting agreements, securities sales agreements, indentures and any other documents necessary in order to comply with this Agreement. |
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(b) | The Company and the Subsidiary Guarantors shall reimburse the Holders for the reasonable fees and disbursements of not more than one counsel chosen by the Holders of a majority in aggregate principal amount of the Registrable Notes to be included in the Registration Statements. The Company and the Subsidiary Guarantors shall pay all documentary, stamp, transfer or other transactional taxes attributable to the issuance or delivery of the Exchange Notes or Private Exchange Notes in exchange for the Notes; provided that the Company shall not be required to pay taxes payable in respect of any transfer involved in the issuance or delivery of any Exchange Note or Private Exchange Note in a name other than that of the Holder of the Note in respect of which such Exchange Note or Private Exchange Note is being issued. The Company and the Subsidiary Guarantors shall reimburse the Holders for fees and expenses (including reasonable fees and expenses of counsel to the Holders) relating to any enforcement of any rights of the Holders under this Agreement. |
8. | Indemnification |
(a) | Indemnification by the Company and the Subsidiary Guarantors . The Company and the Subsidiary Guarantors jointly and severally agree to indemnify and hold harmless each Holder of Registrable Notes, Exchange Notes or Private Exchange Notes and each Participating Broker-Dealer selling Exchange Notes during the Applicable Period, each Person, if any, who controls each such Holder (within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act) and the officers, directors and partners of each such Holder, Participating Broker-Dealer and controlling person, to the fullest extent lawful, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable costs of preparation and reasonable attorneys fees as provided in this Section 8) and expenses (including, without limitation, reasonable costs and expenses incurred in connection with investigating, preparing, pursuing or defending against any of the foregoing) (collectively, Losses ), as incurred, directly or indirectly caused by, related to, based upon, arising out of or in connection with, in the case of the Registration Statement or in any amendments thereto, any untrue or alleged untrue statement of a material fact contained therein or any omission or alleged omission to state therein a material fact required to be stated therein to make the statements not misleading, or in the case of any Prospectus or form of prospectus, or in any amendment or supplement thereto, or in any preliminary prospectus, any untrue or alleged untrue statement of a material fact contained therein or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except insofar as such Losses are solely based upon information relating to such Holder or Participating Broker-Dealer and furnished in writing to the Company and the Subsidiary Guarantors by such Holder or Participating Broker-Dealer or their counsel expressly for use therein. The Company and the Subsidiary Guarantors also agree to indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers, directors, agents and employees and each Person who controls such Persons (within the meaning of Section 5 of the Securities Act or Section 20(a) of the Exchange Act) to the same extent as provided above with respect to the indemnification of the Holders or the Participating Broker-Dealer. |
(b) |
Indemnification by Holder . In connection with any Registration Statement, Prospectus or form of prospectus, any amendment or supplement thereto, or any preliminary prospectus in which a Holder is participating, such Holder shall furnish to the Company and the Subsidiary Guarantors in writing such information as the Company and the Subsidiary Guarantors reasonably request for use in connection with any Registration Statement, Prospectus or form of prospectus, any amendment or supplement thereto, or any |
18
preliminary prospectus and shall indemnify and hold harmless the Company, the Subsidiary Guarantors, their respective directors and officers and each Person, if any, who controls the Company and the Subsidiary Guarantors (within the meaning of Section 15 of the Securities Act and Section 20(a) of the Exchange Act), and the directors, officers and partners of such controlling persons, to the fullest extent lawful, from and against all Losses arising out of or based upon, in the case of the Registration Statement or in any amendments thereto, any untrue or alleged untrue statement of a material fact contained therein or any omission or alleged omission to state therein a material fact required to be stated therein to make the statements not misleading, or in the case of any Prospectus or form of prospectus, or in any amendment or supplement thereto, or in any preliminary prospectus, any untrue or alleged untrue statement of a material fact contained therein or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading to the extent, but only to the extent, that such losses are finally judicially determined by a court of competent jurisdiction in a final, unappealable order to have resulted solely from an untrue statement or alleged untrue statement of a material fact or omission or alleged omission of a material fact contained in or omitted from any information so furnished in writing by such Holder to the Company and the Subsidiary Guarantors expressly for use therein. Notwithstanding the foregoing, in no event shall the liability of any selling Holder be greater in amount than such Holders Maximum Contribution Amount (as defined below). |
(c) | Conduct of Indemnification Proceedings . If any proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an Indemnified Party ), such Indemnified Party shall promptly notify the party or parties from which such indemnity is sought (the Indemnifying Party or Indemnifying Parties , as applicable) in writing; but the omission to so notify the Indemnifying Party (i) will not relieve such Indemnifying Party from any liability under paragraph (a) or (b) above unless and only to the extent it is materially prejudiced as a result thereof and (ii) will not, in any event, relieve the Indemnifying Party from any obligations to any Indemnified Party other than the indemnification obligation provided in paragraphs (a) and (b) above. |
The Indemnifying Party shall have the right, exercisable by giving written notice to an Indemnified Party, within 20 Business Days after receipt of written notice from such Indemnified Party of such proceeding, to assume, at its expense, the defense of any such proceeding; provided , that an Indemnified Party shall have the right to employ separate counsel in any such proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or parties unless: (1) the Indemnifying Party has agreed to pay such fees and expenses in writing; or (2) the Indemnifying Party shall have failed promptly to assume the defense of such proceeding or shall have failed to employ counsel reasonably satisfactory to such Indemnified Party; or (3) the named parties to any such proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party or any of its affiliates or controlling persons, and such Indemnified Party shall have been advised by counsel that there may be one or more defenses available to such Indemnified Party that are in addition to, or in conflict with, those defenses available to the Indemnifying Party or such affiliate or controlling person (in which case, if such Indemnified Party notifies the Indemnifying Parties in writing that it elects to employ separate counsel at the expense of the Indemnifying Parties, the Indemnifying Parties shall not have the right to assume the defense and the reasonable fees and expenses of such counsel shall be at the expense of the Indemnifying Party; it being understood, however, that, the Indemnifying Party shall not, in connection with any one such proceeding or separate but substantially similar or related proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for such Indemnified Party).
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No Indemnifying Party shall be liable for any settlement of any such proceeding effected without its written consent, which shall not be unreasonably withheld, but if settled with its written consent, or if there be a final judgment for the plaintiff in any such proceeding, each Indemnifying Party jointly and severally agrees, subject to the exceptions and limitations set forth above, to indemnify and hold harmless each Indemnified Party from and against any and all Losses by reason of such settlement or judgment. The Indemnifying Party shall not consent to the entry of any judgment or enter into any settlement unless such judgment or settlement (i) includes as an unconditional term thereof the giving by the claimant or plaintiff to each Indemnified Party of a release, in form and substance reasonably satisfactory to the Indemnified Party, from all liability in respect of such proceeding for which such Indemnified Party would be entitled to indemnification hereunder (whether or not any Indemnified Party is a party thereto) and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any Indemnified Party.
(d) | Contribution . If the indemnification provided for in this Section 8 is unavailable to an Indemnified Party or is insufficient to hold such Indemnified Party harmless for any Losses in respect of which this Section 8 would otherwise apply by its terms (other than by reason of exceptions provided in this Section 8), then each applicable Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall have a joint and several obligation to contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party, on the one hand, and such Indemnified Party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party, on the one hand, and Indemnified Party, on the other hand, shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such Indemnifying Party or Indemnified Party, and the parties relative intent, knowledge, access to information and opportunity to correct or prevent any such statement or omission. The amount paid or payable by an Indemnified Party as a result of any Losses shall be deemed to include any legal or other fees or expenses incurred by such party in connection with any proceeding, to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in Section 8(a) or 8(b) was available to such party. |
The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation or by other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 8(d), a selling Holder shall not be required to contribute, in the aggregate, any amount in excess of such Holders Maximum Contribution Amount. A selling Holders Maximum Contribution Amount shall equal the excess of (i) the aggregate proceeds received by such Holder pursuant to the sale of such Registrable Notes or Exchange Notes over (ii) the aggregate amount of damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The Holders obligations to contribute pursuant to this Section 8(d) are several in proportion to the respective principal amount of the Registrable Securities held by each Holder hereunder and not joint. The Companys and Subsidiary Guarantors obligations to contribute pursuant to this Section 8(d) are joint and several.
The indemnity and contribution agreements contained in this Section 8 are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties.
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9. | Rules 144 and 144A |
(a) | The Company covenants that it shall (a) file the reports required to be filed by it (if so required) under the Exchange Act in a timely manner in order to permit resales of the Notes pursuant to Rule 144 under the Securities Act and, if at any time the Company is not required to file such reports, it will, upon the written request of any Holder of Registrable Notes, make publicly available the information required by Rule 144A(d)(4) under the Securities Act to permit sales pursuant to Rule 144A and (b) take such further action as any Holder may reasonably request in writing, all to the extent required from time to time to enable such Holder to sell Registrable Notes without registration under the Securities Act pursuant to the exemptions provided by, if the Company is subject to Section 13 or Section 15(d) of the Exchange Act, Rule 144 and by Rule 144A. Upon the request of any Holder, the Company shall deliver to such Holder a written statement as to whether it has complied with such information and requirements. |
(b) | The fact that holders of Registrable Notes may become eligible to sell such Registrable Notes pursuant to Rule 144 shall not (1) cause such Notes to cease to be Registrable Notes or (2) excuse the Companys and the Subsidiary Guarantors obligations set forth in Section 2 of this Agreement, including without limitation the obligations in respect of an Exchange Offer, Shelf Registration and Additional Interest. |
10. | Underwritten Registrations of Registrable Notes |
If any of the Registrable Notes covered by any Shelf Registration are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will manage the offering will be selected by the Holders of a majority in aggregate principal amount of such Registrable Notes included in such offering; provided , however , that such investment banker or investment bankers and manager or managers must be reasonably acceptable to the Company.
No Holder of Registrable Notes may participate in any underwritten registration hereunder unless such Holder (a) agrees to sell such Holders Registrable Notes on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements.
11. | Miscellaneous |
(a) | Remedies . In the event of a breach by either the Company or any of the Subsidiary Guarantors of any of their respective obligations under this Agreement, each Holder, in addition to being entitled to exercise all rights provided herein, in the Indenture or, in the case of the Initial Purchaser, in the Purchase Agreement, or granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and the Subsidiary Guarantors agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by either the Company or any of the Subsidiary Guarantors of any of the provisions of this Agreement and hereby further agree that, in the event of any action for specific performance in respect of such breach, the Company shall (and shall cause each Subsidiary Guarantor to) waive the defense that a remedy at law would be adequate. |
(b) |
No Inconsistent Agreements . The Company and each of the Subsidiary Guarantors have not entered, as of the date hereof, and the Company and each of the Subsidiary Guarantors shall not enter, after the date of this Agreement, into any agreement with respect to any of |
21
its securities that is inconsistent with the rights granted to the Holders of Securities in this Agreement or otherwise conflicts with the provisions hereof. The Company and each of the Subsidiary Guarantors have not entered and will not enter into any agreement with respect to any of its securities that will grant to any Person piggy-back rights with respect to a Registration Statement required to be filed pursuant to this Agreement. |
(c) | Adjustments Affecting Registrable Notes . The Company shall not, directly or indirectly, take any action with respect to the Registrable Notes as a class that would adversely affect the ability of the Holders to include such Registrable Notes in a registration undertaken pursuant to this Agreement. |
(d) | Amendments and Waivers . The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, otherwise than with the prior written consent of the Holders of not less than a majority in aggregate principal amount of the then outstanding Registrable Notes in circumstances that would adversely affect any Holders of Registrable Notes; provided , however , that Section 8 and this Section 11(d) may not be amended, modified or supplemented without the prior written consent of each Holder. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Notes whose securities are being tendered pursuant to the Exchange Offer or sold pursuant to a Notes Registration Statement and that does not directly or indirectly affect, impair, limit or compromise the rights of other Holders of Registrable Notes may be given by Holders of at least a majority in aggregate principal amount of the Registrable Notes being tendered or being sold by such Holders pursuant to such Notes Registration Statement. |
(e) | Notices . All notices and other communications provided for or permitted hereunder shall be made in writing by hand delivery, registered first-class mail, next-day air courier or telecopier: |
(i) | if to a Holder of Securities or to any Participating Broker-Dealer, at the most current address of such Holder or Participating Broker-Dealer, as the case may be, set forth on the records of the registrar of the Notes, with a copy in like manner to the Initial Purchaser as follows: |
Jefferies LLC
520 Madison Avenue
New York, NY 10022
Facsimile No.: (646) 619-4437
Attention: Jeffrey Whyte
with a copy to:
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
Attention: Maurice Blanco, Esq.
(ii) | if to the Initial Purchaser, at the address specified in Section 11(e)(1); |
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(iii) | if to the Company or any Subsidiary Guarantor, as follows: |
Enova International, Inc.
200 West Jackson Boulevard, Suite 2400
Chicago, IL 60606
Attention: General Counsel
with a copy to:
Hunton & Williams
1445 Ross Avenue, Suite 3700
Dallas, TX 75202
Attention: L. Steven Leshin, Esq.
All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; five Business Days after being deposited in the United States mail, postage prepaid, if mailed, one Business Day after being deposited in the United States mail, postage prepaid, if mailed; one Business Day after being timely delivered to a next-day air courier guaranteeing overnight delivery; and when receipt is acknowledged by the addressee, if telecopied.
Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee under the Indenture at the address specified in such Indenture.
(f) | Successors and Assigns . This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto, including, without limitation and without the need for an express assignment, subsequent Holders of Securities. |
(g) | Counterparts . This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. |
(h) | Headings . The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. |
(i) |
Governing Law . THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE COMPANY HEREBY IRREVOCABLY (I) SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE COURTS SITTING IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN ANY SUIT OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND (II) WAIVES (A) ITS RIGHT TO A TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF THE INITIAL PURCHASER AND FOR ANY COUNTERCLAIM RELATED TO ANY OF THE FOREGOING AND (B) ANY OBLIGATION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. THE COMPANY IRREVOCABLY CONSENTS, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE COMPANY |
23
AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY HOLDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY OTHER JURISDICTION. |
(j) | Severability . If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. |
(k) | Securities Held by the Company or Its Affiliates . Whenever the consent or approval of Holders of a specified percentage of Securities is required hereunder, Securities held by the Company or its affiliates (as such term is defined in Rule 405 under the Securities Act) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage. |
(l) | Third Party Beneficiaries . Holders and Participating Broker-Dealers are intended third party beneficiaries of this Agreement and this Agreement may be enforced by such Persons. |
(m) | Entire Agreement . This Agreement, together with the Purchase Agreement and the Indenture, is intended by the parties as a final and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein and any and all prior oral or written agreements, representations, or warranties, contracts, understanding, correspondence, conversations and memoranda between the Initial Purchaser on the one hand and the Company and the Subsidiary Guarantors on the other, or between or among any agents, representatives, parents, subsidiaries, affiliates, predecessors in interest or successors in interest with respect to the subject matter hereof and thereof are merged herein and replaced hereby. |
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
ENOVA INTERNATIONAL, INC. | ||||
By: |
/s/ David A. Fisher |
|||
Name: | David A. Fisher | |||
Title: | Chief Executive Officer and President | |||
SUBSIDIARY GUARANTORS: | ||||
ENOVA ONLINE SERVICES, INC. | ||||
CNU DOLLARSDIRECT INC. | ||||
CNU DOLLARSDIRECT LENDING INC. | ||||
MOBILE LEASING GROUP, INC. | ||||
By: |
/s/ David A. Fisher |
|||
Name: | David A. Fisher | |||
Title: | President | |||
ENOVA FINANCIAL HOLDINGS, LLC | ||||
CNU ONLINE HOLDINGS, LLC | ||||
DEBIT PLUS, LLC | ||||
BILLERS ACCEPTANCE GROUP, LLC | ||||
By: |
/s/ David A. Fisher |
|||
Name: | David A. Fisher | |||
Title: | President | |||
DP LABOR HOLDINGS, LLC | ||||
By: |
/s/ Austin D. Nettle |
|||
Name: | Austin D. Nettle | |||
Title: | Vice President and Treasurer |
[Signature Page to Registration Rights Agreement]
CNU OF ALABAMA, LLC | ||||||
CNU OF ALASKA, LLC | ||||||
CNU OF ARIZONA, LLC | ||||||
CNU OF CALIFORNIA, LLC | ||||||
CNU OF COLORADO, LLC | ||||||
CNU OF DELAWARE, LLC | ||||||
CNU OF FLORIDA, LLC | ||||||
CASHNETUSA OF FLORIDA, LLC | ||||||
CNU OF HAWAII, LLC | ||||||
CNU OF IDAHO, LLC | ||||||
CNU OF ILLINOIS, LLC | ||||||
CNU OF INDIANA, LLC | ||||||
CNU OF KANSAS, LLC | ||||||
CNU OF LOUISIANA, LLC | ||||||
CNU OF MAINE, LLC | ||||||
CASHNET CSO OF MARYLAND, LLC | ||||||
CNU OF MICHIGAN, LLC | ||||||
CNU OF MINNESOTA, LLC | ||||||
CNU OF MISSISSIPPI, LLC | ||||||
CNU OF MISSOURI, LLC | ||||||
CNU OF MONTANA, LLC | ||||||
CNU OF NEVADA, LLC | ||||||
CNU OF NEW HAMPSHIRE, LLC | ||||||
CNU OF NEW MEXICO, LLC | ||||||
By: | CNU Online Holdings, LLC, | |||||
The sole member of each of the foregoing entities | ||||||
By: |
/s/ David A. Fisher |
|||||
Name: | David A. Fisher | |||||
Title: | President |
[Signature Page to Registration Rights Agreement]
CNU OF NORTH DAKOTA, LLC | ||||||
CNU OF OHIO, LLC | ||||||
OHIO CONSUMER FINANCIAL SOLUTIONS, LLC | ||||||
CNU OF OKLAHOMA, LLC | ||||||
CNU OF OREGON, LLC | ||||||
CNU OF RHODE ISLAND, LLC | ||||||
CNU OF SOUTH CAROLINA, LLC | ||||||
CNU OF SOUTH DAKOTA, LLC | ||||||
CNU OF TENNESSEE, LLC | ||||||
CNU OF TEXAS, LLC | ||||||
CNU OF UTAH, LLC | ||||||
CNU OF VIRGINIA, LLC | ||||||
CNU OF WASHINGTON, LLC | ||||||
CNU OF WISCONSIN, LLC | ||||||
CNU OF WYOMING, LLC | ||||||
DOLLARSDIRECT, LLC | ||||||
CNU TECHNOLOGIES OF ALABAMA, LLC | ||||||
CNU TECHNOLOGIES OF ARIZONA, LLC | ||||||
CNU TECHNOLOGIES OF CALIFORNIA, LLC | ||||||
CNU TECHNOLOGIES OF IOWA, LLC | ||||||
CNU TECHNOLOGIES OF NEW MEXICO, LLC | ||||||
CNU TECHNOLOGIES OF SOUTH CAROLINA, LLC | ||||||
CNU TECHNOLOGIES OF WISCONSIN, LLC | ||||||
HEADWAY CAPITAL, LLC | ||||||
CASHEURONET UK, LLC | ||||||
EURONETCASH, LLC | ||||||
ENOVA BRAZIL, LLC | ||||||
AEL NET MARKETING, LLC | ||||||
ENOVA INTERNATIONAL GEC, LLC | ||||||
AEL NET OF MISSOURI, LLC | ||||||
NC FINANCIAL SOLUTIONS, LLC | ||||||
By: | CNU Online Holdings, LLC, | |||||
The sole member of each of the foregoing entities | ||||||
By: |
/s/ David A. Fisher |
|||||
Name: | David A. Fisher | |||||
Title: | President |
[Signature Page to Registration Rights Agreement]
NC FINANCIAL SOLUTIONS OF ALABAMA, LLC | ||||||
NC FINANCIAL SOLUTIONS OF ARIZONA, LLC | ||||||
NC FINANCIAL SOLUTIONS OF CALIFORNIA, LLC | ||||||
NC FINANCIAL SOLUTIONS OF COLORADO, LLC | ||||||
NC FINANCIAL SOLUTIONS OF DELAWARE, LLC | ||||||
NC FINANCIAL SOLUTIONS OF GEORGIA, LLC | ||||||
NC FINANCIAL SOLUTIONS OF IDAHO, LLC | ||||||
NC FINANCIAL SOLUTIONS OF ILLINOIS, LLC | ||||||
NC FINANCIAL SOLUTIONS OF KANSAS, LLC | ||||||
NC FINANCIAL SOLUTIONS OF MARYLAND, LLC | ||||||
NC FINANCIAL SOLUTIONS OF MISSISSIPPI, LLC | ||||||
NC FINANCIAL SOLUTIONS OF MISSOURI, LLC | ||||||
NC FINANCIAL SOLUTIONS OF NEVADA, LLC | ||||||
NC FINANCIAL SOLUTIONS OF NEW MEXICO, LLC | ||||||
NC FINANCIAL SOLUTIONS OF NORTH DAKOTA, LLC | ||||||
NC FINANCIAL SOLUTIONS OF OHIO, LLC | ||||||
NC FINANCIAL SOLUTIONS OF SOUTH CAROLINA, LLC | ||||||
NC FINANCIAL SOLUTIONS OF SOUTH DAKOTA, LLC | ||||||
NC FINANCIAL SOLUTIONS OF TENNESSEE, LLC | ||||||
NC FINANCIAL SOLUTIONS OF TEXAS, LLC | ||||||
NC FINANCIAL SOLUTIONS OF UTAH, LLC | ||||||
NC FINANCIAL SOLUTIONS OF VIRGINIA, LLC | ||||||
NC FINANCIAL SOLUTIONS OF WISCONSIN, LLC | ||||||
By: | NC Financial Solutions, LLC | |||||
The sole member of each of the foregoing entities | ||||||
By: |
/s/ David A. Fisher |
|||||
Name: | David A. Fisher | |||||
Title: | Manager of Sole Member | |||||
DEBIT PLUS TECHNOLOGIES, LLC | ||||||
DEBIT PLUS SERVICES, LLC | ||||||
DEBIT PLUS PAYMENT SOLUTIONS, LLC | ||||||
By: | Debit Plus, LLC, | |||||
The sole member of each of the foregoing entities | ||||||
By: |
/s/ David A. Fisher |
|||||
Name: | David A. Fisher | |||||
Title: | President |
[Signature Page to Registration Rights Agreement]
CASHNETUSA CO LLC | ||||||
CASHNETUSA OR LLC | ||||||
THE CHECK GIANT NM LLC | ||||||
By: | CNU of New Mexico, LLC, | |||||
Manager of each of the foregoing entities | ||||||
By: | CNU Online Holdings, LLC | |||||
Its sole member | ||||||
By: |
/s/ David A. Fisher |
|||||
Name: | David A. Fisher | |||||
Title: | Manager of the Sole Member |
[Signature Page to Registration Rights Agreement]
ACCEPTED AND AGREED TO: | ||
JEFFERIES LLC | ||
By: |
/s/ Andrea H. Lee |
|
Name: | Andrea H. Lee | |
Title: | Managing Director |
[Signature Page to Registration Rights Agreement]
Exhibit 10.10
$75,000,000
CREDIT AGREEMENT
among
ENOVA INTERNATIONAL, INC.,
as Borrower,
CERTAIN DOMESTIC SUBSIDIARIES OF THE BORROWER
FROM TIME TO TIME PARTY HERETO,
as Guarantors,
THE LENDERS PARTY HERETO,
and
JEFFERIES FINANCE LLC,
as Administrative Agent
Dated as of May 14, 2014
JEFFERIES FINANCE LLC,
as Sole Lead Arranger and Sole Lead Bookrunner
TABLE OF CONTENTS
P AGE |
||||||
ARTICLE I | ||||||
DEFINITIONS | ||||||
Section 1.1. |
Defined Terms. |
1 | ||||
Section 1.2. |
Other Definitional Provisions. |
34 | ||||
Section 1.3. |
Accounting Terms. |
35 | ||||
Section 1.4. |
Time References. |
36 | ||||
Section 1.5. |
Execution of Documents. |
36 | ||||
Section 1.6. |
Exchange Rates; Currency Equivalents. |
36 | ||||
Section 1.7. |
Letter of Credit Amounts. |
36 | ||||
Section 1.8. |
Redenomination of Certain Foreign Currencies and Computation of Dollar Amounts. |
37 | ||||
ARTICLE II | ||||||
THE LOANS; AMOUNT AND TERMS | ||||||
Section 2.1. |
Revolving Loans. |
37 | ||||
Section 2.2. |
Swingline Loan Subfacility. |
42 | ||||
Section 2.3. |
Letter of Credit Subfacility. |
44 | ||||
Section 2.4. |
Fees. |
51 | ||||
Section 2.5. |
Commitment Terminations or Reductions. |
52 | ||||
Section 2.6. |
Prepayments. |
53 | ||||
Section 2.7. |
Default Rate and Payment Dates. |
54 | ||||
Section 2.8. |
Conversion Options. |
55 | ||||
Section 2.9. |
Computation of Interest and Fees; Usury. |
56 | ||||
Section 2.10. |
Pro Rata Treatment and Payments. |
57 | ||||
Section 2.11. |
Non-Receipt of Funds by the Administrative Agent. |
59 | ||||
Section 2.12. |
Inability to Determine Interest Rate. |
60 | ||||
Section 2.13. |
Yield Protection. |
60 | ||||
Section 2.14. |
Compensation for Losses; Eurocurrency Liabilities. |
62 | ||||
Section 2.15. |
Taxes. |
62 | ||||
Section 2.16. |
Reserved. |
66 | ||||
Section 2.17. |
Illegality. |
66 | ||||
Section 2.18. |
Replacement of Lenders. |
67 | ||||
Section 2.19. |
Revolving Facility Increases. |
68 | ||||
Section 2.20. |
Defaulting Lenders. |
70 | ||||
ARTICLE III | ||||||
REPRESENTATIONS AND WARRANTIES | ||||||
Section 3.1. |
Existence, Qualification and Power; Compliance with Laws. |
72 | ||||
Section 3.2. |
Authorization; No Contravention. |
72 | ||||
Section 3.3. |
Governmental Authorization. |
72 | ||||
Section 3.4. |
Binding Effect. |
72 |
i
Section 3.5. |
Financial Statements; No Material Adverse Effect. |
73 | ||||
Section 3.6. |
Litigation. |
73 | ||||
Section 3.7. |
No Default. |
73 | ||||
Section 3.8. |
Ownership of Property; Liens. |
73 | ||||
Section 3.9. |
Environmental Compliance. |
73 | ||||
Section 3.10. |
Insurance. |
74 | ||||
Section 3.11. |
Taxes. |
74 | ||||
Section 3.12. |
ERISA Compliance. |
74 | ||||
Section 3.13. |
Subsidiaries. |
75 | ||||
Section 3.14. |
Margin Regulations; Investment Company Act. |
75 | ||||
Section 3.15. |
No Financing of Corporate Takeovers. |
75 | ||||
Section 3.16. |
Insider. |
75 | ||||
Section 3.17. |
Disclosure. |
75 | ||||
Section 3.18. |
Intellectual Property; Licenses, Etc. |
76 | ||||
Section 3.19. |
Businesses. |
76 | ||||
Section 3.20. |
Common Enterprise. |
76 | ||||
Section 3.21. |
Solvent. |
76 | ||||
Section 3.22. |
Compliance with FCPA. |
77 | ||||
Section 3.23. |
Anti-Money Laundering Laws. |
77 | ||||
Section 3.24. |
Compliance with OFAC Rules and Regulations. |
77 | ||||
ARTICLE IV | ||||||
CONDITIONS PRECEDENT | ||||||
Section 4.1. |
Conditions to Initial Extensions of Credit. |
77 | ||||
Section 4.2. |
Conditions to All Extensions of Credit. |
80 | ||||
ARTICLE V | ||||||
AFFIRMATIVE COVENANTS | ||||||
Section 5.1. |
Financial Statements. |
82 | ||||
Section 5.2. |
Certificates; Other Information. |
82 | ||||
Section 5.3. |
Notices. |
84 | ||||
Section 5.4. |
Payment of Obligations. |
84 | ||||
Section 5.5. |
Preservation of Existence, Etc. |
85 | ||||
Section 5.6. |
Maintenance of Properties. |
85 | ||||
Section 5.7. |
Maintenance of Insurance. |
85 | ||||
Section 5.8. |
Compliance with Laws. |
85 | ||||
Section 5.9. |
Books and Records. |
85 | ||||
Section 5.10. |
Inspection Rights. |
86 | ||||
Section 5.11. |
Compliance with ERISA. |
86 | ||||
Section 5.12. |
Use of Proceeds. |
86 | ||||
Section 5.13. |
Further Assurances. |
86 | ||||
Section 5.14. |
Notice of Formation of Subsidiary. |
87 | ||||
Section 5.15. |
New Domestic Subsidiaries. |
87 | ||||
Section 5.16. |
Opinions Regarding Obligations of Guarantors. |
87 |
ii
ARTICLE VI | ||||||
NEGATIVE COVENANTS | ||||||
Section 6.1. |
Liens. |
88 | ||||
Section 6.2. |
Indebtedness. |
88 | ||||
Section 6.3. |
Investments. |
90 | ||||
Section 6.4. |
Fundamental Changes. |
92 | ||||
Section 6.5. |
Dispositions. |
92 | ||||
Section 6.6. |
Restricted Payments. |
94 | ||||
Section 6.7. |
ERISA. |
94 | ||||
Section 6.8. |
Change in Nature of Business. |
95 | ||||
Section 6.9. |
Transactions with Affiliates. |
95 | ||||
Section 6.10. |
Burdensome Agreements. |
95 | ||||
Section 6.11. |
Use of Proceeds. |
95 | ||||
Section 6.12. |
Amendment of Organization Documents and Fiscal Year. |
95 | ||||
Section 6.13. |
Amendment of Subordinated Debt. |
95 | ||||
Section 6.14. |
Amendment of Senior Notes or Additional Unsecured Senior Debt. |
96 | ||||
Section 6.15. |
Alteration of Material Agreements. |
96 | ||||
Section 6.16. |
Strict Compliance. |
96 | ||||
Section 6.17. |
Guaranties. |
96 | ||||
Section 6.18. |
Financial Covenants. |
97 | ||||
ARTICLE VII | ||||||
EVENTS OF DEFAULT | ||||||
Section 7.1. |
Events of Default. |
97 | ||||
Section 7.2. |
Acceleration; Remedies. |
100 | ||||
ARTICLE VIII | ||||||
THE ADMINISTRATIVE AGENT | ||||||
Section 8.1. |
Appointment and Authority. |
100 | ||||
Section 8.2. |
Nature of Duties. |
101 | ||||
Section 8.3. |
Exculpatory Provisions. |
101 | ||||
Section 8.4. |
Reliance by Administrative Agent. |
102 | ||||
Section 8.5. |
Notice of Default. |
102 | ||||
Section 8.6. |
Non-Reliance on Administrative Agent and Other Lenders. |
102 | ||||
Section 8.7. |
Indemnification. |
103 | ||||
Section 8.8. |
Administrative Agent in Its Individual Capacity. |
103 | ||||
Section 8.9. |
Successor Administrative Agent. |
103 | ||||
Section 8.10. |
Guaranty Matters. |
104 | ||||
Section 8.11. |
Bank Products. |
105 |
iii
ARTICLE IX | ||||||
MISCELLANEOUS | ||||||
Section 9.1. |
Amendments, Waivers and Consents. |
105 | ||||
Section 9.2. |
Notices. |
107 | ||||
Section 9.3. |
No Waiver; Cumulative Remedies. |
109 | ||||
Section 9.4. |
Survival of Representations and Warranties. |
109 | ||||
Section 9.5. |
Payment of Expenses and Taxes; Indemnity. |
110 | ||||
Section 9.6. |
Successors and Assigns; Participations. |
111 | ||||
Section 9.7. |
Right of Set-off; Sharing of Payments. |
115 | ||||
Section 9.8. |
Table of Contents and Section Headings. |
116 | ||||
Section 9.9. |
Counterparts; Effectiveness; Electronic Execution. |
117 | ||||
Section 9.10. |
Severability. |
117 | ||||
Section 9.11. |
Integration. |
117 | ||||
Section 9.12. |
Governing Law. |
117 | ||||
Section 9.13. |
Consent to Jurisdiction; Service of Process and Venue. |
118 | ||||
Section 9.14. |
Confidentiality. |
118 | ||||
Section 9.15. |
Acknowledgments. |
119 | ||||
Section 9.16. |
Waivers of Jury Trial; Waiver of Consequential Damages. |
120 | ||||
Section 9.17. |
Patriot Act Notice. |
120 | ||||
Section 9.18. |
Resolution of Drafting Ambiguities. |
120 | ||||
Section 9.19. |
Subordination of Intercompany Debt. |
120 | ||||
Section 9.20. |
Continuing Agreement. |
121 | ||||
Section 9.21. |
Reserved. |
121 | ||||
Section 9.22. |
Press Releases and Related Matters. |
121 | ||||
Section 9.23. |
Appointment of Borrower. |
121 | ||||
Section 9.24. |
No Advisory or Fiduciary Responsibility. |
121 | ||||
Section 9.25. |
Responsible Officers and Authorized Officers. |
122 | ||||
Section 9.26. |
Entire Agreement. |
122 | ||||
ARTICLE X | ||||||
GUARANTY | ||||||
Section 10.1. |
The Guaranty. |
123 | ||||
Section 10.2. |
Bankruptcy. |
123 | ||||
Section 10.3. |
Nature of Liability. |
123 | ||||
Section 10.4. |
Independent Obligation. |
124 | ||||
Section 10.5. |
Authorization. |
124 | ||||
Section 10.6. |
Reliance. |
124 | ||||
Section 10.7. |
Waiver. |
124 | ||||
Section 10.8. |
Limitation on Enforcement. |
125 | ||||
Section 10.9. |
Confirmation of Payment. |
126 | ||||
Section 10.10. |
Eligible Contract Participant. |
126 | ||||
Section 10.11. |
Keepwell. |
126 |
Schedules | ||||
Schedule 1.1 | Subsidiaries Groups | |||
Schedule 2.1(a) | Commitments | |||
Schedule 3.1(d) | Compliance with Laws | |||
Schedule 3.6 | Litigation | |||
Schedule 6.1 | Existing Liens | |||
Schedule 6.2(k) | Existing Indebtedness |
iv
Exhibits | ||||
Exhibit 1.1(a) | Form of Account Designation Notice | |||
Exhibit 1.1(b) | Form of Assignment and Assumption | |||
Exhibit 1.1(c) | Form of Joinder Agreement | |||
Exhibit 1.1(d) | Form of Notice of Borrowing | |||
Exhibit 1.1(e) | Form of Notice of Conversion/Extension | |||
Exhibit 1.1(f) | Form of Bank Product Provider Notice | |||
Exhibit 2.1(e) | Form of Revolving Loan Note | |||
Exhibit 2.2(d) | Form of Swingline Loan Note | |||
Exhibit 2.3(b) | Form of Letter of Credit Issuance Request | |||
Exhibit 4.1(b) | Form of Officers Certificate | |||
Exhibit 4.1(c)(1) | Form of Legal Opinion of Internal Counsel | |||
Exhibit 4.1(c)(2) | Form of Legal Opinion of External Counsel | |||
Exhibit 4.1(g) | Form of Solvency Certificate | |||
Exhibit 4.1(m) | Form of Financial Condition Certificate | |||
Exhibit 5.2(a) | Form of Compliance Certificate | |||
Exhibit F-1 | U.S. Tax Compliance Certificate | |||
Exhibit F-2 | U.S. Tax Compliance Certificate | |||
Exhibit F-3 | U.S. Tax Compliance Certificate | |||
Exhibit F-4 | U.S. Tax Compliance Certificate |
v
THIS CREDIT AGREEMENT , dated as of May 14, 2014, is by and among ENOVA INTERNATIONAL, INC. , a Delaware corporation (the Borrower ), the Guarantors (as hereinafter defined), the Lenders (as hereinafter defined) and JEFFERIES FINANCE LLC , as administrative agent for the Lenders hereunder (in such capacity, the Administrative Agent ).
W I T N E S S E T H:
WHEREAS , the Credit Parties (as hereinafter defined) have requested that the Lenders make loans and other financial accommodations to the Credit Parties in an aggregate amount of up to $75,000,000, as more particularly described herein; and
WHEREAS , the Lenders have agreed to make such loans and other financial accommodations to the Credit Parties on the terms and conditions contained herein.
NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, such parties hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1. Defined Terms.
As used in this Agreement, terms defined in the preamble to this Agreement have the meanings therein indicated, and the following terms have the following meanings:
Account Designation Notice shall mean the Account Designation Notice dated as of the Closing Date from the Borrower to the Administrative Agent in substantially the form attached hereto as Exhibit 1.1(a).
Acquisition shall mean the acquisition by any Person of (a) a majority of the Capital Stock of another Person, (b) all or substantially all of the assets of another Person or (c) all or substantially all of a line of business of another Person, in each case whether or not involving a merger or consolidation with such other Person.
Acquisition Consideration shall mean the consideration given by any Credit Party or any of its Subsidiaries for an Acquisition, including but not limited to the sum of (without duplication) (a) the fair market value of any cash, Property (including Redeemable Stock) or services given, plus (b) consideration paid with proceeds of Indebtedness permitted pursuant to this Agreement, plus (c) the amount of any Indebtedness assumed, incurred or guaranteed (to the extent not otherwise included) in connection with such Acquisition by any Credit Party or any of its Subsidiaries.
Additional Credit Party shall mean each Person that becomes a Guarantor by executing a Joinder Agreement in accordance with Section 5.15.
Additional Secured Senior Debt shall mean any Indebtedness of the Credit Parties (other than Subordinated Debt) incurred or issued after the Effective Date (or, in the case of Assumed Indebtedness, incurred or issued prior to or after the Effective Date and assumed by a Credit Party after the Effective Date), including purchase money Indebtedness, Capital Leases, Assumed Indebtedness, and other Indebtedness, which is secured by a Lien.
Additional Unsecured Senior Debt shall mean any Indebtedness of the Credit Parties (other than the Senior Notes and Subordinated Debt) incurred or issued after the Effective Date (or, in the case of Assumed Indebtedness, incurred or issued prior to or after the Effective Date and assumed by a Credit Party after the Effective Date), including Assumed Indebtedness and other Indebtedness which (a) is not secured, directly or indirectly, or in whole or in part, by a Lien, and (b) does not contain any More Restrictive Covenants.
Adjusted EBITDA shall mean, with respect to any period, EBITDA for such period adjusted to (a) exclude any non-cash gain or loss recognized on the income statement from derivative and currency value fluctuations during such period, and (b) upon the acquisition of any assets or Persons permitted by Section 6.3 hereof which generate EBITDA (whether positive or negative) or the disposition of any assets or Persons permitted by Section 6.5 hereof which prior to such disposition generated EBITDA (whether positive or negative), include the actual trailing 12 month EBITDA of the acquired assets or Person, or exclude the actual trailing 12 month EBITDA of the disposed assets or Person, as the case may be, with adjustments as provided in Article 11, Regulation S-X of the Securities Act of 1933 during such period.
Adjusted Funded Debt shall mean, as of any date of determination, the sum of (a) Funded Debt as of such date, minus (b) unrestricted Cash on Hand as of such date.
Administrative Agent or Agent shall have the meaning set forth in the first paragraph of this Agreement and shall include any successors in such capacity.
Administrative Questionnaire shall mean an Administrative Questionnaire in a form supplied by the Administrative Agent.
Affiliate shall mean, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by, or is under common Control with, the Person specified.
Agreement or Credit Agreement shall mean this Agreement, as amended, modified, extended, restated, replaced, or supplemented from time to time in accordance with its terms.
Alternate Base Rate shall mean, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1% and (c) the sum of (i) LIBOR (as determined pursuant to the definition of LIBOR), for an Interest Period of one month commencing on such day plus (ii) 1.00%, in each instance as of such date of determination. For purposes hereof: Prime Rate shall mean, at any time, the U.S. Prime Lending Rate as published in the Wall Street Journal. The Federal Funds Effective Rate shall mean, for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published on the next succeeding Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. If for any reason the Administrative
2
Agent shall have reasonably determined (which determination shall be conclusive in the absence of manifest error) (A) that it is unable to ascertain the Federal Funds Effective Rate, for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms above or (B) that the Prime Rate or LIBOR no longer accurately reflects an accurate determination of the prevailing Prime Rate or LIBOR, the Administrative Agent may select a reasonably comparable index or source to use as the basis for the Alternate Base Rate, until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in any of the foregoing will become effective on the effective date of such change in the Federal Funds Effective Rate, the Prime Rate or LIBOR for an Interest Period of one (1) month. Notwithstanding anything contained herein to the contrary, to the extent that the provisions of Section 2.12 shall be in effect in determining LIBOR pursuant to clause (c) hereof, the Alternate Base Rate shall be the greater of (i) the Prime Rate in effect on such day and (ii) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%.
Alternate Base Rate Loans shall mean Loans that bear interest at an interest rate based on the Alternate Base Rate.
Anti-Money Laundering Laws shall have the meaning assigned in Section 3.23.
Applicable Margin shall mean, for any day, the rate per annum set forth below opposite the applicable level then in effect (based on the Leverage Ratio), it being understood that the Applicable Margin for (a) Revolving Loans and Multicurrency Revolving Loans that are Alternate Base Rate Loans or Canadian Prime Rate Loans shall be the percentage set forth under the column Base Rate Margin , (b) Revolving Loans and Multicurrency Revolving Loans that are LIBOR Rate Loans, BBR Rate Loans or Offshore Rate Loans shall be the percentage set forth under the column LIBOR Margin , and (c) the Commitment Fee shall be the percentage set forth under the column Commitment Fee :
Level |
Leverage Ratio |
LIBOR
Margin |
Base Rate
Margin |
Commitment
Fee |
||||||||||
I |
Less than 1.00 to 1.00 |
2.500 | % | 1.500 | % | 0.250 | % | |||||||
II |
Greater than or equal to 1.00 to 1.00 but less than 1.50 to 1 |
3.000 | % | 2.000 | % | 0.375 | % | |||||||
III |
Greater than or equal to 1.50 to 1.00 but less than 2.00 to 1.00 |
3.250 | % | 2.250 | % | 0.375 | % | |||||||
IV |
Greater than or equal to 2.00 to 1.00 but less than 2.50 to 1.00 |
3.500 | % | 2.500 | % | 0.500 | % | |||||||
V |
Greater than or equal to 2.50 to 1.00 |
3.750 | % | 2.750 | % | 0.500 | % |
The Applicable Margin shall, in each case, be determined and adjusted quarterly on the date five (5) Business Days after the date on which the Administrative Agent has received from the Borrower the quarterly financial information (in the case of the first three fiscal quarters of the Borrowers fiscal year), the annual financial information (in the case of the fourth fiscal quarter of the Borrowers fiscal year) and the certifications required to be delivered to the Administrative Agent and the Lenders in accordance with the provisions of Sections 5.1(a), 5.1(b) and 5.2(b) (each an Interest Determination Date ). Such Applicable Margin shall be effective from such Interest Determination Date until the next such Interest Determination Date. After the Effective Date, if the Credit Parties shall fail to provide the financial information or certifications in accordance with the provisions of Sections 5.1(a), 5.1(b) and 5.2(b), the Applicable Margin
3
shall, on the date five (5) Business Days after the date by which the Credit Parties were so required to provide such financial information or certifications to the Administrative Agent and the Lenders, be based on Level V until such time as such information or certifications or corrected information or corrected certificates are provided, whereupon the Level shall be determined by the then current Leverage Ratio. In the event that any financial statement or certification delivered pursuant to Sections 5.1 or 5.2 is shown to be inaccurate (regardless of whether this Agreement or the Commitments are in effect when such inaccuracy is discovered), and such inaccuracy, if corrected, would have led to the application of a higher Applicable Margin for any period (an Applicable Period ) than the Applicable Margin applied for such Applicable Period, the Borrower shall immediately (a) deliver to the Administrative Agent a corrected Compliance Certificate for such Applicable Period, (b) determine the Applicable Margin for such Applicable Period based upon the corrected Compliance Certificate, and (c) immediately pay to the Administrative Agent for the benefit of the Lenders the accrued additional interest and other fees owing as a result of such increased Applicable Margin for such Applicable Period, which payment shall be promptly distributed by the Administrative Agent to the Lenders entitled thereto. It is acknowledged and agreed that nothing contained herein shall limit the rights of the Administrative Agent and the Lenders under the Credit Documents, including their rights under Sections 2.8 and 7.1. As of the Effective Date and continuing thereafter unless and until the Applicable Margin changes in accordance with the Agreement, the Applicable Margin shall be based on Level IV.
Applicable Percentage shall mean, with respect to any Revolving Lender, the percentage of the total Revolving Commitments represented by such Revolving Lenders Revolving Commitment. If the Revolving Commitments have terminated or expired, the Applicable Percentage shall be determined based on the Revolving Commitments most recently in effect, giving effect to any assignments.
Applicable Time means, with respect to any borrowings and payments in Foreign Currencies, the local times in the place of settlement for such Foreign Currencies as may be reasonably determined by the Administrative Agent to be necessary for timely settlement on the relevant date in accordance with normal banking procedures in the place of payment.
Approved Fund shall mean any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
Assets shall mean, as of any date of determination, the assets which would be reflected on a balance sheet of the Borrower and its Subsidiaries on a Consolidated basis prepared as of such date in accordance with GAAP.
Assignment and Assumption shall mean an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 9.6), and accepted by the Administrative Agent, in substantially the form of Exhibit 1.1(b) or any other form approved by the Administrative Agent.
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Assumed Indebtedness shall mean Indebtedness assumed by the Credit Parties and/or their Subsidiaries, or owed by an acquired Subsidiary, in connection with the Acquisitions permitted pursuant to Section 6.3(f).
Attributable Indebtedness shall mean, on any date of determination, (a) in respect of any Capital Lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, and (b) in respect of any Synthetic Lease Obligation of any Person, the capitalized amount of the remaining lease payments under the relevant lease that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease were accounted for as a Capital Lease.
Audited Financial Statements shall mean the audited consolidated balance sheet of the Borrower and its Subsidiaries for the fiscal year ended December 31, 2013 and the related consolidated statements of income, operations, stockholders equity and cash flows for such fiscal year of the Borrower.
Australian Dollar shall mean the lawful currency of Australia.
Bank Product shall mean any of the following products, services or facilities extended to any Credit Party or any Subsidiary by any Bank Product Provider: (a) Cash Management Services; (b) products under any Hedging Agreement; and (c) commercial credit card, purchase card and merchant card services; provided, however, that for any of the foregoing to be included as Obligations for purposes of a distribution under Section 2.10(b), the applicable Bank Product Provider must have previously provided a Bank Product Provider Notice to the Administrative Agent which shall provide the following information: (i) the existence of such Bank Product and (ii) the maximum dollar amount (if reasonably capable of being determined) of obligations arising thereunder (the Bank Product Amount ). The Bank Product Amount may be changed from time to time upon written notice to the Administrative Agent by the Bank Product Provider. Any Bank Product established from and after the time that the Lenders have received written notice from the Borrower or the Administrative Agent that an Event of Default exists, until such Event of Default has been waived in accordance with Section 9.1, shall not be included as Obligations for purposes of a distribution under Section 2.10(b).
Bank Product Amount shall have the meaning set forth in the definition of Bank Product.
Bank Product Debt shall mean the Indebtedness and other obligations of any Credit Party or Subsidiary relating to Bank Products.
Bank Product Provider shall mean any Person that provides Bank Products to a Credit Party or any Subsidiary to the extent that (a) such Person is a Lender, an Affiliate of a Lender or any other Person that was a Lender (or an Affiliate of a Lender) at the time it entered into the Bank Product but has ceased to be a Lender (or whose Affiliate has ceased to be a Lender) under the Credit Agreement or (b) such Person is a Lender or an Affiliate of a Lender on the Effective Date and the Bank Product was entered into on or prior to the Effective Date (even if such Person ceases to be a Lender or such Persons Affiliate ceased to be a Lender).
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Bank Product Provider Notice shall mean a notice substantially in the form of Exhibit 1.1(f).
Bankruptcy Code shall mean the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time.
Bankruptcy Event shall mean any of the events described in Section 7.1(f).
BBR Rate shall mean (a) the average bid rate (the BBR Screen Rate ) displayed at or about 10:30 a.m. (Sydney time) two Business Days prior to the commencement of such Interest Period on the Reuters BBSY page for a term equivalent to the Interest Period; or (b) to the extent the BBR Screen Rate is not displayed for a term equivalent to such Interest Period or the basis on which the BBR Screen Rate is displayed is changed and in the commercially reasonable opinion of the Administrative Agent it ceases to reflect the Revolving Lenders cost of funding to the same extent as at the Effective Date, then the BBR Rate will be the rate determined by the Administrative Agent in good faith and notified by it to the Borrower to be the average of the buying rates quoted to the Administrative Agent by three (3) Australian leading reference banks in the offshore interbank market for Australian Dollars at or about that time on that date. The buying rates must be for bills of exchange accepted by a leading Australian bank and which have a term equivalent to the Interest Period. If there are no buying rates, the rate for each Revolving Lender will be the rate determined by such Revolving Lender in good faith and notified by such Revolving Lender to the Administrative Agent as the Revolving Lenders cost of funding the relevant Loan for that period.
BBR Rate Loan shall mean any Loan in Australian Dollars bearing interest at a rate determined by reference to the BBR Rate.
BBR Screen Rate shall have the meaning specified in the definition of BBR Rate.
Borrower shall have the meaning set forth in the first paragraph of this Agreement.
Borrowing Date shall mean, in respect of any Loan, the date such Loan is made.
Brady Act shall mean the Brady Handgun Violence Prevention Act § 102(s)(1), 18 U.S.C.A. § 922(s)(1).
British Pounds Sterling shall mean the lawful currency of the United Kingdom.
Business Day shall mean any day other than a Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by law to close; provided, however, that (a) when used in connection with a rate determination, borrowing or payment in respect of a LIBOR Rate Loan, the term Business Day shall also exclude any day on which banks in London, England are not open for dealings in Dollar deposits in the London interbank market and (b) with respect to any Foreign Currency Loan, the term Business Day shall also exclude any day on which banks are not open for foreign exchange dealings between banks in the exchange of the home country of the applicable Foreign Currency.
Canadian Dollar shall mean the lawful currency of Canada.
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Canadian Prime Rate shall mean, for any day, the rate per annum equal to the rate publicly announced from time to time by the Administrative Agent as its prime rate for loans in Canadian Dollars (the prime rate being a rate set by the Administrative Agent based upon various factors including costs and desired return of the Administrative Agent, general economic conditions and other factors, and used as a reference point for pricing some loans in Canadian Dollars in Canada made at its prime rate , which may be priced at, above or below such announced rate); provided that in the event that the Administrative Agent does not publicly announce a prime rate , such rate shall be the average prime rate publicly announced by three (3) Schedule I chartered banks in Canada selected by the Administrative Agent. Any change in the prime rate announced by the Administrative Agent (acting through its Canadian branch or an Affiliate) shall take effect at the opening of business on the day specified in the public announcement of such change. Each interest rate based upon the Canadian Prime Rate hereunder shall be adjusted simultaneously with any change in the Canadian Prime Rate.
Canadian Prime Rate Loan means any Loan made in Canadian Dollars and bearing interest based on the Canadian Prime Rate.
Capital Lease shall mean, as of any date of determination, any lease of Property, real or personal, which would be capitalized on a balance sheet of the lessee prepared as of such date, in accordance with GAAP, together with any other lease by such lessee which is in substance a financing lease, including without limitation, any lease under which (a) such lessee has or will have an option to purchase the Property subject thereto at a nominal amount or an amount less than a reasonable estimate of the fair market value of such Property as of the date such lease is entered into or (b) the term of the lease approximates or exceeds the expected useful life of the Property leased thereunder.
Capital Lease Obligations shall mean the capitalized lease obligations relating to a Capital Lease determined in accordance with GAAP.
Capital Stock shall mean, as to any Person, the equity interests in such Person, including, without limitation, the shares of each class of capital stock in any Person that is a corporation, each class of partnership interest in any Person that is a partnership, and each class of membership interest in any Person that is a limited liability company, and any right to subscribe for or otherwise acquire any such equity interests.
Cash America shall mean Cash America International, Inc., a Texas corporation.
Cash Collateralize shall mean, if and to the extent required by this Agreement, to pledge and deposit in the LC Account or deliver to the Administrative Agent, for the benefit of one or more of the LC Issuer and the Lenders, as collateral for LC Obligations or obligations of Lenders to fund participations in respect of either thereof (as the context may require), cash or deposit account balances or, if the Administrative Agent and the LC Issuer shall agree in their sole discretion, other credit support, in each case pursuant to documentation in form and substance satisfactory to (a) the Administrative Agent and (b) the LC Issuer. Cash Collateral shall have a meaning correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.
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Cash Management Services shall mean any services provided from time to time to any Credit Party or Subsidiary in connection with operating, collections, payroll, trust, or other depository or disbursement accounts, including automatic clearinghouse, controlled disbursement, depository, electronic funds transfer, information reporting, lockbox, stop payment, overdraft and/or wire transfer services and all other treasury and cash management services.
Cash on Hand shall mean, as of any date of determination, the amount equal to the amount of cash and cash equivalents, determined in accordance with GAAP, as it appears on the consolidated balance sheet of the Borrower and the Consolidated Subsidiaries, in each case as of such date of determination.
CFPB shall mean the Consumer Financial Protection Bureau or any successor thereto.
Change in Law shall mean the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any Law, (b) any change in any Law or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided, that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a Change in Law , regardless of the date enacted, adopted or issued.
Change of Control shall mean (a) other than pursuant to the Spin-Off, Cash America shall cease to own and control 100% of the equity securities of the Borrower entitled to vote for members of the board of directors or equivalent governing body of the Borrower on a fully-diluted basis, (b) prior to the Spin-Off, an event or series of events by which any person or group (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, but excluding any employee benefit plan of Cash America or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of 50% or more of the equity securities of Cash America entitled to vote for members of the board of directors or equivalent governing body of Cash America, (c) after the occurrence of the Spin-Off, (i) with respect to the Borrower, an event or series of events by which any person or group (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, but excluding any employee benefit plan of the Borrower or its Subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of 50% or more of the equity securities of the Borrower entitled to vote for members of the board of directors or equivalent governing body of the Borrower on a fully-diluted basis or (d) a Change of Control as defined in the Senior Notes Documents.
Closing Date shall have the meaning set forth in Section 4.1.
Code shall mean the Internal Revenue Code of 1986, as amended from time to time.
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Commercial Letter of Credit Fee shall have the meaning set forth in Section 2.4(c).
Commitment shall mean the Revolving Commitments, the Multicurrency Revolving Commitment and the Swingline Commitment, individually or collectively, as appropriate.
Commitment Fee shall have the meaning set forth in Section 2.4(a).
Commitment Period shall mean with respect to Revolving Loans, Multicurrency Revolving Loans and Swingline Loans, the period from and including the Closing Date to but excluding the Maturity Date.
Committed Funded Exposure shall mean, as to any Lender at any time (and without duplication), the aggregate principal amount at such time of its outstanding Loans and Participation Interests at such time.
Commodity Exchange Act shall mean the Commodity Exchange Act (7 U.S.C. § 1 et seq.).
Commonly Controlled Entity shall mean an entity, whether or not incorporated, which is under common control with the Borrower within the meaning of Section 4001(b)(1) of ERISA or is part of a group which includes the Borrower and which is treated as a single employer under Section 414(b) or 414(c) of the Code or, solely for purposes of Section 430 of the Code to the extent required by such Section, Section 414(m) or 414(o) of the Code.
Compliance Certificate shall mean a certificate substantially in the form of Exhibit 5.2(a).
Connection Income Taxes shall mean Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
Consolidated shall mean, when used with reference to financial statements or financial statement items of the Borrower and its Subsidiaries or any other Person, such statements or items on a consolidated basis in accordance with the consolidation principles of GAAP.
Consolidated Subsidiaries shall mean, all Subsidiaries of the Borrower which are included in the Consolidated financial statements of the Borrower.
Contractual Obligation shall mean, as to any Person, any provision of any security issued by such Person or of any contract, agreement, instrument or undertaking to which such Person is a party or by which it or any of its Property is bound.
Consolidated Total Assets shall mean, as of any date of determination, the total assets of the Borrower and its Consolidated Subsidiaries, as determined in accordance with GAAP.
Control shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. Controlling and Controlled have meanings correlative thereto.
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Credit Documents shall mean this Agreement, each of the Notes, any Joinder Agreement and all other material agreements, documents, certificates and instruments required to be delivered to the Administrative Agent or any Lender by any Credit Party in connection therewith (other than any agreement, document, certificate or instrument related to a Bank Product).
Credit Party shall mean any of the Borrower or the Guarantors.
Cumulative Net Income shall mean, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (1) any net gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (A) any Disposition permitted under Section 6.5 or (B) the disposition of any securities by such Person or any of its Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries and (2) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss).
Debtor Relief Laws shall mean the Bankruptcy Code and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the U.S. or other applicable jurisdictions from time to time in effect.
Default shall mean any of the events specified in Section 7.1, whether or not any requirement for the giving of notice or the lapse of time, or both, has been satisfied.
Default Rate shall mean (a) when used with respect to the Obligations, an interest rate equal to (i) for Alternate Base Rate Loans (A) the Alternate Base Rate plus (B) the Applicable Margin applicable to Alternate Base Rate Loans plus (C) 2.00% per annum, (ii) for LIBOR Rate Loans, (A) the LIBOR Rate plus (B) the Applicable Margin applicable to LIBOR Rate Loans plus (C) 2.00% per annum, (iii) for BBR Rate Loans, (A) the BBR Rate plus (B) the Applicable Margin applicable to BBR Rate Loans plus (C) 2.00% per annum, (iv) for Canadian Prime Rate Loans, (A) the Canadian Prime Rate plus (B) the Applicable Margin applicable to Canadian Prime Rate Loans plus (C) 2.00% per annum and (v) for Offshore Rate Loans, (A) the Offshore Rate plus (B) the Applicable Margin applicable to LIBOR Rate Loans plus (C) 2.00% per annum and (b) when used with respect to any other fee or amount due hereunder, a rate equal to the Applicable Margin applicable to Alternate Base Rate Loans plus 2.00% per annum.
Defaulting Lender shall mean, subject to Section 2.20(b), any Lender that, as determined by the Administrative Agent (with notice to the Borrower of such determination), (a)has failed to perform any of its funding obligations hereunder, including in respect of its Loans or participations in Swingline Loans or Multicurrency Revolving Loans, within three Business Days of the date required to be funded by it hereunder, (b) has notified the Borrower or the Administrative Agent that it does not intend to comply with its funding obligations or has made a public statement to that effect with respect to its funding obligations hereunder or, except
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in connection with a good faith dispute, under other agreements in which it commits to extend credit, (c) has failed within three Business Days after request by the Administrative Agent or Borrower, to confirm in a manner satisfactory to the Administrative Agent that it will comply with its funding obligations or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, or (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority.
Disposition or Dispose shall mean the sale, transfer, license or other disposition (including any sale and leaseback transaction, but excluding a Dividend) of any Property by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.
Dividends in respect of any Person, shall mean (a) cash distributions or any other distributions of Property, or otherwise, on, or in respect of, any class of Capital Stock of such Person (other than dividends or distributions payable solely in common stock of such Person, or options, warrants or other rights to purchase common stock of such Person), and (b) any and all funds, cash or other payments made in respect of the redemption, repurchase or acquisition of such Capital Stock (specifically including, without limitation, a Treasury Stock Purchase, but excluding purchases under employee benefit plans), unless such Capital Stock shall be redeemed or acquired solely through the exchange of such Capital Stock with Capital Stock of the same class or options or warrants to purchase such Capital Stock; provided that, in respect of the Borrower, prior to the Spin-Off the term Dividends shall not include cash distributions to Cash America in amounts required for Cash America to pay federal, state or local income taxes (as the case may be) imposed directly on Cash America to the extent such income taxes are attributable to the income of the Borrower and its Subsidiaries by virtue of Cash America being the common parent of a consolidated, combined or similar tax group which the Borrower and/or any of its Subsidiaries are members, but only to the extent that the amount of such cash distributions for any taxable period does not exceed the amount of such taxes that the Borrower and/or its Subsidiaries, as applicable, would have been required to pay if the Borrower and/or its Subsidiaries, as applicable, had been a stand-alone corporate taxpayer (or stand-alone corporate group).
Dollar Amount shall mean, at any time, (a) with respect to Dollars or an amount denominated in Dollars, such amount, and (b) with respect to an amount of any Foreign Currency or an amount denominated in such Foreign Currency, the equivalent amount thereof in Dollars as reasonably determined by the Administrative Agent at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date) for the purchase of Dollars with such Foreign Currency.
Dollars and $ shall mean dollars in lawful currency of the U.S.
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Domestic Lending Office shall mean, initially, the office of each Lender designated as such Lenders Domestic Lending Office shown in such Lenders Administrative Questionnaire; and thereafter, such other office of such Lender as such Lender may from time to time specify to the Administrative Agent and the Borrower as the office of such Lender at which Alternate Base Rate Loans of such Lender are to be made.
Domestic Subsidiary shall mean any Subsidiary that is organized and existing under the laws of the U.S. or any state or commonwealth thereof or under the laws of the District of Columbia.
EBITDA shall mean, with respect to any period, (a) Net Income for such period, plus (b) without duplication and to the extent deducted in determining Net Income for such period, (i) Interest Expense for such period, (ii) federal, state, local and foreign income and franchise taxes of the Borrower and its Subsidiaries for such period, (iii) depreciation and amortization expenses of the Borrower and its Subsidiaries for such period and other non-cash charges of the Borrower and its Subsidiaries, and (iv) any extraordinary non-cash losses of the Borrower and its Subsidiaries for such period, minus (c) without duplication and to the extent included in determining Net Income for such period, any extraordinary gains and extraordinary non-cash credits of the Borrower and its Subsidiaries for such period.
Effective Date shall mean the date of this Agreement.
Eligible Assignee shall mean (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund and (d) any other Person (other than a natural person) approved by (i) the Administrative Agent, (ii) in the case of any assignment of a Revolving Commitment, the Swingline Lender and the LC Issuer and (iii) unless an Event of Default has occurred and is continuing, the Borrower (each such approval not to be unreasonably withheld or delayed); provided that notwithstanding the foregoing, Eligible Assignee shall not include (A) any Credit Party or any of the Credit Partys Affiliates or Subsidiaries, (B) any Person holding Subordinated Debt of the Credit Parties or any of such Persons Affiliates or (C) any Defaulting Lender (or any of their Affiliates).
EMU shall mean the Economic and Monetary Union as contemplated in the Treaty on European Union.
EMU Legislation shall mean legislative measures of the European Council (including without limitation European Council regulations) for the introduction of, changeover to or operation of a single or unified European currency (whether known as the Euro or otherwise), being in part the implementation of the third stage of EMU.
Environmental Laws shall mean any and all applicable foreign, federal, state, local or municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, legally binding, non-appealable requirements of any Governmental Authority or other requirement of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time be in effect during the term of this Agreement.
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ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.
ERISA Affiliate shall mean any trade or business (whether or not incorporated) under common control with the Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).
ERISA Event means (a) a Reportable Event with respect to a Plan; (b) a withdrawal by the Borrower or any ERISA Affiliate from a Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Sections 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Plan or Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan; or (f) except as could not reasonably be expected to have a Material Adverse Effect, the imposition of any liability under Title IV of ERISA with respect to a Plan, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate.
Euro shall mean the single currency of Participating Member States of the European Union.
Event of Default shall mean any of the events specified in Section 7.1; provided, however, that any requirement for the giving of notice or the lapse of time, or both, has been satisfied.
Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
Excluded Taxes shall mean, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of any Credit Party under any Credit Document, (a) any Net Income Taxes, (b) in the case of a Lender, any U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 2.18) or (ii) such Lender changes its applicable lending office, except in each case to the extent that, pursuant to Section 2.15(a), amounts with respect to such Taxes were payable either to such Lenders assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, (c) Taxes attributable to such recipients failure to comply with Section 2.15(f) and (d) any U.S. federal withholding Taxes imposed under FATCA .
Extension of Credit shall mean the making or extension of a Loan, any conversion of a Loan from one Type to another Type, any extension of any Loan or the issuance, extension or renewal of, or participation in, a Swingline Loan or a Multicurrency Revolving Loan or the issuance, amendment, extension or renewal of any Letter of Credit.
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FATCA shall mean Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), and any regulations with respect thereto or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code.
Federal Funds Effective Rate shall have the meaning set forth in the definition of Alternate Base Rate .
Fee Letter shall mean (a) the engagement letter dated May 13, 2014, addressed to the Borrower from Jefferies and (b) the agency fee letter dated on or about the Closing Date, addressed to the Borrower from Jefferies, in each case as amended, modified, extended, restated, replaced, or supplemented from time to time.
Fixed Charge Coverage Ratio shall mean, as of any date of determination, the ratio of (a) the sum of (i) Adjusted EBITDA plus (ii) cash payments for rent and lease expense, in each case for the period of four consecutive fiscal quarters ending on such date to (b) the sum of (i) Interest Expense, plus (ii) all scheduled payments on Funded Debt (specifically excluding any unscheduled mandatory prepayments and any optional prepayments on Funded Debt), plus (iii) without duplication, cash payments for rent and lease expense, in each case for the four consecutive fiscal quarters ending on such date.
Foreign Acquisition shall mean any Acquisition by any Credit Party or any Subsidiary of assets or entities which are located or organized outside the United States pursuant to Section 6.3(f).
Foreign Currency shall mean (a) Euros, (b) British Pounds Sterling, (c) Canadian Dollars, (d) Australian Dollars, (e) Mexican Pesos, and (f) any other foreign currency requested by the Borrower and approved by the Administrative Agent which is freely transferable and freely convertible into Dollars and in which dealings are carried on in the European interbank market.
Foreign Currency Equivalent shall mean, with respect to any amount denominated in Dollars, the equivalent amount thereof in the applicable Foreign Currency as reasonably determined by the Administrative Agent at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date) for the purchase of such Foreign Currency with Dollars.
Foreign Currency Loan shall mean any Loan denominated in a Foreign Currency.
Foreign Currency Reserve shall mean, at any time, the Dollar Amount equal to 3% of the aggregate amount of the Foreign Currency Loans outstanding at such time.
Foreign Intercompany Loans shall mean intercompany loans and advances by the Borrower or any Domestic Subsidiary to a Foreign Subsidiary.
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Foreign Lender shall mean any Lender that is not a U.S. Person.
Foreign Plan shall mean any plan, fund (including, without limitation, any superannuation fund) or other similar program established or maintained outside the United States of America by the Borrower or any one or more of its Subsidiaries primarily for the benefit of employees of the Borrower or such Subsidiaries residing outside the U.S., which plan, fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement, or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code.
Foreign Third-Party Loans shall mean loans and advances to a Foreign Subsidiary by any party other than the Borrower or a Domestic Subsidiary, which loans and advances shall either be unsecured or secured only by assets of such Foreign Subsidiary.
Foreign Subsidiary shall mean any Subsidiary that is not a Domestic Subsidiary.
Fronting Exposure shall mean, at any time there is a Defaulting Lender, with respect to any Swingline Lender or Revolving Lender or LC Issuer, such Defaulting Lenders Applicable Percentage of (a) outstanding Swingline Loans made by such Swingline Lender and (b) outstanding Letters of Credit issued by such LC Issuer, other than Swingline Loans or Letters of Credit as to which such Defaulting Lenders participation obligation has been reallocated to other Lenders in accordance with the terms hereof.
Fronting Fee shall have the meaning set forth in Section 2.4(c).
Fund shall mean any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.
Funded Debt shall mean, as to the Borrower and its Subsidiaries on a Consolidated basis at a particular time, all of the following (without duplication):
(a) all obligations for borrowed money and all obligations evidenced by bonds, debentures, notes, loan agreements or other similar instruments;
(b) obligations in respect of earnout or similar payments immediately due and payable in cash or which may be payable in cash at the sellers or obligees option and to the extent the same appears on the Borrowers Consolidated balance sheet;
(c) obligations, other than obligations consisting of rental payments under leases of real restate, in respect of Capital Leases and Synthetic Lease Obligations;
(d) any Receivables Facility Attributed Indebtedness; and
(e) obligations in respect of any Redeemable Stock.
GAAP shall mean generally accepted accounting principles in effect in the U.S. (or, in the case of Foreign Subsidiaries with significant operations outside the U.S., generally accepted
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accounting principles in effect from time to time in their respective jurisdictions of organization or formation) applied on a consistent basis, subject, however, in the case of determination of compliance with the financial covenants set out in Section 6.18 to the provisions of Section 1.3.
Governmental Authority shall mean the government of the U.S. or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including, without limitation, the CFPB and any supra-national bodies such as the European Union or the European Central Bank).
Guarantor shall mean the Domestic Subsidiaries of the Borrower, whether existing or hereafter acquired, as are, or may from time to time become, parties to this Agreement.
Guaranty shall mean the guaranty of the Guarantors set forth in Article X.
Guaranty Obligations shall mean, with respect to any Person, without duplication, any obligations of such Person (other than endorsements in the ordinary course of business of negotiable instruments for deposit or collection) guaranteeing or intended to guarantee any Indebtedness of any other Person in any manner, whether direct or indirect, and including, without limitation, any obligation, whether or not contingent, (a) to purchase any such Indebtedness or any Property constituting security therefor, (b) to advance or provide funds or other support for the payment or purchase of any such Indebtedness or to maintain working capital, solvency or other balance sheet condition of such other Person (including, without limitation, keep well agreements, maintenance agreements, comfort letters or similar agreements or arrangements) for the benefit of any holder of Indebtedness of such other Person, (c) to lease or purchase Property, securities or services primarily for the purpose of assuring the holder of such Indebtedness, or (d) to otherwise assure or hold harmless the holder of such Indebtedness against loss in respect thereof. The amount of any Guaranty Obligation hereunder shall (subject to any limitations set forth therein) be deemed to be an amount equal to the outstanding principal amount (or maximum principal amount, if larger) of the Indebtedness (or portion thereof) in respect of which such Guaranty Obligation is made.
Hedging Agreements shall mean, with respect to any Person, any agreement entered into to protect such Person against fluctuations in interest rates, or currency or raw materials values, including, without limitation, any interest rate swap, cap or collar agreement or similar arrangement between such Person and one or more counterparties, any foreign currency exchange agreement, currency protection agreements, commodity purchase or option agreements or other interest or exchange rate hedging agreements.
Immaterial Subsidiary shall mean a Subsidiary that (a) owns assets having a fair market value not to exceed $100,000 and (b) has annual revenues not to exceed $100,000.
Impacted Lender shall mean, subject to Section 2.20(b), any Lender that, as determined by the Administrative Agent (with notice to the Borrower of such determination), has, or has a direct or indirect parent company that has, (a) become the subject of a proceeding under any Debtor Relief Law, or (b) had appointed for it a receiver, custodian, conservator, trustee,
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administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity; provided that a Lender shall not be an Impacted Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority.
Incremental Increase Amount shall have the meaning set forth in Section 2.19(a).
Indebtedness shall mean, as to any Person at a particular time, all of the following:
(a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;
(b) any direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers acceptances, bank guaranties, surety bonds and similar instruments;
(c) net obligations under any Hedging Agreement in an amount equal to (i) if such Hedging Agreement has been closed out, the unpaid Termination Value thereof, or (ii) if such Hedging Agreement has not been closed out, the mark-to-market value thereof determined on the basis of readily available quotations provided by any recognized dealer in such Hedging Agreement;
(d) whether or not so included as liabilities in accordance with GAAP, all obligations of such Person to pay the deferred purchase price of Property or services, and Indebtedness (excluding prepaid interest thereon) secured by a Lien on Property owned or being purchased by such Person (including Indebtedness arising under conditional sales or other title retention agreements), whether or not such Indebtedness shall have been assumed by such Person or is limited in recourse;
(e) accrued obligations in respect of earnout or similar payments payable in cash or which may be payable in cash at the sellers or obligees option;
(f) Capital Lease and Synthetic Lease Obligations;
(g) any Redeemable Stock of such Person;
(h) any Receivables Facility Attributed Indebtedness; and
(i) all Guaranty Obligations of such Person in respect of any of the foregoing.
For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person except for customary exceptions reasonably acceptable to the Required Lenders. The amount of any Capital Lease or Synthetic Lease Obligation as of any date shall be deemed to be the amount of Attributable Indebtedness in respect thereof as of such date.
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Indemnified Taxes shall mean (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of the Borrower under any Credit Document and (b) to the extent not otherwise described in clause (a) preceding, Other Taxes.
Indemnitee shall have the meaning set forth in Section 9.5(b).
Insolvency shall mean, with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of such term as used in Section 4245 of ERISA.
Intercompany Debt shall have the meaning set forth in Section 9.19.
Interest Determination Date shall have the meaning specified in the definition of Applicable Margin .
Interest Expense shall mean, with respect to any period, interest expense, whether paid or accrued (including the interest component of Capital Leases), of the Borrower and its Subsidiaries, all as determined in conformity with GAAP, as it appears on the Consolidated income statement of the Borrower and its Consolidated Subsidiaries as of such date of determination.
Interest Payment Date shall mean (a) as to any Alternate Base Rate Loan, Canadian Prime Rate Loan or Offshore Rate Loan, the last Business Day of each March, June, September and December and on the applicable Maturity Date, (b) as to any LIBOR Rate Loan or BBR Rate Loan having an Interest Period of three months or less, the last day of such Interest Period, (c) as to any LIBOR Rate Loan or BBR Rate Loan having an Interest Period longer than three months, (i) each three (3) month anniversary following the first day of such Interest Period and (ii) the last day of such Interest Period and (d) as to any Loan which is the subject of a mandatory prepayment required pursuant to Section 2.6(b), the date on which such mandatory prepayment is due.
Interest Period shall mean, with respect to any LIBOR Rate Loan or BBR Rate Loan,
(a) initially, the period commencing on the Borrowing Date or conversion date, as the case may be, with respect to such LIBOR Rate Loan or BBR Rate Loan and ending one, two, three or six months thereafter, subject to availability to all applicable Lenders, as selected by the Borrower in the Notice of Borrowing or Notice of Conversion given with respect thereto; and
(b) thereafter, each period commencing on the last day of the immediately preceding Interest Period applicable to such LIBOR Rate Loan or BBR Rate Loan and ending one week or one, two, three or six months thereafter, subject to availability to all applicable Lenders, as selected by the Borrower by irrevocable notice to the Administrative Agent not less than two Business Days prior to the last day of the then current Interest Period with respect thereto; provided that the foregoing provisions are subject to the following:
(i) if any Interest Period pertaining to a LIBOR Rate Loan or BBR Rate Loan would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day;
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(ii) any Interest Period pertaining to a LIBOR Rate Loan or BBR Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the relevant calendar month;
(iii) if the Borrower shall fail to give notice as provided above, the Borrower shall be deemed to have selected an Alternate Base Rate Loan to replace the affected LIBOR Rate Loan or BBR Rate Loan;
(iv) no Interest Period in respect of any Loan shall extend beyond the Maturity Date; and
(v) no more than eight (8) LIBOR Rate Loans may be in effect at any time. For purposes hereof, LIBOR Rate Loans with different Interest Periods shall be considered as separate LIBOR Rate Loans, even if they shall begin on the same date and have the same duration, although borrowings, extensions and conversions may, in accordance with the provisions hereof, be combined at the end of existing Interest Periods to constitute a new LIBOR Rate Loan with a single Interest Period.
Investment shall mean (a) the acquisition (whether for cash, Property, services, assumption of Indebtedness, securities or otherwise) of Capital Stock, other ownership interests or other securities of any Person or bonds, notes, debentures or all or substantially all of the assets of any Person, (b) any advance, loan or other extension of credit to, any Person or (c) any other capital contribution to or investment in any Person, including, without limitation, any Guaranty Obligation (including any support for a letter of credit issued on behalf of such Person) incurred for the benefit of such Person.
Jefferies shall mean Jefferies Finance LLC, together with its successors and/or assigns.
Joinder Agreement shall mean a Joinder Agreement in substantially the form of Exhibit 1.1(c), executed and delivered by an Additional Credit Party in accordance with the provisions of Section 5.15.
Law shall mean, as to any Person, (a) the articles or certificate of incorporation, by-laws or other organizational or governing documents of such Person, and (b) all international, foreign, federal, state and local statutes (including, without limitation, (i) anti-money laundering laws and (ii) the consumer loan provisions of the Texas Finance Code), treaties, rules, legally binding final guidelines, regulations, ordinances, codes, executive orders, and administrative or judicial precedents, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable legally binding, non-appealable administrative orders, directed duties, licenses, authorizations and permits of, and agreements with, any Governmental Authority (in each case whether or not having the force of law, but excluding any of the foregoing which are suggestive or discretionary and not mandatory); in each case to the extent applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject.
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Lender shall mean any of the several banks and other financial institutions as are, or may from time to time become, parties to this Agreement; provided that notwithstanding the foregoing, Lender shall not include any Credit Party or any of the Credit Partys Affiliates or Subsidiaries.
LC Account shall mean amounts deposited into a designated account held by the Administrative Agent as cash collateral for liabilities in respect of Letters of Credit under any provision of this Agreement requiring such cash collateral.
LC Disbursement means a payment or disbursement made by the LC Issuer pursuant to a Letter of Credit.
LC Documents shall have the meaning set forth in Section 2.3(a).
LC Exposure shall mean at any time the sum of (without duplication) (a) the aggregate Dollar Amount of the undrawn face amount of all Letters of Credit issued hereunder and outstanding at such time plus (b) the aggregate principal amount of all LC Disbursements outstanding at such time.
LC Issuer shall mean Jefferies Group LLC (through The Bank of New York Mellon or one of its Affiliates, or through any other financial institution acceptable to Jefferies Group LLC).
LC Obligations shall mean, as at any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all LC Disbursements. For purposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with the proviso to Section 1.7. For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be outstanding in the amount so remaining available to be drawn.
LC Participation Fee shall have the meaning set forth in Section 2.4(c).
Letter of Credit shall mean any letter of credit issued hereunder. A Letter of Credit may be a commercial letter of credit or a standby letter of credit and may be issued in Dollars or, if agreed by an LC Issuer in its sole and absolute discretion, any Foreign Currency.
Letter of Credit Commitment shall mean $20,000,000.
Letter of Credit Expiration Date shall mean any day of expiration of a Letter of Credit, which in no event shall be later than the Maturity Date.
Letter of Credit Issuance Request shall mean a letter of credit request substantially in the form of Exhibit 2.3(b).
Letter of Credit Sublimit shall have the meaning set forth in Section 2.3(a). The Letter of Credit Sublimit is part of, and not in addition to, the Revolving Facility.
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Leverage Ratio shall mean, as of any date of determination, for the Credit Parties and their Subsidiaries on a Consolidated basis, the ratio of (a) Adjusted Funded Debt on such date to (b) Adjusted EBITDA for the four (4) consecutive quarters ending on such date.
LIBOR shall mean, with respect to any Interest Period when used in reference to any Loan, (a) the rate of interest (rounded upwards, if necessary, to the nearest 1/100th) appearing on Reuters Screen LIBOR01 Page (or on any successor or substitute page of such service, or any successor to such service as determined by Administrative Agent) and, in the case of a Foreign Currency, the appropriate page of the Reuters screen for deposits in such Foreign Currency, as the London interbank offered rate for deposits in U.S. Dollars for a term comparable to such Interest Period, at approximately 11:00 a.m. (London time) on the date which is two Business Days prior to the commencement of such Interest Period (but if more than one rate is specified on such page, the rate will be an arithmetic average of all such rates), and (b) if such rate is not available at such time for any reason, then the LIBOR Rate for such Interest Period shall be the interest rate per annum reasonably determined by the Administrative Agent in good faith to be the rate per annum at which deposits in Dollars for delivery on the first day of such Interest Period in immediately available funds in the approximate amount of the LIBOR Rate Loan being made, continued or converted by the Administrative Agent and with a term equivalent to such Interest Period would be offered to the Administrative Agent by major banks in the London or other offshore interbank market for Dollars at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period, and in each case subject to the reserve percentage prescribed by Governmental Authorities.
LIBOR Lending Office shall mean, initially, the office(s) of each Lender designated as such Lenders LIBOR Lending Office in such Lenders Administrative Questionnaire; and thereafter, such other office of such Lender as such Lender may from time to time specify to the Administrative Agent and the Borrower as the office of such Lender at which the LIBOR Rate Loans of such Lender are to be made.
LIBOR Rate shall mean a LIBOR rate per annum (rounded upwards, if necessary, to the next higher 1/16 of 1%) determined by the Administrative Agent in accordance with the definition of LIBOR .
LIBOR Rate Loan shall mean Loans the rate of interest applicable to which is based on the LIBOR Rate.
LIBOR Tranche shall mean the collective reference to LIBOR Rate Loans whose Interest Periods begin and end on the same day.
Lien shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, (a) any conditional sale or other title retention agreement and any Capital Lease having substantially the same economic effect as any of the foregoing and (b) the authorized filing of any UCC financing statement).
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Loan shall mean a Revolving Loan, a Multicurrency Revolving Loan and/or a Swingline Loan, as appropriate.
Mandatory Swingline Borrowing shall have the meaning set forth in Section 2.2(b)(ii).
Material Adverse Effect shall mean any act or circumstance or event which (a) is material and adverse to the consolidated financial condition or business operations of the Borrower and its Subsidiaries and which could reasonably be expected to result in a Default or an Event of Default, (b) in any manner whatsoever materially and adversely affects the validity or enforceability of any of the Credit Documents in a manner that impairs the ability of the Lenders to exercise their remedies under this Agreement or (c) materially impairs the ability of any Credit Parties or any of its Subsidiaries to perform its material obligations under any of the Credit Documents to which it is a party.
Materials of Environmental Concern shall mean any gasoline or petroleum (including crude oil or any extraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including, without limitation, asbestos, perchlorate, polychlorinated biphenyls and urea-formaldehyde insulation.
Maturity Date shall mean June 30, 2017, provided (i) if the Borrower or any of the Borrowers Subsidiaries guarantee any credit facility, term loans, promissory notes or material Indebtedness in excess of $1,000,000 of Cash America or any Subsidiary of Cash America (other than the Borrower and its Subsidiaries) as of the Effective Date and all such guarantees have not been released and terminated on or before March 31, 2015, the Maturity Date shall be March 31, 2015 and (ii) if all conditions precedent in Section 4.1 have not been satisfied on or before May 30, 2014, the Maturity Date shall be May 30, 2014.
Mexican Peso shall mean the lawful currency of Mexico.
Minimum Collateral Amount shall mean, at any time, with respect to Cash Collateral consisting of cash or deposit account balances provided to reduce or eliminate LC Exposure during the existence of a Defaulting Lender, an amount equal to 103% of the LC Exposure of the LC Issuer with respect to Letters of Credit issued and outstanding at such time.
Moodys shall mean Moodys Investors Service, Inc.
More Restrictive Covenant shall mean, with respect to any Additional Unsecured Senior Debt or Subordinated Debt having a principal amount in excess of $5,000,000, any negative covenant or similar restriction applicable to the Credit Parties or any Subsidiary (regardless of whether such provision is labeled or otherwise characterized as a covenant), the subject matter of which is similar to the covenants set forth in Article VI of this Agreement or related to definitions in Article I of this Agreement, but which contains one or more percentages, ratios, amounts or formulas that is more restrictive than those set forth herein or more beneficial to the holder or holders of the Indebtedness created or evidenced by the document in which such covenant or similar restriction is contained than to the Lenders hereunder.
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Multicurrency Revolving Commitment shall mean the commitment of the Revolving Lenders to make Multicurrency Revolving Loans in an aggregate principal Dollar Amount at any time outstanding up to an amount equal to the Multicurrency Revolving Committed Amount, as such amounts may be reduced from time to time in accordance with the provisions hereof.
Multicurrency Revolving Committed Amount shall have the meaning set forth in Section 2.1(b)(i).
Multicurrency Revolving Exposure shall mean, with respect to any Revolving Lender, an amount equal to the Applicable Percentage of such Revolving Lender multiplied by the principal amount of outstanding Multicurrency Revolving Loans.
Multicurrency Revolving Loans shall have the meaning set forth in Section 2.1(b)(i).
Multicurrency Revolving Loan Note shall mean each promissory note of the Borrower in favor of a Revolving Lender evidencing the Multicurrency Revolving Loans provided pursuant to Section 2.1(b), as such promissory note may be amended, modified, extended, restated, replaced, or supplemented from time to time.
Multiemployer Plan shall mean a Plan that is a multiemployer plan as defined in Section 4001(a)(3) of ERISA.
Negative Pledge shall mean any agreement, contract or other arrangement whereby the Borrower or any of its Subsidiaries is prohibited from, or would otherwise be in default as a result of, creating, assuming, incurring or suffering to exist, directly or indirectly, any Lien on any of its assets.
Net Equity Proceeds shall mean, with respect to the issuance or sale of any Capital Stock of any Person, the cash proceeds received by such Person in connection with such transaction after deducting therefrom the aggregate, without duplication, of the following amounts to the extent properly attributable to such transaction: reasonable legal fees, accounting fees, underwriting fees, investment banking fees and other reasonable and customary fees and expenses, in each case, to the extent paid, payable or reimbursed by such Person.
Net Income shall mean, with respect to any period, the net income or loss of the Borrower and its Consolidated Subsidiaries for such period, determined in accordance with GAAP; provided that there shall be excluded from such calculation the income or loss of any Person (other than a Subsidiary) of which the Borrower or any Subsidiary owns Capital Stock, except to the extent of the amount of dividends or other distributions actually paid to the Borrower or any of the Subsidiaries during such period.
Net Income Taxes shall mean, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of any Credit Party under any Credit Document, (a) any Taxes imposed on or measured by such recipients net income (however denominated), franchise Taxes, and branch profits Taxes, in each case (i) imposed as a result of such recipients being organized in, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes.
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Net Worth shall mean, as of any date, the total shareholders equity (including Capital Stock (including preferred stock), additional paid-in capital, and retained earnings after deducting treasury stock) which would appear on a balance sheet of the Borrower and its Subsidiaries on a Consolidated basis prepared as of such date in accordance with GAAP, but excluding all other comprehensive income or losses resulting from Foreign Currency translation adjustments or derivative value fluctuation.
Non-Defaulting Lender shall mean, at any time, each Lender that is not a Defaulting Lender at such time.
Non-Material Foreign Subsidiary shall mean any Foreign Subsidiary of any Credit Party (a) whose assets comprise less than 5% of Consolidated Total Assets and (b) whose revenues comprise less than 5% of total revenues of the Borrower and its Consolidated Subsidiaries during any fiscal quarter.
Non-Recourse Debt shall mean Indebtedness:
(1) as to which neither the Borrower nor any of its Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness) or (b) is directly or indirectly liable as a guarantor or otherwise; and
(2) no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against a Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness of the Borrower or any of its Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its stated maturity.
Note or Notes shall mean the Revolving Loan Notes, the Multicurrency Revolving Loan Note and/or the Swingline Loan Note, collectively, separately or individually, as appropriate.
Notice of Borrowing shall mean a request for a Revolving Loan borrowing pursuant to Section 2.1(a)(ii)(A), a request for a Multicurrency Revolving Loan borrowing pursuant to Section 2.1(b)(ii)(A) or a request for a Swingline Loan borrowing pursuant to Section 2.2(b)(i), as appropriate. A Form of Notice of Borrowing is attached as Exhibit 1.1(d).
Notice of Conversion/Extension shall mean the written notice of conversion of a LIBOR Rate Loan to an Alternate Base Rate Loan or an Alternate Base Rate Loan to a LIBOR Rate Loan, or extension of a LIBOR Rate Loan or a BBR Rate Loan, in each case substantially in the form of Exhibit 1.1(e).
Obligations shall mean, collectively (and without duplication), all of the obligations, Indebtedness and liabilities of the Credit Parties to the Lenders, the Bank Product Providers and the Administrative Agent, whenever arising, under this Agreement, the Notes, any Bank Product or any of the other Credit Documents, including principal, interest, fees, costs, charges, expenses, professional fees, reimbursements, all sums chargeable under the Credit Documents to the Credit Parties or for which any Credit Party is liable as an indemnitor and whether or not evidenced by a note or other instrument and indemnification obligations and other amounts (including, but not
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limited to, any interest accruing after the occurrence of a filing of a petition of bankruptcy under the Bankruptcy Code with respect to any Credit Party, regardless of whether such interest is an allowed claim under the Bankruptcy Code).
OFAC shall mean the U.S. Department of the Treasurys Office of Foreign Assets Control.
Offering Memorandum shall mean the offering memorandum dated on or about the date hereof prepared in connection with the Senior Notes.
Offshore Rate shall mean, with respect to Mexican Pesos, as determined by the Administrative Agent in accordance with its customary practices, the rate of interest per annum (rounded upwards to the next 1/16 of 1%) at which deposits in Mexican Pesos for delivery on the first day of any Interest Period in same day funds in the approximate amount of the Loan being made, continued or converted and with a term equivalent to such Interest Period would be offered to leading banks in the offshore interbank market for Mexican Pesos at their request at approximately 11:00 A.M. Eastern time, two (2) Business Days prior to the commencement of the applicable Interest Period.
Offshore Rate Loan shall mean Loans the rate of interest applicable to which is based on the Offshore Rate.
Organization Documents shall mean, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws; (b) with respect to any limited liability company, the articles of formation and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation with the secretary of state or other department in the state of its formation, in each case as amended from time to time.
Other Connection Taxes shall mean, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of any Credit Party under any Credit Document, Taxes imposed as a result of a present or former connection between such recipient and the jurisdiction imposing such Tax (other than connections arising from such recipient having executed, delivered, or become a party to, performed its obligations or received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to, or enforced, any Credit Document, or sold or assigned an interest in any Loan or Credit Document).
Other Taxes shall mean all present or future stamp, court or documentary Taxes and any other excise, property, intangible, recording, filing or similar Taxes which arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Credit Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 2.18).
Participant has the meaning assigned to such term in clause (d) of Section 9.6.
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Participating Member State shall mean each country so described in any EMU Legislation.
Participation Interest shall mean a participation interest purchased by a Revolving Lender in (a) Swingline Loans as provided in Section 2.2(b), (b) Multicurrency Revolving Loans as provided in Section 2.1(b)(iii) and (c) Letters of Credit and LC Disbursements as provided in Section 2.3(b).
Patriot Act shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT ACT) Act of 2001 (Title III of Pub. L. No. 107-56 (signed into law October 26, 2001)), as amended or modified from time to time.
Payment Event of Default shall mean an Event of Default specified in Section 7.1(a).
PBGC shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA.
Permitted Liens shall mean: (a) Liens (if any) granted in favor of the Administrative Agent (for the benefit of the Lenders) to secure payment of the Obligations and other Indebtedness of the Borrower specifically approved by each of the Lenders in writing; (b) pledges or deposits made to secure payment of workers compensation (or to participate in any fund in connection with workers compensation), unemployment insurance, pensions or social security programs, other than any Lien imposed by ERISA; (c) Liens imposed by mandatory provisions of law such as for materialmens, mechanics, warehousemens and other like Liens arising in the ordinary course of business, securing Indebtedness whose payment is not yet due and payable or if the same are being contested in good faith and as to which adequate reserves have been provided; (d) Liens for taxes, assessments and governmental charges or levies imposed upon a Person or upon such Persons income or profits or Property, if the same are not yet due and payable or if the same are being contested in good faith and as to which adequate reserves have been provided; (e) good faith deposits in connection with tenders, leases, real estate bids or contracts (other than contracts involving the borrowing of money), pledges or deposits to secure public or statutory obligations, deposits to secure (or in lieu of) surety, stay, appeal or customs bonds and deposits to secure the payment of taxes, assessments, customs duties or other similar charges; (f) encumbrances consisting of zoning restrictions, easements, or other restrictions on the use of real Property, any reservations, limitations, provisos and conditions with respect to real Property expressed in any grant from any Governmental Authority and title defects or irregularities which are of a minor nature, provided that such do not impair the use of such Property for the uses intended, and none of which in the aggregate is materially violated by existing or proposed structures or land use; (g) Liens securing Additional Secured Senior Debt, (h) Liens against Temporary Cash Investments, to the extent that such Liens secure short-term Indebtedness permitted under Section 6.2(e)(ii) hereof; (i) Liens arising by operation of law in connection with judgments being appealed to the extent such Liens would not otherwise result in an Event of Default under Section 7.1(g); (j) contractual or statutory landlords liens arising in the ordinary course of the Borrowers or the Subsidiaries leasing activities; (k) Liens in favor of a Bank Product Provider in connection with a Bank Product; provided that such Liens shall secure the Obligations on a pari passu basis; (l) Liens in favor of
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the Administrative Agent, the Revolving Lenders, each LC Issuer and/or Swingline Lender to secure the obligations of a Defaulting Lender to fund risk participations hereunder; (m) normal and customary rights of set-off of contractual parties and Liens of a collecting bank on checks, drafts or other items of payment payable to a Credit Party in the course of collection; (n) existing Liens shown on Schedule 6.1 and any renewals, extensions or refinancings thereof, provided that (i) the Property affected or covered by any such Lien is not changed, (ii) the amount secured or benefited by any such Lien is not increased and (iii) neither the direct nor any contingent obligor with respect to the amount secured or benefited thereby is changed; (o) any interest of title of (i) a lessor, lessee, sublessor or sublessee under any lease of real Property or (ii) a licensee or sublicensee with respect to any Property if and to the extent that such license or sublicense is permitted under this Agreement and the other Credit Documents; (p) non-exclusive licenses or sublicenses of patents, trademarks and other intellectual property rights granted by the Borrower or any of its Subsidiaries in the ordinary course of business of such Borrower or Subsidiary; (q) Liens solely on any cash earnest money deposits made by the Borrower or any of its Subsidiaries in connection with any letter of intent or purchase agreement permitted hereunder; (r) Liens affecting the proceeds of insurance policies securing Indebtedness in respect of insurance premium financing for such insurance policies permitted pursuant to Section 6.2(n); (s) purported Liens evidenced by the filing of precautionary UCC financing statements relating solely to personal property leased pursuant to operating leases entered into in the ordinary course of business of the Borrower and its subsidiaries; (t) options, put and call arrangements, rights or first refusal and similar rights to Investments in joint ventures, partnerships or other similar investments permitted to be made under Section 6.3; (u) pledges or deposits made in the ordinary course of business in connection with any advance, loan or other extension of credit to a borrower of a Credit Party; (v) Liens affecting assets of Foreign Subsidiaries and securing Indebtedness permitted pursuant to Section 6.2(o)(ii); (w) Liens on accounts receivable and related assets and proceeds thereof arising in connection with a Permitted Receivables Financing; (x) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Borrower or a Subsidiary, provided that such Liens were not created in connection with, or in contemplation of, such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Borrower or a Subsidiary; (y) Liens on property existing at the time of acquisition thereof by the Borrower or any of its Subsidiaries of the Borrower, provided that such Liens were not created in connection with, or in contemplation of, such acquisition and (z) additional Liens not otherwise permitted by clauses (a)-(v) so long as the principal amount of Indebtedness and other obligations secured by this clause (w) does not exceed $1,000,000 in the aggregate.
Permitted Receivables Financing shall mean any receivables financing facility or arrangement pursuant to which a Securitization Subsidiary purchases or otherwise acquires accounts receivable of the Borrower or any Subsidiary and enters into a third party financing thereof on terms that the board of directors has concluded are customary and market terms fair to the Borrower and its Subsidiaries.
Person shall mean any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
Plan shall mean, as of any date of determination, any employee benefit plan which is covered by Title IV of ERISA and in respect of which any Credit Party or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an employer as defined in Section 3(5) of ERISA.
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Prime Rate shall have the meaning set forth in the definition of Alternate Base Rate.
Property shall mean any investment in any kind of property or asset, whether real, personal or mixed, tangible or intangible.
Qualified ECP Guarantor shall mean, in respect of any Swap Obligation, each Credit Party that has total assets exceeding $10,000,000 at the time the relevant Guaranty or grant of the relevant security interest becomes effective with respect to such Swap Obligation or such other Person as constitutes an eligible contract participant under the Commodity Exchange Act or any regulations promulgated thereunder and can cause another Person to qualify as an eligible contract participant at such time by entering into a keepwell under Section 1a(18)(A)(v)(II) of the Commodity Exchange Act.
Receivables Facility Attributed Indebtedness shall mean the amount of obligations outstanding under a receivables securitization facility on any date of determination that would be characterized as principal if such facility were structured as a secured lending transaction other than a purchase.
Redeemable Stock shall mean the portion of any Capital Stock of the Borrower or any of its Subsidiaries which prior to the Maturity Date is or may be (a) unilaterally redeemable (by sinking fund or similar payments or otherwise) upon the occurrence of certain events or otherwise; (b) redeemable at the option of the holder thereof or (c) convertible into Indebtedness.
Register shall have the meaning set forth in Section 9.6(c).
Reimbursement Obligations shall mean the Borrowers obligations under Section 2.3(e) to reimburse LC Disbursements.
Related Parties shall mean, with respect to any Person, such Persons Affiliates and the partners, directors, officers, employees, agents, trustees and advisors of such Person and of such Persons Affiliates.
Reorganization shall mean, with respect to any Multiemployer Plan, the condition that such Plan is in reorganization within the meaning of such term as used in Section 4241 of ERISA.
Reportable Event shall mean any of the events set forth in Section 4043(c) of ERISA, other than those events as to which notice is waived under applicable PBGC regulations, taking into account any cure periods or extensions.
Required Lenders shall mean, as of any date of determination, Lenders holding at least a majority of (a) the outstanding Revolving Commitments or (b) if the Revolving Commitments have been terminated, the outstanding Loans and Participation Interests; provided , however , that if any Lender shall be a Defaulting Lender at such time, then there shall be excluded from the determination of Required Lenders, Obligations (including Participation Interests) owing to such Defaulting Lender and such Defaulting Lenders Commitments; provided , further , so long as there are only two (2) Lenders, that Required Lenders must include both Lenders.
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Responsible Officer shall mean, for any Credit Party, the chief executive officer, the president, the chief financial officer, the senior vice president of finance or the vice president/treasurer of such Credit Party and any additional responsible officer that is designated as such to the Administrative Agent.
Restricted Payment shall mean, collectively, (a) Dividends, and (b) any payment or prepayment of principal, interest, premium or penalty on any Subordinated Debt or Additional Unsecured Senior Debt or any defeasance, redemption, purchase, repurchase or other acquisition or retirement for value, in whole or in part, of any Subordinated Debt or Additional Unsecured Senior Debt (including, without limitation, the setting aside of assets or the deposit of funds therefor).
Revaluation Date shall mean each of the following: (a) each date a Loan denominated in a Foreign Currency is made pursuant to Section 2.1(b); (b) each date a Loan denominated in a Foreign Currency is continued pursuant to Section 2.6; (c) each date a Revolving Loan is made to reimburse a Swingline Loan (including a Mandatory Borrowing) or a Participation Interest is required to be purchased in an outstanding Swingline Loan pursuant to the terms of Section 2.2; (d) each date a Revolving Loan is made to reimburse a Multicurrency Revolving Loan (including a Mandatory Revolving Loan Borrowing) or a Participation Interest is required to be purchased in an outstanding Multicurrency Revolving Loan pursuant to the terms of Section 2.1(b)(iii); (e) each date a Letter of Credit denominated in a Foreign Currency is issued or drawn pursuant to the terms of Section 2.3; (f) the last Business Day of each calendar month; and (g) such additional dates as the Administrative Agent or the Required Lenders shall specify.
Revolving Commitment shall mean, with respect to each Revolving Lender, the commitment of such Revolving Lender to make Revolving Loans in an aggregate principal Dollar Amount at any time outstanding up to an amount equal to such Revolving Lenders Revolving Commitment Percentage of the Revolving Committed Amount.
Revolving Commitment Percentage shall mean, for each Revolving Lender, the percentage identified as its Revolving Commitment Percentage on Schedule 2.1(a) or in the Register, as such percentage may be modified in connection with any assignment made in accordance with the provisions of Section 9.6(b).
Revolving Committed Amount shall have the meaning set forth in Section 2.1(a)(i).
Revolving Credit Outstandings means the sum of, (a) with respect to Revolving Loans, Multicurrency Revolving Loans and Swingline Loans on any date, the aggregate outstanding principal Dollar Amount thereof after giving effect to any borrowings and prepayments or repayments of Revolving Loans, Multicurrency Revolving Loans and Swingline Loans, as the case may be, (b) the Foreign Currency Reserve and (c) the LC Exposure, in each case occurring on such date.
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Revolving Exposure means, with respect to any Lender at any time, the aggregate principal amount at such time of all outstanding Revolving Loans of such Lender, plus the aggregate amount at such time of such Lenders LC Exposure.
Revolving Facility shall have the meaning set forth in Section 2.1(a)(i).
Revolving Facility Increase shall have the meaning set forth in Section 2.19(a).
Revolving Lenders shall mean any Lender.
Revolving Loans shall have the meaning set forth in Section 2.1(a)(i).
S&P shall mean Standard & Poors Ratings Services, a division of The McGraw Hill Companies, Inc.
Sanctioned Entity shall mean (a) a country or a government of a country, (b) an agency of the government of a country, (c) an organization directly or indirectly controlled by a country or its government, or (d) a person or entity resident in or determined to be resident in a country, that is subject to a country sanctions program administered and enforced by OFAC.
Sanctioned Person shall mean a person named on the list of Specially Designated Nationals maintained by OFAC or an entity that is 50% or more owned by any such person.
Sarbanes-Oxley shall mean the Sarbanes-Oxley Act of 2002.
SEC shall mean the Securities and Exchange Commission or any successor Governmental Authority.
Securitization Subsidiary shall mean a Subsidiary of the Borrower:
(1) that is designated a Securitization Subsidiary by the board of directors,
(2) that does not engage in, and whose charter prohibits it from engaging in, any activities other than Permitted Receivables Financings and any activity necessary, incidental or related thereto,
(3) no portion of the Indebtedness or any other obligation, contingent or otherwise, of which
(A) is guaranteed by the Borrower or any Subsidiary,
(B) is recourse to or obligates the Borrower or any Subsidiary in any way, or
(C) subjects any property or asset of the Borrower or any Subsidiary of the Borrower, directly or indirectly, contingently or otherwise, to the satisfaction thereof,
(4) with respect to which neither the Borrower nor any Subsidiary has any obligation to maintain or preserve its financial condition or cause it to achieve certain levels of operating results,
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other than, in respect of clauses (3) and (4), pursuant to customary representations, warranties, covenants and indemnities entered into in connection with a Permitted Receivables Financing.
Senior Debt shall mean a collective reference to (a) the obligations of the Credit Parties under the Senior Notes, the Additional Secured Senior Debt and the Additional Unsecured Senior Debt and (b) the Obligations hereunder.
Senior Notes shall mean the Senior Notes due 2021 to be issued on or about the Closing Date, with terms substantially similar to those described in the Offering Memorandum.
Senior Notes Documents shall mean, collectively, the Offering Memorandum, the indenture governing the Senior Notes and all other agreements, instruments and other documents pursuant to which the Senior Notes will be issued on the Closing Date or otherwise setting forth the terms of the Senior Notes, with terms substantially similar to those described in the Offering Memorandum.
Single Employer Plan shall mean any Plan that is not a Multiemployer Plan.
Solvent shall mean, with respect to any Person, that the fair value of the assets of such Person (both at fair valuation and at present fair saleable value on a going concern basis) is, on the date of determination, greater than the total amount of liabilities (including contingent and unliquidated liabilities) of such Person as of such date and that, as of such date, such Person is able to pay all liabilities of such Person as such liabilities mature and such Person does not have unreasonably small capital with which to carry on its business. In computing the amount of contingent or unliquidated liabilities at any time, such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability discounted to present value at rates believed to be reasonable by such Person.
Special Dividend shall mean the dividend consisting of the remainder of the net cash proceeds from the Senior Notes that is not used to prepay indebtedness owed by the Borrower to Cash America.
Spin-Off means the distribution of at least 80% of the Borrowers capital stock to the shareholders of Cash America in a manner that does not violate any material agreement binding on Cash America.
Spin Transaction Documents shall mean, among others, (a) the Separation and Distribution Agreement, (b) the Transition Services Agreement, (c) the Stockholders and Registration Rights Agreement, (d) the Tax Matters Agreement, (e) the Employee Matters Agreement, (f) the Credit Underwriting Services Agreement, (g) the Marketing and Customer Referral Agreement, clauses (a) through (g) in each case as described in the Offering Memorandum, and (h) any other agreement entered into in connection with the Spin-Off that is described in the Offering Memorandum or otherwise customary to spin-off transactions similar to the Spin-Off (including any modification, amendment or amendment and restatement of any such agreement) on terms that are commercially reasonable to the Borrower.
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Spot Rate shall mean, with respect to any Foreign Currency, the rate quoted by Jefferies as the spot rate for the purchase by Jefferies of such Foreign Currency with Dollars through its principal foreign exchange trading office at approximately 11:00 A.M. on the date two Business Days prior to the date as of which the foreign exchange computation is made (provided that, if applicable, the basis for such quoted rate shall also be specified in connection with each such quotation).
Standby Letter of Credit Fee shall have the meaning set forth in Section 2.4(c).
Subordinated Debt shall mean any Indebtedness of the Borrower or any Subsidiary which (a) is expressly (in writing) subordinated in right of payment to the prior payment in full of the Obligations, (b) does not contain any More Restrictive Covenants and (c) contains subordination and other terms reasonably acceptable to the Administrative Agent. It is understood and agreed that any Subordinated Debt of the Borrower or any Subsidiary that contains terms customary in the market at such time for similar issuances shall be acceptable to the Administrative Agent.
Subsidiary shall mean, as to any Person, a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned by such Person. Unless otherwise specified, all references herein to a Subsidiary or to Subsidiaries shall refer to a Subsidiary or Subsidiaries of the Borrower.
Swap Obligations shall mean, with respect to any Guarantor, an obligation to pay or perform under any agreement, contract or transaction that constitutes a swap within the meaning of § 1a(47) of the Commodity Exchange Act.
Swingline Commitment shall mean the commitment of the Swingline Lender to make Swingline Loans in an aggregate principal amount at any time outstanding up to the Swingline Committed Amount, and the commitment of the Revolving Lenders to purchase participation interests in the Swingline Loans as provided in Section 2.2(b)(ii), as such amounts may be reduced from time to time in accordance with the provisions hereof.
Swingline Committed Amount shall mean the amount of the Swingline Lenders Swingline Commitment as specified in Section 2.2(a).
Swingline Exposure shall mean, with respect to any Revolving Lender, an amount equal to the Applicable Percentage of such Revolving Lender multiplied by the principal amount of outstanding Swingline Loans.
Swingline Lender shall mean Jefferies Group LLC and any successor swingline lender.
Swingline Loan shall have the meaning set forth in Section 2.2(a).
Swingline Loan Note shall mean the promissory note of the Borrower in favor of the Swingline Lender evidencing the Swingline Loans provided pursuant to Section 2.2(d), as such promissory note may be amended, modified, extended, restated, replaced, or supplemented from time to time.
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Synthetic Lease Obligation shall mean the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of Property creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the Indebtedness of such Person (without regard to accounting treatment).
Taxes shall mean all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholdings), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
Temporary Cash Investment shall mean any of the following investments: (a) investments in open market investment grade commercial paper (rated at least A-1 or P-1), maturing within one hundred eighty (180) days after acquisition thereof, (b) investments in marketable obligations, maturing within one hundred eighty (180) days after acquisition thereof, issued or unconditionally guaranteed by the United States of America or an instrumentality or agency thereof and entitled to the full faith and credit of the United States of America, (c) investments in money market funds that invest solely in the types of investments permitted under clauses (a) and (b) hereof, (d) investments in repurchase agreements of a domestic office of any of the Lenders which are fully secured by securities described in clause (b) hereof, (e) short-term investments in investment grade auction preferred stock, (f) certificates of deposit and time deposits (including Eurodollar deposits) maturing within one hundred eighty (180) days from the date of deposit thereof, with a domestic office of any of the Lenders or any bank which is a national bank organized under the laws of the United States of America and (i) having capital, surplus and undivided profits of at least $100,000,000 or (ii) so long as all such deposits are federally insured, and (g) investments, certificates of deposit and time deposits (including Eurodollar deposits) of the types described above (but without the grade classification required above) of or with a Lender.
Termination Value shall mean, in respect of any one or more Hedging Agreements, after taking into account the effect of any legally enforceable netting agreement relating to such Hedging Agreements, (a) for any date on or after the date such Hedging Agreements have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a) the amount(s) determined as the mark-to-market value(s) for such Hedging Agreements, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Hedging Agreements (which may include any Lender).
Tranche shall mean the collective reference to (a) LIBOR Rate Loans whose Interest Periods begin and end on the same day, (b) BBR Rate Loans whose Interest Periods begin and end on the same day, (c) Alternate Base Rate Loans made on the same day, (d) Canadian Prime Rate Loans made on the same day and (e) Offshore Base Rate Loans made on the same day.
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Transactions shall mean the closing of this Agreement and the other Credit Documents and the other transactions contemplated hereby and pursuant to the other Credit Documents (including, without limitation, the initial borrowings under the Credit Documents and the payment of fees and expenses in connection with all of the foregoing).
Transfer Effective Date shall have the meaning set forth in each Assignment and Assumption.
Treasury Stock Purchase shall mean any purchase, redemption, retirement, cancellation, defeasance or other acquisition (including any sinking fund or similar deposit for such purpose) by the Borrower or any Subsidiary of its Capital Stock or any warrants, rights or options to acquire such Capital Stock.
Type shall mean, as to any Loan, its nature as an Alternate Base Rate Loan, BBR Rate Loan, Canadian Prime Rate Loan, Offshore Rate Loan or LIBOR Rate Loan, as the case may be.
UCC shall mean the Uniform Commercial Code from time to time in effect in any applicable jurisdiction.
Unreimbursed Amount shall have the meaning set forth in Section 2.3(e).
U.S. shall mean the United States of America.
U.S. Person shall mean a United States Person as defined in Section 7701(a)(30) of the Code.
U.S. Tax Compliance Certificate has the meaning set forth in Section 2.15(f) and shall be in form and substance reasonably acceptable to the Administrative Agent.
Withholding Agent shall mean a Credit Party, the Administrative Agent, or, in the case of any Lender that is treated as a partnership for U.S. federal income tax purposes, such Lender or any partnership for U.S. federal income tax purposes that is a direct or indirect (through a chain of entities treated as flow-through entities for U.S. federal income tax purposes) beneficial owner of such Lender, or any of their respective agents, that is required under applicable law to deduct or withhold any Tax from a payment by or on account of any obligation of any Credit Party under any Credit Document.
Works shall mean all works which are subject to copyright protection pursuant to Title 17 of the United States Code.
Section 1.2. Other Definitional Provisions.
The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words include, includes and including shall be deemed to be followed by the phrase without limitation. The word will shall be construed to have the same meaning and effect as the word shall. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be
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construed as referring to such agreement, instrument or other document as from time to time amended, restated, supplemented, amended and restated or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Persons successors and assigns, (c) the words herein, hereof and hereunder, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, (e) any reference to any law or regulation herein shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, (f) the words asset and property shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights and (g) all terms defined in this Agreement shall have the defined meanings when used in any other Credit Document or any certificate or other document made or delivered pursuant hereto.
Section 1.3. Accounting Terms.
(a) Generally . All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the most recently delivered audited Consolidated financial statements of the Borrower, except as otherwise specifically prescribed herein.
(b) Changes in GAAP . If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Credit Document, and either the Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.
(c) Financial Covenant Calculations . The parties hereto acknowledge and agree that, for purposes of all calculations made in determining compliance for any applicable period with the financial covenants set forth in Section 6.18 and for purposes of determining the Applicable Margin, (i) after consummation of any Acquisitions permitted hereunder, (A) income statement items and other balance sheet items (whether positive or negative) attributable to the target acquired in such transaction shall be included in such calculations to the extent relating to such applicable period, subject to adjustments mutually acceptable to the Borrower and the Administrative Agent and (B) Indebtedness of a target which is retired in connection with any Acquisitions permitted hereunder shall be excluded from such calculations and deemed to have been retired as of the first day of such applicable period and (ii) after any Disposition permitted by Section 6.5(e), (A) income statement items, cash flow statement items and balance sheet
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items (whether positive or negative) attributable to the Property or Assets disposed of shall be excluded in such calculations to the extent relating to such applicable period, subject to adjustments mutually acceptable to the Borrower and the Administrative Agent and (B) Indebtedness and applicable interest that is repaid with the proceeds of such Disposition shall be excluded from such calculations and deemed to have been repaid as of the first day of such applicable period.
Section 1.4. Time References.
Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).
Section 1.5. Execution of Documents.
Unless otherwise specified, all Credit Documents and all other certificates executed in connection therewith must be signed by a Responsible Officer.
Section 1.6. Exchange Rates; Currency Equivalents.
(a) The Administrative Agent shall reasonably determine the applicable Spot Rate as of each Revaluation Date to be used for calculating the Dollar Amounts of Extensions of Credit and amounts outstanding hereunder denominated in Foreign Currencies. Each such Spot Rate shall become effective as of such Revaluation Date and shall be the Spot Rate employed in converting any amounts between the applicable currencies until the next Revaluation Date to occur. Except for purposes of financial statements delivered by the Borrower hereunder or calculating financial covenants hereunder or except as otherwise provided herein, the applicable amount of any currency for purposes of the Credit Documents shall be such Dollar Amount as reasonably so determined by the Administrative Agent.
(b) Wherever in this Credit Agreement, in connection with any Extension of Credit, any conversion, continuation or prepayment of a Loan, an amount, such as a required minimum or multiple amount, is expressed in Dollars, but such Extension of Credit or Loan is denominated in a Foreign Currency, such amount shall be the relevant Foreign Currency Equivalent of such Dollar amount (rounded to the nearest 1,000 units of such Foreign Currency), as reasonably determined by the Administrative Agent.
(c) Determinations by the Administrative Agent in accordance with this Section 1.6 shall be conclusive absent manifest error.
Section 1.7. Letter of Credit Amounts.
Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the stated amount or undrawn amount, as the context may require, of such Letter of Credit in effect at such time; provided , however , that with respect to any Letter of Credit that, by its terms or the terms of any LC Document related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.
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Section 1.8. Redenomination of Certain Foreign Currencies and Computation of Dollar Amounts.
(a) Each obligation of the Borrower to make a payment denominated in the National Currency Unit of any member state of the European Union that adopts the Euro as its lawful currency after the date hereof shall be redenominated into Euros at the time of such adoption (in accordance with the EMU Legislation). If, in relation to the currency of any such member state, the basis of accrual of interest expressed in this Credit Agreement in respect of that currency shall be inconsistent with any convention or practice in the London interbank market for the basis of accrual of interest in respect of the Euro, such expressed basis shall be replaced by such convention or practice with effect from the date on which such member state adopts the Euro as its lawful currency; provided that if any Extension of Credit in the currency of such member state is outstanding immediately prior to such date, such replacement shall take effect, with respect to such Extension of Credit, at the end of the then current Interest Period.
(b) Each provision of this Credit Agreement shall be subject to such reasonable changes of construction as the Administrative Agent may from time to time specify to be appropriate to reflect the adoption of the Euro by any member state of the European Union and any relevant market conventions or practices relating to the Euro.
(c) References herein to minimum Dollar Amounts and integral multiples stated in Dollars, where they shall also be applicable to Foreign Currency, shall be deemed to refer to approximate Foreign Currency Equivalents. Wherever in this Credit Agreement an amount, such as a minimum or maximum limitation on Indebtedness permitted to be incurred or Investments permitted to be made hereunder, is expressed in Dollars, it shall be deemed to refer to the Dollar Amount thereof.
ARTICLE II
THE LOANS; AMOUNT AND TERMS
Section 2.1. Revolving Loans.
Section 2.1(a) Revolving Loans.
(i) Revolving Commitment . During the Commitment Period, subject to the terms and conditions hereof, each Revolving Lender severally, but not jointly, agrees to make revolving credit loans in Dollars (each a Revolving Loan ) to the Borrower from time to time in an aggregate principal Dollar Amount of up to SEVENTY-FIVE MILLION DOLLARS ($75,000,000) (as such aggregate maximum amount may be increased from time to time as provided in Section 2.19 or reduced from time to time as provided in Section 2.5 or Section 4.1(o), the Revolving Committed Amount ) for the purposes hereinafter set forth (such facility, the Revolving Facility ); provided, however, that (A) with regard to each Revolving Lender individually, the sum of such Revolving Lenders Revolving Commitment Percentage of the aggregate principal Dollar Amount of outstanding Revolving Loans plus such Revolving Lenders Revolving Commitment Percentage of outstanding Swingline Loans plus such Revolving Lenders Revolving Commitment Percentage of outstanding LC Obligations plus such Lenders Revolving
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Commitment Percentage of the Foreign Currency Reserve shall not exceed such Revolving Lenders Revolving Commitment and (B) with regard to the Revolving Lenders collectively, the aggregate Revolving Credit Outstandings shall not exceed the Revolving Committed Amount then in effect. Revolving Loans may consist of Alternate Base Rate Loans or LIBOR Rate Loans, or a combination thereof, as the Borrower may request, and may be repaid and reborrowed in accordance with the provisions hereof.
(ii) Revolving Loan Borrowings .
(A) Notice of Borrowing . The Borrower shall request a Revolving Loan borrowing by delivering a written Notice of Borrowing (or telephone notice promptly confirmed in writing by delivery of a written Notice of Borrowing, which delivery may be by fax) to the Administrative Agent not later than 11:00 A.M. on the Business Day prior to the date of the requested borrowing in the case of Alternate Base Rate Loans, and on the second Business Day prior to the date of the requested borrowing in the case of LIBOR Rate Loans. Each such Notice of Borrowing shall be irrevocable and shall specify (1) that a Revolving Loan is requested, (2) the date of the requested borrowing (which shall be a Business Day), (3) the aggregate principal amount to be borrowed and (4) whether the borrowing shall be comprised of Alternate Base Rate Loans, LIBOR Rate Loans or a combination thereof, and if LIBOR Rate Loans are requested, the Interest Period(s) therefor. If the Borrower shall fail to specify in any such Notice of Borrowing a) an applicable Interest Period in the case of a LIBOR Rate Loan, then such notice shall be deemed to be a request for an Interest Period of one month, or b) the Type of Revolving Loan requested, then such notice shall be deemed to be a request for an Alternate Base Rate Loan hereunder. The Administrative Agent shall give notice to each Revolving Lender promptly upon receipt of each Notice of Borrowing, the contents thereof and each such Revolving Lenders share thereof.
(B) Minimum Amounts . Each Revolving Loan that is made as an Alternate Base Rate Loan shall be in a minimum aggregate amount of $500,000 and in integral multiples of $100,000 in excess thereof (or the remaining amount of the Revolving Committed Amount, if less). Each Revolving Loan that is made as a LIBOR Rate Loan shall be in a minimum aggregate amount of $1,000,000 and in integral multiples of $500,000 in excess thereof (or the remaining amount of the Revolving Committed Amount, if less).
(C) Advances . Each Revolving Lender will make its Revolving Commitment Percentage of each Revolving Loan borrowing available to the Administrative Agent for the account of the Borrower at the office of the Administrative Agent specified in Section 9.2, or at such other office as the Administrative Agent may designate in writing, by 1:00 P.M. on the date specified in the applicable Notice of Borrowing, in Dollars and in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Borrower by the Administrative Agent by crediting the account of the Borrower on the books of such office (or such other account that
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the Borrower may designate in writing to the Administrative Agent) with the aggregate of the amounts made available to the Administrative Agent by the Revolving Lenders and in like funds as received by the Administrative Agent.
(iii) Repayment . Subject to the terms of this Agreement, Revolving Loans may be borrowed, repaid and reborrowed during the Commitment Period, subject to Section 2.6(a). The principal amount of all Revolving Loans shall be due and payable in full on the Maturity Date, unless accelerated sooner pursuant to Section 7.2.
(iv) Interest . Subject to the provisions of Section 2.7, Revolving Loans shall bear interest as follows: (A) Alternate Base Rate Loans. During such periods as any Revolving Loans shall be comprised of Alternate Base Rate Loans, each such Alternate Base Rate Loan shall bear interest at a per annum rate equal to the sum of the Alternate Base Rate plus the Applicable Margin; and (B) LIBOR Rate Loans. During such periods as Revolving Loans shall be comprised of LIBOR Rate Loans, each such LIBOR Rate Loan shall bear interest at a per annum rate equal to the sum of the LIBOR Rate plus the Applicable Margin. Interest on Revolving Loans shall be payable in arrears on each Interest Payment Date.
(v) Revolving Loan Notes; Covenant to Pay . The Borrowers obligation to pay each Revolving Lender shall be evidenced by this Agreement and, upon such Revolving Lenders request, by a duly executed promissory note of the Borrower to such Revolving Lender in substantially the form of Exhibit 2.1(e)(i). The Borrower covenants and agrees to pay the Revolving Loans in accordance with the terms of this Agreement.
Section 2.1(b) Multicurrency Revolving Loans.
(i) Multicurrency Revolving Commitment . During the Commitment Period, subject to the terms and conditions hereof, each Revolving Lender severally, but not jointly, agrees to make Multicurrency Revolving Loans in Foreign Currencies as the Borrower may request from time to time in accordance with Section 2.1(b)(ii) ( Multicurrency Revolving Loans ) to the Borrower from time to time; provided that (A) the aggregate principal Dollar Amount of Multicurrency Revolving Loans shall not exceed TWENTY-FIVE MILLION DOLLARS ($25,000,000) (as such aggregate maximum amount may be reduced from time to time as provided in Section 2.5, the Multicurrency Revolving Committed Amount ), (B) with regard to each Revolving Lender individually, the sum of such Revolving Lenders Revolving Commitment Percentage of the aggregate principal Dollar Amount of outstanding Revolving Loans plus such Revolving Lenders Revolving Commitment Percentage of outstanding Swingline Loans plus such Revolving Lenders Revolving Commitment Percentage of outstanding LC Obligations plus such Lenders Revolving Commitment Percentage of the Foreign Currency Reserve shall not exceed such Revolving Lenders Revolving Commitment and (C) with regard to the Revolving Lenders collectively, the aggregate Revolving Credit Outstandings shall not exceed the Revolving Committed Amount then in effect. Multicurrency Revolving Loans in Foreign Currencies (other than Australian Dollars, Canadian Dollars and Mexican Pesos,) shall consist solely of LIBOR Rate Loans. Multicurrency Revolving Loans denominated in (A) Australian Dollars shall consist
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solely of BBR Rate Loans, (B) Canadian Dollars shall consist solely of Canadian Prime Rate Loans and (C) Mexican Pesos shall consist solely of Offshore Rate Loans. Foreign Currency Loans shall be made by each Revolving Lender at its LIBOR Lending Office.
(ii) Multicurrency Revolving Loan Borrowings .
(A) Notice of Borrowing. The Borrower shall request a Multicurrency Revolving Loan borrowing by delivering a written Notice of Borrowing (or telephone notice promptly confirmed in writing by delivery of a written Notice of Borrowing, which delivery may be by fax) to the Administrative Agent not later than 10:00 A.M. (New York, New York time) five (5) Business Days prior to the date of the requested borrowing in the case of Multicurrency Revolving Loans. Each such Notice of Borrowing shall be irrevocable and shall specify (1) that a Multicurrency Revolving Loan is requested, (2) the date of the requested borrowing (which shall be a Business Day), (3) the aggregate principal amount to be borrowed, (4) the applicable Foreign Currency in which such Multicurrency Revolving Loan is to be funded, (5) if the Multicurrency Revolving Loan is to be made in Canadian Dollars, that such borrowing shall be comprised solely of Canadian Prime Rate Loans, (6) if the Multicurrency Revolving Loan is to be made in Australian Dollars, that such borrowing shall be comprised solely of BBR Rate Loans, (7) if the Multicurrency Revolving Loan is to be made in Mexican Pesos, that such borrowing shall be comprised solely of Offshore Rate Loans and (8) if LIBOR Rate Loans or BBR Rate Loans are requested, the Interest Period(s) therefor. If the Borrower shall fail to specify in any such Notice of Borrowing (x) an applicable Interest Period in the case of a LIBOR Rate Loan or BBR Rate Loans, then such notice shall be deemed to be a request for an Interest Period of one month or (y) the currency for such Loan, then such Loan shall be made in Euros. The Administrative Agent shall give notice to the Revolving Lenders promptly upon receipt of each Notice of Borrowing pursuant to this Section 2.1(b)(ii)(A), the contents thereof and each such Lenders share of any borrowing to be made pursuant thereto.
(B) Minimum Amounts . Each Multicurrency Revolving Loan shall be in a minimum aggregate Dollar Amount of $1,000,000 and in integral multiples of $500,000 (or the amount rounded to the nearest 10,000 unit of the applicable Foreign Currency) in excess thereof (or the remaining amount of the Multicurrency Revolving Committed Amount, if less).
(C) Advances. The Revolving Lenders will make each Multicurrency Revolving Loan borrowing available to the Administrative Agent for the account of the Borrower at the office of the Administrative Agent specified in Section 9.2, or at such other office as the Administrative Agent may designate in writing, in the applicable Foreign Currency, in each case as requested by the Borrower in accordance with this Agreement, and in funds immediately available to the Administrative Agent, by the Applicable Time specified by the Administrative Agent. Such borrowing will then be made available to the Borrower by the Administrative Agent by crediting the account of the Borrower on the books of
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such office (or such other account that the Borrower may designate in writing to the Administrative Agent) with the aggregate of the amounts made available to the Administrative Agent by the Revolving Lenders and in like funds as received by the Administrative Agent.
(iii) Repayment . Subject to the terms of this Agreement, Multicurrency Revolving Loans may be borrowed, repaid and reborrowed during the Commitment Period, subject to Section 2.6(a). The principal amount of all Multicurrency Revolving Loans shall be due and payable in full on the Maturity Date, unless accelerated sooner pursuant to Section 7.2. At any time (A) any Default or Event of Default has occurred and is continuing or (B) the Revolving Lenders reasonably determine that any specific Foreign Currency is no longer freely available, freely transferable or freely convertible into Dollars, the Revolving Lenders may, by written notice to the Borrower and the Administrative Agent, demand repayment of the Multicurrency Revolving Loans by way of a Revolving Loan borrowing, in which case the Borrower shall be deemed to have requested a Revolving Loan borrowing comprised entirely of Alternate Base Rate Loans denominated in Dollars in the Dollar Amount of the Multicurrency Revolving Loans outstanding as of such date. The Borrower shall have the right to repay the Multicurrency Revolving Loan in whole or in part from time to time in accordance with Section 2.6(a)
(iv) Interest . Subject to the provisions of Section 2.7, Multicurrency Revolving Loans shall bear interest as follows:
(A) LIBOR Rate Loans. During such periods as Multicurrency Revolving Loans shall be comprised of LIBOR Rate Loans, each such LIBOR Rate Loan shall bear interest at a per annum rate equal to the sum of the LIBOR Rate plus the Applicable Margin.
(B) BBR Rate Loans. During such periods as Multicurrency Revolving Loans shall be comprised of BBR Rate Loans, each such BBR Rate Loan shall bear interest at a per annum rate equal to the sum of the BBR Rate plus the Applicable Margin.
(C) Canadian Prime Rate Loans. During such periods as Multicurrency Revolving Loans shall be comprised of Canadian Prime Rate Loans, each such Canadian Prime Rate Loan shall bear interest at a per annum rate equal to the sum of the Canadian Prime Rate plus the Applicable Margin.
(D) Offshore Rate Loans. During such periods as Multicurrency Revolving Loans shall be comprised of Offshore Rate Loans, each such Offshore Rate Loan shall bear interest at a per annum rate equal to the sum of the Offshore Rate plus the Applicable Margin. Interest on Multicurrency Revolving Loans shall be payable in arrears on each Interest Payment Date.
(v) Revolving Loan Notes; Covenant to Pay . The Borrowers obligation to pay the Revolving Lenders shall be evidenced by this Agreement and, upon any Revolving Lenders request, by a duly executed promissory note of the Borrower to such
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Revolving Lender in substantially the form of Exhibit 2.1(e)(ii). The Borrower covenants and agrees to pay the Multicurrency Revolving Loans in accordance with the terms of this Agreement.
Section 2.2. Swingline Loan Subfacility.
(a) Swingline Commitment . During the Commitment Period, subject to the terms and conditions hereof, the Swingline Lender, in its individual capacity, may, in its discretion and in reliance upon the agreements of the other Lenders set forth in this Section, make certain Revolving Loans to the Borrower (each a Swingline Loan and, collectively, the Swingline Loans ) for the purposes hereinafter set forth; provided, however, (i) the aggregate principal amount of Swingline Loans outstanding at any time shall not exceed TEN MILLION DOLLARS ($10,000,000) (the Swingline Committed Amount ), (ii) the aggregate Revolving Credit Outstandings shall not exceed the Revolving Committed Amount then in effect and (iii) Swingline Loans shall reduce availability under the Revolving Facility on a dollar-for-dollar basis. Swingline Loans hereunder may be repaid and reborrowed in accordance with the provisions hereof.
(b) Swingline Loan Borrowings.
(i) Notice of Borrowing and Disbursement . Upon receiving a Notice of Borrowing from the Borrower not later than 12:00 P.M. on any Business Day requesting that a Swingline Loan be made, the Swingline Lender will make Swingline Loans available to the Borrower on the same Business Day such request is received by the Administrative Agent. Swingline Loan borrowings hereunder shall be made in minimum amounts of $100,000 (or the remaining available amount of the Swingline Committed Amount if less) and in integral amounts of $100,000 in excess thereof; provided, however, that this (i) shall not apply if Swingline Loans are made automatically pursuant to a credit sweep in accordance with the Swingline Lenders treasury management system, if available.
(ii) Repayment of Swingline Loans . Each Swingline Loan borrowing shall be due and payable on the Maturity Date, but in no event will be outstanding for more than ten (10) Business Days. The Swingline Lender may, at any time, in its sole discretion, by written notice to the Borrower and the Administrative Agent, demand repayment of its Swingline Loans by way of a Revolving Loan borrowing, in which case the Borrower shall be deemed to have requested a Revolving Loan borrowing comprised entirely of Alternate Base Rate Loans in the amount of such Swingline Loans; provided, however, that, in the following circumstances, any such demand shall also be deemed to have been given one Business Day prior to each of (A) the Maturity Date, (B) the occurrence of any Bankruptcy Event, (C) upon acceleration of the Obligations hereunder, whether on account of a Bankruptcy Event or any other Event of Default, and (D) the exercise of remedies in accordance with the provisions of Section 7.2 hereof (each such Revolving Loan borrowing made on account of any such deemed request therefor as provided herein being hereinafter referred to as Mandatory Swingline Borrowing ). Each Revolving Lender hereby irrevocably agrees to make such Revolving Loans promptly upon any such request or deemed request on account of each Mandatory Swingline Borrowing in the
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amount and in the manner specified in the preceding sentence on the date such notice is received by the Revolving Lenders from the Administrative Agent if such notice is received at or before 2:00 P.M., otherwise such payment shall be made at or before 12:00 P.M. on the Business Day next succeeding the date such notice is received notwithstanding (1) the amount of Mandatory Swingline Borrowing may not comply with the minimum amount for borrowings of Revolving Loans otherwise required hereunder, (2) whether any conditions specified in Section 4.2 are then satisfied, (3) whether a Default or an Event of Default then exists, (4) failure of any such request or deemed request for Revolving Loans to be made by the time otherwise required in Section 2.1(a)(i)(B), (5) the date of such Mandatory Swingline Borrowing, or (6) any reduction in the Revolving Committed Amount or termination of the Revolving Commitments immediately prior to such Mandatory Swingline Borrowing or contemporaneously therewith. In the event that any Mandatory Swingline Borrowing cannot for any reason be made on the date otherwise required above (including, without limitation, as a result of the commencement of a proceeding under the Bankruptcy Code), then each Revolving Lender hereby agrees that it shall forthwith purchase (as of the date the Mandatory Swingline Borrowing would otherwise have occurred, but adjusted for any payments received from the Borrower on or after such date and prior to such purchase) from the Swingline Lender such Participation Interest in the outstanding Swingline Loans as shall be necessary to cause each such Revolving Lender to share in such Swingline Loans ratably based upon its respective Revolving Commitment Percentage (determined before giving effect to any termination of the Commitments pursuant to Section 7.2); provided that (x) all interest payable on the Swingline Loans shall be for the account of the Swingline Lender until the date as of which the respective Participation Interest is purchased, and (y) at the time any purchase of a Participation Interest pursuant to this sentence is actually made, the purchasing Revolving Lender shall be required to pay to the Swingline Lender interest on the principal amount of such Participation Interest purchased for each day from and including the day upon which the Mandatory Swingline Borrowing would otherwise have occurred to but excluding the date of payment for such Participation Interest, at the rate equal to, if paid within two (2) Business Days of the date of the Mandatory Swingline Borrowing, the Federal Funds Effective Rate, and thereafter at a rate equal to the Alternate Base Rate. The Borrower shall have the right to repay the Swingline Loan in whole or in part from time to time in accordance with Section 2.6(a).
(c) Interest on Swingline Loans . Subject to the provisions of Section 2.7, Swingline Loans shall bear interest at a per annum rate equal to the Alternate Base Rate plus the Applicable Margin for Revolving Loans that are Alternate Base Rate Loans. Interest on Swingline Loans shall be payable in arrears on each Interest Payment Date.
(d) Swingline Loan Note; Covenant to Pay . The Swingline Loans shall be evidenced by this Agreement and, upon request of the Swingline Lender, by a duly executed promissory note of the Borrower in favor of the Swingline Lender in the original amount of the Swingline Committed Amount and substantially in the form of Exhibit 2.2(d). The Borrower covenants and agrees to pay the Swingline Loans in accordance with the terms of this Agreement.
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Section 2.3. Letter of Credit Subfacility.
(a) General . Subject to the terms and conditions set forth herein, the Borrower may request an LC Issuer, and such LC Issuer agrees, to issue Letters of Credit in an amount for such LC Issuer not to exceed its Letter of Credit Commitment and, in an aggregate principal amount at any time outstanding not to exceed, TWENTY MILLION DOLLARS ($20,000,000) (the Letter of Credit Sublimit ) for the Borrowers account in a form reasonably acceptable to the Administrative Agent and the LC Issuer, at any time and from time to time from the Closing Date until the Letter of Credit Expiration Date. Each LC Issuer shall have no obligation to issue, and the Borrower shall not request the issuance of, any Letter of Credit at any time if after giving effect to such issuance, (i) the aggregate LC Obligations would exceed the LC Sublimit, (ii) the total Revolving Exposure would exceed the total Revolving Commitments or (iii) the LC Obligations owed to such LC Issuer would exceed its Letter of Credit Commitment. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by any Borrower to, or entered into by any Borrower with, the LC Issuer relating to any Letter of Credit (all such forms of letter of credit applications or other agreements, together with each Letter of Credit Issuance Request and each Letter of Credit, collectively, the LC Documents ), the terms and conditions of this Agreement shall control. Notwithstanding anything to the contrary in this Section 2.3 or elsewhere in this Agreement, the LC Issuer shall not be obligated to issue, amend, renew or extend any Letter of Credit at a time when a Lender is a Defaulting Lender unless the LC Issuer has entered into arrangements satisfactory to it pursuant to Section 2.20(a)(iv).
(b) Request for Issuance, Amendment, Renewal, Extension; Certain Conditions . To request the issuance of a Letter of Credit or the amendment, renewal or extension of an outstanding Letter of Credit, the Borrower shall hand deliver or transmit by facsimile (or transmit by electronic communication, if arrangements for doing so have been approved in writing by the LC Issuer) a Letter of Credit Issuance Request to the LC Issuer and the Administrative Agent not later than 11:00 a.m., New York, New York time, on the third Business Day preceding the requested date of issuance, amendment, renewal or extension (or such later date and time as is acceptable to the LC Issuer).
A request for an initial issuance of a Letter of Credit shall specify in form and detail reasonably satisfactory to the LC Issuer:
(i) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day);
(ii) the face amount and currency thereof, provided that no LC Issuer shall be required to issue a Letter of Credit in a currency other than Dollars;
(iii) the expiry date thereof (which shall not be later than the close of business on the Letter of Credit Expiration Date);
(iv) the name and address of the beneficiary thereof;
(v) any documents to be presented by such beneficiary in connection with any drawing thereunder;
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(vi) the full text of any certificate to be presented by such beneficiary in connection with any drawing thereunder; and
(vii) such other matters as the LC Issuer may require.
A request for an amendment, renewal or extension of any outstanding Letter of Credit shall specify in form and detail reasonably satisfactory to the LC Issuer:
(i) the Letter of Credit to be amended, renewed or extended;
(ii) the proposed date of amendment, renewal or extension thereof (which shall be a Business Day);
(iii) the nature of the proposed amendment, renewal or extension; and
(iv) such other matters as the LC Issuer may require.
If requested by the LC Issuer, the Borrower also shall submit a letter of credit application on the LC Issuers standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and, upon issuance, amendment, renewal or extension of each Letter of Credit, the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension, (i) the LC Exposure shall not exceed the Letter of Credit Commitment, (ii) the total Revolving Exposures shall not exceed the total Revolving Commitments and (iii) the conditions set forth in Article IV in respect of such issuance, amendment, renewal or extension shall have been satisfied. Unless the LC Issuer shall agree otherwise, no Letter of Credit shall be in an initial amount less than $50,000.
(c) Expiration Date . Each Letter of Credit shall expire at or before the close of business on the earlier of (i) the date that is one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (ii) the Letter of Credit Expiration Date; provided that this Section 2.3(c) shall not prevent any LC Issuer from agreeing that a Letter of Credit will automatically be extended for one or more successive periods not to exceed one year each (and, in any case, not to extend beyond the Letter of Credit Expiration Date) unless each such LC Issuer elects not to extend for any such additional period.
(d) Participations . By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the LC Issuer or the Lenders, the LC Issuer hereby irrevocably grants to each Revolving Lender, and each Revolving Lender hereby acquires from the LC Issuer, a participation in such Letter of Credit equal to such Revolving Lenders Applicable Percentage of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Revolving Lender hereby absolutely and unconditionally agrees to pay to the Administrative Agent, for the account of the LC Issuer, such Revolving Lenders Applicable Percentage of each LC Disbursement made by the LC Issuer and not reimbursed by the Borrower on the date due as provided in Section 2.3(e), or of any reimbursement payment required to be refunded to the Borrower for any reason. Each Revolving Lender acknowledges
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and agrees that its obligation to acquire participations pursuant to this Section 2.3(d) in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit, the occurrence and continuance of a Default, the failure of any condition set forth in Section 4.2 to be satisfied, or the reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever (so long as such payment shall not cause such Lenders Revolving Exposure to exceed such Lenders Revolving Commitment).
(e) Reimbursement .
(i) If the LC Issuer shall make any LC Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the LC Issuer an amount equal to such LC Disbursement not later than 1:00 p.m., New York, New York time, or the Applicable Time on the date of any payment by the LC Issuer under a Letter of Credit to be reimbursed in a Foreign Currency, on the date that such LC Disbursement is made if the Borrower shall have received notice of such LC Disbursement before 11:00 a.m., New York, New York time, on such date, or, if such notice has not been received by the Borrower before such time on such date, then not later than 1:00 p.m., New York, New York time, on the Business Day immediately following the day that the Borrower receives such notice; provided that the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.3(b) that such payment be financed with Revolving Loans based on the Alternate Base Rate in an equivalent amount and, to the extent so financed, the Borrowers obligation to make such payment shall be discharged and replaced by the resulting Revolving Loans based on the Alternate Base Rate. In the case of a Letter of Credit denominated in a Foreign Currency, the Borrower shall reimburse the LC Issuer in such Foreign Currency, unless (A) the LC Issuer (at its option) shall have specified in such notice that it will require reimbursement in Dollars, or (B) in the absence of any such requirement for reimbursement in Dollars, the Borrower shall have notified the LC Issuer promptly following receipt of the notice of drawing that the Borrower will reimburse the LC Issuer in Dollars. In the case of any such reimbursement in Dollars of a drawing under a Letter of Credit denominated in a Foreign Currency, the LC Issuer shall notify the Borrower of the Dollar Amount of the amount of the drawing promptly following the determination thereof. In the event that (A) a drawing denominated in a Foreign Currency is to be reimbursed in Dollars pursuant to this Section 2.3(e) and (B) the Dollar amount paid by the Borrower shall not be adequate on the date of that payment to purchase in accordance with normal banking procedures a sum denominated in the Foreign Currency equal to the drawing, the Borrower agrees, as a separate and independent obligation, to indemnify the LC Issuer for the loss resulting from its inability on that date to purchase the Foreign Currency in the full amount of the drawing.
(ii) If the Borrower fails to make such payment when due and the amount is not financed pursuant to the proviso to Section 2.3(e)(i) the LC Issuer shall notify the Administrative Agent and the Administrative Agent shall notify each Revolving Lender of the applicable LC Disbursement, the payment then due from the Borrower in respect thereof (expressed in Dollars in the amount of the Dollar Amount thereof in the case of a
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Letter of Credit denominated in a Foreign Currency) and such Revolving Lenders Applicable Percentage thereof. Each Revolving Lender shall pay by wire transfer of immediately available funds to the Administrative Agent not later than 12:00 p.m., New York, New York time, on such date (or, if such Revolving Lender shall have received such notice later than 12:00 p.m., New York, New York time, on any day, not later than 11:00 a.m., New York, New York time, on the immediately following Business Day), an amount equal to such Revolving Lenders Applicable Percentage of the unreimbursed LC Disbursement (the Unreimbursed Amount ) in the same manner as provided in Section 2.1 with respect to Revolving Loans made by such Revolving Lender, and the Administrative Agent will promptly pay to the LC Issuer the amounts so received by it from the Revolving Lenders. The Administrative Agent will promptly pay to the LC Issuer any amounts received by it from the Borrower pursuant to clause (i) above before the time that any Revolving Lender makes any payment pursuant to the preceding sentence and any such amounts received by the Administrative Agent from any Borrower after the receipt by the LC Issuer of an amount of immediately available funds equal to 100% of all LC Disbursements that were otherwise unreimbursed will be promptly remitted by the Administrative Agent to the Revolving Lenders that shall have made such payments and to the LC Issuer, as appropriate.
(iii) If any Revolving Lender shall not have made its Applicable Percentage of such LC Disbursement available to the Administrative Agent as provided above, the Borrower and such Revolving Lender severally agree to pay interest on such amount, for each day from and including the date such amount is required to be paid in accordance with the foregoing to but excluding the date such amount is paid, to the Administrative Agent for the account of the LC Issuer at (A) in the case of the Borrower, the Default Rate and (B) in the case of such Lender, at the greater of the Federal Funds Effective Rate (or applicable Foreign Currency rate) and a rate determined by the Administrative Agent in accordance with banking industry rules or practices on interbank compensation.
(f) Obligations Absolute . The Reimbursement Obligation of the Borrower as provided in Section 2.3(e) shall be absolute, unconditional and irrevocable, and shall be paid and performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein; (ii) any draft or other document presented under a Letter of Credit being proved to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iii) payment by the LC Issuer under a Letter of Credit against presentation of a draft or other document that fails to comply with the terms of such Letter of Credit; (iv) any other fact, event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section 2.3, constitute a legal or equitable discharge of, or provide a right of setoff against, the obligations of any Borrower hereunder; (v) the fact that a Default shall have occurred and be continuing; (vi) any material adverse change in the condition (financial or otherwise), results of operations, assets, liabilities (contingent or otherwise), material agreements, Properties, solvency, business, management, prospects or value of any Subsidiary; (vii) any adverse change in the relevant exchange rates or in the availability of the relevant Foreign Currency to the Borrower or any Subsidiary or in the relevant currency markets generally; or (viii) any other fact, circumstance or event whatsoever (other than the indefeasible payment in
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full in cash of such Reimbursement Obligations by the Credit Parties). None of the Administrative Agent, the Lenders, the LC Issuer or any of their Affiliates shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the LC Issuer; provided that the foregoing shall not be construed to excuse the LC Issuer from liability to any Borrower to the extent of any direct damages (as opposed to consequential, exemplary, special, punitive or other indirect damages, claims in respect of which are hereby waived by each Borrower to the extent permitted by applicable Laws) suffered by any Borrower that are caused by the LC Issuers bad faith or failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of bad faith, gross negligence or willful misconduct on the part of the LC Issuer (as finally determined by a court of competent jurisdiction), the LC Issuer shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the LC Issuer may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. The LC Issuer shall not have any duties or obligations except those expressly set forth in this Agreement. The LC Issuer shall not be liable for any action taken or not taken by it in the absence of its own bad faith, gross negligence or willful misconduct (as finally determined by a court of competent jurisdiction). The LC Issuer shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The LC Issuer also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The LC Issuer may consult with legal counsel (who may be counsel for any Credit Party) and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel or experts.
(g) Disbursement Procedures . The LC Issuer shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The LC Issuer shall promptly give written notice to the Administrative Agent and the Borrower of such demand for payment and whether the LC Issuer has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve any Borrower of its Reimbursement Obligation to the LC Issuer and the Revolving Lenders with respect to any such LC Disbursement (other than with respect to the timing of such Reimbursement Obligation set forth in Section 2.3(e)(i)).
(h) Interim Interest . If the LC Issuer shall make any LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest payable on demand, for each day from and
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including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC Disbursement, at the Default Rate. Interest accrued pursuant to this Section 2.3(h) shall be for the account of the LC Issuer, except that interest accrued on and after the date of payment by any Revolving Lender pursuant to Section 2.3(e) to reimburse the LC Issuer shall be for the account of such Lender to the extent of such payment.
(i) Cash Collateralization . If any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Administrative Agent or the Required Lenders (or, if the maturity of the Loans has been accelerated, Revolving Lenders with LC Exposure representing greater than 50% of the total LC Exposure) demanding the deposit of cash collateral pursuant to this Section 2.3(i), the Borrower shall deposit in the LC Account, in the name of the Administrative Agent and for the benefit of the Revolving Lenders, an amount in cash equal to 103% of the LC Exposure as of such date plus any accrued and unpaid interest and fees thereon; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in Section 7.1(f). Funds in the LC Account shall be applied by the Administrative Agent to reimburse the LC Issuer for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of outstanding Reimbursement Obligations. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount plus any accrued interest with respect to such amounts (to the extent not applied as aforesaid) shall be returned to the Borrower within five Business Days after all Events of Default have been cured or waived.
(j) Additional LC Issuers . The Borrower may, at any time and from time to time, designate one or more additional Revolving Lenders to act as an LC Issuer under the terms of this Agreement, with the consent of each of the Administrative Agent (which consent shall not be unreasonably withheld), the LC Issuer (which consent shall not be unreasonably withheld) and such Revolving Lender(s). Any Revolving Lender designated as an LC Issuer pursuant to this Section 2.3(j) shall be deemed (in addition to being a Revolving Lender) to be the LC Issuer with respect to Letters of Credit issued or to be issued by such Revolving Lender, and all references herein and in the other Credit Documents to the term LC Issuer shall, with respect to such Letters of Credit, be deemed to refer to such Revolving Lender in its capacity as LC Issuer, as the context shall require.
(k) Reporting . Each LC Issuer will report in writing to the Administrative Agent (i) on the first Business Day of each calendar month, the aggregate face amount of Letters of Credit issued by it and outstanding as of the last Business Day of the preceding calendar month (and on such other dates as the Administrative Agent may request), (ii) on or prior to each Business Day on which such LC Issuer expects to issue, amend, renew or extend any Letter of Credit, the date of such issuance or amendment, and the aggregate face amount of Letters of Credit to be issued, amended, renewed or extended by it and outstanding after giving effect to such issuance, amendment, renewal or extension (and such LC Issuer shall advise the Administrative Agent on such Business Day whether such issuance, amendment, renewal or extension occurred and whether the amount thereof changed), (iii) on each Business Day on which such LC Issuer makes any LC Disbursement, the date and amount of such LC Disbursement and (iv) on any Business Day on which the Borrower fails to reimburse an LC Disbursement required to be reimbursed to such LC Issuer on such day, the date and amount of such failure.
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(l) Resignation or Removal of the LC Issuer . Either LC Issuer may resign as LC Issuer hereunder at any time upon at least 10 days prior written notice to the Lenders, the Administrative Agent and the Borrower. Upon any such resignation, the Required Lenders shall have the right, with the consent of the Borrower, to appoint a successor LC Issuer; provided that no such consent of the Borrower shall be required if an Event of Default has occurred and is continuing. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 10 days after the retiring LC Issuer gives notice of its resignation, then the retiring LC Issuer may, on behalf of the Lenders and the LC Issuer, appoint a successor LC Issuer which shall be (i) a commercial banking institution organized under the laws of the United States (or any State thereof) or a United States branch or agency of a commercial banking institution, in each case, having combined capital and surplus of at least $500,000,000, or an Affiliate of any such institution, or (ii) another entity satisfactory to the Required Lenders and the Borrower; provided that no such consent of the Borrower shall be required if an Event of Default has occurred and is continuing. The Administrative Agent shall notify the Lenders of any such replacement of the LC Issuer or any such additional LC Issuer. At the time any such resignation or replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced LC Issuer pursuant to Section 2.4(c). From and after the effective date of any such resignation or replacement or addition, as applicable, (i) such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring LC Issuer, and the retiring LC Issuer shall be discharged from its duties and obligations under the Credit Documents (if not already discharged therefrom as provided in this Section 2.3), (ii) the successor LC Issuer shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to the retiring LC Issuer with respect to such Letters of Credit and (iii) references herein and in the other Credit Documents to the term LC Issuer shall be deemed to refer to such successor or such addition or to any previous LC Issuer, or to such successor or such addition and all previous LC Issuers, as the context shall require. After the resignation or replacement of an LC Issuer hereunder, the replaced LC Issuer shall remain a party hereto and shall continue to have all the rights and obligations of an LC Issuer under this Agreement with respect to Letters of Credit issued by it before such resignation or replacement, but shall not be required to issue additional Letters of Credit. If at any time there is more than one LC Issuer hereunder, the Borrower may, in its discretion, select which LC Issuer is to issue any particular Letter of Credit. Without limiting the foregoing or any obligation of any Lender pursuant to Sections 2.3(d) or (e), in the event no such successor has been appointed at the end of such 10-day period in accordance with this Section 2.3, (i) the LC Issuer may notify the Borrower and the Lenders that no qualifying Person has either been appointed or accepted such appointment, and that such resignation shall nonetheless become effective in accordance with such notice and the retiring LC Issuer shall be discharged from its duties and obligations hereunder (including the duty and obligation to issue any additional Letters of Credit after the giving of such notice) and under the other Credit Documents and (ii) the LC Issuer shall be entitled to apply cash collateral, if any, that was deposited in the LC Account in accordance with Section 2.3(i) in an amount in cash up to 103% of the LC Exposure of the retiring LC Issuer as of such date (or make other arrangements satisfactory to the retiring LC Issuer) to be held by the retiring LC Issuer in an account specified by the retiring LC Issuer as collateral for the payment
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and performance obligations arising under such Letters of Credit and the retiring LC Issuer shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account.
(m) Other . The LC Issuer shall be under no obligation to issue any Letter of Credit if:
(i) any order of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the LC Issuer from issuing such Letter of Credit, or any Law applicable to the LC Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the LC Issuer shall prohibit, or request that the LC Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the LC Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the LC Issuer is not otherwise compensated hereunder) not in effect on the Effective Date, or shall impose upon the LC Issuer any unreimbursed loss, cost or expense which was not applicable on the Effective Date and which the LC Issuer deems material to it;
(ii) the issuance of such Letter of Credit would violate one or more policies of general application of the LC Issuer;
(iii) except as otherwise agreed by the LC Issuer in its sole discretion, the Letter of Credit (x) is to be denominated in a currency other than Dollars or (y) is a commercial letter of credit; or
(iv) any Lender is at that time a Defaulting Lender, unless the Borrower has complied with the requirements of Section 2.20.
The LC Issuer shall be under no obligation to amend any Letter of Credit if (A) the LC Issuer would have no obligation at such time to issue such Letter of Credit in its amended form under the terms hereof, or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit.
Section 2.4. Fees.
(a) Commitment Fee . Subject to Section 2.20, in consideration of the Revolving Commitments, the Borrower agrees to pay to the Administrative Agent, for the ratable benefit of the Revolving Lenders, a commitment fee (the Commitment Fee ) in an amount equal to the Applicable Margin per annum on the average daily unused amount of the Revolving Committed Amount. The Commitment Fee shall be calculated quarterly in arrears and accrue from the Effective Date. For purposes of computation of the Commitment Fee, Swingline Loans shall not be considered usage of the Revolving Committed Amount. The Commitment Fee shall be payable quarterly in arrears on the last Business Day of each calendar quarter.
(b) Administrative Agent Fees . The Borrower agrees to pay to the Administrative Agent the annual fees as described in the Fee Letter.
(c) Letter of Credit Fees . The Borrower agrees to pay to (i) the Administrative Agent for the account of each Revolving Lender (subject, in the case of a Defaulting Lender, to any
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restrictions on such payment in Section 2.20(a)(iv) ) (x) a standby Letter of Credit fee (the Standby Letter of Credit Fee ) equal to the LIBOR Margin per annum on the undrawn amount of each outstanding standby Letter of Credit (excluding any portion thereof attributable to Reimbursement Obligations) during the period from and including the Effective Date to but excluding the later of the date on which such Lenders Revolving Commitment terminates and the date on which such Lender ceases to have any LC Exposure and (y) a one-time commercial Letter of Credit fee (the Commercial Letter of Credit Fee and together with the Standby Letter of Credit Fee, the LC Participation Fee ) equal to 0.20% of the face amount of each commercial Letter of Credit (but in no event less than $150) with respect to its participations in Letters of Credit; provided that any LC Participation Fees otherwise payable for the account of a Defaulting Lender with respect to any Letter of Credit shall be applied as set forth in Section 2.20(a)(iv) , and (ii) any LC Issuer for its own account a fronting fee (the Fronting Fee ), which shall accrue at the rate of 0.250% per annum (or such other rate per annum as the LC Issuer and Borrower may agree upon from time to time) on the average daily amount of the LC Exposure (excluding any portion thereof attributable to Reimbursement Obligations) attributable to Letters of Credit issued by such LC Issuer during the period from and including the Effective Date to but excluding the later of the date of termination of the Revolving Commitments and the date on which there ceases to be any LC Exposure, as well as such LC Issuers customary fees and commissions with respect to the issuance, amendment, cancellation, negotiation, transfer, presentment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Accrued Standby Letter of Credit Fees shall be payable in arrears on the last Business Day of March, June, September and December of each year, commencing on the first such date to occur after the Effective Date, and on the date on which the Revolving Commitments terminate. If there is any change in the LIBOR Margin during any quarter, the daily amount available to be drawn under each standby Letter of Credit shall be computed and multiplied by the LIBOR Margin separately for each period during such quarter that such LIBOR Margin was in effect. Accrued Fronting Fees shall be payable in arrears on the last Business Day of each month, commencing on the first such date to occur after the Effective Date, and on the date on which the Revolving Commitments terminate. Any LC Participation Fees or Fronting Fees accruing after the date on which the Revolving Commitments terminate shall be payable on demand. Any other fees payable to any LC Issuer pursuant to this Section 2.4(c) shall be payable within five Business Days after demand therefor. All LC Participation Fees and Fronting Fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day).
Section 2.5. Commitment Terminations or Reductions.
(a) Voluntary Terminations or Reductions . The Borrower shall have the right to terminate or permanently reduce the unused portion of the Revolving Committed Amount or the Multicurrency Revolving Committed Amount at any time or from time to time upon not less than five (5) Business Days prior written notice to the Administrative Agent (which shall notify the Lenders thereof as soon as practicable) of each such termination or reduction, which notice shall specify the effective date thereof and the amount of any such reduction which shall be in a minimum amount of $2,000,000 or a whole multiple of $1,000,000 in excess thereof and shall be irrevocable and effective upon receipt by the Administrative Agent; provided that no such reduction or termination shall be permitted if, after giving effect thereto and to any prepayments of the Revolving Loans made on the effective date thereof, the aggregate Revolving Credit Outstandings shall exceed the aggregate Revolving Committed Amount, as reduced.
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(b) Multicurrency Revolving Committed Amount . If the Revolving Committed Amount is reduced below the then current Multicurrency Revolving Committed Amount, the Multicurrency Revolving Committed Amount shall automatically be reduced by an amount such that the Multicurrency Revolving Committed Amount equals the Revolving Committed Amount.
(c) Letter of Credit Sublimit . If the Revolving Committed Amount is reduced below the then current Letter of Credit Sublimit, the Letter of Credit Sublimit shall be reduced by an amount such that the Letter of Credit Sublimit equals the Revolving Committed Amount.
(d) Swingline Committed Amount . If the Revolving Committed Amount is reduced below the then current Swingline Committed Amount, the Swingline Committed Amount shall automatically be reduced by an amount such that the Swingline Committed Amount equals the Revolving Committed Amount.
(e) Maturity Date . The Revolving Commitments, the Multicurrency Revolving Commitment, the Swingline Commitment and the Letter of Credit Commitment shall automatically terminate on the Maturity Date.
Section 2.6. Prepayments.
(a) Optional Prepayments and Repayments . The Borrower shall have the right to repay the Revolving Loans, Multicurrency Revolving Loans and Swingline Loans in whole or in part from time to time ; provided , however , that each partial prepayment or repayment of (i) Revolving Loans that are Alternate Base Rate Loans shall be in a minimum principal amount of $500,000 and integral multiples of $100,000 in excess thereof (or the remaining outstanding principal amount), (ii) Revolving Loans that are LIBOR Rate Loans shall be in a minimum principal amount of $2,000,000 and integral multiples of $500,000 in excess thereof (or the remaining outstanding principal amount) and (iii) Swingline Loans or Multicurrency Revolving Loans shall be in a minimum principal Dollar Amount of $100,000 and integral multiples of $100,000 in excess thereof (or the remaining outstanding principal amount). The Borrower shall give two Business Days irrevocable notice of prepayment in the case of LIBOR Rate Loans, BBR Rate Loans, Canadian Prime Rate Loans or Offshore Rate Loans and one Business Days irrevocable notice of prepayment in the case of Alternate Base Rate Loans, to the Administrative Agent (which shall notify the Lenders thereof as soon as practicable). To the extent the Borrower elects to repay the Revolving Loans, Multicurrency Revolving Loans and/or Swingline Loans, amounts prepaid under this Section shall be applied to the Revolving Loans, Multicurrency Revolving Loans and/or Swingline Loans, as applicable of the Revolving Lenders in accordance with their respective Revolving Commitment Percentages. Within the foregoing parameters, prepayments under this Section shall be applied (A) first to Alternate Base Rate Loans, (B) then ratably to Canadian Prime Rate Loans and Offshore Rate Loans, (C) then to BBR Rate Loans in direct order of Interest Period maturities and (D) then to LIBOR Rate Loans in direct order of Interest Period maturities. All prepayments under this Section shall be subject to Section 2.14, but otherwise without premium or penalty. Interest on the principal amount prepaid shall be payable on any date that a prepayment is made hereunder and include interest accrued to the date of prepayment.
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(b) Mandatory Prepayments .
(i) Revolving Committed Amount . If at any time after the Effective Date, the sum of the aggregate Revolving Credit Outstandings shall exceed the Revolving Committed Amount, the Borrower shall immediately prepay the Revolving Loans, Multicurrency Revolving Loans and/or Swingline Loans or Cash Collateralize LC Obligations in an aggregate amount sufficient to eliminate such excess (such prepayment to be applied as set forth in clause (ii) below).
(ii) Application of Mandatory Prepayments . All amounts required to be paid pursuant to this Section shall be applied as follows: (A) with respect to all amounts prepaid pursuant to (i), (1) first to outstanding unreimbursed LC Disbursements that have not been funded by the Revolving Lenders, (2) second to the outstanding Swingline Loans, (3) third ratably to the outstanding Revolving Loans and LC Disbursements funded by Revolving Lenders and (4) fourth ratably to Cash Collateralize outstanding Letters of Credit; and (B) with respect to all amounts prepaid pursuant to Sections 2.7(b)(ii), (1) first to Multicurrency Revolving Loans (without a simultaneous corresponding reduction of the Multicurrency Revolving Committed Amount), (2) second to the Swingline Loans (without a simultaneous corresponding reduction of the Swingline Committed Amount), (3) third ratably to the Revolving Loans and (4) fourth ratably to Cash Collateralize outstanding Letters of Credit (without a simultaneous corresponding reduction of the Revolving Committed Amount or Multicurrency Revolving Committed Amount). Within the parameters of the applications set forth above, prepayments shall be applied (A) first to Alternate Base Rate, (B) then to Canadian Prime Rate Loans, (C) then ratably to BBR Rate Loans and Offshore Rate Loans in direct order of Interest Period maturities and (D) then to LIBOR Rate Loans in direct order of Interest Period maturities. All prepayments under this Section shall be subject to Section 2.14 and be accompanied by interest on the principal amount prepaid through the date of prepayment, but otherwise without premium or penalty.
(c) Bank Product Obligations Unaffected . Any repayment or prepayment made pursuant to this Section shall not affect the Borrowers obligation to continue to make payments under any Bank Product, which shall remain in full force and effect notwithstanding such repayment or prepayment, subject to the terms of such Bank Product.
Section 2.7. Default Rate and Payment Dates.
(a) If all or a portion of the principal amount of any Loan which is a LIBOR Rate Loan shall not be paid when due or continued as a LIBOR Rate Loan in accordance with the provisions of Section 2.8 ( whether at the stated maturity, by acceleration or otherwise), such overdue principal amount of such Loan shall be converted to an Alternate Base Rate Loan at the end of the Interest Period applicable thereto.
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(b) Upon the occurrence and during the continuance of a (i) Bankruptcy Event or a Payment Event of Default, the principal of and, to the extent permitted by law, interest on the Loans and any other amounts owing hereunder or under the other Credit Documents shall automatically bear interest at a rate per annum which is equal to the Default Rate and (ii) any other Event of Default hereunder, at the option of the Required Lenders, the principal of and, to the extent permitted by law, interest on the Loans and any other amounts owing hereunder or under the other Credit Documents shall automatically bear interest, at a per annum rate which is equal to the Default Rate, in each case from the date of such Event of Default until such Event of Default is waived in accordance with Section 9.1. Any default interest owing under this (b) shall be due and payable on the earlier to occur of (x) demand by the Administrative Agent (which demand the Administrative Agent shall make if directed by the Required Lenders) and (y) the Maturity Date.
(c) Interest on each Loan shall be payable in arrears on each Interest Payment Date; provided that interest accruing pursuant to paragraph (b) of this Section shall be payable from time to time on demand as provided therein.
Section 2.8. Conversion Options.
(a) The Borrower may, in the case of Revolving Loans, elect from time to time to convert Alternate Base Rate Loans to LIBOR Rate Loans or to continue LIBOR Rate Loans, by delivering a Notice of Conversion/Extension to the Administrative Agent at least two Business Days prior to the proposed date of conversion or continuation. In addition, the Borrower may elect from time to time to convert all or any portion of a LIBOR Rate Loan to an Alternate Base Rate Loan by giving the Administrative Agent irrevocable written notice thereof by 11:00 A.M. one (1) Business Day prior to the proposed date of conversion. If the date upon which an Alternate Base Rate Loan is to be converted to a LIBOR Rate Loan is not a Business Day, then such conversion shall be made on the next succeeding Business Day and during the period from such last day of an Interest Period to such succeeding Business Day such Loan shall bear interest as if it were an Alternate Base Rate Loan. LIBOR Rate Loans may only be converted to Alternate Base Rate Loans on the last day of the applicable Interest Period. If the date upon which a LIBOR Rate Loan is to be converted to an Alternate Base Rate Loan is not a Business Day, then such conversion shall be made on the next succeeding Business Day and during the period from such last day of an Interest Period to such succeeding Business Day such Loan shall bear interest as if it were an Alternate Base Rate Loan. All or any part of outstanding Alternate Base Rate Loans may be converted as provided herein; provided that (i) no Loan may be converted into a LIBOR Rate Loan when any Default or Event of Default has occurred and is continuing and (ii) partial conversions shall be in an aggregate principal amount of $500,000 or a whole multiple of $100,000 in excess thereof. All or any part of outstanding LIBOR Rate Loans may be converted as provided herein; provided that partial conversions shall be in an aggregate principal amount of $2,000,000 or a whole multiple of $500,000 in excess thereof.
(b) Any LIBOR Rate Loans or BBR Rate Loans may be continued as such upon the expiration of an Interest Period with respect thereto by compliance by the Borrower with the notice provisions contained in (a); provided , that no LIBOR Rate Loan may be continued as such when any Default or Event of Default has occurred and is continuing, in which case such Loan shall be automatically converted to an Alternate Base Rate Loan at the end of the applicable
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Interest Period with respect thereto. If the Borrower shall fail to give timely notice of an election to continue a LIBOR Rate Loan, or the continuation of LIBOR Rate Loans are not permitted hereunder, such LIBOR Rate Loans shall be automatically converted to Alternate Base Rate Loans at the end of the applicable Interest Period with respect thereto.
(c) BBR Rate Loans, Canadian Prime Rate Loans and Offshore Rate Loans cannot be converted to LIBOR Rate Loans or to Alternate Base Rate Loans.
Section 2.9. Computation of Interest and Fees; Usury.
(a) Interest payable hereunder with respect to (i) any Alternate Base Rate Loan based on the Prime Rate, (ii) any BBR Rate Loan based on the BBR Rate, (iii) any Canadian Prime Rate Loan based on the Canadian Prime Rate Rate or (iv) any Offshore Rate Loan based on the Offshore Rate shall be calculated on the basis of a year of 365 days (or 366 days, as applicable) for the actual days elapsed. All other fees, interest and all other amounts payable hereunder shall be calculated on the basis of a 360-day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of each determination of a LIBOR Rate on the Business Day of the determination thereof. Any change in the interest rate on a Loan resulting from a change in the Alternate Base Rate shall become effective as of the opening of business on the day on which such change in the Alternate Base Rate shall become effective. The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of the effective date and the amount of each such change.
(b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Borrower, deliver to the Borrower a statement showing the computations used by the Administrative Agent in determining any interest rate.
(c) It is the intent of the Lenders and the Credit Parties to conform to and contract in strict compliance with applicable usury law from time to time in effect. All agreements between the Lenders and the Credit Parties are hereby limited by the provisions of this subsection which shall override and control all such agreements, whether now existing or hereafter arising and whether written or oral. In no way, and in no event or contingency (including, but not limited to, prepayment or acceleration of the maturity of any Obligation), shall the interest taken, reserved, contracted for, charged, or received under this Agreement, under the Notes or otherwise, exceed the maximum nonusurious amount permissible under applicable law. If, from any possible construction of any of the Credit Documents or any other document, interest would otherwise be payable in excess of the maximum nonusurious amount, any such construction shall be subject to the provisions of this paragraph and such interest shall be automatically reduced to the maximum nonusurious amount permitted under applicable law, without the necessity of execution of any amendment or new document. If any Lender shall ever receive anything of value which is characterized as interest on the Loans under applicable law and which would, apart from this provision, be in excess of the maximum nonusurious amount, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the Loans and not to the payment of interest, or refunded to the Borrower or the other payor thereof if and to the extent such amount which would have been
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excessive exceeds such unpaid principal amount of the Loans. The right to demand payment of the Loans or any other Indebtedness evidenced by any of the Credit Documents does not include the right to receive any interest which has not otherwise accrued on the date of such demand, and the Lenders do not intend to charge or receive any unearned interest in the event of such demand. All interest paid or agreed to be paid to the Lenders with respect to the Loans shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term (including any renewal or extension) of the Loans so that the amount of interest on account of such Indebtedness does not exceed the maximum nonusurious amount permitted by applicable law.
Section 2.10. Pro Rata Treatment and Payments.
(a) Allocation of Payments Prior to Exercise of Remedies . Each borrowing of Revolving Loans and any reduction of the Revolving Commitments (other than the reduction of Incremental Commitments pursuant to Section 2.5(a)) shall be made pro rata according to the respective Revolving Commitment Percentages of the Revolving Lenders. Unless otherwise required by the terms of this Agreement, each payment under this Agreement shall be applied, first , to any fees then due and owing by the Borrower pursuant to Section 2.3, second , to interest then due and owing hereunder of the Borrower and, third , to principal then due and owing hereunder and under this Agreement of the Borrower. Each payment on account of any fees pursuant to Section 2.3 shall be made pro rata in accordance with the respective amounts due and owing. Each optional repayment and prepayment by the Borrower on account of principal of and interest on the Revolving Loans shall be applied to such Revolving Loans on a pro rata basis and, to the extent applicable, in accordance with the terms of Section 2.6(a) hereof. Each mandatory prepayment on account of principal of the Loans shall be applied to such Loans, as applicable, on a pro rata basis and, to the extent applicable, in accordance with Section 2.6(b). All payments (including prepayments) to be made by the Borrower on account of principal, interest and fees shall be made without defense, set-off or counterclaim and shall be made to the Administrative Agent for the account of the Lenders at the Administrative Agents office specified on Section 9.2 in immediately available funds (A) in the case of Loans or other amounts denominated in Dollars, shall be made in Dollars not later than 1:00 P.M. on the date when due and (B) in the case of Loans or other amounts denominated in a Foreign Currency, shall be made in such Foreign Currency not later than the Applicable Time specified by the Administrative Agent on the date when due. The Administrative Agent shall distribute such payments to the Lenders entitled thereto promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the LIBOR Rate Loans or BBR Rate Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension. If any payment on a LIBOR Rate Loan or BBR Rate Loan becomes due and payable on a day other than a Business Day, such payment date shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day.
(b) Allocation of Payments After Exercise of Remedies . Notwithstanding any other provisions of this Agreement to the contrary, after the exercise of remedies (other than the application of default interest pursuant to Section 2.7) by the Administrative Agent or
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the Lenders pursuant to Section 7.2 (or after the Commitments shall automatically terminate and the Loans (with accrued interest thereon) and all other amounts under the Credit Documents shall automatically become due and payable in accordance with the terms of such Section), all amounts collected or received by the Administrative Agent or any Lender on account of the Obligations or any other amounts outstanding under any of the Credit Documents shall be paid over or delivered as follows (irrespective of whether the following costs, expenses, fees, interest, premiums, scheduled periodic payments or Obligations are allowed, permitted or recognized as a claim in any proceeding resulting from the occurrence of a Bankruptcy Event):
FIRST, to the payment of all reasonable out-of-pocket costs and expenses (including, without limitation, reasonable attorneys fees) of the Administrative Agent in connection with enforcing the rights of the Lenders under the Credit Documents;
SECOND, to the payment of any fees owed to the Administrative Agent;
THIRD, to the payment of all reasonable out-of-pocket costs and expenses (including, without limitation, reasonable attorneys fees) of each of the Lenders in connection with enforcing its rights under the Credit Documents or otherwise with respect to the Obligations owing to such Lender;
FOURTH, to the payment of all of the Obligations consisting of accrued fees and interest, and including, with respect to any Bank Product, any fees, premiums and scheduled periodic payments due under such Bank Product and any interest accrued thereon;
FIFTH, to the payment of the outstanding principal amount of the Obligations, and including with respect to any Bank Product, any breakage, termination or other payments due under such Bank Product and any interest accrued thereon;
SIXTH, to Cash Collateralize the outstanding LC Obligations;
SEVENTH, to all other Obligations and other obligations which shall have become due and payable under the Credit Documents or otherwise and not repaid pursuant to clauses FIRST through SIXTH above; and
EIGHTH, to the payment of the surplus, if any, to the Borrower or whoever may be lawfully entitled to receive such surplus.
In carrying out the foregoing, (a) amounts received shall be applied in the numerical order provided until exhausted prior to application to the next succeeding category and (b) each of the Lenders and any Bank Product Provider shall receive an amount equal to its pro rata share (based on the proportion that the then outstanding Loans held by such Lender or the outstanding obligations payable to such Bank Product Provider bears to the aggregate then outstanding Loans and obligations payable under all Bank Products) of amounts available to be applied pursuant to clauses THIRD, FOURTH, FIFTH and SEVENTH above. Notwithstanding the foregoing terms of this Section, only payments under the Guaranty (as opposed to ordinary course principal, interest and fee payments hereunder) shall be applied to obligations under any Bank Product. Amounts distributed with respect to any Bank Product Debt shall be the last Bank
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Product Amount reported to the Administrative Agent; provided that any such Bank Product Provider may provide an updated Bank Product Amount to the Administrative Agent prior to payments made pursuant to this Section. The Administrative Agent shall have no obligation to calculate the amount to be distributed with respect to any Bank Product Debt, but may rely upon written notice of the amount (setting forth a reasonably detailed calculation) from the applicable Bank Product Provider. In the absence of such notice, the Administrative Agent may assume the amount to be distributed is the Bank Product Amount last reported to the Administrative Agent.
Section 2.11. Non-Receipt of Funds by the Administrative Agent.
(a) Funding by Lenders; Presumption by Administrative Agent . Unless the Administrative Agent shall have received written notice from a Lender prior to the proposed date of any Extension of Credit that such Lender will not make available to the Administrative Agent such Lenders share of such Extension of Credit, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with this Agreement and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Extension of Credit available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of a payment to be made by such Lender, the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation and (ii) in the case of a payment to be made by the Borrower, the interest rate applicable to Alternate Base Rate Loans. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays its share of the applicable Extension of Credit to the Administrative Agent, then the amount so paid shall constitute such Lenders Loan included in such Extension of Credit. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.
(b) Payments by Borrower; Presumptions by Administrative Agent . Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under subsections (a) and (b) of this Section shall be conclusive, absent manifest error.
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(c) Failure to Satisfy Conditions Precedent . If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II, and such funds are not made available to the Borrower by the Administrative Agent because the conditions to the applicable Extension of Credit set forth in Article IV are not satisfied or waived in accordance with the terms thereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest.
(d) Obligations of Lenders Several . The obligations of the Lenders hereunder to make Revolving Loans, to fund participations in Letters of Credit, Swingline Loans and Multicurrency Revolving Loans and to make payments pursuant to Section 9.5(c) are several and not joint. The failure of any Lender to make any Loan, to fund any such participation or to make any such payment under Section 9.5(c) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Loan, to purchase its participation or to make its payment under Section 9.5(c).
(e) Funding Source . Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.
Section 2.12. Inability to Determine Interest Rate.
Notwithstanding any other provision of this Agreement, if (a) the Administrative Agent shall reasonably determine (which determination shall be conclusive and binding absent manifest error) that, by reason of circumstances affecting the relevant market, reasonable and adequate means do not exist for ascertaining the LIBOR Rate or BBR Rate for such Interest Period, or (b) the Required Lenders shall reasonably determine (which determination shall be conclusive and binding absent manifest error) that the LIBOR Rate or BBR Rate does not adequately and fairly reflect the cost to such Lenders of funding LIBOR Rate Loans or BBR Rate Loans, respectively, that the Borrower has requested be outstanding as a LIBOR or BBR Rate Tranche during such Interest Period, the Administrative Agent shall forthwith give telephone notice of such determination, confirmed in writing, to the Borrower, and the Lenders at least two (2) Business Days prior to the first day of such Interest Period. Unless the Borrower shall have notified the Administrative Agent upon receipt of such telephone notice that it wishes to rescind or modify its request regarding such LIBOR Rate Loans or BBR Rate Loans, any Loans that were requested to be made in Dollars as LIBOR Rate Loans shall be made as Alternate Base Rate Loans and any Loans that were requested to be converted into or continued as LIBOR Rate Loans in Dollars shall remain as or be converted into Alternate Base Rate Loans. Until any such notice has been withdrawn by the Administrative Agent, no further Loans shall be made as, continued as, or converted into, LIBOR Rate Loans or BBR Rate Loans for the Interest Periods so affected.
Section 2.13. Yield Protection.
(a) Increased Costs Generally. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement reflected in the LIBOR Rate or BBR Rate);
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(ii) subject the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of any Credit Party under any Credit Document to any (or any increase in any) Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) with respect to any Credit Document or any participation in any Loan; or
(iii) impose on any Lender or the London interbank market any other condition, cost or expense (other than Taxes) affecting this Agreement or LIBOR Rate Loans or BBR Rate Loans made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any LIBOR Rate Loan or BBR Rate Loan (or, in the case of clause (ii), any Loan or any participation in any Loan) or of maintaining its obligation to make any such Loan), or to reduce the amount of any sum received or receivable by such Administrative Agent, Lender or other recipient hereunder (whether of principal, interest or any other amount) then, upon request of such Administrative Agent, Lender, or other recipient and delivery of appropriate supporting information to the Borrower as provided in (c), the Borrower will pay to such Administrative Agent, Lender or other recipient, as the case may be, such additional amount or amounts as will compensate such Administrative Agent, Lender or other recipient, as the case may be, for such additional costs incurred or reduction suffered.
(b) Capital Requirements . If any Lender determines that any Change in Law affecting such Lender or any lending office of such Lender or such Lenders holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lenders capital or on the capital of such Lenders holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by such Lender to a level below that which such Lender or such Lenders holding company could have achieved but for such Change in Law (taking into consideration such Lenders policies and the policies of such Lenders holding company with respect to capital adequacy), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lenders holding company for any such reduction suffered.
(c) Certificates for Reimbursement . A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, together with supporting information in reasonable detail, as specified in paragraph (a) or (b) of this Section and delivered to the Borrower shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within ten (10) days after receipt thereof.
(d) Delay in Requests . Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lenders right to
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demand such compensation, provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs incurred or reductions suffered, as the case may be, to the extent that such Lender fails to make a demand for such compensation within six (6) months after becoming aware of such Change in Law giving arise to such increased costs or reductions.
Section 2.14. Compensation for Losses; Eurocurrency Liabilities.
(a) Compensation for Losses . Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense (excluding any loss of the Applicable Margin) incurred by it as a result of:
(i) any continuation, conversion, payment or prepayment of any Loan other than an Alternate Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);
(ii) any failure by the Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than an Alternate Base Rate Loan on the date or in the amount notified by the Borrower; or
(iii) any assignment of a LIBOR Rate Loan or BBR Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Borrower pursuant to Section 2.18; including any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any reasonable and customary administrative fees charged by such Lender in connection with the foregoing.
(b) The Borrower shall pay to each Lender, as long as such Lender shall be required to maintain reserves under Regulation D with respect to Eurocurrency liabilities within the meaning of Regulation D, or under any similar or successor regulation with respect to Eurocurrency liabilities or Eurocurrency funding, additional interest on the unpaid principal amount of each LIBOR Rate Loan and BBR Rate Loan equal to the actual costs of such reserves allocated to such LIBOR Rate Loan and BBR Rate Loan by such Lender (as reasonably determined by such Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on which interest is payable on such LIBOR Rate Loan or BBR Rate Loan, provided the Borrower shall have received at least fifteen (15) days prior notice (with a copy to the Administrative Agent) of such additional interest from such Lender. If a Lender fails to give notice fifteen (15) days prior to the relevant interest payment date, such additional interest shall be due and payable fifteen (15) days from receipt of such notice.
Section 2.15. Taxes.
(a) Payments Free of Taxes . Any and all payments by or on account of any obligation of any Credit Party under any Credit Document shall be made free and clear of and without reduction or withholding for any Taxes, except as required by applicable law. If any applicable
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law (as determined in the good faith discretion of an applicable Withholding Agent) requires the deduction or withholding of any Tax from any such payment (including, for the avoidance of doubt, in the case of any Lender that is treated as a partnership for U.S. federal income tax purposes, any such deduction or withholding required to be made by such Lender (or any direct or indirect beneficial owner of such Lender that is treated as a partnership for U.S. federal income tax purposes) for the account of any of its direct or indirect beneficial owners), then the applicable Withholding Agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by the applicable Credit Party shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, Lender (or each of its beneficial owners) or other recipient, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made.
(b) Payment of Other Taxes by the Borrower . The Credit Parties shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes.
(c) Indemnification by the Borrower . The Credit Parties shall indemnify the Administrative Agent, each Lender and any other recipient of any payment to be made by or on account of any obligation of any Credit Party under any Credit Document, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) payable or paid by the Administrative Agent, such Lender (or its beneficial owners) or such other recipient, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
(d) Indemnification of the Administrative Agent . Each Lender shall indemnify the Administrative Agent within 10 days after demand therefor, for the full amount of any (i) Indemnified Taxes attributable to such Lender (but only to the extent that any Credit Party has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Credit Parties to do so), (ii) any Taxes attributable to such Lenders failure to comply with the provisions of Section 9.6(d) relating to the maintenance of a Participant Register, and (iii) Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Credit Document, and reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Credit Document against any amount due to the Administrative Agent under this paragraph (d).
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(e) Evidence of Payments . As soon as practicable after any payment of Taxes by any Credit Party to a Governmental Authority pursuant to this Section 2.15, such Credit Party shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(f) Status of Lenders . Any Lender that is entitled to an exemption from or reduction of withholding tax with respect to payments made under any Credit Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation prescribed by applicable law or as reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Sections 2.15(f)(i), 2.15(f)(ii) (A)-(D), and Section 2.15(f)(iv) Section 2.1(a)(iv) below) shall not be required if in the Lenders reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.
Without limiting the generality of the foregoing, in the event that the Borrower is a U.S. Person,
(i) any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of the Borrower or the Administrative Agent), executed originals of Internal Revenue Service Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding;
(ii) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of the Borrower or the Administrative Agent), whichever of the following is applicable:
(A) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Credit Document, executed originals of Internal Revenue Service Form W-8BEN or, as applicable, Internal Revenue Service Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the interest article of such tax treaty and (y) with respect to any other applicable payments under any Credit Document, Internal Revenue Service Form W-8BEN or, as applicable, Internal Revenue Service
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Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federally withholding Tax pursuant to the business profits or other income article of such tax treaty;
(B) executed originals of Internal Revenue Service Form W-8ECI;
(C) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit F-1 to the effect that such Foreign Lender is not a bank within the meaning of section 881(c)(3)(A) of the Code, a 10 percent shareholder of the Borrower within the meaning of section 881(c)(3)(B) of the Code, or a controlled foreign corporation described in section 881(c)(3)(C) of the Code (a U.S. Tax Compliance Certificate ) and (y) executed originals of Internal Revenue Service Form W-8BEN; or, as applicable, Internal Revenue Service Form W-8BEN-E; and
(D) to the extent a Foreign Lender is not the beneficial owner, executed originals of Internal Revenue Service Form W-8IMY, accompanied by an Internal Revenue Service Form W-8ECI, W-8BEN, (or, as applicable, W-8BEN-E), a U.S. Tax Compliance Certificate, substantially in the form of Exhibit F-2 or Exhibit F-3, Internal Revenue Service Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit F-4 on behalf of each such direct and indirect partner; or
(iii) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and
(iv) if a payment made to a Lender under any Credit Document would be subject to U.S. Federal withholding Tax imposed by FATCA if such Lender fails to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the
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Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lenders obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (iv), FATCA shall include any amendments made to FATCA after the date of this Agreement.
Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
(g) Treatment of Certain Refunds . If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 2.15 (including additional amounts paid by any Credit Party pursuant to this Section 2.15), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section 2.15 with respect to the Indemnified Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of the Administrative Agent or such Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of the indemnified party, shall repay such indemnified party the amount paid over pursuant to this Section 2.15(g) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (g), in no event will the Administrative Agent or any Lender be required to pay any amount to an indemnifying party pursuant to this paragraph (g) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts in respect of such Tax had never been paid. This paragraph shall not be construed to require or any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.
(h) Defined Terms . For purposes of this Section 2.15, the term applicable law includes FATCA.
(i) Survival . Each partys obligations under this Section 2.15 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Credit Document.
Section 2.16. Reserved.
Section 2.17. Illegality.
Notwithstanding any other provision of this Credit Agreement, if any Change in Law shall make it unlawful for such Lender or its LIBOR Lending Office to make or maintain LIBOR Rate Loans or BBR Rate Loans as contemplated by this Credit Agreement or to obtain in the
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interbank eurodollar market through its LIBOR Lending Office the funds with which to make such Loans, (a) such Lender shall promptly notify the Administrative Agent and the Borrower thereof, (b) the commitment of such Lender hereunder to make LIBOR Rate Loans or BBR Rate Loans or continue LIBOR Rate Loans or BBR Rate Loans as such shall forthwith be suspended until the Administrative Agent shall give notice that the condition or situation which gave rise to the suspension shall no longer exist, and (c) such Lenders Loans then outstanding as LIBOR Rate Loans, if any, shall be converted on the last day of the Interest Period for such Loans or within such earlier period as required by law as Alternate Base Rate Loans. The Borrower hereby agrees to promptly pay any Lender, upon its demand, any additional amounts necessary to compensate such Lender for actual and direct costs (but not including anticipated profits) reasonably incurred by such Lender in making any repayment in accordance with this Section including, but not limited to, any interest or fees payable by such Lender to lenders of funds obtained by it in order to make or maintain its LIBOR Rate Loans hereunder. A certificate (which certificate shall include a description of the basis for the computation) as to any additional amounts payable pursuant to this Section submitted by such Lender, through the Administrative Agent, to the Borrower shall be conclusive in the absence of manifest error. Each Lender agrees to use reasonable efforts (including reasonable efforts to change its LIBOR Lending Office) to avoid or to minimize any amounts which may otherwise be payable pursuant to this Section; provided , however , that such efforts shall not cause the imposition on such Lender of any additional costs or legal or regulatory burdens deemed by such Lender in its sole discretion to be material.
Section 2.18. Replacement of Lenders.
(a) Designation of a Different Lending Office . If any Lender requests compensation under Section 2.13, or requires the Borrower to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (A) would eliminate or reduce amounts payable pursuant to Section 2.13 or Section 2.15, as the case may be, in the future and (B) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
(b) Replacement of Lenders. If (A) any Lender requests compensation under Section 2.13, (B) the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.15 (and, in the case of clauses (A) and (B), the Lender has declined or is unable to designate a different lending office in accordance with Section 2.18(a)), (C) any Lender becomes a Defaulting Lender or (D) any Lender (other than Jefferies Group LLC) fails to consent to any proposed amendment, modification, termination, waiver or consent with respect to any provision hereof or of any other Credit Document that requires the unanimous approval of all of the Lenders, the approval of all of the Lenders affected thereby or the approval of a class of Lenders, in each case in accordance with the terms of Section 9.1, so long as the consent of the Required Lenders shall have been obtained with respect to such amendment, modification, termination,
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waiver or consent, then the Borrower may, at its sole expenses and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 9.6), all of its interests, rights (other than its existing rights to payments pursuant to Section 2.13 or Section 2.15) and obligations under this Agreement and the related Credit Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:
(i) the Borrower shall have paid to the Administrative Agent the assignment fee (if any) specified in Section 9.6;
(ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Credit Documents (including any amounts under Section 2.14) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);
(iii) in the case of any such assignment resulting from a claim for compensation under Section 2.13 or payments required to be made pursuant to Section 2.15, such assignment will result in a reduction in such compensation or payments thereafter; and
(iv) such assignment does not conflict with applicable law.
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
Section 2.19. Revolving Facility Increases.
(a) General Terms . Subject to the terms and conditions set forth herein, the Borrower shall have the right (without the consent of any Lender), at any time after the Effective Date and from time to time (but not to exceed six (6) increases in the aggregate) until the Maturity Date, to increase the Revolving Committed Amount (each such increase, a Revolving Facility Increase ) by an aggregate principal amount not to exceed $75,000,000 (the Incremental Increase Amount ).
(b) Terms and Conditions . The following terms and conditions shall apply to any Revolving Facility Increase: (A) no Default or Event of Default shall exist immediately prior to or after giving effect to such Revolving Facility Increase, (B) any loans made pursuant to a Revolving Facility Increase shall constitute Obligations and will be guaranteed with the other Obligations on a pari passu basis, (C) any Lenders providing such Revolving Facility Increase shall be entitled to the same voting rights as the existing Lenders and shall be entitled to receive proceeds of prepayments on the same terms as the existing Revolving Lenders, (D) any such Revolving Facility Increase shall be in a minimum principal amount of $5,000,000 and integral multiples of $1,000,000 in excess thereof (or the remaining amount of the Incremental Increase Amount, if less), (E) the proceeds of any such Revolving Facility Increase will be used for the purposes set forth in Section 5.12 and the terms of any Revolving Facility Increase will be the
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same as the terms applicable to the Revolving Facility, (F) the Borrower shall execute a Revolving Note in favor of any new Lender or any existing Lender whose Revolving Commitment is increased pursuant to this Section, in each case, if requested by such Lender, (G) the conditions to Extensions of Credit in Section 4.2 shall have been satisfied or waived in accordance with Section 9.1, (H) the other terms and documentation in respect of any Revolving Facility Increase, to the extent not consistent with the Revolving Loans, will be reasonably satisfactory to the Administrative Agent and the Borrower, (I) the Administrative Agent shall have received (1) upon request of the Administrative Agent, an opinion or opinions (including, if reasonably requested by the Administrative Agent, local counsel opinions) of counsel for the Credit Parties, addressed to the Administrative Agent and the Lenders, in form and substance reasonably acceptable to the Administrative Agent and substantially similar to the opinion delivered to the Administrative Agent on the Closing Date, (2) any authorizing corporate documents as the Administrative Agent may reasonably request and (3) if applicable, a duly executed Notice of Borrowing, (J) the maturity date of any Revolving Facility Increase shall be no earlier than the Maturity Date, and shall bear interest at the rate applicable to the Revolving Loans, and (K) the Administrative Agent shall have received from the Borrower updated financial projections and an officers certificate, in each case in form and substance reasonably satisfactory to the Administrative Agent, demonstrating that, after giving effect to any such Revolving Facility Increase and any borrowings thereunder on the closing date for such Revolving Facility Increase on a Pro Forma Basis, the Credit Parties will be in compliance with the financial covenants set forth in Section 6.18. None of the Multicurrency Revolving Committed Amount, the Swingline Committed Amount or the Letter of Credit Sublimit shall be increased in connection with any Revolving Facility Increase.
(c) Reallocation of Revolving Loans . In connection with the closing of any Revolving Facility Increase, the outstanding Revolving Loans and Participation Interests shall be reallocated by causing such fundings and repayments among the Lenders of Revolving Loans as necessary such that, after giving effect to such Revolving Facility Increase, each Lender will hold Revolving Loans and Participation Interests based on its Revolving Commitment Percentage (after giving effect to such Revolving Facility Increase); provided that (i) such reallocations and repayments shall not be subject to any processing and/or recordation fees and (ii) the Borrower shall be responsible for any costs arising under Section 2.14 resulting from such reallocation and repayments.
(d) Participation . Participation in any such Revolving Facility Increase may be offered to each of the existing Lenders, but no Lender shall have any obligation to provide all or any portion of any such Revolving Facility Increase. The Borrower may invite other banks, financial institutions and investment funds reasonably acceptable to the Administrative Agent (such consent not to be unreasonably withheld or delayed) to join this Credit Agreement as Lenders hereunder for any portion of such Revolving Facility Increase; provided that such other banks, financial institutions and investment funds shall enter into such lender joinder agreements to give effect thereto as the Administrative Agent may reasonably request.
(e) Amendments . The Administrative Agent is authorized to enter into, on behalf of the Lenders, any amendment to this Credit Agreement or any other Credit Document as may be necessary to incorporate the terms of any such Revolving Facility Increase.
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Section 2.20. Defaulting Lenders.
(a) Adjustments . Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by applicable law:
(i) Waivers and Amendments . Such Defaulting Lenders right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definition of Required Lenders and Section 9.1.
(ii) Reallocation of Payments . Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article VII or otherwise) shall be applied at such time or times as may be determined by the Administrative Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second, to the payment on a pro rata basis of any amounts owing by such Defaulting Lender to any Swingline Lender or LC Issuer hereunder; third, as the Borrower may request (so long as no Default exists), to the funding of any Loan or drawing under any Letter of Credit in respect of which that Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; fourth, to Cash Collateralize such Defaulting Lenders Participation Interests in Letters of Credit; fifth, if so determined by the Administrative Agent and the Borrower, to be held in a non-interest bearing deposit account and released in order to satisfy obligations of such Defaulting Lender to fund Loans under this Agreement; sixth, to the payment of any amounts owing to the Lenders, the Revolving Lenders, the LC Issuer or Swingline Lenders as a result of any judgment of a court of competent jurisdiction obtained by any Lender, LC Issuer or Swingline Lenders against that Defaulting Lender as a result of such Defaulting Lenders breach of its obligations under this Agreement; seventh, so long as no Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lenders breach of its obligations under this Agreement; and eighth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (A) such payment is a payment of the principal amount of any Loans in respect of which such Defaulting Lender has not fully funded its appropriate share, such payment shall be applied solely to pay the Loans of all Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of such Defaulting Lender. Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender pursuant to this Section shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.
(iii) Certain Fees.
(A) Commitment Fees . (1) No Commitment Fee shall accrue on any of the Commitments of a Defaulting Lender so long as such Lender shall be a Defaulting Lender and (2) any Commitment Fee accrued with respect to the
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Commitments of a Defaulting Lender during the period prior to the time such Lender became a Defaulting Lender and unpaid at such time shall not be payable by the Borrower so long as such Lender shall be a Defaulting Lender.
(iv) Reallocation of Participations to Reduce Fronting Exposure . All or any part of such Defaulting Lenders Swingline Exposure, LC Exposure and Multicurrency Revolving Exposure shall automatically (effective on the day such Lender becomes a Defaulting Lender) be reallocated among the Non-Defaulting Lenders in accordance with their respective Applicable Percentages (calculated without regard to such Defaulting Lenders Revolving Commitment) but only to the extent that such reallocation does not cause the aggregate Committed Funded Exposure of any Non-Defaulting Lender to exceed such Non-Defaulting Lenders Commitment.
(v) Repayment of Swingline Loans and Multicurrency Revolving Loans and Cash Collateralization of Letters of Credit . If the reallocation described in clause (iv) above cannot, or can only partially, be effected, the Borrower shall, without prejudice to any right or remedy available to it hereunder or under Law, (A) prepay (1) Swingline Loans in an amount equal to the Swingline Lenders Fronting Exposure and (2) Multicurrency Revolving Loans in an amount equal to the Revolving Lenders Multicurrency Revolving Exposure and (B) Cash Collateralize Letters of Credit in an amount equal to such Defaulting Lenders LC Exposure.
(b) Defaulting Lender Cure . If the Borrower, the Administrative Agent, each Swingline Lender, each LC Issuer and each Revolving Lender agree in writing in their sole discretion (acting reasonably) that a Defaulting Lender should no longer be deemed to be a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein, that Lender will, to the extent applicable, purchase that portion of outstanding Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Committed Loans and funded and unfunded participations in Swingline Loans, Letters of Credit and Multicurrency Revolving Loans to be held on a pro rata basis by the Lenders in accordance with their Applicable Percentages (without giving effect to (a)(iv) of this Section 2.20, whereupon such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; and provided , further , that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lenders having been a Defaulting Lender.
(c) Termination of Impacted Lenders . The Borrower may terminate the unused amount of the Commitment of any Defaulting Lender that is an Impacted Lender upon not less than ten (10) Business Days prior notice to the Administrative Agent (which shall promptly notify the Lenders thereof), and in such event the provisions of (a)(ii) will apply to all amounts thereafter paid by the Borrower for the account of such Impacted Lender under this Agreement (whether on account of principal, interest, fees, indemnity or other amounts), provided that (i) no Event of Default shall have occurred and be continuing, and (ii) such termination shall not be deemed to be a waiver or release of any claim the Borrower, the Administrative Agent, any LC Issuer, the Swingline Bank or any Lender may have against such Impacted Lender.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
To induce the Lenders to enter into this Agreement and to make the Extensions of Credit herein provided for, the Credit Parties hereby represent and warrant to the Administrative Agent and to each Lender that:
Section 3.1. Existence, Qualification and Power; Compliance with Laws.
Each Credit Party (a) is a corporation, limited partnership, partnership, limited liability partnership, limited liability limited partnership or limited liability company duly organized or formed, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all governmental licenses, authorizations, consents and approvals necessary to (i) own its assets, carry on its business and (ii) execute, deliver, and perform its obligations under the Credit Documents to which it is a party, (c) is duly qualified and is licensed and in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license, and (d) is in compliance with all Laws, except, in each case referred to in clause (b)(i), (c) or this clause (d), to the extent that any failure regarding the foregoing could not reasonably be expected to have a Material Adverse Effect, or, with respect to clause (d), is not disclosed on Schedule 3.1(d).
Section 3.2. Authorization; No Contravention.
The execution, delivery and performance by each Credit Party of each Credit Document to which such Person is party have been duly authorized by all necessary corporate or other organizational action, and do not and will not (i) contravene the terms of any of such Persons Organization Documents; (ii) materially conflict with or result in any breach or contravention of, or the creation of any Lien under, any material Contractual Obligation to which such Person is a party or any order, injunction, writ or decree of any Governmental Authority to which such Person or its Property is subject; or (iii) violate any Law.
Section 3.3. Governmental Authorization.
No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, any Credit Party of this Agreement or any other Credit Document.
Section 3.4. Binding Effect.
This Agreement has been, and each other Credit Document, when delivered hereunder, will have been duly executed and delivered by each Credit Party that is party thereto. This Agreement constitutes, and each other Credit Document when so delivered will constitute, a legal, valid and binding obligation of such Credit Party, enforceable against each Credit Party
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that is party thereto in accordance with its terms, subject as to enforcement of remedies to (i) any Debtor Relief Laws and (ii) general principles of equity, whether applied by a court of law or equity.
Section 3.5. Financial Statements; No Material Adverse Effect.
(a) The Audited Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present the financial condition of the Borrower and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (iii) show all material Indebtedness and other liabilities, direct or contingent, of the Borrower and its Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Indebtedness in accordance with GAAP consistently applied throughout the period covered thereby.
(b) Since the date of the Audited Financial Statements, there has been no event or circumstance that has had or could reasonably be expected to have a Material Adverse Effect.
Section 3.6. Litigation.
Except as disclosed on Schedule 3.6, there are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of any Credit Party, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, by or against any Credit Party or any of its Subsidiaries or against any of their properties or revenues which (a) purport to affect or pertain to this Agreement or any other Credit Document, or any of the transactions contemplated hereby, or (b) individually or collectively, could reasonably be expected to have a Material Adverse Effect.
Section 3.7. No Default.
No Credit Party nor any Subsidiary is in default under or with respect to any Contractual Obligation which in the Borrowers reasonable judgment would have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Credit Document.
Section 3.8. Ownership of Property; Liens.
Each Credit Party and each Subsidiary has good record and marketable title in fee simple to, or valid leasehold interests in, all real Property necessary or used in the ordinary conduct of its business, except for such defects in title as would not, individually or in the aggregate, have a Material Adverse Effect. As of the Effective Date, the Property of each Credit Party and its Subsidiaries will be subject to no Liens, other than Permitted Liens.
Section 3.9. Environmental Compliance.
The Credit Parties and their Subsidiaries conduct in the ordinary course of business a review of the effect of existing Environmental Laws to the extent they are applicable to the
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business and properties of the Credit Parties and their Subsidiaries and related claims alleging potential liability or responsibility for violation of any Environmental Law on their respective businesses, operations and properties, and as a result thereof the Borrower has reasonably concluded that such Environmental Laws and claims would not, individually or in the aggregate, have a Material Adverse Effect.
Section 3.10. Insurance.
The properties of the Credit Parties and their Subsidiaries are insured with reputable insurance carriers with a rating by the A.M. Best Company reasonably acceptable to the Administrative Agent, not Affiliates of the Credit Parties, in such amounts (after giving effect to any self-insurance compatible with the following standards), with such deductibles and covering such risks as are customarily carried by companies of similar financial condition and strength engaged in similar businesses and owning similar properties in localities where the Credit Parties or their Subsidiaries operate.
Section 3.11. Taxes.
Each of the Credit Parties and its Subsidiaries has filed, or caused to be filed, all income Tax returns and all other material Tax returns (federal, state, local and foreign) required to be filed and paid (a) all material amounts of Taxes shown thereon to be due (including interest and penalties) and (b) all other material amounts of Taxes, fees, assessments and other governmental charges (including mortgage recording Taxes, documentary stamp Taxes and intangibles Taxes) owing by it, except for such Taxes (i) that are not yet delinquent or (ii) that are being contested in good faith and by proper proceedings, and against which adequate reserves are being maintained in accordance with GAAP. None of the Credit Parties or their Subsidiaries is aware as of the Effective Date of any proposed Tax assessments of a material amount against it or any of its Subsidiaries.
Section 3.12. ERISA Compliance.
No Reportable Event exists with respect to any Plan except as could not reasonably be expected to have a Material Adverse Effect. To the knowledge of any Credit Party, no Multiemployer Plan is in endangered status or critical status within the meaning of Section 432(b) of the Code except as could not reasonably be expected to have a Material Adverse Effect. Each Single Employer Plan has complied with the applicable provisions of ERISA and the Code except where failure to so comply could not reasonably be expected to have a Material Adverse Effect. No termination of a Single Employer Plan has occurred resulting in any liability that has remained underfunded which could reasonably be expected to have a Material Adverse Effect. No Lien in favor of the PBGC or a Plan exists which could reasonably be expected to have a Material Adverse Effect. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans), if any, did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits so as to cause a Material Adverse Effect to exist, and no Single Employer Plan is in at risk status within the meaning of Code Section 430(i) so as to cause a Material Adverse Effect to exist. Neither any Credit Party nor any Commonly Controlled Entity is currently subject to any liability for a complete or partial withdrawal from a Multiemployer Plan which could reasonably be expected to have a Material Adverse Effect.
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Section 3.13. Subsidiaries.
As of the Effective Date, the Credit Parties have no Subsidiaries other than those specifically disclosed in Schedule 1.1 and have no equity investments in any other corporation or entity other than those disclosed in writing to the Administrative Agent and the Lenders by or on behalf of the Credit Parties or any of their Subsidiaries on or before the Effective Date.
Section 3.14. Margin Regulations; Investment Company Act.
(a) No part of the proceeds of any Extension of Credit hereunder will be used directly or indirectly for any purpose that violates, or that would require any Lender to make any filings in accordance with, the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System as now and from time to time hereafter in effect. The Credit Parties and their Subsidiaries (a) are not engaged, principally or as one of their important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock within the respective meanings of each of such terms under Regulation U and (b) taken as a group do not own margin stock except as identified in the financial statements referred to in Section 3.5 or delivered pursuant to Section 5.1 and the aggregate value of all margin stock owned by the Credit Parties and their Subsidiaries taken as a group does not exceed 25% of the value of their assets.
(b) No Credit Party is an investment company, or a company controlled by an investment company, within the meaning of the Investment Company Act of 1940, as amended.
Section 3.15. No Financing of Corporate Takeovers.
No proceeds of any Extension of Credit will be used to acquire any security in any transaction which is subject to Sections 13(d) and 14(d) of the Exchange Act, except as otherwise permitted pursuant to Section 6.3(f) hereof.
Section 3.16. Insider.
No Credit Party is, and no Person having control (as that term is defined in 12 U.S.C. § 375(b)(5) or in regulations promulgated pursuant thereto) of a Credit Party is, an executive officer, director, or person who directly or indirectly or in concert with one or more persons owns, controls, or has the power to vote more than 10% of any class of voting securities (as those terms are defined in 12 U.S.C. §375(b) or in regulations promulgated pursuant thereto) of any Lender, of a bank holding company of which any Lender is a subsidiary.
Section 3.17. Disclosure.
No statement, information, report, representation, or warranty made by any Credit Party in any Credit Document or furnished to the Administrative Agent or any Lender by or on behalf of any Credit Party in connection with any Credit Document contains any untrue statement of a
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material fact or omits any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made and at the time at which they were made and taken as a whole, not misleading. There is no fact (excluding economic conditions not peculiar to the Credit Parties or any Subsidiary) known to the Credit Parties or any of their Subsidiaries and not known to the public generally which materially adversely affects its assets or in the future could reasonably be expected to (so far as the Credit Parties or any of their Subsidiaries can now foresee) result in a Material Adverse Effect, which has not been disclosed to the Administrative Agent and the Lenders by or on behalf of the Credit Parties or any of their Subsidiaries prior to the Effective Date in connection with the transactions contemplated hereby.
Section 3.18. Intellectual Property; Licenses, Etc.
The Credit Parties and their Subsidiaries own, or possess the right to use, all of the trademarks, service marks, trade names, domain names, copyrights, patents, patent rights, trade secrets, know-how, franchises, licenses and other rights that are used or held for use in or reasonably necessary for the operation of their respective businesses, without conflict with, or infringement, misappropriation or other violation of, the rights of any other Person, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.
Section 3.19. Businesses.
The Credit Parties are presently engaged directly or through wholly-owned Subsidiaries or investments in (i) the business of providing online financial services, (ii) the business of originating, arranging, purchasing and collecting consumer loans, and (iii) other activities related to consumer financing and general financial services.
Section 3.20. Common Enterprise.
The Credit Parties and their Subsidiaries are engaged in the businesses set forth in Section 3.19 hereof as of the Effective Date, as well as in certain other businesses. These operations require financing on a basis such that the credit supplied can be made available from time to time to the Borrower and various of its Subsidiaries, as required for the continued successful operation of the Borrower and its Subsidiaries as a whole. The Borrower has requested the Lender to make credit available hereunder primarily for the purposes of financing the operations of the Credit Parties and their Subsidiaries. The Borrower and each of its Subsidiaries expects to derive benefit (and the Board of Directors of the Borrower and each of its Subsidiaries has determined that such Subsidiary may reasonably be expected to derive benefit), directly or indirectly, from the credit extended by the Lenders hereunder, both in its separate capacity and as a member of the group of companies, since the successful operation and condition of the Credit Parties and each of their Subsidiaries is dependent on the continued successful performance of the functions of the group as a whole.
Section 3.21. Solvent.
Each of the Credit Parties is (in the case of each Guarantor, after taking into account all rights of indemnification from the Borrower and all rights of contribution from the other Guarantors), and the Credit Parties and their Subsidiaries are on a Consolidated basis, Solvent.
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Section 3.22. Compliance with FCPA.
Each of the Credit Parties and their Subsidiaries is in compliance in all material respects with the Foreign Corrupt Practices Act, 15 U.S.C. §§ 78dd-1, et seq., and any foreign counterpart thereto.
Section 3.23. Anti-Money Laundering Laws.
The operations of the Credit Parties and their Subsidiaries are and have been conducted at all times in compliance in all material respects with all applicable financial recordkeeping and reporting requirements, including those of the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), and the applicable anti-money laundering statutes of jurisdictions where the Credit Parties and their Subsidiaries conduct business, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the Anti-Money Laundering Laws ), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Credit Parties or any of their Subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the best knowledge of the Borrower, threatened.
Section 3.24. Compliance with OFAC Rules and Regulations.
(a) None of the Credit Parties or their Subsidiaries or their respective Affiliates is in violation in any material respect of any of the country or list based economic and trade sanctions administered and enforced by OFAC that are described or referenced at http://www.ustreas.gov/offices/enforcement/ofac/ or as otherwise published from time to time.
(b) None of the Credit Parties or their Subsidiaries or their respective Affiliates (i) is a Sanctioned Person or a Sanctioned Entity, (ii) has more than 10% of its assets located in Sanctioned Entities, or (iii) derives more than 10% of its operating income from investments in, or transactions with, Sanctioned Persons or Sanctioned Entities. No proceeds of any Loan will be used, or have been used, directly or, to the Borrowers knowledge, indirectly, to fund any operations in, finance any investments or activities in or business of or with, or make any payments to, a Sanctioned Person or a Sanctioned Entity.
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.1. Conditions to Initial Extensions of Credit.
The obligation of each Lender to make the initial Extensions of Credit is subject to the satisfaction of the following conditions precedent (the date on which such conditions are satisfied and the initial Extension of Credit is made, the Closing Date ):
(a) Execution of Credit Agreement and Credit Documents . The Administrative Agent shall have received (A) counterparts of this Agreement, executed by a duly authorized officer of each party hereto, (B) for the account of each Revolving Lender requesting a promissory note, a
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duly executed Revolving Loan Note, (C) for the account of the Swingline Lender requesting a promissory note, the Swingline Loan Note and (D) counterparts of any other Credit Document, executed by the duly authorized officers of the parties thereto.
(b) Authority Documents . The Administrative Agent shall have received the following:
(i) Articles of Incorporation/Charter Documents . Original certified articles of incorporation or other charter documents, as applicable, of each Credit Party certified (A) by an officer of such Credit Party (pursuant to an officers certificate in substantially the form of Exhibit 4.1(b) attached hereto) as of the Closing Date to be true and correct and in force and effect as of such date, and (B) to be true and complete as of a recent date by the appropriate Governmental Authority of the state of its incorporation or organization, as applicable.
(ii) Resolutions . Copies of resolutions of the board of directors or comparable managing body of each Credit Party approving and adopting the Credit Documents, the Transactions and authorizing execution and delivery thereof, certified by an officer of such Credit Party (pursuant to an officers certificate in substantially the form of Exhibit 4.1(b) attached hereto) as of the Closing Date to be true and correct and in force and effect as of such date.
(iii) Bylaws/Operating Agreement . A copy of the bylaws or comparable operating agreement of each Credit Party certified by an officer of such Credit Party (pursuant to an officers certificate in substantially the form of Exhibit 4.1(b) attached hereto) as of the Closing Date to be true and correct and in force and effect as of such date.
(iv) Good Standing . Original certificates of good standing, existence or its equivalent with respect to each Credit Party certified as of a recent date by the appropriate Governmental Authorities of the state of incorporation or organization and each other state in which the failure to so qualify and be in good standing could reasonably be expected to have a Material Adverse Effect.
(v) Incumbency . An incumbency certificate of each Authorized Officer of each Credit Party certified by an officer (pursuant to an officers certificate in substantially the form of Exhibit 4.1(b) attached hereto) to be true and correct as of the Closing Date.
(c) Legal Opinion of Counsel . The Administrative Agent shall have received the opinions of Lisa Young, Vice President-General Counsel & Secretary of the Borrower and Hunton & Williams LLP, counsel to the Borrower, each dated the Closing Date and addressed to the Administrative Agent and the Lenders, in forms of Exhibit 4.1(c)(1) and Exhibit 4.1(c)(2), respectively.
(d) Solvency Certificate . The Administrative Agent shall have received an officers certificate prepared by the chief financial officer or other Authorized Officer approved by the Administrative Agent of the Borrower as to the financial condition, solvency and related matters of the Credit Parties and their Subsidiaries, after giving effect to the Transactions and the initial borrowings under the Credit Documents, in substantially the form of Exhibit 4.1(g) hereto.
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(e) Account Designation Notice . The Administrative Agent shall have received the executed Account Designation Notice in the form of Exhibit 1.1(a) hereto.
(f) Notice of Borrowing . The Administrative Agent shall have received a Notice of Borrowing with respect to the Loans (if any) to be made on the Closing Date.
(g) Consents . The Administrative Agent shall have received evidence that all boards of directors, governmental, shareholder and material third party consents and approvals necessary in connection with the Transactions have been obtained and all applicable waiting periods have expired without any action being taken by any authority that could restrain, prevent or impose any material adverse conditions on such transactions or that could seek or threaten any of the foregoing.
(h) Compliance with Laws . The financings and other Transactions contemplated hereby shall be in compliance in all material respects with all applicable laws and regulations (including all applicable securities and banking laws, rules and regulations).
(i) Bankruptcy . There shall be no bankruptcy or insolvency proceedings pending with respect to any Credit Party or any Subsidiary thereof.
(j) Existing Indebtedness of the Credit Parties . All of the existing Indebtedness for borrowed money of the Credit Parties and their Subsidiaries (other than Indebtedness permitted to exist pursuant to Section 6.2) shall be repaid in full and all security interests related thereto shall be terminated on or prior to the Closing Date.
(k) Financial Statements . The Administrative Agent and the Lenders shall have received copies of the financial statements referred to in Section 3.5 and final financial projections for the Borrower and its Subsidiaries for the period through the Maturity Date, each in form and substance satisfactory to each of them.
(l) No Material Adverse Change . Since December 31, 2013, there shall have been no material adverse change in the business, properties, prospects, operations or condition (financial or otherwise) of the Credit Parties or any of their respective Subsidiaries.
(m) Financial Condition Certificate . The Administrative Agent shall have received a certificate or certificates executed by an Authorized Officer of the Borrower as of the Closing Date, substantially in the form of Exhibit 4.1(m) stating that (i) there does not exist any pending or ongoing, action, suit, investigation, litigation or proceeding in any court or before any other Governmental Authority (A) affecting this Agreement or the other Credit Documents, that has not been settled, dismissed, vacated, discharged or terminated prior to the Closing Date or (B) except as disclosed on Schedule 3.1(d) or on Schedule 3.6, that purports to affect any Credit Party or any of its Subsidiaries, or any Transaction, which action, suit, investigation, litigation or proceeding could reasonably be expected to have a Material Adverse Effect, that has not been settled, dismissed, vacated, discharged or terminated prior to the Closing Date, (ii) immediately after giving effect to this Agreement, the other Credit Documents, and all the Transactions
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contemplated to occur on such date, (A) no Default or Event of Default exists, and (B) all representations and warranties contained herein and in the other Credit Documents are true and correct, (iii) each of the other conditions precedent in Section 4.1 have been satisfied, except to the extent the satisfaction of any such condition is subject to the judgment or discretion of the Administrative Agent or any Lender and (iv) demonstrating compliance with the Covenants set forth in Section 6.18 pro forma (and based upon the most recent fiscal quarter end) for the incurrence of Obligations under this Agreement and the issuance of the Senior Notes on the Closing Date.
(n) Fees and Expenses . The Administrative Agent and the Lenders shall have received all fees and expenses, if any, owing pursuant to the Fee Letter and Section 2.4, subject to the terms contained in the Fee Letter. In addition, the Administrative Agent and the Borrower shall have executed an agent fee letter prior to or substantially simultaneously with the Closing Date, indicating a fee in an amount set forth in the draft letter provided to the Borrower prior to the Effective Date, with adjustments based on the amount of Senior Notes issued in accordance with the ratio set forth in Section 4.1(o).
(o) Senior Notes . Prior to or substantially simultaneously with the Closing Date, the Borrower shall have received at least $400,000,000 in gross cash proceeds from the issuance of the Senior Notes (with a pro rata reduction (using $75,000,000 as the numerator and $500,000,000 as the denominator) of the Revolving Committed Amount for any amount by which the gross proceeds of the Senior Notes are less than $500,000,000), which proceeds shall have been, or substantially simultaneously with the initial Extensions of Credit shall be, released from escrow, if applicable.
(p) Additional Matters . All other documents and legal matters in connection with the Transactions shall be reasonably satisfactory in form and substance to the Administrative Agent and its counsel.
Without limiting the generality of the provisions of Section 8.4, for purposes of determining compliance with the conditions specified in this Section 4.1, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.
Section 4.2. Conditions to All Extensions of Credit.
The obligation of each Lender to make any Extension of Credit hereunder is subject to the satisfaction of the following conditions precedent on the date of making such Extension of Credit:
(a) Representations and Warranties . The representations and warranties made by the Credit Parties herein, in the other Credit Documents and which are contained in any certificate furnished at any time under or in connection herewith shall (i) with respect to representations and warranties that contain a materiality qualification, be true and correct and (ii) with respect to representations and warranties that do not contain a materiality qualification, be true and correct
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in all material respects, in each case on and as of the date of such Extension of Credit as if made on and as of such date except for any representation or warranty made as of an earlier date, which representation and warranty shall remain true and correct as of such earlier date.
(b) No Default or Event of Default . No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Extension of Credit to be made on such date unless such Default or Event of Default shall have been waived in accordance with this Agreement.
(c) Compliance with Commitments . Immediately after giving effect to the making of any such Extension of Credit (and the application of the proceeds thereof), (i) the sum of the aggregate Revolving Credit Outstandings shall not exceed the Revolving Committed Amount then in effect, (ii) the aggregate principal amount of outstanding Multicurrency Revolving Loans shall not exceed the Multicurrency Revolving Committed Amount, and (iii) the outstanding Swingline Loans shall not exceed the Swingline Committed Amount.
(d) Additional Conditions to Revolving Loans . If a Revolving Loan is requested, all conditions set forth in Section 2.1(A) shall have been satisfied.
(e) Additional Conditions to Multicurrency Revolving Loans . If a Multicurrency Revolving Loan is requested, (i) all conditions set forth in Section 2.1(B) shall have been satisfied and (ii) there shall exist no Lender that is a Defaulting Lender unless the Revolving Lenders have entered into satisfactory arrangements with the Borrower or such Defaulting Lender to eliminate each Revolving Lenders risk with respect to such Defaulting Lenders in respect of its Multicurrency Revolving Commitment.
(f) Additional Conditions to Swingline Loans . If a Swingline Loan is requested, (i) all conditions set forth in Section 2.2 shall have been satisfied and (ii) there shall exist no Lender that is a Defaulting Lender unless the Swingline Lender has entered into satisfactory arrangements with the Borrower or such Defaulting Lender to eliminate the Swingline Lenders risk with respect to such Defaulting Lenders in respect of its Swingline Commitment.
(g) Additional Conditions to Letters of Credit . If a Letter of Credit is requested, (i) all conditions set forth in Section 2.3 shall have been satisfied and (ii) there shall exist no Lender that is a Defaulting Lender unless the LC Issuer has entered into satisfactory arrangements with the Borrower or such Defaulting Lender to eliminate the LC Issuers risk with respect to such Defaulting Lenders in respect of its Letter of Credit Commitment.
(h) Incremental Facility . If an Incremental Facility is requested, all conditions set forth in Section 2.19 shall have been satisfied.
Each request for an Extension of Credit and each acceptance by the Borrower of any such Extension of Credit shall be deemed to constitute representations and warranties by the Credit Parties as of the date of such Extension of Credit that the conditions set forth above in paragraphs (a) through (f), as applicable, have been satisfied.
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ARTICLE V
AFFIRMATIVE COVENANTS
Each of the Credit Parties hereby covenants and agrees that on the Effective Date, and thereafter (a) for so long as this Agreement is in effect, (b) until the Commitments have terminated, and (c) the Obligations and all other amounts owing to the Administrative Agent or any Lender hereunder are paid in full in cash, such Credit Party shall, and shall cause each of their Subsidiaries, to:
Section 5.1. Financial Statements.
Deliver to the Administrative Agent (for distribution to the Lenders), in form and detail satisfactory to the Administrative Agent and the Required Lenders:
(a) Quarterly Financial Statements . As soon as available, but in any event within 45 days after the end of each of the first three (3) quarterly fiscal periods of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal period, and consolidated statements of income, retained earnings and cash flows of the Borrower and its Consolidated Subsidiaries for that quarterly fiscal period and for that portion of the fiscal year then ended, in each case setting forth in comparative form the figures for the corresponding period of the preceding fiscal year, all in reasonable detail and certified by a Responsible Officer of the Borrower as fairly presenting the financial condition, results of operations and cash flows of the Borrower and its Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes; and
(b) Annual Financial Statements . As soon as available, but in any event within 90 days after the end of each fiscal year of the Borrower, a consolidated balance sheet of the Borrower and its Consolidated Subsidiaries as of the close of such fiscal year, and consolidated statements of income, retained earnings and cash flows of the Borrower and its Consolidated Subsidiaries for such fiscal year, in each case setting forth in comparative form the figures for the preceding fiscal year, all in reasonable detail and accompanied by a report and opinion of an independent certified public accountant of nationally recognized standing reasonably acceptable to the Administrative Agent (the Accounting Firm ), which report and opinion shall be prepared in accordance with GAAP and shall not be subject to any qualifications or exceptions as to the scope of the audit nor to any qualifications and exceptions not permissible under GAAP and not reasonably acceptable to the Administrative Agent.
Section 5.2. Certificates; Other Information.
Deliver to the Administrative Agent (for distribution to the Lenders), in form and detail satisfactory to the Administrative Agent and the Required Lenders:
(a) Compliance Certificate . Concurrently with the delivery of the financial statements referred to in Sections 5.1(a) and (b) hereof, a duly completed Compliance Certificate signed by a Responsible Officer of the Borrower.
(b) Management Letters, etc . Promptly after requested by the Administrative Agent or any Lender, copies of any detailed audit reports or management letters submitted to the board of directors (or the audit committee of the board of directors) of the Credit Parties by independent accountants in connection with the accounts or books of the Credit Parties or any Subsidiary, or any audit of any of them.
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(c) Reports; SEC Filings; Regulatory Reports; Etc . Promptly after the same are available, (i) copies of each annual report, proxy or financial statement or other report or communication sent to the stockholders of the Borrower, (ii) copies of all annual, regular, periodic and special reports and registration statements which the Borrower may file or be required to file with the SEC under Section 13 or 15(d) of the Exchange Act, and not otherwise required to be delivered to the Administrative Agent pursuant hereto and (iii) all material regulatory reports specifically concerning the Borrower and its Subsidiaries.
(d) Projected Financial Statements . As soon as available, but in any event not later than the earlier of (i) 90 days after the end of each fiscal year of the Borrower or (ii) promptly after receiving board approval, projected annual consolidated balance sheets, and statements of income of the Borrower and its Consolidated Subsidiaries for the immediately succeeding fiscal year.
(e) Information Under Other Agreements . Simultaneously with the providing to any Person in connection with any Additional Secured Senior Debt or any Additional Unsecured Senior Debt, of each notice of default or potential default, and each request for amendment, consent or waiver, a copy of such notice or request, together with any other information reasonably requested by Administrative Agent or the Required Lenders with respect thereto.
(f) Officers Certificate . Concurrently with the delivery of the financial statements referred to in Section 5.1(b), an Officers Certificate signed by the chief executive officer of the Borrower.
(g) Changes in Corporate Structure . Promptly upon any merger, consolidation, dissolution or other material change in corporate structure of any Credit Party or any of its Subsidiaries permitted pursuant to the terms hereof, notice of such change in corporate structure to the Administrative Agent except if such change could not reasonably be expected to have a Material Adverse Effect or be materially adverse to the Lenders.
(h) General Information . Promptly, such additional information regarding the business, financial or corporate affairs of the Credit Parties or any Subsidiary as the Administrative Agent or any Lender may from time to time reasonably request.
Documents required to be delivered pursuant to Section 5.1(a) or (b) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and, if so delivered, shall be deemed to have been delivered on the date (i) on which the Borrower posts such documents, or provides a link thereto on the Borrowers website on the Internet at the website address listed in Section 9.2; or (ii) on which such documents are posted on the Borrowers behalf on http://www.sec.gov; provided that: (A) the Borrower shall deliver paper copies of such documents to the Administrative Agent or any Lender that requests the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (B) the Borrower shall notify the Administrative Agent (by telecopier or electronic mail) of the posting of any such documents. Notwithstanding anything contained herein, in every instance the Borrower shall be required to provide either paper or electronic copies (at the Borrowers option) of the Compliance Certificates required by (a) to the Administrative Agent. Except for such Compliance Certificates,
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the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.
In addition, documents delivered by the Borrower to the Administrative Agent pursuant to clauses (a), (b), and (d) through (g) of Section 5.2 may be made available to the Lenders through the Platform in accordance with the provisions of Section 9.2(d).
Section 5.3. Notices.
The Credit Parties shall promptly notify the Administrative Agent and each Lender:
(i) of the occurrence of any Default or Event of Default;
(ii) of any matter that has resulted in or could reasonably be expected to result in a Material Adverse Effect;
(iii) of any litigation, investigation or proceeding affecting any Credit Party in which the damages, penalties, fines or other sanctions could reasonably be expected to exceed $5,000,000 (to the extent not covered by independent third-party insurance);
(iv) of the occurrence of any ERISA Event; and
(v) of any change in accounting policies or procedures by the Borrower or any Subsidiary that could reasonably be expected to have a material impact on the Consolidated financial statements of Borrower.
Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and stating what action the Borrower has taken and proposes to take with respect thereto. Each notice pursuant to this section shall describe with particularity any and all provisions of this Agreement or other Credit Document that have been breached.
Section 5.4. Payment of Obligations.
The Credit Parties shall, and shall cause each of their Subsidiaries to, pay and discharge, as the same shall become due and payable, all its material obligations and liabilities, including (a) all its material Tax liabilities, assessments and governmental charges or levies upon it or its properties or assets; (b) all its material lawful claims which, if unpaid, would by law become a Lien upon its Property; and (c) all its material Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness; provided, however, that the Credit Parties and each Subsidiary shall not be required to pay any such amount if and so long as the amount, applicability or validity thereof shall currently be contested in good faith by appropriate proceedings and appropriate accruals and reserves therefor have been established in accordance with GAAP.
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Section 5.5. Preservation of Existence, Etc.
Each Credit Party shall, and shall cause each of its Subsidiaries to, preserve, renew and maintain in full force and effect its legal existence and good standing under the laws of the jurisdiction of its organization; take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except in a transaction permitted by Section 6.3 or 6.5 hereof or except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and preserve, renew and maintain all of its registered copyrights, domain names, patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect.
Section 5.6. Maintenance of Properties.
Except where the failure to do so could not reasonably be expected to have a Material Adverse Effect, each Credit Party shall, and shall cause each of its Subsidiaries to, (a) maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted; (b) make all necessary repairs thereto and renewals and replacements thereof; and (c) use the standard of care typical in the industry in the operation and maintenance of its facilities.
Section 5.7. Maintenance of Insurance.
Each Credit Party shall, and shall cause each of its Subsidiaries to, maintain with reputable national insurance companies, not Affiliates of the Credit Parties, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons of similar financial condition and strength engaged in the same or similar business and owning similar properties in localities where the Credit Parties or their Subsidiaries operate, of such types and in such amounts (it being acknowledged by the Lenders that the Borrower may maintain self-insurance which the Borrower has represented pursuant to Section 3.10 is compatible with the standards set forth herein) as are customarily carried under similar circumstances by such other Persons.
Section 5.8. Compliance with Laws.
Each Credit Party shall, and shall cause each of its Subsidiaries to, comply in all material respects with the requirements of all Laws applicable to it or to its business or Property except in such instances in which (i) such requirement of Law is being contested in good faith or a bona fide dispute exists with respect thereto; or (ii) the failure to comply therewith could not be reasonably expected to have a Material Adverse Effect.
Section 5.9. Books and Records.
Each Credit Party shall, and shall cause each of its Subsidiaries to, maintain books, records and accounts with respect to itself and the Subsidiaries which, in reasonable detail, accurately and fairly reflect their transactions and dispositions of their assets, and maintain a system of internal accounting controls sufficient to provide reasonable assurances that (a) transactions are executed in accordance with managements general or specific authorization, (b) transactions are recorded as necessary (i) to permit preparation of financial statements in accordance with GAAP, and (ii) to maintain accountability for assets, (c) access to assets is
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permitted only in accordance with managements general or specific authorization and (d) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
Section 5.10. Inspection Rights.
Each Credit Party shall, and shall cause each of its Subsidiaries to, subject to Section 9.14 hereof, permit representatives and independent contractors of the Administrative Agent and each Lender to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers and independent public accountants, all at the expense of the Lenders and at such reasonable times during normal business hours, provided that, so long as no Event of Default exists, the foregoing shall be restricted to twice per consecutive 12 month period for each Credit Party, only one of which shall be at the Borrowers sole expense, in each case upon request of the Required Lenders or the Administrative Agent and reasonable advance notice to the Borrower; provided, however, that when an Event of Default exists the Administrative Agent or any Lender (or any of their respective representatives or independent contractors) may do any of the foregoing at the reasonable expense of the Borrower at any time during normal business hours and without advance notice.
Section 5.11. Compliance with ERISA.
The Borrower shall do, and cause each of its ERISA Affiliates to do, each of the following: (a) maintain each Single Employer Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal or state law and maintain each Foreign Plan in compliance in all material respects with all applicable laws; (b) preclude each Single Employer Plan which is qualified under Section 401(a) of the Code from being determined to be disqualified in any final assessment by the IRS; (c) make all required contributions to any Plan subject to Section 412 or 430 of the Code; and (d) make all contributions required under its Foreign Plans; except to the extent that failure to so comply with respect to each of clauses (a) through (d) above could not reasonably be expected to have a Material Adverse Effect.
Section 5.12. Use of Proceeds.
The Borrower shall use the proceeds of the Extension of Credits only for the general business purposes of the Borrower and its Subsidiaries (including, without limitation, the payment of indebtedness owed to Cash America and dividends or distributions to Cash America as permitted by this Agreement) and not in contravention of any Law or of any Credit Document.
Section 5.13. Further Assurances.
(a) Public/Private Designation . The Credit Parties will cooperate with the Administrative Agent in connection with the delivery of certain materials and/or information provided by or on behalf of the Credit Parties to the Administrative Agent and Lenders (collectively, Information Materials ) and will designate Information Materials (i) that are either available to the public or not material with respect to the Credit Parties and their Subsidiaries or any of their respective securities for purposes of United States federal and state securities Laws, as Public Information and (ii) that are not Public Information as private or confidential information.
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(b) Additional Information . The Credit Parties shall provide such information regarding the operations, business affairs and financial condition of the Credit Parties and their Subsidiaries as the Administrative Agent or any Lender may reasonably request.
(c) Further Assurances . Upon the reasonable request of the Administrative Agent, the Credit Parties will duly execute and deliver to the Administrative Agent any and all such further instruments and documents (in form and substance reasonably satisfactory to the Borrower) as may be reasonably necessary or advisable, in the opinion of the Administrative Agent, to further the intent of the parties as expressed in the Credit Documents and to obtain the full benefits of the Credit Documents.
(d) Unauthorized Filings . The Borrower shall use commercially reasonable efforts to cause any unauthorized UCC financing statement to be removed of record within not less than thirty (30) days following written request by the Administrative Agent.
Section 5.14. Notice of Formation of Subsidiary.
Promptly upon the formation of any Subsidiary (other than an Immaterial Subsidiary) and in any event within 30 days after such formation, the Borrower shall give the Administrative Agent written notice thereof.
Section 5.15. New Domestic Subsidiaries.
The Borrower shall cause each Domestic Subsidiary (other than an Immaterial Subsidiary) which any Credit Party or any of their Subsidiaries forms or acquires during the term of this Agreement to execute and deliver to the Administrative Agent a Joinder Agreement, together with a certified copy of a resolution of the board of directors (or other authorizing document of the appropriate governing body or Person) of such Domestic Subsidiary authorizing the execution and delivery of the Joinder Agreement and the performance of its terms, together with such other opinions, certificates, and documents as the Administrative Agent may reasonably request in connection therewith.
Section 5.16. Opinions Regarding Obligations of Guarantors.
Within forty-five (45) days after written request by the Required Lenders, which the Required Lenders shall be entitled to make at any time, the Borrower shall obtain or cause to be provided in favor of the Lenders an opinion of local counsel reasonably satisfactory to the Required Lenders for any of the Guarantors that opines (a) to such Guarantors (i) existence and good standing in its jurisdiction of formation, (ii) due authority to execute the Guaranty, and (iii) due execution, delivery and performance of the Guaranty and (b) to the enforceability of the Guaranty against such Guarantor; provided that Borrower shall be obligated to provide no more than one opinion of local counsel as to each Guarantor at any time during the period in which this Agreement is in effect.
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ARTICLE VI
NEGATIVE COVENANTS
Each of the Credit Parties hereby covenants and agrees that on the Effective Date, and thereafter (a) for so long as this Agreement is in effect, (b) until the Commitments have terminated, and (c) the Obligations and all other amounts owing to the Administrative Agent or any Lender hereunder are paid in full in cash, that:
Section 6.1. Liens.
The Credit Parties shall not, and shall not permit any Subsidiary to, create, incur, assume in or suffer to exist, any Lien upon any of its Property, Assets or revenues, whether now owned or hereafter acquired, other than Permitted Liens. The Credit Parties shall not, and shall not permit any Subsidiary to, become subject to a Negative Pledge except (a) the negative pledge contained in the terms of the Senior Notes Documents as in effect on the date hereof; (b) pursuant to any Additional Unsecured Senior Debt permitted by Section 6.2(p), (c) pursuant to any Additional Secured Senior Debt permitted by Section 6.2(q) so long as such negative pledge relates to Property financed by or the subject of such Indebtedness, (d) constituting customary provisions restricting subletting or assignment of any leases of any Credit Party or any Subsidiary or provisions in agreements that restrict the assignment of such agreement or any rights thereunder, (e) constituting restrictions on the sale or other disposition of any Property securing Indebtedness as a result of a Lien on such Property permitted hereunder, (f) constituting customary restrictions on cash, other deposits or assets imposed by customers and other persons under contract entered into in the ordinary course of business, (g) constituting any restriction or condition with respect to Property under an agreement that has been entered into for the disposition of such Property, provided that such disposition is otherwise permitted hereunder, or (h) constituting any restriction or condition with respect to Property under a charter, lease, license or other agreement that has been entered into for the employment of such Property.
Section 6.2. Indebtedness.
The Credit Parties shall not, and shall not permit any Subsidiary to, incur, create, contract, waive, assume, have outstanding, guarantee or otherwise be or become liable, directly or indirectly, in respect of any Indebtedness, except for:
(a) the Obligations arising out of or in connection with this Agreement and the other Credit Documents;
(b) current liabilities for Taxes and assessments incurred in the ordinary course of business, and other liabilities for unpaid Taxes being contested in good faith by the Borrower or any Subsidiary for which sufficient reserves have been established;
(c) current amounts payable or accrued for other claims (other than for borrowed funds or purchase money obligations) incurred in the ordinary course of business, provided that all such liabilities, accounts and claims shall be promptly paid and discharged when due or in conformity with customary trade terms, except for those being contested in good faith by the Borrower or a Subsidiary for which sufficient reserves have been established;
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(d) contingent liabilities resulting from the endorsement of negotiable instruments in the ordinary course of business;
(e) intercompany loans and advances, provided that the aggregate amount of (i) Investments in Capital Stock of Foreign Subsidiaries made after the Effective Date pursuant to (c) plus (ii) Foreign Acquisitions made after the Effective Date pursuant to (f) shall not exceed the greater of $40,000,000 or 6% of Consolidated Total Assets at any time outstanding, and provided that any Foreign Intercompany Loans made after the Effective Date are permitted under Section 6.3;
(f) Indebtedness and obligations owing under (i) Bank Products and (ii) other Hedging Agreements entered into in order to manage existing or anticipated interest rate, exchange rate or commodity price risks and not for speculative purposes;
(g) (i) Guaranty Obligations permitted under Section 6.17 hereof and (ii) prior to the Spin-Off, Guaranty Obligations in respect of Indebtedness of Cash America;
(h) the Senior Notes;
(i) with respect to Temporary Cash Investments, short term Indebtedness not constituting margin loans and not exceeding $2,500,000 at any time in the aggregate owed by the Borrower or a Consolidated Subsidiary to the broker or investment firm which is holding assets for the account of the Borrower or a Consolidated Subsidiary, but only to the extent that such Indebtedness is to be repaid, in the ordinary course of business, by the collection or liquidation of such assets at the maturity of such assets;
(j) intercompany payables for the purchase of goods and services in the ordinary course of business;
(k) Indebtedness of the Credit Parties and their Subsidiaries existing as of the Effective Date as referred to in the financial statements referenced in Section 3.5 (and set out more specifically in Schedule 6.2(k) hereto) and any renewals, refinancings or extensions thereof in a principal amount not in excess of that outstanding as of the date of such renewal, refinancing or extension and the terms of any such renewal, refinancing or extension are not less favorable to the obligor thereunder;
(l) intercompany loans and advances among Foreign Subsidiaries;
(m) obligations in respect of earnout or similar payments payable in cash or which may be payable in cash at the sellers or obligees option;
(n) surety bonds delivered by any Credit Party or any Subsidiary in the ordinary course of business;
(o) Subordinated Debt incurred after the Effective Date, provided that (i) prior to the issuance thereof, the Borrower has delivered to the Administrative Agent a Compliance Certificate which indicates that, on a pro forma basis after taking into account the issuance of such Subordinated Debt and the use of the proceeds thereof, there shall occur no Default or
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Event of Default and (ii) such Indebtedness shall not have any scheduled amortization or mandatory prepayments (other than mandatory prepayments resulting from a change of control) or obligations to repurchase or redeem prior to thirty days after the Maturity Date;
(p) Additional Unsecured Senior Debt of the Credit Parties, provided that (i) prior to the incurrence thereof, the Borrower has delivered to the Administrative Agent a Compliance Certificate which indicates that, on a pro forma basis after taking into account the incurrence of such Additional Unsecured Senior Debt and the use of the proceeds thereof, there shall occur no Default or Event of Default, and (ii) such Indebtedness shall not have any scheduled amortization or mandatory prepayments or obligations to repurchase or redeem prior to thirty days after the Maturity Date (except as otherwise permitted pursuant to Section 6.6(b)(iv));
(q) Additional Secured Senior Debt not to exceed the greater of $15,000,000 or 2% of Consolidated Total Assets in aggregate principal amount at any time outstanding;
(r) liabilities under performance bonds, surety bonds, release, appeal and similar bonds, statutory obligations or liabilities with respect to workers compensation and other insurance coverage in the ordinary course of business, and reimbursement obligations in respect of any of the foregoing;
(s) liabilities resulting from insurance premium financings in the ordinary course of business;
(t) liabilities resulting from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds incurred in the ordinary course of business;
(u) trade payables incurred in the ordinary course of any Credit Partys business, or accrued expenses payable on customary terms and conditions in the ordinary course of any Credit Partys business; and
(v) Foreign Third-Party Loans.
Section 6.3. Investments.
The Credit Parties shall not, and shall not permit any Subsidiary to, make or have outstanding Investments in or to any Person, except for:
(a) loans or participations therein generated through the conduct of activities described in Section 6.8 in the ordinary course of its day to day business;
(b) ownership of Capital Stock of Domestic Subsidiaries which, promptly after the formation or acquisition thereof (except in the case of an Immaterial Subsidiary), execute a Joinder Agreement;
(c) ownership of Capital Stock of Foreign Subsidiaries, provided that the aggregate amount of such Investments, plus (i) Foreign Acquisitions made after the Effective Date pursuant to Section 6.3(f) plus (ii) the aggregate amount of outstanding Foreign Intercompany Loans pursuant to Section 6.2(e), shall not exceed, in aggregate amount at any time outstanding, the greater of $40,000,000 or 6% of Consolidated Total Assets;
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(d) Temporary Cash Investments and such other cash equivalent investments as the Administrative Agent may from time to time approve;
(e) [Reserved];
(f) Acquisitions, provided (i) at time of such Acquisition and after giving effect thereto, no Default or Event of Default shall exist, (ii) the Assets, Property or business being acquired shall be in one or more of the types of businesses described in Section 6.8 hereof, (iii) such Acquisition shall not be opposed by the board of directors (or other governing body) of the Person being acquired, (iv) promptly upon becoming available and in any event within five (5) days prior to any proposed Acquisition for which the aggregate Acquisition Consideration for such Acquisition is equal to or greater than $25,000,000, the Administrative Agent shall have received a pro forma Compliance Certificate setting forth the covenant calculations both immediately prior to and after giving effect to the proposed Acquisition and certifying that no Default or Event of Default exists or would occur as a result therefrom, (v) if immediately prior to or immediately after such Acquisition and after giving effect thereto, the Leverage Ratio is greater than or equal to 2.25 to 1.00, the Acquisition Consideration for any single Acquisition shall not exceed 10% of Consolidated Total Assets as of the most recent fiscal quarter immediately preceding the Acquisition without the Required Lenders approval, and (vi) the aggregate amount of (A) Foreign Acquisitions made after the Effective Date, plus (B) the Investments in Capital Stock of Foreign Subsidiaries made after the Effective Date pursuant to Section 6.2(c) plus (C) the aggregate amount of outstanding Foreign Intercompany Loans pursuant to Section 6.2(e), shall not exceed the greater of $40,000,000 or 6% of Consolidated Total Assets at any time outstanding;
(g) Investments after the Effective Date by the Borrower in Domestic Subsidiaries;
(h) intercompany receivables as a result of the transfer of goods and Property in the ordinary course of business;
(i) Investments permitted under Section 6.3 and Section 6.5 hereof;
(j) Investments in existence as of the Effective Date (including existing loans to officers of the Credit Parties and Subsidiaries for the purchase of Capital Stock of the Borrower to the extent not otherwise prohibited by applicable Law) and disclosed in writing to the Lenders on or before the Effective Date;
(k) Investments as a result of intercompany loans and advances permitted under Section 6.2(e) hereof;
(l) Bank Products to the extent permitted hereunder;
(m) other Investments in activities directly related to one or more of the types of business described in Section 6.8 hereof, provided that the aggregate amount of such Investments shall not exceed 10% of Consolidated Total Assets in aggregate amount at any time; provided,
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however, that (i) Investments for the purchase of real estate for the purpose of administering, overseeing or operating one or more of the types of business described in Section 6.8 located or to be located on such real estate shall not exceed $25,000,000 at any time outstanding and (ii) Investments for the purchase of real estate where one or more of the types of business described in Section 6.8 are not existing thereon or are not being administered or overseen therefrom at the time of such purchase or cannot reasonably be expected to be established thereon within twelve months following such purchase shall not exceed $15,000,000 at any time outstanding; and
(n) Investments in Cash America and its Subsidiaries contemplated by the Spin Transaction Documents; and
(o) Investments in a Securitization Subsidiary that are necessary or desirable to effect any Permitted Receivables Financing.
Section 6.4. Fundamental Changes.
The Credit Parties shall not, and shall not permit any Subsidiary to, merge, consolidate with or into, or convey, transfer, lease, license or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its Assets (whether now owned or hereafter acquired) to or in favor of any Person, except that, so long as no Default or Event of Default exists or would result therefrom:
(a) any Subsidiary may merge with (i) the Borrower, provided that the Borrower shall be the continuing or surviving Person, (ii) any Guarantor, or (iii) in the case of any such Subsidiary that is a Foreign Subsidiary, any Subsidiary;
(b) any Subsidiary may sell all or substantially all of its assets (upon voluntary liquidation or otherwise) to the Borrower or to a Guarantor; and
(c) the Borrower and any Subsidiary may make Dispositions permitted pursuant to Section 6.5 hereof.
Section 6.5. Dispositions.
The Credit Parties shall not, and shall not permit any Subsidiary to, make any Disposition or enter into any agreement to make any Disposition, except:
(a) Dispositions of obsolete, non-functioning or worn out Property, whether now owned or hereafter acquired, in the ordinary course of business;
(b) Dispositions of inventory and other Property in the ordinary course of business for fair consideration;
(c) Dispositions permitted under Section 6.3 and Dispositions to a wholly-owned Domestic Subsidiary which is a Guarantor;
(d) Dispositions of Capital Stock of the Borrower and Dispositions of Capital Stock of a Subsidiary to the Borrower or to another Subsidiary; and
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(e) Dispositions of Assets (including (i) Capital Stock of a Subsidiary other than to the Borrower or another Subsidiary and (ii) arrangements whereby a Credit Party or a Subsidiary sells or transfers any of its Assets, and thereafter rents or leases those Assets (except for the sale and leaseback of operating facilities)) not otherwise permitted in this Section 6.5 above, so long as (i) at the time of such Disposition and after giving effect thereto, no Default or Event of Default shall exist and (ii) the aggregate amount of such Dispositions not otherwise permitted in this Section 6.5 above during any fiscal year shall not exceed the greater of $40,000,000 or 6% of Consolidated Total Assets as of the last day of the immediately preceding fiscal year without the prior consent of the Required Lenders;
(f) the liquidation of cash and equivalents, which liquidation shall be in the ordinary course of business;
(g) an assignment of an account to an insurance company providing credit insurance to a Credit Party for purposes of collecting insurance proceeds of an amount reasonably commensurate with the amount of the account so assigned,
(h) termination of a lease of real or personal Property that is not necessary for the ordinary course of business, could not reasonably be expected to have a Material Adverse Effect and does not result from an obligors default;
(i) Disposition of Property subject to casualty, expropriation or condemnation proceedings;
(j) so long as no Event of Default has then occurred and is continuing or would result therefrom, the transfer, assignment, cancellation, abandonment or other disposition of intellectual property rights in the ordinary course of business, which in the reasonable good faith determination of the Borrower is not material to the conduct of the business of the Borrower and its Subsidiaries taken as a whole;
(k) voluntary terminations of any Hedging Agreement;
(l) so long as no Event of Default has then occurred and is continuing or would result therefrom, non-exclusive licenses of patents, copyrights, trademarks, trade secrets or other intellectual property to third parties in the ordinary course of business;
(m) so long as no Event of Default has then occurred or is continuing or would result therefrom, leases, subleases and terminations and abandonment of any leasehold interest in real Property and granting of easements or rights of way in respect of real Property, in each case in the ordinary course of business;
(n) the expiration of registered intellectual property in accordance with its statutory term;
(o) the expiration of any contract, contract right or other agreement in accordance with its term;
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(p) Dispositions to Cash America and its Subsidiaries contemplated by the Spin Transaction Documents;
(q) the sale of delinquent receivables in the ordinary course of business in connection with the collections or compromise thereof; and
(r) sales of accounts receivable, or participations therein, securities of Securitization Subsidiaries and related assets in connection with a Permitted Receivables Financing;
provided , however , that any Disposition pursuant to clauses (a) through (f) shall be for fair consideration or reasonable value.
Section 6.6. Restricted Payments.
The Credit Parties shall not, and shall not permit any Subsidiary to, directly or indirectly pay any Restricted Payment; provided, however, (a) any Subsidiary may declare and pay Dividends to or for the benefit of the Borrower or any Guarantor, and (b) the Borrower may (i) make regularly scheduled interest payments on Subordinated Debt, (ii) make regularly scheduled interest payments on Additional Unsecured Senior Debt, (iii) subject to the proviso contained in clause (iv) below, declare and pay Dividends (including the repurchase of Capital Stock of the Borrower), (iv) make regularly scheduled principal payments on Subordinated Debt in existence as of the Effective Date; provided however, the sum of all Restricted Payments made pursuant to clause (iii) above, this clause (iv) and clause (v) below shall not exceed an aggregate amount equal to the sum of (A) $35,000,000 plus (B) 50% of Cumulative Net Income after June 30, 2014, (v) make prepayments and regularly scheduled principal payments on Additional Unsecured Senior Debt in an aggregate amount taken together with amounts under clause (A) of clause (iv) above, not to exceed $35,000,000, (vi) payments expressly contemplated by the Spin Transaction Documents, (vii) make prepayments on Additional Unsecured Senior Debt from the proceeds of any Disposition of Assets on a pro rata basis with the prepayment of the Loans as may be required under Section 2.6, in each case if and to the extent required by the agreements governing such Additional Unsecured Senior Debt and (viii) make a Special Dividend on the date the Senior Notes are issued; provided , that the Borrower shall make no Restricted Payments under clause (b)(i), clause (b)(iii) or clause (b)(iv) unless there shall exist no Default or Event of Default prior to or after giving effect to any such proposed Restricted Payment.
Section 6.7. ERISA.
The Borrower shall not, and shall not permit any Subsidiary to, at any time (a) engage in a transaction which could be subject to Section 4069 or 4212(c) of ERISA; or (b) permit any Single Employer Plan to (i) engage in any non-exempt prohibited transaction (as defined in Section 4975 of the Code), (ii) fail to comply in any material respect with ERISA or any other applicable Laws, or (iii) be in at risk status within the meaning of Code Section 430(i); which, with respect to each event listed in clause (a) or (b) above, could be reasonably expected to have a Material Adverse Effect.
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Section 6.8. Change in Nature of Business.
The Credit Parties shall not, and shall not permit any Subsidiary to, engage in any material line of business other than the business conducted or proposed to be conducted by the Borrower and its Subsidiaries on the Effective Date and any business engaged in (1) the business of providing online financial services, (2) the business of originating, arranging, purchasing and collecting consumer and small business loans, and (3) any other activities similar, reasonably related, incidental, complementary or ancillary thereto, or a reasonable extension or expansion thereof.
Section 6.9. Transactions with Affiliates.
The Credit Parties shall not, and shall not permit any Subsidiary to, enter into any transaction of any kind with any Affiliate of the Credit Parties, other than (a) arms-length transactions with Affiliates, (b) transactions otherwise permitted hereunder, (c) transactions with Affiliates in the ordinary course of business, (d) the Spin Transaction Documents and (e) sales of accounts receivable, or participations therein, or any related transaction, in connection with any Permitted Receivables Financing.
Section 6.10. Burdensome Agreements.
The Credit Parties shall not, and shall not permit any Domestic Subsidiary to, enter into any Contractual Obligation that limits the ability of any Domestic Subsidiary to make Dividends or other Dispositions to the Borrower or to otherwise transfer Property to the Borrower, other than customary restrictions pursuant to the terms of a Permitted Receivables Financing.
Section 6.11. Use of Proceeds.
The Credit Parties shall not, directly or indirectly, use the proceeds of any Extension of Credit, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the Board) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund Indebtedness originally incurred for such purpose.
Section 6.12. Amendment of Organization Documents and Fiscal Year.
The Credit Parties shall not, and shall not permit any Subsidiary to, amend, modify, or waive any of its rights under any Organization Documents in a manner materially adverse to the Lenders. The Credit Parties shall not, and shall not permit any Subsidiary to, change its fiscal quarters or fiscal year, except after providing 30 days prior written notice to the Administrative Agent and provided such change does not have the effect of delaying or otherwise curing a Default or an Event of Default that would have otherwise existed.
Section 6.13. Amendment of Subordinated Debt.
The Credit Parties shall not, and shall not permit any Subsidiary to, change or amend (or take any action or fail to take any action the result of which is an effective amendment or change) or accept any waiver or consent with respect to, any document, instrument, or agreement relating to any Subordinated Debt that would result in (a) a material increase in the principal, interest, overdue interest, fees or other amounts payable under any Subordinated Debt, (b) an acceleration
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in any date fixed for payment or prepayment of principal, interest, fees or other amounts payable under any Subordinated Debt (including, without limitation, as a result of any redemption), (c) a change in any of the subordination provisions of any Subordinated Debt, (d) a change in any defined term, covenant, term or provision in any Subordinated Debt which would result in such Subordinated Debt containing a More Restrictive Covenant, or (e) a change in any term or provision of any Subordinated Debt that could reasonably be expected to have a material adverse effect on the interest of the Lenders.
Section 6.14. Amendment of Senior Notes or Additional Unsecured Senior Debt.
The Credit Parties shall not, and shall not permit any Subsidiary to, change or amend (or take any action or fail to take any action the result of which is an effective amendment or change) or accept any waiver or consent with respect to, any document, instrument, or agreement relating to the Senior Notes or any Additional Unsecured Senior Debt that would result in (a) a change in any defined term, covenant, term or provision in the Senior Notes or any Additional Unsecured Senior Debt which would result in the Senior Notes or such Additional Unsecured Senior Debt containing a More Restrictive Covenant, or (b) a change in any term or provision of the Senior Notes or any Additional Unsecured Senior Debt that could reasonably be expected to have a material adverse effect on the interest of the Lenders.
Section 6.15. Alteration of Material Agreements.
The Credit Parties will not, and will not permit any Subsidiary to, consent to or permit any alterations, amendments, modifications, releases, waivers or terminations of any Spin Transaction Document to which it is a party, the Additional Secured Senior Debt or the Additional Unsecured Senior Debt, if such alterations, amendments, modifications, releases, waivers or terminations would have a Material Adverse Effect, be materially adverse to the Lenders or not be commercially reasonable to the Borrower.
Section 6.16. Strict Compliance.
If any action or failure to act by the Credit Parties violates any covenant or obligation of the Credit Parties contained herein, then such violation shall not be excused by the fact that such action or failure to act would otherwise be permitted by any covenant (or exception to any covenant) other than the covenant violated.
Section 6.17. Guaranties.
The Credit Parties will not, and will not permit any Subsidiary to, become or be liable in respect of any Guaranty Obligation, except for (i) the Guaranty (including the Joinder Agreements), (ii) guaranties of Indebtedness to extent such Indebtedness is permitted pursuant to Section 6.2 hereof, (iii) guaranties of loans to, or financial commitments or obligations of, its customers or other intended beneficiaries in the ordinary course of business, (iv) guaranties to vendors and suppliers made in the ordinary course of business (other than with respect to any Indebtedness) and (v) additional limited guaranties of the Borrower, provided that the aggregate Indebtedness guaranteed by such additional limited guaranties at any time shall not exceed $25,000,000, and provided further that within five (5) days after the execution of each guaranty by the Borrower for Indebtedness in excess of $5,000,000, the Borrower shall provide each of the Lenders with a copy of such executed guaranty.
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Section 6.18. Financial Covenants.
(a) Maximum Leverage Ratio . The Borrower shall not permit the Leverage Ratio at any fiscal quarter end to be greater than 3.00 to 1.00.
(b) Minimum Fixed Charge Coverage Ratio . The Borrower shall not permit the Fixed Charge Coverage Ratio at any fiscal quarter end to be less than 1.75 to 1.00.
(c) Minimum Net Worth . The Borrower shall not permit Net Worth to be less than the sum of (i) $75,000,000, plus (ii) 50% of Net Income (with no deduction for net losses during any quarterly period) earned in each fiscal quarter of the Borrower ending on or after June 30, 2014, plus (iii) 100% of the Net Equity Proceeds received by the Borrower and its Subsidiaries from the issuance and sale of Capital Stock of the Borrower or any Subsidiary (other than an issuance to the Borrower or a wholly-owned Subsidiary), including any conversion of debt securities of the Borrower into such Capital Stock after June 30, 2014 to the extent of any increase in Net Worth resulting therefrom.
ARTICLE VII
EVENTS OF DEFAULT
Section 7.1. Events of Default.
An Event of Default shall exist upon the occurrence of any of the following specified events (each an Event of Default ):
(a) Payment . The Borrower fails to pay when due (i) any principal of, or interest on any Loan or any LC Obligation or deposit any funds as Cash Collateral required hereunder in respect of LC Obligations or (ii) any fee, expense, reimbursement obligation or any other amount due in connection herewith or with any other Credit Document, and such failure with respect to clause (ii) shall have continued for five (5) Business Days after receipt from the Administrative Agent of notice of such failure on any Loan; or
(b) Misrepresentation . Any representation or warranty made under this Agreement, or any of the other Credit Documents, or in any certificate or statement furnished or made to the Lenders pursuant hereto or in connection herewith or with any Loan hereunder, shall (i) with respect to representations and warranties that contain a materiality qualification, prove to be untrue or inaccurate as of the date on which such representation or warranty is made and (ii) with respect to representations and warranties that do not contain a materiality qualification, prove to be untrue or inaccurate in any material respect as of the date on which such representation or warranty is made; or
(c) Covenant Default . (i) Any Credit Party or any Subsidiary fails to perform or observe any term, covenant or agreement contained in any of Section 5.3(i) or (ii), 5.5, 5.10, 5.12, or Article VI hereof (but only to the extent that the failure to perform or observe the covenants in Section 6.1, 6.2 and/or 6.3 involves an aggregate amount in excess of $250,000); or (ii) Any
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Credit Party or any Subsidiary shall fail to perform or observe any other term or covenant contained herein or in any of the Credit Documents (other than those specified in subsection (a) or Section 7.1(c)(i) (other than the parenthetical to Section 7.1(c)(i)) above), on its part to be performed or observed and such failure shall not be remedied within thirty (30) days following the earlier of knowledge thereof by the Borrower or any Subsidiary or written notice by the Administrative Agent to the Borrower; or
(d) Indebtedness Cross-Default . (i) Any Credit Party or any Subsidiary (A) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness or any Guaranty Obligation (other than Indebtedness hereunder and Indebtedness under Hedging Agreements) having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $10,000,000, or (B) fails to observe or perform any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness or the beneficiary or beneficiaries of any Guaranty Obligation with respect to such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to be demanded or to become due or to be repurchased or redeemed (automatically or otherwise) or such Guaranty Obligation to become payable; (ii) any Credit Party or any of its Subsidiaries shall breach or default any payment obligation which exceeds $10,000,000 in amount under any Hedging Agreement that is a Bank Product; or (iii) prior to the Spin-Off, Cash America or any of its Subsidiaries (A) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness or any Guaranty Obligation (other than Indebtedness hereunder and Indebtedness under Hedging Agreements) having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $10,000,000, or (B) fails to observe or perform any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness or the beneficiary or beneficiaries of any Guaranty Obligation with respect to such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to be demanded or to become due or to be repurchased or redeemed (automatically or otherwise) or such Guaranty Obligation to become payable, whether or not the holder or holders of such Indebtedness or the beneficiary or beneficiaries of any Guaranty Obligation waive any such default or right to demand payment, repurchase or redemption; or
(e) Other Cross-Defaults . Any portion of any Credit Document shall cease to be legal, valid, binding agreements enforceable against any party executing the same in accordance with the respective terms thereof or shall in any way be terminated or become or be declared ineffective or inoperative or shall in any way whatsoever cease to give or provide the respective rights, remedies, powers or privileges intended to be created hereby, in each case which occurrence could reasonably be expected to have a material adverse impact on the interests of the Lenders; or
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(f) Bankruptcy Default . Subject to the proviso below, (i) Any Credit Party or any Subsidiary institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its Property, (ii) any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed under any Debtor Relief Law without the application or consent of the Credit Parties or any Subsidiary, or any proceeding under any Debtor Relief Law relating to any Credit Party or any Subsidiary, or to all or any material part of its Property, is instituted without the consent of such Person, and such appointment or proceeding shall remain undismissed and unstayed for a period of 60 consecutive days, (iii) any Credit Party or any Subsidiary becomes unable or admits in writing its inability or fails generally to pay its debts as they become due, or (iv) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the Property of any such Person and is not released, vacated or fully bonded within 60 days after its issue or levy; provided, however, that any of the foregoing events, circumstances or occurrences which relate to a Non-Material Foreign Subsidiary shall not result in an Event of Default under this (f); or
(g) Judgment Default . There is entered against any Credit Party or any Subsidiary a final judgment or order for the payment of money in an aggregate amount exceeding $10,000,000, and such judgment shall not be satisfied, discharged or stayed (with sufficient reserves having been set aside by the Borrower or such Subsidiary to pay such judgment) at least ten (10) days prior to the date on which any of its assets could be lawfully sold to satisfy such judgment; or
(h) ERISA Default . The occurrence of any of the following which causes a Material Adverse Effect to exist: (i) any Person shall engage in any prohibited transaction (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) a Single Employer Plan shall be in at risk status within the meaning of Code Section 430(i) or a Multiemployer Plan shall be in endangered status or critical status within the meaning of Section 432(b) of the Code or any Lien in favor of the PBGC or a Plan (other than a Permitted Lien) shall arise on the assets of the Credit Parties or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee could reasonably be expected to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA or (v) a Credit Party, any of its Subsidiaries or any Commonly Controlled Entity could reasonably be expected to incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, any Multiemployer Plan; or
(i) Change of Control . There shall occur a Change of Control; or
(j) Invalidity of Guaranty . At any time after the execution and delivery thereof, the Guaranty, for any reason other than the satisfaction in full of all Obligations, shall cease to be in full force and effect (other than in accordance with its terms) in all material respects or shall be declared to be null and void, or any Credit Party shall contest in any material respect the validity, enforceability, perfection or priority of the Guaranty, any Credit Document, or any Lien granted thereunder in writing or deny in writing that it has any further liability, including with respect to future advances by the Lenders, under any Credit Document to which it is a party; or
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(k) Invalidity of Credit Documents . Any Credit Document shall fail to be in full force and effect in all material respects or shall fail in any material respect to give the Administrative Agent and/or the Lenders the security interests, liens, rights, powers, priority and privileges purported to be created thereby (except as such documents may be terminated or no longer in force and effect in accordance with the terms thereof, other than those indemnities and provisions which by their terms shall survive), in each case which occurrence could reasonably be expected to have a material adverse impact on the interest of the Lenders.
Section 7.2. Acceleration; Remedies.
Upon the occurrence and during the continuance of an Event of Default, then, and in any such event, (a) if such event is a Bankruptcy Event, automatically the Commitments shall immediately terminate and any obligation of the LC Issuer to make an Extension of Credit shall automatically terminate, and the Loans (with accrued interest thereon), and all other amounts under the Credit Documents shall immediately become due and payable, and the obligation of the Borrower to Cash Collateralize the LC Obligations shall automatically become effective and (b) if such event is any other Event of Default, any or all of the following actions may be taken: (i) with the written consent of the Required Lenders, the Administrative Agent may, or upon the written request of the Required Lenders, the Administrative Agent shall, declare the Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; (ii) the Administrative Agent may, or upon the written request of the Required Lenders, the Administrative Agent shall, declare the Loans (with accrued interest thereon) and all other amounts owing under this Agreement and the Notes to be due and payable forthwith, whereupon the same shall immediately become due and payable; (iii) the Administrative Agent may require that the Borrower Cash Collateralize the LC Obligations (in an amount equal to the Minimum Collateral Amount with respect thereto) and/or (iv) with the written consent of the Required Lenders, the Administrative Agent may, or upon the written request of the Required Lenders, the Administrative Agent shall, exercise such other rights and remedies as provided under the Credit Documents and under applicable law.
ARTICLE VIII
THE ADMINISTRATIVE AGENT
Section 8.1. Appointment and Authority.
Each of the Lenders hereby irrevocably appoints Jefferies to act on its behalf as the Administrative Agent hereunder and under the other Credit Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of the Administrative Agent and the Lenders, and neither the Borrower nor any other Credit Party shall have rights as a third party beneficiary of any of such provisions.
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Section 8.2. Nature of Duties.
Anything herein to the contrary notwithstanding, none of the bookrunners, arrangers or other agents listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Credit Documents, except in its capacity, as applicable, as the Administrative Agent, a Lender, an LC Issuer or the Swingline Lender hereunder. Without limiting the foregoing, none of the Lenders or other Persons so identified shall have or be deemed to have any fiduciary relationship with any Lender. Each Lender acknowledges that it has not relied, and will not rely, on any of the Lenders or other Persons so identified in deciding to enter into this Agreement or in taking or not taking action hereunder.
The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Credit Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities as Administrative Agent.
Section 8.3. Exculpatory Provisions.
The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Credit Documents. Without limiting the generality of the foregoing, the Administrative Agent:
(a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;
(b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Credit Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Credit Documents), provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Credit Document or applicable law; and
(c) shall not, except as expressly set forth herein and in the other Credit Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to any Credit Party or any of its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.
The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 9.1 and 7.2) or (ii) in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Credit Document, (ii)
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the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Credit Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.
Section 8.4. Reliance by Administrative Agent.
The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan that by its terms must be fulfilled to the satisfaction of a Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender unless the Administrative Agent shall have received notice to the contrary from such Lender prior to the making of such Loan. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
Section 8.5. Notice of Default.
The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Administrative Agent has received written notice from a Lender or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a notice of default . In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give prompt notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided, however, that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders except to the extent that this Agreement expressly requires that such action be taken, or not taken, only with the consent or upon the authorization of the Required Lenders, or all of the Lenders, as the case may be.
Section 8.6. Non-Reliance on Administrative Agent and Other Lenders.
Each Lender expressly acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representation or warranty to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of any Credit Party, shall be deemed to constitute any representation or
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warranty by the Administrative Agent to any Lender. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Credit Document or any related agreement or any document furnished hereunder or thereunder.
Section 8.7. Indemnification.
The Lenders agree to indemnify the Administrative Agent, the Revolving Lenders, the LC Issuer and the Swingline Lender in its capacity hereunder and their Affiliates and their respective officers, directors, agents and employees (to the extent not reimbursed by the Credit Parties and without limiting the obligation of the Credit Parties to do so), ratably according to their respective Commitment Percentages in effect on the date on which indemnification is sought under this Section, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Obligations) be imposed on, incurred by or asserted against any such indemnitee in any way relating to or arising out of any Credit Document or any documents contemplated by or referred to herein or therein or the Transactions or any action taken or omitted by any such indemnitee under or in connection with any of the foregoing; provided , however , that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent resulting from such indemnitees gross negligence or willful misconduct, as determined by a court of competent jurisdiction. The agreements in this Section shall survive the termination of this Agreement and payment of the Notes and all other amounts payable hereunder.
Section 8.8. Administrative Agent in Its Individual Capacity.
The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term Lender or Lenders shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Credit Parties or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.
Section 8.9. Successor Administrative Agent.
The Administrative Agent may at any time give notice of its resignation to the Lenders and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, with the prior written consent of the Borrower if no Event of Default then exists
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(which consent shall not be unreasonably withheld or delayed), to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may on behalf of the Lenders, appoint a successor Administrative Agent meeting the qualifications set forth above provided that if the Administrative Agent shall notify the Borrower and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (a) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Credit Documents and (b) all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender directly, until such time as the Required Lenders appoint a successor Administrative Agent as provided for above in this paragraph. Upon the acceptance of a successors appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Credit Documents (if not already discharged therefrom as provided above in this paragraph). The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring Administrative Agents resignation hereunder and under the other Credit Documents, the provisions of this Article and Section 9.5 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.
Any resignation by Jefferies, as Administrative Agent pursuant to this Section shall also constitute its resignation as Revolving Lender, LC Issuer and Swingline Lender. Upon the acceptance of a successors appointment as Administrative Agent hereunder, (a) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring Revolving Lender, LC Issuer and Swingline Lender, and (b) the retiring Revolving Lender, LC Issuer and Swingline Lender shall be discharged from all of their respective duties and obligations hereunder or under the other Credit Documents.
Section 8.10. Guaranty Matters.
(a) The Lenders and the Bank Product Provider irrevocably authorize and direct the Administrative Agent to release any Guarantor from its obligations under the applicable Guaranty if such Person ceases to be a Domestic Subsidiary of the Borrower as a result of a transaction permitted hereunder.
(b) In connection with release pursuant to this Section, the Administrative Agent shall promptly execute and deliver to the applicable Credit Party, at the Borrowers expense, all documents that the applicable Credit Party shall reasonably request to evidence such release. Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agents authority to release any Guarantor from its obligations under the Guaranty pursuant to this Section.
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Section 8.11. Bank Products.
No Bank Product Provider that obtains the benefits of Sections 2.11 and 7.2 or of any Guaranty shall have any right to notice of any action or to consent to, direct or object to any action hereunder or under any other Credit Document. The Administrative Agent shall not be required to verify the payment of, or that other satisfactory arrangements have been made with respect to, Obligations arising under Bank Products unless the Administrative Agent has received written notice (including, without limitation, a Bank Product Provider Notice) of such Obligations, together with such supporting documentation as the Administrative Agent may request, from the applicable Bank Product Provider.
ARTICLE IX
MISCELLANEOUS
Section 9.1. Amendments, Waivers and Consents.
Neither this Agreement nor any of the other Credit Documents, nor any terms hereof or thereof, may be amended, modified, extended, restated, replaced, or supplemented (by amendment, waiver, consent or otherwise) except in accordance with the provisions of this Section. The Required Lenders may or, with the consent of the Required Lenders, the Administrative Agent may, from time to time, enter into with the Borrower written amendments, supplements or modifications hereto and to the other Credit Documents for the purpose of adding any provisions to this Agreement or the other Credit Documents or changing in any manner the terms or provisions hereof or thereof or the rights of the Lenders or of the Borrower hereunder or thereunder or (a) waive or consent to the departure from, on such terms and conditions as the Required Lenders may specify in such instrument, any of the requirements of this Agreement or the other Credit Documents or any Default or Event of Default and its consequences; provided , however , that no such amendment, supplement, modification, release, waiver or consent shall:
(i) reduce the amount or extend the scheduled date of maturity of any Loan or Note or any installment thereon, or reduce the stated rate of any interest or fee payable hereunder (except in connection with a waiver of interest at the Default Rate which shall be determined by a vote of the Required Lenders) or extend the scheduled date of any payment thereof or increase the amount or extend the expiration date of any Lenders Commitment, in each case without the written consent of each Lender directly affected thereby; provided that, it is understood and agreed that (A) no waiver, reduction or deferral of a mandatory prepayment required pursuant to Section 2.6(b), nor any amendment of Section 2.6(b) or the definition of Disposition shall constitute a reduction of the amount of, or an extension of the scheduled date of, the scheduled date of maturity of, or any installment of, any Loan or Note and (B) any reduction in the stated rate of interest on Revolving Loans shall only require the written consent of each Lender holding a Revolving Commitment; or
(ii) amend, modify or waive any provision of this Section or reduce the percentage specified in the definition of Required Lenders, without the written consent of all the Lenders; or
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(iii) except in accordance with the terms of this Agreement, release the Borrower or all or substantially all of the value of the Guaranty, respectively, without the written consent of all of the Lenders and Bank Product Providers that have previously provided a Bank Product Provider Notice to the Administrative Agent pursuant to the terms hereof; or
(iv) subordinate the Loans to any other Indebtedness without the written consent of all of the Lenders; or
(v) reserved; or
(vi) permit the Borrower to assign or transfer any of its rights or obligations under this Agreement or other Credit Documents without the written consent of all of the Lenders; or
(vii) amend, modify or waive any provision of the Credit Documents requiring consent, approval or request of all Lenders without the written consent of all the Lenders; or
(viii) without the consent of Lenders holding at least a majority of the outstanding Revolving Commitments, amend, modify or waive any provision in Section 4.2 or waive any Default or Event of Default (or amend any Credit Document to effectively waive any Default or Event of Default) if the effect of such amendment, modification or waiver is that the Revolving Lenders shall be required to fund Revolving Loans when such Lenders would otherwise not be required to do so; or
(ix) amend, modify or waive (A) the order in which Obligations are paid or (B) the pro rata sharing of payments by and among the Lenders, in each case in accordance with Section 2.10(b) or 9.7(b) without the written consent of each Lender and each Bank Product Provider directly affected thereby; or
(x) amend, modify or waive any provision of Article VIII without the written consent of the then Administrative Agent; or
(xi) amend or modify the definition of Obligations to delete or exclude any obligation or liability described therein without the written consent of each Lender and each Bank Product Provider directly affected thereby; or
(xii) amend the definitions of Hedging Agreement, Bank Product, or Bank Product Provider without the consent of any Bank Product Provider that would be adversely affected thereby;
provided , further , that no amendment, waiver or consent affecting the rights or duties of the Administrative Agent, the Revolving Lenders, the LC Issuer or the Swingline Lender under any Credit Document shall in any event be effective, unless in writing and signed by the Administrative Agent, the Revolving Lenders, the LC Issuer and/or the Swingline Lender, as applicable, in addition to the Lenders required hereinabove to take such action.
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Any such waiver, any such amendment, supplement or modification and any such release shall apply equally to each of the Lenders and shall be binding upon the Borrower, the other Credit Parties, the Lenders, the Administrative Agent and all future holders of the Notes. In the case of any waiver, the Borrower, the other Credit Parties, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the outstanding Loans and Notes and other Credit Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right as a consequence of any subsequent or other Default or Event of Default.
Notwithstanding any of the foregoing to the contrary, the consent of the Borrower and the other Credit Parties shall not be required for any amendment, modification or waiver of the provisions of Article VIII which do not, in any way, adversely affect the Borrower or any other Credit Party (other than the provisions of Section 8.9).
Notwithstanding the fact that the consent of all the Lenders is required in certain circumstances as set forth above, (a) each Lender is entitled to vote as such Lender sees fit on any bankruptcy reorganization plan that affects the Loans, and each Lender acknowledges that the provisions of Section 1126(c) of the Bankruptcy Code supersedes the unanimous consent provisions set forth herein, (b) the Required Lenders may consent to allow a Credit Party to use cash collateral in the context of a bankruptcy or insolvency proceeding and (c) no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except (i) that the Commitment of such Lender may not be increased or extended without the consent of such Lender and (ii) to the extent such amendment, waiver or consent impacts such Defaulting Lender in an adverse manner more than the other Lenders.
For the avoidance of doubt and notwithstanding any provision to the contrary contained in this Section 9.1, this Agreement may be amended (or amended and restated) with the written consent of the Credit Parties and the Administrative Agent in accordance with Section 2.19.
Section 9.2. Notices.
(a) Notices Generally . Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows:
(i) If to the Borrower or any other Credit Party:
Enova International, Inc.
200 West Jackson, Suite 2400
Chicago, Illinois 60606
Attention: | Lisa Young, General Counsel | |
Telephone: | (312) 568-4200 | |
Fax: | (312) 962-4931 | |
Email: | lyoung@enova.com |
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with a copy to:
Enova International, Inc.
200 West Jackson, Suite 2400
Chicago, Illinois 60606
Attention: | Rob Clifton, Chief Accounting Officer | |
Telephone: | (312) 568-4200 | |
Fax: | (312) 962-4931 | |
Email: | rclifton@enova.com |
(ii) If to the Administrative Agent:
Jefferies Finance LLC, as Administrative Agent
520 Madison Avenue
New York, NY 10022
Attention: | Account Officer Enova International, Inc. |
Email: | jfin.admin@jefferies.com | |
Fax: | (212) 284-3444 |
(iii) if to a Lender, to it at its address (or telecopier number) set forth in its Administrative Questionnaire.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through electronic communications to the extent provided in paragraph (b) below, shall be effective as provided in said paragraph (b).
(b) Electronic Communications . Notices and other communications to the Lenders, the Revolving Lenders, the LC Issuer and the Swingline Lender hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender, any LC Issuer or the Swingline Lender pursuant to Article II if such Lender, LC Issuer or the Swingline Lender, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the senders receipt of an acknowledgement from the intended recipient (such as by the return receipt requested function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such
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notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.
(c) Change of Address, Etc . Any party hereto may change its address or telecopier number for notices and other communications hereunder by notice to the other parties hereto.
(d) Platform .
(i) Each Credit Party agrees that the Administrative Agent may make the Communications (as defined below) available to the Lenders by posting the Communications on Intralinks or a substantially similar electronic transmission system (the Platform ).
(ii) The Platform is provided as is and as available. The Agent Parties (as defined below) do not warrant the adequacy of the Platform and expressly disclaim liability for errors or omissions in the communications effected thereby (the Communications ). No warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with the Communications or the Platform. In no event shall the Administrative Agent or any of its affiliates or any of their respective officers, directors, employees, agents, advisors or representatives (collectively, Agent Parties ) have any liability to the Credit Parties, any Lender or any other Person or entity for damages of any kind, including, without limitation, direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of any Credit Partys or the Administrative Agents transmission of communications through the Platform.
Section 9.3. No Waiver; Cumulative Remedies.
No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
Section 9.4. Survival of Representations and Warranties.
All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the Notes and the making of the Loans; provided that all such representations and warranties shall terminate on the date upon which the Commitments have been terminated and all Obligations have been paid in full.
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Section 9.5. Payment of Expenses and Taxes; Indemnity.
(a) Costs and Expenses . The Credit Parties shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent) in connection with the preparation, due diligence, negotiation, execution, delivery and administration of this Agreement and the other Credit Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the Transactions shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the Revolving Lenders in connection with the issuance, amendment, renewal or extension of any Multicurrency Revolving Loan or any demand for payment thereunder and (iii) all reasonable out-of-pocket expenses incurred by the Swingline Lender in connection with the issuance, amendment, renewal or extension of any Swingline Loan or any demand for payment thereunder. The Borrower shall pay all reasonable out-of-pocket expenses incurred by the Administrative Agent, any Lender, the LC Issuer or the Swingline Lender (including the fees, charges and disbursements of any counsel for the Administrative Agent, any Lender, the LC Issuer and the Swingline Lender) in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Credit Documents, including its rights under this Section, or (B) in connection with the Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans.
(b) Indemnification by the Credit Parties . The Credit Parties shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender, each LC Issuer and the Swingline Lender, and each Related Party of any of the foregoing Persons (each such Person being called an Indemnitee ) against, and hold each Indemnitee harmless from, any and all costs (including settlement costs), losses, claims, penalties, damages, liabilities and related expenses (including the reasonable fees, charges and disbursements of any counsel and the allocated cost for internal counsel for any Indemnitee) incurred by any Indemnitee or asserted against any Indemnitee by any third party or by the Borrower or any other Credit Party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Credit Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the Transactions, (ii) any Loan or the use or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or release of Materials of Environmental Concern on or from any Property owned or operated by any Credit Party or any of its Subsidiaries, or any liability under Environmental Law related in any way to any Credit Party or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Credit Party, and regardless of whether any Indemnitee is a party thereto, IN ALL CASES, WHETHER OR NOT CAUSED BY OR ARISING, IN WHOLE OR IN PART, OUT OF THE COMPARATIVE, CONTRIBUTORY OR SOLE NEGLIGENCE OF THE INDEMNITEE , provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. This paragraph (b) shall not apply with respect to Taxes other than any Taxes that represent losses or damages arising from any non-Tax claim.
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(c) Reimbursement by Lenders . To the extent that the Credit Parties for any reason fail to indefeasibly pay any amount required under paragraph (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub-agent thereof), the Revolving Lenders, the LC Issuer, the Swingline Lender or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), the Revolving Lenders, the LC Issuer, the Swingline Lender or such Related Party, as the case may be, such Lenders Commitment Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent), any Revolving Lender, any LC Issuer, the Swingline Lender in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent), Revolving Lenders, LC Issuer or Swingline Lender in connection with such capacity.
(d) Waiver of Consequential Damages, Etc . To the fullest extent permitted by applicable law, none of the parties hereto shall assert, and each of the parties hereby waives, any claim against any party hereto, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Credit Document or any agreement or instrument contemplated hereby, the Transactions, any Loan or the use of the proceeds thereof. No Indemnitee referred to in paragraph (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Credit Documents or the Transactions.
(e) Payments . All amounts due under this Section shall be payable promptly, and not later than five (5) days after demand therefor.
(f) Survival . The agreements contained in this Section shall survive the resignation of the Administrative Agent, the LC Issuer and the Swingline Lender, the replacement of any Lender, the termination of the Commitments and the repayment, satisfaction or discharge of the Obligations.
Section 9.6. Successors and Assigns; Participations.
(a) Successors and Assigns Generally . The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that neither the Borrower nor any other Credit Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of paragraph (b) of this Section, (ii) by way of participation in accordance with the provisions of paragraph (d) of this Section or (iii) by way of pledge or assignment of a security interest subject to the restrictions of paragraph (f) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in
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paragraph (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) Assignments by Lenders . Any Lender may at any time assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that any such assignment shall be subject to the following conditions:
(i) Minimum Amounts .
(A) in the case of an assignment of the entire remaining amount of the assigning Lenders Commitment and the Loans at the time owing to it or contemporaneous assignments to related Approved Funds that equal at least the amount specified in paragraph (b)(i)(B) or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and
(B) in any case not described in paragraph (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if Trade Date is specified in the Assignment and Assumption, as of the Trade Date) shall not be less than $5,000,000, ( provided , however , that simultaneous assignments shall be aggregated in respect of a Lender and its Approved Funds), unless the Administrative Agent otherwise consents (such consent not to be unreasonably withheld or delayed).
(ii) Proportionate Amounts . Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lenders rights and obligations under this Agreement with respect to the Loan or the Commitment assigned, except that this clause (ii) shall not prohibit any Lender from assigning all or a portion of its rights and obligations among separate Tranches on a non-pro rata basis.
(iii) Required Consents . No consent shall be required for any assignment except to the extent required by paragraph (b)(i)(B) of this Section and, in addition:
(A) the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments in respect of a Revolving Commitment if such assignment is to a Person that is not a Lender with a Commitment in respect of such facility, an Affiliate of such Lender or an Approved Fund with respect to such Lender; and
(B) the consent of each LC Issuer and the Swingline Lender (such consent not to be unreasonably withheld or delayed) shall be required for assignments in respect of a Revolving Commitment.
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(C) The Administrative Agent will provide to the Borrower notice five (5) business days prior to each assignment that occurs hereunder. The Borrower shall have the option, in its sole discretion, to remove any assignee within the first 30 days after such assignment, by paying in full at par all Revolving Loans owed to such assignee Lender, together with accrued and unpaid interest and fees, and terminating such Lenders commitment, and Cash Collateralizing such Lenders pro rata share of all outstanding LC Obligations at such time.
(iv) Assignment and Assumption . The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; provided that (A) only one (1) such fee shall be payable in respect of simultaneous assignments by a Lender and its Approved Funds) and (B) the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment. The assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.
(v) No Assignment to Certain Persons. No such assignment shall be made to (A) any Credit Party or any Credit Partys Affiliates or Subsidiaries or (B) any Defaulting Lender or any of its Subsidiaries or any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (B).
(vi) No Assignment to Natural Persons. No such assignment shall be made to a natural person.
(vii) Certain Additional Payments. In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrower and the Administrative Agent, the applicable pro rata share of Loans previously requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (A) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent or any Lender hereunder (and interest accrued thereon), and (B) acquire (and fund as appropriate) its full pro rata share of all Loans and participations in Swingline Loans and Multicurrency Revolving Loans in accordance with its Applicable Percentage. Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under applicable law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.
Subject to acceptance and recording thereof by the Administrative Agent pursuant to paragraph (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a
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Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lenders rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 2.14 and 9.5 with respect to facts and circumstances occurring prior to the effective date of such assignment. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (d) of this Section.
(c) Register . The Administrative Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at one of its offices in New York, New York a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the Register ). The entries in the Register shall be conclusive absent manifest error, and the Borrower, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice; provided that a Lender shall only be entitled to inspect its own entry in the Register and not that of any other Lender. In addition, the Administrative Agent shall maintain on the Register information regarding the designation and revocation of designation, of any Lender as a Defaulting Lender.
(d) Participations . Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural person or any Credit Party or any Credit Partys Affiliates or Subsidiaries) (each, a Participant ) in all or a portion of such Lenders rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lenders obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent, the Lenders, the LC Issuer and the Swingline Lender shall continue to deal solely and directly with such Lender in connection with such Lenders rights and obligations under this Agreement. For the avoidance of doubt, each Lender shall be responsible for the indemnity under Section 8.7 and 9.5(c) with respect to any payments made by such Lender to its Participant(s).
Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver requiring the approval of 100% of the Lenders. Subject to paragraph (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.13 and 2.15 (subject to the requirements and limitations therein, including the requirements under Section 2.15(f) (it being understood that the documentation required under Section 2.15(f) shall be delivered to the participating Lender)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to
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paragraph (b) of this Section; provided such Participant agrees to be subject to Sections 2.13 and 2.15 as if it were a Lender. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.7 as though it were a Lender, provided such Participant agrees to be subject to Section 2.10 as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participants interest in the Loans or other obligations under the Credit Documents (the Participant Register ) provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of the Participant or any information relating to a Participants interest in any commitments, loans, letters of credit, or its other obligations under any Credit Document) to any Person except to the extent that such disclosure is necessary to establish that such Loans or other obligations are in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary.
(e) Limitations Upon Participant Rights . A Participant shall not be entitled to receive any greater payment under Sections 2.13 and 2.15, with respect to any participation, than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, except to the extent that such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation.
(f) Certain Pledges . Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
Section 9.7. Right of Set-off; Sharing of Payments.
(a) If an Event of Default shall have occurred and be continuing, each Lender, each LC Issuer, the Swingline Lender and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender, the LC Issuer, the Swingline Lender or any such Affiliate to or for the credit or the account of the Borrower or any other Credit Party against any and all of the obligations of the Borrower or such Credit Party now or hereafter existing under this Agreement or any other Credit Document to such Lender, the LC Issuer or the Swingline Lender, irrespective of whether or not such Lender, LC Issuer or the Swingline Lender shall have made any demand under this Agreement or any other Credit Document and although such obligations of the Borrower or such Credit Party may be contingent or unmatured or are owed to a branch or office of such Lender, LC Issuer or the Swingline Lender different from the branch or office holding such deposit or obligated on such Indebtedness; provided that in the event that any Defaulting Lender shall exercise any such right of setoff, (i) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.20
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and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent and the Lenders, and (ii) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff. The rights of each Lender, LC Issuer, the Swingline Lender and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender, LC Issuer, the Swingline Lender or their respective Affiliates may have. Each Lender, LC Issuer and the Swingline Lender agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.
(b) If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans or other obligations hereunder resulting in such Lenders receiving payment of a proportion of the aggregate amount of its Loans and accrued interest thereon or other such obligations greater than its pro rata share thereof as provided herein, then the Lender receiving such greater proportion shall (i) notify the Administrative Agent of such fact, and (ii) purchase (for cash at face value) participations in the Loans and such other obligations of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and other amounts owing them, provided that:
(A) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and
(B) the provisions of this paragraph shall not be construed to apply to (x) any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement (including the application of funds arising from the existence of a Defaulting Lender), (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to any Credit Party or any Subsidiary thereof (as to which the provisions of this paragraph shall apply) or (z) (1) any amounts applied by the Swingline Lender to outstanding Swingline Loans, the Revolving Lenders to outstanding Multicurrency Revolving Loans or the LC Issuer to outstanding Letters of Credit and (2) any amounts received by the Swingline Lender, any LC Issuer or any Revolving Lender to secure the obligations of a Defaulting Lender to fund risk participations hereunder.
(c) Each Credit Party consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against each Credit Party rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of each Credit Party in the amount of such participation.
Section 9.8. Table of Contents and Section Headings.
The table of contents and the Section and subsection headings herein are intended for convenience only and shall be ignored in construing this Agreement.
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Section 9.9. Counterparts; Effectiveness; Electronic Execution.
(a) Counterparts; Effectiveness . This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Except as provided in Section 4.1, this Agreement shall become effective when it shall have been executed by the Borrower, the Guarantors, the Lenders and the Administrative Agent and the Administrative Agent shall have received copies hereof (telefaxed or otherwise), and thereafter this Agreement shall be binding upon and inure to the benefit of the Borrower, the Guarantors, the Administrative Agent and each Lender and their respective successors and permitted assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy or email shall be effective as delivery of a manually executed counterpart of this Agreement.
(b) Electronic Execution of Assignments . The words execution, signed, signature, and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
Section 9.10. Severability.
Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
Section 9.11. Integration.
This Agreement and the other Credit Documents represent the agreement of the Borrower, the other Credit Parties, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent, the Borrower, the other Credit Parties, or any Lender relative to the subject matter hereof not expressly set forth or referred to herein or therein.
Section 9.12. Governing Law.
This Agreement and the other Credit Documents, and any claims, controversy or dispute arising out of or relating to this Agreement or any other Credit Document (in each case except, as to any other Credit Document, as expressly set forth therein), shall be governed by, and construed in accordance with, the laws of the State of New York.
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Section 9.13. Consent to Jurisdiction; Service of Process and Venue.
(a) Consent to Jurisdiction . The Borrower and each other Credit Party irrevocably and unconditionally submits, for itself and its Property, to the exclusive jurisdiction of the courts of the State of New York and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Credit Document, or for recognition or enforcement of any judgment, and each of the parties hereto irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York sitting State court or, to the fullest extent permitted by applicable law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or in any other Credit Document shall affect any right that the Administrative Agent, any Lender, the LC Issuer or the Swingline Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Credit Document against the Borrower or any other Credit Party or its properties in the courts of any jurisdiction.
(b) Service of Process . Each party hereto irrevocably consents to service of process in the manner provided for notices in Section 9.2. Nothing in this Agreement will affect the right of any party hereto to serve process in any other manner permitted by applicable law.
(c) Venue . The Borrower and each other Credit Party irrevocably and unconditionally waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agreement or any other Credit Document in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
Section 9.14. Confidentiality.
Each of the Administrative Agent, the Lenders, the LC Issuer and the Swingline Lender agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates respective partners, directors, officers, employees, agents, advisors and other representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder, under any other Credit Document or Bank Product or any action or proceeding relating to this Agreement, any other Credit Document or Bank Product or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, (g) (i) any actual or prospective party (or its partners, directors, officers, employees, managers, administrators, trustees, agents,
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advisors or other representatives) to any swap or derivative or similar transaction under which payments are to be made by reference to the Borrower and its obligations, this Agreement or payments hereunder, (ii) an investor or prospective investor in securities issued by an Approved Fund that also agrees that Information shall be used solely for the purpose of evaluating an investment in such securities issued by the Approved Fund, (iii) a trustee, collateral manager, servicer, backup servicer, noteholder or secured party in connection with the administration, servicing and reporting on the assets serving as collateral for securities issued by an Approved Fund, or (iv) a nationally recognized rating agency that requires access to information regarding the Credit Parties, the Loans and Credit Documents in connection with ratings issued in respect of securities issued by an Approved Fund (in each case, it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such information and instructed to keep such information confidential), (h) with the consent of the Borrower or (i) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Administrative Agent, any Lender, any LC Issuer, the Swingline Lender or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower.
For purposes of this Section, Information shall mean all information received from any Credit Party or any of its Subsidiaries relating to any Credit Party or any of its Subsidiaries or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Lender, any LC Issuer or the Swingline Lender on a nonconfidential basis prior to disclosure by any Credit Party or any of its Subsidiaries; provided that, in the case of information received from any Credit Party or any of its Subsidiaries after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
Section 9.15. Acknowledgments.
The Borrower and the other Credit Parties each hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and delivery of each Credit Document;
(b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Borrower or any other Credit Party arising out of or in connection with this Agreement and the relationship between the Administrative Agent and the Lenders, on one hand, and the Borrower and the other Credit Parties, on the other hand, in connection herewith is solely that of creditor and debtor; and
(c) no joint venture exists among the Lenders and the Administrative Agent or among the Borrower, the Administrative Agent or the other Credit Parties and the Lenders.
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Section 9.16. Waivers of Jury Trial; Waiver of Consequential Damages.
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
Section 9.17. Patriot Act Notice.
Each Lender and the Administrative Agent (for itself and not on behalf of any other party) hereby notifies the Borrower that, pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record information that identifies the Borrower and the other Credit Parties, which information includes the name and address of the Borrower and the other Credit Parties and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrower and the other Credit Parties in accordance with the Patriot Act.
Section 9.18. Resolution of Drafting Ambiguities.
Each Credit Party acknowledges and agrees that it was represented by counsel in connection with the execution and delivery of this Agreement and the other Credit Documents to which it is a party, that it and its counsel reviewed and participated in the preparation and negotiation hereof and thereof and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not be employed in the interpretation hereof or thereof.
Section 9.19. Subordination of Intercompany Debt.
Each Credit Party agrees that all intercompany Indebtedness among Credit Parties (the Intercompany Debt ) is subordinated in right of payment, to the prior payment in full of all Obligations. Notwithstanding any provision of this Credit Agreement to the contrary, provided that no Event of Default has occurred and is continuing, Credit Parties may make and receive payments with respect to the Intercompany Debt to the extent otherwise permitted by this Credit Agreement; provided that in the event of and during the continuation of any Event of Default, no payment shall be made by or on behalf of any Credit Party on account of any Intercompany Debt without the prior written consent of the Administrative Agent. In the event that any Credit Party receives any payment of any Intercompany Debt at a time when such payment is prohibited by this Section, such payment shall be held by such Credit Party, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the Administrative Agent.
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Section 9.20. Continuing Agreement.
This Credit Agreement shall be a continuing agreement and shall remain in full force and effect until all Obligations (other than those obligations that expressly survive the termination of this Credit Agreement) have been paid in full and all Commitments have been terminated. Upon termination, the Credit Parties shall have no further obligations (other than those obligations that expressly survive the termination of this Credit Agreement) under the Credit Documents; provided that should any payment, in whole or in part, of the Obligations be rescinded or otherwise required to be restored or returned by the Administrative Agent or any Lender, whether as a result of any proceedings in bankruptcy or reorganization or otherwise, then the Credit Documents shall automatically be reinstated and all amounts required to be restored or returned and all costs and expenses incurred by the Administrative Agent or any Lender in connection therewith shall be deemed included as part of the Obligations.
Section 9.21. Reserved.
Section 9.22. Press Releases and Related Matters.
The Credit Parties and their Affiliates agree that they will not in the future issue any press releases or other public disclosure using the name of Administrative Agent or any Lender or their respective Affiliates or referring to this Agreement or any of the Credit Documents without the prior written consent of such Person, unless (and only to the extent that) the Credit Parties or such Affiliate is required to do so, or deems it reasonably necessary or appropriate to do so, under law and then, in any event, the Credit Parties or such Affiliate will consult with such Person before issuing such press release or other public disclosure. The Credit Parties consent to the publication by Administrative Agent or any Lender of customary advertising material relating to the Transactions using the name, product photographs, logo or trademark of the Credit Parties. Notwithstanding the foregoing, nothing contained in this Section 9.22 shall limit or restrict the right of the Borrower or any other Credit Party to make any public disclosure or name the Administrative Agent or any Lender or any of their respective Affiliates as may be required under the Exchange Act, in each case without any notice to or consultation with the Administrative Agent or any Lender.
Section 9.23. Appointment of Borrower.
Each of the Guarantors hereby appoints the Borrower to act as its agent for all purposes under this Agreement and agrees that (a) the Borrower may execute such documents on behalf of such Guarantor as the Borrower deems appropriate in its sole discretion and each Guarantor shall be obligated by all of the terms of any such document executed on its behalf, (b) any notice or communication delivered by the Administrative Agent or the Lender to the Borrower shall be deemed delivered to each Guarantor and (c) the Administrative Agent or the Lenders may accept, and be permitted to rely on, any document, instrument or agreement executed by the Borrower on behalf of each Guarantor.
Section 9.24. No Advisory or Fiduciary Responsibility.
In connection with all aspects of each Transaction, each of the Credit Parties acknowledges and agrees, and acknowledges its Affiliates understanding, that: (a) the credit facility provided for hereunder and any related arranging or other services in connection
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therewith (including in connection with any amendment, waiver or other modification hereof or of any other Credit Document) are an arms-length commercial transaction between the Credit Parties and their Affiliates, on the one hand, and the Administrative Agent and the Lenders, on the other hand, and the Credit Parties are capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the Transactions and by the other Credit Documents (including any amendment, waiver or other modification hereof or thereof); (b) in connection with the process leading to such transaction, the Administrative Agent and each Lender each is and has been acting solely as a principal and is not the financial advisor, agent or fiduciary, for any Credit Party or any of their Affiliates, stockholders, creditors or employees or any other Person; (c) neither the Administrative Agent nor any Lender has assumed or will assume an advisory, agency or fiduciary responsibility in favor of any Credit Party with respect to any of the Transactions or the process leading thereto, including with respect to any amendment, waiver or other modification hereof or of any other Credit Document (irrespective of whether the Administrative Agent or any Lender has advised or is currently advising any Credit Party or any of its Affiliates on other matters) and neither the Administrative Agent nor any Lender has any obligation to any Credit Party or any of their Affiliates with respect to the Transactions except those obligations expressly set forth herein and in the other Credit Documents; (d) the Administrative Agent and the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Credit Parties and their Affiliates, and neither the Administrative Agent nor any Lender has any obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship; and (e) the Administrative Agent and the Lenders have not provided and will not provide any legal, accounting, regulatory or tax advice with respect to any of the Transactions (including any amendment, waiver or other modification hereof or of any other Credit Document) and the Credit Parties have consulted their own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate. Each of the Credit Parties hereby waives and releases, to the fullest extent permitted by law, any claims that it may have against the Administrative Agent or any Lender with respect to any breach or alleged breach of agency or fiduciary duty.
Section 9.25. Responsible Officers and Authorized Officers.
The Administrative Agent and each of the Lenders are authorized to rely upon the continuing authority of the Responsible Officers with respect to all matters pertaining to the Credit Documents including, but not limited to, the selection of interest rates, the submission of requests for Extensions of Credit and certificates with regard thereto. Such authorization may be changed only upon written notice to Administrative Agent accompanied by evidence, reasonably satisfactory to Administrative Agent, of the authority of the Person giving such notice.
Section 9.26. Entire Agreement.
THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES PERTAINING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
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ARTICLE X
GUARANTY
Section 10.1. The Guaranty.
In order to induce the Lenders to enter into this Agreement and any Bank Product Provider to enter into any Bank Product and to extend credit hereunder and thereunder and in recognition of the direct benefits to be received by the Guarantors from the Extensions of Credit hereunder and any Bank Product, each of the Guarantors hereby agrees with the Administrative Agent, the Lenders and the Bank Product Provider as follows: each Guarantor hereby unconditionally and irrevocably jointly and severally guarantees as primary obligor and not merely as surety the full and prompt payment when due, whether upon maturity, by acceleration or otherwise, of any and all Obligations. If any or all of the Obligations becomes due and payable hereunder or under any Bank Product, each Guarantor unconditionally promises to pay such Obligations to the Administrative Agent, the Lenders, the Bank Product Providers, or their respective order, on demand, together with any and all reasonable expenses which may be incurred by the Administrative Agent or the Lenders in collecting any of the Obligations. The Guaranty set forth in this Article X is a guaranty of timely payment and not of collection.
Notwithstanding any provision to the contrary contained herein or in any other of the Credit Documents, to the extent the obligations of a Guarantor shall be adjudicated to be invalid or unenforceable for any reason (including, without limitation, because of any applicable state or federal law relating to fraudulent conveyances or transfers) then the obligations of each such Guarantor hereunder shall be limited to the maximum amount that is permissible under applicable law (whether federal or state and including, without limitation, the Bankruptcy Code).
Section 10.2. Bankruptcy.
Additionally, each of the Guarantors unconditionally and irrevocably guarantees jointly and severally the payment of any and all Obligations of the Borrower to the Lenders and any Bank Product Provider whether or not due or payable by the Borrower upon the occurrence of any Bankruptcy Event and unconditionally promises to pay such Obligations to the Administrative Agent for the account of the Lenders and to any such Bank Product Provider, or order, on demand, in lawful money of the United States. Each of the Guarantors further agrees that to the extent that the Borrower or a Guarantor shall make a payment or a transfer of an interest in any Property to the Administrative Agent, any Lender or any Bank Product Provider, which payment or transfer or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, or otherwise is avoided, and/or required to be repaid to the Borrower or a Guarantor, the estate of the Borrower or a Guarantor, a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such avoidance or repayment, the obligation or part thereof intended to be satisfied shall be revived and continued in full force and effect as if said payment had not been made.
Section 10.3. Nature of Liability.
The liability of each Guarantor hereunder is exclusive and independent of any other guaranty of the Obligations of the Borrower whether executed by any such Guarantor, any other
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guarantor or by any other party, and no Guarantors liability hereunder shall be affected or impaired by (a) any direction as to application of payment by the Borrower or by any other party, or (b) any other continuing or other guaranty, undertaking or maximum liability of a guarantor or of any other party as to the Obligations of the Borrower, or (c) any payment on or in reduction of any such other guaranty or undertaking, or (d) any dissolution, termination or increase, decrease or change in personnel by the Borrower, or (e) any payment made to the Administrative Agent, the Lenders or any Bank Product Provider on the Obligations which the Administrative Agent, such Lenders or such Bank Product Provider repay the Borrower pursuant to court order in any bankruptcy, reorganization, arrangement, moratorium or other debtor relief proceeding, and each of the Guarantors waives any right to the deferral or modification of its obligations hereunder by reason of any such proceeding.
Section 10.4. Independent Obligation.
The obligations of each Guarantor hereunder are independent of the obligations of any other Guarantor or the Borrower, and a separate action or actions may be brought and prosecuted against each Guarantor whether or not action is brought against any other Guarantor or the Borrower and whether or not any other Guarantor or the Borrower is joined in any such action or actions.
Section 10.5. Authorization.
Each of the Guarantors authorizes the Administrative Agent, each Lender and each Bank Product Provider without notice or demand (except as shall be required by applicable statute and cannot be waived), and without affecting or impairing its liability hereunder, from time to time to (a) renew, compromise, extend, increase, accelerate or otherwise change the time for payment of, or otherwise change the terms of the Obligations or any part thereof in accordance with this Agreement and any Bank Product, as applicable, including any increase or decrease of the rate of interest thereon and (b) release or substitute any one or more endorsers, Guarantors, the Borrower or other obligors.
Section 10.6. Reliance.
It is not necessary for the Administrative Agent, the Lenders or any Bank Product Provider to inquire into the capacity or powers of the Borrower or the officers, directors, members, partners or agents acting or purporting to act on its behalf, and any Obligations made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder.
Section 10.7. Waiver.
(a) Each of the Guarantors waives any right (except as shall be required by applicable statute and cannot be waived) to require the Administrative Agent, any Lender or any Bank Product Provider to (i) proceed against the Borrower, any other guarantor or any other party or (ii) pursue any other remedy of the Administrative Agent, any Lender or any Bank Product Provider. Each of the Guarantors waives any defense based on or arising out of any defense of the Borrower, any other guarantor or any other party other than payment in full of all Obligations outstanding (other than contingent indemnification obligations for which no claim has been made or cannot be reasonably identified by an Indemnitee based on the then-known facts and
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circumstances), including, without limitation, any defense based on or arising out of the disability of the Borrower, any other guarantor or any other party, or the unenforceability of the Obligations or any part thereof from any cause, or the cessation from any cause of the liability of the Borrower other than payment in full of all Obligations outstanding (other than contingent indemnification obligations). The Administrative Agent may, at its election, exercise any right or remedy the Administrative Agent or any Lender may have against the Borrower or any other party without affecting or impairing in any way the liability of any Guarantor hereunder except to the extent the Obligations have been paid in full (other than contingent indemnification obligations) and the Commitments have been terminated. Each of the Guarantors waives any defense arising out of any such election by the Administrative Agent or any of the Lenders, even though such election operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of the Guarantors against the Borrower or any other party.
(b) Each of the Guarantors waives all presentments, demands for performance, protests and notices, including, without limitation, notices of nonperformance, notice of protest, notices of dishonor, notices of acceptance of this Guaranty, and notices of the existence, creation or incurring of new or additional Obligations. Each Guarantor assumes all responsibility for being and keeping itself informed of the Borrowers financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Obligations and the nature, scope and extent of the risks which such Guarantor assumes and incurs hereunder, and agrees that neither the Administrative Agent nor any Lender shall have any duty to advise such Guarantor of information known to it regarding such circumstances or risks.
(c) Each of the Guarantors hereby agrees it will not exercise any rights of subrogation which it may at any time otherwise have as a result of this Guaranty (whether contractual, under Section 509 of the U.S. Bankruptcy Code, or otherwise) to the claims of the Lenders or any Bank Product Provider against the Borrower or any other guarantor of the Obligations of the Borrower owing to the Lenders or such Bank Product Provider (collectively, the Other Parties ) and all contractual, statutory or common law rights of reimbursement, contribution or indemnity from any Other Party which it may at any time otherwise have as a result of this Guaranty until such time as the Obligations shall have been paid in full and the Commitments have been terminated. Each of the Guarantors hereby further agrees not to exercise any right to enforce any other remedy which the Administrative Agent, the Lenders or any Bank Product Provider now have or may hereafter have against any Other Party, any endorser or any other guarantor of all or any part of the Obligations of the Borrower until such time as the Obligations (other than contingent indemnification obligations for which no claim has been made or cannot be reasonably identified by an Indemnitee based on the then-known facts and circumstances) shall have been paid in full and the Commitments have been terminated.
Section 10.8. Limitation on Enforcement.
The Lenders and the Bank Product Providers agree that this Guaranty may be enforced only by the action of the Administrative Agent acting upon the instructions of the Required Lenders or such Bank Product Provider (only with respect to obligations under the applicable Bank Product) and that no Lender or Bank Product Provider shall have any right individually to seek to enforce or to enforce this Guaranty, it being understood and agreed that such rights and remedies may be exercised by the Administrative Agent for the benefit of the Lenders under the terms of this Agreement and for the benefit of any Bank Product Provider under any Bank Product.
125
Section 10.9. Confirmation of Payment.
The Administrative Agent and the Lenders will, upon request after payment of the Obligations which are the subject of this Guaranty and termination of the Commitments relating thereto, confirm to the Borrower, the Guarantors or any other Person that such Indebtedness and obligations have been paid and the Commitments relating thereto terminated, subject to the provisions of Section 10.2.
Section 10.10. Eligible Contract Participant.
Notwithstanding anything to the contrary in any Credit Document, no Guarantor shall be deemed under this Article X to be a guarantor of any Swap Obligations if such Guarantor was not an eligible contract participant as defined in § 1a(18) of the Commodity Exchange Act, at the time the guarantee under this Article X becomes effective with respect to such Swap Obligation and to the extent that the providing of such guarantee by such Guarantor would violate the Commodity Exchange Act; provided however that in determining whether any Guarantor is an eligible contract participant under the Commodity Exchange Act, the guarantee of the Credit Party Obligations of such Guarantor under this Article X by a Guarantor that is also a Qualified ECP Guarantor shall be taken into account.
Section 10.11. Keepwell.
Without limiting anything in this Article X, each Qualified ECP Guarantor hereby jointly and severally absolutely, unconditionally and irrevocably undertakes to provide such funds or other support as may be needed from time to time to each Guarantor that is not an eligible contract participant under the Commodity Exchange Act at the time the guarantee under this Article X becomes effective with respect to any Swap Obligation, to honor all of the Obligations of such Guarantor under this Article X in respect of such Swap Obligations (provided, however, that each Qualified ECP Guarantor shall only be liable under this Section 10.11 for the maximum amount of such liability that can be hereby incurred without rendering its undertaking under this Section 10.11, or otherwise under this Article X, voidable under applicable Law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount). The undertaking of each Qualified ECP Guarantor under this Section 10.11 shall remain in full force and effect until termination of the Commitments and payment in full of all Loans and other Credit Party Obligations. Each Qualified ECP Guarantor intends that this Section 10.11 constitute, and this Section 10.11 shall be deemed to constitute, a keepwell, support, or other agreement for the benefit of each Guarantor that would otherwise not constitute an eligible contract participant under the Commodity Exchange Act.
[Signature Pages Follow]
126
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by its proper and duly authorized officers as of the day and year first above written.
BORROWER: | ENOVA INTERNATIONAL, INC. | |||||||||
By: |
/s/ David A. Fisher |
|||||||||
Name: | David A. Fisher | |||||||||
Title: | Chief Executive Officer and President | |||||||||
GUARANTORS: | ENOVA ONLINE SERVICES, INC. | |||||||||
CNU DOLLARSDIRECT INC. | ||||||||||
CNU DOLLARSDIRECT LENDING INC. | ||||||||||
MOBILE LEASING GROUP, INC. | ||||||||||
By: |
/s/ David A. Fisher |
|||||||||
Name: | David A. Fisher | |||||||||
Title: | President | |||||||||
ENOVA FINANCIAL HOLDINGS, LLC | ||||||||||
CNU ONLINE HOLDINGS, LLC | ||||||||||
DEBIT PLUS, LLC | ||||||||||
BILLERS ACCEPTANCE GROUP, LLC | ||||||||||
By: |
/s/ David A. Fisher |
|||||||||
Name: | David A. Fisher | |||||||||
Title: | President | |||||||||
DP LABOR HOLDINGS, LLC | ||||||||||
By: |
/s/ Austin D. Nettle |
|||||||||
Name: | Austin D. Nettle | |||||||||
Title: | Vice President and Treasurer |
CNU OF ALABAMA, LLC | ||||||||||
CNU OF ALASKA, LLC | ||||||||||
CNU OF ARIZONA, LLC | ||||||||||
CNU OF CALIFORNIA, LLC | ||||||||||
CNU OF COLORADO, LLC | ||||||||||
CNU OF DELAWARE, LLC | ||||||||||
CNU OF FLORIDA, LLC | ||||||||||
CASHNETUSA OF FLORIDA, LLC | ||||||||||
CNU OF HAWAII, LLC | ||||||||||
CNU OF IDAHO, LLC | ||||||||||
CNU OF ILLINOIS, LLC | ||||||||||
CNU OF INDIANA, LLC | ||||||||||
CNU OF KANSAS, LLC | ||||||||||
CNU OF LOUISIANA, LLC | ||||||||||
CNU OF MAINE, LLC | ||||||||||
CASHNET CSO OF MARYLAND, LLC | ||||||||||
CNU OF MICHIGAN, LLC | ||||||||||
CNU OF MINNESOTA, LLC | ||||||||||
CNU OF MISSISSIPPI, LLC | ||||||||||
CNU OF MISSOURI, LLC | ||||||||||
CNU OF MONTANA, LLC | ||||||||||
CNU OF NEVADA, LLC | ||||||||||
CNU OF NEW HAMPSHIRE, LLC | ||||||||||
CNU OF NEW MEXICO, LLC | ||||||||||
By: | CNU Online Holdings, LLC, | |||||||||
The sole member of each of the foregoing entities | ||||||||||
By: |
/s/ David A. Fisher |
|||||||||
Name: | David A. Fisher | |||||||||
Title: | President |
2
CNU OF NORTH DAKOTA, LLC | ||||||||||
CNU OF OHIO, LLC | ||||||||||
OHIO CONSUMER FINANCIAL SOLUTIONS, LLC | ||||||||||
CNU OF OKLAHOMA, LLC | ||||||||||
CNU OF OREGON, LLC | ||||||||||
CNU OF RHODE ISLAND, LLC | ||||||||||
CNU OF SOUTH CAROLINA, LLC | ||||||||||
CNU OF SOUTH DAKOTA, LLC | ||||||||||
CNU OF TENNESSEE, LLC | ||||||||||
CNU OF TEXAS, LLC | ||||||||||
CNU OF UTAH, LLC | ||||||||||
CNU OF VIRGINIA, LLC | ||||||||||
CNU OF WASHINGTON, LLC | ||||||||||
CNU OF WISCONSIN, LLC | ||||||||||
CNU OF WYOMING, LLC | ||||||||||
DOLLARSDIRECT, LLC | ||||||||||
CNU TECHNOLOGIES OF ALABAMA, LLC | ||||||||||
CNU TECHNOLOGIES OF ARIZONA, LLC | ||||||||||
CNU TECHNOLOGIES OF CALIFORNIA, LLC | ||||||||||
CNU TECHNOLOGIES OF IOWA, LLC | ||||||||||
CNU TECHNOLOGIES OF NEW MEXICO, LLC | ||||||||||
CNU TECHNOLOGIES OF SOUTH CAROLINA, LLC | ||||||||||
CNU TECHNOLOGIES OF WISCONSIN, LLC | ||||||||||
HEADWAY CAPITAL, LLC | ||||||||||
CASHEURONET UK, LLC | ||||||||||
EURONETCASH, LLC | ||||||||||
ENOVA BRAZIL, LLC | ||||||||||
AEL NET MARKETING, LLC | ||||||||||
ENOVA INTERNATIONAL GEC, LLC | ||||||||||
AEL NET OF MISSOURI, LLC | ||||||||||
NC FINANCIAL SOLUTIONS, LLC | ||||||||||
By: | CNU Online Holdings, LLC, | |||||||||
The sole member of each of the foregoing entities | ||||||||||
By: |
/s/ David A. Fisher |
|||||||||
Name: | David A. Fisher | |||||||||
Title: | President |
3
NC FINANCIAL SOLUTIONS OF ALABAMA, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF ARIZONA, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF CALIFORNIA, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF COLORADO, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF DELAWARE, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF GEORGIA, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF IDAHO, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF ILLINOIS, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF KANSAS, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF MARYLAND, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF MISSISSIPPI, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF MISSOURI, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF NEVADA, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF NEW MEXICO, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF NORTH DAKOTA, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF OHIO, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF SOUTH CAROLINA, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF SOUTH DAKOTA, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF TENNESSEE, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF TEXAS, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF UTAH, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF VIRGINIA, LLC | ||||||||||
NC FINANCIAL SOLUTIONS OF WISCONSIN, LLC | ||||||||||
By: | NC Financial Solutions, LLC | |||||||||
The sole member of each of the foregoing entities | ||||||||||
By: |
/s/ David A. Fisher |
|||||||||
Name: | David A. Fisher | |||||||||
Title: | Manager of Sole Member | |||||||||
DEBIT PLUS TECHNOLOGIES, LLC | ||||||||||
DEBIT PLUS SERVICES, LLC | ||||||||||
DEBIT PLUS PAYMENT SOLUTIONS, LLC | ||||||||||
By: | Debit Plus, LLC, | |||||||||
The sole member of each of the foregoing entities | ||||||||||
By: |
/s/ David A. Fisher |
|||||||||
Name: | David A. Fisher | |||||||||
Title: | President |
4
CASHNETUSA CO LLC | ||||||||||
CASHNETUSA OR LLC | ||||||||||
THE CHECK GIANT NM LLC | ||||||||||
By: | CNU of New Mexico, LLC, | |||||||||
Manager of each of the foregoing entities | ||||||||||
By: | CNU Online Holdings, LLC | |||||||||
Its sole member | ||||||||||
By: |
/s/ David A. Fisher |
|||||||||
Name: | David A. Fisher | |||||||||
Title: | Manager of Sole Member |
5
ADMINISTRATIVE AGENT:
JEFFERIES FINANCE LLC, as
Administrative Agent on behalf of the Lenders |
||||||
By: |
/s/ Brian Buoye |
|||||
Name: | Brian Buoye | |||||
Title: | Managing Director |
6
LENDERS:
Jefferies Group LLC, as a Lender | ||||||
By: |
/s/ Mark Sahler |
|||||
Name: | Mark Sahler | |||||
Title: | Managing Director |
Schedule 1.1
SUBSIDIARIES GROUPS
ENTITY NAME |
STATE | |
AEL NET MARKETING, LLC |
DE | |
AEL NET OF MISSOURI, LLC |
DE | |
BILLERS ACCEPTANCE GROUP, LLC |
DE | |
CASHEURONET UK, LLC |
DE | |
CASHNET CSO OF MARYLAND, LLC |
DE | |
CASHNETUSA CO LLC |
DE | |
CASHNETUSA OF FLORIDA, LLC |
DE | |
CASHNETUSA OR LLC |
DE | |
CNU DOLLARSDIRECT INC. |
DE | |
CNU DOLLARSDIRECT LENDING, INC. |
DE | |
CNU OF ALABAMA, LLC |
DE | |
CNU OF ALASKA, LLC |
DE | |
CNU OF ARIZONA, LLC |
DE | |
CNU OF CALIFORNIA, LLC |
DE | |
CNU OF COLORADO, LLC |
DE | |
CNU OF DELAWARE, LLC |
DE | |
CNU OF FLORIDA, LLC |
DE | |
CNU OF HAWAII, LLC |
DE | |
CNU OF IDAHO, LLC |
DE | |
CNU OF ILLINOIS, LLC |
DE | |
CNU OF INDIANA, LLC |
DE | |
CNU OF KANSAS, LLC |
DE | |
CNU OF LOUISIANA, LLC |
DE | |
CNU OF MAINE, LLC |
DE | |
CNU OF MICHIGAN, LLC |
DE | |
CNU OF MINNESOTA, LLC |
DE | |
CNU OF MISSISSIPPI, LLC |
DE | |
CNU OF MISSOURI, LLC |
DE | |
CNU OF MONTANA, LLC |
DE | |
CNU OF NEVADA, LLC |
DE | |
CNU OF NEW HAMPSHIRE, LLC |
DE | |
CNU OF NEW MEXICO, LLC |
DE | |
CNU OF NORTH DAKOTA, LLC |
DE | |
CNU OF OHIO, LLC |
DE | |
CNU OF OKLAHOMA, LLC |
DE | |
CNU OF OREGON, LLC |
DE | |
CNU OF RHODE ISLAND, LLC |
DE | |
CNU OF SOUTH CAROLINA, LLC |
DE |
1
ENTITY NAME |
STATE | |
CNU OF SOUTH DAKOTA, LLC |
DE | |
CNU OF TENNESSEE, LLC |
DE | |
CNU OF TEXAS, LLC |
DE | |
CNU OF UTAH, LLC |
DE | |
CNU OF VIRGINIA, LLC |
DE | |
CNU OF WASHINGTON, LLC |
DE | |
CNU OF WISCONSIN, LLC |
DE | |
CNU OF WYOMING, LLC |
DE | |
CNU ONLINE HOLDINGS, LLC |
DE | |
CNU TECHNOLOGIES OF ALABAMA, LLC |
DE | |
CNU TECHNOLOGIES OF ARIZONA, LLC |
DE | |
CNU TECHNOLOGIES OF CALIFORNIA, LLC |
DE | |
CNU TECHNOLOGIES OF IOWA, LLC |
DE | |
CNU TECHNOLOGIES OF NEW MEXICO, LLC |
DE | |
CNU TECHNOLOGIES OF SOUTH CAROLINA, LLC |
DE | |
CNU TECHNOLOGIES OF WISCONSIN, LLC |
DE | |
DEBIT PLUS PAYMENT SOLUTIONS, LLC |
DE | |
DEBIT PLUS SERVICES, LLC |
DE | |
DEBIT PLUS TECHNOLOGIES, LLC |
DE | |
DEBIT PLUS, LLC |
DE | |
DOLLARSDIRECT, LLC |
DE | |
ENOVA BRAZIL, LLC |
DE | |
ENOVA FINANCIAL HOLDINGS, LLC |
DE | |
ENOVA INTERNATIONAL GEC, LLC |
DE | |
ENOVA INTERNATIONAL, INC. |
DE | |
ENOVA ONLINE SERVICES, INC. |
DE | |
EURONETCASH, LLC |
DE | |
HEADWAY CAPITAL, LLC |
DE | |
MOBILE LEASING GROUP, INC. |
DE | |
NC FINANCIAL SOLUTIONS OF ALABAMA, LLC |
DE | |
NC FINANCIAL SOLUTIONS OF ARIZONA, LLC |
DE | |
NC FINANCIAL SOLUTIONS OF CALIFORNIA, LLC |
DE | |
NC FINANCIAL SOLUTIONS OF COLORADO, LLC |
DE | |
NC FINANCIAL SOLUTIONS OF DELAWARE, LLC |
DE | |
NC FINANCIAL SOLUTIONS OF GEORGIA, LLC |
DE | |
NC FINANCIAL SOLUTIONS OF IDAHO, LLC |
DE | |
NC FINANCIAL SOLUTIONS OF ILLINOIS, LLC |
DE | |
NC FINANCIAL SOLUTIONS OF KANSAS, LLC |
DE | |
NC FINANCIAL SOLUTIONS OF MARYLAND, LLC |
DE | |
NC FINANCIAL SOLUTIONS OF MISSISSIPPI, LLC |
DE |
2
ENTITY NAME |
STATE | |
NC FINANCIAL SOLUTIONS OF MISSOURI, LLC |
DE | |
NC FINANCIAL SOLUTIONS OF NEVADA, LLC |
DE | |
NC FINANCIAL SOLUTIONS OF NEW MEXICO, LLC |
DE | |
NC FINANCIAL SOLUTIONS OF NORTH DAKOTA, LLC |
DE | |
NC FINANCIAL SOLUTIONS OF OHIO, LLC |
DE | |
NC FINANCIAL SOLUTIONS OF SOUTH CAROLINA, LLC |
DE | |
NC FINANCIAL SOLUTIONS OF SOUTH DAKOTA, LLC |
DE | |
NC FINANCIAL SOLUTIONS OF TENNESSEE, LLC |
DE | |
NC FINANCIAL SOLUTIONS OF TEXAS, LLC |
DE | |
NC FINANCIAL SOLUTIONS OF UTAH, LLC |
DE | |
NC FINANCIAL SOLUTIONS OF VIRGINIA, LLC |
DE | |
NC FINANCIAL SOLUTIONS OF WISCONSIN, LLC |
DE | |
NC FINANCIAL SOLUTIONS, LLC |
DE | |
OHIO CONSUMER FINANCIAL SOLUTIONS, LLC |
DE | |
THE CHECK GIANT NM, LLC |
DE |
3
Schedule 2.1 (a) Commitments
Revolving Lender |
Revolving Commitment Percentage | |||
Jefferies Group LLC |
100 | % |
4
Schedule 3.1 (d) Compliance with Laws
References to the Company, Enova, we, us, and our mean Enova International, Inc. and its subsidiaries except where the context otherwise requires or as indicated.
Financial Conduct Authority and Other Regulation
In the United Kingdom, we are subject to regulation by the Financial Conduct Authority, or the FCA, the Financial Services and Markets Act 2000, or the FSMA, the European Union Consumer Credit Directive, the Consumer Credit Act 1974, as amended, or the CCA, and secondary legislation passed under it, among other rules and regulations. In December 2012, the U.K. Parliament passed the Financial Services Act 2012, or the FSA Act 2012, which created a new regulatory framework for the supervision and regulation of the banking and financial services industry in the United Kingdom, including the consumer lending industry in which we operate. The FSA Act 2012 mandated that, in April 2014, the FCA take over responsibility for regulating consumer credit from the Office of Fair Trading, or the OFT, and it also made changes to the relevant legislation including the CCA and the FSMA. During the period of transition of regulatory responsibility over consumer credit from the OFT to the FCA, the OFT continued to fully and rigorously regulate consumer credit, including the short-term loan market.
The FCA regulates consumer credit and related activities pursuant to the FSMA and the FCA Handbook, which includes prescriptive rules and regulations and carries across many of the standards set out in the CCA and its secondary legislation as well as the OFTs previous Irresponsible Lending Guidance, or the Guidance. The regulations under the FCA consumer credit regime are more prescriptive than the former U.K. consumer credit regime and impose more stringent requirements relating to what a lender may and may not do with a specific product, which is generally similar to the approach of U.S. law. The FSMA gives the FCA the power to authorize, supervise, and bring enforcement actions against providers of consumer credit, as well as to make rules for the regulation of consumer credit. On February 28, 2014, the FCA issued the Consumer Credit Sourcebook, or the CONC, contained in the FCA Handbook. The CONC incorporates prescriptive regulations for consumer loans such as those that we offer, including mandatory affordability checks on borrowers, limiting the number of rollovers to two, restricting how lenders can advertise, banning advertisements it deems misleading, and introducing a limit of two unsuccessful attempts on the use of continuous payment authority (which provides a creditor the ability to directly debit a customers account for payment when authorized by the customer to do so) to pay off a loan. Certain provisions of the CONC took effect on April 1, 2014, and other provisions for high-cost short-term credit providers, such as the limits on rollovers, continuous payment authority and advertising, take effect on July 1, 2014.
Authorization to Provide Consumer Credit Under the FCA
We have obtained interim permission from the FCA to provide consumer credit and perform related activities. We are required to apply for and obtain full authorization from the FCA to continue to provide consumer credit. In order to obtain full authorization, we will be required to demonstrate that we satisfy, and continue to satisfy, certain minimum standards set out in the FSMA, including certain specified threshold conditions and this may result in additional costs to us that could be significant. As a threshold condition to obtaining and retaining full authorization, the FCA must be satisfied that we can be effectively supervised, by the FCA as this term is defined in the FSMA. The FCA has informed us that it has concerns that we cannot presently be effectively supervised given our location outside the United Kingdom. On that basis, the FCA has informed us that it is concerned that we do not meet the relevant threshold condition relating to effective supervision. We currently do not have a physical presence in the United Kingdom, as business functions are performed remotely from our facilities in the United States. In order to alleviate these concerns in relation to our ability to presently demonstrate to the FCA that we are capable of being effectively supervised, we intend to establish an office in the United Kingdom. Additionally, the FCA has the power to revoke our interim permission to conduct consumer credit business if we do not meet the threshold conditions. Furthermore, the FCA must approve certain individuals conducting controlled functions with respect to
5
the operation and supervision of our U.K. business. There can be no assurance that the FCA will grant such approval, and the FCA could elect to impose additional conditions which could delay the authorization process or increase our compliance costs.
We will begin the official application process for full authorization in late 2014 and early 2015. The FCA is expected to complete the process of reviewing applications of previous OFT license holders for full authorization by April 1, 2016, and there is no guarantee that we will receive full authorization. If we do not receive full authorization, we will have to cease our U.K. consumer loan business.
OFT and FCA Communications
In February 2012, the OFT launched a review of the payday lending sector to assess the sectors compliance with the CCA, the Guidance, and other relevant guidance and legal obligations. As part of this review, the OFT conducted examinations of a number of U.K. payday lenders, including us, to assess individual company compliance with these laws and guidance. In May 2013, the OFT sent us a letter of findings related to its examination of our U.K. short term consumer loan (or payday) business, which indicated that we may not be complying fully with all aspects of the Guidance, the CCA and other relevant laws and guidance. This letter indicated the OFTs general and specific concerns in the following categories: advertising and marketing, pre-contract information and explanations, affordability assessments, rollovers, including deferred refinance and extended loans, debt forbearance and debt collection, and regulatory and other compliance issues. As requested by the OFT, in July 2013, we provided the OFT with an independent audit report setting out the steps taken to comply with each concern the OFT had identified in its letter. Through March 2014, we continued to receive additional requests for data and documentation from the OFT, and we complied with those requests.
The FCA has now assumed the examination and regulation of us, and we continue to receive additional requests for data and documentation from the FCA about our consumer loan products and have been complying with those requests. The FCA informed us that it has concerns regarding our compliance with the FCAs enhanced rules and principles, including those with respect to our affordability assessment process in determining whether the loans we make are affordable for our customers and our debt forbearance practices (or our practices regarding customers who have indicated they are experiencing financial difficulty). The FCA also noted concerns regarding certain of our advertising practices. The FCA has indicated that it is closely monitoring our efforts to comply with its rules and regulations and has requested that we respond to these concerns. We are communicating with the FCA and have provided additional information regarding these matters, including discussing how we plan to comply with the specific requirements of our new regulator and how we will meet the threshold conditions, but we have not yet resolved the FCAs concerns. We have made and will continue to make significant changes to our business practices to address the concerns of the FCA and to address the FCAs newly adopted requirements set out in the CONC and other applicable legislation and regulation. For example, we expect to establish an office in the United Kingdom to help alleviate the FCAs concerns about effective supervision, and we will be required to obtain FCA approval of certain individuals performing controlled functions, as defined by applicable regulation. Additionally, the FCA has asked us to satisfactorily address its concerns by making changes to our business model, policies and procedures. Any inability to make changes to the satisfaction of the FCA could also have an adverse impact on our existing interim authorization from the FCA to continue to provide consumer credit and on our ability to obtain full authorization from the FCA. We can provide no assurance as to whether we will be able to successfully resolve the concerns expressed by the FCA (and formerly the OFT) or as to the extent of the changes in our business practices that the FCA may require.
Our advertising and marketing materials are reviewed both by the FCA and the Advertising Standards Authority. We have in some cases been ordered to withdraw, amend or add disclosures to such materials, or have done so voluntarily in response to inquiries or complaints. We remain in discussion with the relevant U.K. authorities regarding the extent to which additional amendments and specific risk disclosures will be necessary. Going forward, there can be no guarantee that we will be able to advertise and market our business in the United Kingdom or elsewhere in a manner we consider effective.
6
Schedule 3.6 Litigation
References to the Company, Enova, we, us, and our mean Enova International, Inc. and its subsidiaries except where the context otherwise requires or as indicated, and references to Cash America mean Cash America International, Inc. and its subsidiaries on a consolidated basis, other than Enova and its direct or indirect subsidiaries.
Legal Proceedings
On January 6, 2014, Elizabeth Burger, on behalf of herself and others similarly situated, filed a purported class action lawsuit in the U.S. District Court for the Southern District of Ohio against our subsidiary, CNU Online Holdings, LLC, Cash America and other unaffiliated lenders. The lawsuit alleges, among other things, that our CSO activities in Ohio violate various laws in Ohio, including the Short-Term Loan Act, the Consumer Sales Practices Act and the General Usury Act. The complaint seeks class certification, an unspecified amount of actual damages, statutory damages not to exceed $5,000 for each putative class member, an unspecified amount of punitive damages, pre-judgment interest, a declaration that our activities violate the Short-Term Loan Act and the Consumer Sales Practices Act, and attorneys fees and costs. On January 23, 2014, the parties filed a joint motion to stay the litigation pending a decision from the Ohio Supreme Court in the case captioned Ohio Neighborhood Finance, Inc. v. Scott, which will impact the issues alleged in the case. On January 28, 2014, the court granted the joint motion to stay and stayed the litigation pending a decision from the Ohio Supreme Court. Neither the likelihood of an unfavorable ruling nor the ultimate liability, if any, with respect to this matter can be determined at this time, and we are currently unable to estimate a range of reasonably possible losses, as defined by ASC 450-20-20, ContingenciesLoss ContingenciesGlossary, or ASC 450-20-20, for this litigation. We believe that the plaintiffs claims in the complaint are without merit and intend to vigorously defend this lawsuit.
On March 8, 2013, Flemming Kristensen, on behalf of himself and others similarly situated, filed a purported class action lawsuit in the U.S. District Court of Nevada against us and other unaffiliated lenders and lead providers. The lawsuit alleges that the lead provider defendants sent unauthorized text messages to consumers on behalf of us and the other lender defendants in violation of the Telephone Consumer Protection Act. The complaint seeks class certification, statutory damages, an injunction against wireless spam activities, and attorneys fees and costs. We filed an answer to the complaint denying all liability. On March 26, 2014, the Court granted class certification. Discovery is ongoing. Neither the likelihood of an unfavorable ruling nor the ultimate liability, if any, with respect to this matter can be determined at this time, and we are currently unable to estimate a range of reasonably possible losses, as defined by ASC 450-20-20, for this litigation. We believe that the plaintiffs claims in the complaint are without merit and intend to vigorously defend this lawsuit.
7
SCHEDULE 6.1
Existing Liens
None
8
SCHEDULE 6.2(k)
Existing Indebtedness
None
9
EXHIBIT 1.1(a)
[FORM OF]
ACCOUNT DESIGNATION NOTICE
TO: | Jefferies Finance LLC, as Administrative Agent | |
RE: | Credit Agreement, dated as of May 14, 2014, by and among Enova International, Inc., a Delaware corporation (the Borrower ), the Guarantors, the Lenders and Jefferies Finance LLC, as Administrative Agent for the Lenders (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Credit Agreement ; capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement) | |
DATE: | [Date] |
The Administrative Agent is hereby authorized to disburse all Loan proceeds into the following account, unless the Borrower shall designate, in writing to the Administrative Agent, one or more other accounts:
Bank Name: [ ] |
ABA Routing Number: [ ] |
Account Number: [ ] |
[TO BE COMPLETED BY BORROWER]
Notwithstanding the foregoing, on the Closing Date, funds borrowed under the Credit Agreement shall be sent to the institutions and/or persons designated on payment instructions to be delivered separately.
This Account Designation Notice may, upon execution, be delivered by facsimile or electronic mail, which shall be deemed for all purposes to be an original signature.
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10
ENOVA INTERNATIONAL, INC. , | ||
a Delaware corporation | ||
By: |
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Name: |
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Title: |
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1
EXHIBIT 1.1(b)
[FORM OF]
ASSIGNMENT AND ASSUMPTION
This Assignment and Assumption (the Assignment and Assumption ) is dated as of the Effective Date set forth below and is entered into by and between [the] [each] Assignor identified in item 1 below ([the] [each, an] Assignor ) and [the] [each] Assignee identified in item 2 below ([the] [each, an] Assignee ). [It is understood and agreed that the rights and obligations of [the Assignors] [the Assignees] hereunder are several and not joint.] 1 Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below (as amended, the Credit Agreement ), receipt of a copy of which is hereby acknowledged by [the] [each] Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.
For an agreed consideration, [the] [each] Assignor hereby irrevocably sells and assigns to [the Assignee] [the respective Assignees], and [the] [each] Assignee hereby irrevocably purchases and assumes from [the Assignor] [the respective Assignors], subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of [the Assignors] [the respective Assignors] rights and obligations in [its capacity as a Lender] [their respective capacities as Lenders] under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of [the Assignor] [the respective Assignors] under the respective facilities identified below (including, without limitation, any letters of credit, guarantees, and swingline loans included in such facilities) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of [the Assignor (in its capacity as a Lender)] [the respective Assignors (in their respective capacities as Lenders)] against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned by [the] [any] Assignor to [the] [any] Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively as [the] [an] Assigned Interest ). Each such sale and assignment is without recourse to [the] [any] Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by [the] [any] Assignor.
1. | Assignor[s]: |
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1 | Include bracketed language if there are either multiple Assignors or multiple Assignees. |
2. | Assignee[s]: |
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[for each Assignee, indicate [Affiliate] [Approved Fund] of [ identify Lender] | ||||||
3. | Borrower: | Enova International, Inc., a Delaware corporation | ||||
4. | Administrative Agent: | Jefferies Finance LLC, as the administrative agent under the Credit Agreement. | ||||
5. | Credit Agreement: | The Credit Agreement dated as of May 14, 2014, among the Borrower, the guarantors from time to time party thereto, the lenders and other financial institutions from time to time party thereto, and Jefferies Finance LLC, as Administrative Agent. | ||||
6. | Assigned Interest[s]: |
Assignor[s] |
Assignee[s] |
Facility
Assigned |
Aggregate
Amount of Commitment/ Loans for all Lenders |
Amount of
Commitment/ Loans Assigned |
Percentage
Assigned of Commitment/ Loans |
CUSIP
Number |
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$ | $ | % | ||||||||||||||||
$ | $ | % | ||||||||||||||||
$ | $ | % |
[7. | Trade Date: ] 2 |
Effective Date: , 20 .
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2 | To be completed if the Assignor(s) and the Assignee(s) intend that the minimum assignment amount is to be determined as of the Trade Date. |
The terms set forth in this Assignment and Assumption are hereby agreed to:
ASSIGNOR[S] | ||
[NAME OF ASSIGNOR] | ||
By: |
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Title: |
ASSIGNEE[S] | ||
[NAME OF ASSIGNEE] | ||
By: |
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Title: |
[Consented to and] Accepted: | ||
JEFFERIES FINANCE LLC, | ||
as Administrative Agent | ||
By: |
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Title: |
[Consented to:] | ||
[NAME OF RELEVANT PARTY] | ||
By: |
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Title: |
ANNEX 1
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1. Representations and Warranties .
1.1 Assignor[s] . [The] [Each] Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of [the] [the relevant] Assigned Interest, (ii) [the] [such] Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Credit Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Credit Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Credit Document.
1.2. Assignee[s] . [The] [Each] Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all the requirements to be an assignee under Section 9.6(b), (v) and (vi) of the Credit Agreement (subject to such consents, if any, as may be required under Section 9.6(b) of the Credit Agreement), (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of [the] [the relevant] Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it is sophisticated with respect to decisions to acquire assets of the type represented by the Assigned Interest and either it, or the person exercising discretion in making its decision to acquire the Assigned Interest, is experienced in acquiring assets of such type, (v) it has received a copy of the Credit Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section 5.1 thereof, as applicable, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the] [such] Assigned Interest, (vi) it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the] [such] Assigned Interest, and (vii) if it is a Foreign Lender, attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement, duly completed and executed by [the] [such] Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, [the] [any] Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Credit Documents are required to be performed by it as a Lender.
2. Payments . From and after the Effective Date, the Administrative Agent shall make all payments in respect of [the] [each] Assigned Interest (including payments of principal, interest, fees and other amounts) to [the] [the relevant] Assignor for amounts which have accrued to but excluding the Effective Date and to [the] [the relevant] Assignee for amounts which have accrued from and after the Effective Date.
3. General Provisions . This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.
EXHIBIT 1.1(c)
[FORM OF]
JOINDER AGREEMENT
THIS JOINDER AGREEMENT (this Agreement ), dated as of [ , ], is by and among [ , a ] (the Subsidiary Guarantor ), Enova International, Inc., a Delaware corporation (the Borrower ), and Jefferies Finance LLC, in its capacity as administrative agent (in such capacity, the Administrative Agent ) under that certain Credit Agreement, dated as of May 14, 2014 (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Credit Agreement ), by and among the Borrower, the Guarantors, the Lenders and the Administrative Agent. Capitalized terms used herein but not otherwise defined shall have the meanings provided in the Credit Agreement.
The Subsidiary Guarantor is an Additional Credit Party, and, consequently, the Credit Parties are required by Section 5.15 of the Credit Agreement to cause the Subsidiary Guarantor to become a Guarantor thereunder.
Accordingly, the Subsidiary Guarantor and the Borrower hereby agree as follows with the Administrative Agent, for the benefit of the Lenders:
1. The Subsidiary Guarantor hereby acknowledges, agrees and confirms that, by its execution of this Agreement, the Subsidiary Guarantor will be deemed to be a party to and a Guarantor under the Credit Agreement and shall have all of the obligations of a Guarantor thereunder as if it had executed the Credit Agreement. The Subsidiary Guarantor hereby ratifies, as of the date hereof, and agrees to be bound by, all of the terms, provisions and conditions contained in the applicable Credit Documents, including, without limitation (a) all of the representations and warranties set forth in Article III of the Credit Agreement and (b) all of the affirmative and negative covenants set forth in Articles V and VI of the Credit Agreement. Without limiting the generality of the foregoing terms of this Paragraph 1, the Subsidiary Guarantor hereby guarantees, jointly and severally together with the other Guarantors, the prompt payment of the Credit Party Obligations in accordance with Article X of the Credit Agreement.
2. The Subsidiary Guarantor acknowledges and confirms that it has received a copy of the Credit Agreement and the schedules and exhibits thereto. The information on the schedules to the Credit Agreement are hereby supplemented (to the extent permitted under the Credit Agreement) to reflect the information with respect to the Subsidiary Guarantor shown on the attached Schedule A .
3. The information on Schedule B to this Joinder Agreement is true and correct as of the date hereof.
4. The Borrower confirms that the Credit Agreement is, and upon the Subsidiary Guarantor becoming a Guarantor, shall continue to be, in full force and effect. The parties hereto confirm and agree that immediately upon the Subsidiary Guarantor becoming a Guarantor the term Obligations, as used in the Credit Agreement, shall include all obligations of the Subsidiary Guarantor under the Credit Agreement and under each other Credit Document.
5. Each of the Borrower and the Subsidiary Guarantor agrees that at any time and from time to time, upon the written request of the Administrative Agent, it will execute and deliver such further documents and do such further acts as the Administrative Agent may reasonably request in accordance with the terms and conditions of the Credit Agreement in order to effect the purposes of this Agreement.
6. This Agreement (a) may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute one contract and (b) may, upon execution, be delivered by facsimile or electronic mail, which shall be deemed for all purposes to be an original signature.
7. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York. The terms of Sections 9.13 and 9.16 of the Credit Agreement are incorporated herein by reference, mutatis mutandis, and the parties hereto agree to such terms.
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IN WITNESS WHEREOF, each of the Borrower and the Subsidiary Guarantor has caused this Agreement to be duly executed by its authorized officer, and the Administrative Agent, for the benefit of the Lenders, has caused the same to be accepted by its authorized officer, as of the day and year first above written.
SUBSIDIARY GUARANTOR: | [SUBSIDIARY GUARANTOR] | |||||
By: |
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Name: |
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Title: |
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BORROWER: | ENOVA INTERNATIONAL, INC., | |||||
a Delaware corporation | ||||||
By: |
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Name: |
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Title: |
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Acknowledged, accepted and agreed: | ||
JEFFERIES FINANCE LLC,
as Administrative Agent |
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By: |
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Name: |
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Title: |
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Schedule A
Schedules to Credit Agreement
[TO BE COMPLETED BY BORROWER]
Schedule B
Disclosure Information
Legal Name of Credit Party (and any previous legal names within the past four months): | ||
State of Organization: | ||
Jurisdictions of Organization: | ||
Type of Organization: | ||
Address of Chief Executive Office: | ||
Address of Principal Place of Business: | ||
Business Phone Number: | ||
Organizational Identification Number: 1 | ||
Federal Tax Identification Number: | ||
Ownership Information (e.g. publicly held, if private or partnershipidentity of owners/partners): |
[TO BE COMPLETED BY BORROWER/SUBSIDIARY GUARANTOR]
1 | This item does not apply to a Credit Party organized under the laws of Alabama, Indiana, Massachusetts, Nebraska, New Hampshire, New Mexico, New York, Oklahoma, South Carolina, Vermont or West Virginia. |
EXHIBIT 1.1(d)
[FORM OF]
NOTICE OF BORROWING
TO: | Jefferies Finance LLC, as Administrative Agent | |
RE: | Credit Agreement, dated as of May 14, 2014, by and among Enova International, Inc., a Delaware corporation (the Borrower ), the Guarantors, the Lenders and Jefferies Finance LLC, as Administrative Agent for the Lenders (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Credit Agreement ; capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement) | |
DATE: | [Date] |
Pursuant to Section [2.1(a)(ii)(A),] [2.1(b)(ii)(A),] and/or [2.2(b)(i),] of the Credit Agreement, the Borrower hereby requests the following (the Proposed Borrowing ):
Revolving Loans be made as follows :
Date |
Amount |
Interest
Rate (Alternate Base Rate/ LIBOR Rate) |
Interest
Period (one, two, three or six months for LIBOR Rate only) |
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NOTE: | REVOLVING LOAN BORROWINGS THAT ARE (A) ALTERNATE BASE RATE LOANS MUST BE IN A MINIMUM AGGREGATE AMOUNT OF $500,000 AND IN INTEGRAL MULTIPLES OF $100,000 IN EXCESS THEREOF AND (B) LIBOR RATE LOANS MUST BE IN A MINIMUM AGGREGATE AMOUNT OF $1,000,000 AND IN INTEGRAL MULTIPLES OF $500,000 IN EXCESS THEREOF. |
Multicurrency Revolving Loans be made as follows :
Currency |
Date | Amount |
Interest
Rate (Alternate Base Rate/ LIBOR Rate) |
Interest
Period (one, two, three or six months for LIBOR Rate only) |
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NOTE: | MULTICURRENCY REVOLVING LOAN BORROWINGS MUST BE IN A MINIMUM AGGREGATE AMOUNT OF $1,000,000 AND IN INTEGRAL MULTIPLES OF $500,000 IN EXCESS THEREOF (OR, IN THE CASE OF A LOAN MADE IN FOREIGN CURRENCIES, THE AMOUNT ROUNDED TO THE NEAREST 10,000 th UNIT OF SUCH FOREIGN CURRENCY) IN EXCESS THEREOF. |
Swingline Loans to be made on [date] as follows :
Swingline Loans requested:
(1) | Total Amount of Swingline Loans $ |
NOTE: | SWINGLINE LOAN BORROWINGS MUST BE IN MINIMUM AMOUNTS OF $100,000 AND IN INTEGRAL AMOUNTS OF $100,000 IN EXCESS THEREOF. |
The undersigned hereby certifies that the following statements are true on the date hereof and will be true on the date of the Proposed Borrowing:
(a) The representations and warranties made by the Credit Parties in the Credit Agreement, in the Credit Documents or which are contained in any certificate furnished at any time under or in connection with the Credit Agreement shall be (i) with respect to representations and warranties that contain a materiality qualification, true and correct and (ii) with respect to representations and warranties that do not contain a materiality qualification, true and correct in all material respects, in each case on and as of the date of the Proposed Borrowing as if made on and as of such date except for any representation or warranty made as of an earlier date, which representation and warranty shall remain true and correct (subject to the applicable materiality qualifier set forth above) as of such earlier date.
(b) No Default or Event of Default shall have occurred and be continuing on the date of the Proposed Borrowing or after giving effect to the Proposed Borrowing unless such Default or Event of Default shall have been waived in accordance with the Credit Agreement.
(c) Immediately after giving effect to the making of the Proposed Borrowing (and the application of the proceeds thereof), (i) the sum of the aggregate principal amount of outstanding Revolving Loans plus outstanding Swingline Loans shall not exceed the Revolving Committed Amount then in effect, (i) the aggregate principal amount of outstanding Multicurrency Revolving Loans shall not exceed the Multicurrency Revolving Committed Amount then in effect and (iii) the outstanding Swingline Loans shall not exceed the Swingline Committed Amount.
(d) [If a Revolving Loan is requested] All conditions set forth in Section 2.1(a) of the Credit Agreement shall have been satisfied.
(e) [If a Multicurrency Revolving Loan is requested] All conditions set forth in Section 2.1(b) of the Credit Agreement shall have been satisfied.
(f) [If a Swingline Loan is requested] All conditions set forth in Section 2.2 of the Credit Agreement shall have been satisfied.
(g) Additional Conditions to Swingline Loans . If a Swingline Loan is requested, (i) all conditions set forth in Section 2.2 shall have been satisfied and (ii) there shall exist no Revolving Lender that is a Defaulting Lender unless the Swingline Lender has entered into satisfactory arrangements with the Borrower or such Defaulting Lender to eliminate the Swingline Lenders risk with respect to such Defaulting Lender as provided in the Credit Agreement.
This Notice of Borrowing may, upon execution, be delivered by facsimile or electronic mail, which shall be deemed for all purposes to be an original signature.
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ENOVA INTERNATIONAL, INC. , | ||
a Delaware corporation | ||
By: |
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Name: |
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Title: |
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EXHIBIT 1.1(e)
[FORM OF]
NOTICE OF CONVERSION/EXTENSION
TO: | Jefferies Finance LLC, as Administrative Agent | |
RE: | Credit Agreement, dated as of May 14, 2014, by and among Enova International, Inc., a Delaware corporation (the Borrower ), the Guarantors, the Lenders and Jefferies Finance LLC, as Administrative Agent for the Lenders (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Credit Agreement ; capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement) | |
DATE: | [Date] |
Pursuant to Section 2.8 of the Credit Agreement, the Borrower hereby requests conversion or extension of the following Loans be made as follows (the Proposed Conversion/Extension ):
Applicable Loan |
Current
Interest Rate and Interest Period |
Date |
Amount
to be converted/ extended |
Requested
Interest Rate (Alternate Base Rate/LIBOR Rate) |
Requested Interest
Period (one week, two weeks or one, two, three or six months for LIBOR Rate only) |
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NOTE: | PARTIAL CONVERSIONS MUST BE IN MINIMUM AMOUNTS OF $500,000 OR A WHOLE MULTIPLE OF $100,000 IN EXCESS THEREOF. |
Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement.
The undersigned hereby certifies that no Default or Event of Default has occurred and is continuing or would result from such Proposed Conversion/Extension or from the application of the proceeds thereof unless such Default or Event of Default shall have been waived in accordance with the Credit Agreement.
This Notice of Conversion/Extension may, upon execution, be delivered by facsimile or electronic mail, which shall be deemed for all purposes to be an original signature.
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ENOVA INTERNATIONAL, INC. , | ||
a Delaware corporation | ||
By: |
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Name: |
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Title: |
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EXHIBIT 1.1(f)
[FORM OF]
BANK PRODUCT PROVIDER NOTICE
TO: | Jefferies Finance LLC, as Administrative Agent | |
RE: | Credit Agreement, dated as of May 14, 2014, by and among Enova International, Inc., a Delaware corporation (the Borrower ), the Guarantors, the Lenders and Jefferies Finance LLC, as Administrative Agent for the Lenders (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Credit Agreement ; capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement) | |
DATE: | [Date] |
[Name of Bank Product Provider] hereby notifies you, pursuant to the terms of the Credit Agreement, that:
(a) [Name of Bank Product Provider] meets the requirements of a Bank Product Provider under the terms of the Credit Agreement and is a Bank Product Provider under the Credit Agreement and the other Credit Documents.
(b) The Credit Parties have entered into Bank Products with [Name of Bank Product Provider] which include: [set forth Bank Products].
(c) The maximum dollar amount 4 of obligations arising under the Bank Products set forth in clause (b) above is: $ .
(d) The methodology to be used by such parties in determining the Bank Product Debt (as defined in the Credit Agreement) owing from time to time is: .
Delivery of this Notice by telecopy shall be effective as an original.
4 | If reasonably capable of being determined. |
A duly authorized officer of the undersigned has executed this Notice as of the day of , .
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as a Bank Product Provider |
By: |
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Name: |
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Title: |
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EXHIBIT 2.1(e)(i) and (ii)
[FORM OF]
[MULTICURRENCY] REVOLVING LOAN NOTE
[Date]
FOR VALUE RECEIVED, the undersigned, Enova International, Inc., a Delaware corporation (the Borrower ) hereby unconditionally promises to pay, on the Maturity Date (as defined in the Credit Agreement referred to below), to [ ] or its registered assigns (the Lender ), at the office of Jefferies Finance LLC, in lawful money of the United States of America and in immediately available funds, the aggregate unpaid principal amount of all [Multicurrency] Revolving Loans made by the Lender to the undersigned pursuant to Section 2.1 [(a)][(b)] of the Credit Agreement referred to below. The undersigned further agrees to pay interest in like money at such office on the unpaid principal amount hereof and, to the extent permitted by law, accrued interest in respect hereof from time to time from the date hereof until payment in full of the principal amount hereof and accrued interest hereon, at the rates and on the dates set forth in the Credit Agreement.
This Revolving Loan Note is one of the Revolving Loan Notes referred to in the Credit Agreement, dated as of May 14, 2014 (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Credit Agreement ), by and among the Borrower, the Guarantors, the Lenders and Jefferies Finance LLC, as administrative agent for the Lenders (the Administrative Agent ), and the holder is entitled to the benefits thereof. Capitalized terms used but not otherwise defined herein shall have the meanings provided in the Credit Agreement.
Upon the occurrence of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Revolving Loan Note shall become, or may be declared to be, immediately due and payable, all as provided therein. In the event this Revolving Loan Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to principal and interest, all costs of collection, including reasonable attorneys fees.
All parties now and hereafter liable with respect to this Revolving Loan Note, whether maker, principal, surety, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind.
This Revolving Loan Note may, upon execution, be delivered by facsimile or electronic mail, which shall be deemed for all purposes to be an original signature.
THIS REVOLVING LOAN NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
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ENOVA INTERNATIONAL, INC. , | ||
a Delaware corporation | ||
By: |
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Name: |
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Title: |
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EXHIBIT 2.2(d)
[FORM OF]
SWINGLINE LOAN NOTE
[Date]
FOR VALUE RECEIVED, the undersigned, Enova International, Inc., a Delaware corporation (the Borrower ), hereby unconditionally promises to pay on the Maturity Date (as defined in the Credit Agreement referred to below), to the order of [ ] (the Swingline Lender ) at the office of Jefferies Finance LLC, in lawful money of the United States of America and in immediately available funds, the aggregate unpaid principal amount of all Swingline Loans made by the Swingline Lender to the undersigned pursuant to Section 2.2 of the Credit Agreement referred to below. The undersigned further agrees to pay interest in like money at such office on the unpaid principal amount hereof and, to the extent permitted by law, accrued interest in respect hereof from time to time from the date hereof until payment in full of the principal amount hereof and accrued interest hereon, at the rates and on the dates set forth in the Credit Agreement.
This Swingline Note is the Swingline Loan Note referred to in the Credit Agreement, dated as of May 14, 2014 (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Credit Agreement ), by and among the Borrower, the Guarantors, the Lenders and Jefferies Finance LLC, as administrative agent for the Lenders (the Administrative Agent ), and the holder is entitled to the benefits thereof. Capitalized terms used but not otherwise defined herein shall have the meanings provided in the Credit Agreement.
Upon the occurrence of any one or more of the Events of Default specified in the Credit Agreement, all amounts then remaining unpaid on this Swingline Loan Note shall become, or may be declared to be, immediately due and payable, all as provided therein. In the event this Swingline Loan Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to principal and interest, all costs of collection, including reasonable attorneys fees.
All parties now and hereafter liable with respect to this Swingline Loan Note, whether maker, principal, surety, endorser or otherwise, hereby waive presentment, demand, protest and all other notices of any kind.
This Swingline may, upon execution, be delivered by facsimile or electronic mail, which shall be deemed for all purposes to be an original signature.
THIS SWINGLINE LOAN NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
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ENOVA INTERNATIONAL, INC. , | ||
a Delaware corporation | ||
By: |
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Name: |
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Title: |
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EXHIBIT 2.3(b)
[FORM OF]
LETTER OF CREDIT ISSUANCE REQUEST
Beneficiary : (Name and Address) | Advising Bank: (If left blank, Lender may select) | |
Applicant/Obligor: (Name and Address) | Account Party: (Name and Address of entity to be named in Credit if different from Applicant/Obligor) | |
Amount (in figures): (in words):
Currency (in USD unless otherwise specified): |
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Availability : Unless otherwise specified herein, the Credit is to be available for presentation on or before the Expiration Date (1) with Lenders issuing office by payment of draft(s) drawn at sight on Lender or (2) at Lenders option, with any bank(s) or with a bank nominated by Lender by negotiation of draft(s) drawn at sight on Lender or (3) at Lenders option, with a bank nominated by Lender by payment of draft(s) drawn at sight on the nominated bank. | ||
Expiration Date: | ||
Available By: (check and complete only one of the following)
A statement worded as follows indicating it is signed by the Beneficiary (if a person) or its authorized officer: (Please quote below the exact wording of the drawing statement.) (Attach additional signed sheet(s), if necessary, and label as attachments to this specific Application.)
Issue the Credit substantially in the form and with the wording attached to this Application. The attached specimen is approved by each applicant. (Label the attached specimen as an attachment to this specific Application.) |
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Additional Requirements: Partial drawings are prohibited ( if blank, partial drawings are permitted )
Multiple drawings prohibited ( if blank, partial drawings are permitted ) Credit is transferable in its entirety. Transfer charges for account of Applicant Beneficiary
The Credit will be subject to the International Standby Practices of the International Chamber of Commerce (ICC), Publication 590 (ISP98) or the ICC, Publication 600 (UCP) or any subsequent version of either publication in effect and in use by Lender on the date the Credit is issued, as L shall determine in its sole discretion. |
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Description of Standby Purpose including goods description, country of origin, pricing as applicable: | ||
Proposed Issuance Date: |
EXHIBIT 4.1(b)
[FORM OF]
OFFICERS CERTIFICATE
TO: | Jefferies Finance LLC, as Administrative Agent | |
RE: | Credit Agreement, dated as of May 14, 2014, by and among Enova International, Inc., a Delaware corporation (the Borrower ), the Guarantors, the Lenders and Jefferies Finance LLC, as Administrative Agent for the Lenders (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Credit Agreement ; capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement) | |
DATE: | [Date] |
The undersigned officer of [CREDIT PARTY] (the Company ) hereby certifies as follows:
1. Attached hereto as Exhibit A is a true and complete copy of the [articles of incorporation] [certificate of formation] [certificate of limited partnership] of the Company and all amendments thereto as in effect on the date hereof certified as a recent date by the appropriate Governmental Authorities of the state of [incorporation] [organization] of the Company.
2. Attached hereto as Exhibit B is a true and complete copy of the [bylaws] [operating agreement] [partnership agreement] of the Company and all amendments thereto as in effect on the date hereof.
3. Attached hereto as Exhibit C is a true and complete copy of resolutions duly adopted by the [board of directors] [members] [managers] [partners] of the Company on . Such resolutions have not in any way been rescinded or modified and have been in full force and effect since their adoption to and including the date hereof, and such resolutions are the only corporate proceedings of the Company now in force relating to or affecting the matters referred to therein.
4. Attached hereto as Exhibit D are true and complete copies of the certificates of good standing, existence or its equivalent of the Company certified as of a recent date by the appropriate Governmental Authorities of the state of [incorporation] [organization] of the Company and each other state in which the failure to so qualify and be in good standing could reasonably be expected to have a Material Adverse Effect.
5. The following persons are the duly elected and qualified officers of the Company, holding the offices indicated next to the names below on the date hereof, and the signatures appearing opposite the names of the officers below are their true and genuine signatures, and each of such officers is duly authorized to execute and deliver, on behalf of the Company, the Credit Agreement, the Notes and the other Credit Documents to be issued pursuant thereto:
Name |
Office |
Signature |
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This Certificate may, upon execution, be delivered by facsimile or electronic mail, which shall be deemed for all purposes to be an original signature.
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IN WITNESS WHEREOF, I hereunder subscribe my name effective as of the day of , .
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Name: |
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Title: |
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I, , the of the Company, hereby certify that is the duly elected and qualified of the Company and that his/her true and genuine signature is set forth above.
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Title: |
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EXHIBIT 4.1(c)(1)
1. The Borrower and each Guarantor (individually, each a Credit Party, and, collectively, the Credit Parties) is a corporation duly incorporated, validly existing and in good standing under the laws of its state of incorporation or a limited liability company duly formed, validly existing and in good standing under the laws of its state of formation. Each Credit Party has the corporate or limited liability company power and authority to (a) execute, deliver and perform its obligations under the Agreement, (b) own and hold under lease the properties that it purports to own or hold under lease and (c) transact the business described in Section 3.19 of the Agreement.
2. Each Credit Party is duly qualified as a foreign Person and is in good standing in each jurisdiction wherein the character of the properties owned or held under lease by it or the nature of the business transacted by it requires such qualification, except where the failure to be so qualified or in good standing could not reasonably be expected to have a Material Adverse Effect.
3. The Agreement has been duly authorized, executed and delivered by each Credit Party that is a party to the Agreement, the Agreement constitutes the legal, valid and binding obligations of each such Credit Party enforceable against such Credit Party in accordance with its respective terms, except as rights to indemnity may be limited by federal or state securities laws.
4. Neither the execution nor delivery of the Agreement by any Credit Party nor the compliance by such Credit Party with the terms and provisions of the Agreement will (i) violate any provision of the charter or bylaws or limited liability company agreement, as the case may be, of such Credit Party, (ii) result in any breach of, or (except as may be expressly provided in the Agreement) result in the creation of any Lien in respect of any property of such Credit Party pursuant to, any material contractual Obligation to which any Credit Party is a party or by which any of its properties is bound or (iii) violate or conflict with any law, rule, regulation, order, judgment or decree to which any Credit Party or any of its properties is bound.
5. No consent, approval, authorization or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery and performance by any Credit Party of the Agreement.
6. All of the outstanding Capital Stock of each Guarantor has been validly issued, is fully paid and nonassessable and, except for directors qualifying shares (if any), is free and clear of any Lien.
7. There are no actions, suits or proceedings pending, or to my knowledge after due inquiry, threatened against Borrower or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority, which, except as disclosed on Schedule 3.1 or Schedule 3.6, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or which purports to affect the legality, validity or enforceability of the Agreement.
8. No Credit Party is an investment company, or a company controlled by an investment company, within the meaning of the Investment Company Act of 1940, as amended.
9. The borrowings under the Agreement and the use of proceeds thereof as contemplated by the Agreement do not violate Regulation T, U or X of the Board of Governors of the Federal Reserve System.
Such opinion shall contain customary qualifications, and will include the same or similar qualifications set forth in the opinion letter of J. Curtis Linscott to Wells Fargo Bank, National Association, dated May 10, 2013, on behalf of Cash America International, Inc., a copy of which has been furnished to the Administrative Agent.
EXHIBIT 4.1(c)(2)
The Borrower is a corporation duly incorporated and is validly existing and in good standing under the laws of the State of Delaware.
The Borrower has the corporate power to own its properties and conduct its business as now conducted as described in Cash Americas Annual Report on Form 10-K for the year ended December 31, 2013, and to execute and perform its obligations under the Credit Agreement, and the Borrower has taken all necessary action to authorize the execution, delivery and performance of the Credit Agreement.
The Credit Agreement has been duly executed and delivered by the Borrower and constitutes the legal, valid and binding obligation of the Borrower, enforceable against it under New York law in accordance with its terms.
The execution and delivery of the Credit Agreement by Borrower (i) will not violate the Certificate of Incorporation and Bylaws, each as in effect as of the date hereof, of the Borrower or any federal or Texas law or regulation generally applicable to the borrowing transactions of the type contemplated by the Credit Agreement, and (ii) will not conflict with or result in the breach of any court decree or order of any governmental body binding on the Borrower known to us.
No consent, approval, authorization or other action by, or filing with, any governmental authority is required for the execution and delivery by the Borrower of the Credit Agreement, or if required, the requisite consent, approval or authorization has been obtained, or the requisite filing has been accomplished or the requisite action has been taken, except for the filing of financing statements that the Administrative Agent deems necessary or appropriate in connection with the Credit Agreement and as to which we express no opinion.
The Borrower is not required to be registered as an investment company within the meaning of the Investment Company Act of 1940, as amended.
Such opinion shall contain customary qualifications, and will include the qualifications set forth in that opinion letter of this firm to Wells Fargo Bank, National Association, dated March 30, 2011, on behalf of Cash America International, Inc., a copy of which has been furnished to the Administrative Agent.
EXHIBIT 4.1(g)
[FORM OF]
SOLVENCY CERTIFICATE
TO: | Jefferies Finance LLC, as Administrative Agent | |
RE: | Credit Agreement, dated as of May 14, 2014, by and among Enova International, Inc., a Delaware corporation (the Borrower ), the Guarantors, the Lenders and Jefferies Finance LLC, as Administrative Agent for the Lenders (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Credit Agreement ; capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement) | |
DATE: | [Date] |
The undersigned [chief financial officer] of the Borrower is familiar with the properties, businesses, assets and liabilities of the Credit Parties and is duly authorized to execute this certificate on behalf of the Borrower and the Credit Parties.
The undersigned certifies that he/she has made such investigation and inquiries as to the financial condition of the Credit Parties as the undersigned deems necessary and prudent for the purpose of providing this Certificate. The undersigned acknowledges that the Administrative Agent and the Lenders are relying on the truth and accuracy of this Certificate in connection with the making of Loans and other Extensions of Credit under the Credit Agreement.
The undersigned certifies that the financial information, projections and assumptions which underlie and form the basis for the representations made in this Certificate were reasonable when made and were made in good faith and continue to be reasonable as of the date hereof.
BASED ON THE FOREGOING, the undersigned certifies that, both before and after giving effect to the Transactions, each of the Credit Parties is (in the case of each Guarantor, after taking into account all rights of indemnification from the Borrower and all rights of contribution from the other Guarantors), and the Credit Parties and their Subsidiaries are, on a Consolidated basis, Solvent. As used herein, Solvent shall mean, with respect to any Person, that the fair value of the assets of such Person (both at fair valuation and at present fair saleable value on a going concern basis) is, on the date of determination, greater than the total amount of liabilities (including contingent and unliquidated liabilities) of such Person as of such date and that, as of such date, such Person is able to pay all liabilities of such Person as such liabilities mature and such Person does not have unreasonably small capital with which to carry on its business. In computing the amount of contingent or unliquidated liabilities at any time, such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability discounted to present value at rates believed to be reasonable by such Person.
This Certificate may, upon execution, be delivered by facsimile or electronic mail, which shall be deemed for all purposes to be an original signature.
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ENOVA INTERNATIONAL, INC. , | ||
a Delaware corporation | ||
By: |
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Name: |
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Title: |
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EXHIBIT 4.1(m)
[FORM OF]
FINANCIAL CONDITION CERTIFICATE
TO: | Jefferies Finance LLC, as Administrative Agent | |
RE: | Credit Agreement, dated as of May 14, 2014, by and among Enova International, Inc., a Delaware corporation (the Borrower ), the Guarantors, the Lenders and Jefferies Finance LLC, as Administrative Agent for the Lenders (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Credit Agreement ; capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement) | |
DATE: | [Date] |
Pursuant to the terms of Section 4.1 of the Credit Agreement, the undersigned officer of the Borrower hereby certifies, on behalf of the Credit Parties and not in any individual capacity that, as of the date hereof, the statements below are accurate and complete in all respects:
(a) There does not exist any pending or ongoing, action, suit, investigation, litigation or proceeding in any court or before any other Governmental Authority (i) affecting the Credit Agreement or the other Credit Documents, that has not been settled, dismissed, vacated, discharged or terminated prior to the Closing Date or (ii) except as disclosed on Schedule 3.1(d) or on Schedule 3.6 of the Credit Agreement that purports to affect any Credit Party or any of its Subsidiaries, or any transaction contemplated by the Credit Documents, in each case which action, suit, investigation, litigation or proceeding could reasonably be expected to have a Material Adverse Effect, that has not been settled, dismissed, vacated, discharged or terminated prior to the Closing Date.
(b) Immediately after giving effect to the Credit Agreement, the other Credit Documents and all Transactions contemplated to occur on the Closing Date, (i) no Default or Event of Default exists, and (ii) all representations and warranties contained in the Credit Agreement and in the other Credit Documents are (A) with respect to representations and warranties that contain a materiality qualification, true and correct and (B) with respect to representations and warranties that do not contain a materiality qualification, true and correct in all material respects true and correct.
(c) Immediately after giving effect to the Credit Agreement, the other Credit Documents and all Transactions contemplated to occur on the Closing Date, each of the conditions precedent in Section 4.1 has been satisfied (or waived in accordance with the terms of the Credit Agreement).
(d) Attached hereto on Schedule A are calculations in reasonable detail demonstrating compliance by the Credit Parties with the Covenants set forth in Section 6.18 pro forma (and based upon the most recent fiscal quarter end) for the incurrence of Obligations under this Agreement and the issuance of the Senior Notes on the Closing Date.
This Financial Condition Certificate may, upon execution, be delivered by facsimile or electronic mail, which shall be deemed for all purposes to be an original signature.
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ENOVA INTERNATIONAL, INC. , | ||
a Delaware corporation | ||
By: |
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Name: |
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Title: |
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EXHIBIT 5.2(a)
[FORM OF]
COMPLIANCE CERTIFICATE
TO: | Jefferies Finance LLC, as Administrative Agent | |
RE: | Credit Agreement, dated as of May 14, 2014, by and among Enova International, Inc., a Delaware corporation (the Borrower ), the Guarantors, the Lenders and Jefferies Finance LLC, as Administrative Agent for the Lenders (as amended, modified, extended, restated, replaced, or supplemented from time to time, the Credit Agreement ; capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement) | |
DATE: | [Date] |
For the fiscal [quarter] [year] ended [ , ].
The undersigned hereby certifies on behalf of the Credit Parties that, to the best of his/her knowledge, with respect to the Credit Agreement:
(a) The financial statements delivered for the fiscal period referred to above present fairly the financial position of the Borrower and its Subsidiaries, for the period indicated above, in conformity with GAAP applied on a consistent basis subject only to normal year-end audit adjustments and the absence of footnotes.
(b) [Except as may be disclosed on Exhibit A attached hereto,] [E] ach of the Credit Parties during the period indicated above observed or performed all of its covenants and other agreements, and satisfied every condition, contained in the Credit Agreement to be observed, performed or satisfied by it.
(c) [Except as may be disclosed on Exhibit A attached hereto,] I have obtained no knowledge of any Default or Event of Default under the Credit Agreement;
(d) Attached hereto on Schedule A are calculations in reasonable detail demonstrating compliance by the Credit Parties with the financial covenant contained in Section 6.18 of the Credit Agreement as of the last day of the fiscal period referred to above.
This Certificate may, upon execution, be delivered by facsimile or electronic mail, which shall be deemed for all purposes to be an original signature.
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ENOVA INTERNATIONAL, INC. , | ||
a Delaware corporation | ||
By: |
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Name: |
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Title: |
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[Exhibit A]
See Attached.
Schedule A
Financial Covenant Calculations
[TO BE COMPLETED BY BORROWER]
EXHIBIT F-1
FORM OF
U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Lenders That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Credit Agreement dated as of [ ] (as amended, supplemented or otherwise modified from time to time, the Credit Agreement), among Enova International, Inc., as Borrower, and Jefferies Finance LLC, as Administrative Agent, and each lender from time to time party thereto.
Pursuant to the provisions of Section 2.15 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (iv) it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished the Administrative Agent and the Borrower with a certificate of its non-U.S. Person status on IRS Form W-8BEN or, as applicable, IRS Form W-8BEN-E. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent, and (2) the undersigned shall have at all times furnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[NAME OF LENDER] | ||||
By: |
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Name: | ||||
Title: |
Date: |
, 20[ ] |
F-1
EXHIBIT F-2
FORM OF
U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Participants That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Credit Agreement dated as of [ ] (as amended, supplemented or otherwise modified from time to time, the Credit Agreement), among Enova International, Inc., as Borrower, and Jefferies Finance LLC, as Administrative Agent, and each lender from time to time party thereto.
Pursuant to the provisions of Section 2.15 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the participation in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code, and (iv) it is not a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished its participating Lender with a certificate of its non-U.S. Person status on IRS Form W-8BEN or, as applicable, IRS Form W-8BEN-E. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender in writing, and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[NAME OF PARTICIPANT] | ||||
By: |
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Name: | ||||
Title: |
Date: |
, 20[ ] |
F-2
EXHIBIT F-3
FORM OF
U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Participants That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Credit Agreement dated as of [ ] (as amended, supplemented or otherwise modified from time to time, the Credit Agreement), among Enova International, Inc., as Borrower, and Jefferies Finance LLC, as Administrative Agent , and each lender from time to time party thereto.
Pursuant to the provisions of Section 2.15 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the participation in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such participation, (iii) with respect such participation, neither the undersigned nor any of its direct or indirect partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished its participating Lender with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or, as applicable, IRS Form W-8BEN-E or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN or, as applicable, IRS Form W-8BEN-E from each of such partners/members beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[NAME OF PARTICIPANT] | ||||
By: |
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Name: | ||||
Title: |
Date: |
, 20[ ] |
F-3
EXHIBIT F-4
FORM OF
U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Lenders That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Credit Agreement dated as of [ ] (as amended, supplemented or otherwise modified from time to time, the Credit Agreement), among Enova International, Inc., as Borrower, and Jefferies Finance LLC, as Administrative Agent, and each lender from time to time party thereto.
Pursuant to the provisions of Section 2.15 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the Loan(s) (as well as any Note(s) evidencing such Loan(s)) in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such Loan(s) (as well as any Note(s) evidencing such Loan(s)), (iii) with respect to the extension of credit pursuant to this Credit Agreement or any other Loan Document, neither the undersigned nor any of its direct or indirect partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of the Borrower within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a controlled foreign corporation related to the Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished the Administrative Agent and the Borrower with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or, as applicable, IRS Form W-8BEN-E or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN or, as applicable, IRS Form W-8BEN-E from each of such partners/members beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrower and the Administrative Agent, and (2) the undersigned shall have at all times furnished the Borrower and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
[NAME OF LENDER] | ||||
By: |
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Name: | ||||
Title: |
Date: |
, 20[ ] |
F-4
Exhibit 21.1
Subsidiaries of Enova International, Inc.
Entity Name |
Jurisdiction of
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Debit Plus, LLC |
Delaware | |
Debit Plus Technologies, LLC |
Delaware | |
Debit Plus Payment Solutions, LLC |
Delaware | |
Debit Plus Services, LLC |
Delaware | |
Servicos de Consultoria de Datos en Linea SA DE CV |
Mexico | |
DP Labor Holdings, LLC |
Delaware | |
Enova Online Services, Inc. |
Delaware | |
Billers Acceptance Group, LLC |
Delaware | |
Enova Financial Holdings, LLC |
Delaware | |
CNU Online Holdings, LLC |
Delaware | |
AEL Net Marketing, LLC |
Delaware | |
AEL Net of Missouri, LLC |
Delaware | |
CNU of Alabama, LLC |
Delaware | |
CNU of Alaska, LLC |
Delaware | |
CNU of Arizona, LLC |
Delaware | |
CNU of California, LLC |
Delaware | |
CNU of Colorado, LLC |
Delaware | |
CNU of Delaware, LLC |
Delaware | |
CNU of Florida, LLC |
Delaware | |
CNU of Hawaii, LLC |
Delaware | |
CNU of Idaho, LLC |
Delaware | |
CNU of Illinois, LLC |
Delaware | |
CNU of Indiana, LLC |
Delaware | |
CNU of Kansas, LLC |
Delaware | |
CNU of Louisiana, LLC |
Delaware | |
CNU of Maine, LLC |
Delaware | |
CNU of Michigan, LLC |
Delaware | |
CNU of Minnesota, LLC |
Delaware | |
CNU of Mississippi, LLC |
Delaware | |
CNU of Missouri, LLC |
Delaware | |
CNU of Montana, LLC |
Delaware | |
CNU of Nevada, LLC |
Delaware | |
CNU of New Hampshire, LLC |
Delaware | |
CNU of New Mexico, LLC |
Delaware | |
CashNetUSA CO, LLC |
Delaware | |
CashNetUSA OR, LLC |
Delaware | |
The Check Giant NM, LLC |
Delaware | |
CNU of North Dakota, LLC |
Delaware | |
CNU of Ohio, LLC |
Delaware | |
CNU of Oklahoma, LLC |
Delaware | |
CNU of Oregon, LLC |
Delaware | |
CNU of Rhode Island, LLC |
Delaware |
Entity Name |
Jurisdiction of Incorporation/Organization |
|
CNU of South Carolina, LLC |
Delaware | |
CNU of South Dakota, LLC |
Delaware | |
CNU of Tennessee, LLC |
Delaware | |
CNU of Texas, LLC |
Delaware | |
CNU of Utah, LLC |
Delaware | |
CNU of Virginia, LLC |
Delaware | |
CNU of Washington, LLC |
Delaware | |
CNU of Wisconsin, LLC |
Delaware | |
CNU of Wyoming, LLC |
Delaware | |
CNU Technologies of Iowa, LLC |
Delaware | |
CNU Technologies of Wisconsin, LLC |
Delaware | |
CashEuroNet UK, LLC |
Delaware | |
CashNet CSO of Maryland, LLC |
Delaware | |
CashNetUSA of Florida, LLC |
Delaware | |
CNU DollarsDirect Canada Inc. |
New Brunswick | |
CNU DollarsDirect Inc. |
Delaware | |
CNU DollarsDirect Lending Inc. |
Delaware | |
DollarsDirect, LLC |
Delaware | |
DollarsDirect Services Pty Limited |
Australia | |
Enova Brazil, LLC |
Delaware | |
Enova International GEC, LLC |
Delaware | |
ENVUK 1 Limited |
United Kingdom | |
EuroNetCash, LLC |
Delaware | |
LH 1003 Servicos de Dados LTDA |
Brazil | |
LH 1010 Correspondente Bancario e Servicos Ltda. |
Brazil | |
Mobile Leasing Group, Inc. |
Delaware | |
Ohio Consumer Financial Solutions, LLC |
Delaware | |
Headway Capital, LLC |
Delaware | |
NC Financial Solutions, LLC |
Delaware | |
NC Financial Solutions of Alabama, LLC |
Delaware | |
NC Financial Solutions of Arizona, LLC |
Delaware | |
NC Financial Solutions of California, LLC |
Delaware | |
NC Financial Solutions of Colorado, LLC |
Delaware | |
NC Financial Solutions of Delaware, LLC |
Delaware | |
NC Financial Solutions of Florida, LLC |
Delaware | |
NC Financial Solutions of Georgia, LLC |
Delaware | |
NC Financial Solutions of Idaho, LLC |
Delaware | |
NC Financial Solutions of Illinois, LLC |
Delaware | |
NC Financial Solutions of Indiana, LLC |
Delaware | |
NC Financial Solutions of Kansas, LLC |
Delaware | |
NC Financial Solutions of Louisiana, LLC |
Delaware | |
NC Financial Solutions of Maryland, LLC |
Delaware |
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NC Financial Solutions of Mississippi, LLC |
Delaware | |
NC Financial Solutions of Missouri, LLC |
Delaware | |
NC Financial Solutions of Montana, LLC |
Delaware | |
NC Financial Solutions of Nevada, LLC |
Delaware | |
NC Financial Solutions of New Hampshire, LLC |
Delaware | |
NC Financial Solutions of New Jersey, LLC |
Delaware | |
NC Financial Solutions of New Mexico, LLC |
Delaware | |
NC Financial Solutions of North Dakota, LLC |
Delaware | |
NC Financial Solutions of Ohio, LLC |
Delaware | |
NC Financial Solutions of Oregon, LLC |
Delaware | |
NC Financial Solutions of Rhode Island, LLC |
Delaware | |
NC Financial Solutions of South Carolina, LLC |
Delaware | |
NC Financial Solutions of South Dakota, LLC |
Delaware | |
NC Financial Solutions of Tennessee, LLC |
Delaware | |
NC Financial Solutions of Texas, LLC |
Delaware | |
NC Financial Solutions of Utah, LLC |
Delaware | |
NC Financial Solutions of Virginia, LLC |
Delaware | |
NC Financial Solutions of Wisconsin, LLC |
Delaware |
Exhibit 99.1
[ ], 2014
To the Shareholders of Cash America International, Inc.:
We have previously announced Cash America International, Inc.s intention to pursue the separation of its e-commerce business from its retail services business. I am pleased to report that on [ ], 2014, Enova International, Inc., a Delaware corporation, will become an independent public company and will hold, through its subsidiaries, the assets and liabilities associated with Cash Americas e-commerce business, which consists of Cash Americas domestic and international online lending channels through which we offer consumer loans.
The separation and distribution will be completed by way of a pro rata distribution of 80 percent of the outstanding shares of Enova common stock to Cash Americas shareholders of record as of 5:00 p.m. Eastern Time on [ ], 2014, the record date for the distribution. Each Cash America shareholder of record will receive one share of Enova common stock for every [ ] shares of Cash America common stock held on the record date. The distribution will be made in electronic book-entry form, which means that no physical share certificates will be issued. Instead, the transfer agent will aggregate fractional shares of Enova into whole shares, sell the whole shares in the open market at prevailing rates and distribute the net cash proceeds from the sale of all of such whole shares pro rata to each holder who would otherwise have been entitled to receive fractional shares of Enova in the distribution.
The separation will provide Cash America shareholders with ownership interests in both Cash America and Enova. The distribution does not require shareholder approval, and you do not need to take any action to receive your shares of Enova common stock. Cash Americas common stock will continue to trade on the New York Stock Exchange under the ticker symbol CSH. Enova intends to apply to list its common stock on the New York Stock Exchange under the ticker symbol ENVA.
The enclosed information statement, which we are mailing to all Cash America shareholders, describes the separation and the distribution in detail and contains important information about Enova, including its historical consolidated financial statements. We urge you to read this information statement carefully.
Thank you for your continued support of Cash America.
Sincerely,
Daniel R. Feehan
President and Chief Executive Officer
Cash America International, Inc.
[ ], 2014
To the Future Stockholders of Enova International, Inc.:
The team at Enova is proud of its history of innovation and its strong financial and operating performance since the launch of its online business in 2004. We appreciate your past support and look forward to your continued interest in Enova as a stockholder of the new independent public company that we expect to be listed on the New York Stock Exchange under the ticker symbol ENVA.
We use advanced technology and analytics to provide lending products to people who may not otherwise have access to credit. We believe our use of technology and analytics to drive our lending decisions and our strong team of top talent provide distinct competitive advantages for us. In 2013, Enova extended approximately $2.6 billion in credit to borrowers. We currently offer or arrange loans to customers in thirty-three states in the United States and in the United Kingdom, Australia and Canada. In June of this year, we launched a pilot program in Brazil where we have begun arranging loans for borrowers, and we are also launching a pilot program to serve customers in China. We have a keen focus on product innovation and have been an industry leader in the development of new loan products that deliver advantages for borrowers. In recent years, this innovation has allowed us to diversify our product mix such that our line of credit and installment loan products are now a bigger part of our business than our short-term loan products.
At Enova, we strive to be trustworthy and transparent in our lending and customer service practices to help borrowers choose the right type of loan and the right lender for their individual needs. We own and operate several direct to borrower online brands including CashNetUSA and NetCredit in the United States, QuickQuid, QuickQuid FlexCredit, Pounds to Pocket, and OnStride in the United Kingdom, DollarsDirect in Australia and Canada, and Simplic in Brazil. Our ability to identify underserved segments in a market and develop products and brands that connect customers with the credit they need is one of our core capabilities.
You will be investors in Enova, and we will do our best to transparently communicate our business plans and performance and introduce you to our people and our culture. The enclosed materials provide more details about Enova. If you have questions about anything, you can email me at ceo@enova.com.
Sincerely,
David Fisher
President and Chief Executive Officer
Enova International, Inc.
Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.
Preliminary Information Statement
(Subject to Completion, Dated [ ], 2014)
Information Statement
Distribution of Common Stock of
ENOVA INTERNATIONAL, INC.
This information statement is being furnished in connection with the distribution by Cash America International, Inc., or Cash America, of 80 percent of the shares of common stock of Enova International, Inc., or Enova, outstanding immediately prior to the distribution. To implement the distribution, Cash America will distribute shares of Enova common stock on a pro rata basis to the holders of Cash America common stock. Each of you, as a holder of Cash America common stock, will receive one share of Enova common stock for every [ ] shares of Cash America common stock that you held at 5:00 p.m. Eastern Time on [ ], 2014, the record date for the distribution. Following the distribution, Enova will hold, through its subsidiaries, the assets and liabilities associated with Cash Americas e-commerce business, which consists of its domestic and international online lending channels through which we offer consumer loans.
The distribution will be made in electronic book-entry form, without the delivery of any physical share certificates. Cash America will not distribute any fractional shares of Enova. Instead, the transfer agent will aggregate fractional shares of Enova into whole shares, sell the whole shares in the open market at prevailing rates and distribute the net cash proceeds pro rata to each holder who would otherwise have been entitled to receive fractional shares of Enova in the distribution. The number of shares of Cash America common stock that you currently own will not change as a result of the distribution.
The distribution will occur on [ ], 2014. Immediately after the distribution is completed, Enova will be an independent, publicly traded company. It is expected that the distribution will generally be tax-free to Cash America shareholders for United States federal income tax purposes, except to the extent that cash is received in lieu of fractional shares.
No vote of the shareholders of Cash America is required in connection with the distribution. We are not asking you for a proxy, and you are requested not to send us a proxy.
Cash America shareholders will not be required to pay any consideration for the shares of Enova common stock they receive in the distribution, and they will not be required to surrender or exchange shares of their Cash America common stock or take any other action in connection with the distribution. From and after the distribution, certificates representing Cash America common stock will continue to represent Cash America common stock. At that time, Cash Americas business will consist solely of its storefront retail services business, which is also referred to as its Retail Services Division or its retail services segment.
All of the outstanding shares of Enova common stock are currently owned by Cash America. There currently is no public trading market for Enova common stock. Enova intends to apply to list its common stock on the New York Stock Exchange under the ticker symbol ENVA. We anticipate that a limited market, commonly known as a when-issued trading market, for Enova common stock will develop on or shortly before the record date for the distribution and will continue up to and including the date the distribution occurs, and we anticipate that the regular-way trading of Enova common stock will begin on the first day of trading following the date the distribution occurs.
IN REVIEWING THIS INFORMATION STATEMENT, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DESCRIBED UNDER THE CAPTION RISK FACTORS BEGINNING ON PAGE 25 OF THIS INFORMATION STATEMENT.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS INFORMATION STATEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
The date of this information statement is [ ], 2014 .
Cash America first mailed this information statement to Cash America shareholders on or about [ ], 2014 .
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SUMMARY HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
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NOTE REGARDING THE USE OF CERTAIN TERMS
We use the following terms throughout this information statement to refer to the items indicated:
| The term Adjusted EBITDA means our net income excluding depreciation, amortization, interest, foreign currency transaction gains or losses, taxes and certain other expense items. Adjusted EBITDA is a financial measure that is not in conformity with generally accepted accounting principles in the United States, or GAAP, which we refer to as non-GAAP financial information. See Selected Historical Financial and Other Data for a reconciliation of Adjusted EBITDA, a non-GAAP measure, to Net Income for the years ended December 31, 2009, 2010, 2011, 2012 and 2013 and for the six months ended June 30, 2013 and 2014, and Summary Historical and Pro Forma Condensed Consolidated Financial Data for a reconciliation of Adjusted EBITDA to Net Income for the LTM Period (as defined below). Enova management believes Adjusted EBITDA is used by investors to analyze operating performance and evaluate our ability to incur and service debt and our capacity for making capital expenditures. Adjusted EBITDA is also useful to investors to help assess our estimated enterprise value. In addition, management believes that the adjustments for certain expense items are useful to investors to allow them to compare our financial results during the periods presented without the effect of those expense items. The computation of Adjusted EBITDA as presented may differ from the computation of similarly-titled measures provided by other companies. |
| Cash America refers to Cash America International, Inc., a Texas corporation, and, where appropriate in context, to one or more of its subsidiaries or all of them together, including Enova prior to the distribution and excluding Enova after the distribution. |
| The term distribution refers to the distribution of 80 percent of the outstanding shares of Enova common stock outstanding immediately prior to the distribution date by Cash America to shareholders of Cash America as of the record date. |
| The term distribution date means the date on which the distribution occurs. |
| The term e-commerce business or e-commerce segment refers to the operations of Cash Americas E-Commerce Division, which is composed of Cash Americas domestic and international online lending channels through which it offers or arranges consumer loans. In connection with the preparation for the proposed initial public offering of Enovas common stock in 2011 and 2012, which has since been abandoned, substantially all assets and liabilities related to the e-commerce business that were not previously held by Enova or its subsidiaries were transferred to Enova or its subsidiaries at that time. |
| Enova refers to Enova International, Inc., a Delaware corporation, and, where appropriate in context, to one or more of its subsidiaries or all of them taken together. |
| The term LTM Period means the last twelve-month period ended June 30, 2014. |
| The term online financial services business refers to the assets and liabilities associated with Cash Americas domestic and international e-commerce businesses, all of which are operated under Enova and its subsidiaries. |
| The term retail services business or retail services segment refers to all of the operations of Cash Americas Retail Services Division, which is composed of both domestic and international storefront locations that offer some or all of the following services: pawn loans, consumer loans, the purchase and sale of merchandise, check cashing and other ancillary products and services such as money orders, wire transfers, prepaid debit cards, tax filing services and auto insurance. Immediately following the distribution, Cash Americas business will consist solely of the retail services business, together with Cash Americas corporate operations. |
| The term separation refers to the separation of the e-commerce business from Cash Americas retail services business. |
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| The term transaction means any transaction whereby a customer is provided credit, whether through direct funding of a loan originated by us, through a loan funded by an unaffiliated lender in connection with our credit services organization and credit access business programs and certain other relationships with third-party lenders that we arrange and guarantee, and includes new loans, renewals (where the customer agrees to pay the current finance charge on a loan for the right to make payment of the outstanding principal balance of such loan at a later date plus an additional finance charge) and each advance on a line of credit; in some instances in the United Kingdom, customers agree to repay a new short-term consumer loan by making two or three finance charge payments with repayment of the amount loaned due with the last finance charge payment, and in these cases we consider the obligation to make the first payment as a new short term consumer loan and the obligation to make additional payments as renewals of that loan because the customer pays a finance charge when each payment is made, similar to a renewed loan. |
| We, us, our and company, unless the context requires otherwise, refer to Enova, the entity that holds, through its subsidiaries, the assets and liabilities associated with Cash Americas e-commerce business, as described above. |
| All references to $s in this information statement represent U.S. dollars, unless expressly stated otherwise (and foreign currencies have been converted to U.S. dollars as described in Note 1 to our consolidated financial statements for the year ended December 31, 2013 contained elsewhere herein). |
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INFORMATION STATEMENT SUMMARY
This summary highlights selected information from this information statement relating to Enovas separation from Cash America and the distribution of Enova common stock by Cash America to Cash Americas shareholders. For a more complete understanding of our business and the separation and the distribution, you should read the entire information statement carefully, particularly the discussion set forth under Risk Factors beginning on page [ ] of this information statement, and our audited and unaudited consolidated financial statements, our unaudited pro forma consolidated financial statements and the respective notes to those statements appearing elsewhere in this information statement.
Why Cash America Sent This Document to You
Cash America sent this document to you because you were a holder of Cash America common stock as of 5:00 p.m. Eastern Time on [ ] , 2014, the record date for the distribution of shares of Enova common stock. In the distribution, holders of Cash America common stock on the record date for the distribution will receive one share of Enova common stock for every [ ] shares of Cash America common stock owned. The distribution will be made in electronic book-entry form, without the delivery of any physical share certificates. Cash America will not distribute any fractional shares of Enova to shareholders. Instead, the transfer agent will aggregate fractional shares of Enova into whole shares, sell the whole shares in the open market at prevailing rates and distribute the net cash proceeds pro rata to each holder who would otherwise have been entitled to receive fractional shares of Enova in the distribution.
No action is required on your part to participate in the distribution, and you do not have to surrender or exchange your shares of Cash America common stock or pay cash or any other consideration to receive the shares of Enova common stock. From and after the distribution, certificates representing Cash America common stock will continue to represent Cash America common stock, which at that point will consist solely of the remaining businesses of Cash America that comprise the Retail Services Division. The number of shares of Cash America common stock that you currently own will not change as a result of the distribution.
This information statement describes the business of Enova, Enovas relationship with Cash America and how this transaction affects Cash America and its shareholders, and provides other information to assist you in evaluating the benefits and risks of holding or disposing of the Enova common stock that you will receive in the distribution.
Enovas Business
Company Overview
Enova is a leading provider of online financial services. In 2013, we extended approximately $2.6 billion in credit to borrowers. We currently offer or arrange loans to customers in thirty-three states in the United States and in the United Kingdom, Australia and Canada. In June 2014, we launched a pilot program in Brazil where we have begun arranging loans, and we are also launching a pilot program to serve customers in China. We use our proprietary technology, analytics and customer service capabilities to quickly evaluate, underwrite and fund loans, allowing us to offer consumers credit when and how they want it. Our customers include the large and growing number of consumers who have bank accounts but use alternative financial services because of their limited access to more traditional consumer credit from banks, credit card companies and other lenders. We believe our customers highly value our services as an important component of their personal finances because our products are convenient, quick and often less expensive than other available alternatives.
We were an early entrant into online lending, launching our online business in 2004, and have completed over 27 million transactions and collected approximately 12 terabytes of consumer behavior data since launch, allowing us to better analyze and underwrite our customer base. We attribute the success of our business to our
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advanced and innovative technology systems, the proprietary analytical models we use to predict loan performance, our sophisticated customer acquisition programs, our dedication to customer service and our talented employees. We have developed a proprietary underwriting system based on data we have collected over our ten years of online lending experience. This system employs advanced risk analytics to decide whether to approve loan transactions, to structure the amount and terms of the loans we offer pursuant to jurisdiction-specific regulations and to provide customers with their funds quickly and efficiently. Our systems closely monitor loan collection and portfolio performance data that we use to continually refine the analytical models and statistical measures used in making our credit, marketing and collection decisions.
Our flexible and scalable technology platform allows us to process and complete customers transactions quickly and efficiently. In 2013, we processed approximately 4.9 million transactions, and we continue to grow our loan portfolio and increase the number of customers we serve through both desktop and mobile platforms. Our highly customizable technology platform allows us to efficiently develop and deploy new products to adapt to evolving regulatory requirements and consumer preference, and to enter new markets quickly.
We have significantly diversified our business over the past several years and currently offer or arrange multiple loan products in the United States, the United Kingdom, Australia, Canada and Brazil. The loan products that we offer or arrange include short-term loans, installment loans and line of credit accounts. We generated revenue and Adjusted EBITDA of $816.8 million and $209.4 million, respectively, for the LTM Period. In 2012, we launched a new product in the United States designed to serve near-prime customers and recently we introduced a similar product in the United Kingdom. In June 2014, we launched a new pilot program in Brazil, and we are launching a pilot program to serve customers in China. We also intend to introduce new products to serve the needs of small businesses in the United States. These new products are intended to allow us to further diversify our product offerings, customer base and geographic scope. In 2013, we derived 51.7% of our total revenue from the United States and 48.3% of our total revenue internationally, with 97.4% of international revenue (representing 47.1% of our total revenue) generated in the United Kingdom. Our results from operations for the six-month period ended June 30, 2014 and for the year ended December 31, 2013 do not include the full impact of changes and expected changes in our U.K. operations resulting from recent regulatory and legislative changes. As a result, such results are not indicative of our future results of operations and cash flow from our U.K. operations. See Managements Discussion and Analysis of Financial Condition and Results of OperationsRecent Regulatory DevelopmentsFinancial Conduct Authority included elsewhere in this information statement for a discussion about our expectations for our U.K. business going forward.
Our online consumer loans provide customers with a deposit of funds to their bank account or debit card in exchange for a commitment to repay the amount deposited plus fees and/or interest. We originate, arrange, guarantee or purchase short-term consumer loans, installment loans and line of credit accounts.
| Short-term consumer loans. We offer or arrange short-term, small-denomination consumer loans in 24 states in the United States, the United Kingdom and Canada. Short-term loans are unsecured short-term loans written by us or by a third-party lender through our credit services organization and credit access business programs, which we refer to as our CSO programs, that we arrange and guarantee. Short-term loans generally have terms of seven to 90 days, with proceeds promptly deposited in the customers bank account or on a debit card in exchange for a pre-authorized debit from their account. Our short-term consumer loans contributed approximately 33.8% of our total revenue for the six months ended June 30, 2014, 50.9% in 2013, 69.6% in 2012 and 83.4% in 2011. |
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Installment loans . We offer unsecured multi-payment installment loan products in the United Kingdom and Australia and in 14 states in the United States. Generally, terms are between two and 12 months, but certain loans have available terms up to 60 months. Our installment loan products generally have higher principal amounts than short-term loans and are repaid in installments of both principal and interest over the term of the loan. These loans may be repaid early at any time with no |
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prepayment charges. Our installment loans contributed approximately 30.1% of our total revenue for the six months ended June 30, 2014, 26.6% in 2013, 19.1% in 2012 and 10.0% in 2011. |
| Line of credit accounts . We offer unsecured line of credit accounts in seven states in the United States and in the United Kingdom that allow customers to draw on the line of credit in increments of their choosing up to their credit limits. Customers may pay off their account balance in full at any time or make required minimum payments in accordance with the terms of the line of credit account. As long as the customers account is in good standing and has credit available, customers may continue to borrow on their line of credit. Our line of credit accounts contributed approximately 36.1% of our total revenue for the six months ended June 30, 2014, 22.3% in 2013, 11.1% in 2012 and 6.4% in 2011. |
We currently provide our services in the following countries:
| United States. We began our online business in the United States in May 2004. As of the date of this information statement, we provide services in 33 states under the names CashNetUSA at www.cashnetusa.com and NetCredit at www.netcredit.com. |
| United Kingdom . We provide our services in the United Kingdom under the names QuickQuid at www.quickquid.co.uk, QuickQuid FlexCredit at www.quickquidflexcredit.co.uk, Pounds to Pocket at www.poundstopocket.co.uk and OnStride Financial at www.onstride.co.uk. We began our QuickQuid short-term consumer loan business in July 2007, our Pounds to Pocket installment loan business in September 2010, our QuickQuid FlexCredit line of credit account business in March 2013 and our OnStride Financial near-prime installment loan business in April 2014. |
| Australia. We began providing services in Australia in May 2009, where we provide services under the name DollarsDirect at www.dollarsdirect.com.au. |
| Canada. We began providing services in Canada in October 2009. As of the date of this information statement, we provide services in the provinces of Ontario, British Columbia, Alberta and Saskatchewan under the name DollarsDirect at www.dollarsdirect.ca. |
| Brazil. We launched a pilot program in Brazil on June 30, 2014, where we arrange loans for a third party lender in accordance with applicable laws under the name Simplic at www.simplic.com.br. We also guarantee the payment of these loans by agreeing to purchase the loans from the third-party lender under certain circumstances. Our plans for Brazil will largely depend on our results from this pilot program. |
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We have achieved significant growth since we began our online business as we have expanded both our product offerings and the geographic markets we serve. This growth in product offerings and geographic markets has resulted in significant revenue diversification.
Our Industry
The Internet has transformed how consumers shop for and acquire products and services. According to International Data Corporation, global Internet usage increased 51% from 2009 to 2013, from 1.8 billion to 2.7 billion users, and is expected to increase an additional 33%, to 3.5 billion users, by 2017. As Internet accessibility has grown, a number of traditional financial services such as banking, bill payment and investing have become widely available online. A recent study by CFI Group found that approximately 82% of bank customers in a United States sample used their banks website at least once in the last 30 days. This level of use highlights the extent to which consumers now accept the Internet for conducting their financial transactions and are willing to entrust their financial information to online companies. Moreover, the CFI Group study suggests that bank customers are actually more likely to bank online than at a branch. We believe the increased acceptance of online financial services has led to an increased demand for online lending, the benefits of which include customer privacy, easy access, security, 24/7 availability, speed of funding and transparency of fees and interest.
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We use the Internet to serve the large and growing number of underbanked consumers who have bank accounts but use alternative financial services because of their limited access to more traditional consumer credit from banks, credit card companies and other lenders. Demand from these consumers has been fueled by several demographic and socioeconomic trends, including an overall increase in the population and stagnant to declining growth in the household income for working-class individuals. The necessity for alternative financial services was highlighted by a 2011 report from The National Bureau of Economic Research, which found that half of the Americans surveyed reported that it is unlikely that they would be able to gather $2,000 to cover a financial emergency, even if given a month to obtain funds.
We believe that consumers seek online lending services for numerous reasons, including because they often:
| prefer the simplicity, transparency and convenience of these services; |
| require access to financial services outside of normal banking hours; |
| have an immediate need for cash for financial challenges and unexpected expenses; |
| have been unable to access certain traditional lending or other credit services; |
| seek an alternative to the high cost of bank overdraft fees, credit card and other late payment fees and utility late payment fees or disconnect and reconnection fees; and |
| wish to avoid potential negative credit consequences of missed payments with traditional creditors. |
Competitive Strengths
We believe that the following competitive strengths position us well for continued growth:
| Significant operating history and first mover advantage. As an early entrant in the online lending sector, we have accumulated approximately 12 terabytes of customer data from more than 27 million transactions during the past ten years. This database allows us to market to a customer base with an established borrowing history as well as to better evaluate and underwrite new customers, leading to better loan performance. In order to develop a comparable database, we believe that competitors would need to incur high marketing and customer acquisition costs, overcome consumer brand loyalties and have sufficient capital to withstand higher early losses associated with unseasoned loan portfolios. Additionally, we are licensed in all jurisdictions which require licensing and believe that it would be difficult and time consuming for a new entrant to obtain such licenses. We have also created strong brand recognition over our ten year operating history and we continue to invest in our brands, such as CashNetUSA, NetCredit, Pounds to Pocket, QuickQuid, DollarsDirect, QuickQuid FlexCredit and OnStride Financial, to further increase our visibility. |
| Proprietary analytics, data and underwriting . We have developed a fully integrated decision engine that evaluates and rapidly makes credit and other determinations throughout the customer relationship, including automated decisions regarding marketing, underwriting, customer contact and collections. Our decision engine currently handles more than 100 algorithms and over 1,000 variables. These algorithms are constantly monitored, validated, updated and optimized to continuously improve our operations. Our proprietary models are built on ten years of lending history, using advanced statistical methods that take into account our experience with the millions of transactions we have processed during that time and the use of data from multiple third-party sources. Since we designed our system specifically for our specialized products, we believe our system provides more predictive assessments of future loan behavior than traditional credit assessments, such as Fair Isaacs Corporation, or FICO, and therefore, results in better evaluation of our customer base. |
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| Scalable and flexible technology platform. Our proprietary technology platform is designed to be powerful enough to handle the large volume of data required to evaluate customer applications and flexible enough to capitalize on changing customer preferences, market trends and regulatory requirements. This platform has enabled us to achieve significant growth over the last ten years as we have expanded both our product offerings and the geographic markets we serve. We began offering installment loans in the United States and United Kingdom in 2008 and 2010, respectively, and added line of credit products in the United States and United Kingdom in 2010 and 2013, respectively. We have experienced significant growth in these products, with revenue contribution from installment and line of credit products increasing from 11.7% of total revenue in 2010 to 48.9% of total revenue in 2013 and 66.1% of total revenue for the six months ended June 30, 2014. Similarly, total revenue contribution from our international operations, primarily in the United Kingdom, has grown at a compound annual growth rate of 73.8%, from $40.5 million, or 15.9% of total revenue in 2009, to $369.8 million, or 48.3% of total revenue in 2013. Our results from operations for the six-month period ended June 30, 2014 and for the year ended December 31, 2013 do not include the full impact of changes and expected changes in our U.K. operations resulting from recent regulatory and legislative changes. As a result, such results are not indicative of our future results of operations and cash flow from our U.K. operations. See Managements Discussion and Analysis of Financial Condition and Results of OperationsRecent Regulatory DevelopmentsFinancial Conduct Authority included elsewhere in this information statement for a discussion about our expectations for our U.K. business going forward. Due to the scalability of our platform, we were able to achieve this growth without significant investment in additional infrastructure, and over the past three years capital expenditures have averaged only 2.6% of revenue per year. We expect our advanced technology and underwriting platform to help continue to drive significant growth in our business. |
| Focus on consumer experience. We believe that alternative credit consumers are not adequately served by traditional lenders. To better serve these consumers, we use customer-focused business practices, including 24/7 customer service by phone, email, fax and web chat. We continuously work to improve customer satisfaction by evaluating information from website analytics, customer surveys, call center feedback and focus groups. Our call center teams receive training on a regular basis and are monitored by quality assurance managers. We believe customers who wish to access credit again often return to us because of our dedication to customer service, the transparency of our fees and interest charges and our adherence to trade association best practices. |
| Diligent regulatory compliance. We conduct our business in a highly regulated industry. We are focused on regulatory compliance and have devoted significant resources to comply with laws that apply to us, while we believe many of our online competitors have not. We tailor our lending products and services to comply with the specific requirements of each of the jurisdictions in which we operate, including laws and regulations relating to fees, loan durations and renewals or extensions, loan amounts, disclosures and underwriting requirements. Our compliance experience and proprietary technology platform allow us to launch new products and to enter new geographic regions with a focus on compliance with applicable laws and customer protection. We are members of industry trade groups, including the Online Lenders Alliance in the United States and the Consumer Finance Association in the United Kingdom, which have promulgated best practices for our industry that we have adopted. The flexibility of our online platform enables us to rapidly adapt our products as necessary to comply with changes in regulation, without the need for costly and time consuming retraining of store-based employees and other expenses faced by our storefront competitors. |
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Proven history of growth and profitability. Over the last five years, we grew our net consumer loans, which are the gross outstanding balances for our consumer loans carried in the consolidated balance sheets net of the allowance for estimated loan losses, at a compound annual growth rate of 49.5%, from $60.8 million as of December 31, 2009 to $303.5 million as of December 31, 2013. Over the same |
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period, our revenue grew at a compound annual growth rate of 31.6%, from $255.0 million in 2009 to $765.3 million in 2013, while Adjusted EBITDA grew at a compound annual growth rate of 36.3%, from $47.0 million to $162.2 million. Adjusted EBITDA has further improved to $209.4 million during the LTM Period. Adjusted EBITDA margin has likewise improved, increasing over 700 basis points from 18.4% of revenue in 2009 to 25.6% of revenue for the LTM Period. Our results from operations for the six-month period ended June 30, 2014 and for the year ended December 31, 2013 do not include the full impact of changes and expected changes in our U.K. operations resulting from recent regulatory and legislative changes. As a result, such results are not indicative of our future results of operations and cash flow from our U.K. operations. See Managements Discussion and Analysis of Financial Condition and Results of OperationsRecent Regulatory DevelopmentsFinancial Conduct Authority included elsewhere in this information statement for a discussion about our expectations for our U.K. business going forward. |
| Talented, highly educated employees. We believe we have one of the most skilled and talented teams of professionals in the industry. Our employees have exceptional educational backgrounds, with numerous post-graduate and undergraduate degrees in science, technology, engineering and mathematics fields. We hire and develop top talent from graduate and undergraduate programs at institutions such as Carnegie Mellon University, Northwestern University and the University of Chicago. The extensive education of our team is complemented by the experience our leadership team obtained at leading technology firms and financial services companies such as Intel, optionsXpress, First American Bank and JPMorgan Chase. |
Growth Strategy
| Increase penetration in existing markets through direct marketing . We believe that we have reached only a small number of the potential customers for our products and services in the markets in which we currently operate. We continue to focus on our direct customer acquisition channels, with direct marketing (traditional and digital) generating more than 52% of our new customer transactions in 2013, as compared to 32% in 2009. We believe these channels will ultimately allow us to reach a larger customer base at a lower acquisition cost than the traditional online lead purchasing model. Additionally, as our smaller and less sophisticated competitors, both online and storefront, struggle to adapt to both regulatory developments and evolving consumer preference, we believe we have the opportunity to gain significant market share. |
| Expand globally to reach new markets . We intend to build on our global reach by entering new markets, particularly in Latin America and Asia. When pursuing geographic expansion, factors we consider include, among others, whether there is (i) widespread Internet usage, (ii) an established and interconnected banking system and (iii) government policy that promotes the extension of credit. Our launches into the United Kingdom in 2007 and Australia and Canada in 2009 demonstrate that we can quickly and efficiently enter new markets. Our revenue from international operations has increased from $1.6 million in 2007, or 0.9% of our total revenue, to $369.8 million in 2013, or 48.3% of our total revenue. Our results from operations for the six-month period ended June 30, 2014 and for the year ended December 31, 2013 do not include the full impact of changes and expected changes in our U.K. operations resulting from recent regulatory and legislative changes. As a result, such results are not indicative of our future results of operations and cash flow from our U.K. operations. See Managements Discussion and Analysis of Financial Condition and Results of OperationsRecent Regulatory DevelopmentsFinancial Conduct Authority included elsewhere in this information statement for a discussion about our expectations for our U.K. business going forward. We launched a new pilot program in Brazil on June 30, 2014, and we are launching a new pilot program in China and believe that these countries have significant populations of underserved consumers. |
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| Introduce new products and services . We plan to attract new categories of consumers not served by traditional lenders through the introduction of new products and services. We have introduced new products to expand our businesses from solely single-payment consumer loans to installment loans and line of credit accounts, using our analytics expertise and our flexible and scalable technology platform. We are also introducing new products to serve the needs of small businesses in the United States. In addition, we intend to continue to evaluate and offer new products and services that complement our online specialty financial services in order to meet the growing needs of our consumers, both in the United States and internationally. In 2012, we launched NetCredit, a longer duration installment loan product for near-prime consumers in the United States, and we recently launched OnStride Financial, a similar near-prime product, in the United Kingdom. |
Credit Agreement and Financing
Our outstanding indebtedness consists of:
| an unsecured revolving line of credit in an aggregate principal amount of up to $75 million, or the revolving line of credit; and |
| $500 million in aggregate principal amount of 9.75% Senior Notes due 2021, or the Notes. |
We entered into our Credit Agreement for our revolving line of credit on May 14, 2014, or the Credit Agreement. Our Credit Agreement allows us to borrow, repay and re-borrow funds up to an aggregate principal amount of $75 million and also includes a $20 million sub-limit for commercial and stand-by letters of credit. Our Credit Agreement will mature on June 30, 2017. However, if our guarantees of Cash Americas indebtedness and other material Cash America debt in excess of $1.0 million are not released and terminated on or before March 31, 2015, our Credit Agreement will instead mature on March 31, 2015. Our guarantees of Cash Americas indebtedness will be released upon completion of the distribution. The revolving line of credit under the Credit Agreement was undrawn as of June 30, 2014.
On May 30, 2014, we issued and sold the Notes. The Notes bear interest at a rate of 9.75% and were sold at a discount of the principal amount thereof to yield 10.0% to maturity. The Notes were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended, or the Securities Act, and outside the United States pursuant to Regulation S under the Securities Act. We used all of the net proceeds of the Note offering to repay all of our intercompany indebtedness due to Cash America, which was $361.4 million as of May 30, 2014, and the remaining net proceeds were used to pay a significant portion of a dividend to Cash America on May 30, 2014. See Certain Relationships and Related-Party TransactionsHistorical Relationship with Cash America for additional information regarding the dividend paid to Cash America on May 30, 2014.
See Financing Arrangements for additional information regarding our outstanding indebtedness and our guarantees of Cash Americas indebtedness.
Recent DevelopmentsDevelopments in Our Business in the United Kingdom
During the six-month periods ended June 30, 2014 and June 30, 2013 and the twelve-month period ended December 31, 2013, our U.K. operations generated 45.7%, 48.6% and 47.1%, respectively, of our consolidated total revenue. Recent regulatory changes in the United Kingdom will significantly affect future results from our U.K. operations as described below.
In the United Kingdom, supervision of consumer credit was transferred on April 1, 2014 to the Financial Conduct Authority, or the FCA, and pursuant to new legislation, the FCA is authorized to adopt prescriptive rules and regulations and to impose stringent requirements on what a lender may and may not do. On February 28, 2014,
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the Consumer Credit Sourcebook was issued under the FCA Handbook and incorporates prescriptive regulations for lenders such as us, including mandatory affordability assessments on borrowers, limiting the number of rollovers to two, restricting how lenders can advertise, banning advertisements it deems misleading, and introducing a limit of two unsuccessful attempts on the use of continuous payment authority (which provides a creditor the ability to directly debit a customers account for payment when authorized by the customer to do so) to pay off a loan. We are in frequent communication with the FCA in an effort to demonstrate that we satisfy the expectations of the FCA, and we have made and are continuing to make significant modifications to many of our business practices to address the FCAs requirements. These modifications include adjustments to our affordability assessment practices and underwriting standards that govern who will qualify for a loan from us, reductions in certain maximum loan amounts, alterations to advertising practices and adjustments to collections processes (including our practices related to continuous payment authority) and debt forbearance processes (or our practices regarding customers who have indicated they are experiencing financial difficulty). In addition, we previously have not had a physical presence in the United Kingdom as business functions have been performed remotely from our facilities in the United States. In order to alleviate concerns in relation to our ability to presently demonstrate to the FCA that we are capable of being effectively supervised, we are establishing an office in the United Kingdom.
In connection with implementing these changes to our U.K. business, we expect a significant year-over-year decrease in our U.K. loan volume, U.K. loan balances and U.K. revenue for the remainder of 2014 and potentially into 2015 as a result of adapting our U.K. business practices in response to the requirements of the FCA. The implementation of stricter affordability assessments and underwriting standards will result in a decrease in the number of consumer loans written, the average consumer loan amount and the total amount of consumer loans written to new and returning customers. Additionally, we will experience an increase in compliance- and administrative-related costs for the United Kingdom, but the overall expenses of our U.K. business (including our cost of revenue) are expected to decrease as our U.K. business contracts. The ultimate impact of the changes we are making to our U.K. operations will be dependent on a number of factors (some of which may be unforeseen), including the effectiveness of our execution of the operational changes, the impact the FCAs requirements may have on our competitors that could result in a potential increase in our market share, and consumer reaction to the changes occurring to our services, among other things. The impact potentially could also be offset by an improved performance of our U.K. consumer loan portfolio as a result of stricter affordability assessments and underwriting standards being implemented, which is expected to result in lower consumer loan loss rates, and by continued strong demand for the online loan products we offer in the U.S. and other markets. We are still assessing the potential impact of the changes we are making to our U.K. operations and what effect such changes may have on our business, but the impact of these changes is likely to be significant for the balance of 2014 and potentially into 2015.
On July 15, 2014, the FCA issued a consultation paper that proposed a cap on the total cost of high-cost, short-term credit and requested comments on the proposal. The consultation paper proposed a maximum rate of 0.8% of principal per day, and the proposal limits the total fees, interest (including post-default interest) and charges (including late fees which are capped at £15) to an aggregate amount not to exceed 100% of the principal amount loaned. The FCA has requested comments on the proposal and is expected to issue a final rule in November 2014. The final rule on a cost of credit cap will likely become effective by January 2, 2015, as required by the 2013 amendment to the Financial Services and Markets Act 2000. If the final rule adopted by the FCA is comparable to the proposed rule, we will need to make additional changes to certain of the products we offer in the United Kingdom, including increasing the minimum monthly payment under our line of credit products offered in the United Kingdom. We are still assessing the full impact of the potential cost of credit cap changes as they are currently proposed; however, after we have made all of the other changes to our U.K. business described above, we do not currently expect the impact of the modifications made to address a final cost of credit rule that tracks the proposed parameters to be significant.
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The results for the six-month period ended June 30, 2014 do not include the full impact of the changes described above, and the results for the six-month period ended June 30, 2013 and the twelve-month period ended December 31, 2013 do not include any impact of the changes described above. The results for each of these periods are not indicative of our future results of operations and cash flows from our operations in the United Kingdom. For recent developments related to the FCA, including concerns that have been expressed by the FCA regarding our compliance with U.K. legal and regulatory requirements, such as the requirement that our business be capable of being effectively supervised by the FCA given our location outside the United Kingdom and compliance with FCA rules and principles relating to affordability assessments and debt collection and forbearance processes, see Risk FactorsRisks Related to Our Business and Industry Our primary regulators in the United Kingdom have expressed and continue to express serious concerns about our compliance with applicable U.K. regulations, which has caused and will continue to cause us to make significant changes to our U.K. business that will negatively impact our operations and results, and this impact will likely be significant , Due to restructuring of the consumer credit regulatory framework in the United Kingdom, we are required to obtain full authorization from our U.K. regulators to continue providing consumer credit and perform related activities in the United Kingdom, and there is no guarantee that we will receive full authorization to continue offering consumer loans in the United Kingdom and The United Kingdom has imposed, and continues to impose, increased regulation of the short-term high-cost credit industry with the stated expectation that some firms will exit the market.
Corporate Information
We were incorporated under the laws of the State of Delaware on September 7, 2011. On September 13, 2011, Cash America contributed to us all of the capital stock of the subsidiaries owned by it through which Cash America had engaged in its e-commerce business prior to the contribution in exchange for 33 million shares of our common stock. Our principal executive offices are located at 200 W. Jackson Blvd., Suite 2400, Chicago, Illinois 60606, and our telephone number is (312) 568-4200. Our corporate website is located at www.enova.com. The information contained on or accessible from our websites is not incorporated by reference into this information statement, and you should not consider information on or accessible from our websites as part of this information statement.
Market and Industry Data
The market and industry data contained in this information statement, including trends in our markets and our position within such markets, are based on a variety of sources, including our good faith estimates, which are derived from our review of internal surveys, information obtained from customers and publicly available information, as well as from independent industry publications, reports by market research firms and other published independent sources. Although we believe these sources are reliable, we have not independently verified the information. None of the independent industry publications used in this information statement were prepared on our or Cash Americas behalf.
Questions and Answers about the Separation and the Distribution
Q: Why is Cash America separating its e-commerce business from its retail services business?
A: Cash America has two reportable operating segments: retail services and e-commerce. Cash Americas retail services segment is composed of both domestic and international storefront locations that offer some or all of the following services: pawn loans, consumer loans, the purchase and sale of merchandise, check cashing and other ancillary services such as money orders, wire transfers, prepaid debit cards, tax filing services and auto insurance. Cash Americas e-commerce segment is composed of domestic and international online lending channels through which we offer consumer loan products. The e-commerce segment is operated by Enova. The Board of Directors and management of Cash America believe that the separation of the two operating segments
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and the distribution of 80% of the outstanding shares of our common stock will allow each company to pursue a more focused, industry-specific strategy; enable the management of each company to concentrate resources wholly on its particular market segments, regulatory requirements, customers and core businesses, with greater ability to anticipate and respond to changing markets and opportunities; and allow each company to recruit and retain employees with expertise directly applicable to its needs.
See The Separation and the DistributionReasons for the Separation and the Distribution included elsewhere in this information statement.
Q: How will Cash America accomplish the separation and the distribution?
A: Enova or its subsidiaries hold substantially all of the assets and liabilities associated with Cash Americas e-commerce segment. In the distribution, Cash America will distribute to its shareholders 80 percent of the outstanding shares of Enovas common stock. See The Separation and the DistributionManner of Effecting the Separation and the Distribution included elsewhere in this information statement.
Q: What will I receive as a result of the distribution?
A: Holders of Cash America common stock will receive one share of Enova common stock for every [ ] shares of Cash America common stock held at 5:00 p.m. Eastern Time on [ ] , 2014, the record date for the distribution. The distribution will be made in electronic book-entry form, without the delivery of any physical share certificates. Cash America will not distribute any fractional shares of Enova. Instead, the transfer agent will aggregate fractional shares of Enova into whole shares, sell the whole shares in the open market at prevailing rates and distribute the net cash proceeds pro rata to each holder who would otherwise have been entitled to receive fractional shares of Enova in the distribution.
Q: What is the record date for the distribution, and when will the distribution occur?
A: The record date is [ ] , 2014, and ownership will be determined as of 5:00 p.m., Eastern Time, on that date. When we refer to the record date, we are referring to that time and date. Cash America will distribute shares of Enova common stock on [ ] , 2014, which we refer to as the distribution date.
Q: Is shareholder approval required for the distribution?
A: Shareholder approval is not required for the distribution. The distribution of Enova will be accomplished by distributing the shares of Enova common stock to holders of Cash America common stock as a dividend. Accordingly, the dividend of the shares of Enova common stock will be approved by the Cash America Board of Directors pursuant to its statutory authority under Texas law to declare and pay a dividend.
Q: What do I have to do to receive my shares of Enova common stock?
A: Nothing. You do not need to take any action, but we urge you to read this entire document carefully, particularly the discussion set forth under Risk Factors. No shareholder approval of the distribution is required or sought. You are not being asked for a proxy. You are not required to make any payment, surrender or exchange any of your shares of Cash America common stock or take any other action to receive your shares of Enova common stock.
Q: When and how will I receive my shares of Enova common stock?
A: If your Cash America shares are registered directly in your own name with Cash Americas transfer agent, including Cash America shares held in certificate form, then you are considered a shareholder of record. If you
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are a record holder and are entitled to participate in the distribution, then you will receive a book-entry account statement from Cash Americas transfer agent reflecting ownership of Enova shares. Your account statement reflecting the Enova shares will be mailed to you on or about [ ] , 2014. You should allow several days for the mail to reach you.
If you hold your Cash America shares through your broker or other nominee, you are probably not a shareholder of record and your receipt of Enova shares depends on your arrangements with your broker or other nominee that holds your Cash America shares for you. Cash America anticipates that brokers and other nominees generally will credit their customers accounts with Enova shares on or about [ ] , 2014, but you should check with your broker or other nominee. See The Separation and the DistributionWhen and How You Will Receive the Distribution of Enova Shares.
Q: How will shares of Enova common stock be distributed to me and will I receive a stock certificate for Enova shares?
A: Cash America will distribute the shares of Enova common stock by book-entry. If you are a record holder of Cash America common stock as of 5:00 p.m., Eastern Time, on the record date then you will receive from our transfer agent shortly after [ ] , 2014, a statement of your book-entry account for the shares of Enova common stock that are distributed to you. You will not receive physical stock certificates for your shares of Enova common stock. If you are not a record holder of Cash America common stock as of 5:00 p.m., Eastern Time, on the record date because your shares are held on your behalf by your broker or other nominee, then your shares of Enova common stock should be credited to your account with your broker or nominee on or about [ ] , 2014. For more information, record holders in the United States should contact Cash Americas transfer agent, Computershare, at (800) 546-5141. Shareholders from outside the United States may call Computershare at (201) 680-6578. See The Separation and the DistributionWhen and How You Will Receive the Distribution of Enova Shares.
Q: How will fractional shares be treated in the distribution?
A: Cash America will not distribute any fractional shares of Enova common stock to Cash America shareholders. Fractional shares of Enova common stock to which Cash America shareholders of record would otherwise be entitled will be aggregated and sold in the public market by the transfer agent. The aggregate net proceeds of the sales will be distributed pro rata to each holder who would otherwise have been entitled to receive a fractional share of Enova in the distribution. See The Separation and the DistributionTreatment of Fractional Shares. Proceeds from these sales will generally result in a taxable gain or loss to those shareholders. Each shareholder entitled to receive cash proceeds from these shares should consult his, her or its own tax adviser as to such shareholders particular circumstances. The tax consequences of the distribution are described in more detail under The Separation and the DistributionMaterial U.S. Federal Income Tax Consequences of the Distribution.
Q: What are the conditions to the distribution?
A: The distribution is subject to a number of conditions, including, among others:
| the U.S. Securities and Exchange Commission, or the SEC, declaring effective our registration statement on Form 10, of which this information statement is a part, under the Securities Exchange Act of 1934, as amended, or the Exchange Act, with no order suspending the effectiveness of the registration statement in effect and no proceedings for such purposes pending before or threatened by the SEC; |
| any required actions and filing with regard to state securities and blue sky laws of the United States (and any comparable laws under any foreign jurisdictions) will have been taken and, where applicable, will have become effective or been accepted; |
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| the shares of Enova common stock to be distributed shall have been approved for listing on the NYSE, subject to official notice of issuance; |
| prior to the distribution, the information statement will have been mailed to the holders of Cash America common stock as of the record date; |
| the receipt of a private letter ruling from the Internal Revenue Service, or IRS, by Cash America in form and substance satisfactory to Cash America in its sole discretion to the effect that the retention by Cash America of up to 20% of Enovas stock will not be in pursuant to a plan having as one of its principal purposes the avoidance of U.S. federal income tax within the meaning of Section 355(a)(1)(D)(ii) of the Internal Revenue Code of 1986, as amended, or the Code, and such private letter ruling shall not have been revoked or modified in any material respect; |
| the receipt of an opinion from tax counsel to Cash America to the effect that the distribution will qualify as a transaction that is tax-free for U.S. federal income tax purposes under Sections 355(a) of the Code; |
| the receipt of an opinion from an independent financial advisor to the Board of Directors of Cash America confirming the solvency and financial viability of Cash America before the distribution and each of Cash America and Enova after the distribution that is in form and substance acceptable to Cash Americas Board of Directors in its sole discretion; |
| no order, injunction, decree or regulation issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the separation, distribution or any of the related transactions shall be in effect; |
| all licenses and filings necessary to be obtained or made by Enova have been obtained or made; |
| any government approvals and other material consents necessary to consummate the distribution will have been obtained and be in full force and effect; |
| the Separation and Distribution Agreement, Tax Matters Agreement, Transition Services Agreement, Stockholders and Registration Rights Agreement, Credit Underwriting Services Agreement, Marketing and Customer Referral Agreement and other ancillary agreements to be entered into between Cash America and Enova upon or prior to the distribution, as required by Cash Americas Board of Directors in its judgment, will have been entered into between Cash America and Enova and will not have been terminated; see Certain Relationships and Related-Party TransactionsAgreements Between Us and Cash America; |
| no other event or development existing or having occurred that, in the judgment of Cash Americas Board of Directors, in its sole discretion, makes it inadvisable to effect the separation, distribution and other related transactions; and |
| approval of the separation and distribution by the affirmative vote of Cash Americas Board of Directors. |
Cash America and Enova cannot assure you that any or all of these conditions will be met. In addition, Cash America can decline at any time to go forward with the distribution. For a complete discussion of all of the conditions to the distribution, see The Separation and the DistributionConditions to the Distribution.
Q: Can Cash America decide to cancel the distribution even if all of the conditions have been satisfied?
A: Yes. Until the distribution has occurred, Cash America has the right to terminate the distribution, even if all the conditions have been satisfied, if the Board of Directors of Cash America determines that the distribution is not in the best interest of Cash America and its shareholders or that market conditions or other circumstances are such that the separation of Enova and Cash America is no longer advisable at that time.
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Q: If I sell shares of Cash America stock that I held on the record date on or before the distribution date am I still entitled to receive shares of Enova common stock in the distribution?
A: Beginning on or shortly before the record date and continuing up to and including the distribution date, we expect there will be two markets in Cash America common stock: a regular way market and an ex-distribution market. Shares of Cash America common stock that trade on the regular way market will trade with an entitlement to receive shares of Enova common stock to be distributed in the distribution. Shares of Cash America that trade on the ex-distribution market will trade without an entitlement to receive shares of Enova common stock to be distributed in the distribution, so that holders who sell their shares of Cash America common stock after the record date but before the distribution date in the ex-distribution market will still be entitled to receive shares of Enova common stock even though they have sold their shares of Cash America common stock after the record date. Therefore, if you owned shares of Cash America common stock on the record date and sell those shares on the regular way market before the distribution date, you will also be selling the shares of our common stock that would have been distributed to you in the distribution. You are encouraged to consult with your financial adviser regarding the specific implications of selling your Cash America common stock prior to the distribution date.
Q: Will the distribution affect the number of shares of Cash America I currently hold?
A: No. The number of shares of Cash America common stock held by a shareholder will be unchanged. The market value of each Cash America share, however, is likely to decline to reflect the impact of the distribution. See The Separation and the DistributionResults of the Separation and the Distribution included elsewhere in this information statement.
Q: What if I have stock certificates reflecting my shares of Cash America common stock? Should I send them to the transfer agent or to Cash America?
A: No. You should not send your stock certificates to the transfer agent or to Cash America. You should retain your Cash America stock certificates.
Q: Will my shares of Cash America common stock continue to trade?
A: Yes. Cash America common stock will continue to be listed and trade on the NYSE under the ticker symbol CSH.
Q: Will the distribution affect the market price of my Cash America shares?
A: Yes. As a result of the distribution, Cash America expects the trading price of Cash Americas common shares immediately following the distribution to be lower than the regular-way trading price of such shares immediately prior to the distribution because the trading price will no longer reflect the value of the e-commerce business held by Enova. Cash America believes that over time following the separation, assuming the same market conditions and the realization of the expected benefits of the separation, the Cash America common stock and the Enova common stock should have a higher aggregate market value as compared to what the market value of Cash America common stock would be if the separation and distribution did not occur. There can be no assurance, however, that such a higher aggregate market value will be achieved. This means, for example, that the combined trading prices of one Cash America common share and [ ] share[s] of Enova common stock after the distribution may be equal to, greater than or less than the trading price of one Cash America common share before the distribution. See The Separation and the DistributionMarket for Our Common Stock and Trading Between the Record Date and the Distribution Date. Furthermore, until the market has fully analyzed the value of Enova and Cash America after the distribution, Cash America may experience more stock price volatility than usual.
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Q: Where will my shares of Enova common stock be traded?
A: We intend to apply to list the shares of Enova common stock on the New York Stock Exchange under the ticker symbol ENVA following the completion of the distribution. See The Separation and the Distribution Market for Our Common Stock.
Q: When will I be able to trade my shares of Enova common stock?
A: There is no current trading market for Enova common stock, although we expect that a limited market, commonly known as a when-issued trading market, will develop prior to the distribution date. We expect regular-way trading of Enova common stock to begin on the first trading day following the completion of the distribution.
Q: What is Enovas dividend policy?
A: We do not anticipate that Enova will pay any dividends on its common stock in the foreseeable future. The future payment of dividends, if any, on Enovas common stock is within the discretion of Enovas Board of Directors and will depend on Enovas earnings, capital requirements, financial condition and other relevant factors. In addition, the terms of the Notes and Enovas Credit Agreement limit Enovas ability to pay future dividends.
Q: What are the U.S. federal income tax consequences of the distribution to me?
A: The distribution is conditioned upon, among other matters, Cash Americas receipt of a private letter ruling from the IRS in form and substance satisfactory to Cash America in its sole discretion, to the effect that the retention by Cash America of up to 20% of Enovas stock will not be in pursuant to a plan having as one of its principal purposes the avoidance of U.S. federal income tax within the meaning of Section 355(a)(1)(D)(ii) of the Code and the receipt of tax opinions from Cash Americas tax advisors that the distribution will qualify as a tax-free distribution by Cash America to its shareholders under Section 355(a) of the Code.
Cash America has applied for a private letter ruling from the IRS, and expects to receive an opinion from its special tax counsel, to the effect that the distribution will so qualify. On the basis that the distribution so qualifies, for U.S. federal income tax purposes, you will not recognize any gain or loss, and no amount will be included in your income, upon your receipt of shares of Enova common stock pursuant to the distribution, except with respect to any cash received in lieu of fractional shares.
You should consult your own tax adviser as to the particular consequences of the distribution to you, including the applicability and effect of any U.S. federal, state and local tax laws, as well as foreign tax laws, which may result in the distribution being taxable to you. For more information, see The Separation and the DistributionMaterial U.S. Federal Income Tax Consequences of the Distribution included elsewhere in this information statement.
Q: How will I determine the tax basis I will have in my Cash America shares after the distribution and the Enova shares I receive in the distribution?
A: Generally, for U.S. federal income tax purposes, your aggregate basis in your shares of Cash America common stock and the shares of Enova common stock you receive in the distribution (including any fractional share for which cash is received) will equal the aggregate basis of Cash America common stock held by you immediately before the distribution. This aggregate basis should be allocated between your shares of Cash America common stock and the shares of Enova common stock you receive in the distribution (including any fractional share for which cash is received) in proportion to the relative fair market value of each immediately following the distribution. See The Separation and the DistributionMaterial U.S. Federal Income Tax Consequences of the Distribution.
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Q: How will Enova be managed?
A: Prior to the distribution, in an amendment to this information statement, we will disclose the additional directors who will serve on our Board of Directors following the separation from Cash America. See Corporate Governance and Management for information regarding our executive officers and board members.
Q: What will happen to the short- and long-term incentive compensation programs of Enova employees that were established by Cash America under its short- and long-term incentive plans?
A: Following the separation, we expect that the cash-based short-term incentive plans established by Cash Americas Compensation Committee for our officers and certain employees for 2014 will continue to be effected under substantially the same terms as originally established by Cash America, and we will pay amounts earned under the 2014 short-term incentive plan. We do not intend to adjust the terms of the outstanding short-term cash incentive plans for 2014, which are based on our performance in 2014, although certain adjustments to the financial targets may be made to reflect the different cost and expenses of our operating as a separate company.
With the exception of our Chief Executive Officer, none of our executive officers or employees have outstanding equity-based awards relating to Cash America common stock. Our Chief Executive Officers equity-based award grant relating to shares of Cash America common stock will vest upon completion of the distribution or January 29, 2015, whichever occurs first. As a result, there will be no special treatment required for equity-based awards relating to Cash America stock granted to our executive officers and employees.
Cash-based performance unit awards that were granted to our officers and certain other employees as long-term incentive compensation in 2012, 2013 and 2014 that are scheduled to vest within twelve months from the date of the separation will instead become vested on the effective date of the separation, with the vested value to be paid in cash. Any remaining portion of these cash-based performance unit awards that are scheduled to vest more than twelve months after the date of our separation, if any, will be terminated. The value of these cash-based performance awards that vest on the effective date of the termination will be determined based on our earnings before interest, taxes, depreciation and amortization, adjusted for certain items, subject to achievement of certain thresholds that must be met. For more information see The Separation and the DistributionTreatment of Short- and Long-term Incentive Compensation.
Q: What will the relationship be between Cash America and Enova after the separation and distribution?
A: Following the distribution, Enova will be an independent, publicly owned company, and Cash America will retain 20 percent of the outstanding common stock of Enova. In connection with the separation and the distribution, Enova will enter into a Separation and Distribution Agreement and several other agreements with Cash America for the purpose of both effecting the separation and governing the relationship of Cash America and Enova following the separation. Enova also will enter into a Stockholders and Registration Rights Agreement with Cash America pursuant to which, among other things, Enova will agree that, upon the request of Cash America, it will use its best efforts to effect the registration under applicable securities laws of the shares of common stock retained by Cash America. We describe these agreements in more detail under Certain Relationships and Related-Party TransactionsAgreements Between Us and Cash America included elsewhere in this information statement.
Q: What does Cash America intend to do with the shares of Enova common stock that it retains?
A: Cash America will dispose of its retained shares of Enova (other than the shares retained for delivery under Cash Americas long-term incentive plans) as soon as practical consistent with the business reasons for the retention, but in no event later than five years after the distribution.
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The holders of outstanding unvested restricted stock units, or RSUs, vested deferred RSUs, unvested deferred RSUs and certain deferred shares payable to Cash Americas directors relating to Cash America common stock under Cash Americas long-term incentive plans will be entitled to receive shares of Enova on or after the distribution date in the same ratio of the shareholders of Cash America with vesting and payment schedules consistent with the terms underlying the applicable Cash America equity awards. Cash America intends to reserve approximately [] shares of our common stock from the 20% of our common stock that it retains, representing approximately []% of our outstanding shares, for delivery to holders of such awards or rights to deferred shares.
Q: How will Cash America vote the shares of Enova common stock that it retains?
A: Cash America will agree to vote the shares of Enova common stock that it retains in proportion to the votes cast by Enovas other stockholders and to grant Enova a proxy with respect to such shares. For additional information see Certain Relationships and Related-Party TransactionsAgreements Between Us and Cash AmericaStockholders and Registration Rights Agreement included elsewhere in this information statement.
Q: What are Enovas financing arrangements?
A: Our outstanding indebtedness consists of our revolving line of credit and the Notes.
We entered into our Credit Agreement for our revolving line of credit on May 14, 2014. Our Credit Agreement allows us to borrow, repay and re-borrow funds up to an aggregate principal amount of $75 million and also includes a $20 million sub-limit for commercial and stand-by letters of credit. Our Credit Agreement will mature on June 30, 2017. However, if our guarantees of Cash Americas indebtedness and other material Cash America debt in excess of $1.0 million are not released and terminated on or before March 31, 2015, our Credit Agreement will instead mature on March 31, 2015. Our guarantees of Cash Americas indebtedness will be released upon completion of the distribution. Interest on the loans borrowed under the Credit Agreement will be charged, at our option, at either the London Interbank Offered Rate, or LIBOR, for one week or one-, two-, three- or six-month periods, as selected by us, plus a margin varying from 2.50% to 3.75% or at the agents base rate plus a margin varying from 1.50% to 2.75%. The revolving line of credit under the Credit Agreement was undrawn as of June 30, 2014.
On May 30, 2014, we issued and sold the Notes. The Notes bear interest at a rate of 9.75% and were sold at a discount of the principal amount thereof to yield 10.0% to maturity. The Notes were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended, or the Securities Act, and outside the United States pursuant to Regulation S under the Securities Act. We used all of the net proceeds of the Note offering, or $479.0 million, to repay all of our intercompany indebtedness due to Cash America, which was $361.4 million as of May 30, 2014, and the remaining net proceeds were used to pay a significant portion of a dividend to Cash America on May 30, 2014. See Certain Relationships and Related-Party TransactionsHistorical Relationship with Cash America for additional information regarding dividends paid to Cash America.
See Financing Arrangements for additional information regarding our outstanding indebtedness and our guarantees of Cash Americas indebtedness.
Q: Are there risks to owning Enova common stock?
A: Yes. There are risks associated with Enovas business, the separation and the distribution, the incurrence by Enova of its indebtedness, and Enovas operation as an independent, publicly traded company. These risks are described in the section entitled Risk Factors included elsewhere in this information statement. We encourage you to read that entire section carefully.
17
Q: Will any anti-takeover protections exist following the distribution?
A: Certain provisions of Enovas amended and restated certificate of incorporation and amended and restated bylaws may have the effect of making the acquisition of control of Enova in a transaction not approved by our Board of Directors more difficult. See Description of Capital StockAnti-Takeover Provisions.
Q: Do I have appraisal rights in connection with the distribution?
A: No. Holders of Cash America common stock are not entitled to appraisal rights in connection with the distribution.
Q: Where can I get more information?
A: If you have any questions relating to the transfer or mechanics of the stock distribution, you should contact the distribution agent:
Computershare
211 Quality Circle
Suite 210
College Station, TX 77845
-or-
P.O. Box 30170
College Station, TX 77842-3170
(800) 546-5141 or (201) 680-6578
For other questions relating to the separation or the distribution, prior to the distribution, or for questions relating to Cash Americas stock after the distribution, you should contact Cash Americas investor relations department:
Cash America International, Inc.
1600 West 7 th Street
Fort Worth, Texas 76102
(800) 645-0623
Attention: Director of Investor Relations
For other questions relating to the separation or the distribution, after the distribution, you should contact Enovas Vice PresidentChief Financial Officer:
Enova International, Inc.
200 W. Jackson Blvd., Suite 2400
Chicago, Illinois 60606
(312) 568-4200
Attention: Vice PresidentChief Financial Officer
18
The Separation and the Distribution
Distributing Company |
Cash America is currently the sole stockholder of Enova. Immediately after the distribution, Cash America will own 20 percent of the outstanding shares of Enovas common stock. |
Distributed Company |
Enova is currently a wholly-owned subsidiary of Cash America. After the distribution, Enova will be an independent, publicly traded company. |
Distribution Ratio |
One share of Enova common stock for every [ ] shares of Cash America common stock held on the record date. |
Shares to be Distributed |
Cash America will distribute 80 percent of the shares of Enova common stock outstanding immediately before the distribution. Based on approximately [ ] shares of Cash America common stock outstanding as of [ ] , 2014, assuming distribution of 80 percent of our common stock and applying the distribution ratio (without accounting for cash to be issued in lieu of fractional shares), we expect that approximately 26,400,000 shares of Enova common stock will be distributed to Cash America shareholders and approximately 6,600,000 shares of Enova common stock will be retained by Cash America. |
Record Date for Distribution |
The record date for the distribution is 5:00 p.m. Eastern Time on [ ] , 2014. |
Distribution Date |
The distribution date is [ ] , 2014. |
Fractional Shares |
The distribution agent will not distribute any fractional shares of Enova common stock to Cash America shareholders. Instead, it will aggregate fractional shares of Enova into whole shares, sell the whole shares in the open market at prevailing rates and distribute the net cash proceeds pro rata to each holder who would otherwise have been entitled to receive fractional shares of Enova in the distribution. Cash America shareholders will not be entitled to any interest on the amount of any payment made in lieu of a fractional share. |
Distribution Method |
The distribution will be made in electronic book-entry form, without delivery of any physical share certificates. Registered shareholders will receive additional information from the distribution agent shortly before the distribution date. Beneficial holders will receive information from their brokerage firms. |
Conditions to the Distribution |
The distribution is subject to the satisfaction, or waiver by Cash America, of the following conditions, among others: |
|
The Securities and Exchange Commission, or the SEC, will have declared effective our registration statement on Form 10, of which this information statement is a part, under the Securities Exchange Act of 1934, as amended, or the Exchange Act, with |
19
no order suspending the effectiveness of the registration statement in effect and no proceedings for such purposes pending before or threatened by the SEC. |
| Any required actions and filings with regard to state securities and blue sky laws of the United States (and any comparable laws under any foreign jurisdictions) will have been taken and, where applicable, will have become effective or been accepted. |
| Enovas common stock will have been approved for listing on the NYSE, subject to official notice of issuance. |
| Prior to the distribution, the information statement will have been mailed to the holders of Cash America common stock as of the record date. |
| Cash America will have received a private letter ruling from the IRS in form and substance satisfactory to Cash America in its sole discretion, to the effect that the retention by Cash America of up to 20% of Enovas stock will not be in pursuant to a plan having as one of its principal purposes the avoidance of U.S. federal income tax within the meaning of Section 355(a)(1)(D)(ii) of Code, and such private letter ruling shall not have been revoked or modified in any material respect. |
| Cash America will have received an opinion of its special tax counsel, in a form satisfactory to Cash America, to the effect that the contribution and distribution will qualify as a transaction that is described in Sections 355(a) of the Code. |
| the receipt of an opinion from independent financial advisor to the Board of Directors of Cash America confirming the solvency and financial viability of Cash America before the distribution and each of Cash America and Enova after the distribution that is in form and substance acceptable to Cash Americas Board of Directors in its sole discretion. |
| No order, injunction, decree or regulation issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing completion of the distribution will be in effect. |
| All licenses and filings necessary to be obtained or made by Enova have been obtained or made. |
| Any government approvals and other material consents necessary to consummate the distribution will have been obtained and be in full force and effect. |
|
The Separation and Distribution Agreement, Tax Matters Agreement, Transition Services Agreement, Stockholders and Registration Rights Agreement, Credit Underwriting Services Agreement, Marketing and Customer Referral Agreement and other ancillary agreements to be entered into between Cash America and Enova upon or prior to the distribution, as required by Cash Americas Board of Directors in its judgment, will have |
20
been entered into between Cash America and Enova and will not have been terminated. See Certain Relationships and Related-Party TransactionsAgreements Between Us and Cash America. |
| No other event or development existing or having occurred that, in the judgment of Cash Americas Board of Directors, in its sole discretion, makes it inadvisable to effect the separation, distribution and other related transactions. |
| Approval of the separation and distribution by the affirmative vote of Cash Americas Board of Directors. |
Stock Exchange Listing |
There currently is not a public market for Enova common stock. We intend to apply to list Enova common stock on the NYSE under the symbol ENVA. |
Dividend Policy after the Distribution |
After the distribution, we do not anticipate paying any cash dividends on our common stock in the foreseeable future. See Dividend Policy included elsewhere in this information statement. |
Distribution Agent, Transfer Agent and Registrar for Our Shares of Common Stock |
Computershare |
211 Quality Circle
Suite 210
College Station, TX 77845
-or-
P.O. Box 30170
College Station, TX 77842-3170
(800) 546-5141 or (201) 680-6578
U.S. Federal Income Tax Consequences |
On the basis that the distribution, together with certain related transactions, will qualify as a reorganization for U.S. federal income tax purposes, no gain or loss will be recognized by a shareholder of Cash America, and no amount will be included in the income of a shareholder of Cash America for U.S. federal income tax purposes, upon the receipt of shares of our common stock pursuant to the distribution, except with respect to any cash received in lieu of fractional shares. For more information regarding the potential U.S. federal income tax consequences to you of the distribution, see The Separation and the DistributionMaterial U.S. Federal Income Tax Consequences of the Distribution. |
21
SUMMARY HISTORICAL AND PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following table presents our summary historical consolidated financial data for the periods indicated. The data as of December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011 have been derived from, and should be read together with, the consolidated financial statements for such years and accompanying notes thereto included elsewhere in this information statement, which statements have been audited by PricewaterhouseCoopers LLP. The data as of and for the six-month periods ended June 30, 2014 and 2013 have been derived from, and should be read together with, the unaudited interim consolidated financial statements that are included elsewhere in this information statement and that, in our opinion, include all adjustments, consisting of normal, recurring adjustments, necessary for the fair presentation of such information. The data for the LTM Period was calculated by subtracting the unaudited data for the six-month period ended June 30, 2013 from the data for the year ended December 31, 2013, and adding the unaudited data for the six-month period ended June 30, 2014.
Our historical results are not necessarily indicative of future operating results. You should read the information set forth below in conjunction with Selected Historical Financial and Other Data, Managements Discussion and Analysis of Financial Condition and Results of Operations and the historical consolidated financial statements for the year ended December 31, 2013 and the related notes included elsewhere in this information statement.
(In thousands, except per share) | ||||||||||||||||||||||||
SIX MONTHS ENDED
JUNE 30, |
LTM
ENDED JUNE 30, 2014 |
YEAR ENDED DECEMBER 31, | ||||||||||||||||||||||
2014 | 2013 | 2013 | 2012 | 2011 | ||||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||||||||
Statement of Income Data: |
||||||||||||||||||||||||
Revenue |
$ | 409,947 | $ | 358,455 | $ | 816,815 | $ | 765,323 | $ | 660,928 | $ | 480,340 | ||||||||||||
Cost of Revenue |
133,276 | 138,158 | 310,170 | 315,052 | 288,474 | 201,687 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross Profit |
276,671 | 220,297 | 506,645 | 450,271 | 372,454 | 278,653 | ||||||||||||||||||
|
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|
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|
|
|
|
|
|
|
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Expenses |
||||||||||||||||||||||||
Marketing |
59,306 | 58,069 | 136,573 | 135,336 | 108,810 | 73,329 | ||||||||||||||||||
Operations and technology |
35,008 | 34,546 | 71,238 | 70,776 | 63,505 | 52,371 | ||||||||||||||||||
General and administrative |
51,358 | 43,888 | 91,890 | 84,420 | 72,690 | 65,401 | ||||||||||||||||||
Depreciation and amortization |
8,434 | 9,028 | 16,549 | 17,143 | 13,272 | 11,263 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total Expenses |
154,106 | 145,531 | 316,250 | 307,675 | 258,277 | 202,364 | ||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income from Operations |
122,565 | 74,766 | 190,395 | 142,596 | 114,177 | 76,289 | ||||||||||||||||||
Interest expense |
(12,065 | ) | (9,829 | ) | (22,024 | ) | (19,788 | ) | (20,996 | ) | (17,420 | ) | ||||||||||||
Foreign currency transaction loss |
(400 | ) | (286 | ) | (1,290 | ) | (1,176 | ) | (342 | ) | (487 | ) | ||||||||||||
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Income before Income Taxes |
110,100 | 64,651 | 167,081 | 121,632 | 92,839 | 58,382 | ||||||||||||||||||
Provision for income taxes |
39,416 | 23,415 | 59,595 | 43,594 | 33,967 | 21,350 | ||||||||||||||||||
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|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net Income |
$ | 70,684 | $ | 41,236 | $ | 107,486 | $ | 78,038 | $ | 58,872 | $ | 37,032 | ||||||||||||
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|
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Earnings Per Share: |
||||||||||||||||||||||||
Earnings per common share, basic and diluted |
$ | 2.14 | $ | 1.25 | $ | 3.26 | $ | 2.36 | $ | 1.78 | $ | 1.12 | ||||||||||||
Weighted average common shares outstanding, basic and diluted |
33,000 | 33,000 | 33,000 | 33,000 | 33,000 | 33,000 | ||||||||||||||||||
Pro forma Statement of Income Data: (a) |
||||||||||||||||||||||||
Pro forma net income |
$ | 61,626 | $ | 57,092 | ||||||||||||||||||||
Pro forma earnings per share |
$ | 1.87 | $ | 1.73 |
22
(In thousands, except per share) | ||||||||||||||||||||||||
SIX MONTHS ENDED
JUNE 30, |
LTM
ENDED JUNE 30, 2014 |
YEAR ENDED DECEMBER 31, | ||||||||||||||||||||||
2014 | 2013 | 2013 | 2012 | 2011 | ||||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||||||||
Other Financial Data: |
||||||||||||||||||||||||
Adjusted EBITDA (b) |
$ | 130,999 | $ | 83,794 | $ | 209,444 | $ | 162,239 | $ | 131,328 | $ | 87,552 | ||||||||||||
Capital expenditures |
$ | 6,828 | $ | 4,846 | $ | 16,854 | $ | 14,872 | $ | 17,872 | $ | 15,073 | ||||||||||||
Gross profit margin |
67.5 | % | 61.5 | % | 62.0 | % | 58.8 | % | 56.4 | % | 58.0 | % | ||||||||||||
Adjusted EBITDA margin (b) |
32.0 | % | 23.4 | % | 25.6 | % | 21.2 | % | 19.9 | % | 18.2 | % | ||||||||||||
Domestic revenue |
$ | 217,873 | $ | 178,933 | $ | 434,489 | $ | 395,549 | $ | 334,066 | $ | 254,752 | ||||||||||||
International revenue |
$ | 192,074 | $ | 179,522 | $ | 382,326 | $ | 369,774 | $ | 326,862 | $ | 225,588 | ||||||||||||
Number of employees (at period end) |
1,079 | 1,023 | 1,079 | 1,027 | 993 | 872 | ||||||||||||||||||
Balance Sheet Data (at period end): |
||||||||||||||||||||||||
Cash and cash equivalents (c) |
$ | 79,785 | $ | 50,210 | $ | 79,785 | $ | 47,480 | $ | 37,548 | $ | 34,411 | ||||||||||||
Consumer loans, net (c) |
$ | 291,966 | $ | 232,930 | $ | 291,966 | $ | 303,467 | $ | 228,390 | $ | 162,985 | ||||||||||||
Total assets (c) |
$ | 727,613 | $ | 620,674 | $ | 727,613 | $ | 692,152 | $ | 612,868 | $ | 529,740 | ||||||||||||
Long-term debt (d) |
$ | 493,863 | $ | 397,894 | $ | 493,863 | $ | 424,133 | $ | 427,889 | $ | 410,964 | ||||||||||||
Total stockholders equity (d) |
$ | 122,432 | $ | 132,854 | $ | 122,432 | $ | 173,048 | $ | 97,416 | $ | 41,849 | ||||||||||||
Other Operating Data: |
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Combined consumer loan balances, gross |
||||||||||||||||||||||||
Short-term loans (e) |
$ | 95,055 | $ | 157,306 | $ | 95,055 | $ | 122,165 | $ | 194,679 | $ | 182,939 | ||||||||||||
Installment loans |
177,211 | 130,217 | 177,211 | 179,230 | 121,570 | 60,213 | ||||||||||||||||||
Line of credit accounts |
122,409 | 58,071 | 122,409 | 125,802 | 42,700 | 21,648 | ||||||||||||||||||
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|
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|
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Total combined consumer loan balances, gross (e) |
$ | 394,675 | $ | 345,594 | $ | 394,675 | $ | 427,197 | $ | 358,949 | $ | 264,800 | ||||||||||||
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(a) | Derived from our unaudited pro forma consolidated statements of income for the year ended December 31, 2013 and the six months ended June 30, 2014, which are included elsewhere in the information statement and gives effect to the issuance of the Notes and Credit Agreement and the resulting repayment of all of our intercompany indebtedness due to Cash America and the payment of a dividend to Cash America as if these transactions had occurred as of January 1, 2013 and 2014, respectively. See Unaudited Pro Forma Consolidated Financial Statements. |
(b) | The table below shows a reconciliation of Adjusted EBITDA, a non-GAAP measure, to Net Income and Adjusted EBITDA as a percentage of total revenue, which is Adjusted EBITDA margin (dollars in thousands): |
SIX MONTHS ENDED
JUNE 30, |
LTM
ENDED JUNE 30, 2014 |
YEAR ENDED DECEMBER 31, | ||||||||||||||||||||||
2014 | 2013 | 2013 | 2012 | 2011 | ||||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||||||||
Net income |
$ | 70,684 | $ | 41,236 | $ | 107,486 | $ | 78,038 | $ | 58,872 | $ | 37,032 | ||||||||||||
Regulatory penalty (1) |
| | 2,500 | 2,500 | | | ||||||||||||||||||
Withdrawn IPO (2) |
| | | | 3,879 | | ||||||||||||||||||
Interest expense, net |
12,065 | 9,829 | 22,024 | 19,788 | 20,996 | 17,420 | ||||||||||||||||||
Provision for income taxes |
39,416 | 23,415 | 59,595 | 43,594 | 33,967 | 21,350 | ||||||||||||||||||
Depreciation and amortization |
8,434 | 9,028 | 16,549 | 17,143 | 13,272 | 11,263 | ||||||||||||||||||
Foreign currency transaction loss |
400 | 286 | 1,290 | 1,176 | 342 | 487 | ||||||||||||||||||
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Adjusted EBITDA |
$ | 130,999 | $ | 83,794 | $ | 209,444 | $ | 162,239 | $ | 131,328 | $ | 87,552 | ||||||||||||
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Revenue |
$ | 409,947 | $ | 358,455 | $ | 816,815 | $ | 765,323 | $ | 660,928 | $ | 480,340 | ||||||||||||
Adjusted EBITDA |
$ | 130,999 | $ | 83,794 | $ | 209,444 | 162,239 | 131,328 | 87,552 | |||||||||||||||
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Adjusted EBITDA margin |
32.0 | % | 23.4 | % | 25.6 | % | 21.2 | % | 19.9 | % | 18.2 | % | ||||||||||||
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23
(1) | On November 20, 2013, Cash America consented to the issuance of a Consent Order by the CFPB pursuant to which it agreed, without admitting or denying any of the facts or conclusions made by the CFPB from its 2012 review of Cash America and us, to pay a civil money penalty of $5 million, of which we and Cash America agreed to allocate $2.5 million of this penalty to us, or the Regulatory Penalty. For the year ended December 31, 2013, this figure represents the amount paid in connection with the Regulatory Penalty, which is nondeductible for tax purposes. |
(2) | For the year ended December 31, 2012, this figure represents costs of $3.9 million, net of tax benefit of $1.5 million, related to our withdrawn Registration Statement in July 2012 in connection with efforts in pursuit of an initial public offering. |
(c) | Cash and cash equivalents, Consumer loans, net, and Total assets as of December 31, 2011 were revised to correct the classification of cash and accounts payable and to correct for consumer loans that had not funded as of the balance sheet date. The correction resulted in a decrease in cash and cash equivalents of $3.7 million, a decrease in consumer loans, net of $1.0 million and a decrease in accounts payable and accrued expenses of $4.7 million as of December 31, 2011. Management determined that the impact on previously issued financial statements was immaterial; however, management determined it was appropriate to correct the presentation for the year ended December 31, 2011. |
(d) | Long-term debt and total stockholders equity as of December 31, 2011 were revised to correct the classification of certain net equity transactions with Cash America. Management determined that the impact on previously issued financial statements was immaterial; however, management determined it was appropriate to correct the presentation herein. The correction resulted in increases of $0.1 million to long-term debt and $0.3 million to total stockholders equity as of December 31, 2011. |
(e) | See Managements Discussion and Analysis of Financial Condition and Results of OperationsNon-GAAP DisclosureCombined Consumer Loans for additional information about combined consumer loans. The table below shows combined consumer loan balances, a non-GAAP measure, which is composed of Company-owned consumer loan balances as reported on our consolidated balance sheets and consumer loans originated by third party lenders through the CSO programs that are not included in our financial statements but are disclosures required by GAAP. The amounts in the table below reflect the revision amounts from (c) above (in thousands): |
JUNE 30, | DECEMBER 31, | |||||||||||||||||||
2014 | 2013 | 2013 | 2012 | 2011 | ||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||
Short-term loan balances, gross: |
||||||||||||||||||||
Company owned |
$ | 60,140 | $ | 121,890 | $ | 80,753 | $ | 146,472 | $ | 140,178 | ||||||||||
Guaranteed by the Company |
34,915 | 35,416 | 41,412 | 48,207 | 42,761 | |||||||||||||||
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Combined |
$ | 95,055 | $ | 157,306 | $ | 122,165 | $ | 194,679 | $ | 182,939 | ||||||||||
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Total consumer loan balances, gross: |
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Company owned |
$ | 359,760 | $ | 310,178 | $ | 385,785 | $ | 310,742 | $ | 222,039 | ||||||||||
Guaranteed by the Company |
34,915 | 35,416 | 41,412 | 48,207 | 42,761 | |||||||||||||||
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Combined |
$ | 394,675 | $ | 345,594 | $ | 427,197 | $ | 358,949 | $ | 264,800 | ||||||||||
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24
RISK FACTORS
You should carefully consider each of the following risks, together with all of the other information in this information statement, in evaluating our common stock. Some of the following risks relate to the distribution of our common stock, including the effect of such distribution on Cash America. Other risks relate to our business, our indebtedness, the securities markets and ownership of our common stock. Our business may also be adversely affected by risks and uncertainties not presently known to us or that we currently believe are immaterial. If any of the following risks and uncertainties develop into actual events, we could be materially and adversely affected. If this occurs, the trading price of our common stock could decline, and you may lose all or part of your investment.
Risks Related to Our Business and Industry
Our business is highly regulated, and if we fail to comply with applicable laws, regulations, rules and guidance, our business could be adversely affected.
Our products and services are subject to extensive regulation, supervision and licensing under various federal, state, local and foreign statutes, ordinances, regulations, rules and guidance. These requirements generally mandate licensing or authorization as a lender or as a credit services organization or credit access business, or CSO, establish limits on the amount, duration, renewals or extensions of and charges for (including interest rates and fees) various categories of loans, direct the form and content of our loan contracts and other documentation, restrict collection practices, outline underwriting requirements and subject us to periodic examination and ongoing supervision by regulatory authorities, among other things. Because short-term loans, installment loans and line of credit accounts, such as those provided by us, are viewed as extensions of credit in the United States, we must comply with certain federal laws, such as the federal Truth in Lending Act, or TILA, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Electronic Funds Transfer Act, the Gramm-Leach-Bliley Act and Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, among other laws, and with respect to our CSO programs, the Fair Debt Collection Practices Act, as well as regulations adopted to implement those laws. In addition, our marketing and disclosure efforts and the representations made about our products and services are subject to unfair and deceptive practice statutes, including the Federal Trade Commission Act, the Telephone Consumer Protection Act and the CAN-SPAM Act of 2003 in the United States and analogous state statutes under which the Federal Trade Commission, or the FTC, the Consumer Financial Protection Bureau, or the CFPB, state attorneys general or private plaintiffs may bring legal actions.
We are also subject to various international laws, licensing or authorization requirements and disciplinary actions in connection with the products or services we offer in Australia, Brazil, Canada, and the United Kingdom, which are discussed below. Compliance with applicable laws, regulations, rules and guidance requires forms, processes, procedures, training, controls and the infrastructure to support these requirements. Compliance may also create operational constraints, be costly or adversely affect operating results. See Regulation and Legal Proceedings for further discussion of the laws applicable to us.
The regulatory environment in which we conduct our business is extensive and complex. From time to time we become aware of instances where our products and services have not fully complied with requirements under applicable laws and regulations or applicable contracts. Determinations of compliance with applicable requirements or contracts, such as those discussed above, can be highly technical and subject to varying interpretations. When we become aware of such an instance, whether as a result of our compliance reviews, regulator inquiry, customer complaint or otherwise, we generally conduct a review of the activity in question and determine how to address it, such as modifying the product, making customer refunds or providing additional disclosure. We also evaluate whether reports or other notices to regulators are required and provide notice to regulators whenever required. In some cases we have decided to take corrective action even after applicable statutory or regulatory cure periods, and in some cases we have notified regulators even where such notification
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may not have been required. Regulators reviewing such incidents may interpret the laws and regulations differently than we have, or may choose to take regulatory action against us notwithstanding the corrective measures we have taken. This may be the case even if we no longer offer the product or service in question.
State, federal and international regulators, as well as the plaintiffs bars, have subjected our industry to intense scrutiny in recent years. Failure to comply with applicable laws, regulations, rules and guidance, or any finding that our past forms, practices, processes, procedures, controls or infrastructure were insufficient or not in compliance, could subject us to regulatory enforcement actions, result in the assessment against us of civil, monetary, criminal or other penalties (some of which could be significant in the case of knowing or reckless violations), result in the issuance of cease and desist orders (which can include orders for restitution, as well as other kinds of affirmative relief), require us to refund interest or fees, result in a determination that certain loans are not collectible, result in a revocation of licenses or authorization to transact business, result in a finding that we have engaged in unfair and deceptive practices, limit our access to services provided by third-party financial institutions or cause damage to our reputation, brands and valued customer relationships.
Our failure to comply with any regulations, rules or guidance applicable to our business could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows and could prohibit or directly or indirectly impair our ability to continue current operations.
The consumer lending industry continues to be targeted by new laws or regulations in many jurisdictions that could restrict the short-term consumer lending products and services we offer, impose additional compliance costs on us, render our current operations unprofitable or even prohibit our current operations.
Governments at the national, state and local levels, as well as foreign governments, may seek to impose new laws, regulatory restrictions or licensing requirements that affect the products or services we offer, the terms on which we may offer them, and the disclosure, compliance and reporting obligations we must fulfill in connection with our business. They may also interpret or enforce existing requirements in new ways that could restrict our ability to continue our current methods of operation or to expand operations, impose significant additional compliance costs, and may have a negative effect on our business, prospects, results of operations, financial condition and cash flows. In some cases these measures could even directly prohibit some or all of our current business activities in certain jurisdictions, or render them unprofitable and/or impractical to continue.
In recent years, consumer loans, and in particular the category commonly referred to as payday loans, which includes certain of our short-term loan products, have come under increased regulatory scrutiny that has resulted in increasingly restrictive regulations and legislation that makes offering such loans in certain states in the United States or the foreign countries where we operate (as further described below) less profitable or unattractive. Laws or regulations in some states in the United States require that all borrowers of certain short-term loan products be reported to a centralized database and limit the number of loans a borrower may receive or have outstanding. Other laws limit the availability of some of our consumer loan products in the United States to active duty military personnel, active members of the National Guard or members on active reserve duty and their immediate dependents.
Certain consumer advocacy groups and federal and state legislators and regulators have advocated that laws and regulations should be tightened so as to severely limit, if not eliminate, the type of loan products and services we offer, and this has resulted in both the executive and legislative branches of the U.S. federal government and state governmental bodies exhibiting an interest in debating legislation that could further regulate consumer loan products and services such as those that we offer. The U.S. Congress, as well as similar state and local bodies and similar foreign governmental authorities, have debated, and may in the future adopt, legislation that could, among other things, place a cap on the interest or fees that we can charge or a cap on the effective annual percentage rate that limits the amount of interest or fees that may be charged, ban or limit loan renewals or extensions (where the customer agrees to pay the current finance charge on a loan for the right to make payment of the outstanding principal balance of such loan at a later date plus an additional finance charge), including the
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rates to be charged for loan renewals or extensions, require us to offer an extended payment plan, allow for only minimal origination fees for loans, require changes to our underwriting or collections practices, require short-term lenders to be bonded or require lenders to report consumer loan activity to databases designed to monitor or restrict consumer borrowing activity, impose cooling off periods between the time a loan is paid off and another loan is obtained or prohibit us from providing any of our consumer loan products in the United States to active duty military personnel, active members of the National Guard or members on active reserve duty and their immediate dependents.
Significant new laws and regulations have also been adopted in the United Kingdom, and further new laws and regulations will continue to be imposed. See The United Kingdom has imposed, and continues to impose, increased regulation of the short-term high-cost credit industry with the stated expectation that some firms will exit the market .
We cannot currently assess the likelihood of any future unfavorable federal, state, local or foreign legislation or regulations being proposed or enacted that could affect our products and services. We closely monitor proposed legislation in jurisdictions where we offer consumer loan products. There can be no assurance that additional legislative or regulatory provisions will not be enacted that would severely restrict, prohibit or eliminate our ability to offer a consumer loan product. In addition, under statutory authority, U.S. state regulators have broad discretionary power and may impose new licensing requirements, interpret or enforce existing regulatory requirements in different ways or issue new administrative rules, even if not contained in state statutes, that could adversely affect the way we do business and may force us to terminate or modify our operations in particular states or affect our ability to obtain new licenses or renew the licenses we hold.
Furthermore, legislative or regulatory actions may be influenced by negative perceptions of us and our industry, even if such negative perceptions are inaccurate, attributable to conduct by third parties not affiliated with us (such as other industry members), or attributable to matters not specific to our industry.
Any of these or other legislative or regulatory actions that affect our consumer loan business at the national, state, foreign and local level could, if enacted or interpreted differently, have a material adverse impact on our business, prospects, results of operations, financial condition and cash flows and could prohibit or directly or indirectly impair our ability to continue current operations.
The Consumer Financial Protection Bureau has examination authority over our U.S. business that could have a significant impact on our U.S. business.
In July 2010, the U.S. Congress passed the Dodd-Frank Act, and Title X of the Dodd-Frank Act created the CFPB, which regulates U.S. consumer financial products and services, including consumer loans offered by us. The CFPB has regulatory, supervisory and enforcement powers over providers of consumer financial products and services, such as us, including explicit supervisory authority to examine and require registration of such providers.
The CFPB has begun exercising supervisory review over and examining certain non-bank providers of consumer financial products and services, including providers of consumer loans such as us. The CFPBs examination authority permits CFPB examiners to inspect the books and records of providers of short-term, small dollar lenders, such as us, and ask questions about their business practices, and the examination procedures include specific modules for examining marketing activities; loan application and origination activities; payment processing activities and sustained use by consumers; collections, accounts in default, and consumer reporting activities as well as third-party relationships. As a result of these examinations of non-bank providers of consumer credit, we could be required to change our practices or procedures, whether as a result of another party being examined or as a result of an examination of us, or we could be subject to monetary penalties, which could materially adversely affect us.
Furthermore, because the CFPB is a relatively new entity, its practices and procedures regarding examination, enforcement and other matters relevant to us and other CFPB-regulated entities are subject to further
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development and change. Where the CFPB holds powers previously assigned to other regulators, there can be no assurance that the CFPB will continue to apply such powers or interpret relevant concepts consistent with previous regulators practice. This may adversely affect our ability to anticipate the CFPBs expectations or interpretations in our interaction with the CFPB.
The CFPB also has broad authority to prohibit unfair, deceptive and abusive acts and practices and to investigate and penalize financial institutions that violate this prohibition. In addition to having the authority to obtain monetary penalties for violations of applicable federal consumer financial laws (including the CFPBs own rules), the CFPB can require remediation of practices, pursue administrative proceedings or litigation and obtain cease and desist orders (which can include orders for restitution or rescission of contracts, as well as other kinds of affirmative relief). Also, where a company has violated Title X of the Dodd-Frank Act or CFPB regulations implemented thereunder, the Dodd-Frank Act empowers state attorneys general and state regulators to bring civil actions to remedy violations of state law. If the CFPB or one or more state attorneys general or state regulators believe that we have violated any of the applicable laws or regulations, they could exercise their enforcement powers in ways that could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.
We are subject to a Consent Order issued by the Consumer Financial Protection Bureau, and any noncompliance would materially adversely affect our business.
On November 20, 2013, Cash America consented to the issuance of a Consent Order by the CFPB pursuant to which it agreed, without admitting or denying any of the facts or conclusions made by the CFPB from its 2012 review of Cash America and us, to pay a civil money penalty of $5 million. Cash America also agreed to set aside $8 million for a period of 180 days to fund any further payments to eligible Ohio customers in connection with Cash Americas program to reimburse certain Ohio customers in connection with legal collections proceedings initiated by Cash America, or the Ohio Reimbursement Program. The Consent Order also relates to issues self-disclosed to the CFPB during its 2012 examination of Cash America and us, including the making of a limited number of loans to consumers who may have been active duty members of the military at the time of the loan at rates in excess of the interest rate permitted by the federal Military Lending Act, for which we have made refunds of approximately $33,500; for certain failures to timely provide and preserve records and information in connection with the CFPBs examination of us and Cash America; for certain conduct in the examination process; and certain conduct giving rise to the Ohio Reimbursement Program initiated by Cash America. In addition, as a result of the CFPBs review, we are in the process of enhancing our compliance management programs and implementing additional policies and procedures to address the issues identified by the CFPB. We are also required to provide periodic reports to the CFPB. We are subject to the restrictions and obligations of the Consent Order, including the CFPBs order that we ensure compliance with federal consumer financial laws and develop more robust compliance policies and procedures. These new policies, procedures and other initiatives are in many cases subject to review and potential objection by the CFPB, and no guarantee can be made regarding the timing, substance or effect of any such measures the CFPB may decide to take. Furthermore, the compliance plan mandated by the Consent Order requires us to perform a formal consumer protection compliance risk review before introducing or implementing new or changed products or services. This requirement could result in additional delay or cost when introducing or implementing new or changed products or services, or a decision not to proceed with such initiatives. Any noncompliance with the Consent Order or similar orders or agreements from other regulators could lead to further regulatory penalties and could have a material adverse impact on our business, prospects, results of operations, financial condition and cash flows and could prohibit or directly or indirectly impair our ability to continue current operations.
The CFPB has announced that it will soon promulgate new rules affecting our industry, and these or subsequent new rules and regulations may significantly restrict the conduct of our U.S. business.
On April 24, 2013, the CFPB issued a report entitled Payday Loans and Deposit Advance Products: A White Paper of Initial Findings, indicating that it had engaged in an in-depth review of short-term small dollar loans, including payday loans. The report discusses the initial findings of the CFPB regarding short-term payday loans,
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a category which the CFPB and some other regulators use to include certain of our short-term loan products, loans provided by non-bank financial institutions at storefront locations and deposit account advances offered by depository institutions. While the CFPBs study stated that these products may work for some consumers for whom an expense needs to be deferred for a short period of time, the CFPB also stated that its findings raised substantial consumer protection concerns related to the sustained use of payday loans and deposit account advances. The report also indicated that the CFPB planned to analyze the effectiveness of limitations such as cooling-off periods between payday loans, in curbing sustained use and other harms. In furtherance of that report, on March 25, 2014, the CFPB held a hearing on payday lending and issued a report entitled CFPB Data Point: Payday Lending, presenting the results of several analyses of consumers use of payday loans. The report presents the CFPBs findings as to borrowers loan sequences, which refers to a series of loans a borrower may take out following an initial loan. The CFPB found that payday borrowing typically involves multiple renewals following an initial loan, rather than distinct loans separated by at least 15 days. The report states that for the majority of loan sequences, there is no reduction in the principal amount between the first and last loan in the sequence. In the reports and subsequent statements, the CFPB reiterated its commitment to use its various tools to protect consumers from unlawful acts and practices in connection with the offering of consumer financial products and services. Both the April 24, 2013 white paper and the March 25, 2014 report indicated that online payday loans were not the focus of the CFPBs reports, but the CFPB has indicated that it is currently analyzing borrowing activity by consumers using online payday loans.
The CFPB announced that it is in the late stages of considering the formulation of rules regarding consumer loans, including certain of our short-term loan products, that will ensure that consumers can get the credit they need without long-term impact to their financial futures. These rules will likely impose limitations on payday lending. We do not currently know the nature and extent of the rules that the CFPB will adopt, but those rules could be proposed during 2014 and adopted in 2015. If the CFPB adopts any rules or regulations that significantly restrict the conduct of our business, any such rules or regulations could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows or could make the continuance of all or part of our U.S. business impractical or unprofitable. Any new rules or regulations adopted by the CFPB could also result in significant compliance costs.
The United Kingdom has imposed, and continues to impose, increased regulation of the short-term high-cost credit industry with the stated expectation that some firms will exit the market.
In the United Kingdom, we are subject to regulation by the Financial Conduct Authority, or the FCA, the Financial Services and Markets Act 2000, or the FSMA, the European Union Consumer Credit Directive, the Consumer Credit Act 1974, as amended, or the CCA, and secondary legislation passed under it, among other rules and regulations. In December 2012, the U.K. Parliament passed the Financial Services Act 2012, or the FSA Act 2012, which created a new regulatory framework for the supervision and regulation of the consumer credit industry in the United Kingdom, including the consumer lending industry in which we operate. The FSA Act 2012 mandated that, in April 2014, the FCA take over responsibility for regulating consumer credit from the Office of Fair Trading, or the OFT, and it also made changes to the relevant legislation including the CCA and the FSMA. During the period of transition of regulatory responsibility over consumer credit from the OFT to the FCA, the OFT continued to regulate consumer credit, including the short-term loan market.
The FCA regulates consumer credit and related activities pursuant to the FSMA and the FCA Handbook, which includes prescriptive rules and regulations and carries across many of the standards set out in the CCA and its secondary legislation as well as the OFTs previous Irresponsible Lending Guidance, or the Guidance. The regulations under the FCA consumer credit regime are more prescriptive than the former U.K. consumer credit regime and impose more stringent requirements relating to what a lender may and may not do. The FSMA gives the FCA the power to authorize, supervise, examine and bring enforcement actions against providers of consumer credit, as well as to make rules for the regulation of consumer credit. On February 28, 2014, the FCA issued the Consumer Credit Sourcebook, or the CONC, contained in the FCA Handbook. The CONC incorporates prescriptive regulations for consumer loans such as those that we offer, including mandatory affordability checks
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on borrowers, limiting the number of rollovers to two, restricting how lenders can advertise, banning advertisements it deems misleading, and introducing a limit of two unsuccessful attempts on the use of continuous payment authority (which provides a creditor the ability to directly debit a customers account for payment when authorized by the customer to do so) to pay off a loan. Certain provisions of the CONC took effect on April 1, 2014, and other provisions for high-cost short-term credit providers, such as the limits on rollovers, continuous payment authority and advertising, took effect on July 1, 2014. As a result of the FCAs requirements, we have made, and are in the process of making significant adjustments to many of our business practices in the United Kingdom, as discussed below under Our primary regulators in the United Kingdom have expressed and continue to express serious concerns about our compliance with applicable U.K. regulations, which has caused and will continue to cause us to make significant changes to our U.K. business that will negatively impact our operations and results, and this impact will likely be significant .
In addition, on December 18, 2013, the United Kingdom passed the Financial Services (Banking Reform) Act, which includes an amendment to the FSMA that requires the FCA to introduce rules with a view to securing an appropriate degree of protection for borrowers against excessive charges on high-cost short-term consumer loans. On July 15, 2014, the FCA issued a consultation paper proposing a cap on the total cost of credit and requesting comments on the proposal. The consultation paper proposed a maximum rate of 0.8% of principal per day, and the proposal limits the total fees, interest (including post-default interest) and charges (including late fees which are capped at £15) to an aggregate amount not to exceed 100% of the principal amount loaned. The FCA has requested comments on the proposal and is expected to issue a final rule in November 2014. The final rule on a cost of credit cap will likely become effective by January 2, 2015, as required by the 2013 amendment to the FSMA. As a result, we will need to change certain of the products that we offer, including increasing the minimum monthly payment under our line of credit products in the United Kingdom. We are still assessing the full impact of the potential cost of credit cap changes as they are currently proposed and what effect such changes may have on our business, prospects, results of operations, financial condition and cash flows; however, after we have made all of the other changes to our U.K. business discussed below under Our primary regulators in the United Kingdom have expressed and continue to express serious concerns about our compliance with applicable U.K. regulations, which has caused and will continue to cause us to make significant changes to our U.K. business that will negatively impact our operations and results, and this impact will likely be significant , we do not currently expect the impact of the modifications made to address a final cost of credit rule that tracks the proposed parameters to be significant. We can provide no assurance that the final rule that is adopted by the FCA will have similar parameters as the proposed rule, and if the final rule is more restrictive, we could have to make additional modifications to the products we offer in the United Kingdom or cease offering such products. Any changes we make to our U.K. business as a result of the final rule could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.
The FCA has stated that actions taken by it with respect to the payday industry will likely force a quarter or more of the firms out of the industry. During the six-month periods ended June 30, 2014 and June 30, 2013 and the twelve-month period ended December 31, 2013, our U.K. operations represented 45.7%, 48.6% and 47.1%, respectively, of our consolidated total revenue. The results for the six-month period ended June 30, 2014 and the year ended December 31, 2013 do not include the full impact of the changes described above, and the results for the six-month period ended June 30, 2013 do not include any impact of the changes described above. The results for each of these periods are not indicative of our future results of operations and cash flows from our operations in the United Kingdom.
These legislative or regulatory activities and changes that we have implemented or are required to implement in the future as a result of such legislative and regulatory activities could have a material adverse effect on our U.K. business, as further described below under Our primary regulators in the United Kingdom have expressed and continue to express serious concerns about our compliance with applicable U.K. regulations, which has caused and will continue to cause us to make significant changes to our U.K. business that will negatively impact our operations and results, and this impact will likely be significant , and Due to restructuring of the consumer credit regulatory framework in the United Kingdom, we are required to obtain full authorization from our U.K. regulators to continue providing consumer credit and perform related activities in the United Kingdom, and there is no guarantee that we will receive full authorization to continue offering consumer loans in the United Kingdom .
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Due to restructuring of the consumer credit regulatory framework in the United Kingdom, we are required to obtain full authorization from our U.K. regulators to continue providing consumer credit and perform related activities in the United Kingdom, and there is no guarantee that we will receive full authorization to continue offering consumer loans in the United Kingdom.
We have obtained interim permission from the FCA to provide consumer credit and perform related activities. We are required to apply for and obtain full authorization from the FCA to continue to provide consumer credit. In order to obtain full authorization, and as a threshold condition to maintaining our interim permission to provide consumer credit in the United Kingdom, we are required to demonstrate that we satisfy, and will continue to satisfy, certain minimum standards set out in the FSMA, including certain specified threshold conditions, and this may result in additional costs to us that could be significant. As a threshold condition to maintaining our interim permission and to obtaining and retaining full authorization, the FCA must be satisfied that we can be effectively supervised by the FCA, as this term is defined in the FSMA. The FCA has informed us that it has concerns that we cannot presently be effectively supervised given our structure with all of our operations conducted outside of the United Kingdom. We have historically performed substantially all of our U.K. business operations from the United States, as business functions have been performed remotely from our U.S. facilities. In order to alleviate the FCAs concerns in relation to our ability to presently demonstrate to the FCA that we are capable of being effectively supervised, we are in the process of establishing an office in the United Kingdom. Furthermore, the FCA must approve certain individuals conducting controlled functions with respect to the operation and management of our U.K. business. All of these changes will result in additional costs to us. We are in frequent communication with the FCA regarding our activities to address the FCAs concerns about the threshold conditions. The FCA has the power to revoke our interim permission to conduct a consumer credit business if it determines we do not meet the threshold conditions. Additionally, the FCA could elect to impose additional conditions that could delay the authorization process, further increase our compliance costs or require further changes to the conduct of our U.K. business that could have a material adverse effect on our U.K. operations.
We will begin the official application process for full authorization in late 2014 or early 2015. The FCA is expected to complete the process of reviewing applications of previous OFT license holders, such as us, for full authorization by April 1, 2016, and there is no guarantee that we will receive full authorization. If we do not receive full authorization, we will have to cease our U.K. consumer loan business.
Our primary regulators in the United Kingdom have expressed and continue to express serious concerns about our compliance with applicable U.K. regulations, which has caused and will continue to cause us to make significant changes to our U.K. business that will negatively impact our operations and results, and this impact will likely be significant.
In February 2012, the OFT launched a review of the payday lending sector to assess the sectors compliance with the CCA, the Guidance, and other relevant guidance and legal obligations. As part of this review, the OFT conducted examinations of a number of payday lenders in the United Kingdom, including us, to assess individual company compliance with these laws and guidance. In May 2013, the OFT sent us a letter of findings related to its examination of our U.K. short term consumer loan (or payday) business, which indicated that we may not have been complying fully with all aspects of the Guidance, the CCA and other relevant laws and guidance. This letter indicated the OFTs general and specific concerns in the following categories: advertising and marketing, pre-contract information and explanations, affordability assessments, rollovers, debt forbearance and debt collection, and regulatory and other compliance issues. As requested by the OFT, in July 2013, we provided the OFT with an independent audit report setting out the steps taken to address each concern the OFT had identified in its letter. Through March 2014, we continued to receive additional requests for data and documentation from the OFT, and we complied with those requests.
The FCA has now assumed the supervision and regulation of us, and we continue to receive additional requests for data and documentation from the FCA about our consumer loan products and have been complying with those requests. The FCA informed us that it has serious concerns regarding our compliance with the FCAs rules and principles, including those with respect to our affordability assessment process in determining whether the
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loans we make are affordable for our customers and our debt forbearance practices (or our practices regarding customers who have indicated they are experiencing financial difficulty). The FCA also noted concerns regarding certain of our advertising practices. We have been, and continue to be, in frequent communication with the FCA regarding the concerns raised by the FCA and our efforts to address such concerns through, among other things, significant modifications to our business practices. The FCA is closely monitoring our efforts to comply with its requirements, including our changes to our business practices made in an effort to comply with the FCAs concerns. For example, we are in the process of establishing an office in the United Kingdom to help alleviate the FCAs concerns about effective supervision, and we will be required to obtain FCA approval of certain individuals performing controlled functions, as defined by applicable regulation, as discussed above under Due to restructuring of the consumer credit regulatory framework in the United Kingdom, we are required to obtain full authorization from our U.K. regulators to continue providing consumer credit and perform related activities in the United Kingdom, and there is no guarantee that we will receive full authorization to continue offering consumer loans in the United Kingdom .
In addition, we have made and are in the process of making significant adjustments to many of our business practices, including modifying our affordability assessments and underwriting standards, reducing certain maximum loan amounts, changing our collections processes (including our practices relating to continuous payment authority) and debt forbearance practices and altering certain advertising practices, all of which we believe will result in a significant year-over-year decrease in our U.K. loan volume, U.K. loan balances and U.K. revenue for the remainder of 2014 and potentially into 2015 as a result of adapting our U.K. business practices in response to the requirements of the FCA. The implementation of stricter affordability assessments and underwriting standards will result in a decrease in the number of consumer loans written, the average consumer loan amount and the total amount of consumer loans written to new and returning customers. Additionally, the changes we are making to our collections and debt forbearance practices in the United Kingdom could result in lower collection rates, and we will experience an increase in compliance- and administrative-related costs for our U.K. operations. In addition, the FCA could require us to make additional changes to our business that could further negatively affect future results for our U.K. operations. We are still assessing the potential impact of the changes we are making to our U.K. operations and what effect such changes may have on our business, but the impact of these changes is likely to be significant for the balance of 2014 and potentially into 2015 and could result in a material adverse effect on our U.K. business and our prospects, results of operation, financial condition and cash flows.
We are subject to examination and review by the FCA. If such examination or review identifies activities that are deemed by the FCA to have caused consumer detriment or are not in compliance with the FCAs requirements, the FCA could require us to take remedial action, which could result in additional changes to our business practices, the payment of consumer redress, fines or penalties, the denial of our permanent authorization application, the withdrawal of our interim authorization or permanent authorization if granted, or other remedial actions.
There can be no assurance that we will successfully implement the changes we are making to our U.K. business described above or any additional changes we may be required to make to our U.K business to address concerns raised by the FCA. Any inability to make changes to the satisfaction of the FCA could also have an adverse effect on our existing interim authorization from the FCA to continue to provide consumer credit and on our ability to obtain full authorization from the FCA, and we may not be able to successfully resolve the concerns expressed by the FCA. Any such changes or our failure to successfully make any such changes or resolve the concerns of the FCA could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.
Many U.K. regulatory matters are subject to increased uncertainty because supervision of the U.K. consumer credit regime has recently been transferred to the FCA, which previously did not hold such authority.
Supervision of our U.K. business was transferred from the OFT to the FCA in April 2014. The FCA applies more prescriptive regulations to our U.K. operations, as opposed to the previous regime. The FCA is responsible for
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determining whether we will receive full authorization to continue providing consumer credit and perform related activities and whether we will continue to hold our existing interim permission. Because the FCAs authority over consumer credit is new, the FCAs practices regarding supervisory matters and other matters relevant to us are subject to further development and change. The FCA is not bound by the previous practices of the OFT and is operating under a different legal framework and regime, and the FCA will apply its supervisory powers and interpret relevant concepts more stringently than such previous practices. This may adversely affect our ability to anticipate the FCAs expectations or interpretations in our interaction with the FCA.
Competition regulators in the United Kingdom are currently reviewing our industry and could order remedial action, which could materially adversely affect our business or even impair our ability to continue our current operations in the United Kingdom.
In June 2013, the OFT referred the payday lending industry in the United Kingdom to the Competition Commission, which is now the Competition & Markets Authority, or the CMA, for a market investigation. The CMA has been gathering data from industry participants, including us, in connection with its review of the U.K. payday lending industry to determine whether certain features of the payday lending industry prevent, restrict or distort competition (which is also referred to as having an adverse effect on competition) and, if so, what remedial action should be taken. On June 11, 2014, the CMA released a provisional findings report, which indicated that it believes that many payday lenders fail to compete on price. The CMA also indicated that it will look at potential ways to increase price competition, which could include the establishment of an independent price comparison website, requiring more clear upfront disclosure of borrowing costs if a loan is not paid back in full and on time, requiring periodic account statements to be provided to borrowers and requiring greater transparency about the role played by lead generators. The CMA also indicated it is expanding its review of the payday lending industry to include lead generators.
The CMA has announced that it expects to hold hearings on its provisional findings this summer and to announce its provisional decision on remedies in the fall of 2014. The CMA is required to complete its report by June 26, 2015, although it has stated publicly that it expects to publish its final report in December 2014 or January 2015. If the investigations final conclusions indicate that remedial action is necessary for the payday loan industry, the CMA will decide whether to order such remedial action itself or whether it should recommend certain actions or remedies be taken by the FCA, or other government bodies or organizations. If such action is taken, it may include any of the remedies outlined above or other remedies and any of these remedies could have a material adverse effect on our business, prospects, results of operations, financial conditions and cash flows and could impair our ability to continue current operations in the United Kingdom.
Our advertising and marketing materials and disclosures have been and continue to be subject to regulatory scrutiny, particularly in the United Kingdom.
In the jurisdictions where we operate, our advertising and marketing activities and disclosures are subject to regulation under various industry standards, consumer protection laws, and other applicable laws and regulations. Consistent with the consumer lending industry as a whole (see The consumer lending industry continues to be targeted by new laws or regulations in many jurisdictions that could restrict the short-term consumer lending products and services we offer, impose additional compliance costs on us, render our current operations unprofitable or even prohibit our current operations above), our advertising and marketing materials have come under increased scrutiny. In the United Kingdom, for example, consumer credit firms are subject to the financial promotions regime set out in the FSMA (Financial Promotions) Order 2005 and specific rules in the CONC, such as the inclusion of a risk warning on certain advertising materials. The FCA has also decided to adopt certain elements of industry codes as FCA rules on a case by case basis. Our advertising and marketing materials are reviewed both by the FCA and the Advertising Standards Authority. We have in some cases been ordered to withdraw, amend or add disclosures to such materials, or have done so voluntarily in response to inquiries or complaints. We remain in discussion with the relevant U.K. authorities regarding the extent to which additional amendments and specific risk disclosures will be necessary. Going forward, there can be no guarantee that we
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will be able to advertise and market our business in the United Kingdom or elsewhere in a manner we consider effective. Any inability to do so could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.
Our business in Australia has become less profitable due to compliance with new regulations there, and if our new product offering is not sustainable, this could require us to exit the Australian market.
In Australia we must comply with the responsible lending conduct obligations under the National Consumer Credit Protection Act (2010), which was amended in 2012. The amendment includes limitations on permissible fees and interest charged on certain consumer loans, including consumer loans made by us. We have altered the product we offer in Australia and expect the product offering will be less profitable after giving effect to this alteration. If the reduction in profitability is such that our product offering is not sustainable, we may need to exit Australia if the product cannot be further modified in a way that retains our profitability in that country.
Significant changes in foreign laws or regulations or a deterioration of the political, regulatory or economic environment of Australia, Canada, the United Kingdom, Brazil or China, or any other country in which we intend to begin operations, could affect our operations in these countries.
We offer or arrange online consumer loans to customers in Australia, Brazil, Canada and the United Kingdom. Australia and the United Kingdom have recently increased regulation of our industry as well as demonstrated an increasing interest in legislation or regulations that could further regulate or restrict the consumer loan products we offer. See the risk factors above for recent U.K. and Australian regulatory activity. In addition, we expect we will soon be launching a new pilot program in China.
Significant changes in foreign laws or regulations or a deterioration of the political, regulatory or economic environment of Australia, Brazil, Canada or the United Kingdom could restrict our ability to sustain or expand our operations in these countries. Similarly, a significant change in laws, regulations or overall treatment (including an interpretation or application of such laws and regulations not anticipated when exploring or initiating business) or a deterioration of the political, regulatory or economic environment of China, or any other country in which we may decide to explore business, could also materially adversely affect our prospects and could restrict our ability to initiate a pilot program or develop a pilot program into full business operations.
We have previously ceased business in certain jurisdictions due to regulatory restrictions and, if we are forced to exit many key jurisdictions due to regulatory restrictions, it could adversely affect our business as a whole.
In the past we have ceased business in, restricted our operations in, or chosen not to begin business in, certain jurisdictions due to regulatory restrictions which render our operations impermissible, unprofitable or impractical. In addition, because we are in some cases subject to state/provincial and local regulation in addition to federal/national regulation, we may restrict or discontinue business in certain jurisdictions within countries where we are otherwise active. For example, we currently do not conduct business in 17 U.S. states (including five states in which we used to conduct business) or in the District of Columbia because we do not believe it is economically feasible to operate in those jurisdictions due to specific statutory or regulatory restrictions, such as interest rate ceilings or caps on the fees that may be charged.
The adoption of state regulatory measures cannot be predicted, but we expect that other states may propose or enact similar restrictions on our consumer loan products in the future, which could affect our operations in such states. Additional regulations targeting or otherwise directly affecting our products and services have also been recently passed in Idaho, Utah and Wyoming and proposed in Alabama, Louisiana, Minnesota, Missouri, Rhode Island, Texas and Wisconsin. For more information, see Regulation and Legal ProceedingsU.S. State Regulation.
If we are forced to exit many key jurisdictions due to such concerns, we cannot guarantee that we will be able to find suitably attractive additional business opportunities elsewhere, which could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.
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Regulators and payment processors are scrutinizing certain online lenders access to the Automated Clearing House system to disburse and collect loan proceeds and repayments, and any interruption or limitation on our ability to access this critical system would materially adversely affect our business.
When making consumer loans in the United States, we use the Automated Clearing House, or ACH, system to deposit loan proceeds into our customers bank accounts, and our business, including loans made through the CSO programs, depends on the ACH system to collect amounts due by withdrawing funds from our customers bank accounts when we have obtained authorization to do so from the customer. Our ACH transactions are processed by banks, and if these banks cease to provide ACH processing services, we would have to materially alter, or possibly discontinue, some or all of our business if alternative ACH processors are not available.
It has been reported that recent actions by the U.S. Department of Justice, or the Justice Department, the Federal Deposit Insurance Corporation, or the FDIC, and certain state regulators, referred to as Operation Choke Point, appear to be intended to discourage banks and ACH payment processors from providing access to the ACH system for certain short-term consumer loan providers that they believe are operating illegally, cutting off their access to the ACH system to either debit or credit customer accounts (or both). According to published reports, the Justice Department has issued subpoenas to banks and payment processors and the FDIC and other regulators are said to be using bank oversight examinations to discourage banks from providing access to the ACH system to certain online lenders. In August 2013, the Department of Financial Services of the State of New York, or the NYDFS, sent letters to approximately 35 online short-term consumer loan companies (which did not include us as we do not offer consumer loans in New York) demanding that they cease and desist offering illegal payday loans to New York consumers and also sent letters to over 100 banks, as well as the National Automated Clearing House Association, or NACHA (which oversees the ACH network), requesting that they work with the NYDFS to cut off ACH system access to New York customer accounts for illegal payday lenders. NACHA, in turn, has requested that its participants review origination activity for these 35 online short-term consumer loan companies and to advise NACHA whether it has terminated these lenders access to the ACH system or, if not, the basis for not doing so. NACHA also requested that participants review ACH origination activities related to other online loan companies and to terminate any ACH system access that would violate NACHA rules, which would include, according to NACHA, any authorizations to use the ACH system to pay illegal short-term consumer loans that are unenforceable under state law. Marylands Division of Financial Regulation has also been reported to have taken steps to stop banks in Maryland from processing illegal payday loans in its state, and the California Department of Business Oversight is reported to have similarly directed state-licensed banks and credit unions to monitor transactions with any unlicensed lenders.
This heightened regulatory scrutiny by the Justice Department, the FDIC and other regulators has caused banks and ACH payment processors to cease doing business with consumer lenders who are operating legally, without regard to whether those lenders are complying with applicable laws, simply to avoid the risk of heightened scrutiny or even litigation. In June 2014, Community Financial Services of America, a trade association representing short-term lenders and a major payday lender filed a lawsuit against three U.S. banking regulators, the Federal Reserve, the FDIC, the Office of the Comptroller of the Currency and the Comptroller of the Currency, alleging that the federal regulators are improperly causing banks to terminate business relationships with payday lenders. The complaint seeks a declaration that the agencies have acted wrongfully and seeks an injunction barring the agencies from certain actions or informally pressuring banks to terminate their relationship with payday lenders. The lawsuit says that Bank of America Corp., Capital Financial One Corp., Fifth Third Bancorp, J.P. Morgan Chase & Co. and many smaller banks have terminated their relationships with payday lenders.
In addition, NACHA has certain operating rules that govern the use of the ACH system. In November 2013, NACHA proposed amendments to these rules. After a public comment period, on July 28, 2014, NACHA revised its proposed amendments and distributed ballots to its membership to solicit votes on the revised amendments. These revised amendments, if adopted, would be effective on various dates in 2015 and 2016 and would, among other things (1) establish thresholds for certain ACH return rates, including limiting the overall ACH return rate to 15% of the originators debit entries (and if any of the specified threshold return rates are
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exceeded, the origination practices and activities of the originator would be subject to review), (2) enhance limitations on certain ACH reinitiation activities, (3) impose fees on certain unauthorized ACH returns and (4) grant NACHA the express authority to bring an enforcement action if the thresholds for the specified return rates are exceeded. The revised amendments provide clarification that certain industries deal with customers who are more likely to experience an insufficient funds scenario and that the review of an originator with returns in excess of certain of the specified thresholds would take into account the originators business model in conjunction with its ACH origination practices. If these revised amendments are adopted in their current form, our access to the ACH system could be restricted, our ACH costs could increase and we could be required to make changes to our business practices.
There can be no assurance that our access to the ACH system will not be impaired as a result of this operation by regulators to cut off the ACH system to payday lenders or the proposed NACHA rule amendments, or that the limited number of financial institutions we depend on will choose to continue, or be able to continue, providing ACH system and similar services to us.
If our access to the ACH system is impaired, we may find it difficult or impossible to continue some or all of our business, which could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows. If we are unable to maintain access to needed services on favorable terms, we would have to materially alter, or possibly discontinue, some or all of our business if alternative processors are not available.
The failure to comply with debt collection regulations could subject us to fines and other liabilities, which could harm our reputation and business.
The Fair Debt Collection Practices Act, or the FDCPA, regulates persons who regularly collect or attempt to collect, directly or indirectly, consumer debts owed or asserted to be owed to another person. Many states impose additional requirements on debt collection communications, and some of those requirements may be more stringent than the federal requirements. Moreover, regulations governing debt collection are subject to changing interpretations that differ from jurisdiction to jurisdiction.
Non-U.S. jurisdictions also regulate debt collection. For example, in the United Kingdom, due to new rules under the CONC we will be required to make adjustments to some of our business practices, including our collections processes, which could possibly result in lower collections on loans made by us and a decrease in the number of new customers that we are able to approve. In addition, the concerns expressed to us by the OFT and the FCA relate in part to debt collection. We could be subject to fines, written orders or other penalties if we, or parties working on our behalf, are determined to have violated the FDCPA, the CONC or analogous state or foreign laws, which could have a material adverse effect on our reputation, business, prospects, results of operations, financial condition and cash flows.
We use lead providers and marketing affiliates to assist us in obtaining new customers, and if lead providers or marketing affiliates do not comply with an increasing number of applicable laws and regulations, or if our ability to use such lead providers or marketing affiliates is otherwise impaired, it could adversely affect our business.
We are dependent on third parties, referred to as lead providers (or lead generators) and marketing affiliates, as a source of new customers. Our marketing affiliates place our advertisements on their websites that direct potential customers to our websites. Generally, lead providers operate, and also work with their own marketing affiliates who operate, separate websites to attract prospective customers and then sell those leads to online lenders. As a result, the success of our business depends substantially on the willingness and ability of lead providers or marketing affiliates to provide us customer leads at acceptable prices.
If regulatory oversight of lead providers or marketing affiliates is increased, through the implementation of new laws or regulations or the interpretation of existing laws or regulations, our ability to use lead providers or
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marketing affiliates could be restricted or eliminated. For example, during 2013, the State of California began enforcing its short-term lending statute to require lead providers to be licensed in order to provide leads to licensed lenders. As a result, we have discontinued using lead providers to generate leads for short-term consumer loans in California. In April 2014, the Attorney General of the State of Illinois filed a lawsuit against a lead provider, alleging that the lead provider offered and arranged payday loans without a license. As a result, we recently discontinued the use of lead providers in Illinois. While these discontinuations did not have a material adverse effect on us, we expect that other states may propose or enact similar restrictions on lead providers and potentially on marketing affiliates in the future, and if other states adopt similar restrictions, our ability to use lead providers or marketing affiliates in those states would also be interrupted. In addition, the CFPB has indicated its intention to examine compliance with federal laws and regulations by lead providers and to scrutinize the flow of non-public, private consumer information between lead providers and lead buyers, such as us. We also expect that the ongoing regulatory review of consumer lending in the United Kingdom may lead to increased restrictions on the operations and/or use of lead providers.
Lead providers or marketing affiliates failure to comply with applicable laws or regulations, or any changes in laws or regulations applicable to lead providers or marketing affiliates or changes in the interpretation or implementation of such laws or regulations, could have an adverse effect on our business and could increase negative perceptions of our business and industry. Additionally, the use of lead providers and marketing affiliates could subject us to additional regulatory cost and expense. If our ability to use lead generators or marketing affiliates were to be impaired, our business, prospects, results of operations, financial condition and cash flows could be materially adversely affected.
The use of personal data used in credit underwriting is highly regulated.
The Fair Credit Reporting Act, or the FCRA, regulates the collection, dissemination and use of consumer information, including consumer credit information. Compliance with the FCRA and related laws and regulations concerning consumer reports has recently been under regulatory scrutiny. The FCRA requires us to provide a Notice of Adverse Action to a loan applicant when we deny an application for credit, which, among other things, informs the applicant of the action taken regarding the credit application and the specific reasons for the denial of credit. The FCRA also requires us to promptly update any credit information reported to a consumer reporting agency about a consumer and to allow a process by which consumers may inquire about credit information furnished by us to a consumer reporting agency. Historically, the FTC has played a key role in the implementation, oversight, enforcement and interpretation of the FCRA. Pursuant to the Dodd-Frank Act, the CFPB has primary supervisory, regulatory and enforcement authority of FCRA issues, although the FTC also retains its enforcement role regarding the FCRA but shares that role in many respects with the CFPB. The CFPB has taken a more active approach than the FTC, including with respect to regulation, enforcement and supervision of the FCRA. Changes in the regulation, enforcement or supervision of the FCRA may materially affect our business if new regulations or interpretations by the CFPB or the FTC require us to materially alter the manner in which we use personal data in our credit underwriting.
In the United Kingdom, we are also subject to the requirements of the Data Protection Act 1988, or the DPA, and are required to be fully registered as a data-controller under the DPA. We are also required to be certified under the European Union Safe Harbor provisions, which allow European Union data to be passed to non-European Union countries.
The oversight of the FCRA by both the CFPB and the FTC and any related investigation or enforcement activities or our failure to comply with the DPA may have a material adverse impact on our business, including our operations, our mode and manner of conducting business and our financial results.
Negative public perception of our business could cause demand for our products to significantly decrease.
In recent years, consumer advocacy groups and some media reports have advocated governmental action to prohibit or place severe restrictions on short-term and high-cost consumer loans. Such consumer advocacy groups and media reports generally focus on the annual percentage rate for this type of consumer loan, which is
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compared unfavorably to the interest typically charged by banks to consumers with top-tier credit histories. The fees and/or interest charged by us and others in the industry attract media publicity about the industry and can be perceived as controversial. If the negative characterization of these types of loans becomes increasingly accepted by consumers, demand for any or all of the consumer loan products that we offer could significantly decrease, which could materially affect our business, prospects, results of operations, financial condition and cash flows. Additionally, if the negative characterization of these types of loans is accepted by legislators and regulators, we could become subject to more restrictive laws and regulations applicable to short-term loans or other consumer loan products that we offer that could materially adversely affect our business, prospects, results of operations, financial condition and cash flows and could impair our ability to continue current operations.
In addition, our ability to attract and retain customers is highly dependent upon the external perceptions of our level of service, trustworthiness, business practices, financial condition and other subjective qualities. Negative perceptions or publicity regarding these matterseven if related to seemingly isolated incidents, or even if related to practices not specific to short-term loans, such as debt collectioncould erode trust and confidence and damage our reputation among existing and potential customers, which could make it difficult for us to attract new customers and retain existing customers and could significantly decrease the demand for our products, could materially adversely affect our business, prospects, results of operations, financial condition and cash flows and could impair our ability to continue current operations.
Current and future litigation or regulatory proceedings could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.
We have been and are currently subject to lawsuits (including purported class actions) that could cause us to incur substantial expenditures, generate adverse publicity and could significantly impair our business, force us to cease doing business in one or more jurisdictions or cause us to cease offering or alter one or more products. We are also likely to be subject to further litigation in the future. An adverse ruling in or a settlement of any current or future litigation against us or another lender could cause us to have to refund fees and/or interest collected, forego collection of the principal amount of loans, pay treble or other multiple damages, pay monetary penalties and/or modify or terminate our operations in particular jurisdictions.
Defense of any lawsuit, even if successful, could require substantial time and attention of our management and could require the expenditure of significant amounts for legal fees and other related costs. We and others are also subject to regulatory proceedings, and we could suffer losses from interpretations of applicable laws, rules and regulations in those regulatory proceedings, even if we are not a party to those proceedings. Any of these events could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows and could impair our ability to continue current operations.
Judicial decisions, CFPB rule-making or amendments to the Federal Arbitration Act could render the arbitration agreements we use illegal or unenforceable.
We include arbitration provisions in our consumer loan agreements. These provisions are designed to allow us to resolve any customer disputes through individual arbitration rather than in court and explicitly provide that all arbitrations will be conducted on an individual and not on a class basis. Thus, our arbitration agreements, if enforced, have the effect of shielding us from class action liability. Our arbitration agreements do not generally have any impact on regulatory enforcement proceedings. We take the position that the arbitration provisions in our consumer loan agreements, including class action waivers, are valid and enforceable; however, the enforceability of arbitration provisions is often challenged in court. If those challenges are successful, our arbitration and class action waiver provisions could be unenforceable, which could subject us to additional litigation, including additional class action litigation.
In addition, the U.S. Congress has considered legislation that would generally limit or prohibit mandatory arbitration agreements in consumer contracts and has enacted legislation with such a prohibition with respect to
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certain mortgage loan agreements and also certain consumer loan agreements to members of the military on active duty and their dependents. Further, the Dodd-Frank Act directs the CFPB to study consumer arbitration and report to the U.S. Congress, and it authorizes the CFPB to adopt rules limiting or prohibiting consumer arbitration, consistent with the results of its study. In 2013, the CFPB released a preliminary report on consumer arbitration provisions and indicated further study was in process. In April 2014, a representative of the CFPB managing the study indicated publicly that the study is expected to be completed by the end of 2014. Any rule adopted by the CFPB would apply to arbitration agreements entered into more than six months after the final rule becomes effective (and not to prior arbitration agreements).
Any judicial decisions, legislation or other rules or regulations that impair our ability to enter into and enforce consumer arbitration agreements and class action waivers could significantly increase our exposure to class action litigation as well as litigation in plaintiff-friendly jurisdictions, which would be costly and could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.
The failure of third parties who provide products, services or support to us to maintain their products, services or support could disrupt our operations or result in a loss of revenue.
Our short-term consumer loan revenue depends in part on the willingness and ability of unaffiliated third-party lenders, through the CSO programs, to make loans to customers and other third parties to provide services to facilitate lending, loan underwriting and payment processing in our online lending consumer loan channels. The loss of the relationship with any of these third parties, and an inability to replace them or the failure of these third parties to maintain quality and consistency in their programs or services or to have the ability to provide their products and services, could cause us to lose customers and substantially decrease the revenue and earnings of our business. Our revenue and earnings could also be adversely affected if any of those third-party providers make material changes to the products or services that we rely on. We also use third parties to support and maintain certain of our communication systems and information systems. If a third-party provider fails to provide its products or services, makes material changes to such products and services, does not maintain its quality and consistency or fails to have the ability to provide its products and services, our operations could be disrupted. Any of these events could result in a loss of revenue and could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.
Our business depends on the uninterrupted operation of our systems and business functions, including our information technology and other business systems, as well as the ability of such systems to support compliance with applicable legal and regulatory requirements.
Our business is highly dependent upon our employees ability to perform, in an efficient and uninterrupted fashion, necessary business functions, such as Internet support, call center activities, and processing and servicing consumer loans. A shut-down of or inability to access the facilities in which our Internet operations and other technology infrastructure are based, such as a power outage, a failure of one or more of our information technology, telecommunications or other systems, or sustained or repeated disruptions of such systems could significantly impair our ability to perform such functions on a timely basis and could result in a deterioration of our ability to underwrite, approve and process Internet consumer loans, provide customer service, perform collections activities, or perform other necessary business functions. Any such interruption could have a materially adverse effect on our business, prospects, results of operations, financial condition and cash flows.
In addition, our systems and those of third parties on whom we rely must consistently be capable of compliance with applicable legal and regulatory requirements and timely modification to comply with new or amended requirements. For example, we believe that the federal Military Lending Act compliance issues involved in the CFPBs Consent Order were related in part to system errors. Any such systems problems going forward could have a material adverse effect on our business, prospects, results of operations, financial conditions and cash flows and could impair or prohibit our ability to continue current operations.
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Decreased demand for our products and specialty financial services and our failure to adapt to such decrease could result in a loss of revenue and could have a material adverse effect on us.
The demand for a particular product or service may decrease due to a variety of factors, such as regulatory restrictions that reduce customer access to particular products, the availability of competing or alternative products or changes in customers financial conditions. Should we fail to adapt to a significant change in our customers demand for, or access to, our products, our revenue could decrease significantly. Even if we make adaptations or introduce new products to fulfill customer demand, customers may resist or may reject products whose adaptations make them less attractive or less available. In any event, the effect of any product change on the results of our business may not be fully ascertainable until the change has been in effect for some time. In particular, we have changed, and will continue to change, some of our operations and the products we offer. Any of these events could result in a loss of revenue and could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.
Potential union activities could have an adverse effect on our relationship with our workforce.
None of our employees are currently covered by a collective bargaining agreement or represented by an employee union. Occasionally we experience union organizing activities. If our employees become represented by an employee union or become subject to a collective bargaining agreement, it may make it more difficult for us to manage our business and to attract and retain new employees and may increase our cost of doing business. Having our employees become represented by an employee union, having a collective bargaining agreement or having additional requirements related to our employees imposed on us could result in work stoppages and higher employee costs and could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows and could impair our ability to continue current operations.
If our allowance for losses and liability for estimated losses on third-party lender-owned consumer loans is not adequate to absorb losses or if we do not successfully manage our credit risk for unsecured consumer loans, our business, prospects, results of operations, financial condition and cash flows may be adversely affected.
As more fully described under Note 2 to our consolidated financial statements for the year ended December 31, 2013 included elsewhere in this information statement, we utilize a variety of underwriting criteria, monitor the performance of our consumer loan portfolios and maintain either an allowance or liability for estimated losses on consumer loans (including fees and interest) at a level estimated to be adequate to absorb credit losses inherent in the receivables portfolio and expected losses from loans guaranteed under the CSO programs. The allowance deducted from the carrying value of consumer loans was $67.8 million at June 30, 2014, and the liability for estimated losses on third-party lender-owned consumer loans was $1.6 million at June 30, 2014. These reserves are estimates, and if actual loan losses are materially greater than our reserves, our results of operations and financial condition could be adversely affected. In addition, if we do not successfully manage credit risk for our unsecured consumer loans through our loan underwriting, we could incur substantial credit losses due to customers being unable to repay their loans. Any failure to manage credit risk could materially adversely affect our business, prospects, results of operations, financial condition and cash flows.
We are subject to impairment risk.
At June 30, 2014, we had goodwill totaling $255.9 million on our consolidated balance sheets, all of which represents assets capitalized in connection with acquisitions and business combinations. Accounting for goodwill requires significant management estimates and judgment. Events may occur in the future, and we may not realize the value of our goodwill. Management performs periodic reviews of the carrying values of our goodwill to determine whether events and circumstances indicate that impairment in value may have occurred. A variety of factors could cause the carrying value of goodwill or an intangible asset to become impaired. Should a review indicate impairment, a write-down of the carrying value of the goodwill or intangible asset would occur, resulting in a non-cash charge, which could adversely affect our results of operations and could also lead to our inability to comply with certain covenants in our financing documents, which could cause a default under those agreements.
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We are subject to anticorruption laws including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010, anti-money laundering laws and economic sanctions laws, and our failure to comply therewith, particularly as we continue to expand internationally, could result in penalties that could harm our reputation and have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.
Anticorruption Laws . We are subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, which generally prohibits companies and their agents or intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business and/or other benefits. Although we have policies and procedures designed to ensure that we, our employees, agents and intermediaries comply with the FCPA and other anticorruption laws, there can be no assurance that such policies or procedures will work effectively all of the time or protect us against liability for actions taken by our employees, agents and intermediaries with respect to our business or any businesses that we may acquire. In the event that we believe, or have reason to believe, that our employees, agents or intermediaries have or may have violated applicable anti-corruption laws, including the FCPA, we may be required to investigate or have a third party investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. Our continued operation and expansion outside the United States could increase the risk of such violations in the future.
We are subject to other anti-corruption laws, such as the U.K. Bribery Act 2010, or the Bribery Act, which prohibits the giving or receiving of a bribe to any person, including but not limited to public officials, and makes failing to prevent bribery by relevant commercial organizations a criminal offense. This offense applies when any person associated with the organization offers or accepts bribes anywhere in the world intending to obtain or retain a business advantage for the organization or in the conduct of business. The Bribery Act is applicable to businesses that operate in the United Kingdom such as us. The Bribery Act is broader in scope than the FCPA in that it directly addresses commercial bribery in addition to bribery of government officials and it does not allow certain exceptions, notably facilitation payments that are permitted by the FCPA.
Other countries in which we operate, including Australia, Canada and Brazil, and other countries where we intend to operate, such as China, also have anticorruption laws, which we are or will be subject to.
If we are not in compliance with the FCPA, the Bribery Act and other laws governing the conduct of business with government entities (including local laws), we may be subject to criminal and civil penalties and other remedial measures, which could have an adverse effect on our business, reputation, results of operations and financial condition. Any investigation of any potential violations of the FCPA, the Bribery Act or other anticorruption laws by U.S. or foreign authorities could harm our reputation and could have a material adverse effect on our business, reputation, prospects, results of operations, financial condition and cash flows.
AntiMoney Laundering Laws . We are also subject to anti-money laundering laws and related compliance obligations in the United States and other jurisdictions in which we do business. In the United States, the USA PATRIOT Act and the Bank Secrecy Act require us to maintain an anti-money laundering compliance program covering certain of our business activities. The program must include: (1) the development of internal policies, procedures and controls; (2) designation of a compliance officer; (3) an ongoing employee training program; and (4) an independent audit function to test the program. Furthermore, certain of our subsidiaries are registered as money services businesses with the U.S. Treasury Department and must re-register with the Financial Crimes Enforcement Network, or FinCEN, at least every two years. If we are not in compliance with U.S. or other anti-money laundering laws, we may be subject to criminal and civil penalties and other remedial measures, which could have an adverse effect on our business, results of operations, financial condition and cash flows. Any investigation of any potential violations of anti-money laundering laws by U.S. or foreign authorities could harm our reputation and could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows. In the United Kingdom, we are also subject to specific anti-money laundering and counter terrorist financing requirements that require us to develop and maintain anti-money laundering and counter terrorist financing policies and procedures, including reporting suspicious activity to the Serious Organised Crime Agency pursuant to the Proceeds of Crime Act 2002 and the Terrorism Act 2000.
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In Australia, we are also subject to specific anti-money laundering and counter terrorist financing requirements that require us to develop and maintain anti-money laundering and counter terrorist financing policies and procedures, including: (i) the appointment of a compliance officer; (ii) regular review to identify significant changes in money laundering/terrorist financing risk; (iii) regular independent review; (iv) reporting suspicious matters to the Australian Transaction Reports and Analysis Centre, or the AUSTRAC; and (v) consideration of AUSTRAC feedback.
Economic Sanctions Laws . The United States has imposed economic sanctions that affect transactions with designated foreign countries, nationals and others. In particular, the United States prohibits U.S. persons from engaging with individuals and entities identified as Specially Designated Nationals, such as terrorists and narcotics traffickers. These prohibitions are administered by the U.S. Department of the Treasurys Office of Foreign Assets Control, or OFAC. OFAC rules prohibit U.S. persons from engaging in financial transactions with or relating to the prohibited individual, entity or country, require the blocking of assets in which the individual, entity or country has an interest. Blocked assets (e.g., property or bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. Other countries in which we operate, including Australia, Canada, and the United Kingdom, also maintain economic and financial sanctions regimes. In the event that we believe, or have reason to believe, that our employees, agents or intermediaries have or may have violated applicable laws or regulations, we may be required to investigate or have a third party investigate the relevant facts and circumstances, which can be expensive and require significant time and attention from senior management. If we are not in compliance with OFAC regulations and other economic and financial sanctions regulations, we may be subject to criminal and civil penalties and other remedial measures, which could have an adverse effect on our business, prospects, results of operations, financial condition and cash flows. Any investigation of any potential violations of OFAC regulations or other economic sanctions by U.S. or foreign authorities could harm our reputation and could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.
Our continued international expansion could increase the risk of violations of FCPA, the Bribery Act, anti-money laundering laws, OFAC regulations, or similar applicable laws and regulations in the future.
Increased competition from banks, credit card companies, other consumer lenders, and other entities offering similar financial products and services could adversely affect our business, prospects, results of operations, financial condition and cash flows.
We have many competitors. Our principal competitors are consumer loan companies, CSOs, online lenders, credit card companies, consumer finance companies, pawnshops and other financial institutions that serve our primary customer base. Many other financial institutions or other businesses that do not now offer products or services directed toward our traditional customer base, many of whom may be much larger than us, could begin doing so. Significant increases in the number and size of competitors for our business could result in a decrease in the number of consumer loans that we fund, resulting in lower levels of revenue and earnings in these categories.
Competitors of our business may operate, or begin to operate, under business models less focused on legal and regulatory compliance, which could put us at a competitive disadvantage. Some of our U.S. competitors operate using other business models, including a single-state model where the lender is generally licensed in one state and follows only the laws and regulations of that state regardless of the state in which the customer resides and a tribal model where the lender follows the laws of a Native American tribe regardless of the state in which the customer resides. Competitors using these models may have higher revenue per customer and significantly less burdensome compliance requirements, among other advantages. Additionally, negative perceptions about these models could cause legislators or regulators to pursue additional industry restrictions that could affect the business model under which we operate. To the extent that these models or other new lending models gain acceptance among consumers and investors or that they face less onerous regulatory restrictions than we do, we may be unable to replicate their business practices or otherwise compete with them effectively, which could
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cause demand for our products to decline substantially. We cannot assure that we will be able to compete successfully against any or all of our current or future competitors. As a result, we could lose market share and our revenue could decline, thereby affecting our ability to generate sufficient cash flow to service our indebtedness and fund our operations. Any such changes in our competition could materially adversely affect our business, prospects, results of operations, financial condition and cash flows.
Our success is dependent, in part, upon our officers, and if we are not able to attract and retain qualified officers, our business could be materially adversely affected.
Our success depends, in part, on our officers, which is comprised of a relatively small group of individuals. Many members of the senior management team have significant industry experience, and we believe that our senior management would be difficult to replace, if necessary. Because the market for qualified individuals is highly competitive, we may not be able to attract and retain qualified officers or candidates. In addition, increasing regulations and negative publicity on the consumer financial services industry could affect our ability to attract and retain qualified officers. If we are unable to attract or retain qualified officers, it could materially adversely affect our business.
Our international operations subject us to foreign exchange risk.
We are subject to the risk of unexpected changes in foreign currency exchange rates by virtue of our loans to residents of Australia, Brazil, Canada and the United Kingdom. In 2013, 48.3% of our total revenue was derived from our international operations. Our results of operations and certain of our intercompany balances associated with our Australia, Brazil, Canada and United Kingdom businesses are denominated in their respective currencies and are, as a result, exposed to foreign exchange rate fluctuations. Upon consolidation, as exchange rates vary, net revenue and other operating results may differ materially from expectations, and we may record significant gains or losses on the remeasurement of intercompany balances.
A sustained deterioration in the economy could reduce demand for our products and services and result in reduced earnings.
A sustained deterioration in the economy could cause deterioration in the performance of our consumer loan portfolios. An economic slowdown could result in a decreased number of consumer loans being made to customers due to higher unemployment or an increase in loan defaults in our consumer loan products. During an economic slowdown, we could be required to tighten our underwriting standards, which would likely reduce consumer loan balances, and we could face more difficulty in collecting defaulted consumer loans, which could lead to an increase in loan losses.
We may be unable to protect our proprietary technology or keep up with that of our competitors.
The success of our business depends to a significant degree upon the protection of our software and other proprietary intellectual property rights. We may be unable to deter misappropriation of our proprietary information, detect unauthorized use or take appropriate steps to enforce our intellectual property rights. In addition, competitors could, without violating our proprietary rights, develop technologies that are as good as or better than our technology. Our failure to protect our software and other proprietary intellectual property rights or to develop technologies that are as good as our competitors could put us at a disadvantage relative to our competitors. Any such failures could have a material adverse effect on our business.
We may be subject to intellectual property disputes, which are costly to defend and could harm our business and operating results.
From time to time, we face, and we expect to face in the future, allegations that we have infringed the trademarks, copyrights, patents or other intellectual property rights of third parties, including from our competitors or non-practicing entities. Patent and other intellectual property litigation may be protracted and
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expensive, and the results are difficult to predict and may require us to stop offering certain products or product features, acquire licenses, which may not be available at a commercially reasonable price or at all, or modify our products, product features, processes or websites while we develop non-infringing substitutes.
In addition, we use open source software in our technology platform and plan to use open source software in the future. From time to time, we may face claims from parties claiming ownership of, or demanding release of, the source code, potentially including our valuable proprietary code, or derivative works that were developed using such software, or otherwise seeking to enforce the terms of the applicable open source license. These claims could also result in litigation, require us to purchase a costly license or require us to devote additional research and development resources to change our platform, any of which could have a negative effect on our business and operating results.
We are subject to cyber security risks and security breaches and may incur increasing costs in an effort to minimize those risks and to respond to cyber incidents.
Our business involves the storage and transmission of consumers proprietary information, and security breaches could expose us to a risk of loss or misuse of this information, litigation, and potential liability. We are entirely dependent on the secure operation of our websites and systems as well as the operation of the Internet generally. While we have incurred no material cyber-attacks or security breaches to date, a number of other companies have disclosed cyber-attacks and security breaches, some of which have involved intentional attacks. Attacks may be targeted at us, our customers, or both. Although we devote significant resources to maintain and regularly upgrade our systems and processes that are designed to protect the security of our computer systems, software, networks and other technology assets and the confidentiality, integrity and availability of information belonging to us and our customers, there is no assurance that our security measures will provide absolute security. Despite our efforts to ensure the integrity of our systems, it is possible that we may not be able to anticipate or to implement effective preventive measures against all security breaches of these types, especially because the techniques used change frequently or are not recognized until launched, and because cyber-attacks can originate from a wide variety of sources, including third parties outside the company such as persons who are involved with organized crime or associated with external service providers or who may be linked to terrorist organizations or hostile foreign governments. These risks may increase in the future as we continue to increase our mobile and other Internet-based product offerings and expand our internal usage of web-based products and applications or expand into new countries. If an actual or perceived breach of security occurs, customer and/or supplier perception of the effectiveness of our security measures could be harmed and could result in the loss of customers, suppliers or both. Actual or anticipated attacks and risks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees, and engage third party experts and consultants.
A successful penetration or circumvention of the security of our systems could cause serious negative consequences, including significant disruption of our operations, misappropriation of our confidential information or that of our customers, or damage to our computers or systems or those of our customers and counterparties, and could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures, customer dissatisfaction, significant litigation exposure, and harm to our reputation, all of which could have a material adverse effect on us. In addition, most of our applicants provide personal information, including bank account information when applying for consumer loans. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication to effectively secure transmission of confidential information, including customer bank account and other personal information. Advances in computer capabilities, new discoveries in the field of cryptography or other developments may result in the technology used by us to protect transaction data being breached or compromised. Data breaches can also occur as a result of non-technical issues.
Our servers are also vulnerable to computer viruses, physical or electronic break-ins, and similar disruptions, including denial-of-service type attacks. We may need to expend significant resources to protect against
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security breaches or to address problems caused by breaches. Security breaches, including any breach of our systems or by persons with whom we have commercial relationships that result in the unauthorized release of consumers personal information, could damage our reputation and expose us to a risk of loss or litigation and possible liability. In addition, many of the third parties who provide products, services or support to us could also experience any of the above cyber risks or security breaches, which could impact our customers and our business and could result in a loss of customers, suppliers or revenue.
Any of these events could result in a loss of revenue and could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.
If Internet search engine providers change their methodologies for organic rankings or paid search results, or our organic rankings or paid search results decline for other reasons, our new customer growth or volume from returning customers could decline.
Our new customer acquisition marketing and our returning customer relationship management is partly dependent on search engines such as Google, Bing and Yahoo! to direct a significant amount of traffic to our desktop and mobile websites via organic ranking and paid search advertising. Our competitors paid search activities, Pay Per Click, or PPC, or Search Engine Marketing, or SEM, may result in their sites receiving higher paid search results than ours and significantly increasing the cost of such advertising for us.
Our paid search activities may not produce (and in the past have not always produced) the desired results. Internet search engines often revise their methodologies, which could adversely affect our organic rankings or paid search results, resulting in a decline in our new customer growth or existing customer retention; difficulty for our customers in using our web and mobile sites; more successful organic rankings, paid search results or tactical execution efforts for our competitors than for us; a slowdown in overall growth in our customer base and the loss of existing customers; and higher costs for acquiring returning customers, which could adversely impact our business. In addition, search engines could implement policies that restrict the ability of consumer finance companies such as us to advertise their services and products, which could preclude companies in our industry from appearing in a favorable location or any location in the organic rankings or paid search results when certain search terms are used by the consumer. Our online marketing efforts are also susceptible to actions by third parties that negatively impact our search results such as spam link attacks, which are often referred to as black hat tactics. Our sites have experienced meaningful fluctuations in organic rankings and paid search results in the past, and we anticipate similar fluctuations in the future. Any reduction in the number of consumers directed to our web and mobile sites could harm our business and operating results.
Our operations could be subject to natural disasters and other business disruptions, which could adversely impact our future revenue and financial condition and increase our costs and expenses.
Our services and operations are vulnerable to damage or interruption from tornadoes, hurricanes, earthquakes, fires, floods, power losses, telecommunications failures, terrorist attacks, acts of war, human errors and similar events. A significant natural disaster, such as a tornado, hurricane, earthquake, fire or flood, could have a material adverse impact on our ability to conduct business, and our insurance coverage may be insufficient to compensate for losses that may occur. Acts of terrorism, war, civil unrest, violence or human error could cause disruptions to our business or the economy as a whole. Any of these events could cause consumer confidence to decrease, which could result in a decreased number of loans being made to customers. Any of these occurrences could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.
Failure to keep up with the rapid changes in e-commerce and the uses and regulation of the Internet could harm our business.
The business of providing products and services such as ours over the Internet is dynamic and relatively new. We must keep pace with rapid technological change, consumer use habits, Internet security risks, risks of system failure or inadequacy, and governmental regulation and taxation, and each of these factors could adversely
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impact our business. In addition, concerns about fraud, computer security and privacy and/or other problems may discourage additional consumers from adopting or continuing to use the Internet as a medium of commerce. In countries such as the United States and the United Kingdom, where e-commerce generally has been available for some time and the level of market penetration of our online financial services is relatively high, acquiring new customers for our services may be more difficult and costly than it has been in the past. In order to expand our customer base, we must appeal to and acquire consumers who historically have used traditional means of commerce to conduct their financial services transactions. If these consumers prove to be less profitable than our previous customers, and we are unable to gain efficiencies in our operating costs, including our cost of acquiring new customers, our business could be adversely impacted.
Our business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our business practices, monetary penalties, increased cost of operations, or declines in user growth or engagement, or otherwise harm our business.
Our business is subject to a variety of laws and regulations in the United States and internationally that involve user privacy issues, data protection, advertising, marketing, disclosures, distribution, electronic contracts and other communications, consumer protection and online payment services. The introduction of new products or expansion of our activities in certain jurisdictions may subject us to additional laws and regulations. In addition, foreign data protection, privacy, and other laws and regulations can be more restrictive than those in the United States. U.S. federal and state and foreign laws and regulations, which can be enforced by private parties or government entities, are constantly evolving and can be subject to significant change, and the U.S. government, including the FTC and the Department of Commerce, has announced that it is reviewing the need for greater regulation of the collection of information concerning consumer behavior on the Internet, including regulation aimed at restricting certain targeted advertising practices. In addition, the application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving e-commerce industry in which we operate, and may be interpreted and applied inconsistently from country to country and inconsistently with our current or past policies and practices. A number of proposals are pending before federal, state, and foreign legislative and regulatory bodies that could significantly affect our business. For example, the European Commission is currently considering a data protection regulation that may include operational requirements for companies that receive personal data that are different than those currently in place in the European Union, and that may also include significant penalties for non-compliance. Similarly, there have been a number of recent legislative proposals in the United States, at both the federal and state level, that could impose new obligations in areas such as privacy. In addition, some countries are considering legislation requiring local storage and processing of data that, if enacted, would increase the cost and complexity of delivering our services. These existing and proposed laws and regulations can be costly to comply with and can delay or impede the development of new products, the expansion into new markets, result in negative publicity, increase our operating costs, require significant management time and attention, and subject us to inquiries or investigations, claims or other remedies, including demands that we modify or cease existing business practices or pay fines, penalties or other damages.
Growth may place significant demands on our management and our infrastructure and could be costly.
We have experienced substantial growth in our business. This growth has placed and may continue to place significant demands on our management and our operational and financial infrastructure. Expanding our products or entering into new jurisdictions with new or existing products can be costly and require significant management time and attention. Additionally, as our operations grow in size, scope and complexity and our product offerings increase, we will need to enhance and upgrade our systems and infrastructure to offer an increasing number of customers enhanced solutions, features and functionality. The expansion of our systems and infrastructure will require us to commit substantial financial, operational and technical resources in advance of an increase in the volume of business, with no assurance that the volume of business will increase. Continued growth could also strain our ability to maintain reliable service levels for our customers, develop and improve our operational,
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financial and management controls, develop and enhance our legal and compliance controls and processes, enhance our reporting systems and procedures and recruit, train and retain highly skilled personnel. Competition for these personnel is intense and is particularly intense for technology and analytics professionals. We may not be successful in attracting and retaining qualified personnel. We have from time to time in the past experienced, and we expect to experience in the future, difficulty in hiring and retaining highly skilled employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources or more attractive compensation mixes, including stock options, than we have had. Managing our growth will require significant expenditures and allocation of valuable management resources. Failure to achieve the necessary level of efficiency in our organization as it grows could materially adversely affect our business, prospects, results of operations, financial condition and cash flows and could impair our ability to continue current operations.
New top level domain names may allow the entrance of new competitors or dilution of our brands, which may reduce the value of our domain name assets.
We have invested heavily in promoting our brands, including our website addresses. The Internet Corporation for Assigned Names and Numbers, the entity responsible for administering Internet protocol addresses, has introduced, and has proposed the introduction of, additional new domain name suffixes in different formats, many of which may be more attractive than the formats held by us and which may allow the entrance of new competitors at limited cost. It may also permit other operators to register websites with addresses similar to ours, causing customer confusion and dilution of our brands, which could materially adversely affect our business, prospects, results of operations, financial condition and cash flows. Any defensive domain registration strategy or attempts to protect our trademarks or brands could become a large and recurring expense and may not be successful.
Future acquisitions could disrupt our business and harm our financial condition and operating results.
Our success will depend, in part, on our ability to expand our product and service offerings and markets and grow our business in response to changing customer demands, regulatory environments, technologies and competitive pressures. In some circumstances, we may expand our offerings through the acquisition of complementary businesses, solutions or technologies rather than through internal development. The identification of suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions. Furthermore, even if we successfully complete an acquisition, we may not be able to successfully assimilate and integrate the business, technologies, solutions, personnel or operations of the business that we acquire, particularly if key personnel of an acquired company decide not to work for us. In addition, we may issue equity securities to complete an acquisition, which would dilute our stockholders ownership and could adversely affect the price of our common stock. Acquisitions may also involve the entry into geographic or business markets in which we have little or no prior experience or may expose us to additional material liabilities. Consequently, we may not achieve anticipated benefits of the acquisitions, which could harm our operating results.
We may incur property, casualty or other losses not covered by insurance.
We maintain a program of insurance coverage for various types of property, casualty and other risks. The types and amounts of insurance that we obtain will vary from time to time, depending on availability, cost and managements decisions with respect to risk retention. The policies are subject to deductibles and exclusions that could result in our retention of a level of risk on a self-insurance basis. Losses not covered by insurance could be substantial and may increase our expenses, which could harm our results of operations and financial condition.
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The preparation of our financial statements and certain tax positions taken by us require the judgment of management, and we could be subject to risks associated with these judgments or could be adversely affected by the implementation of new, or changes in the interpretation of existing, accounting principles, financial reporting requirements or tax rules.
The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the dates of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. In addition, managements judgment is required in determining the provision for income taxes, the deferred tax assets and liabilities and any valuation allowance recorded against deferred tax assets. Managements judgment is also required in evaluating whether tax benefits meet the more-likely-than-not threshold for recognition under Accounting Standards Codification 740-10-25, Income Taxes . We are also subject to the examination of our tax returns and other tax matters by the IRS and other tax authorities and government bodies. We regularly assess the likelihood of an adverse outcome resulting from these potential examinations to determine the adequacy of our provision for taxes. There can be no assurance as to the outcome of these examinations. Upon audit, if the ultimate determination of the taxes owed by us is for an amount in excess of amounts previously accrued, we could be required to make certain additional tax payments, which could materially adversely affect our results of operations and cash flows.
In addition, we prepare our financial statements in accordance with GAAP and its interpretations are subject to change over time. If new rules or interpretations of existing rules require us to change our financial reporting, our results of operations and financial condition could be materially adversely affected, and we could be required to restate historical financial reporting.
Our U.S. business is seasonal in nature, which causes our revenue and earnings to fluctuate.
Our U.S. business is affected by fluctuating demand for our products and services and fluctuating collection rates throughout the year. Demand for our short-term consumer loan products in the United States has historically been highest in the third and fourth quarters of each year, corresponding to the holiday season, and lowest in the first quarter of each year, corresponding to our customers receipt of income tax refunds. Typically, our cost of revenue for our short-term consumer loan products in the United States, which represents our loan loss provision, is lowest as a percentage of revenue in the first quarter of each year, corresponding to our customers receipt of income tax refunds, and increases as a percentage of revenue for the remainder of each year. This seasonality requires us to manage our cash flows over the course of the year. If our revenue or collections were to fall substantially below what we would normally expect during certain periods, our ability to service debt and meet our other liquidity requirements may be adversely affected, which could have a material adverse effect on our business, prospects, results of operations, and financial condition.
Risks Related to the Separation and the Distribution
We may be responsible for U.S. federal and state income tax liabilities that relate to the distribution.
Cash America has applied for a private letter ruling from the IRS, or the IRS Ruling, substantially to the effect that the retention by Cash America of up to 20% of Enovas stock will not be in pursuant to a plan having as one of its principal purposes the avoidance of U.S. federal income tax within the meaning of Section 355(a)(1)(D)(ii) of the Code. Notwithstanding the IRS Ruling, the IRS could determine on audit that the retention of the Enova stock was in pursuant to a plan having as one of its principal purposes the avoidance of U.S. federal income tax if it determines that any of the facts, assumptions, representations or undertakings that we or Cash America have made or provided to the IRS are not correct. If the retention is in pursuant to a plan having as one of its principal purposes the avoidance of U.S. federal income tax, then the distribution could ultimately be determined to be taxable, and Cash America would recognize gain in an amount equal to the excess of the fair market value of shares of our common stock distributed to Cash America shareholders on the distribution date over Cash Americas tax basis in such shares of our common stock. Moreover, Cash America could incur significant U.S.
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federal and state income tax liabilities if it is ultimately determined that certain internal transactions undertaken in anticipation of the distribution are taxable. Under U.S. Treasury regulations each member of the Cash America consolidated group at the time of the distribution (including us and our subsidiaries), would be severally liable for the entire amount of any resulting U.S. federal income tax liability.
Along with the receipt of the IRS Ruling, the distribution will be conditioned on the receipt of an opinion of tax counsel that the distribution will be treated as a transaction that is tax-free for U.S. federal income tax purposes under Section 355(a) of the Code. An opinion of tax counsel is not binding on the IRS. Accordingly, the IRS may reach conclusions with respect to the distribution that are different from the conclusions reached in the opinion. Like the IRS Ruling, the opinion will be based on certain factual statements and representations, which, if incomplete or untrue in any material respect, could alter tax counsels conclusions. If, notwithstanding the receipt of the IRS Ruling and the opinion of tax counsel, the IRS were to determine the distribution to be taxable, Cash America would recognize a substantial tax liability.
The Tax Matters Agreement that we will enter into in connection with the separation and distribution will allocate the responsibility for taxes for periods prior to the distribution among Cash America and us. For periods prior to the distribution, generally we will be required to reimburse Cash America with respect to any U.S. federal, state or local or foreign income taxes reportable on returns that include us that are attributable to us. We will be responsible for filing and paying all U.S. federal, state or local or foreign income taxes that are reportable on returns that only include us. We and Cash America will be responsible for certain non-income taxes, such as property, excise, sales and use taxes, attributable to each company and its respective subsidiaries.
Under the Tax Matters Agreement between Cash America and us that we will enter into in connection with the separation and distribution, it is expected that we would generally be required to indemnify Cash America against any tax resulting from the distribution to the extent that such tax resulted from (i) an acquisition of all or a portion of our stock or assets, whether by merger or otherwise, (ii) other actions or failures to act by us or (iii) any of our representations or undertakings being incorrect. For a more detailed discussion, see Certain Relationships and Related-Party TransactionsAgreements Between Us and Cash AmericaTax Matters Agreement. Our indemnification obligations to Cash America and its officers and directors are not expected to be limited by any maximum amount. If we are required to indemnify Cash America or such other persons under the circumstances set forth in the Tax Matters Agreement, we may be subject to substantial liabilities.
We may not realize the potential benefits from the separation, and our historical and pro forma consolidated financial information is not necessarily indicative of our future prospects. We may be unable to achieve some or all of the benefits that we expect to achieve as an independent, publicly traded company.
We may not realize the potential benefits we expect from our separation from Cash America. We have described those anticipated benefits elsewhere in this information statement. See The Separation and the DistributionReasons for the Separation and the Distribution. In addition, we will incur significant costs, including those described below, which may exceed our estimates, and we will incur some negative effects from our separation from Cash America, including loss of access to some of the financial, managerial and professional resources from which we have benefited in the past.
The historical and pro forma consolidated financial information that we have included in this information statement may not necessarily reflect what our financial position, results of operations or cash flows would have been had we been an independent entity during the periods presented or those that we will achieve in the future. The costs and expenses reflected in our historical consolidated financial information include an allocation for certain corporate functions historically provided by Cash America, including executive oversight, insurance and risk management, government relations, internal audit, treasury, licensing, and to a limited extent finance, accounting, tax, legal, human resources, compensation and benefits, compliance and support for certain information systems related to financial reporting that may be different from the comparable expenses that we would have incurred had we operated as a stand-alone company. We have not adjusted our historical or pro
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forma consolidated financial information to reflect changes that will occur in our cost structure and operations as a result of our transition to becoming a stand-alone public company, including changes in our employee base, potential increased costs associated with reduced economies of scale and increased costs associated with Securities and Exchange Commission, or the SEC, reporting and the New York Stock Exchange, or the NYSE, requirements. Therefore, our historical and pro forma consolidated financial information may not necessarily be indicative of what our financial position, results of operations or cash flows will be in the future. Please refer to Managements Discussion and Analysis of Financial Condition and Results of Operations, Unaudited Pro Forma Consolidated Financial Statements and our historical audited and unaudited consolidated financial statements and the notes to those statements included elsewhere in this information statement.
The one-time and ongoing costs of the distribution may be greater than we expected.
We will incur costs in connection with our transition to being a stand-alone public company that relate primarily to accounting, tax, legal and other professional costs; compensation, such as modifications to certain incentive awards upon completion of the distribution; recruiting and relocation costs associated with hiring additional senior management personnel; and costs to separate assets and information systems. In addition, we have already incurred costs of approximately $16.3 million in connection with obtaining independent financing that we will need in order to operate as a separate stand-alone company. These costs, whether incurred before or after the distribution, may be greater than anticipated and could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We have no history operating as an independent public company. We will incur significant costs to create the corporate infrastructure necessary to operate as an independent public company and meet our legal and regulatory compliance requirements. We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent company and meet our legal and regulatory compliance requirements.
We have historically used Cash Americas corporate infrastructure to support some of our business functions, including services related to executive oversight, insurance and risk management, government relations, internal audit, treasury, licensing, and to a limited extent finance, accounting, tax, legal, human resources, compensation and benefits, compliance and support for certain information systems related to financial reporting. The expenses related to establishing and maintaining this infrastructure were spread among all of Cash Americas businesses. Following the separation and after the expiration of the transition arrangements described below, we will no longer have access to Cash Americas infrastructure, and we will need to establish our own. We expect to incur costs beginning in 2014 to establish the necessary infrastructure. See Unaudited Pro Forma Consolidated Financial Statements included elsewhere in this information statement.
Following the separation, Cash America will be contractually obligated to provide to us only those transition services specified in the Transition Services Agreement and the other agreements we enter into with Cash America in connection with the separation and the distribution. The expiration date of the Transition Services Agreement will vary by service provided, but is expected to be generally no longer than 12 months from the distribution date. See Certain Relationships and Related-Party TransactionsAgreements Between Us and Cash AmericaTransition Services Agreement for a description of the terms of the Transition Services Agreement. We may be unable to replace in a timely manner or on comparable terms the services or other benefits that Cash America previously provided to us. Upon the expiration of the Transition Services Agreement or other agreements, many of the services that are covered in such agreements will be provided internally or by unaffiliated third parties. We expect that, in some instances, we will incur higher costs to obtain such services than we incurred prior to the separation and the distribution or under the terms of such agreements. If Cash America does not effectively perform the services that are called for under the Transition Services Agreement and other agreements, we may not be able to operate our business effectively, and our profitability may decline. After the expiration of the Transition Services Agreement and the other agreements, we may be unable to replace the services specified in such agreements in a timely manner or on comparable terms.
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Furthermore, as discussed under Risks Related to Our Business and Industry under the captions Our business is highly regulated, and if we fail to comply with applicable laws, regulations, rules and guidance, our business could be adversely affected , The consumer lending industry continues to be targeted by new laws or regulations in many jurisdictions that could restrict the short-term consumer lending products and services we offer, impose additional compliance costs on us, render our current operations unprofitable or even prohibit our current operations , We are subject to a Consent Order issued by the Consumer Financial Protection Bureau, and any noncompliance would materially adversely affect our business and The United Kingdom has imposed, and continues to impose, increased regulation of the short-term high-cost credit industry with the stated expectation that some firms will exit the market , we face significant ongoing legal and regulatory compliance requirements arising from the heavily regulated industry in which we operate, which continues to be targeted by lawmakers and regulators, and also from compliance with enforcement actions, orders and agreements issued by applicable regulators, such as the November 2013 Consent Order issued by the Consumer Financial Protection Bureau. In particular, the Consent Order requires us and Cash America to allocate resources to ensure that we have a compliance function that is commensurate with our size, complexity, product lines, and business operations to ensure the implementation of an adequate compliance program, including appropriate staffing levels with qualified and experienced personnel. If, as a stand-alone company, we are unable to maintain these resources in a timely manner or on comparable terms following the separation, we may face an increased risk of noncompliance with the Consent Order and other regulatory requirements or additional enforcement actions. These risks could have a material adverse impact on our business, prospects, results of operations, financial condition and could prohibit or directly or indirectly impair our ability to continue current operations.
Until the distribution occurs, Cash America has sole discretion to change the terms of the distribution in ways that may be unfavorable to us and may decide at any time not to proceed with the separation and distribution.
Until the distribution occurs, we are a wholly-owned subsidiary of Cash America. Accordingly, Cash America has the sole and absolute discretion to determine and change the terms of the distribution, including the establishment of the record date and distribution date. These changes could be unfavorable to us. In addition, Cash America may decide at any time not to proceed with the separation and distribution.
In connection with our separation from Cash America, Cash America will indemnify us for certain liabilities, and we will indemnify Cash America for certain liabilities. If we are required to act on these indemnities to Cash America, we may need to divert cash to meet those obligations, and our financial results could be negatively impacted. In the case of Cash Americas indemnity, there can be no assurance that the indemnity will be sufficient to insure us against the full amount of such liabilities, or as to Cash Americas ability to satisfy its indemnification obligations in the future.
Pursuant to the Separation and Distribution Agreement and other agreements with Cash America, it is expected that Cash America will agree to indemnify us for certain liabilities, and we will agree to indemnify Cash America for certain liabilities, in each case for uncapped amounts, as discussed further in Certain Relationships and Related-Party TransactionsAgreements Between Us and Cash America. Indemnities that we may be required to provide Cash America are not expected to be subject to any cap, may be significant and could negatively impact our business, particularly indemnities relating to our actions that could impact the tax-free nature of the distribution. Third parties could also seek to hold us responsible for any of the liabilities that Cash America has agreed to retain. Further, there can be no assurance that the indemnity from Cash America will be sufficient to protect us against the full amount of such liabilities, or that Cash America will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from Cash America any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could negatively affect our business, prospects, results of operations, financial condition and cash flows.
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Fulfilling our obligations incident to being a public company, including with respect to the requirements of and related rules under the Sarbanes-Oxley Act of 2002, will be expensive and time-consuming, and any delays or difficulties in satisfying these obligations could have a material adverse effect on our future results of operations and our stock price.
We have historically operated as a subsidiary of Cash America and have not been subject to financial and other reporting and corporate governance requirements of a stand-alone public company. Following the distribution, we will be required to file annual, quarterly and other reports with the SEC. We will need to prepare and timely file financial statements that comply with SEC reporting requirements. We will also be subject to other reporting and corporate governance requirements under the listing standards of the NYSE and the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, which will impose significant new compliance costs and obligations upon us. The changes necessitated by becoming a standalone public company will require a commitment of additional resources and management oversight which will increase our operating costs. These changes will also place significant additional demands on our finance, accounting and legal staff and on our financial accounting and information systems. Other expenses associated with being a standalone public company include increases in auditing, accounting and legal fees and expenses, investor relations expenses, directors fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses. As a standalone public company, we will be required, among other things, to:
| prepare and file periodic and current reports, and distribute other stockholder communications, in compliance with the federal securities laws and the NYSE; |
| define and expand the roles and the duties of our Board of Directors and its committees; |
| institute comprehensive investor relations and internal audit functions and continue to enhance our compliance function; and |
| evaluate and maintain our system of internal control over financial reporting, and report on managements assessment thereof, in compliance with rules and regulations of the SEC and the Public Company Accounting Oversight Board. |
In particular, under the expected schedule for the contemplated separation and distribution, beginning with the year ending December 31, 2015, we will be required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404(a) of the Sarbanes-Oxley Act. Likewise, our independent registered public accounting firm will be required to provide an attestation report on the effectiveness of our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act. In addition, following the distribution, we will be required under the Securities Exchange Act of 1934, as amended, or the Exchange Act, to maintain disclosure controls and procedures and internal control over financial reporting. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations. If we are unable to conclude that we have effective internal control over financial reporting, or if our independent registered public accounting firm is unable to provide us with an unqualified report regarding the effectiveness of our internal control over financial reporting (at such time as it is required to do so), investors could lose confidence in the reliability of our financial statements. This could result in a decrease in the value of our common stock. Failure to comply with the Sarbanes-Oxley Act could potentially subject us to sanctions or investigations by the SEC or other regulatory authorities.
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We will be unable to take certain actions after the distribution because such actions could jeopardize the tax-free status of the distribution, and such restrictions could be significant.
The Tax Matters Agreement will prohibit us from taking actions that could reasonably be expected to cause the distribution to be taxable or to jeopardize the conclusions of the IRS Ruling or opinions of counsel received by us or Cash America. In particular, for two years after the distribution, we may not:
| enter into any agreement, understanding or arrangement or engage in any substantial negotiations with respect to any transaction involving the acquisition, issuance, repurchase or change of ownership of our capital stock, or options or other rights in respect of our capital stock, subject to certain exceptions relating to employee compensation arrangements and open market stock repurchases; |
| cease the active conduct of our business; or |
| voluntarily dissolve, liquidate, merge or consolidate with any other person, unless we survive and the transaction otherwise complies with the restrictions in the Tax Matters Agreement. |
Nevertheless, we are permitted to take any of the actions described above if we obtain Cash Americas consent, or if we obtain a supplemental IRS private letter ruling and an opinion of counsel that is reasonably acceptable to Cash America to the effect that the action will not affect the tax-free status of the distribution. However, the receipt by us of any such consent or opinion and ruling does not relieve us of any obligation we have to indemnify Cash America for an action we take that causes the distribution to be taxable to Cash America or its shareholders.
Because of these restrictions, for two years after the distribution, we may be limited in the amount of capital stock that we can issue to make acquisitions or to raise additional capital. Also, our indemnity obligation to Cash America may discourage, delay or prevent a third party from acquiring control of us during this two-year period in a transaction that our stockholders might consider favorable. See Certain Relationships and Related-Party TransactionsAgreements Between Us and Cash AmericaTax Matters Agreement and The Separation and the DistributionMaterial U.S. Federal Income Tax Consequences of the Distribution.
We potentially could have received better terms from unaffiliated third parties than the terms we receive in our agreements with Cash America.
The agreements we expect to enter into with Cash America in connection with the separation, including the Separation and Distribution Agreement, the Transition Services Agreement, the Tax Matters Agreement and other agreements, will have been negotiated in the context of the separation while we were still a wholly-owned subsidiary of Cash America. Accordingly, during the period in which the terms of those agreements will have been negotiated, we will not have had a Board of Directors independent of Cash America. As a result, the terms of those agreements may not reflect terms that would have resulted from arms-length negotiations between unaffiliated third parties. The terms of the agreements to be negotiated in the context of the separation relate to, among other things, the allocation of assets, liabilities, rights and other obligations between Cash America and us. Arms-length negotiations between Cash America and an unaffiliated third party in another form of transaction, such as a buyer in a sale of a business transaction, may have resulted in more favorable terms to the unaffiliated third party. See Certain Relationships and Related-Party TransactionsAgreements Between Us and Cash America included elsewhere in this information statement.
The combined post-distribution value of Cash America and Enova shares may not equal or exceed the pre-distribution value of Cash America shares.
After the distribution, we expect that Cash America common stock will continue to be traded on the NYSE. We intend to apply to list the shares of our common stock on the NYSE. We cannot assure you that the combined trading prices of Cash America common stock and our common stock after the distribution, as adjusted for any changes in the combined capitalization of both companies, will be equal to or greater than the trading price of Cash America common stock prior to the distribution. Until the market has fully evaluated the business of Cash
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America without our business and potentially thereafter, the price at which Cash America common stock trades may fluctuate significantly. Similarly, until the market has fully evaluated our business and potentially thereafter, the price at which our common stock trades may fluctuate significantly.
We will be subject to continuing contingent liabilities of Cash America following the separation.
After the separation, there will be several significant areas where the liabilities of Cash America may become our obligations. For example, under the Code and the related rules and regulations, each corporation that was a member of the Cash America consolidated U.S. federal income tax reporting group during any taxable period or portion of any taxable period ending on or before the effective time of the distribution is jointly and severally liable for the U.S. federal income tax liability of the entire Cash America consolidated tax reporting group for that taxable period. In connection with the separation, we will enter into a Tax Matters Agreement with Cash America that will allocate the responsibility for prior period taxes of the Cash America consolidated tax reporting group between us and Cash America. See Certain Relationships and Related-Party TransactionsAgreements Between Us and Cash AmericaTax Matters Agreement. However, if Cash America is unable to pay any prior period taxes for which it is responsible, we could be required to pay the entire amount of such taxes.
If the separation and distribution is completed, it may expose us to potential liabilities arising out of state and federal fraudulent conveyance laws and legal distribution requirements.
If the separation and distribution is completed, it could be challenged under various state and federal fraudulent conveyance laws. An unpaid creditor or an entity vested with the power of such creditor (such as a trustee or debtor-in-possession in a bankruptcy) could claim that the distribution left Cash America insolvent or with unreasonably small capital or that Cash America intended or believed it would incur debts beyond its ability to pay such debts as they mature and that Cash America did not receive fair consideration or reasonably equivalent value in the separation and distribution. If a court were to agree with such a plaintiff, then such court could void the distribution as a fraudulent transfer and could impose a number of different remedies, including without limitation, returning our assets or your shares in our company to Cash America, voiding our liens and claims against Cash America, or providing Cash America with a claim for money damages against us in an amount equal to the difference between the consideration received by Cash America and the fair market value of our company at the time of the distribution.
The measure of insolvency for purposes of the fraudulent conveyance laws will vary depending on which jurisdictions law is applied. Generally, however, an entity would be considered insolvent if either the fair saleable value of its assets is less than the amount of its liabilities (including the probable amount of contingent liabilities), or it is unlikely to be able to pay its liabilities as they become due. No assurance can be given as to what standard a court would apply to determine insolvency or that a court would determine that Cash America was solvent at the time of or after giving effect to the distribution, including the distribution of Enova common stock.
Under the Separation and Distribution Agreement, from and after the distribution, we will be responsible for the debts, liabilities and other obligations related to the business or businesses which we own and operate following the consummation of the distribution. Although we do not expect to be liable for any of these or other obligations not expressly assumed by us pursuant to the Separation and Distribution Agreement, it is possible that we could be required to assume responsibility for certain obligations retained by Cash America should Cash America fail to pay or perform its retained obligations. See Certain Relationships and Related-Party TransactionsAgreements Between Us and Cash AmericaSeparation and Distribution Agreement.
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After the distribution, certain members of management, directors and stockholders may face actual or potential conflicts of interest.
After the distribution, our management and directors and the management and directors of Cash America may own both Cash America common stock and our common stock. This ownership overlap could create, or appear to create, potential conflicts of interest when our management and directors and Cash Americas management and directors face decisions that could have different implications for us and Cash America. For example, potential conflicts of interest could arise in connection with the resolution of any dispute between us and Cash America regarding the terms of the agreements governing the distribution and our relationship with Cash America thereafter or in the strategy for defending or resolving any litigation in which both Cash America and Enova are involved. These agreements include the Separation and Distribution Agreement, the Tax Matters Agreement, the Transition Services Agreement and any commercial agreements between the parties or their affiliates. Potential conflicts of interest may also arise because one of our directors, Daniel R. Feehan, is the President and Chief Executive Officer of Cash America. Further, conflicts of interest may arise out of any commercial arrangements that we or Cash America may enter into in the future.
We are no longer able to rely on Cash America to provide us with financing for our business, and following the distribution, we will not be able to rely on Cash America to provide credit support for our CSO programs or our real property leases.
In May 2014, we obtained financing independent of Cash America through the issuance of $500 million in aggregate principal amount of Senior Notes due 2021 and the entry into a credit facility for up to $75 million. Prior to obtaining independent financing, we relied on Cash America to provide us with financing to fund the development and operation of our business. We are no longer able to rely on Cash America to fund our business and will be required to utilize our new credit facility and, if necessary, other sources of third-party financing to develop and operate our business. There is no assurance that additional financing will be available to us on commercially reasonable terms or at all in the future. Further, Cash America has guaranteed our obligations under our CSO programs and, as discussed under Risks Related to Our Business and Industry The failure of third parties who provide products, services or support to us to maintain their products, services or support could disrupt our operations or result in a loss of revenue ; after the completion of the separation and distribution, Cash America intends to no longer extend a guaranty of our obligations to third-party lenders participating in our CSO programs. There is no assurance that third-party lenders will participate in our CSO programs without these guarantees. If third-party lenders are unwilling to continue to participate in our CSO programs, this would have a material adverse effect on our consumer loan business and result in the loss of revenue.
Further, Cash America guarantees our obligations under the leases covering our leased premises. We expect Cash Americas guarantees of our lease obligations will be released upon or prior to the distribution and that in order to obtain certain releases we may be required to provide security, such as a letter of credit, to the lessor.
We do not have a non-competition agreement with Cash America to restrict Cash America from competing with us, and Cash America is not required to offer corporate opportunities to us.
We do not have any noncompetition agreement or arrangement with Cash America. Following the distribution, Cash America will be free to compete with us in any activity or line of business. Additionally, following the distribution, Cash America will continue to offer alternative financial services and other financial services to consumers through its retail locations in markets served by us and is not restricted from reentering the online financial services business such as ours. We will not have any interest or expectancy in any business activity, opportunity, transaction or other matter in which Cash America engages or seeks to engage merely because we engage in the same or similar lines of business. In addition, Cash America will have no duty to communicate its knowledge of, or offer, any potential business opportunity, transaction or other matter to us, and Cash America is free to pursue or acquire such business opportunity, including opportunities that would be in direct competition with us.
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No vote of the Cash America shareholders is required in connection with this distribution. As a result, if the distribution occurs and you do not want to receive Enova shares in the distribution, your sole recourse will be to divest yourself of your Cash America shares prior to the record date.
No vote of the Cash America shareholders is required in connection with the distribution. Accordingly, if the distribution occurs and you do not want to receive Enova shares in the distribution, your only recourse will be to divest yourself of your Cash America shares prior to the record date for the distribution or on the regular-way market following the record date.
Risks Related to our Indebtedness
We have incurred significant indebtedness, which could adversely affect our financial condition and prevent us from fulfilling our obligations under anticipated agreements governing our indebtedness.
On May 30, 2014 we issued and sold $500 million in aggregate principal amount of 9.75% Senior Notes due 2021, or the Notes, in a private offering. The Notes bear interest at a rate of 9.75% and were sold at a discount of the principal amount thereof to yield 10.0% to maturity. All of the net proceeds from the Note offering were paid to Cash America to repay all of our intercompany indebtedness and to pay a significant portion of a cash dividend to Cash America. In addition, on May 14, 2014 we entered into a Credit Agreement that provides for our unsecured revolving line of credit in an aggregate principal amount of up to $75 million. Interest on the loans taken under the Credit Agreement will be charged, at our option, at either LIBOR for one week or one-, two-, three- or six-month periods, as selected by us, plus a margin varying from 2.50% to 3.75% or at the agents base rate plus a margin varying from 1.50% to 2.75%. The margin for the Credit Agreement borrowings is dependent on our cash flow leverage ratios. We will also be required to pay a fee on the unused portion of our revolving line of credit ranging from 0.25% to 0.50% based on our cash flow leverage ratios. The revolving line of credit was undrawn as of June 30, 2014. For additional information regarding the Notes and our Credit Agreement, see Financing Arrangements in this information statement.
Our level of debt could have important consequences to our stockholders, including:
| limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements; |
| requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes; |
| increasing our vulnerability to general adverse economic and industry conditions; |
| exposing us to the risk of increased interest rates to the extent that our borrowings are at variable rates of interest; |
| limiting our flexibility in planning for and reacting to changes in the industry in which we compete; |
| placing us at a disadvantage compared to other, less leveraged competitors or competitors with comparable debt and more favorable terms and thereby affecting our ability to compete; and |
| increasing our cost of borrowing. |
We and our subsidiaries may incur significant additional indebtedness in the future. If new indebtedness is added to our current indebtedness levels after the distribution, the related risks that we face would increase.
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The terms of the agreements governing our indebtedness restrict our current and future operations, particularly our ability to respond to changes or to take certain actions, which could harm our long-term interests.
The agreements governing our indebtedness contain various restrictive covenants and require that we maintain certain financial ratios that impose operating and financial restrictions on us and limit our ability to engage in actions that may be in our long-term best interests. These restrictive covenants, among other things, restrict our ability to:
| incur additional debt; |
| incur or permit certain liens to exist; |
| make certain investments; |
| merge or consolidate with or into, or convey, transfer, lease or dispose of all or substantially all of our assets to, another company; |
| make certain dispositions; |
| make certain payments; and |
| engage in certain transactions with affiliates. |
As a result of all of these covenants and restrictions, we may be:
| limited in how we conduct our business; |
| unable to raise additional debt or equity financing to operate during general economic or business downturns; or |
| unable to compete effectively or to take advantage of new business opportunities. |
Any failure to comply with any of these financial and other affirmative and negative covenants could constitute an event of default under our debt agreements, entitling the lenders to, among other things, terminate future credit availability under our Credit Agreement, and/or increase the interest rate on outstanding debt, and/or accelerate the maturity of outstanding obligations under our debt agreements. Any such default could materially adversely affect our business, prospects, results of operations, financial condition and cash flows and could impair our ability to continue current operations. See Financing Arrangements for additional information concerning our indebtedness.
We may not be able to generate sufficient cash to service our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on or refinance our debt obligations will depend on our financial condition and operating performance and our ability to enter into other debt financings, which are subject to prevailing economic and competitive conditions and to financial, business, legislative, regulatory, capital markets and other factors beyond our control. We might not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. For information regarding the risks to our business that could impair our ability to satisfy our obligations under our indebtedness, see Risk FactorsRisks Related to Our Business and Industry. If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness. We may not be able to affect any such alternative measures on commercially reasonable terms or at all and, even if successful, those alternative actions may not allow us to meet our scheduled debt service obligations. If we cannot make scheduled payments on our debt, we will be in default, and lenders could declare all outstanding principal and interest to be due and payable, the lenders under our Credit Agreement could terminate their commitments to
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loan money and we could be forced into bankruptcy or liquidation. The agreements governing our indebtedness restrict our ability to dispose of assets and use the proceeds from those dispositions and also restrict our ability to raise debt or equity capital to be used to repay other indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an amount sufficient to meet any debt service obligations then due. Our inability to generate sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial condition, liquidity, results of operations and cash flows and our ability to satisfy our obligations under our indebtedness.
Our Credit Agreement will mature and the interest rate on the Notes will increase by 2.0% per annum if our guarantees of Cash Americas indebtedness are not released on or before March 31, 2015.
We and our domestic subsidiaries are guarantors of (i) Cash Americas revolving credit indebtedness outstanding under its credit agreement, which was undrawn as of June 30, 2014 (the maximum amount of revolving credit available to Cash America is $280 million) and (ii) Cash Americas $300 million in aggregate principal amount of 5.75% Senior Notes due May 15, 2018 that were issued on May 15, 2013. These guarantees will be released upon consummation of the separation and distribution. If the separation and distribution does not occur before March 31, 2015 and our guarantees of Cash Americas indebtedness are not released on or before that date, our Credit Agreement will mature and our borrowings under our Credit Agreement will become due, making it more difficult for us to obtain funds to pay our obligations, including our obligations under the Notes and our Credit Agreement, unless we then are able to secure a replacement credit facility. If our Credit Agreement terminates on March 31, 2015 because our guarantees of Cash Americas indebtedness have not been released by that date, there can be no assurance that we would be able to obtain an alternative credit facility on favorable terms, or at all. In that event, we cannot assure you that we would be able to obtain the capital we need to support our business. Furthermore, if our guarantees of Cash Americas indebtedness have not been released on or before March 31, 2015, the interest rate on the Notes outstanding at that time will increase by a rate of 2.0% per annum until such time as we are released from our obligations to guarantee Cash Americas indebtedness. In addition, if we fail to satisfy any of our registration obligations with respect to the Notes, we will be required to pay the holders of the Notes additional interest of 0.25% to 0.50% per annum until we satisfy our registration obligations.
Changes in our financial condition or a potential disruption in the capital markets could reduce available capital.
If funds are not available from our operations and any excess cash or from our Credit Agreement, we will be required to rely on the banking and credit markets to meet our financial commitments and short-term liquidity needs. We also expect to periodically access the debt capital markets to obtain capital to finance growth. Efficient access to the debt capital markets will be critical to our ongoing financial success; however, our future access to the debt capital markets could become restricted due to a variety of factors, including a deterioration of our earnings, cash flows, balance sheet quality, or overall business or industry prospects, adverse regulatory changes, a disruption to or deterioration in the state of the capital markets or a negative bias toward our industry by market participants. Disruptions and volatility in the capital markets may cause banks and other credit providers to restrict availability of new credit. Due to the negative bias toward our industry, commercial banks and other lenders have restricted access to available credit to participants in our industry, and following the consummation of this offering, we may have more limited access to commercial bank lending than other businesses. Our ability to obtain additional financing in the future will depend in part upon prevailing capital market conditions, and a potential disruption in the capital markets may adversely affect our efforts to arrange additional financing on terms that are satisfactory to us, if at all. If adequate funds are not available, or are not available on acceptable terms, we may not have sufficient liquidity to fund our operations, make future investments, take advantage of acquisitions or other opportunities, or respond to competitive challenges and this, in turn, could adversely affect our ability to advance our strategic plans. Additionally, if the capital and credit markets experience volatility, and the availability of funds is limited, third parties with whom we do business may incur increased costs or business disruption and this could adversely affect our business relationships with such third parties.
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Risks Related to our Common Stock and the Securities Market
Certain provisions of our amended and restated certificate of incorporation, amended and restated bylaws, Tax Matters Agreement, Separation and Distribution Agreement, Transition Services Agreement and Delaware law may discourage takeovers.
Our amended and restated certificate of incorporation authorizes our Board of Directors to issue preferred stock and to determine the designations, powers, preferences, and relative, participating, optional, or other special rights, if any, and the qualifications, limitations, or restrictions of our preferred stock, including the number of shares, in any series, without any further vote or action by the stockholders. The rights of the holders of our common stock will be subject to the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock could delay, deter, or prevent a change in control and could adversely affect the voting power or economic value of your shares.
In addition, some provisions of our amended and restated certificate of incorporation and amended and restated bylaws could make it more difficult for a third party to acquire control of us, even if the change of control would be beneficial to our stockholders, including:
| limitations on the ability of our stockholders to call special meetings; |
| limitations on the ability of our stockholders to act by written consent; |
| a separate vote of 80% of the voting power of the outstanding shares of capital stock in order for stockholders to amend the bylaws; and |
| advance notice provisions for stockholder proposals and nominations for elections to the Board of Directors to be acted upon at meetings of stockholders. |
Under the Tax Matters Agreement, we have agreed to indemnify Cash America for certain tax related matters, and we may be unable to take certain actions after the distribution. See Risks Related to the Separation and the Distribution We will be unable to take certain actions after the distribution because such actions could jeopardize the tax-free status of the distribution, and such restrictions could be significant . We will also enter into, among others, the Separation and Distribution Agreement, the Tax Matters Agreement and the Transition Services Agreement covering specified indemnification and other matters that may arise after the distribution. The Separation and Distribution Agreement, the Tax Matters Agreement and the Transition Services Agreement may have the effect of discouraging or preventing an acquisition of us or a disposition of our business.
There is no existing market for our common stock, and a trading market that will provide you with adequate liquidity may not develop for our common stock. In addition, once our common stock begins trading, the market price of our shares may fluctuate widely.
There is currently no public market for our common stock. We intend to list our common stock on the NYSE under the ticker symbol ENVA. It is anticipated that on or prior to the record date for the distribution, trading of shares of our common stock will begin on a when-issued basis and will continue up to and including the distribution date. However, there can be no assurance that an active trading market for our common stock will develop as a result of the distribution or be sustained in the future.
The market price of our common stock may also be influenced by many other factors, some of which are beyond our control, including, among other things:
| changes in federal, state or foreign laws and regulations affecting our industry; |
| actual or anticipated variations in quarterly and annual operating results; |
| changes in financial estimates and recommendations by research analysts following our common stock or the failure of research analysts to cover our common stock after the distribution; |
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| actual or anticipated changes in the United States or foreign economies; |
| terrorist acts or wars; |
| announcements by us or our competitors of significant acquisitions, strategic partnerships, divestitures, joint ventures, or other strategic initiatives; |
| actual or anticipated sales or distributions of shares of our common stock by Cash America, as well as by our officers and directors, whether in the market or in subsequent public offerings; |
| the trading volume of our common stock; and |
| the other risks and uncertainties described herein. |
The stock markets have experienced price and volume fluctuations that have affected and continue to affect the market price of equity securities of many companies. These fluctuations have often been unrelated or disproportionate to the operating performance of these companies. These broad market fluctuations, as well as general economic, systemic, political, and market conditions, such as recessions, loss of investor confidence, or interest rate changes, may negatively affect the market price of our common stock.
Future sales or distributions of our common stock, including the sale by Cash America of the shares of our common stock that it retains after the distribution, could depress the market price for shares of our common stock.
The shares of our common stock that Cash America distributes to its shareholders generally may be sold immediately in the public market. It is possible that some shareholders of Cash America, including possibly some of Cash Americas major shareholders and index fund investors, will sell Cash America or our common stock received in the distribution for various reasons (for example, if our business profile or market capitalization as an independent company does not fit their investment objectives). The sales of significant amounts of our common stock or the perception in the market that this will occur may result in the lowering of the market price of our common stock. In addition, following the distribution, Cash America will retain a 20 percent ownership interest in our common stock. Pursuant to a Stockholders and Registration Rights Agreement with Cash America, it is expected that Cash America will be required to vote such shares in proportion to the votes cast by our other stockholders. See Certain Relationships and Related-Party TransactionsAgreements Between Us and Cash AmericaStockholders and Registration Rights Agreement included elsewhere in this information statement. In order to not jeopardize the tax-free status of the distribution, we further expect Cash America will be required to dispose of such retained shares of our common stock that it owns as soon as practicable and consistent with its reasons for retaining such shares, but in no event no later than five years after the distribution. Pursuant to the Stockholders and Registration Rights Agreement, it is expected that we will agree that, upon the request of Cash America, we will use our best efforts to effect the registration under applicable securities laws of the shares of common stock retained by Cash America. Any disposition by Cash America, or any significant shareholder, of our common stock in the public market, or the perception that such dispositions could occur, could adversely affect prevailing market prices for our common stock.
If securities or industry analysts do not publish research or publish misleading or unfavorable research about our business, our stock price and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If there is no coverage of our company by securities or industry analysts, the trading price for our stock would be negatively impacted. In the event we obtain securities or industry analyst coverage or if one or more of these analysts downgrades our stock or publishes misleading or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock may decrease, which could cause our stock price or trading volume to decline.
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Your percentage ownership in us may be diluted in the future.
As with any publicly-traded company, your percentage ownership in us may be diluted in the future because of equity issuances for acquisitions, capital market transactions or otherwise, including, without limitation, equity awards that we expect will be granted to our directors, officers and employees.
We do not anticipate paying any dividends on our common stock in the foreseeable future. As a result, you will need to sell your shares of common stock to receive any income or realize a return on your investment.
Following the separation and distribution, we do not anticipate paying any dividends on our common stock in the foreseeable future. Any declaration and payment of future dividends to holders of our common stock may be limited by the provisions of the Delaware General Corporation Law, or DGCL, and are limited by the terms of the Credit Agreement and Notes. The future payment of dividends, if permitted by our Credit Agreement and the Notes, will be at the sole discretion of our Board of Directors and will depend on many factors, including our earnings, capital requirements, financial condition, and other considerations that our Board of Directors deems relevant. As a result, to receive any income or realize a return on your investment, you will need to sell your shares of common stock.
Our amended and restated certificate of incorporation will designate the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us.
Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by any of our directors, officers, employees or agents, (iii) any action asserting a claim against us arising under the DGCL or (iv) any action asserting a claim against us that is governed by the internal affairs doctrine. By becoming a stockholder in our company, you will be deemed to have notice of and have consented to the provisions of our amended and restated certificate of incorporation related to choice of forum. The choice of forum provision in our amended and restated certificate of incorporation may limit our stockholders ability to obtain a favorable judicial forum for disputes with us.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This information statement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You should not place undue reliance on these statements. These forward-looking statements give current expectations or forecasts of future events and reflect the views and assumptions of our senior management with respect to our business, financial condition, operations and prospects. When used in this information statement, terms such as believes, estimates, should, could, would, plans, expects, intends, anticipates, may, forecast, project and similar expressions or variations as they relate to us or our management are intended to identify forward-looking statements. Forward-looking statements address matters that involve risks and uncertainties that are beyond our ability to control and, in some cases, predict. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. Key factors that could cause our actual financial results, performance or condition to differ from the expectations expressed or implied in such forward-looking statements include, but are not limited to, the following:
| the effect of laws and regulations targeting our industry that directly or indirectly regulate or prohibit our operations or render them unprofitable or impractical; |
| the effect of and compliance with domestic and international consumer credit, tax and other laws and government rules and regulations applicable to our business, including changes in such laws, rules and regulations, or changes in the interpretation or enforcement thereof, and the regulatory and examination authority of the Consumer Financial Protection Bureau with respect to providers of consumer financial products and services in the United States and the Financial Conduct Authority in the United Kingdom; |
| changes in our U.K. business practices in response to the requirements of the Financial Conduct Authority; |
| the effect of and compliance with enforcement actions, orders and agreements issued by applicable regulators, such as the November 2013 Consent Order issued by the Consumer Financial Protection Bureau; |
| our ability to effectively operate as a stand-alone, public company following the separation and distribution; |
| our ability to process or collect consumer loans through the Automated Clearing House system; |
| the deterioration of the political, regulatory or economic environment in countries where we operate or in the future may operate; |
| the actions of third parties who provide, acquire or offer products and services to, from or for us; |
| public and regulatory perception of the consumer loan business and our business practices; |
| the effect of any current or future litigation proceedings and any judicial decisions or rule-making that affects us, our products or the legality or enforceability of our arbitration agreements; |
| changes in demand for our services, changes in competition and the continued acceptance of the online channel by our customers; |
| changes in our ability to satisfy our debt obligations or to refinance existing debt obligations or obtain new capital to finance growth; |
| a prolonged interruption in the operations of our facilities, systems and business functions, including our information technology and other business systems; |
| our ability to maintain an allowance or liability for estimated losses on consumer loans that are adequate to absorb credit losses; |
| compliance with laws and regulations applicable to our international operations, including anti-corruption laws such as the Foreign Corrupt Practices Act and the U.K. Bribery Act 2010 and international anti-money laundering, trade and economic sanctions laws; |
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| our ability to attract and retain qualified officers; |
| cyber-attacks or security breaches; |
| acts of God, war or terrorism, pandemics and other events; |
| the ability to successfully integrate newly acquired businesses into our operations; |
| interest rate and foreign currency exchange rate fluctuations; |
| changes in the capital markets, including the debt and equity markets; |
| the effect of any of the above changes on our business or the markets in which we operate; and |
| other risks and uncertainties described herein. |
All forward-looking statements involve risks, assumptions and uncertainties. The occurrence of the events described, and the achievement of the expected results, depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from expected results. See the section titled Risk Factors and elsewhere in this information statement for a more complete discussion of these risks, assumptions and uncertainties and for other risks and uncertainties. These risks, assumptions and uncertainties are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this information statement might not occur.
The forward-looking statements contained in this information statement are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this information statement are made as of the date of this information statement and we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information, future events or otherwise, except as required by applicable securities law.
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THE SEPARATION AND THE DISTRIBUTION
General
Substantially all assets and liabilities related to the e-commerce business that were not held by Enova or its subsidiaries were transferred to Enova or its subsidiaries in 2011 and 2012. Since that time, we have owned all of the assets and incurred all of the liabilities related to Cash Americas e-commerce business, with some limited exceptions, in which case such assets will be transferred to us pursuant to the Separation and Distribution Agreement.
For a description of our financing arrangements, see Financing Arrangements included elsewhere in this information statement.
Following the separation, the distribution will be effected on the distribution date by way of a pro rata distribution of 80 percent of the outstanding shares of Enova common stock to Cash Americas shareholders of record as of 5:00 p.m. Eastern Time on [ ] , 2014, the record date for the distribution.
Reasons for the Separation and the Distribution
The Board of Directors of Cash America believes that the separation and the distribution are in the best interests of Cash America and its shareholders and will provide opportunities and benefits. A wide variety of factors were considered by the Cash America Board of Directors in evaluating the separation and the distribution. Among other things, the Cash America Board of Directors considered the following potential benefits:
| Strategic Focus and Operational Flexibility . Position each company to pursue a more focused, industry-specific strategy, with Enova well-positioned to pursue value creation strategies in the online financial services business and beyond, and Cash America well-positioned to focus on its remaining storefront retail services business, and create additional operational flexibility within each of Enova and Cash America. |
| Management Focus. Allow management of each company to concentrate that companys resources wholly on its particular market segments, regulatory requirements, customers and core lending businesses, with greater ability to anticipate and respond rapidly to changing markets and new opportunities. Management of each company will be able to focus on core operations, with greater focus on customized strategies that can deliver long-term shareholder value. |
| Isolation of regulatory oversight and risks for each company . Allow for better definition of regulatory responsibilities, implementation of more efficient compliance activities and relations with regulators that are more focused on each companys distinct operations. In addition, the risk profile for each company will be directly aligned to each companys operations. Management of each company will be able to more effectively manage risks by focusing on matters directly related to its current and future products without the constraints currently imposed by the combination of each companys distinctive business practices. |
| Recruiting and Retaining Employees. Allow each company to recruit and retain employees with expertise directly applicable to its needs and pursuant to compensation policies that are appropriate for its specific lines of business. In particular, following the distribution, the value of equity-based incentive compensation arrangements offered by each company should be more closely aligned with the performance of its businesses, and the employee benefits offered by each company should be better tailored to the nature of each companys business. The equity-based compensation arrangements following the distribution should provide enhanced incentives for employee performance and improve the ability of each company to attract, retain and motivate qualified personnel. |
|
Access to Capital and Capital Structure. Eliminate competition for capital between the business lines. Instead, both companies will have direct access to the debt and equity capital markets to fund their respective growth strategies and to establish a capital structure and dividend policy appropriate for |
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their business needs. In addition, each company will have greater flexibility to access specialized credit sources directly oriented to their respective businesses that may not have been available prior to the separation because of constraints of the combined asset classes of loans and respective market restrictions created thereby. |
| Distinct investment identity. Enable investors to evaluate the merits, performance and future prospects of each companys businesses and to invest in each company separately based on these distinct characteristics and the investors particular different industry focus, investment goals and risk profile. |
The Cash America Board of Directors also considered a number of potentially negative factors in evaluating the separation and the distribution, including potential loss of synergies from operating as one company, increased costs, loss of joint purchasing power, disruptions to the business as a result of the separation, limitations placed on Enova as a result of the agreements it will enter into with Cash America in connection with the separation, the impact of Enovas incurrence of its own indebtedness, the risk of not being able to realize the expected benefits of the separation in a timely manner or at all, the risk that the separation might not be completed in a timely manner or at all and the one-time and ongoing costs of the separation. The Cash America Board of Directors concluded that notwithstanding these potentially negative factors, the pursuit of the separation and the distribution would be in the best interest of Cash America and its shareholders.
The Number of Shares You Will Receive
Each Cash America shareholder of record will receive one share of Enova common stock for every [ ] shares of Cash America common stock held on the record date for the distribution.
Treatment of Fractional Shares
Fractional shares will not be distributed in connection with the distribution. Instead, the transfer agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate cash proceeds from the sales, net of brokerage fees and other costs, pro rata to each holder who would otherwise have been entitled to receive a fractional share in the distribution. Cash America shareholders will not be entitled to interest on any cash payment made in lieu of fractional shares.
If you have any questions concerning the mechanics of the issuance of fractional shares of common stock held directly, we encourage you to contact Computershare using the contact information for Computershare set forth elsewhere in this information statement. If you have any questions concerning the mechanics of the issuance of fractional shares of common stock held in street name, we encourage you to contact your bank or brokerage firm.
When and How You Will Receive the Distribution of Enova Shares
Cash America will distribute the shares of Enova common stock on [ ] , 2014, the distribution date, to holders of record on the record date for the distribution. The distribution is expected to occur at 12:01 a.m. Eastern Time on the distribution date. Computershare will serve as transfer agent and registrar for the Enova common stock. Computershare will also serve as distribution agent in connection with the distribution.
If you own Cash America common stock as of 5:00 p.m. Eastern Time on the record date for the distribution, the shares of Enova common stock that you are entitled to receive in the distribution will be issued electronically, on the distribution date, to your account as follows:
|
Registered Shareholders if you own your shares of Cash America stock directly, either in book-entry form through an account at Cash Americas transfer agent and/or if you hold paper stock certificates, you will receive your shares of Enova common stock by way of direct registration in book-entry form. Registration in book-entry form refers to a method of recording stock ownership in which no physical paper share certificates are issued to shareholders, as is the case in this distribution. Commencing on or shortly after the distribution date, the distribution agent will mail to you an account statement that indicates the number of shares of Enova common stock that have been registered in book-entry form in |
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your name. If you have any questions concerning the mechanics of having shares of our common stock registered in book-entry form, we encourage you to contact Computershare using the contact information for Computershare set forth elsewhere in this information statement. |
| Beneficial Shareholders if you hold your shares of Cash America common stock beneficially through a bank or brokerage firm, the bank or brokerage firm would be said to hold the stock in street name and ownership would be recorded on the bank or brokerage firms books, and your bank or brokerage firm will credit your account for the shares of Enova common stock that you are entitled to receive in the distribution. If you have any questions concerning the mechanics of having shares of common stock held in street name, we encourage you to contact your bank or brokerage firm. |
Treatment of Short- and Long-Term Incentive Compensation
In January 2014, the Cash America Compensation Committee approved cash-based short-term incentive plans for (i) our Chief Executive Officer and (ii) all of our other employees, including our executive officers, that are based solely on our 2014 performance. Following the separation and distribution, these short-term incentive plans will be administered by our Management Development and Compensation Committee. While we do not intend to adjust the terms of the outstanding short-term incentive plans for 2014, which are based on our performance in 2014, certain adjustments to the financial targets may be made to reflect the different costs and expenses associated with operating as a separate company.
The only equity awards made by Cash America to our employees that remain outstanding are 14,260 restricted stock units, or RSUs, granted to Mr. Fisher, our President and Chief Executive Officer, in January 2013, 100% of which will vest on the earlier to occur of (i) January 29, 2015 or (ii) the date we first become a publicly traded company through a spin-off or public offering of all or any portion of our common stock.
In addition, we have cash-based performance unit awards that were granted to our officers and certain other employees in 2012, 2013 and 2014. Any of the cash-based performance units granted in 2013 and 2014 that are scheduled to vest within twelve months from the date of separation will vest on the effective date of the separation, if it occurs, with the vested value to be paid in cash. The value of vested cash-based performance units granted in 2013 and 2014 will be based on our earnings before interest, taxes, depreciation and amortization adjusted for certain items, or LTI Adjusted EBITDA, for the most recent twelve-calendar month period ending on or before the date of the separation compared to (i) our 2012 LTI Adjusted EBITDA for the awards granted in 2013 and (ii) our 2013 LTI Adjusted EBITDA for the awards granted in 2014, subject to achievement of certain thresholds that must be met before any payment is made. It is also anticipated that any remaining portion of these cash-based performance unit awards that are scheduled to vest after the date of our separation, if any, will be terminated. In addition, if the separation occurs during 2014, it is anticipated that the cash-based performance unit awards that were granted to our officers and certain other employees in 2012 that are scheduled to vest on January 1, 2015, which is their final vesting date, will vest on the effective date of the separation and distribution, if it occurs, with the vested value to be paid in cash. Subject to achievement of certain thresholds that must be met before any payment is made, the value of these cash-based performance units that were granted in 2012 is expected to be as follows: (i) 50% will be based on our year-to-date LTI Adjusted EBITDA through the last day of the calendar month preceding or coincident with the date of the separation compared to the same period year-to-date LTI Adjusted EBITDA for the year prior to the separation, (ii) 25% will be based on our 2013 LTI Adjusted EBITDA compared to our 2012 LTI Adjusted EBITDA, and (iii) 25% will be based on our LTI Adjusted EBITDA for the last six months of 2012 compared to our LTI Adjusted EBITDA for the last six months of 2011.
Treatment of 401(k) Shares
Shares of Cash America common stock held in retirement plans maintained by Cash America and Enova in the United States will be treated in the same manner as outstanding shares of Cash America common stock on the record date for the distribution.
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Results of the Separation and the Distribution
After the separation and the distribution, we will be an independent, publicly traded company. Immediately following the distribution, we expect to have approximately [ ] stockholders of record, based on the number of registered shareholders of Cash America common stock on [ ] , 2014, and approximately 33,000,000 shares of Enova common stock outstanding. The actual number of shares to be distributed will be determined on the record date and will reflect any vesting of Cash America equity-based awards prior to the record date for the distribution.
Before the distribution, we will enter into the Separation and Distribution Agreement and several other agreements with Cash America to affect the separation and provide a framework for our relationship with Cash America after the separation. These agreements will provide for the allocation between Cash America and Enova of certain of Cash Americas assets, liabilities, and obligations subsequent to the separation and distribution, including with respect to transition matters, employee matters, intellectual property matters, tax matters and other commercial relationships. We also will enter into a Stockholders and Registration Rights Agreement with Cash America pursuant to which, among other things, we will agree that, upon the request of Cash America, we will use our best efforts to effect the registration under applicable federal and state securities laws of the shares of common stock retained by Cash America after the distribution. For a description of these agreements, see Certain Relationships and Related-Party TransactionsAgreements Between Us and Cash America included elsewhere in this information statement.
The distribution will not affect the number of outstanding shares of Cash America common stock or any rights of Cash America shareholders, except that the trading price of Cash America shares will likely change as a result of the distribution.
Material U.S. Federal Income Tax Consequences of the Distribution
The following is a summary of the material U.S. federal income tax consequences of the distribution to U.S. Holders (as defined below) of Cash America common stock that receive shares of Enova common stock in the distribution. This summary is based on the Code, the U.S. Treasury regulations promulgated thereunder and interpretations of the Code and the U.S. Treasury regulations by the courts and the IRS, in effect as of the date hereof, and all of which are subject to change, possibly with retroactive effect. This summary does not discuss all the tax considerations that may be relevant to Cash America shareholders in light of their particular circumstances, and it does not address the consequences to Cash America shareholders subject to special treatment under the U.S. federal income tax laws (such as holders other than U.S. Holders, insurance companies, dealers or brokers in securities or currencies, tax-exempt organizations, financial institutions, mutual funds, U.S. expatriates, pass-through entities and investors in such entities, holders who hold their shares as a hedge or as part of a hedging, straddle, conversion, synthetic, security, integrated investment or other risk-reduction transaction, or who are subject to alternative minimum tax or holders who acquired their shares upon the exercise of employee stock options or otherwise as compensation). In addition, this summary does not address the U.S. federal income tax consequences to those Cash America shareholders who do not hold their Cash America common stock as a capital asset. Finally, this summary does not address any state, local or foreign tax consequences.
CASH AMERICA SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS CONCERNING THE U.S. FEDERAL, STATE AND LOCAL AND NON-U.S. TAX CONSEQUENCES OF THE DISTRIBUTION TO THEM.
For purposes of this discussion, a U.S. Holder is a beneficial owner of Cash America common stock that is, for U.S. federal income tax purposes:
| an individual who is a citizen or resident of the United States; |
| a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any state thereof or the District of Columbia; |
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| an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
| a trust, if (1) a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons has the authority to control all of the substantial decisions of such trust or (2) in the case of a trust that was treated as a domestic trust under the law in effect before 1997, a valid election is in place under applicable U.S. Treasury regulations. |
If a partnership (including any entity treated as a partnership for U.S. federal income tax purposes) holds Cash America common stock, the tax treatment of a partner will generally depend on the status of the partner and on the activities of the partnership. Partners in a partnership holding Cash America common stock should consult their own tax advisers regarding the tax consequences of the distribution.
Distribution
For the distribution of the Enova stock to Cash America shareholders to qualify as a tax-free distribution under Section 355(a) of the Code, Cash America has to establish to the satisfaction of the IRS that the retention of 20% of Enovas stock was not in pursuant to a plan having as one of its principal purposes the avoidance of Federal income tax. The distribution is conditioned upon Cash Americas receipt of a private letter ruling from the IRS, substantially to the effect that the retention by Cash America of 20% of Enovas stock will not be in pursuant to a plan having as one of its principal purposes the avoidance of U.S. federal income tax within the meaning of Section 355(d)(1)(D)(ii) of the Code. Cash America has applied for a private letter ruling from the IRS, and expects to receive an opinion from the law firm of Hunton & Williams, LLP, substantially to the effect that the distribution will qualify as a transaction that is described in Section 355(a) of the Code.
On the basis the distribution so qualifies, in general, for U.S. federal income tax purposes: (i) the distribution will not result in any taxable income, gain or loss to Cash America; (ii) no gain or loss will be recognized by (and no amount will be included in the income of) U.S. Holders of Cash America common stock upon their receipt of shares of Enova common stock in the distribution, except with respect to cash received in lieu of fractional shares measured by the difference between the cash received for such fractional share and the U.S. Holders basis in that fractional share, as determined below; (iii) the aggregate basis of the Cash America common stock and the Enova common stock (including any fractional share interests in Enova common stock for which cash is received) in the hands of each U.S. Holder of Cash America common stock after the distribution will equal the aggregate basis of Cash America common stock held by the U.S. Holder immediately before the distribution, allocated between the Cash America common stock and the Enova common stock in proportion to the relative fair market value of each on the date of the distribution; and (iv) the holding period of the Enova common stock received by each U.S. Holder of Cash America common stock (including any fractional share interests in Enova common stock for which cash is received) will include the holding period for the Cash America common stock on which the distribution is made as of the time of the distribution, provided that the Cash America common stock is held as a capital asset on the date of the distribution.
Although the IRS Ruling generally will be binding on the IRS, if the factual representations or assumptions made in the request for the IRS Ruling are untrue or incomplete in any material respect, we will not be able to rely on the IRS Ruling. Furthermore, the IRS Ruling is only with respect to the retention of Enova shares and does not address whether a distribution satisfies other requirements necessary to obtain tax-free treatment under Section 355 of the Code or whether the overall distribution should be treated as satisfying the requirements of Section 355 of the Code. In addition, the IRS Ruling with respect to the retention of Enova shares is based upon representations by Cash America that these conditions have been satisfied, and any inaccuracy in such representations could invalidate the ruling.
In addition to obtaining the IRS Ruling, Cash America expects to obtain an opinion from the law firm of Hunton & Williams LLP substantially to the effect that the distribution will qualify as a reorganization for U.S. federal income tax purposes under Section 355 of the Code. The opinion will rely on the ruling as to matters
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covered by the ruling. In addition, the opinion will be based on, among other things, certain assumptions and representations made by Cash America and us, which if incorrect or inaccurate in any material respect would jeopardize the conclusions reached by the law firm in its opinion. The tax opinion is not binding on the IRS or the courts.
Notwithstanding receipt by Cash America of the IRS Ruling and the opinion from legal counsel, the IRS could assert that the distribution does not qualify for tax-free treatment for U.S. federal income tax purposes. If the IRS were successful in taking this position, Cash Americas shareholders and Cash America could be subject to significant U.S. federal income tax liability. In general, Cash America would be subject to tax as if it had sold the Enova common stock in a taxable sale for its fair market value and Cash America shareholders who receive shares of Enova common stock in the distribution would be subject to tax as if they had received a taxable distribution equal to the fair market value of such shares. In addition, even if the distribution was otherwise to qualify under Section 355 of the Code, it may be taxable to Cash America (but not to Cash America shareholders) under Section 355(e) of the Code, if the distribution was later deemed to be part of a plan (or series of related transactions) pursuant to which one or more persons acquires, directly or indirectly, stock representing a 50 percent or greater interest in Cash America or us. For this purpose, any acquisitions of Cash America stock or of our common stock within the period beginning two years before the distribution and ending two years after the distribution are presumed to be part of such a plan, although we or Cash America may be able to rebut that presumption.
U.S. Treasury regulations also generally provide that if a U.S. Holder of Cash America common stock holds different blocks of Cash America common stock (generally shares of Cash America common stock purchased or acquired on different dates or at different prices), the aggregate basis for each block of Cash America common stock purchased or acquired on the same date and at the same price will be allocated, to the greatest extent possible, between the shares of Enova common stock received in the distribution in respect of such block of Cash America common stock and the U.S. Holders remaining shares of Cash America stock from such block of Cash America common stock, in proportion to their respective fair market values. The holding period of the shares of Enova common stock received in the distribution in respect of such block of Cash America common stock will include the holding period of such block of Cash America common stock, provided that such block of Cash America common stock was held as a capital asset on the distribution date. If a U.S. Holder of Cash America common stock is not able to identify which particular shares of Enova common stock are received in the distribution with respect to a particular block of Cash America common stock, for purposes of applying the rules described above, the U.S. Holder may designate which shares of Enova common stock are received in the distribution in respect of a particular block of Cash America common stock, provided that such designation is consistent with the terms of the distribution. Holders of Cash America common stock are urged to consult their own tax advisers regarding the application of these rules to their particular circumstances.
Tax Matters Agreement
In connection with the distribution, we and Cash America will enter into a Tax Matters Agreement pursuant to which we will agree to be responsible for certain liabilities and obligations following the distribution. In general, under the terms of the Tax Matters Agreement, in the event the distribution were to fail to qualify for U.S. federal income tax purposes under Section 355 of the Code (including as a result of Section 355(e) of the Code) and if such failure were the result of actions taken after the distribution by Cash America or us, the party responsible for such failure would be responsible for all taxes imposed on Cash America to the extent such taxes result from such actions. However, if such failure was the result of any acquisition of our shares or assets or any of our representations or undertakings being incorrect or breached, we would be responsible for all taxes imposed on Cash America as a result of such acquisition or our representations and warranties being incorrect or breached. For a more detailed discussion, see Certain Relationships and Related-Party TransactionsAgreements Between Us and Cash AmericaTax Matters Agreement. Our indemnification obligations to Cash America and its subsidiaries, officers and directors will not be limited in amount or subject to any cap. If we are required to indemnify Cash America and its subsidiaries and their respective officers and directors under the circumstances set forth in the Tax Matters Agreement, we may be subject to substantial liabilities.
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Information Reporting and Backup Withholding
U.S. Treasury regulations require certain shareholders who receive stock in a distribution to attach to the shareholders U.S. federal income tax return for the year in which the distribution occurs a detailed statement setting forth certain information relating to the tax-free nature of the distribution. In addition, payments of cash to a Cash America shareholder in lieu of fractional shares of Enova common stock in the distribution may be subject to information reporting and backup withholding (currently at a rate of 28 percent), unless the shareholder provides proof of an applicable exemption or a correct taxpayer identification number and otherwise complies with the requirements of the backup withholding rules. Backup withholding does not constitute an additional tax, but merely an advance payment, which may be refunded or credited against a shareholders U.S. federal income tax liability, provided the required information is timely supplied to the IRS.
THE FOREGOING IS A SUMMARY OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW AND FOR GENERAL INFORMATION ONLY. THE FOREGOING DOES NOT PURPORT TO ADDRESS ALL U.S. FEDERAL INCOME TAX CONSEQUENCES OR TAX CONSEQUENCES THAT MAY ARISE UNDER THE TAX LAWS OR THAT MAY APPLY TO PARTICULAR CATEGORIES OF SHAREHOLDERS. EACH CASH AMERICA SHAREHOLDER SHOULD CONSULT SUCH SHAREHOLDERS OWN TAX ADVISER AS TO THE PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO SUCH SHAREHOLDER, INCLUDING THE APPLICATION OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS, AND THE EFFECT OF POSSIBLE CHANGES IN TAX LAWS THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED ABOVE.
Market for Our Common Stock
There is not currently a public market for Enovas common stock. We intend to apply to list our common stock on the NYSE under the ticker symbol ENVA. We cannot predict the prices at which our common stock will trade.
Trading Between the Record Date and the Distribution Date
Beginning on, or shortly before, the record date and continuing up to and including the distribution date, we expect there will be two markets in Cash America common stock: a regular-way market and an ex-distribution market. Shares of Cash America common stock that trade on the regular-way market will trade with an entitlement to receive shares of Enova common stock in the distribution. Shares that trade on the ex-distribution market will trade without an entitlement to receive shares of Enova common stock in the distribution. Therefore, if you sell shares of Cash America common stock in the regular-way market after 5:00 p.m. Eastern Time on the record date and up to and including through the distribution date, you will be selling your right to receive shares of Enova common stock in the distribution. If you own shares of Cash America common stock at 5:00 p.m. Eastern Time on the record date and sell those shares in the ex-distribution market, up to and including through the distribution date, you will still receive the shares of Enova common stock that you would be entitled to receive in respect of your ownership, as of the record date, of the shares of Cash America common stock that you sold.
Furthermore, beginning on or shortly before the record date and continuing up to and including the distribution date, we expect there will be a when-issued market in our common stock. When-issued trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The when-issued trading market will be a market for shares of Enova common stock that will be distributed to Cash America shareholders on the distribution date. If you own shares of Cash America common stock at 5:00 p.m. Eastern Time on the record date, you would be entitled to receive shares of our common stock in the distribution. You may trade this entitlement to receive shares of Enova common stock, without trading the shares of Cash America common stock you own, in the when-issued market. On the first trading day following the distribution date, we expect when-issued trading with respect to Enova common stock will end and regular-way trading for Enova common stock will begin.
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Conditions to the Distribution
We expect that the distribution will be effective on [ ] , 2014, the distribution date, provided that, among other conditions set forth in the Separation and Distribution Agreement, the following conditions will have been satisfied or, if permissible under the Separation and Distribution Agreement, waived by Cash America:
| The SEC will have declared effective our registration statement on Form 10, of which this information statement is a part, under the Exchange Act, with no order suspending the effectiveness of the registration statement in effect and no proceedings for such purposes pending before or threatened by the SEC. |
| Any required actions and filings with regard to state securities and blue sky laws of the U.S. (and any comparable laws under any foreign jurisdictions) will have been taken and, where applicable, will have become effective or been accepted. |
| Enovas common stock will have been approved for listing on the NYSE, subject to official notice of issuance. |
| Prior to the distribution, this information statement will have been mailed to the holders of Cash America common stock as of the record date for the distribution. |
| Cash America will have received an IRS Ruling in form and substance satisfactory to Cash America in its sole discretion, to the effect that the retention by Cash America of up to 20% of Enovas stock will not be in pursuant to a plan having as one of its principal purposes the avoidance of U.S. federal income tax within the meaning of Section 355(a)(1)(D)(ii) of the Code, and such IRS Ruling shall not have been revoked or modified in any material respect. |
| Cash America will have received an opinion of its special tax counsel at Hunton & Williams LLP in a form satisfactory to Cash America that the distribution will qualify as a transaction that is tax-free for U.S. federal income tax purposes under Section 355(a) of the Code, and such opinion shall not have been revoked or modified in any material respect. |
| The receipt of an opinion from an independent financial advisor to the Board of Directors of Cash America confirming the solvency and financial viability of Cash America before the distribution and each of Cash America and Enova after the distribution that is in form and substance acceptable to Cash Americas Board of Directors in its sole discretion. |
| No order, injunction, decree or regulation issued by any court or agency of competent jurisdiction or other legal restraint or prohibition preventing completion of the distribution will be in effect. |
| All licenses and filings necessary to be obtained or made by Enova have been obtained or made. |
| Any government approvals and other material consents necessary to consummate the distribution will have been obtained and be in full force and effect. |
| The Separation and Distribution Agreement, Tax Matters Agreement, Transition Services Agreement, Stockholders and Registration Rights Agreement, Credit Underwriting Services Agreement, Marketing and Customer Referral Agreement and other ancillary agreements to be entered into between Cash America and Enova upon or prior to the distribution, as required by Cash Americas Board of Directors in its judgment, will have been entered into between Cash America and Enova and will not have been terminated; see Certain Relationships and Related-Party TransactionsAgreements Between Us and Cash America. |
| No other event or development existing or having occurred that, in the judgment of Cash Americas Board of Directors, in its sole discretion, makes it inadvisable to effect the separation, distribution and other related transactions. |
| The approval of the separation and distribution by the affirmative vote of Cash Americas Board of Directors. |
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The fulfillment of the foregoing conditions does not create any obligations on Cash Americas part to effect the distribution, and the Cash America Board of Directors has reserved the right, in its sole discretion, to abandon, modify or change the terms of the distribution, including by accelerating or delaying the timing of the completion of all or part of the distribution, at any time prior to the distribution date.
Transferability of Shares of Our Common Stock
The shares of our common stock that you will receive in the distribution will be freely transferable, unless you are considered an affiliate of ours under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act. Persons who can be considered our affiliates after the separation generally include individuals or entities that directly, or indirectly through one or more intermediaries, control, are controlled by or are under common control with us, and may include certain of our officers and directors. In addition, individuals who are affiliates of Cash America on the distribution date may be deemed to be affiliates of ours. We estimate that our directors and officers, who may be considered affiliates for purposes of Rule 144, will beneficially own approximately [ ] shares of our common stock immediately following the distribution. See Security Ownership of Certain Beneficial Owners and Management included elsewhere in this information statement for more information. Cash America may also be considered an affiliate of Enova for purposes of Rule 144 because Cash America will immediately following the distribution own 20 percent of Enovas outstanding shares of common stock (estimated to be equal to approximately [ ] shares of common stock of Enova). As discussed under Certain Relationships and Related-Party Transactions, we are entering into a Stockholders and Registration Rights Agreement with Cash America pursuant to which we will be required, under certain circumstances specified in that Agreement, to use our best efforts to effect the registration under applicable federal and state securities laws of the shares of our common stock retained by Cash America after the distribution. See Certain Relationships and Related-Party TransactionsAgreements Between Us and Cash AmericaStockholders and Registration Rights Agreement included elsewhere in this information statement.
Our affiliates may sell shares of our common stock received in the distribution only:
| under a registration statement that the SEC has declared effective under the Securities Act; or |
| under an exemption from registration under the Securities Act, such as the exemption afforded by Rule 144. |
In general, under Rule 144 as currently in effect, an affiliate will be entitled to sell, within any three-month period commencing 180 days after the date the registration statement of which this information statement is a part is declared effective, a number of shares of our common stock that does not exceed the greater of:
| 1.0 percent of our common stock then outstanding; or |
| the average weekly trading volume of our common stock during the four calendar weeks preceding the filing of a notice on Form 144 for the sale. |
Rule 144 also includes restrictions governing the manner of sale. Sales may not be made under Rule 144 unless certain information about us is publicly available.
Reason for Furnishing This Information Statement
This information statement is being furnished solely to provide information to Cash America shareholders who are entitled to receive shares of our common stock in the distribution. This information statement is not, and is not to be construed as, an inducement or encouragement to buy, hold or sell any of our securities. We believe that the information in this information statement is accurate as of the date set forth on the cover. Changes may occur after that date, and neither Cash America nor we undertake any obligation to update such information except in the normal course of discharging our respective public disclosure obligations.
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Manner of Effecting the Separation and the Distribution
The general terms and conditions relating to the separation and the distribution will be set forth in a Separation and Distribution Agreement that we will enter into with Cash America. For a description of the terms of that agreement, see Certain Relationships and Related-Party TransactionsAgreements Between Us and Cash AmericaSeparation and Distribution Agreement included elsewhere in this information statement.
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CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
The Separation from Cash America
The separation will be accomplished by means of the distribution by Cash America of 80 percent of the outstanding shares of Enova common stock to holders of Cash America common stock entitled to such distribution, as described under The Separation and the Distribution included elsewhere in this information statement. Completion of the distribution will be subject to satisfaction, or waiver by Cash America, of the conditions to the separation and distribution described under The Separation and the DistributionConditions to the Distribution.
Historical Relationship with Cash America
Prior to the distribution, we are a wholly-owned subsidiary of Cash America. Cash America has historically provided corporate services such as executive oversight, insurance and risk management, government relations, internal audit, treasury, licensing, and to a limited extent finance, accounting, tax, legal, human resources, compensation and benefits, compliance and support for certain information systems related to financial reporting for which we will be responsible after the completion of this offering. Expenses allocated to us by Cash America relating to these services were $5.2 million for the six months ended June 30, 2014, and $10.0 million, $10.6 million and $18.0 million for the years ended December 31, 2013, 2012 and 2011, respectively.
Historically, we funded our strategic and operating capital needs through a combination of cash flows from operating activities and affiliate advances from Cash America. Our affiliate advances were evidenced through borrowings under an intercompany credit agreement with Cash America. On May 30, 2014 we issued and sold the Notes in a private offering and terminated our credit agreement with Cash America. We used all of the net proceeds, or $479.0 million, of the Note offering to repay all of our intercompany indebtedness due to Cash America, which was $361.4 million as of May 30, 2014, and the remaining net proceeds in the amount of $117.6 million were used to pay a significant portion of a dividend to Cash America. We expect that our operating needs will be satisfied by a combination of cash flows from operations and borrowings under our Credit Agreement. We are no longer able to obtain financing from Cash America. As such, we are not able to rely on Cash America to fund our business and will be required to utilize other sources of financing to develop and operate our business.
On May 30, 2014, we paid Cash America a $120.7 million dividend, or the Cash America Dividend, a substantial portion of which was paid from the net proceeds under the Notes. We also paid a cash dividend of $1.7 million to Cash America on June 30, 2014. Additionally, on September 6, 2011, we paid Cash America a $75.0 million dividend, which was evidenced by a promissory note payable to Cash America that was subsequently included in the borrowings evidenced by our credit agreement with Cash America (which was terminated following the Note offering).
We and our domestic subsidiaries participate jointly and severally with all domestic subsidiaries of Cash America and guarantee the following long-term debt of Cash America:
| Cash Americas revolving credit indebtedness outstanding under its credit agreement, which was undrawn as of June 30, 2014 (the maximum amount of revolving credit available to Cash America is $280 million); and |
| Cash Americas $300 million in aggregate principal amount of 5.75% Senior Notes due May 15, 2018 that were issued on May 15, 2013. |
Under the provisions of Cash Americas debt agreements, we have liability in the event Cash America defaults in its payment obligations or fails to comply with the covenants under the various debt agreements or upon the occurrence of specified events contained in the various debt agreements, including the event of bankruptcy, insolvency or reorganization of Cash America. We believe we will not have to make any payments under these guarantees, therefore, no liability has been reflected on our consolidated balance sheets. We will be released from liability under such guarantees upon completion of the separation and distribution.
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Cash America has guaranteed our performance of various agreements that we are a party to, including guaranteeing our obligations to third party lenders under our CSO programs, totaling $34.9 million and $41.4 million as of June 30, 2014 and December 31, 2013, respectively, and our obligations under the leases covering our leased premises for which we are liable for monthly rents of approximately $226,000 through the remaining terms of these leases. After the distribution is completed, Cash America does not intend to guarantee our obligations to third party lenders that thereafter participate in our CSO programs or our obligations under the leases covering our leased premises. We will agree to indemnify Cash America for any liability incurred by it based on guarantees of our obligations to third party lenders that Cash America has extended to participants in our CSO programs and our obligations under the leases covering our leased premises. We expect Cash Americas guarantees of our lease obligations will be released upon or prior to the distribution and that in order to obtain certain releases we may be required to provide security, such as a letter of credit, to the lessor.
On December 22, 2011, we purchased preferred stock representing a minority interest in BillFloat, Inc., a Delaware corporation that is now known as Better Finance, Inc., from Cash America. The purchase price of $5.0 million was paid to Cash America through borrowings under our credit agreement with Cash America. The purchase price was not determined in an arms length transaction and no independent valuation was made. Rather, the purchase price represents the amount Cash America paid to originally purchase the minority interest in BillFloat, Inc. on March 31, 2011. Cash America sold us the minority interest in BillFloat, Inc., in part, to more effectively align this asset with the assets held by its online short-term consumer loan subsidiaries. BillFloat, Inc. is an early stage privately-held consumer financial services entity.
Related-Party Transactions
As a current subsidiary of Cash America, we engage in related-party transactions with Cash America. Those transactions are described in more detail in Note 14 of notes to consolidated financial statements for the year ended December 31, 2013 that accompany our audited consolidated financial statements included elsewhere in this information statement and in the other disclosure in this section Certain Relationships and Related-Party Transactions.
We pay Cash America compensation for loans made to or arranged for customers who were referred from Cash America. We paid $0.4 million and $0.5 million for the six months ended June 30, 2014 and 2013, respectively, pursuant to this arrangement. In addition, we administer the consumer loan underwriting model utilized by Cash Americas Retail Services Division in exchange for the reimbursement of our direct third-party costs incurred in providing the service. We received $0.3 million and $0.5 million for the six months ended June 30, 2014 and 2013, respectively, pursuant to this arrangement.
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As discussed under Corporate Governance and ManagementExecutive Officers, we expect the individuals listed below to serve as executive officers of Enova following the distribution. As executive officers of Enova, each person will be considered a related person (as defined in Item 404(a) of SEC Regulation S-K). On the date of the distribution, unvested RSUs of Cash America common stock held by the Mr. Fisher, our president and chief executive officer, (as shown below) will be subject to accelerated vesting if the distribution occurs before January 29, 2015. The number of units subject to accelerated vesting, the approximate expense thereof, and the approximate dollar value of the related-persons interests in the transaction are as follows:
Name |
No. of Share of Cash
America Restricted Stock Units Held as of June 30, 2014 (1) |
Amount of
Expense (2) |
Approximate Dollar
Value of Shares as of June 30, 2014 (3) |
|||||||||
David A. Fisher |
14,260 | $ | 687,189 | $ | 633,572 | |||||||
Kirk Chartier |
| | | |||||||||
Alex T. King |
| | | |||||||||
Arad Levertov |
| | | |||||||||
Robert S. Clifton |
| | | |||||||||
Joseph DeCosmo |
| | | |||||||||
Sean Rahilly |
| | | |||||||||
Daniel Shteyn |
| | | |||||||||
Lisa M. Young |
| | |
(1) | On January 29, 2013 Mr. Fisher received a special one-time grant of 14,260 RSUs that are scheduled to vest on the earlier of January 29, 2015 or the date, if ever, that our stock becomes publicly traded. The number of RSUs granted to Mr. Fisher was determined by dividing $600,000 by the average closing price of our Cash America common stock for the 20 trading-day period ending on the day before the grant date. |
(2) | The amount shown represents the grant date fair value in compliance with ASC 718, CompensationStock Compensation , or ASC 718, for RSU awards granted under Cash Americas long-term incentive plan. In accordance with ASC 718, the amount in this column was calculated by multiplying the number of RSUs granted by the closing stock price of Cash Americas common stock on the last trading day preceding the grant date, which was $48.19. |
(3) | The approximate dollar value of the RSU grant was calculated by multiplying the number of RSUs granted by the closing stock price of Cash Americas common stock on June 30, 2014, which was $44.43. |
In anticipation of the distribution (i) Cash America, as sole stockholder of Enova, expects to approve the terms and conditions of the Enova International, Inc. 2014 Long Term Incentive Plan and (ii) Cash America expects the Enova Board of Directors, once in place, to approve grants under the terms and conditions of the plan to each of our executive officers and such grants could include (a) options to purchase shares of Enova common stock, (b) Enova RSU awards, (c) other forms of long-term incentive awards that may be available under the plan, or (d) any combination of the foregoing. These grants will be described in an amendment to this information statement in Compensation Discussion and AnalysisCompensation Actions Taken in Connection with the Separation and Distribution.
From and after the distribution date, we expect to have in effect a Code of Business Conduct and Ethics, or the Code of Conduct, and a Statement of Policy for the Review, Approval or Ratification of Transactions with Related Persons, or the Related-Party Transaction Policy. The Code of Conduct is expected to prohibit our employees from entering into a transaction with companies in which the employee, a family relative of the employee or personal friend of the employee has a financial or other interest for the purpose of benefiting the associate, relative or friend without the approval of the associates supervisor or the legal department. The Related-Party Transaction Policy is expected to require a member of management to notify our Board of Directors, or the Board, or an appropriate committee of the Board, of any transaction or relationship that arises and of which she or he becomes aware that reasonably could be expected to constitute a related-party transaction. For purposes of the companys Related-Party Transaction Policy, a related-party transaction is expected to include a transaction in which the company (including its affiliates) is a participant and in which any director,
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executive officer or shareholder owning at least 5% of the total equity of Enova (or any of their respective immediate family members or an entity in which such director, executive officer, shareholder or any of their respective immediate family members holds or controls more than 5% of such entitys total equity) has or will have a direct or indirect material interest. For so long as Cash America continues to be a related party following the distribution, including due to its retained ownership in Enova, transactions with Cash America will be related-party transactions subject to the Code of Conduct and the Related-Party Transaction Policy. Any such transaction or relationship will be reviewed by our companys management or the appropriate Board committee to ensure it does not constitute a conflict of interest and is reported appropriately. Additionally, we expect the Nominating and Governance Committees charter will provide for the committee to conduct an annual review of related-party transactions between each of our directors and the company (and its affiliates) and to make recommendations to the Board of Directors regarding the continued independence of each Board member.
For information about the treatment of stock-based and cash-based awards in the distribution, see The Separation and the DistributionTreatment of Short- and Long-Term Incentive Compensation included elsewhere in this information statement.
Agreements Between Us and Cash America
As part of the separation and the distribution, we will enter into a Separation and Distribution Agreement and several other agreements with Cash America to effect the separation and to provide a framework for our relationship with Cash America after the separation and the distribution. These agreements will provide for the allocation between us and Cash America of the assets, liabilities and obligations of Cash America and its subsidiaries, and will govern various aspects of the relationship between us and Cash America subsequent to the separation, including with respect to transition services, registrations rights, tax matters and other commercial relationships. In addition to the Separation and Distribution Agreement, which contains key provisions related to the separation and the distribution, these agreements will include, among others:
| Tax Matters Agreement; |
| Transition Services Agreement; |
| Stockholders and Registration Rights Agreement; |
| Credit Underwriting Services Agreement; and |
| Marketing and Customer Referral Agreement. |
The forms of certain of the principal agreements described below will be filed as exhibits in an amendment to the registration statement of which this information statement is a part. The summaries of the material terms of these agreements are qualified in their entirety by reference to the full text of the applicable agreements, which are incorporated by reference into this information statement.
The terms and provisions of the Separation and Distribution Agreement, the Tax Matters Agreement, the Transition Services Agreement, the Stockholders and Registration Rights Agreement, the Credit Underwriting Services Agreement and the Marketing and Customer Referral Agreement described below that will be in effect following the separation have not yet been substantially completed. Material changes may be made prior to the separation and will be included in a subsequent amendment to the registration statement of which this information statement is a part. No changes may be made after our separation from Cash America without our consent.
Separation and Distribution Agreement
The Separation and Distribution Agreement will govern the terms of the separation of our e-commerce business from Cash Americas retail services business. Generally, the Separation and Distribution Agreement will include Cash Americas and our agreements relating to the restructuring steps to be taken to complete the separation, including the assets, equity interests and rights to be transferred, liabilities to be assumed, contracts to be
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assigned and related matters. Subject to the receipt of required governmental and other consents and approvals, in order to accomplish the separation, the Separation and Distribution Agreement will provide for Cash America and us to transfer specified assets (including the equity interests of certain Cash America subsidiaries, if necessary) and liabilities between the companies that will operate the e-commerce business after the distribution, on the one hand, and Cash Americas remaining storefront retail services business, on the other hand.
Except as expressly set forth in the Separation and Distribution Agreement or any ancillary agreement, neither Cash America nor Enova will make any representation or warranty as to the assets, equity interests, business or liabilities transferred or assumed as part of the separation, as to any approvals or notifications required in connection with the transfers, as to the value or freedom from any security interests of any of the assets transferred, as to the absence or presence of any defenses or right of setoff or freedom from counterclaim with respect to any claim or other asset of either Cash America or Enova or as to the legal sufficiency of any assignment, document or instrument delivered to convey title to any asset or thing of value transferred in connection with the separation. All assets will be transferred on an as is, where is basis and the respective transferees will bear the economic and legal risks that any conveyance will prove to be insufficient to vest in the transferee good and marketable title, free and clear of any security interest, and that any necessary consents or governmental approvals are not obtained or that any requirements of laws, agreements, security interests or judgments are not complied with.
The Separation and Distribution Agreement will specify those conditions that must be satisfied or waived by Cash America prior to the distribution. See The Separation and the DistributionConditions to the Distribution included elsewhere in this information statement. In addition, Cash America will have the right to determine the date and terms of the distribution, and will have the right to determine to abandon or modify the distribution and to terminate the Separation and Distribution Agreement at any time prior to the distribution.
Tax Matters Agreement
The Tax Matters Agreement will govern Cash Americas and our respective rights, responsibilities and obligations with respect to taxes (including taxes arising in the ordinary course of business and taxes, if any, incurred as a result of any failure of the distribution and certain related transactions to qualify as tax-free for federal income tax purposes), tax attributes, tax returns, tax contests and certain other tax matters.
In general, under the Tax Matters Agreement, responsibility for taxes for periods prior to the distribution will be allocated in the following manner:
| With respect to any U.S. federal income taxes of the affiliated group of which Cash America is the common parent, Cash America generally will be responsible for filing and paying all such taxes, and we will reimburse Cash America for the portion of the taxes attributable to us. |
| With respect to U.S. state or local income taxes of any state or local consolidated, combined or unitary group that includes Cash America or one of its subsidiaries and us, Cash America generally will be responsible for filing and paying such taxes of the consolidated, combined or unitary group, and we will reimburse Cash America for the portion of the consolidated or combined taxes attributable to us. |
| Cash America generally will be responsible for filing and paying any U.S. federal, state or local or foreign income taxes reportable on returns that include only Cash America and its subsidiaries (excluding us and our subsidiaries), and we generally will be responsible for filing and paying any U.S. federal, state or local or foreign income taxes reportable on returns that include only us or our subsidiaries. |
| We and Cash America will be responsible for certain non-income taxes, such as property, excise, sales and use taxes, attributable to each company and its respective subsidiaries (or property owned by such company or one of its subsidiaries following the distribution). |
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In addition, the Tax Matters Agreement will impose certain restrictions on us and our subsidiaries (including restrictions on share issuances, business combinations, sales of assets and similar transactions) that are designed to preserve the tax-free status of the distribution and certain related transactions. The Tax Matters Agreement will provide special rules allocating tax liabilities in the event the distribution, together with certain related transactions, is not tax-free. In general, under the Tax Matters Agreement, each party will be responsible for any taxes imposed on Cash America that arise from the failure of the distribution and certain related transactions to qualify as a tax-free transaction for federal income tax purposes within the meaning of Sections 355 and certain other relevant provisions of the Code to the extent that the failure to qualify is attributable to actions, events or transactions relating to such partys respective stock, assets or business, or a breach of the relevant representations or covenants made by that party in the Tax Matters Agreement.
The Tax Matters Agreement will also set forth Cash Americas and our obligations as to the filing of tax returns, the administration of tax contests and assistance and cooperation on tax matters.
Transition Services Agreement
In connection with the separation and the distribution, we will enter into a transition services agreement with Cash America, pursuant to which Cash America will agree to provide to us, on a transitional basis, certain information systems support generally consistent with the services provided by Cash America to us before the separation. The charges for the transition services generally are intended to allow Cash America to fully recover the costs directly associated with providing the services to us, plus all out-of-pocket costs and expenses, with nominal profit. The charges for the transition services generally will be approximately [ ] per month plus reimbursement of Cash Americas out of pocket expenses. We have been preparing for the transition of the services to be provided by Cash America, or third-party providers on behalf of Cash America, to us under the transition services agreement. We expect that we will be able to complete the transition of those services on or before 12 months following the completion of the separation and distribution.
Subject to certain exceptions, Cash Americas liability for providing services under the transition services agreement will generally be limited to the aggregate amount (excluding any third-party costs and expenses included in such amount) actually paid to Cash America by us pursuant to the transition services agreement. The transition services agreement also will provide that Cash America shall not be liable to us for any consequential, special, indirect, incidental, punitive, or exemplary damages.
Stockholders and Registration Rights Agreement
Prior to the distribution, we and Cash America will enter into a Stockholders and Registration Rights Agreement pursuant to which we will agree that, upon the request of Cash America, we will use our best efforts to effect the registration under applicable federal and state securities laws of the shares of our common stock retained by Cash America after the distribution. We will also file a registration statement to register the distribution of shares of Enova common stock out of the shares to be retained by Cash America for delivery under Cash Americas long-term incentive plans. In addition, Cash America will grant us a proxy to vote the shares of our common stock that Cash America retains immediately after the distribution in proportion to the votes cast by our other stockholders. This proxy, however, will be automatically revoked as to a particular share upon any sale or transfer of such share from Cash America to a person other than Cash America, and neither the voting agreement nor the proxy will limit or prohibit any such sale or transfer.
Credit Underwriting Services Agreement
In connection with the separation and the distribution, we will enter into a credit underwriting services agreement with Cash America whereby we will continue to provide Cash America with our underwriting services and analytical models for its use in its consumer credit business for a term of one (1) year with successive one (1) year renewal options until such time as either party elects to terminate the agreement. Cash America will pay us licensing and service fees under this agreement.
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Marketing and Customer Referral Agreement
We have historically had an arrangement with Cash America pursuant to which we compensated Cash America for customer leads that it provided to us that it has generated from its retail locations and its websites, though no formal agreement has existed. In connection with the separation and the distribution, we expect to enter into a marketing and customer referral agreement with Cash America which will provide the terms pursuant to which we will continue to pay Cash America compensation for providing us with new customer leads from their retail locations and their websites. During each of 2011, 2012 and 2013, we paid Cash America approximately $1.2 million each year for customer referrals.
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FINANCING ARRANGEMENTS
Our outstanding indebtedness consists of:
| an unsecured revolving credit facility in an aggregate principal amount of up to $75 million, or the revolving line of credit; and |
| $500 million in aggregate principal amount of 9.75% Senior Notes due 2021, or the Notes. |
Credit Agreement
On May 14, 2014, we and certain of our domestic subsidiaries, as guarantors, entered into a credit agreement with Jefferies Finance LLC, as administrative agent, and Jefferies Group LLC, as lender, or the Credit Agreement. The Credit Agreement provides for our unsecured revolving line of credit in an aggregate principal amount of up to $75 million. The Credit Agreement contains customary representations and warranties and covenants (including financial maintenance covenants). Loans under the revolving line of credit may be made in dollars or in designated foreign currencies. Neither Cash America nor any of its other subsidiaries that are not subsidiaries of Enova guarantee the revolving line of credit.
Our revolving line of credit may be used for our and our subsidiaries general corporate purposes, including possible acquisitions. Interest on the loans borrowed under the Credit Agreement will be charged, at our option, at either LIBOR for one week or one-, two-, three- or six-month periods, as selected by us, plus a margin varying from 2.50% to 3.75% or at the agents base rate plus a margin varying from 1.50% to 2.75%. The margin for the Credit Agreement borrowings is dependent on our cash flow leverage ratios. We will also be required to pay a fee on the unused portion of the line of credit ranging from 0.25% to 0.50% based on our cash flow leverage ratios. The revolving line of credit under the Credit Agreement was undrawn as of June 30, 2014.
The Credit Agreement also includes a sub-limit of up to $20.0 million for standby or commercial letters of credit. In the event that an amount is paid by the issuing bank under a letter of credit, it will be due and payable by us on demand. Pursuant to the terms of the Credit Agreement, we agree to pay fees equal to the LIBOR margin per annum on the undrawn amount of each outstanding standby Letter of Credit plus a one-time commercial letter of credit fee of 0.20% of the face amount of each commercial Letter of Credit plus 0.25% per annum on the average daily amount of the total Letter of Credit exposure. We had no outstanding letters of credit as of June 30, 2014.
Our Credit Agreement will mature on June 30, 2017. However, if our guarantees of Cash Americas indebtedness and other material Cash America debt in excess of $1.0 million are not released and terminated on or before March 31, 2015, our Credit Agreement will instead mature on March 31, 2015. See Guarantees of Cash Americas Indebtedness below for additional information regarding the indebtedness of Cash America that we guarantee as of the date of this information statement.
This description of the material terms of the revolving line of credit is qualified in its entirety by reference to the full text of the Credit Agreement, which is incorporated by reference into this information statement.
Senior Notes
On May 30, 2014, we issued and sold the Notes. The Notes bear interest at a rate of 9.75% and were sold at a discount of the principal amount thereof to yield 10.0% to maturity. The Notes were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act and outside the United States pursuant to Regulation S under the Securities Act.
We used all of the net proceeds of the Note offering, or $479.0 million, to repay all of our intercompany indebtedness due to Cash America, which was $361.4 million as of May 30, 2014, and the remaining net proceeds were used to pay a significant portion of the Cash America Dividend. See Certain Relationships and Related-Party TransactionsHistorical Relationship with Cash America for additional information regarding the Cash America Dividend.
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The Notes are governed by an Indenture, or the Indenture, dated May 30, 2014, between us, our domestic subsidiaries, as Guarantors, and U.S. Bank National Association, as trustee. The Notes bear interest at a rate of 9.75% per year on the principal amount of the Notes, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2014. The Notes will mature on June 1, 2021. The Notes are senior unsecured debt obligations of Enova and are unconditionally guaranteed by our domestic subsidiaries. Neither Cash America nor any of its other subsidiaries that are not also our subsidiaries guarantee the Notes.
The Indenture contains certain covenants that, among other things, limit our and certain of our subsidiaries ability to incur additional debt, acquire or create new subsidiaries, create liens, engage in certain transactions with affiliates and consolidate or merge with or into other companies.
The Notes are redeemable at our option, in whole or in part, (i) at any time prior to June 1, 2017 at 100% of the aggregate principal amount of Notes redeemed plus the applicable make whole redemption price specified in the Indenture, plus accrued and unpaid interest, if any, to the redemption date and (ii) at any time on or after June 1, 2017 at a premium specified in the Indenture that will decrease over time as described in the Indenture, plus accrued and unpaid interest, if any, to the redemption date. In addition, prior to June 1, 2017, we may redeem from time to time up to 35% of the aggregate principal amount of the Notes at a redemption price equal to 109.75% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date with the proceeds from certain equity offerings as described in the Indenture. In addition, if our and our subsidiaries guarantee of certain indebtedness of Cash America as described in the Indenture is not released on or before March 31, 2015 then we may redeem all and not less than all of the Notes outstanding at a redemption price equal to 103% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, or the Special Redemption, and if the Special Redemption does not occur, then the interest rate on the Notes will increase 2.0% per annum until Enova and its subsidiaries no longer guarantee certain indebtedness of Cash America as described in the Indenture. See Guarantees of Cash Americas Indebtedness below for additional information regarding the indebtedness of Cash America that we guarantee as of the date of this information statement. If a change of control occurs, as that term is defined in the Indenture, the holders of Notes will have the right, subject to certain conditions, to require Enova to repurchase their Notes at a purchase price equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest, if any, as of the date of repurchase.
The Indenture provides for customary events of default, including nonpayment, failure to comply with covenants or other agreements in the Indenture, any subsidiary guarantee ceasing to be in full force and effect or any guarantor denying or disaffirming its obligations under its subsidiary guarantee, and certain events of bankruptcy or insolvency. If any event of default occurs and is continuing, the trustee or the holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately.
In addition, on May 30, 2014, we entered into a registration rights agreement with the initial purchaser, or the Registration Rights Agreement, pursuant to which we agreed to use commercially reasonable efforts to cause a registration statement to be declared effective on or prior to the 360th day following the closing date relating to an exchange offer of the Notes for identical new notes registered under the Securities Act. In certain circumstances, we may be required to file a shelf registration statement to cover resales of the Notes. If we do not comply with certain covenants set forth in the Registration Rights Agreement, we must pay liquidated damages to holders of the Notes. If we fail to satisfy any of our registration obligations, we will be required to pay the holders of the Notes additional interest of 0.25% to 0.50% per annum until we satisfy our registration obligations.
This description of the material terms of the Notes is qualified in its entirety by reference to the full text of the Indenture and the Registration Rights Agreement, which are incorporated by reference into this information statement.
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Guarantees of Cash Americas Indebtedness
We and our domestic subsidiaries participate jointly and severally with all domestic subsidiaries of Cash America and guarantee the following long-term debt of Cash America:
| Cash Americas revolving credit indebtedness outstanding under its credit agreement, which was undrawn as of June 30, 2014 (the maximum amount of revolving credit available to Cash America is $280 million); and |
| Cash Americas $300 million in aggregate principal amount of 5.75% Senior Notes due May 15, 2018 that were issued on May 15, 2013. |
Under the provisions of Cash Americas debt agreements, we have liability in the event Cash America defaults in its payment obligations or fails to comply with the covenants under the various debt agreements or upon the occurrence of specified events contained in the various debt agreements, including the event of bankruptcy, insolvency or reorganization of Cash America. We believe we will not have to make any payments under these guarantees, therefore, no liability has been reflected on our consolidated balance sheets. We will be released from liability under such guarantees upon completion of the separation and distribution.
Previous Credit Agreement with Cash America
Prior to entering into our Credit Agreement and issuing the Notes, we historically funded our strategic and operating capital needs through a combination of cash flows from operating activities and intercompany loans from Cash America. Our credit agreement with Cash America permitted us to borrow, repay and re-borrow funds from Cash America on a revolving credit basis in a maximum amount equal to $450 million. We used all of the net proceeds from the Note offering to repay all of our outstanding intercompany indebtedness owed to Cash America, which was $361.4 million as of May 30, 2014, and we have terminated our revolving credit agreement with Cash America. We are no longer able to obtain financing from Cash America. As such, we will not be able to rely on Cash America to fund our business and will be required to utilize other sources of financing to develop and operate our business.
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DIVIDEND POLICY
Following the separation and distribution, we do not anticipate paying any dividends on our common stock in the foreseeable future. We currently intend to retain our future earnings for use in the operation and expansion of our business. The declaration and amount of any future dividends, however, will be determined by our Board of Directors and will depend on our financial condition, earnings and capital requirements after the distribution, covenants associated with our debt obligations and any other factors that our Board of Directors believes are relevant. There can be no assurance, however, that we will pay any cash dividends on our common stock in the future. In addition, the terms of the Notes and our Credit Agreement limit our ability to pay future dividends.
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CAPITALIZATION
The following table sets forth our capitalization as of June 30, 2014. The information below does not necessarily reflect what our capitalization would have been had we operated as a separate, publicly traded company for the period presented and is not necessarily indicative of our future capitalization. You should read the information set forth below in conjunction with Selected Historical Financial and Other Data, Managements Discussion and Analysis of Financial Condition and Results of Operations and the historical consolidated financial statements and the related notes included elsewhere in this information statement.
(Dollars in thousands)
(1) | The revolving line of credit under the Credit Agreement was undrawn as of June 30, 2014. |
(2) | The Notes have an aggregate principal amount of $500 million, but were issued at a $6.19 million discount from the principal amount. |
85
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial data for the six-month period ended June 30, 2014 and the year ended December 31, 2013 have been derived from our historical consolidated financial statements included elsewhere in this information statement. The unaudited pro forma condensed consolidated financial statements reported below should be read in conjunction with the information under Selected Historical Financial and Other Data, Managements Discussion and Analysis of Financial Condition and Results of Operations and the historical consolidated financial statements and the related notes thereto included in this information statement. The summary unaudited pro forma condensed consolidated statement of operations data for the six-month period ended June 30, 2014 and the year ended December 31, 2013 have been adjusted to give effect to the issuance of the Notes and Credit Agreement and the resulting repayment of all of our intercompany indebtedness due to Cash America and the payment of the Cash America Dividend as if these transactions had occurred as of January 1, 2014 and 2013, respectively. No material pro forma adjustments were necessary for the unaudited consolidated balance sheet at June 30, 2014.
Cash America assesses us an overhead allocation charge for certain administrative services. These services include executive oversight, insurance and risk management, government relations, internal audit, treasury, licensing, and to a limited extent, finance, accounting, tax, legal, human resources, compensation and benefits, compliance and support for certain information systems related to financial reporting that may be different from the comparable expenses that we would have incurred had we operated as a stand-alone company. Our historical and pro forma financial statements include overhead allocation charges related to these services totaling $5.2 million for the six months ended June 30, 2014 and $10.0 million for the year ended December 31, 2013. Management believes that these costs are not necessarily indicative of our ongoing administrative costs as a separate, stand-alone public company, however we have not included an adjustment for estimated overhead costs in the pro forma financial statements provided below.
The unaudited pro forma consolidated financial information set forth below is for illustrative purposes only and does not reflect what our results of operations would have been had the issuance of the Notes and the Credit Agreement and the use of proceeds therefrom, or the distribution, occurred on the dates indicated. Before the distribution, we have been operating as a division of Cash America. Therefore, our historical and pro forma consolidated financial information may not be representative of the results we would have achieved as a stand-alone public company and may not be a reliable indicator of our future results.
The unaudited pro forma consolidated financial information constitutes forward-looking information and is subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. See Cautionary Note Regarding Forward-Looking Statements.
86
ENOVA INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, 2013
(in thousands)
HISTORICAL AS
REPORTED YEAR ENDED DECEMBER 31, 2013 |
PRO FORMA
ADJUSTMENTS |
PRO FORMA
YEAR ENDED DECEMBER 31, 2013 |
||||||||||
Revenue |
$ | 765,323 | $ | | $ | 765,323 | ||||||
Cost of Revenue |
315,052 | | 315,052 | |||||||||
|
|
|
|
|
|
|||||||
Gross Profit |
450,271 | | 450,271 | |||||||||
|
|
|
|
|
|
|||||||
Expenses |
||||||||||||
Marketing |
135,336 | | 135,336 | |||||||||
Operations and technology |
70,776 | | 70,776 | |||||||||
General and administrative |
84,420 | | 84,420 | |||||||||
Depreciation and amortization |
17,143 | | 17,143 | |||||||||
|
|
|
|
|
|
|||||||
Total Expenses |
307,675 | | 307,675 | |||||||||
|
|
|
|
|
|
|||||||
Income from Operations |
142,596 | | 142,596 | |||||||||
Interest expense |
(19,788 | ) | (32,224 | ) (a) | (52,012 | ) | ||||||
Foreign currency transaction loss |
(1,176 | ) | | (1,176 | ) | |||||||
|
|
|
|
|
|
|||||||
Income before Income Taxes |
121,632 | (32,224 | ) | 89,012 | ||||||||
Provision for income taxes |
43,594 | (11,278 | ) (b) | 32,316 | ||||||||
|
|
|
|
|
|
|||||||
Net Income |
$ | 78,038 | $ | (20,946 | ) | $ | 57,092 | |||||
|
|
|
|
|
|
|||||||
Diluted earnings per share |
$ | 2.36 | $ | (0.63 | ) | $ | 1.73 | |||||
|
|
|
|
|
|
(a) | Represents the elimination of affiliate interest expense resulting from the application of a portion of the net proceeds of the Notes issued and sold on May 30, 2014 to pay off the outstanding balance of our intercompany indebtedness due to Cash America with the corresponding addition of interest expense of $48.8 million and amortization of deferred debt issuance costs and debt discount of $3.2 million resulting from the issuance of the Notes and the Credit Agreement. The pro forma interest expense is based on a coupon rate of 9.75% and an effective yield to maturity of 10.0% for the notes. No pro forma interest expense adjustment is made for our Credit Agreement. |
(b) | Represents the tax effect of pro forma adjustments to income before income taxes using a statutory rate of 35% for the periods presented. |
87
ENOVA INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended June 30, 2014
(in thousands)
HISTORICAL AS
REPORTED SIX MONTHS ENDED JUNE 30, 2014 |
PRO FORMA
ADJUSTMENTS |
PRO FORMA
SIX MONTHS ENDED JUNE 30, 2014 |
||||||||||
Revenue |
$ | 409,947 | $ | | $ | 409,947 | ||||||
Cost of Revenue |
133,276 | | 133,276 | |||||||||
|
|
|
|
|
|
|||||||
Gross Profit |
276,671 | | 276,671 | |||||||||
|
|
|
|
|
|
|||||||
Expenses |
||||||||||||
Marketing |
59,306 | | 59,306 | |||||||||
Operations and technology |
35,008 | | 35,008 | |||||||||
General and administrative |
51,358 | | 51,358 | |||||||||
Depreciation and amortization |
8,434 | | 8,434 | |||||||||
|
|
|
|
|
|
|||||||
Total Expenses |
154,106 | | 154,106 | |||||||||
|
|
|
|
|
|
|||||||
Income from Operations |
122,565 | | 122,565 | |||||||||
Interest expense |
(12,065 | ) | (13,935 | ) (a) | (26,000 | ) | ||||||
Foreign currency transaction loss |
(400 | ) | | (400 | ) | |||||||
|
|
|
|
|
|
|||||||
Income before Income Taxes |
110,100 | (13,935 | ) | 96,165 | ||||||||
Provision for income taxes |
39,416 | (4,877 | ) (b) | 34,539 | ||||||||
|
|
|
|
|
|
|||||||
Net Income |
$ | 70,684 | $ | (9,058 | ) | $ | 61,626 | |||||
|
|
|
|
|
|
|||||||
Diluted earnings per share |
$ | 2.14 | $ | (0.27 | ) | $ | 1.87 | |||||
|
|
|
|
|
|
(a) | Represents the elimination of affiliate interest expense resulting from the application of a portion of the net proceeds of the Notes issued and sold on May 30, 2014 to pay off the outstanding balance of our intercompany indebtedness due to Cash America with the corresponding addition of interest expense of $24.4 million and amortization of deferred debt issuance costs and debt discount of $1.6 million resulting from the issuance of the Notes and the Credit Agreement. The pro forma interest expense is based on a coupon rate of 9.75% and an effective yield to maturity of 10.0% for the Notes. No pro forma interest expense adjustment is made for our Credit Agreement. |
(b) | Represents the tax effect of pro forma adjustments to income before income taxes using a statutory rate of 35% for the periods presented. |
88
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
The following table sets forth a summary of our consolidated historical financial data as of and for the periods presented. The historical financial information as of December 31, 2013 and 2012 and for each of the years ended December 31, 2013, 2012 and 2011 has been derived from our audited consolidated financial statements included elsewhere in this information statement. The historical financial information as of December 31, 2011, 2010 and 2009 and for each of the years ended December 31, 2010 and 2009 has been derived from our audited consolidated financial statements that are not included in this information statement. The historical financial information as of and for each of the six-month periods ended June 30, 2014 and 2013 has been derived from our unaudited interim consolidated financial statements included elsewhere in this information statement. The unaudited interim consolidated financial statements included elsewhere in this information statement have been prepared on substantially the same basis as the audited consolidated financial statements incorporated by reference in this information statement. In the opinion of management, the unaudited interim financial data includes all adjustments, consisting of only normal nonrecurring adjustments, considered necessary for a fair presentation of this information. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the entire year or any future interim period.
89
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
(In thousands, except per share) | ||||||||||||||||||||||||||||
SIX MONTHS ENDED
JUNE 30, |
YEAR ENDED DECEMBER 31, | |||||||||||||||||||||||||||
2014 | 2013 | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||||||
Statement of Income Data: |
||||||||||||||||||||||||||||
Revenue |
$ | 409,947 | $ | 358,455 | $ | 765,323 | $ | 660,928 | $ | 480,340 | $ | 378,317 | $ | 254,977 | ||||||||||||||
Cost of Revenue |
133,276 | 138,158 | 315,052 | 288,474 | 201,687 | 164,957 | 109,174 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Gross Profit |
276,671 | 220,297 | 450,271 | 372,454 | 278,653 | 213,360 | 145,803 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Expenses |
||||||||||||||||||||||||||||
Marketing |
59,306 | 58,069 | 135,336 | 108,810 | 73,329 | 59,197 | 32,775 | |||||||||||||||||||||
Operations and technology |
35,008 | 34,546 | 70,776 | 63,505 | 52,371 | 40,983 | 29,915 | |||||||||||||||||||||
General and administrative |
51,358 | 43,888 | 84,420 | 72,690 | 65,401 | 50,252 | 36,094 | |||||||||||||||||||||
Depreciation and amortization |
8,434 | 9,028 | 17,143 | 13,272 | 11,263 | 8,559 | 7,297 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total Expenses |
154,106 | 145,531 | 307,675 | 258,277 | 202,364 | 158,991 | 106,081 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income from Operations |
122,565 | 74,766 | 142,596 | 114,177 | 76,289 | 54,369 | 39,722 | |||||||||||||||||||||
Interest expense |
(12,065 | ) | (9,829 | ) | (19,788 | ) | (20,996 | ) | (17,420 | ) | (15,505 | ) | (11,852 | ) | ||||||||||||||
Investment interest income |
| | | | | 296 | | |||||||||||||||||||||
Foreign currency transaction gain (loss) |
(400 | ) | (286 | ) | (1,176 | ) | (342 | ) | (487 | ) | (156 | ) | 38 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Income before Income Taxes |
110,100 | 64,651 | 121,632 | 92,839 | 58,382 | 39,004 | 27,908 | |||||||||||||||||||||
Provision for income taxes |
39,416 | 23,415 | 43,594 | 33,967 | 21,350 | 14,183 | 10,205 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Net Income |
$ | 70,684 | $ | 41,236 | $ | 78,038 | $ | 58,872 | $ | 37,032 | $ | 24,821 | $ | 17,703 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Earnings per share |
||||||||||||||||||||||||||||
Earnings per common share, basic and diluted |
$ | 2.14 | $ | 1.25 | $ | 2.36 | $ | 1.78 | $ | 1.12 | $ | 0.75 | $ | 0.54 | ||||||||||||||
Weighted average common shares outstanding, basic and diluted |
33,000 | 33,000 | 33,000 | 33,000 | 33,000 | 33,000 | 33,000 | |||||||||||||||||||||
Other Financial Data: |
||||||||||||||||||||||||||||
Adjusted EBITDA (a) |
$ | 130,999 | $ | 83,794 | $ | 162,239 | $ | 131,328 | $ | 87,552 | $ | 62,928 | $ | 47,019 | ||||||||||||||
Capital expenditures |
$ | 6,828 | $ | 4,846 | $ | 14,872 | $ | 17,872 | $ | 15,073 | $ | 12,687 | $ | 12,360 | ||||||||||||||
Gross profit margin |
67.5 | % | 61.5 | % | 58.8 | % | 56.4 | % | 58.0 | % | 56.4 | % | 57.2 | % | ||||||||||||||
Adjusted EBITDA margin (a) |
32.0 | % | 23.4 | % | 21.2 | % | 19.9 | % | 18.2 | % | 16.6 | % | 18.4 | % | ||||||||||||||
Domestic revenue |
$ | 217,873 | $ | 178,933 | $ | 395,549 | $ | 334,066 | $ | 254,752 | $ | 276,295 | $ | 214,479 | ||||||||||||||
International revenue |
$ | 192,074 | $ | 179,522 | $ | 369,774 | $ | 326,862 | $ | 225,588 | $ | 102,022 | $ | 40,498 | ||||||||||||||
Number of employees (at period end) |
1,079 | 1,023 | 1,027 | 993 | 872 | 756 | 593 | |||||||||||||||||||||
Balance Sheet Data (at period end): |
||||||||||||||||||||||||||||
Cash and cash equivalents (b) |
$ | 79,785 | $ | 50,210 | $ | 47,480 | $ | 37,548 | $ | 34,411 | $ | 17,653 | $ | 25,717 | ||||||||||||||
Consumer loans, net (b) |
291,966 | 232,930 | 303,467 | 228,390 | 162,985 | 89,193 | 59,617 | |||||||||||||||||||||
Total assets (b) |
727,613 | 620,674 | 692,152 | 612,868 | 529,740 | 419,071 | 373,022 | |||||||||||||||||||||
Long-term debt (c) |
493,863 | 397,894 | 424,133 | 427,889 | 410,964 | 270,839 | 255,799 | |||||||||||||||||||||
Total stockholders equity (c) |
122,432 | 132,854 | 173,048 | 97,416 | 41,849 | 79,577 | 55,352 | |||||||||||||||||||||
Other Operating Data: |
||||||||||||||||||||||||||||
Combined consumer loan balances, gross |
||||||||||||||||||||||||||||
Short-term loans (d) |
$ | 95,055 | $ | 157,306 | $ | 122,165 | $ | 194,679 | $ | 182,939 | $ | 138,309 | $ | 106,587 | ||||||||||||||
Installment loans |
177,211 | 130,217 | 179,230 | 121,570 | 60,213 | 14,892 | 3,017 | |||||||||||||||||||||
Line of credit accounts |
122,409 | 58,071 | 125,802 | 42,700 | 21,648 | 10,963 | 11,553 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total combined consumer loan balances, gross (d) |
$ | 394,675 | $ | 345,594 | $ | 427,197 | $ | 358,949 | $ | 264,800 | $ | 164,164 | $ | 121,157 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90
(a) | The table below shows a reconciliation of Adjusted EBITDA, a non-GAAP measure, to Net Income and Adjusted EBITDA as a percentage of total revenue, which is Adjusted EBITDA margin (dollars in thousands): |
SIX MONTHS ENDED
JUNE 30, |
YEAR ENDED DECEMBER 31, | |||||||||||||||||||||||||||
2014 | 2013 | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||||||
Net income |
$ | 70,684 | $ | 41,236 | $ | 78,038 | $ | 58,872 | $ | 37,032 | $ | 24,821 | $ | 17,703 | ||||||||||||||
Regulatory penalty (1) |
| | 2,500 | | | | | |||||||||||||||||||||
Withdrawn IPO (2) |
| | | 3,879 | | | | |||||||||||||||||||||
Interest expense, net |
12,065 | 9,829 | 19,788 | 20,996 | 17,420 | 15,209 | 11,852 | |||||||||||||||||||||
Provision for income taxes |
39,416 | 23,415 | 43,594 | 33,967 | 21,350 | 14,183 | 10,205 | |||||||||||||||||||||
Depreciation and amortization |
8,434 | 9,028 | 17,143 | 13,272 | 11,263 | 8,559 | 7,297 | |||||||||||||||||||||
Foreign currency transaction loss |
400 | 286 | 1,176 | 342 | 487 | 156 | (38 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Adjusted EBITDA |
$ | 130,999 | $ | 83,794 | $ | 162,239 | $ | 131,328 | $ | 87,552 | $ | 62,928 | $ | 47,019 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Revenue |
$ | 409,947 | $ | 358,455 | $ | 765,323 | $ | 660,928 | $ | 480,340 | $ | 378,317 | $ | 254,977 | ||||||||||||||
Adjusted EBITDA |
$ | 130,999 | $ | 83,794 | 162,239 | 131,328 | 87,552 | 62,928 | 47,019 | |||||||||||||||||||
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|
|
|
|
|
|
|
|
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|
|
|
|||||||||||||||
Adjusted EBITDA as a percentage of total revenue |
32.0 | % | 23.4 | % | 21.2 | % | 19.9 | % | 18.2 | % | 16.6 | % | 18.4 | % | ||||||||||||||
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|
|
|
|
|
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|
|
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|
|
|
(1) | For the year ended December 31, 2013, represents the amount paid in connection with the Regulatory Penalty, which is nondeductible for tax purposes. |
(2) | For the year ended December 31, 2012, represents costs related to our withdrawn Registration Statement in July 2012 in connection with efforts in pursuit of an initial public offering of $3.9 million, net of tax benefit of $1.5 million. |
(b) | Cash and cash equivalents, Consumer loans, net, and Total assets as of December 31, 2011, 2010, and 2009 were revised to correct the classification of cash and accounts payable and to correct for consumer loans that had not funded as of the balance sheet date. The correction resulted in a decrease in cash and cash equivalents of $3.7 million, $1.5 million and $1.5 million, a decrease in consumer loans, net of $1.0 million, $1.2 million and $1.2 million, and a decrease in accounts payable and accrued expenses of $4.7 million, $2.7 million, and $2.7 million as of December 31, 2011, 2010 and 2009, respectively. Management determined that the impact on previously issued financial statements was immaterial; however, management determined it was appropriate to correct the December 31, 2011, 2010 and 2009 financial statement amounts. |
(c) | Long-term debt and total stockholders equity as of December 31, 2011 and 2010 were revised to correct the classification of certain net equity transactions with Cash America. Management determined that the impact on previously issued financial statements was immaterial; however, management determined it was appropriate to correct the presentation herein. The correction resulted in increases of $0.1 million and $0.6 million to long-term debt as of December 31, 2011 and 2010, respectively, and an increase of $0.3 million and a decrease of $0.3 million to total stockholders equity as of December 31, 2011 and 2010, respectively. |
(d) | See Managements Discussion and Analysis of Financial Condition and Results of OperationsNon-GAAP DisclosureCombined Consumer Loans for additional information about combined consumer loans. The table below shows combined consumer loan balances, a non-GAAP measure, which is composed of Company-owned consumer loan balances as reported on our consolidated balance sheets and consumer loans originated by third party lenders through the CSO programs that are not included in our financial statements but are disclosures required by GAAP. The amounts in the table below reflect the revision amounts from (b) above (in thousands): |
SIX MONTHS ENDED
JUNE 30, |
YEAR ENDED DECEMBER 31, | |||||||||||||||||||||||||||
2014 | 2013 | 2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||||||
Short-term loan balances, gross: |
||||||||||||||||||||||||||||
Company owned |
$ | 60,140 | $ | 121,890 | $ | 80,753 | $ | 146,472 | $ | 140,178 | $ | 99,360 | $ | 68,413 | ||||||||||||||
Guaranteed by the Company |
34,915 | 35,416 | 41,412 | 48,207 | 42,761 | 38,949 | 38,174 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Combined |
$ | 95,055 | $ | 157,306 | $ | 122,165 | $ | 194,679 | $ | 182,939 | $ | 138,309 | $ | 106,587 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total consumer loan balances, gross: |
||||||||||||||||||||||||||||
Company owned |
$ | 359,760 | $ | 310,178 | $ | 385,785 | $ | 310,742 | $ | 222,039 | $ | 125,215 | $ | 82,983 | ||||||||||||||
Guaranteed by the Company |
34,915 | 35,416 | 41,412 | 48,207 | 42,761 | 38,949 | 38,174 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Combined |
$ | 394,675 | $ | 345,594 | $ | 427,197 | $ | 358,949 | $ | 264,800 | $ | 164,164 | $ | 121,157 | ||||||||||||||
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91
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the consolidated financial statements and the related notes included elsewhere in this information statement. This Managements Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Please see Risk Factors and Cautionary Statement Concerning Forward-Looking Statements for a discussion of the uncertainties, risks and assumptions associated with these statements.
POTENTIAL SEPARATION FROM CASH AMERICA
On April 10, 2014, the Board of Directors of Cash America International, Inc., or Cash America, authorized management to review potential strategic alternatives, including a tax-free distribution, for our separation. After evaluating alternatives for Enova, Cash Americas management has recommended that its Board of Directors pursue a tax-free distribution. If Cash Americas Board of Directors approves a separation, a transaction would likely be completed in late 2014 or early 2015, subject to market, regulatory and other conditions, including, if the separation takes the form of a tax-free distribution, the receipt of a private letter ruling from the Internal Revenue Service, an opinion from Cash Americas tax counsel and a solvency opinion from an independent financial advisor. The separation and distribution will be completed by way of a pro rata distribution of 80 percent of the outstanding shares of Enova common stock to Cash Americas shareholders. If such a distribution is made, Enova would become a stand-alone, publicly traded company. See The Separation and Distribution.
Since 2011, we have owned all of the assets and incurred all of the liabilities related to Cash Americas e-commerce business, with some limited exceptions, in which case such assets will be transferred to us and such liabilities will be assumed by us pursuant to the Separation and Distribution Agreement in the event the distribution is completed. If Cash Americas Board of Directors authorizes the distribution, we will enter into several other agreements with Cash America related to the distribution. These agreements will govern the relationship between us and Cash America after completion of the distribution and provide for the allocation between us and Cash America of various assets, liabilities, rights and obligations (including insurance and tax-related assets and liabilities). These agreements will also include arrangements with respect to transitional services to be provided by Cash America to us and vice versa. See Certain Relationships and Related-Party TransactionsAgreements between Us and Cash America.
RECENT REGULATORY DEVELOPMENTS
Consumer Financial Protection Bureau
On November 20, 2013, Cash America consented to the issuance of a Consent Order by the Consumer Financial Protection Bureau, or the CFPB, pursuant to which it agreed, without admitting or denying any of the facts or conclusions made by the CFPB from its 2012 review of Cash America and us, to pay a civil money penalty of $5 million, of which we and Cash America agreed to allocate $2.5 million of this penalty to us, or the Regulatory Penalty. The Consent Order also relates to issues self-disclosed to the CFPB during its 2012 examination of Cash America and us, including the making of a limited number of loans to consumers who may have been active duty members of the military at the time of the loan at rates in excess of the military annual percentage rate permitted by the federal Military Lending Act due in part to system errors, and for which we have made refunds of approximately $33,500; and for certain failures to timely provide and preserve records and information in connection with the CFPBs examination of us and Cash America. In addition, as a result of the CFPBs review, we are in the process of enhancing our compliance management programs and implementing additional procedures to address the issues identified by the CFPB. We are also required to provide periodic reports to the CFPB. We are subject to the restrictions and obligations of the Consent Order, including the CFPBs order that we ensure compliance with federal consumer financial laws and develop more robust compliance policies and procedures.
92
Financial Conduct Authority
During the six-month periods ended June 30, 2014 and June 30, 2013 and the twelve-month period ended December 31, 2013, our U.K. operations generated 45.7%, 48.6% and 47.1%, respectively, of our consolidated total revenue. Recent regulatory changes in the United Kingdom will significantly affect future results from our U.K. operations as described below.
In the United Kingdom, supervision of consumer credit was transferred on April 1, 2014 to the Financial Conduct Authority, or the FCA, and pursuant to new legislation, the FCA is authorized to adopt prescriptive rules and regulations and to impose stringent requirements on what a lender may and may not do. On February 28, 2014, the Consumer Credit Sourcebook was issued under the FCA Handbook and incorporates prescriptive regulations for lenders such as us, including mandatory affordability assessments on borrowers, limiting the number of rollovers to two, restricting how lenders can advertise, banning advertisements it deems misleading, and introducing a limit of two unsuccessful attempts on the use of continuous payment authority (which provides a creditor the ability to directly debit a customers account for payment when authorized by the customer to do so) to pay off a loan. We are in frequent communication with the FCA in an effort to demonstrate that we satisfy the expectations of the FCA, and we have made and are continuing to make significant modifications to many of our business practices to address the FCAs requirements. These modifications include adjustments to our affordability assessment practices and underwriting standards that govern who will qualify for a loan from us, reductions in certain maximum loan amounts, alterations to advertising practices and adjustments to collections processes (including our practices related to continuous payment authority) and debt forbearance processes (or our practices regarding customers who have indicated they are experiencing financial difficulty). In addition, we previously have not had a physical presence in the United Kingdom as business functions have been performed remotely from our facilities in the United States. In order to alleviate concerns in relation to our ability to presently demonstrate to the FCA that we are capable of being effectively supervised, we are establishing an office in the United Kingdom.
In connection with implementing these changes to our U.K. business, we expect a significant year-over-year decrease in our U.K. loan volume, U.K. loan balances and U.K. revenue for the remainder of 2014 and potentially into 2015 as a result of adapting our U.K. business practices in response to the requirements of the FCA. The implementation of stricter affordability assessments and underwriting standards will result in a decrease in the number of consumer loans written, the average consumer loan amount and the total amount of consumer loans written to new and returning customers. Additionally, we will experience an increase in compliance- and administrative-related costs for the United Kingdom, but the overall expenses of our U.K. business (including our cost of revenue) are expected to decrease as our U.K. business contracts. The ultimate impact of the changes we are making to our U.K. operations will be dependent on a number of factors (some of which may be unforeseen), including the effectiveness of our execution of the operational changes, the impact the FCAs requirements may have on our competitors that could result in a potential increase in our market share, and consumer reaction to the changes occurring to our services, among other things. The impact potentially could also be offset by an improved performance of our U.K. consumer loan portfolio as a result of stricter affordability assessments and underwriting standards being implemented, which is expected to result in lower consumer loan loss rates, and by continued strong demand for the online loan products we offer in the U.S. and other markets. We are still assessing the potential impact of the changes we are making to our U.K. operations and what effect such changes may have on our business, but the impact of these changes is likely to be significant for the balance of 2014 and potentially into 2015.
On July 15, 2014, the FCA issued a consultation paper that proposed a cap on the total cost of high-cost short-term credit and requested comments on the proposal. The consultation paper proposed a maximum rate of 0.8% of principal per day, and the proposal limits the total fees, interest (including post-default interest) and charges (including late fees which are capped at £15) to an aggregate amount not to exceed 100% of the principal amount loaned. The FCA has requested comments on the proposal and is expected to issue a final rule in November 2014. The final rule on a cost of credit cap will likely become effective by January 2, 2015, as required by the
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2013 amendment to the Financial Services and Markets Act 2000. If the final rule adopted by the FCA is comparable to the proposed rule, we will need to make additional changes to certain of the products we offer in the United Kingdom, including increasing the minimum monthly payment under our line of credit products offered in the United Kingdom. We are still assessing the full impact of the potential cost of credit cap changes as they are currently proposed; however, after we have made all of the other changes to our U.K. business described above, we do not currently expect the impact of the modifications made to address a final cost of credit rule that tracks the proposed parameters to be significant.
The results for the six-month period ended June 30, 2014 and the year ended December 31, 2013 do not include the full impact of the changes described above, and the results for the six-month period ended June 30, 2013 do not include any impact of the changes described above. The results for each of these periods are not indicative of our future results of operations and cash flows from our operations in the United Kingdom. For recent developments related to the FCA, including concerns that have been expressed by the FCA regarding our compliance with U.K. legal and regulatory requirements, such as the requirement that our business be capable of being effectively supervised by the FCA given our location outside the United Kingdom and compliance with FCA rules and principles relating to affordability assessments and debt collection and forbearance processes, see Risk FactorsRisks Related to Our Business and Industry Our primary regulators in the United Kingdom have expressed and continue to express serious concerns about our compliance with applicable U.K. regulations, which has caused and will continue to cause us to make significant changes to our U.K. business that will negatively impact our operations and results, and this impact will likely be significant , Due to restructuring of the consumer credit regulatory framework in the United Kingdom, we are required to obtain full authorization from our U.K. regulators to continue providing consumer credit and perform related activities in the United Kingdom, and there is no guarantee that we will receive full authorization to continue offering consumer loans in the United Kingdom and The United Kingdom has imposed, and continues to impose, increased regulation of the short-term high-cost credit industry with the stated expectation that some firms will exit the market.
BASIS OF PRESENTATION AND CRITICAL ACCOUNTING POLICIES
Enova International, Inc. was formed on September 7, 2011 by Cash America to hold the assets of Cash Americas online lending business. On September 13, 2011, Cash America contributed to Enova International, Inc. all of the stock of its wholly-owned subsidiary, Enova Online Services, Inc., in exchange for 33 million shares of our common stock. As of June 30, 2014, Enova offered or arranged loans through a number of its subsidiaries to customers in 33 states in the United States, United Kingdom, Australia, Canada and Brazil. The consolidated financial information presented reflects the retrospective application of this contribution.
Historically, we have operated as a division of Cash America and not as a stand-alone company. Our historical consolidated financial statements include the assets, liabilities, revenue and expenses directly attributable to our operations carved out of Cash Americas consolidated financial statements. In addition, the historical financial statements include allocations of costs relating to certain functions historically provided by Cash America, including corporate services such as executive oversight, insurance and risk management, government relations, internal audit, treasury, licensing, and to a limited extent finance, accounting, tax, legal, human resources, compensation and benefits, compliance and support for certain information systems related to financial reporting. The expense allocations have been determined on a basis that Cash America and we consider to be reasonable reflections of the utilization of services provided by Cash America.
The amounts recorded for these transactions and allocations are not, however, necessarily representative of the amounts that would have been incurred had we been a separate, stand-alone entity that operated independently of Cash America. Our future results of operations if we separate from Cash America will include costs and expenses for us to operate as a stand-alone company, and, consequently, these costs may be materially different than as reflected in our historical results of operations. Accordingly, the financial statements for these years may not be indicative of our future results of operations, financial position and cash flows.
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If we separate from Cash America, we expect to enter into a transition services agreement with Cash America. The expiration date of the agreement will vary by service provided but is expected to be generally no longer than 12 months from the separation date. Under the agreement, we expect that Cash America will provide support for certain information systems related to financial reporting and payment processing to us for a period of time following the completion of the separation for which we will compensate Cash America. In addition, we will reimburse Cash America for all out-of-pocket costs and expenses it pays or incurs in connection with providing such services.
Revenue Recognition
We recognize revenue based on the loan products and services we offer. Revenue in the consolidated statements of income includes: interest income, finance charges, fees for services provided through the CSO programs, or CSO fees, service charges, draw fees, minimum fees, late fees, nonsufficient funds fees and any other fees or charges permitted by applicable laws and pursuant to the agreement with the borrower. For short-term loans that we offer, interest and finance charges are recognized on an effective yield basis over the term of the loan, and fees are recognized when assessed to the customer. CSO fees are recognized on an effective yield basis over the term of the loan. For installment loans, interest is recognized on an effective yield basis over the term of the loan and fees are recognized when assessed to the customer. For line of credit accounts, interest is recognized over the reporting period based upon the balance outstanding and the contractual interest rate, and fees are recognized when assessed to the customer. Unpaid and accrued interest and fees are included in Consumer loans, net in the consolidated balance sheets.
Current and Delinquent Consumer Loans
We classify our consumer loans as either current or delinquent. Short-term loans are considered delinquent when payment of an amount due is not made as of the due date. If an installment loan or line of credit account customer misses one payment, that payment is considered delinquent. If an installment loan or line of credit account customer does not make two consecutive payments, the entire loan or account is classified as delinquent. We allow for normal payment processing time before considering a loan delinquent but do not provide for any additional grace period.
Where permitted by law and as long as a loan is not considered delinquent, a customer may choose to renew a short-term loan or installment loan or extend the due date on a short-term loan. In order to renew or extend a short-term loan, a customer must agree to pay the current finance charge for the right to make a later payment of the outstanding principal balance plus an additional finance charge. In some instances, customers agree to repay a new short-term loan in two or three payments, and in these cases we consider the obligation to make the first payment a new loan and the obligation to make the second and third payments renewals or extensions of that loan because the customer pays the finance charge due at the time of each payment, similar to a loan that has been renewed or extended. In order to renew an installment loan, the customer enters into a new installment loan contract and agrees to pay the principal balance and finance charge in accordance with the terms of the new loan contract. If a short-term loan is renewed, but the customer fails to pay that loans current finance charge as of the due date, the unpaid finance charge is classified as delinquent. References throughout Managements Discussion and Analysis of Financial Condition and Results of Operations to renewed consumer loans include both renewals and extensions made by customers to their existing loans as discussed above.
We generally do not accrue interest on delinquent consumer loans and do not resume accrual of interest on a delinquent loan unless it is returned to current status. In addition, delinquent consumer loans generally may not be renewed, and if, during an attempt to collect on a delinquent consumer loan, we allow additional time for payment through a payment plan or a promise to pay, it is still considered delinquent. Generally, all payments received are first applied against accrued but unpaid interest and fees and then against the principal balance of the loan.
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Allowance and Liability for Estimated Losses on Consumer Loans
We monitor the performance of our consumer loan portfolio and maintain either an allowance or liability for estimated losses on consumer loans (including fees and interest) at a level estimated to be adequate to absorb credit losses inherent in the portfolio. The allowance for losses on our owned consumer loans reduces the outstanding loan balance in the consolidated balance sheets. The liability for estimated losses related to loans guaranteed under the CSO programs is included in Accounts payable and accrued expenses in the consolidated balance sheets.
In determining the allowance or liability for estimated losses on consumer loans, we apply a documented systematic methodology. In calculating the allowance or liability for loan losses, outstanding loans are divided into discrete groups of short-term loans, installment loans and line of credit accounts and are analyzed as current or delinquent. Increases in either the allowance or the liability, net of charge-offs and recoveries, are recorded as a Cost of revenue in the consolidated statements of income.
The allowance or liability for short-term loans classified as current is based on historical loss rates adjusted for recent default trends for current loans. For delinquent short-term loans, the allowance or liability is based on a six month rolling average of loss rates by stage of collection. For installment loan and line of credit account portfolios, we generally use a migration analysis to estimate losses inherent in the portfolio. The allowance calculation under the migration analysis is based on historical charge-off experience and the loss emergence period, which represents the average amount of time between the first occurrence of a loss event to the charge-off of a loan. The factors we consider to assess the adequacy of the allowance or liability include past due performance, historical behavior of monthly vintages, underwriting changes and recent trends in delinquency in the migration analysis.
We fully reserve and generally charge off consumer loans once the loan or a portion of the loan has been classified as delinquent for 60 consecutive days. If a loan is deemed uncollectible before it is fully reserved, it is charged off at that point. Consumer loans classified as delinquent generally have an age of one to 59 days from the date any portion of the loan became delinquent, as defined above. Recoveries on loans previously charged to the allowance are credited to the allowance when collected.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. In accordance with Accounting Standards Codification, or ASC, 350, Goodwill, we test goodwill and intangible assets with an indefinite life for potential impairment annually as of June 30 and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value below its carrying amount.
We use the income approach to complete our annual goodwill assessment. The income approach uses future cash flows and estimated terminal values for us that are discounted using a market participant perspective to determine the fair value, which is then compared to the carrying value to determine if there is impairment. The income approach includes assumptions about revenue growth rates, operating margins and terminal growth rates discounted by an estimated weighted-average cost of capital derived from other publicly-traded companies that are similar but not identical from an operational and economic standpoint. We completed our annual assessment of goodwill as of June 30, 2014 and determined that the fair value of our goodwill exceeded carrying value, and, as a result, no impairment existed at that date. A 10% decrease in the estimated fair value for the June 2014 assessment would not have resulted in a goodwill impairment. Although no goodwill impairment was noted, there can be no assurances that future goodwill impairments will not occur.
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Long-lived Assets Other Than Goodwill
An evaluation of the recoverability of property and equipment and intangible assets subject to amortization is performed whenever the facts and circumstances indicate that the carrying value may be impaired. An impairment loss is recognized if the future undiscounted cash flows associated with the asset and the estimated fair value of the asset are less than the assets corresponding carrying value. The amount of the impairment loss, if any, is the excess of the assets carrying value over its estimated fair value.
We amortize finite-lived intangible assets subject to amortization on the basis of their expected periods of benefit, generally three to five years. The costs of start-up activities and organization costs are charged to expense as incurred.
Marketing Expenses
Marketing expenses consist of online marketing costs such as sponsored search and advertising on social networking sites, and offline marketing costs such as television, radio and print advertising. In addition, marketing expenses include lead purchase costs paid to lead providers and marketing affiliates in exchange for providing information or applications from potential customers interested in using our services. Online marketing and lead purchase costs are expensed as incurred. The production costs associated with offline marketing are expensed as incurred. Other marketing costs are expensed as incurred. We also have an agreement with an independent third party pursuant to which we pay a portion of the net revenue received on the customers referred to us by such third party. We also have an arrangement with Cash America pursuant to which we pay either a lead purchase fee or a portion of the net revenue received on loans made to or arranged for the customers referred to us by Cash America. These referral fees are expensed as incurred and included in Marketing in the consolidated statements of income.
Operations and Technology Expenses
Operations and technology expenses include all expenses related to the direct operations and technology infrastructure related to loan underwriting and processing. This includes call center and operations personnel costs, software maintenance expense, underwriting data from third-party vendors, and telephony costs.
General and Administrative Expenses
General and Administrative expenses primarily include corporate personnel costs, as well as legal, occupancy, and other related costs. We allocate these expenses between domestic and international operations on the basis of revenue. In addition, general and administrative expenses include expense allocations for certain corporate service functions historically provided by Cash America, such as executive oversight, insurance and risk management, government relations, internal audit, treasury, licensing, and to a limited extent finance, accounting, tax, legal, human resources, compensation and benefits, compliance and support for certain information systems related to financial reporting. Cash America allocates these expenses to us based on our share of Cash Americas corporate services expenses incurred for the consolidated entity.
Income Taxes
We account for income taxes under ASC 740, Income Taxes , or ASC 740. Accordingly, income tax expense and the deferred income tax balances in the consolidated financial statements have been calculated on a separate tax return basis although our operations have historically been included as part of consolidated and unitary tax returns with Cash America and its affiliated companies. We maintain an income taxes payable to/from account with Cash America. With the exception of certain entities outside of the US, we settle our current tax balances with Cash America on a quarterly basis through an adjustment to Related party payable, net in the consolidated balance sheets. Prior to May 30, 2014 we settled our current tax balances with Cash America on a quarterly basis through an adjustment to our affiliate line of credit with Cash America.
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As part of the process of preparing our consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating the actual current tax expense together with assessing temporary differences in recognition of income for tax and accounting purposes. These differences result in deferred tax assets and liabilities and are included within the consolidated balance sheets. Management must then assess the likelihood that the deferred tax assets will be recovered from future taxable income and, to the extent it believes that recovery is not likely, it must establish a valuation allowance. An expense or benefit is included within the tax provision in the statement of operations for any increase or decrease in the valuation allowance for a given period.
We perform an evaluation of the recoverability of our deferred tax assets on a quarterly basis. We establish a valuation allowance if it is more-likely-than-not (greater than 50 percent) that all or some portion of the deferred tax asset will not be realized. We analyze several factors, including the nature and frequency of operating losses, our carryforward period for any losses, the reversal of future taxable temporary differences, the expected occurrence of future income or loss and the feasibility of available tax planning strategies to protect against the loss of deferred tax assets.
We account for uncertainty in income taxes in accordance with ASC 740, which requires that a more-likely-than-not threshold be met before the benefit of a tax position may be recognized in the consolidated financial statements and prescribes how such benefit should be measured. Management must evaluate tax positions taken on our tax returns for all periods that are open to examination by taxing authorities and make a judgment as to whether and to what extent such positions are more likely than not to be sustained based on merit.
Managements judgment is required in determining the provision for income taxes, the deferred tax assets and liabilities and any valuation allowance recorded against deferred tax assets. Managements judgment is also required in evaluating whether tax benefits meet the more-likely-than-not threshold for recognition under ASC 740.
Recent Accounting Pronouncements
See Note 1 in the Notes to Unaudited Consolidated Financial Statements for a discussion of recent accounting pronouncements.
RESULTS OF OPERATIONS
Highlights
The Companys financial results for the six-month period ended June 30, 2014, or the current six-month period, are summarized below.
| Consolidated total revenue increased $51.4 million, or 14.4%, to $409.9 million in the current six-month period compared to $358.5 million for the six-month period ended June 30, 2013, or the prior year six-month period. |
| Consolidated gross profit increased by $56.4 million to $276.7 million in the current six-month period from $220.3 million in the prior year six-month period. |
| Consolidated income from operations was $122.6 million in the current six-month period compared to $74.8 million in the prior year six-month period. |
| Consolidated net income was $70.7 million in the current six-month period compared to $41.2 million in the prior year six-month period. Consolidated diluted earnings per share was $2.14 in the current six-month period compared to $1.25 in the prior year six-month period. |
The Companys financial results for the year ended December 31, 2013, or 2013, are summarized below.
| Consolidated total revenue increased $104.4 million, or 15.8%, to $765.3 million in 2013 compared to $660.9 million for the year ended December 31, 2012, or 2012. |
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| Consolidated gross profit increased $77.8 million, or 20.9%, to $450.3 million in 2013 compared to $372.5 million in 2012, primarily due to higher consumer loan balances, which is attributable to the success of the expansion of our line of credit accounts and installment loan products. In addition, we benefitted from an improvement in loan loss experience, resulting in an increase in gross profit from consumer loans. |
| Consolidated income from operations was $142.6 million in 2013, compared to $114.2 million in 2012. The increase in income from operations includes the effect of certain expense items in both periods as discussed further below: |
| Consolidated income from operations for 2013 includes $2.5 million for the Regulatory Penalty. Excluding this item, non-generally accepted accounting principles in the United States, or non-GAAP, adjusted income from operations would have been $145.1 million in 2013. |
| Consolidated income from operations for 2012 includes $3.9 million of costs related to our withdrawn Registration Statement in July 2012 in connection with efforts in pursuit of an initial public offering, or the Withdrawn IPO. Excluding this item, non-GAAP adjusted income from operations would have been $118.1 million in 2012. |
| Consolidated net income was $78.0 million in 2013 compared to $58.9 million in 2012. Consolidated diluted net income per share was $2.36 in 2013 compared to $1.78 in 2012. The increases in net income and diluted net income per share include certain income and expense items in both periods as discussed further below: |
| Consolidated net income for 2013 includes $2.5 million related to the Regulatory Penalty. Excluding this item, non-GAAP adjusted net income would have been $80.5 million in 2013 and non-GAAP adjusted diluted earnings per share would have been $2.44. See OverviewNon-GAAP DisclosureAdjusted Earnings Measures for further discussion. |
| Consolidated net income for 2012 includes $2.4 million related to the Withdrawn IPO. Excluding this item, non-GAAP adjusted net income would have been $61.3 million in 2012 and consolidated diluted earnings per share for 2012 would have been $1.86. See OverviewNon-GAAP DisclosureAdjusted Earnings Measures for further discussion. |
Management believes that the adjustments shown above for 2013 and 2012, such as the adjustments for the Regulatory Penalty and the Withdrawn IPO, are useful to investors in order to allow them to compare the Companys financial results during the periods shown without the effect of these expense items.
Our results from operations for the six-month period ended June 30, 2014 and for the year ended December 31, 2013 do not include the full impact of changes and expected changes in our U.K. operations resulting from recent regulatory and legislative changes and our results from operations for the six-month period ended June 30, 2013 do not include any impact of these changes. As a result, such results are not indicative of our future results of operations and cash flow from our U.K. operations. We expect our future results of operations will be adversely affected as a result of modifying many of our business practices to satisfy the requirements of the FCA, including stricter underwriting and affordability assessment guidelines, changes to our collection practices and increased compliance costs, including the cost of establishing and operating an office in the United Kingdom. See Recent Regulatory DevelopmentsFinancial Conduct Authority above for further information.
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OVERVIEW
The following tables reflect our results of operations for the periods indicated, both in dollars and as a percentage of total revenue (dollars in thousands, except per share data):
Six Months Ended
June 30, |
Year Ended December 31, | |||||||||||||||||||
2014 | 2013 | 2013 | 2012 | 2011 | ||||||||||||||||
Revenue |
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Consumer loan fees |
$ | 409,862 | $ | 357,630 | $ | 764,126 | $ | 659,569 | $ | 479,454 | ||||||||||
Other |
85 | 825 | 1,197 | 1,359 | 886 | |||||||||||||||
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Total Revenue |
$ | 409,947 | $ | 358,455 | 765,323 | 660,928 | 480,340 | |||||||||||||
Cost of Revenue |
133,276 | 138,158 | 315,052 | 288,474 | 201,687 | |||||||||||||||
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Gross Profit |
276,671 | 220,297 | 450,271 | 372,454 | 278,653 | |||||||||||||||
Expenses |
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Marketing |
59,306 | 58,069 | 135,336 | 108,810 | 73,329 | |||||||||||||||
Operations and technology |
35,008 | 34,546 | 70,776 | 63,505 | 52,371 | |||||||||||||||
General and administrative |
51,358 | 43,888 | 84,420 | 72,690 | 65,401 | |||||||||||||||
Depreciation and amortization |
8,434 | 9,028 | 17,143 | 13,272 | 11,263 | |||||||||||||||
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Total Expenses |
154,106 | 145,531 | 307,675 | 258,277 | 202,364 | |||||||||||||||
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Income from Operations |
122,565 | 74,766 | 142,596 | 114,177 | 76,289 | |||||||||||||||
Interest expense, net |
(12,065 | ) | (9,829 | ) | (19,788 | ) | (20,996 | ) | (17,420 | ) | ||||||||||
Foreign currency transaction loss |
(400 | ) | (286 | ) | (1,176 | ) | (342 | ) | (487 | ) | ||||||||||
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Income before Income Taxes |
110,100 | 64,651 | 121,632 | 92,839 | 58,382 | |||||||||||||||
Provision for income taxes |
39,416 | 23,415 | 43,594 | 33,967 | 21,350 | |||||||||||||||
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Net Income |
$ | 70,684 | $ | 41,236 | $ | 78,038 | $ | 58,872 | $ | 37,032 | ||||||||||
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Diluted earnings per share |
$ | 2.14 | $ | 1.25 | $ | 2.36 | $ | 1.78 | $ | 1.12 | ||||||||||
Revenue |
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Consumer loan fees |
100.0 | % | 99.8 | % | 99.8 | % | 99.8 | % | 99.8 | % | ||||||||||
Other |
0.0 | 0.2 | 0.2 | 0.2 | 0.2 | |||||||||||||||
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Total Revenue |
100.0 | 100.0 | 100.0 | 100.0 | 100.0 | |||||||||||||||
Cost of Revenue |
32.5 | 38.5 | 41.2 | 43.6 | 42.0 | |||||||||||||||
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Gross Profit |
67.5 | 61.5 | 58.8 | 56.4 | 58.0 | |||||||||||||||
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Expenses |
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Marketing |
14.5 | 16.2 | 17.7 | 16.5 | 15.3 | |||||||||||||||
Operations and technology |
8.5 | 9.6 | 9.3 | 9.6 | 10.9 | |||||||||||||||
General and administrative |
12.5 | 12.3 | 11.0 | 11.0 | 13.6 | |||||||||||||||
Depreciation and amortization |
2.1 | 2.5 | 2.2 | 2.0 | 2.3 | |||||||||||||||
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T otal Expenses |
37.6 | 40.6 | 40.2 | 39.1 | 42.1 | |||||||||||||||
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Income from Operations |
29.9 | 20.9 | 18.6 | 17.3 | 15.9 | |||||||||||||||
Interest expense, net |
(2.9 | ) | (2.8 | ) | (2.6 | ) | (3.2 | ) | (3.6 | ) | ||||||||||
Foreign currency transaction loss |
(0.1 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | (0.1 | ) | ||||||||||
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Income before Income Taxes |
26.9 | 18.0 | 15.9 | 14.0 | 12.2 | |||||||||||||||
Provision for income taxes |
9.7 | 6.5 | 5.7 | 5.1 | 4.5 | |||||||||||||||
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Net Income |
17.2 | % | 11.5 | % | 10.2 | % | 8.9 | % | 7.7 | % | ||||||||||
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NON-GAAP DISCLOSURE
In addition to the financial information prepared in conformity with generally accepted accounting principles, or GAAP, we provide historical non-GAAP financial information. Management believes that presentation of non-GAAP financial information is meaningful and useful in understanding the activities and business metrics of our operations. Management believes that these non-GAAP financial measures reflect an additional way of viewing aspects of our business that, when viewed with its GAAP results, provide a more complete understanding of factors and trends affecting its business.
Management provides non-GAAP financial information for informational purposes and to enhance understanding of our GAAP consolidated financial statements. Readers should consider the information in addition to, but not instead of or superior to, its financial statements prepared in accordance with GAAP. This non-GAAP financial information may be determined or calculated differently by other companies, limiting the usefulness of those measures for comparative purposes.
Adjusted Earnings Measures
In addition to reporting financial results in accordance with GAAP, we have provided adjusted earnings and adjusted earnings per share, or, collectively, the Adjusted Earnings Measures, which are non-GAAP measures. Management believes that the presentation of these measures provides investors with greater transparency and facilitates comparison of operating results across a broad spectrum of companies with varying capital structures, compensation strategies, derivative instruments and amortization methods, which provides a more complete understanding of our financial performance, competitive position and prospects for the future. Management also believes that investors regularly rely on non-GAAP financial measures, such as the Adjusted Earnings Measures, to assess operating performance and that such measures may highlight trends in the Companys business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP. In addition, management believes that the adjustments shown below are useful to investors in order to allow them to compare the Companys financial results during the periods shown without the effect of each of these expense items.
The following table provides reconciliations between net income and adjusted earnings per share calculated in accordance with GAAP to the Adjusted Earnings Measures, which are shown net of tax (in thousands, except per share data):
Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||
2014 | 2013 | 2013 | 2012 | 2011 | ||||||||||||||||
Net Income |
$ | 70,684 | $ | 41,236 | $ | 78,038 | $ | 58,872 | $ | 37,032 | ||||||||||
Adjustments (net of tax): |
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Regulatory Penalty (a) |
| | 2,500 | | | |||||||||||||||
Withdrawn IPO (b) |
| | | 2,424 | | |||||||||||||||
Intangible asset amortization |
19 | 53 | 88 | 175 | 878 | |||||||||||||||
Non-cash equity-based compensation |
109 | 49 | 160 | 92 | 116 | |||||||||||||||
Foreign currency transaction loss |
257 | 182 | 755 | 217 | 309 | |||||||||||||||
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Adjusted earnings |
$ | 71,069 | $ | 41,520 | $ | 81,541 | $ | 61,780 | $ | 38,335 | ||||||||||
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Diluted earnings per share |
$ | 2.14 | $ | 1.25 | $ | 2.36 | $ | 1.78 | $ | 1.12 | ||||||||||
Adjustments (net of tax): |
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Regulatory Penalty (a) |
| | 0.08 | | | |||||||||||||||
Withdrawn IPO (b) |
| | | 0.08 | | |||||||||||||||
Intangible asset amortization |
| | | | 0.03 | |||||||||||||||
Non-cash equity-based compensation |
| | 0.01 | | | |||||||||||||||
Foreign currency transaction loss |
0.01 | 0.01 | 0.02 | 0.01 | 0.01 | |||||||||||||||
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Adjusted earnings per share |
$ | 2.15 | $ | 1.26 | $ | 2.47 | $ | 1.87 | $ | 1.16 | ||||||||||
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101
(a) | For the year ended December 31, 2013, represents the amount paid in connection with the Regulatory Penalty, which is nondeductible for tax purposes. |
(b) | For the year ended December 31, 2012, represents charges directly related to the withdrawn IPO of $3.9 million, net of tax benefit of $1.5 million. |
Adjusted EBITDA
The table below shows Adjusted EBITDA, which is a non-GAAP measure that we define as earnings excluding depreciation, amortization, interest, foreign currency transaction gains or losses and taxes, and Adjusted EBITDA margin, which is a non-GAAP measure that we define as Adjusted EBITDA as a percentage of total revenue. Management believes Adjusted EBITDA and Adjusted EBITDA margin are used by investors to analyze operating performance and evaluate our ability to incur and service debt and our capacity for making capital expenditures. Adjusted EBITDA and Adjusted EBITDA margin are also useful to investors to help assess our estimated enterprise value. The computation of Adjusted EBITDA and Adjusted EBITDA margin as presented below may differ from the computation of similarly-titled measures provided by other companies (in thousands):
Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||
2014 | 2013 | 2013 | 2012 | 2011 | ||||||||||||||||
Net Income |
$ | 70,684 | $ | 41,236 | $ | 78,038 | $ | 58,872 | $ | 37,032 | ||||||||||
Adjustments: |
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Regulatory Penalty (a) |
| | 2,500 | | | |||||||||||||||
Withdrawn IPO (b) |
| | | 3,879 | | |||||||||||||||
Interest expense, net |
12,065 | 9,829 | 19,788 | 20,996 | 17,420 | |||||||||||||||
Foreign currency transaction loss |
400 | 286 | 1,176 | 342 | 487 | |||||||||||||||
Depreciation and amortization expenses |
8,434 | 9,028 | 17,143 | 13,272 | 11,263 | |||||||||||||||
Provision for income taxes |
39,416 | 23,415 | 43,594 | 33,967 | 21,350 | |||||||||||||||
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Adjusted EBITDA |
$ | 130,999 | $ | 83,794 | $ | 162,239 | $ | 131,328 | $ | 87,552 | ||||||||||
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Adjusted EBITDA margin calculated as follows: |
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Total Revenue |
$ | 409,947 | $ | 358,455 | $ | 765,323 | $ | 660,928 | $ | 480,340 | ||||||||||
Adjusted EBITDA |
130,999 | 83,794 | 162,239 | 131,328 | 87,552 | |||||||||||||||
Adjusted EBITDA as a percentage of total revenue |
32.0 | % | 23.4 | % | 21.2 | % | 19.9 | % | 18.2 | % |
(a) | For the year ended December 31, 2013, represents the amount paid in connection with the Regulatory Penalty, which is nondeductible for tax purposes. |
(b) | For the year ended December 31, 2012, represents charges directly related to the withdrawn IPO of $3.9 million. |
Combined Consumer Loans
Combined consumer loans is a non-GAAP measure that includes both consumer loans we own and consumer loans we guarantee, which are either GAAP items or disclosures required by GAAP. See Basis of Presentation and Critical Accounting PoliciesAllowance and Liability for Estimated Losses on Consumer Loans.
Management believes this non-GAAP measure provides investors with important information needed to evaluate the magnitude of potential loan losses and the opportunity for revenue performance of the consumer loan portfolio on an aggregate basis. Management also believes that the comparison of the aggregate amounts from period to period is more meaningful than comparing only the amounts reflected on our balance sheet since both revenue and cost of revenue for loans are impacted by the aggregate amount of loans we own and those we guarantee as reflected in our financial statements.
102
SIX MONTHS ENDED JUNE 30, 2014 COMPARED TO SIX MONTHS ENDED JUNE 30, 2013
Revenue and Gross Profit
Revenue increased $51.4 million, or 14.4%, to $409.9 million for the current six-month period as compared to $358.5 million for the prior year six-month period, with domestic operations contributing $38.9 million and international operations contributing $12.5 million of the increase. The increase in revenue is primarily due to growth in consumer loan balances, resulting from the expansion of our installment loan and line of credit portfolios in the United States and the United Kingdom. In the United Kingdom, the increase in line of credit revenue was offset by a decrease in short-term loan revenue, mainly as a result of the migration of customers from the short-term product to the line of credit product.
Our gross profit increased by $56.4 million to $276.7 million in the current six-month period from $220.3 million in the prior year six-month period, primarily due to the growth and the composition of the consumer loan portfolio in our domestic and international operations. Our consolidated gross profit as a percentage of revenue, or our gross profit margin, increased to 67.5% in the current six-month period from 61.5% in the prior year six-month period, primarily because our consumer loan portfolios had a higher percentage of customers with established payment histories during the current six-month period as compared to the prior year six-month period. New customers tend to have a higher risk of default than customers with a history of successfully repaying loans. Installment loans and line of credit account products comprised 75.1% of the non-GAAP combined gross consumer loan balance at June 30, 2014 compared to 49.3% at June 30, 2013. While the short-term consumer loan product was a less significant portion of the aggregate portfolio, loss experience for the product also decreased in the current six-month period compared to the prior year six-month period, contributing to the increase in gross profit margin for the period. In addition, we recently made refinements to our consumer loan underwriting models, partially as a result of changes in business practices in the United Kingdom, which we believe also contributed to the recent improvements in gross profit margin. Additional discussion of the specific factors influencing each product is included in Consumer Loan Loss Experience by Product below. Management expects the consolidated gross profit margin will continue to be influenced by the mix of loans to new and returning customers and the mix of outstanding loan products as product design and underwriting rules vary. Management also expects that gross profit will be adversely affected as a result of modifying many of our business practices to satisfy the requirements of the FCA. Our historical results from operations do not include the full impact of the changes and expected changes in our U.K. operations resulting from recent regulatory and legislative changes and are not indicative of our future results of operations and cash flows from our U.K. business. See Recent Regulatory DevelopmentsFinancial Conduct Authority above for further information.
The following table sets forth the components of revenue and gross profit, separated between domestic and international, for the current and prior year six-month periods (dollars in thousands):
Six Months Ended June 30, | ||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||
Domestic | International | Total | Domestic | International | Total | |||||||||||||||||||
Short-term loans |
$ | 85,786 | $ | 52,899 | $ | 138,685 | $ | 89,995 | $ | 128,047 | $ | 218,042 | ||||||||||||
Installment loans |
60,931 | 62,316 | 123,247 | 38,437 | 49,635 | 88,072 | ||||||||||||||||||
Line of credit accounts |
71,082 | 76,848 | 147,930 | 49,699 | 1,817 | 51,516 | ||||||||||||||||||
Other |
74 | 11 | 85 | 802 | 23 | 825 | ||||||||||||||||||
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Revenue |
217,873 | 192,074 | 409,947 | 178,933 | 179,522 | 358,455 | ||||||||||||||||||
Cost of Revenue |
67,834 | 65,442 | 133,276 | 63,159 | 74,999 | 138,158 | ||||||||||||||||||
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Gross Profit |
$ | 150,039 | $ | 126,632 | $ | 276,671 | $ | 115,774 | $ | 104,523 | $ | 220,297 | ||||||||||||
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Year-over-year change$ |
$ | 34,265 | $ | 22,109 | $ | 56,374 | | | | |||||||||||||||
Year-over-year change% |
29.6 | % | 21.2 | % | 25.6 | % | | | | |||||||||||||||
Gross profit margin |
69.0 | % | 65.9 | % | 67.5 | % | 64.7 | % | 58.2 | % | 61.5 | % |
103
Consumer Loan Balances
The outstanding combined portfolio balance of consumer loans, net of allowance and liability for estimated losses, increased $59.1 million, or 22.2%, to $325.3 million as of June 30, 2014 from $266.2 million as of June 30, 2013, primarily due to increased demand for the installment loan and line of credit account products in both domestic and international markets, partially offset by a decrease in demand for short-term loans in both domestic and international markets. Our domestic installment loan product intended to serve a near-prime customer base was a significant contributor to the growth in our consumer loan portfolio during the current six-month period. Recent modifications to our U.K. business practices to satisfy the requirements of the FCA contributed to a year-over-year decline in international consumer loan balances. Management expects the loan balances in the installment loan and line of credit account products to continue to comprise a larger percentage of the total consumer loan portfolio, due to customers preference for these products. Combined consumer loans include the loans we own and the loans we guarantee.
The combined consumer loan balance includes $359.8 million and $310.2 million as of June 30, 2014 and 2013, respectively, of our consumer loan balances before the allowance for losses of $67.8 million and $77.3 million provided in the consolidated financial statements for June 30, 2014 and 2013, respectively. The combined consumer loan balance also includes $34.9 million and $35.4 million as of June 30, 2014 and 2013, respectively, of consumer loan balances that are guaranteed by us, which are not included in our financial statements, before the liability for estimated losses of $1.6 million and $2.2 million provided in Accounts payable and accrued expenses in the consolidated financial statements for June 30, 2014 and 2013, respectively.
The following table summarizes consumer loan balances outstanding as of June 30, 2014 and 2013 (in thousands):
As of June 30, | ||||||||||||||||||||||||
2014 | 2013 | |||||||||||||||||||||||
Company
Owned (a) |
Guaranteed
by the Company (a) |
Combined (b) |
Company
Owned (a) |
Guaranteed
by the Company (a) |
Combined (b) | |||||||||||||||||||
Ending consumer loan balances: |
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Domestic |
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Short-term loans |
$ | 30,544 | $ | 34,915 | $ | 65,459 | $ | 30,653 | $ | 35,115 | $ | 65,768 | ||||||||||||
Installment loans |
100,009 | | 100,009 | 43,784 | | 43,784 | ||||||||||||||||||
Line of credit accounts |
64,490 | | 64,490 | 47,368 | | 47,368 | ||||||||||||||||||
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Total domestic, gross |
195,043 | 34,915 | 229,958 | 121,805 | 35,115 | 156,920 | ||||||||||||||||||
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International |
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Short-term loans |
29,596 | | 29,596 | 91,237 | 301 | 91,538 | ||||||||||||||||||
Installment loans |
77,202 | | 77,202 | 86,433 | | 86,433 | ||||||||||||||||||
Line of credit accounts |
57,919 | | 57,919 | 10,703 | | 10,703 | ||||||||||||||||||
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Total international, gross |
164,717 | | 164,717 | 188,373 | 301 | 188,674 | ||||||||||||||||||
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Total ending loan balance, gross |
359,760 | 34,915 | 394,675 | 310,178 | 35,416 | 345,594 | ||||||||||||||||||
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Less: Allowance and liability for losses (a) |
(67,794 | ) | (1,581 | ) | (69,375 | ) | (77,248 | ) | (2,188 | ) | (79,436 | ) | ||||||||||||
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Total ending loan balance, net |
$ | 291,966 | $ | 33,334 | $ | 325,300 | $ | 232,930 | $ | 33,228 | $ | 266,158 | ||||||||||||
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(a) | GAAP measure. The consumer loan balances guaranteed by us relate to loans originated by third-party lenders through the CSO programs and are not included in our financial statements. |
(b) | Except for allowance and liability for estimated losses, amounts represent non-GAAP measures. |
104
Average Consumer Loan Amount
The average amount per consumer loan is calculated as the total amount of combined consumer loans written and renewed for the period divided by the total number of combined consumer loans written and renewed for the period. The following table shows the average amount per consumer loan by product for the current six-month period compared to the prior year six-month period:
Six Months Ended
June 30, |
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2014 | 2013 | |||||||
Average amount per consumer loan (in ones) (a) |
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Short-term loans (b) |
$ | 521 | $ | 536 | ||||
Installment loans |
1,322 | 1,127 | ||||||
Line of credit accounts (c) |
278 | 284 | ||||||
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Total consumer loans (b) |
$ | 490 | $ | 542 |
(a) | The disclosure regarding the average amount per consumer loan is statistical data that is not included in our financial statements. |
(b) | Includes loans guaranteed by us, which represent loans originated by third-party lenders through the CSO programs and are not included in our financial statements. |
(c) | Represents the average amount of each incremental draw on line of credit accounts. |
The average amount per consumer loan decreased to $490 from $542 during the current six-month period compared to the prior year six-month period, mainly due to a greater mix of line of credit accounts, which have lower average amounts per loan relative to short-term loans, in the current six-month period compared to the prior year six-month period. This decrease was partially offset by an increase in installment loans, which have a higher average loan amount relative to short-term loans.
CONSUMER LOAN LOSS EXPERIENCE
The allowance and liability for estimated losses as a percentage of combined consumer loans and fees receivable decreased to 17.6% in the current six-month period from 23.0% in the prior year six-month period, primarily due to improved performance across all products in our consumer loan portfolio, partially related to the maturing of our product offerings, such as installment loans and line of credit accounts, which we introduced in 2008 and 2010, respectively, to include a higher percentage of customers with established payment histories.
The cost of revenue in the current six-month period was $133.3 million, which was composed of $133.8 million related to our owned consumer loans, offset by a $0.5 million decrease in the liability for estimated losses related to loans we guaranteed through the CSO programs. The cost of revenue in the prior year six-month period was $138.2 million, which was composed of $138.6 million related to our owned consumer loans, offset by a $0.4 million decrease in the liability for estimated losses related to loans we guaranteed through the CSO programs. Total charge-offs, net of recoveries, were $149.4 million and $141.2 million in the current six-month period and the prior year six-month period, respectively.
105
The following tables show consumer loan balances and fees receivable and the relationship of the allowance and liability for losses to the combined balances of consumer loans for each of the last six quarters (in thousands):
2014 | ||||||||||||
First
Quarter |
Second
Quarter |
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Consumer loan balances and fees receivable: |
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GrossCompany owned |
$ | 354,466 | $ | 359,760 | ||||||||
GrossGuaranteed by the Company (a) |
29,643 | 34,915 | ||||||||||
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Combined consumer loans and fees receivable, gross (b) |
384,109 | 394,675 | ||||||||||
Allowance and liability for losses on consumer loans |
75,479 | 69,375 | ||||||||||
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Combined consumer loans and fees receivable, net (b) |
$ | 308,630 | $ | 325,300 | ||||||||
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Allowance and liability for losses as a % of combined consumer loans and fees receivable, gross (b) |
19.7 | % | 17.6 | % | ||||||||
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(a) | Represents loans originated by third-party lenders through the CSO programs, which are not included in our financial statements. |
(b) | Non-GAAP measure. |
2013 | ||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
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Consumer loan balances and fees receivable: |
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GrossCompany owned |
$ | 281,947 | $ | 310,178 | $ | 359,055 | $ | 385,785 | ||||||||
GrossGuaranteed by the Company (a) |
30,002 | 35,416 | 35,128 | 41,412 | ||||||||||||
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Combined consumer loans and fees receivable, gross (b) |
311,949 | 345,594 | 394,183 | 427,197 | ||||||||||||
Allowance and liability for losses on consumer loans |
77,228 | 79,436 | 88,996 | 84,365 | ||||||||||||
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Combined consumer loans and fees receivable, net (b) |
$ | 234,721 | $ | 266,158 | $ | 305,187 | $ | 342,832 | ||||||||
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Allowance and liability for losses as a % of combined consumer loans and fees receivable, gross (b) |
24.8 | % | 23.0 | % | 22.6 | % | 19.7 | % | ||||||||
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(a) | Represents loans originated by third-party lenders through the CSO programs, which are not included in our financial statements. |
(b) | Non-GAAP measure. |
Consumer Loan Loss Experience by Product
Management evaluates loss rates for all consumer loan products in our portfolio to determine credit quality and evaluate trends. For our products, we evaluate consumer loan losses as a percentage of the average consumer loan balance outstanding or the average combined consumer loan balance outstanding, whichever is applicable, for each portfolio. We expect future loss rates to be affected by changes to our U.K. business. See Recent Regulatory DevelopmentsFinancial Conduct Authority.
Short-term Loans
Demand for our short-term loan product in the United States has historically been highest in the third and fourth quarters of each year, corresponding to the holiday season, and lowest in the first quarter of each year, corresponding to our customers receipt of income tax refunds. Typically, our gross profit margin is highest in the first quarter of each year, corresponding to the seasonal decline in consumer loan balances outstanding. The cost of revenue as a percentage of the average combined consumer loan balance outstanding is typically lower in
106
the first quarter and generally peaks in the second half of the year with higher loan demand. This seasonal trend was not evident during 2013, primarily due to a significant decline in demand for short-term loans in the United Kingdom when we began offering a line of credit account product. This trend continued in the United Kingdom during the current six-month period. The cost of revenue as a percentage of the average combined consumer loan balance was also impacted by improved year-over-year collections as well as recent refinements made to our consumer loan underwriting models, primarily as a result of changes in business practices in the U.K. The average combined consumer loan balance outstanding for short-term consumer loans declined during 2013, primarily due to a decrease in demand for short-term loans and customers preference for the line of credit account product.
The following tables include information related only to short-term consumer loans and shows our loss experience trends for short-term consumer loans for each of the last six quarters (in thousands):
2014 | ||||||||
First
Quarter |
Second
Quarter |
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Short-term consumer loans: |
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Cost of revenue |
$ | 16,320 | $ | 19,670 | ||||
Charge-offs (net of recoveries) |
19,156 | 19,755 | ||||||
Average short-term combined consumer loans and fees receivable, gross: |
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Company owned (a) |
71,686 | 62,404 | ||||||
Guaranteed by the Company (a)(b) |
34,321 | 32,022 | ||||||
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Average short-term combined consumer loans and fees receivable, gross (a)(c) |
$ | 106,007 | $ | 94,426 | ||||
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Ending short-term combined consumer loans and fees receivable, gross: |
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Company owned |
$ | 65,910 | $ | 60,140 | ||||
Guaranteed by the Company (b) |
29,643 | 34,915 | ||||||
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Ending short-term combined consumer loans and fees receivable, gross (c) |
$ | 95,553 | $ | 95,055 | ||||
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Ending allowance and liability for losses |
$ | 19,726 | $ | 19,829 | ||||
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Short-term consumer loan ratios: |
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Cost of revenue as a % of average short-term combined consumer loans and fees receivable, gross (a)(c) |
15.4 | % | 20.8 | % | ||||
Charge-offs (net of recoveries) as a % of average short-term combined consumer loans and fees receivable, gross (a)(c) |
18.1 | % | 20.9 | % | ||||
Gross profit margin |
77.6 | % | 70.1 | % | ||||
Allowance and liability for losses as a % of combined consumer loans and fees receivable, gross (c)(d) |
20.6 | % | 20.9 | % | ||||
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(a) | The average short-term combined consumer loans and fees receivable is the average of the month-end balances during the period. |
(b) | Represents loans originated by third-party lenders through the CSO programs, which are not included in our financial statements. |
(c) | Non-GAAP measure. |
(d) | Allowance and liability for losses as a % of combined consumer loans and fees receivable, gross, is determined using period-end balances. |
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2013 | ||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
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Short-term consumer loans: |
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Cost of revenue |
$ | 39,604 | $ | 37,069 | $ | 33,606 | $ | 25,678 | ||||||||
Charge-offs (net of recoveries) |
41,267 | 37,656 | 42,922 | 35,863 | ||||||||||||
Average short-term combined consumer loans and fees receivable, gross: |
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Company owned (a) |
136,087 | 125,106 | 108,032 | 84,651 | ||||||||||||
Guaranteed by the Company (a)(b) |
39,520 | 32,457 | 35,951 | 36,369 | ||||||||||||
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Average short-term combined consumer loans and fees receivable, gross (a)(c) |
$ | 175,607 | $ | 157,563 | $ | 143,983 | $ | 121,020 | ||||||||
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Ending short-term combined consumer loans and fees receivable, gross: |
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Company owned |
$ | 128,100 | $ | 121,890 | $ | 96,505 | $ | 80,753 | ||||||||
Guaranteed by the Company (b) |
30,002 | 35,416 | 35,128 | 41,412 | ||||||||||||
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Ending short-term combined consumer loans and fees receivable, gross (c) |
$ | 158,102 | $ | 157,306 | $ | 131,633 | $ | 122,165 | ||||||||
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Ending allowance and liability for losses |
$ | 41,346 | $ | 40,772 | $ | 32,514 | $ | 22,513 | ||||||||
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Short-term consumer loan ratios: |
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Cost of revenue as a % of average short-term combined consumer loans and fees receivable, gross (a)(c) |
22.6 | % | 23.5 | % | 23.3 | % | 21.2 | % | ||||||||
Charge-offs (net of recoveries) as a % of average short-term combined consumer loans and fees receivable, gross (a)(c) |
23.5 | % | 23.9 | % | 29.8 | % | 29.6 | % | ||||||||
Gross profit margin |
65.6 | % | 64.0 | % | 63.7 | % | 67.6 | % | ||||||||
Allowance and liability for losses as a % of combined consumer loans and fees receivable, gross (c)(d) |
26.2 | % | 25.9 | % | 24.7 | % | 18.4 | % | ||||||||
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(a) | The average short-term combined consumer loans and fees receivable is the average of the month-end balances during the period. |
(b) | Represents loans originated by third-party lenders through the CSO programs, which are not included in our financial statements. |
(c) | Non-GAAP measure. |
(d) | Allowance and liability for losses as a % of combined consumer loans and fees receivable, gross, is determined using period-end balances. |
Installment Loans
For installment loans, the cost of revenue as a percentage of average consumer loan balance is typically consistent throughout the year. Due to the scheduled monthly or bi-weekly payments that are inherent with installment loans, we do not experience the higher level of repayments in the first quarter for these loans as we experience with short-term loans and, to a lesser extent, line of credit accounts.
The gross profit margin is generally lower for the installment loan product than for other loan products because the highest levels of default are exhibited in the early stages of the loan, while revenue is recognized over the term of the loan. In addition, installment loans typically have a higher average amount per loan. As a result, particularly in periods of higher growth for the installment loan portfolio, which has been the case in recent years, the gross profit margin is typically lower for this product than for our short-term consumer loan products. Another factor contributing to the lower gross profit margin is that the loan yield for installment loans is typically lower than the other loan products we offer. During the current six-month period, we experienced higher gross
108
profit margin than we experienced in the prior year six-month period, primarily due to the maturing of the installment loan product and the growth of our near-prime installment loan products as well as a decrease in new customer activity in the United Kingdom due to recent changes initiated in that market. The installment loan portfolio includes a higher percentage of customers with established payment histories in the current six-month period compared to the prior year six-month period. New customers tend to have a higher risk of default than customers with a history of successfully repaying loans.
The following tables include information related only to our installment loans and show our loss experience trends for installment loans for each of the last six quarters (in thousands):
2014 | ||||||||
First
Quarter |
Second
Quarter |
|||||||
Installment Loans: |
||||||||
Cost of revenue |
$ | 26,203 | $ | 25,384 | ||||
Charge-offs (net of recoveries) |
29,899 | 26,818 | ||||||
Average consumer loan balance (a) |
175,198 | 171,043 | ||||||
Ending consumer loan balance |
169,552 | 177,211 | ||||||
Ending allowance for losses balance |
$ | 29,084 | $ | 27,967 | ||||
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Installment loan ratios: |
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Cost of revenue as a % of average consumer loan balance (a) |
15.0 | % | 14.8 | % | ||||
Charge-offs (net of recoveries) as a % of average consumer loan balance (a) |
17.0 | % | 15.7 | % | ||||
Gross profit margin |
58.0 | % | 58.3 | % | ||||
Allowance for losses as a % of consumer loan balance (b) |
17.2 | % | 15.8 | % | ||||
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(a) | The average consumer loan balance for installment loans is the average of the month-end balances during the period. |
(b) | Allowance for losses as a % of consumer loan balance is determined using period-end balances. |
2013 | ||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||||||
Installment Loans: |
||||||||||||||||
Cost of revenue |
$ | 21,884 | $ | 23,127 | $ | 30,631 | $ | 31,145 | ||||||||
Charge-offs (net of recoveries) |
22,329 | 23,025 | 26,089 | 30,866 | ||||||||||||
Average consumer loan balance (a) |
120,035 | 122,339 | 146,142 | 168,588 | ||||||||||||
Ending consumer loan balance |
116,727 | 130,217 | 162,944 | 179,230 | ||||||||||||
Ending allowance for losses balance |
$ | 26,403 | $ | 26,555 | $ | 32,077 | $ | 32,608 | ||||||||
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Installment loan ratios: |
||||||||||||||||
Cost of revenue as a % of average consumer loan balance (a) |
18.2 | % | 18.9 | % | 21.0 | % | 18.5 | % | ||||||||
Charge-offs (net of recoveries) as a % of average consumer loan balance (a) |
18.6 | % | 18.8 | % | 17.9 | % | 18.3 | % | ||||||||
Gross profit margin |
49.8 | % | 48.0 | % | 44.1 | % | 49.0 | % | ||||||||
Allowance for losses as a % of consumer loan balance (b) |
22.6 | % | 20.4 | % | 19.7 | % | 18.2 | % | ||||||||
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(a) | The average consumer loan balance for installment loans is the average of the month-end balances during the period. |
(b) | Allowance for losses as a % of consumer loan balance is determined using period-end balances. |
109
Line of Credit Accounts
The cost of revenue as a percentage of average consumer loan balance for line of credit accounts exhibits a similar quarterly seasonal trend to short-term consumer loan loss rates as the ratio is typically lower in the first quarter and increases throughout the remainder of the year, peaking in the second half of the year with higher loan demand.
The gross profit margin is generally lower for line of credit accounts because the highest levels of default are exhibited in the early stages of the account, while the revenue is recognized over the term of the account. As a result, particularly in periods of higher growth for line of credit account portfolios, which has been the case in recent years, the gross profit margin will be lower for this product than for our short-term loan products. Another factor contributing to the lower gross profit margin is that the loan yield for line of credit accounts is typically lower than the short-term loan products we offer. The decrease in the allowance for losses as a percentage of consumer loan balance was primarily due to the maturing of the line of credit portfolio reflected in a lower percentage of the portfolio in a delinquent status, and, as a result, the typical seasonal trend was not evidenced during the current six-month period. Additionally, during the second quarter we experienced a sequential decline from the first quarter in the average line of credit account balance, which was driven by a lower sequential quarter balance in the United Kingdom, primarily as a result of changes in business practices in the United Kingdom.
The following tables include information related only to line of credit accounts and shows our loss experience trends for line of credit accounts for each of the last six quarters (in thousands):
2014 | ||||||||
First
Quarter |
Second
Quarter |
|||||||
Line of credit accounts: |
||||||||
Cost of revenue |
$ | 23,913 | $ | 21,786 | ||||
Charge-offs (net of recoveries) |
26,602 | 27,211 | ||||||
Average consumer loan balance (a) |
121,457 | 120,228 | ||||||
Ending consumer loan balance |
119,004 | 122,409 | ||||||
Ending allowance for losses balance |
$ | 26,669 | $ | 21,579 | ||||
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Line of credit account ratios : |
||||||||
Cost of revenue as a % of average consumer loan balance (a) |
19.7 | % | 18.1 | % | ||||
Charge-offs (net of recoveries) as a % of average consumer loan balance (a) |
21.9 | % | 22.6 | % | ||||
Gross profit margin |
67.3 | % | 70.9 | % | ||||
Allowance for losses as a % of consumer loan balance (b) |
22.4 | % | 17.6 | % | ||||
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(a) | The average consumer loan balance for line of credit accounts is the average of the month-end balances during the period. |
(b) | Allowance for losses as a % of consumer loan balance is determined using period-end balances. |
110
2013 | ||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||||||
Line of credit accounts: |
||||||||||||||||
Cost of revenue |
$ | 6,510 | $ | 9,964 | $ | 26,152 | $ | 29,682 | ||||||||
Charge-offs (net of recoveries) |
9,596 | 7,321 | 14,211 | 25,159 | ||||||||||||
Average consumer loan balance (a) |
39,558 | 45,629 | 79,757 | 110,439 | ||||||||||||
Ending consumer loan balance |
37,120 | 58,071 | 99,606 | 125,802 | ||||||||||||
Ending allowance for losses balance |
$ | 9,479 | $ | 12,109 | $ | 24,405 | $ | 29,244 | ||||||||
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Line of credit account ratios : |
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Cost of revenue as a % of average consumer loan balance (a) |
16.5 | % | 21.8 | % | 32.8 | % | 26.9 | % | ||||||||
Charge-offs (net of recoveries) as a % of average consumer loan balance (a) |
24.3 | % | 16.0 | % | 17.8 | % | 22.8 | % | ||||||||
Gross profit margin |
72.0 | % | 64.8 | % | 48.2 | % | 56.7 | % | ||||||||
Allowance for losses as a % of consumer loan balance (b) |
25.5 | % | 20.9 | % | 24.5 | % | 23.2 | % | ||||||||
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(a) | The average consumer loan balance for line of credit accounts is the average of the month-end balances during the period. |
(b) | Allowance for losses as a % of consumer loan balance is determined using period-end balances. |
Total Expenses
Total expenses increased $8.6 million, or 5.9%, to $154.1 million in the current six-month period compared to $145.5 million in the prior year six-month period.
Marketing expenses increased $1.2 million, or 2.1%, to $59.3 million in the current six-month period compared to $58.1 million in the prior year six-month period, primarily due to higher domestic direct mail and pay-per-click advertising costs that were partially offset by lower lead generation costs and other marketing costs in our international operations.
Operations and technology expense increased $0.5 million, or 1.3%, to $35.0 million in the current six-month period compared to $34.5 million in the prior year six-month period, primarily due to increased personnel and software maintenance resulting from higher loan volume.
General and administrative expense increased $7.5 million, or 17.0%, to $51.4 million in the current six-month period compared to $43.9 million in the prior year six-month period, primarily due to higher accounting and legal professional services expenses incurred in the current six-month period in conjunction with Cash Americas recent decision to review strategic alternatives for our separation and certain other matters (see The Potential Separation), higher regulatory expenses related to our U.K. operations, higher incentive accruals due to stronger financial performance and the addition of new personnel to support our growth.
Depreciation and amortization expense decreased $0.6 million, or 6.6%, in the current six-month period compared to the prior year six-month period, primarily due to the acceleration of depreciation related to the phase-out of certain loan platforms in the prior year six-month period.
Interest Expense, Net
On May 30, 2014, we issued and sold $500 million in aggregate principal amount of senior notes, or the Notes, in a private offering and terminated our credit agreement with Cash America. The Notes bear interest at a rate of 9.75% and were sold at a discount of the principal amount thereof to yield 10.0% to maturity. We used all of the net proceeds, or $479.0 million, of the Note offering to repay all of our intercompany indebtedness due to Cash America, which was $361.4 million as of May 30, 2014, and the remaining net proceeds were used to pay a
111
significant portion of $122.4 million in cash dividends we paid to Cash America, of which $120.7 million was paid on May 30, 2014 and $1.7 million was paid on June 30, 2014. Prior to issuing the Notes, we utilized affiliate borrowing agreements with Cash America for all borrowing arrangements. Pursuant to these agreements, interest was charged at a base rate plus an applicable margin.
Interest expense, net increased $2.3 million, or 22.7%, to $12.1 million in the current six-month period, compared to $9.8 million in the prior year six-month period. The increase was primarily due to an increase in the weighted average interest rate on our outstanding debt to 5.76% in the current six-month period from 4.75% in the prior year six-month period, partially offset by a $3.2 million decrease in the average amount of debt outstanding to $410.3 million during the current six-month period from $413.5 million during the prior year six-month period. We expect our interest expense for the remainder of 2014 to increase to reflect the higher interest rate and debt outstanding.
See Certain Relationships and Related-Party TransactionsHistorical Relationship with Cash America, Financing Arrangements and Unaudited Pro Forma Consolidated Financial Statements for a discussion of our current financing arrangements.
Provision for Income Taxes
Provision for income taxes increased $16.0 million, or 68.3%, to $39.4 million in the current six-month period compared to $23.4 million in the prior year six-month period. The increase was primarily due to a 70.3% increase in income before income taxes, partially offset by a decrease in the effective tax rate to 35.8% in the current six-month period from 36.2% in the prior year six-month period.
Net Income
Net income increased $29.5 million, or 71.4%, to $70.7 million in the current six-month period compared to $41.2 million in the prior year six-month period. The increase was primarily due to the growth of our installment loan and line of credit account products in the United States and United Kingdom.
YEAR ENDED 2013 COMPARED TO YEAR ENDED 2012
Revenue and Gross Profit
Revenue increased $104.4 million, or 15.8%, to $765.3 million for 2013 as compared to $660.9 million for 2012. The increase in revenue is primarily due to the expansion of our installment loan and line of credit portfolios in the United States and the United Kingdom.
Our gross profit increased by $77.8 million to $450.3 million in 2013 from $372.5 million in 2012, primarily due to the growth and the composition of the consumer loan portfolio in our domestic and international operations. Our consolidated gross profit margin increased to 58.8% in 2013 from 56.4% in 2012, primarily because our consumer loan portfolios had a higher percentage of customers with established payment histories during 2013 as compared to 2012.
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The following table sets forth the components of revenue and gross profit, separated between domestic and international, in 2013 and 2012 (in thousands):
Year Ended December 31, | ||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||
Domestic | International | Total | Domestic | International | Total | |||||||||||||||||||
Short-term loans |
$ | 185,524 | $ | 204,182 | $ | 389,706 | $ | 202,581 | $ | 257,254 | $ | 459,835 | ||||||||||||
Installment loans |
89,967 | 113,957 | 203,924 | 56,627 | 69,575 | 126,202 | ||||||||||||||||||
Line of credit accounts |
118,963 | 51,533 | 170,496 | 73,532 | | 73,532 | ||||||||||||||||||
Other |
1,095 | 102 | 1,197 | 1,326 | 33 | 1,359 | ||||||||||||||||||
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Revenue |
395,549 | 369,774 | 765,323 | 334,066 | 326,862 | 660,928 | ||||||||||||||||||
Cost of Revenue |
157,344 | 157,708 | 315,052 | 144,455 | 144,019 | 288,474 | ||||||||||||||||||
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Gross Profit |
$ | 238,205 | $ | 212,066 | $ | 450,271 | $ | 189,611 | $ | 182,843 | $ | 372,454 | ||||||||||||
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Year-over-year change$ |
$ | 48,594 | $ | 29,223 | $ | 77,817 | | | | |||||||||||||||
Year-over-year change% |
25.6 | % | 16.0 | % | 20.9 | % | | | | |||||||||||||||
Gross profit margin |
60.2 | % | 57.4 | % | 58.8 | % | 56.8 | % | 55.9 | % | 56.4 | % |
Consumer Loan Balances
The outstanding combined portfolio balance of consumer loans, net of allowances and liabilities for losses, increased $68.8 million, or 25.1%, to $342.8 million at December 31, 2013 from $274.0 million at December 31, 2012, primarily due to increased demand for installment loan and line of credit account products in both domestic and international markets, partially offset by a decrease in demand for short-term loans.
The combined consumer loan balance includes $385.8 million and $310.7 million at December 31, 2013 and 2012, respectively, of our owned consumer loan balances, before the allowance for losses of $82.3 million and $82.4 million, respectively, which have both been provided in the consolidated financial statements at December 31, 2013 and 2012, respectively. The combined consumer loan balance also includes $41.4 million and $48.2 million at December 31, 2013 and 2012, respectively, of consumer loan balances that are guaranteed by us and are not included in our financial statements. The liability for estimated losses related to the consumer loan balances we guarantee of $2.0 million and $2.6 million has been included in Accounts payable and accrued expenses in the consolidated financial statements at December 31, 2013 and 2012, respectively.
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The following table summarizes the consumer loan balances as of December 31, 2013 and 2012 (in thousands):
As of December 31, | ||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||
Company
Owned (a) |
Guaranteed
by the Company (a) |
Combined (b) |
Company
Owned (a) |
Guaranteed
by the Company (a) |
Combined (b) | |||||||||||||||||||
Ending consumer loan balances: |
||||||||||||||||||||||||
Domestic |
||||||||||||||||||||||||
Short-term loans |
$ | 32,867 | $ | 41,412 | $ | 74,279 | $ | 37,734 | $ | 44,261 | $ | 81,995 | ||||||||||||
Installment loans |
76,195 | | 76,195 | 45,713 | | 45,713 | ||||||||||||||||||
Line of credit accounts |
66,247 | | 66,247 | 42,700 | | 42,700 | ||||||||||||||||||
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Total domestic, gross |
175,309 | 41,412 | 216,721 | 126,147 | 44,261 | 170,408 | ||||||||||||||||||
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International |
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Short-term loans |
47,886 | | 47,886 | 108,738 | 3,946 | 112,684 | ||||||||||||||||||
Installment loans |
103,035 | | 103,035 | 75,857 | | 75,857 | ||||||||||||||||||
Line of credit accounts |
59,555 | | 59,555 | | | | ||||||||||||||||||
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Total international, gross |
210,476 | | 210,476 | 184,595 | 3,946 | 188,541 | ||||||||||||||||||
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Total ending loan balance, gross |
385,785 | 41,412 | 427,197 | 310,742 | 48,207 | 358,949 | ||||||||||||||||||
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Less: Allowance and liability for losses (a) |
(82,318 | ) | (2,047 | ) | (84,365 | ) | (82,352 | ) | (2,624 | ) | (84,976 | ) | ||||||||||||
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Total ending loan balance, net |
$ | 303,467 | $ | 39,365 | $ | 342,832 | $ | 228,390 | $ | 45,583 | $ | 273,973 | ||||||||||||
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(a) | GAAP measure. The consumer loan balances guaranteed by us relate to loans originated by third-party lenders through the CSO programs and are not included in our financial statements. |
(b) | Except for allowance and liability for estimated losses, amounts represent non-GAAP measures. |
Average Consumer Loan Amount
The following table shows the average amount per consumer loan by product for 2013 compared to 2012:
Year Ended
December 31, |
||||||||
2013 | 2012 | |||||||
Average amount per consumer loan (in ones) (a) |
||||||||
Short-term loans (b) |
$ | 529 | $ | 541 | ||||
Installment loans |
1,173 | 1,100 | ||||||
Line of credit accounts (c) |
299 | 279 | ||||||
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Total consumer loans (b) |
$ | 529 | $ | 542 |
(a) | The disclosure regarding the average amount per consumer loan is statistical data that is not included in our financial statements. |
(b) | Includes loans guaranteed by us, which represent loans originated by third-party lenders through the CSO programs and are not included in our financial statements. |
(c) | Represents the average amount of each incremental draw on line of credit accounts. |
The average amount per consumer loan decreased to $529 from $542 during 2013 compared to 2012, mainly due to a greater mix in 2013 of line of credit accounts, which have lower average amounts per loan relative to short-term loans. This decrease was partially offset by an increase in installment loans, which have a higher average loan amount relative to short-term loans.
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CONSUMER LOAN LOSS EXPERIENCE
The allowance and liability for estimated losses as a percentage of combined consumer loans and fees receivable decreased to 19.7% in 2013 from 23.7% in 2012, primarily due to improved performance of the consumer loan portfolios, partially related to the maturing of our product offerings, such as installment loans and line of credit accounts, to include a higher percentage of customers with established payment histories.
The cost of revenue in 2013 was $315.0 million, which was composed of $315.6 million related to our owned consumer loans, offset by a $0.6 million decrease in the liability for estimated losses related to loans we guaranteed through the CSO programs. The cost of revenue in 2012 was $288.5 million, which was composed of $288.1 million related to our owned consumer loans and $0.4 million related to loans we guaranteed through the CSO programs. Total charge-offs, net of recoveries, were $316.3 million and $266.6 million in 2013 and 2012, respectively.
The following tables show consumer loan balances and fees receivable and the relationship of the allowance and liability for losses to the combined balances of consumer loans by quarter for the years ended December 31, 2013 and 2012 (in thousands):
2013 | ||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||||||
Consumer loan balances and fees receivable: |
||||||||||||||||
GrossCompany owned |
$ | 281,947 | $ | 310,178 | $ | 359,055 | $ | 385,785 | ||||||||
GrossGuaranteed by the Company (a) |
30,002 | 35,416 | 35,128 | 41,412 | ||||||||||||
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Combined consumer loans and fees receivable, gross (b) |
311,949 | 345,594 | 394,183 | 427,197 | ||||||||||||
Allowance and liability for losses on consumer loans |
77,231 | 79,436 | 88,996 | 84,365 | ||||||||||||
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Combined consumer loans and fees receivable, net (b) |
$ | 234,718 | $ | 266,158 | $ | 305,187 | $ | 342,832 | ||||||||
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Allowance and liability for losses as a % of combined consumer loans and fees receivable, gross (b) |
24.8 | % | 23.0 | % | 22.6 | % | 19.7 | % | ||||||||
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(a) | Represents loans originated by third-party lenders through the CSO programs, which are not included in our financial statements. |
(b) | Non-GAAP measure. |
2012 | ||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||||||
Consumer loan balances and fees receivable: |
||||||||||||||||
GrossCompany owned |
$ | 212,363 | $ | 241,083 | $ | 280,832 | $ | 310,742 | ||||||||
GrossGuaranteed by the Company (a) |
32,220 | 40,634 | 41,660 | 48,207 | ||||||||||||
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Combined consumer loans and fees receivable, gross (b) |
244,583 | 281,717 | 322,492 | 358,949 | ||||||||||||
Allowance and liability for losses on consumer loans |
58,026 | 70,016 | 81,110 | 84,976 | ||||||||||||
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Combined consumer loans and fees receivable, net (b) |
$ | 186,557 | $ | 211,701 | $ | 241,382 | $ | 273,973 | ||||||||
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|
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Allowance and liability for losses as a % of combined consumer loans and fees receivable, gross (b) |
23.7 | % | 24.9 | % | 25.2 | % | 23.7 | % | ||||||||
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|
(a) | Represents loans originated by third-party lenders through the CSO programs, which are not included in our financial statements. |
(b) | Non-GAAP measure. |
115
Consumer Loan Loss Experience by Product
Management evaluates loss rates for all consumer loan products in our portfolio to determine credit quality and evaluate trends. For our products, we evaluate consumer loan losses as a percentage of the average consumer loan balance outstanding or the average combined consumer loan balance outstanding, whichever is applicable, for each portfolio.
Short-term Loans
The following tables include information related only to short-term consumer loans and show our loss experience trends for short-term consumer loans for 2013 and 2012 (in thousands):
2013 | ||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||||||
Short-term consumer loans: |
||||||||||||||||
Cost of revenue |
$ | 39,604 | $ | 37,069 | $ | 33,606 | $ | 25,678 | ||||||||
Charge-offs (net of recoveries) |
41,267 | 37,656 | 42,922 | 35,863 | ||||||||||||
Average short-term combined consumer loans and fees receivable, gross: |
||||||||||||||||
Company owned (a) |
136,087 | 125,106 | 108,032 | 84,651 | ||||||||||||
Guaranteed by the Company (a)(b) |
39,520 | 32,457 | 35,951 | 36,369 | ||||||||||||
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|
|
|
|
|
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Average short-term combined consumer loans and fees receivable, gross (a)(c) |
$ | 175,607 | $ | 157,563 | $ | 143,983 | $ | 121,020 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending short-term combined consumer loans and fees receivable, gross: |
||||||||||||||||
Company owned |
$ | 128,100 | $ | 121,890 | $ | 96,505 | $ | 80,753 | ||||||||
Guaranteed by the Company (b) |
30,002 | 35,416 | 35,128 | 41,412 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending short-term combined consumer loans and fees receivable, gross (c) |
$ | 158,102 | $ | 157,306 | $ | 131,633 | $ | 122,165 | ||||||||
|
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|
|
|
|
|
|
|||||||||
Ending allowance and liability for losses |
$ | 41,346 | $ | 40,772 | $ | 32,514 | $ | 22,513 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Short-term consumer loan ratios: |
||||||||||||||||
Cost of revenue as a % of average short-term combined consumer loans and fees receivable, gross (a)(c) |
22.6 | % | 23.5 | % | 23.3 | % | 21.2 | % | ||||||||
Charge-offs (net of recoveries) as a % of average short-term combined consumer loans and fees receivable, gross (a)(c) |
23.5 | % | 23.9 | % | 29.8 | % | 29.7 | % | ||||||||
Gross profit margin |
65.6 | % | 64.0 | % | 63.7 | % | 67.6 | % | ||||||||
Allowance and liability for losses as a % of combined consumer loans and fees receivable, gross (c)(d) |
26.2 | % | 25.9 | % | 24.7 | % | 18.4 | % | ||||||||
|
|
|
|
|
|
|
|
(a) | The average short-term combined consumer loans and fees receivable is the average of the month-end balances during the period. |
(b) | Represents loans originated by third-party lenders through the CSO programs, which are not included in our financial statements. |
(c) | Non-GAAP measure. |
(d) | Allowance and liability for losses as a % of combined consumer loans and fees receivable, gross, is determined using period-end balances. |
116
2012 | ||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||||||
Short-term consumer loans: |
||||||||||||||||
Cost of revenue |
$ | 40,786 | $ | 44,692 | $ | 44,428 | $ | 47,146 | ||||||||
Charge-offs (net of recoveries) |
47,427 | 39,565 | 46,346 | 45,444 | ||||||||||||
Average short-term combined consumer loans and fees receivable, gross: |
||||||||||||||||
Company owned (a) |
132,183 | 126,464 | 132,083 | 134,997 | ||||||||||||
Guaranteed by the Company (a)(b) |
37,392 | 36,991 | 41,800 | 43,670 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Average short-term combined consumer loans and fees receivable, gross (a)(c) |
$ | 169,575 | $ | 163,455 | $ | 173,883 | $ | 178,667 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending short-term combined consumer loans and fees receivable, gross: |
||||||||||||||||
Company owned |
$ | 124,971 | $ | 130,058 | $ | 133,396 | $ | 146,472 | ||||||||
Guaranteed by the Company (b) |
32,220 | 40,634 | 41,660 | 48,207 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending short-term combined consumer loans and fees receivable, gross (c) |
$ | 157,191 | $ | 170,692 | $ | 175,056 | $ | 194,679 | ||||||||
|
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|
|
|
|
|
|
|||||||||
Ending allowance and liability for losses |
$ | 39,366 | $ | 43,785 | $ | 42,995 | $ | 44,566 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Short-term consumer loan ratios: |
||||||||||||||||
Cost of revenue as a % of average short-term combined consumer loans and fees receivable, gross (a)(c) |
24.1 | % | 27.3 | % | 25.6 | % | 26.4 | % | ||||||||
Charge-offs (net of recoveries) as a % of average short-term combined consumer loans and fees receivable, gross (a)(c) |
28.0 | % | 24.2 | % | 26.7 | % | 25.4 | % | ||||||||
Gross profit margin |
62.8 | % | 60.1 | % | 62.2 | % | 60.9 | % | ||||||||
Allowance and liability for losses as a % of combined consumer loans and fees receivable, gross (c)(d) |
25.0 | % | 25.7 | % | 24.6 | % | 22.9 | % | ||||||||
|
|
|
|
|
|
|
|
(a) | The average short-term combined consumer loans and fees receivable is the average of the month-end balances during the period. |
(b) | Represents loans originated by third-party lenders through the CSO programs, which are not included in our financial statements. |
(c) | Non-GAAP measure. |
(d) | Allowance and liability for losses as a % of combined consumer loans and fees receivable, gross, is determined using period-end balances. |
117
Installment Loans
The following tables include information related only to installment loans and show our loss experience trends for installment loans for 2013 and 2012 (in thousands):
2013 | ||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||||||
Installment loans: |
||||||||||||||||
Cost of revenue |
$ | 21,884 | $ | 23,127 | $ | 30,631 | $ | 31,145 | ||||||||
Charge-offs (net of recoveries) |
22,329 | 23,025 | 26,089 | 30,866 | ||||||||||||
Average consumer loan balance (a) |
120,035 | 122,339 | 146,142 | 168,588 | ||||||||||||
Ending consumer loan balance |
116,727 | 130,217 | 162,944 | 179,230 | ||||||||||||
Ending allowance for losses balance |
$ | 26,403 | $ | 26,555 | $ | 32,077 | $ | 32,608 | ||||||||
|
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|
|
|
|
|
|
|||||||||
Installment loan ratios: |
||||||||||||||||
Cost of revenue as a % of average consumer loan balance (a) |
18.2 | % | 18.9 | % | 21.0 | % | 18.5 | % | ||||||||
Charge-offs (net of recoveries) as a % of average consumer loan balance (a) |
18.6 | % | 18.8 | % | 17.9 | % | 18.3 | % | ||||||||
Gross profit margin |
49.8 | % | 48.0 | % | 44.1 | % | 49.0 | % | ||||||||
Allowance for losses as a % of consumer loan balance (b) |
22.6 | % | 20.4 | % | 19.7 | % | 18.2 | % | ||||||||
|
|
|
|
|
|
|
|
(a) | The average consumer loan balance for installment loans is the average of the month-end balances during the period. |
(b) | Allowance for losses as a % of consumer loan balance is determined using period-end balances. |
2012 | ||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||||||
Installment loans: |
||||||||||||||||
Cost of revenue |
$ | 13,707 | $ | 15,913 | $ | 22,137 | $ | 23,425 | ||||||||
Charge-offs (net of recoveries) |
11,623 | 11,098 | 15,498 | 22,100 | ||||||||||||
Average consumer loan balance (a) |
64,327 | 73,860 | 94,078 | 111,479 | ||||||||||||
Ending consumer loan balance |
67,281 | 80,430 | 105,074 | 121,570 | ||||||||||||
Ending allowance for losses balance |
$ | 14,844 | $ | 19,322 | $ | 26,577 | $ | 27,845 | ||||||||
|
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|
|
|
|
|
|
|||||||||
Installment loan ratios: |
||||||||||||||||
Cost of revenue as a % of average consumer loan balance (a) |
21.3 | % | 21.5 | % | 23.5 | % | 21.0 | % | ||||||||
Charge-offs (net of recoveries) as a % of average consumer loan balance (a) |
18.1 | % | 15.0 | % | 16.5 | % | 19.8 | % | ||||||||
Gross profit margin |
37.9 | % | 38.4 | % | 38.6 | % | 44.5 | % | ||||||||
Allowance for losses as a % of consumer loan balance (b) |
22.1 | % | 24.0 | % | 25.3 | % | 22.9 | % | ||||||||
|
|
|
|
|
|
|
|
(a) | The average consumer loan balance for installment loans is the average of the month-end balances during the period. |
(b) | Allowance for losses as a % of consumer loan balance is determined using period-end balances. |
118
Line of Credit Accounts
The following tables include information related only to line of credit accounts and show our loss experience trends for line of credit accounts for 2013 and 2012 (in thousands):
2013 | ||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||||||
Line of credit accounts: |
||||||||||||||||
Cost of revenue |
$ | 6,510 | $ | 9,964 | $ | 26,152 | $ | 29,682 | ||||||||
Charge-offs (net of recoveries) |
9,596 | 7,321 | 14,211 | 25,159 | ||||||||||||
Average consumer loan balance (a) |
39,558 | 45,629 | 79,757 | 110,439 | ||||||||||||
Ending consumer loan balance |
37,120 | 58,071 | 99,606 | 125,802 | ||||||||||||
Ending allowance for losses balance |
$ | 9,479 | $ | 12,109 | $ | 24,405 | $ | 29,244 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Line of credit account ratios : |
||||||||||||||||
Cost of revenue as a % of average consumer loan balance (a) |
16.5 | % | 21.8 | % | 32.8 | % | 26.9 | % | ||||||||
Charge-offs (net of recoveries) as a % of average consumer loan balance (a) |
24.3 | % | 16.0 | % | 17.8 | % | 22.8 | % | ||||||||
Gross profit margin |
72.0 | % | 64.8 | % | 48.2 | % | 56.7 | % | ||||||||
Allowance for losses as a % of consumer loan balance (b) |
25.5 | % | 20.9 | % | 24.5 | % | 23.2 | % | ||||||||
|
|
|
|
|
|
|
|
(a) | The average consumer loan balance for line of credit accounts is the average of the month-end balances during the period. |
(b) | Allowance for losses as a % of consumer loan balance is determined using period-end balances. |
2012 | ||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||||||
Line of credit accounts: |
||||||||||||||||
Cost of revenue |
$ | 3,718 | $ | 6,554 | $ | 11,363 | $ | 14,616 | ||||||||
Charge-offs (net of recoveries) |
3,625 | 3,460 | 6,736 | 13,588 | ||||||||||||
Average consumer loan balance (a) |
20,892 | 25,115 | 37,207 | 42,485 | ||||||||||||
Ending consumer loan balance |
20,112 | 30,595 | 42,362 | 42,700 | ||||||||||||
Ending allowance for losses balance |
$ | 3,815 | $ | 6,909 | $ | 11,537 | $ | 12,565 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Line of credit account ratios: |
||||||||||||||||
Cost of revenue as a % of average consumer loan balance (a) |
17.8 | % | 26.1 | % | 30.5 | % | 34.4 | % | ||||||||
Charge-offs (net of recoveries) as a % of average consumer loan balance (a) |
17.4 | % | 13.8 | % | 18.1 | % | 32.0 | % | ||||||||
Gross profit margin |
68.1 | % | 54.1 | % | 52.3 | % | 38.6 | % | ||||||||
Allowance for losses as a % of consumer loan balance (b) |
19.0 | % | 22.6 | % | 27.2 | % | 29.4 | % | ||||||||
|
|
|
|
|
|
|
|
(a) | The average consumer loan balance for line of credit accounts is the average of the month-end balances during the period. |
(b) | Allowance for losses as a % of consumer loan balance is determined using period-end balances. |
Total Expenses
Total expenses increased $49.4 million, or 19.1%, to $307.7 million in 2013, compared to $258.3 million in 2012.
Marketing expenses increased $26.5 million, or 24.4%, to $135.3 million in 2013 compared to $108.8 million in 2012, primarily due to continuing efforts to expand our customer base in both domestic and international markets.
119
Operations and technology expense increased $7.3 million, or 11.4%, to $70.8 million in 2013 compared to $63.5 million in 2012, primarily due to increased personnel, software maintenance and loan underwriting and processing expenses.
General and administrative expense increased $11.7 million, or 16.1%, to $84.4 million in 2013 compared to $72.7 million in 2012, primarily due to the addition of new personnel to support our growth, higher incentive accruals due to strong financial performance and higher legal expenses. These increases were partially offset by a $0.6 million decrease in expenses allocated from Cash America reflecting lower allocated corporate services costs.
Depreciation and amortization expense increased $3.8 million, or 29.2%, in 2013 compared to 2012, primarily due to increased expenditures for capitalized software and equipment to support product innovations and the acceleration of depreciation related to the phase-out of certain loan platforms in 2013.
Interest Expense, Net
Interest expense, net decreased $1.2 million, or 5.8%, to $19.8 million in 2013, compared to $21.0 million in 2012. The decrease was mainly due to a decrease in our weighted-average interest rate to 4.7% in 2013 from 5.0% in 2012 and, to a lesser extent, a decrease in the average amount of debt outstanding to $411.5 million in 2013 from $416.2 million in 2012. See Unaudited Pro Forma Consolidated Financial Statements.
Provision for Income Taxes
Provision for income taxes increased $9.6 million, or 28.3%, to $43.6 million in 2013 compared to $34.0 million in 2012. The increase was primarily due to a 31.0% increase in income before income taxes, partially offset by a decrease in the effective tax rate to 35.8% in 2013 from 36.6% in 2012.
Net Income
Net income increased $19.1 million, or 32.6%, to $78.0 million in 2013 compared to $58.9 million in 2012. The increase was primarily due to the growth of our installment loan and line of credit account products in the United States and United Kingdom.
YEAR ENDED 2012 COMPARED TO YEAR ENDED 2011
Revenue and Gross Profit
Revenue increased $180.6 million, or 37.6%, to $660.9 million in 2012 as compared to $480.3 million for the year ended December 31, 2011, or 2011. The increase in revenue is primarily due to growth in consumer loan balances. The percentage of revenue from international operations to total consolidated revenue increased in 2012 compared to 2011 as our business continued to experience growth primarily in the United Kingdom. In 2012, international revenue was 49.5% of total revenue, up from 47.0% in 2011.
Our gross profit increased by $93.8 million to $372.5 million in 2012 from $278.7 million in 2011, primarily due to higher loan balances in 2012 compared to 2011. Also contributing to the increase in gross profit was the expansion of our installment loan and line of credit account products in the United States, which resulted in an increase in new customers. Our consolidated gross profit margin decreased to 56.4% in 2012 from 58.0% in 2011, primarily due to a greater mix of installment loans and line of credit accounts as a percentage of the total consumer loan portfolio. The gross profit margin for our international operations increased to 55.9% in 2012 from 50.7% in 2011, mainly because of the continuing maturation of the portfolio. Despite the improvement in the international gross profit margin, the heavier concentration of international loans in the portfolio and their lower gross profit margin compared to our domestic operations contributed to the slight decline in our consolidated gross profit margin in 2012.
120
The following table sets forth the components of revenue and gross profit, separated between domestic and international, in 2012 and 2011 (in thousands):
Year Ended December 31, | ||||||||||||||||||||||||
2012 | 2011 | |||||||||||||||||||||||
Domestic | International | Total | Domestic | International | Total | |||||||||||||||||||
Short-term loans |
$ | 202,581 | $ | 257,254 | $ | 459,835 | $ | 199,258 | $ | 201,552 | $ | 400,810 | ||||||||||||
Installment loans |
56,627 | 69,575 | 126,202 | 24,304 | 23,750 | 48,054 | ||||||||||||||||||
Line of credit accounts |
73,532 | | 73,532 | 30,590 | | 30,590 | ||||||||||||||||||
Other |
1,326 | 33 | 1,359 | 600 | 286 | 886 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Revenue |
334,066 | 326,862 | 660,928 | 254,752 | 225,588 | 480,340 | ||||||||||||||||||
Cost of Revenue |
144,455 | 144,019 | 288,474 | 90,535 | 111,152 | 201,687 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross Profit |
$ | 189,611 | $ | 182,843 | $ | 372,454 | $ | 164,217 | $ | 114,436 | $ | 278,653 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Year-over-year change$ |
$ | 25,394 | $ | 68,407 | $ | 93,801 | | | | |||||||||||||||
Year-over-year change% |
15.5 | % | 59.8 | % | 33.7 | % | | | | |||||||||||||||
Gross profit margin |
56.8 | % | 55.9 | % | 56.4 | % | 64.5 | % | 50.7 | % | 58.0 | % |
Consumer Loan Balances
The outstanding combined portfolio balance of consumer loans, net of allowances and liabilities for losses, increased $70.5 million, or 34.7%, to $274.0 million at December 31, 2012 from $203.5 million at December 31, 2011, primarily due to increased demand for all consumer loan products in both domestic and international markets.
The combined consumer loan balance includes $310.7 million and $222.0 million at December 31, 2012 and 2011, respectively, of our owned consumer loan balances, before the allowance for losses of $82.4 million and $59.1 million, respectively, which have both been provided in the consolidated financial statements at December 31, 2012 and 2011, respectively. The combined consumer loan balance also includes $48.2 million and $42.8 million at December 31, 2012 and 2011, respectively, of consumer loan balances, which are guaranteed by us and are not included in our financial statements. The liability for estimated losses related to the consumer loan balances we guarantee of $2.6 million and $2.3 million has been included in Accounts payable and accrued expenses in the consolidated financial statements at December 31, 2012 and 2011, respectively. The following table summarizes the consumer loan balances as of December 31, 2012 and 2011 (in thousands):
As of December 31, | ||||||||||||||||||||||||
2012 | 2011 | |||||||||||||||||||||||
Company
Owned (a) |
Guaranteed
by the Company (a) |
Combined (b) |
Company
Owned (a) |
Guaranteed
by the Company (a) |
Combined (b) | |||||||||||||||||||
Ending consumer loan balances: |
||||||||||||||||||||||||
Domestic |
||||||||||||||||||||||||
Short-term loans |
$ | 37,734 | $ | 44,261 | $ | 81,995 | $ | 38,455 | $ | 39,341 | $ | 77,796 | ||||||||||||
Installment loans |
45,713 | | 45,713 | 24,411 | | 24,411 | ||||||||||||||||||
Line of credit accounts |
42,700 | | 42,700 | 21,648 | | 21,648 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total domestic, gross |
126,147 | 44,261 | 170,408 | 84,514 | 39,341 | 123,855 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
International |
||||||||||||||||||||||||
Short-term loans |
108,738 | 3,946 | 112,684 | 101,723 | 3,420 | 105,143 | ||||||||||||||||||
Installment loans |
75,857 | | 75,857 | 35,802 | | 35,802 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total international, gross |
184,595 | 3,946 | 188,541 | 137,525 | 3,420 | 140,945 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total ending loan balance, gross |
310,742 | 48,207 | 358,949 | 222,039 | 42,761 | 264,800 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Less: Allowance and liability for losses (a) |
(82,352 | ) | (2,624 | ) | (84,976 | ) | (59,054 | ) | (2,284 | ) | (61,338 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total ending loan balance, net |
$ | 228,390 | $ | 45,583 | $ | 273,973 | $ | 162,985 | $ | 40,477 | $ | 203,462 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
121
(a) | GAAP measure. The consumer loan balances guaranteed by us relate to loans originated by third-party lenders through the CSO programs and are not included in our financial statements. |
(b) | Except for allowance and liability for estimated losses, amounts represent non-GAAP measures. |
Average Consumer Loan Amount
The following table shows the average amount per consumer loan by product for 2012 compared to 2011:
Year Ended
December 31, |
||||||||
2012 | 2011 | |||||||
Average amount per consumer loan (in ones) (a) |
||||||||
Short-term loans (b) |
$ | 541 | $ | 522 | ||||
Installment loans |
1,100 | 1,157 | ||||||
Line of credit accounts (c) |
279 | 282 | ||||||
|
|
|
|
|||||
Total consumer loans (b) |
$ | 542 | $ | 525 | ||||
|
|
|
|
(a) | The disclosure regarding the average amount per consumer loan is statistical data that is not included in our financial statements. |
(b) | Includes loans guaranteed by us, which represent loans originated by third-party lenders through the CSO programs and are not included in our financial statements. |
(c) | Represents the average amount of each incremental draw on line of credit accounts. |
The average amount per consumer loan increased to $542 from $525 during 2012 compared to 2011, due largely to an increase in longer-term installment loans, which typically have a larger average loan amount than short-term loans, and an increase in the average amount of short-term loans.
CONSUMER LOAN LOSS EXPERIENCE
The allowance and liability for estimated losses as a percentage of combined consumer loans and fees receivable increased to 23.7% in 2012 compared to 23.2% in 2011, primarily due to the change in the mix of loans, as discussed in the Revenue and Gross Profit section above.
The cost of revenue was $288.5 million in 2012, which was composed of $288.1 million related to our owned consumer loans and $0.4 million related to loans we guaranteed through the CSO programs. The cost of revenue in 2011 was $201.7 million, which was composed of $201.7 million related to our owned consumer loans and an immaterial amount related to loans we guaranteed through the CSO programs. Total charge-offs, net of recoveries, were $266.6 million and $178.0 million in 2012 and 2011, respectively.
The following tables show consumer loan balances and fees receivable and the relationship of the allowance and liability for losses to the combined balances of consumer loans by quarter for the years ended December 31, 2012 and 2011 (in thousands):
2012 | ||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||||||
Consumer loan balances and fees receivable: |
||||||||||||||||
GrossCompany owned |
$ | 212,363 | $ | 241,083 | $ | 280,832 | $ | 310,742 | ||||||||
GrossGuaranteed by the Company (a) |
32,220 | 40,634 | 41,660 | 48,207 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Combined consumer loans and fees receivable, gross (b) |
244,583 | 281,717 | 322,492 | 358,949 | ||||||||||||
Allowance and liability for losses on consumer loans |
58,026 | 70,016 | 81,110 | 84,976 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Combined consumer loans and fees receivable, net (b) |
$ | 186,557 | $ | 211,701 | $ | 241,382 | $ | 273,973 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Allowance and liability for losses as a % of combined consumer loans and fees receivable, gross (b) |
23.7 | % | 24.9 | % | 25.2 | % | 23.7 | % | ||||||||
|
|
|
|
|
|
|
|
122
(a) | Represents loans originated by third-party lenders through the CSO programs, which are not included in our financial statements. |
(b) | Non-GAAP measure. |
2011 | ||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||||||
Consumer loan balances and fees receivable: |
||||||||||||||||
GrossCompany owned |
$ | 118,665 | $ | 142,102 | $ | 181,602 | $ | 222,039 | ||||||||
GrossGuaranteed by the Company (a) |
28,272 | 34,073 | 36,356 | 42,739 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Combined consumer loans and fees receivable, gross (b) |
146,937 | 176,175 | 217,958 | 264,778 | ||||||||||||
Allowance and liability for losses on consumer loans |
34,343 | 35,093 | 45,269 | 61,332 | ||||||||||||
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|
|
|
|
|
|
|
|||||||||
Combined consumer loans and fees receivable, net (b) |
$ | 112,594 | $ | 141,082 | $ | 172,689 | $ | 203,446 | ||||||||
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|
|
|
|
|
|
|
|||||||||
Allowance and liability for losses as a % of combined consumer loans and fees receivable, gross (b) |
23.4 | % | 19.9 | % | 20.8 | % | 23.2 | % | ||||||||
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|
|
|
|
|
|
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(a) | Represents loans originated by third-party lenders through the CSO programs, which are not included in our financial statements. |
(b) | Non-GAAP measure. |
Consumer Loan Loss Experience by Product
Management evaluates loss rates for all consumer loan products in our portfolio to determine credit quality and evaluate trends. For our products, we evaluate consumer loan losses as a percentage of the average consumer loan balance outstanding or the average combined consumer loan balance outstanding, whichever is applicable, for each portfolio.
Short-term Loans
The following tables include information related only to short-term consumer loans and show our loss experience trends for short-term consumer loans for 2012 and 2011 (in thousands):
2012 | ||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||||||
Short-term consumer loans: |
||||||||||||||||
Cost of revenue |
$ | 40,786 | $ | 44,692 | $ | 44,428 | $ | 47,146 | ||||||||
Charge-offs (net of recoveries) |
47,427 | 39,565 | 46,346 | 45,444 | ||||||||||||
Average short-term combined consumer loans and fees receivable, gross: |
||||||||||||||||
Company owned (a) |
132,183 | 126,464 | 132,083 | 134,997 | ||||||||||||
Guaranteed by the Company (a)(b) |
37,392 | 36,991 | 41,800 | 43,670 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Average short-term combined consumer loans and fees receivable, gross (a)(c) |
$ | 169,575 | $ | 163,455 | $ | 173,883 | $ | 178,667 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending short-term combined consumer loans and fees receivable, gross: |
||||||||||||||||
Company owned |
$ | 124,971 | $ | 130,058 | $ | 133,396 | $ | 146,472 | ||||||||
Guaranteed by the Company (b) |
32,220 | 40,634 | 41,660 | 48,207 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending short-term combined consumer loans and fees receivable, gross (c) |
$ | 157,191 | $ | 170,692 | $ | 175,056 | $ | 194,679 | ||||||||
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|
|
|
|
|
|||||||||
Ending allowance and liability for losses |
$ | 39,366 | $ | 43,785 | $ | 42,995 | $ | 44,566 | ||||||||
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|
|
|
|
|
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2012 | ||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||||||
Short-term consumer loan ratios: |
||||||||||||||||
Cost of revenue as a % of average short-term combined consumer loans and fees receivable, gross (a)(c) |
24.1 | % | 27.3 | % | 25.6 | % | 26.4 | % | ||||||||
Charge-offs (net of recoveries) as a % of average short-term combined consumer loans and fees receivable, gross (a)(c) |
28.0 | % | 24.2 | % | 26.7 | % | 25.4 | % | ||||||||
Gross profit margin |
62.8 | % | 60.1 | % | 62.2 | % | 60.9 | % | ||||||||
Allowance and liability for losses as a % of combined consumer loans and fees receivable, gross (c)(d) |
25.0 | % | 25.7 | % | 24.6 | % | 22.9 | % | ||||||||
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|
|
|
|
|
|
|
(a) | The average short-term combined consumer loans and fees receivable is the average of the month-end balances during the period. |
(b) | Represents loans originated by third-party lenders through the CSO programs, which are not included in our financial statements. |
(c) | Non-GAAP measure. |
(d) | Allowance and liability for losses as a % of combined consumer loans and fees receivable, gross, is determined using period-end balances. |
2011 | ||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||||||
Short-term consumer loans: |
||||||||||||||||
Cost of revenue |
$ | 30,328 | $ | 32,824 | $ | 41,732 | $ | 54,698 | ||||||||
Charge-offs (net of recoveries) |
35,596 | 33,721 | 34,417 | 44,144 | ||||||||||||
Average short-term combined consumer loans and fees receivable, gross: |
||||||||||||||||
Company owned (a) |
96,969 | 98,595 | 117,010 | 132,091 | ||||||||||||
Guaranteed by the Company (a)(b) |
33,356 | 31,223 | 36,614 | 38,887 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Average short-term combined consumer loans and fees receivable, gross (a)(c) |
$ | 130,325 | $ | 129,818 | $ | 153,624 | $ | 170,978 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending short-term combined consumer loans and fees receivable, gross: |
||||||||||||||||
Company owned |
$ | 91,963 | $ | 103,883 | $ | 123,036 | $ | 140,178 | ||||||||
Guaranteed by the Company (b) |
28,272 | 34,073 | 36,356 | 42,739 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Ending short-term combined consumer loans and fees receivable, gross (c) |
$ | 120,235 | $ | 137,956 | $ | 159,392 | $ | 182,917 | ||||||||
|
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|
|
|
|
|
|||||||||
Ending allowance and liability for losses |
$ | 29,081 | $ | 28,246 | $ | 34,904 | $ | 45,164 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Short-term consumer loan ratios: |
||||||||||||||||
Cost of revenue as a % of average short-term combined consumer loans and fees receivable, gross (a)(c) |
23.3 | % | 25.3 | % | 27.2 | % | 32.0 | % | ||||||||
Charge-offs (net of recoveries) as a % of average short-term combined consumer loans balance and fees receivable, gross (a)(c) |
27.3 | % | 26.0 | % | 22.4 | % | 25.8 | % | ||||||||
Gross profit margin |
64.3 | % | 63.6 | % | 61.4 | % | 53.4 | % | ||||||||
Allowance and liability for losses as a % of combined consumer loans and fees receivable, gross (c)(d) |
24.2 | % | 20.5 | % | 21.9 | % | 24.7 | % | ||||||||
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|
|
|
|
|
|
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(a) | The average short-term combined consumer loans and fees receivable is the average of the month-end balances during the period. |
(b) | Represents loans originated by third-party lenders through the CSO programs, which are not included in our financial statements. |
(c) | Non-GAAP measure. |
(d) | Allowance and liability for losses as a % of combined consumer loans and fees receivable, gross, is determined using period-end balances. |
Installment Loans
The following tables include information related only to installment loans and show our loss experience trends for installment loans for 2012 and 2011 (in thousands):
2012 | ||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||||||
Installment loans: |
||||||||||||||||
Cost of revenue |
$ | 13,707 | $ | 15,913 | $ | 22,137 | $ | 23,425 | ||||||||
Charge-offs (net of recoveries) |
11,623 | 11,098 | 15,498 | 22,100 | ||||||||||||
Average consumer loan balance (a) |
64,327 | 73,860 | 94,078 | 111,479 | ||||||||||||
Ending consumer loan balance |
67,281 | 80,430 | 105,074 | 121,570 | ||||||||||||
Ending allowance for losses balance |
$ | 14,844 | $ | 19,322 | $ | 26,577 | $ | 27,845 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Installment loan ratios: |
||||||||||||||||
Cost of revenue as a % of average consumer loan balance (a) |
21.3 | % | 21.5 | % | 23.5 | % | 21.0 | % | ||||||||
Charge-offs (net of recoveries) as a % of average consumer loan balance (a) |
18.0 | % | 15.0 | % | 16.5 | % | 19.8 | % | ||||||||
Gross profit margin |
37.9 | % | 38.4 | % | 38.6 | % | 44.5 | % | ||||||||
Allowance for losses as a % of consumer loan balance (b) |
22.1 | % | 24.0 | % | 25.3 | % | 22.9 | % | ||||||||
|
|
|
|
|
|
|
|
(a) | The average consumer loan balance for installment loans is the average of the month-end balances during the period. |
(b) | Allowance for losses as a % of consumer loan balance is determined using period-end balances. |
2011 | ||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||||||
Installment loans: |
||||||||||||||||
Cost of revenue |
$ | 4,650 | $ | 6,429 | $ | 8,785 | $ | 13,729 | ||||||||
Charge-offs (net of recoveries) |
3,174 | 5,228 | 6,509 | 8,883 | ||||||||||||
Average consumer loan balance (a) |
16,834 | 22,201 | 35,102 | 52,239 | ||||||||||||
Ending consumer loan balance |
18,357 | 26,290 | 42,786 | 60,213 | ||||||||||||
Ending allowance for losses balance |
$ | 4,386 | $ | 5,568 | $ | 7,721 | $ | 12,451 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Installment loan ratios: |
||||||||||||||||
Cost of revenue as a % of average consumer loan balance (a) |
27.6 | % | 29.0 | % | 25.0 | % | 26.3 | % | ||||||||
Charge-offs (net of recoveries) as a % of average consumer loan balance (a) |
18.9 | % | 23.5 | % | 18.5 | % | 17.0 | % | ||||||||
Gross profit margin |
33.8 | % | 22.4 | % | 33.5 | % | 29.7 | % | ||||||||
Allowance for losses as a % of consumer loan balance (b) |
23.9 | % | 21.2 | % | 18.0 | % | 20.7 | % | ||||||||
|
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|
|
|
|
|
|
(a) | The average consumer loan balance for installment loans is the average of the month-end balances during the period. |
(b) | Allowance for losses as a % of consumer loan balance is determined using period-end balances. |
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Line of Credit Accounts
The following tables include information related only to line of credit accounts and show our loss experience trends for line of credit accounts for 2012 and 2011 (in thousands):
2012 | ||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||||||
Line of credit accounts: |
||||||||||||||||
Cost of revenue |
$ | 3,718 | $ | 6,554 | $ | 11,363 | $ | 14,616 | ||||||||
Charge-offs (net of recoveries) |
3,625 | 3,460 | 6,736 | 13,580 | ||||||||||||
Average consumer loan balance (a) |
20,892 | 25,115 | 37,207 | 42,485 | ||||||||||||
Ending consumer loan balance |
20,112 | 30,595 | 42,362 | 42,700 | ||||||||||||
Ending allowance for losses balance |
$ | 3,815 | $ | 6,909 | $ | 11,537 | $ | 12,565 | ||||||||
|
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|
|
|
|
|
|||||||||
Line of credit account ratios: |
||||||||||||||||
Cost of revenue as a % of average consumer loan balance (a) |
17.8 | % | 26.1 | % | 30.5 | % | 34.4 | % | ||||||||
Charge-offs (net of recoveries) as a % of average consumer loan balance (a) |
17.4 | % | 13.6 | % | 18.1 | % | 32.0 | % | ||||||||
Gross profit margin |
68.1 | % | 54.1 | % | 52.3 | % | 38.6 | % | ||||||||
Allowance for losses as a % of consumer loan balance (b) |
19.0 | % | 22.6 | % | 27.2 | % | 29.4 | % | ||||||||
|
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|
|
|
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|
(a) | The average consumer loan balance for line of credit accounts is the average of the month-end balances during the period. |
(b) | Allowance for losses as a % of consumer loan balance is determined using period-end balances. |
2011 | ||||||||||||||||
First
Quarter |
Second
Quarter |
Third
Quarter |
Fourth
Quarter |
|||||||||||||
Line of credit accounts: |
||||||||||||||||
Cost of revenue |
$ | 1,339 | $ | 1,118 | $ | 2,546 | $ | 3,509 | ||||||||
Charge-offs (net of recoveries) |
1,976 | 716 | 1,181 | 2,431 | ||||||||||||
Average consumer loan balance (a) |
10,170 | 9,987 | 13,903 | 18,097 | ||||||||||||
Ending consumer loan balance |
8,345 | 11,929 | 15,780 | 21,648 | ||||||||||||
Ending allowance for losses balance |
$ | 876 | $ | 1,279 | $ | 2,644 | $ | 3,723 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Line of credit account ratios: |
||||||||||||||||
Cost of revenue as a % of average consumer loan balance (a) |
13.2 | % | 11.2 | % | 18.3 | % | 19.4 | % | ||||||||
Charge-offs (net of recoveries) as a % of average consumer loan balance (a) |
19.4 | % | 7.2 | % | 8.5 | % | 13.5 | % | ||||||||
Gross profit margin |
75.0 | % | 82.9 | % | 71.4 | % | 64.2 | % | ||||||||
Allowance for losses as a % of consumer loan balance (b) |
10.5 | % | 10.7 | % | 16.8 | % | 17.2 | % | ||||||||
|
|
|
|
|
|
|
|
(a) | The average consumer loan balance for line of credit accounts is the average of the month-end balances during the period. |
(b) | Allowance for losses as a % of consumer loan balance is determined using period-end balances. |
Total Expenses
Total expenses increased $55.9 million, or 27.6%, to $258.3 million in 2012, compared to $202.4 million in 2011.
Marketing expenses increased $35.5 million, or 48.4%, to $108.8 million in 2012 compared to $73.3 million in 2011, primarily due to increased efforts to expand our customer base domestically and internationally. Referral fee expenses also increased $1.7 million, primarily due to increased loan volume from our existing referral programs.
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Operations and technology expense increased $11.1 million, or 21.3%, to $63.5 million in 2012 compared to $52.4 million in 2011, primarily due to increases in call center personnel and underwriting expenses to support growth and new business initiatives during the year.
General and administrative expense increased $7.3 million, or 11.1%, to $72.7 million in 2012 compared to $65.4 million in 2011, primarily due to increases in personnel expenses related to personnel additions and merit increases and $3.9 million in costs related to the Withdrawn IPO. These increases were partially offset by a $7.3 million decrease in expenses allocated from Cash America due primarily to the assumption of certain corporate services functions from Cash America.
Depreciation and amortization expense increased $2.0 million, or 17.8%, in 2012 compared to 2011, mainly due to additional depreciation on capital additions for systems development in support of new products, as well as normal system upgrades.
Interest Expense, Net
Interest expense, net increased $3.6 million, or 20.5%, to $21.0 million in 2012, compared to $17.4 million in 2011. The increase was primarily due to an increase in the average amount of debt outstanding, which increased $105.9 million to $416.2 million during 2012 from $310.3 million during 2011, partially offset by a decrease in our weighted-average interest rate to 5.0% in 2012 from 5.8% in 2011. A $75.0 million declared dividend in September of 2011 contributed to the increase in average borrowings outstanding. See Certain Relationships and Related-Party Transactions.
Provision for Income Taxes
Provision for income taxes increased $12.6 million, or 59.1%, to $34.0 million in 2012 compared to $21.4 million in 2011. The increase was primarily due to a 59.0% increase in income before income taxes. The effective tax rate was flat at 36.6%.
Net Income
Net income increased $21.9 million, or 59.0%, to $58.9 million in 2012 compared to $37.0 million in 2011. The increase was primarily due to higher revenue as a result of increased year-over-year consumer loan balances.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have generated significant cash flow through normal operating activities for funding both long-term and short-term needs. Our near-term liquidity is managed to ensure that adequate resources are available to fund our seasonal working capital growth, which is driven by demand for our loan products. In addition to operating cash flows, liquidity was historically provided by affiliate advances from Cash America that were evidenced through borrowings under an intercompany credit agreement with Cash America. Our credit agreement with Cash America permitted us to borrow, repay and re-borrow funds from Cash America on a revolving credit basis in a maximum amount equal to $450 million. On May 30, 2014 we issued and sold $500 million in aggregate principal amount of 9.75% senior notes, or the Notes, in a private offering and terminated our credit agreement with Cash America. We are no longer able to obtain financing from Cash America. As such, we are not able to rely on Cash America to fund our business and will be required to utilize other sources of financing to develop and operate our business. On May 14, 2014, we entered into a credit agreement with an unaffiliated third-party that provides for an unsecured revolving credit facility, or the Credit Agreement, in an aggregate principal amount of up to $75.0 million. The Credit Agreement also includes a sub-limit of up to $20.0 million for standby or commercial letters of credit that are guaranteed by our domestic subsidiaries. We had no outstanding letters of credit as of June 30, 2014. As of June 30, 2014, our available borrowings under the Credit Agreement were $75.0 million. We expect that our operating needs will be satisfied by a combination of cash flows from operations and borrowings under our Credit Agreement. See Financing Arrangements and Certain Relationships and Related-Party Transactions.
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As of June 30, 2014, we were in compliance with all financial ratios, covenants and other requirements set forth in our debt agreements. Unexpected changes in our financial condition or other unforeseen factors may result in our inability to obtain third-party financing or could increase our borrowing costs in the future. To the extent we experience short-term or long-term funding disruptions, we have the ability to adjust our volume of lending to consumers that would reduce cash outflow requirements while increasing cash inflows through repayments of consumer loans. Additional alternatives may include the securitization or sale of assets and reductions in capital spending which could be expected to generate additional liquidity.
Senior Notes
On May 30, 2014, we issued and sold the Notes. The Notes were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended, or the Securities Act, and outside the United States pursuant to Regulation S under the Securities Act.
We used all of the net proceeds, or $479.0 million, of the Note offering to repay all of our intercompany indebtedness due to Cash America, which was $361.4 million as of May 30, 2014, and the remaining net proceeds were used to pay a significant portion of $122.4 million in cash dividends we paid to Cash America, of which $120.7 million was paid on May 30, 2014 and $1.7 million was paid on June 30, 2014. See Certain Relationships and Related-Party TransactionsHistorical Relationship with Cash America for additional information regarding the Cash America Dividend.
The Notes are governed by an Indenture, or the Indenture, dated May 30, 2014, between us, our domestic subsidiaries, as Guarantors, and U.S. Bank National Association, as trustee. The Notes bear interest at a rate of 9.75% per year on the principal amount of the Notes, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2014. The Notes will mature on June 1, 2021. The Notes are senior unsecured debt obligations of Enova and are unconditionally guaranteed by our domestic subsidiaries. Neither Cash America nor any of its other subsidiaries that are not also our subsidiaries guarantee the Notes.
The Indenture contains certain covenants that, among other things, limit our and certain of our subsidiaries ability to incur additional debt, acquire or create new subsidiaries, create liens, engage in certain transactions with affiliates and consolidate or merge with or into other companies.
The Notes are redeemable at our option, in whole or in part, (i) at any time prior to June 1, 2017 at 100% of the aggregate principal amount of Notes redeemed plus the applicable make whole redemption price specified in the Indenture, plus accrued and unpaid interest, if any, to the redemption date and (ii) at any time on or after June 1, 2017 at a premium specified in the Indenture that will decrease over time as described in the Indenture, plus accrued and unpaid interest, if any, to the redemption date. In addition, prior to June 1, 2017, we may redeem from time to time up to 35% of the aggregate principal amount of the Notes at a redemption price equal to 109.75% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date with the proceeds from certain equity offerings as described in the Indenture. In addition, if our and our subsidiaries guarantee of certain indebtedness of Cash America as described in the Indenture is not released on or before March 31, 2015 then we may redeem all and not less than all of the Notes outstanding at a redemption price equal to 103% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, or the Special Redemption, and if the Special Redemption does not occur, then the interest rate on the Notes will increase 2.0% per annum until Enova and its subsidiaries no longer guarantee certain indebtedness of Cash America as described in the Indenture. (See Financing Arrangements for additional information regarding the indebtedness of Cash America that we guarantee as of the date of this information statement.) If a change of control occurs, as that term is defined in the Indenture, the holders of the Notes will have the right, subject to certain conditions, to require Enova to repurchase their Notes at a purchase price equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest, if any, as of the date of repurchase.
128
In addition, on May 30, 2014, we entered into a registration rights agreement with the initial purchaser of the Notes, or the Registration Rights Agreement, pursuant to which we agreed to use commercially reasonable efforts to cause a registration statement to be declared effective on or prior to the 360th day following the closing date relating to an exchange offer of the Notes for identical new notes registered under the Securities Act. In certain circumstances, we may be required to file a shelf registration statement to cover resales of the Notes. If we do not comply with certain covenants set forth in the Registration Rights Agreement, we must pay liquidated damages to holders of the Notes. If we fail to satisfy any of our registration obligations, we may be required to pay the holders of the Notes additional interest ranging from 0.25% to 0.50% per annum until we satisfy our registration obligations.
The Indenture provides for customary events of default, including nonpayment, failure to comply with covenants or other agreements in the Indenture, any subsidiary guarantee ceasing to be in full force and effect or any guarantor denying or disaffirming its obligations under its subsidiary guarantee, and certain events of bankruptcy or insolvency. If any event of default occurs and is continuing, the trustee or the holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately.
Credit Agreement
On May 14, 2014, we and certain of our domestic subsidiaries, as guarantors, entered into a credit agreement with Jefferies Finance LLC, as administrative agent, and Jefferies Group LLC, as lender, or the Credit Agreement. The Credit Agreement provides for our unsecured revolving line of credit in an aggregate principal amount of up to $75 million. The Credit Agreement contains customary representations and warranties and covenants (including financial maintenance covenants). Loans under the revolving line of credit may be made in dollars or in designated foreign currencies. Neither Cash America nor any of its other subsidiaries that are not subsidiaries of Enova guarantee the revolving line of credit.
Our revolving line of credit may be used for our and our subsidiaries general corporate purposes, including possible acquisitions. Interest on the loans borrowed under the Credit Agreement will be charged, at our option, at either LIBOR for one week or one-, two-, three- or six-month periods, as selected by us, plus a margin varying from 2.50% to 3.75% or at the agents base rate plus a margin varying from 1.50% to 2.75%. The margin for the Credit Agreement borrowings is dependent on our cash flow leverage ratios. We will also be required to pay a fee on the unused portion of the line of credit ranging from 0.25% to 0.50% based on our cash flow leverage ratios. The revolving line of credit under the Credit Agreement was undrawn as of June 30, 2014.
The Credit Agreement also includes a sub-limit of up to $20.0 million for standby or commercial letters of credit. In the event that an amount is paid by the issuing bank under a letter of credit, it will be due and payable by us on demand. Pursuant to the terms of the Credit Agreement, we agree to pay fees equal to the LIBOR margin per annum on the undrawn amount of each outstanding standby Letter of Credit plus a one-time commercial letter of credit fee of 0.20% of the face amount of each commercial Letter of Credit plus 0.25% per annum on the average daily amount of the total Letter of Credit exposure. We had no outstanding letters of credit as of June 30, 2014.
Our Credit Agreement will mature on June 30, 2017. However, if our guarantees of Cash Americas indebtedness and other material Cash America debt in excess of $1.0 million are not released and terminated on or before March 31, 2015, our Credit Agreement will instead mature on March 31, 2015. See Guarantees of Cash Americas Indebtedness below for additional information regarding the indebtedness of Cash America that we guarantee as of the date of this information statement.
Financial Conduct Authority
See Recent Regulatory DevelopmentsFinancial Conduct Authority for a discussion of changes we have made and will continue to our U.K business practices in response to the requirements of the FCA and the proposed cap on the total cost of credit in the United Kingdom. We are still assessing the potential impact of the changes we have made and are making in response to the requirements of the FCA, but we expect our U.K.
129
operations will experience a decline in working capital necessary to operate our U.K. consumer loan business as consumer loans outstanding, revenue and cost of revenue decline during the balance of 2014 and potentially into 2015 as we adjust our business practices. In addition, although we are still assessing the full impact of the cost of credit cap changes as they are currently proposed, after we have made all of the other changes to our U.K. business in response to the requirements of the FCA, we do not currently expect the impact of the modifications made to address a final cost of credit rule that tracks the proposed parameters to be significant.
Cash Flows
Our cash flows and other key indicators of liquidity are summarized as follows (dollars in thousands):
Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||
2014 | 2013 | 2013 | 2012 | 2011 | ||||||||||||||||
Cash flows provided by operating activities (a) |
$ | 237,896 | $ | 208,633 | $ | 438,298 | $ | 375,508 | $ | 255,933 | ||||||||||
Cash flows used in investing activities |
||||||||||||||||||||
Consumer loans |
(124,403 | ) | (143,976 | ) | (388,867 | ) | (346,467 | ) | (266,427 | ) | ||||||||||
Property and equipment additions |
(6,828 | ) | (4,846 | ) | (14,872 | ) | (17,872 | ) | (15,073 | ) | ||||||||||
Investment in non-marketable securities |
| | | (1,000 | ) | | ||||||||||||||
Other investing activities |
| | | (178 | ) | | ||||||||||||||
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Total cash flows used in investing activities (a) |
(131,231 | ) | $ | (148,822 | ) | (403,739 | ) | (365,517 | ) | (281,500 | ) | |||||||||
Cash flows provided by (used in) financing activities |
(78,810 | ) | (43,046 | ) | (28,567 | ) | (9,008 | ) | 43,130 | |||||||||||
Working capital (a) |
348,935 | 274,369 | 340,933 | 261,068 | 186,790 | |||||||||||||||
Current ratio |
6.6x | 6.9x | 7.9x | 6.5x | 5.3x | |||||||||||||||
Total debt to Adjusted EBITDA (b) |
2.6x | 3.3x | 4.7x |
(a) | Net cash provided by operating activities and net cash used in investing activities for 2011 and working capital as of December 31, 2011 were revised to correct the classification of cash and accounts payable and to correct for consumer loans that had not funded as of the balance sheet date. Management determined that the impact on previously issued financial statements was immaterial; however, management determined it was appropriate to correct the presentation herein. The correction resulted in a $2.0 million decrease in net cash provided by operating activities, a $0.2 million decrease in net cash used in investing activities for 2011 and a $0.5 million increase to working capital as of December 31, 2011. |
(b) | Total debt to Adjusted EBITDA, a non-GAAP measure, is calculated using Adjusted EBITDA for the twelve months ended for the respective period indicated. |
Cash Flows from Operating Activities
Net cash provided by operating activities increased $29.3 million, or 14.0%, to $237.9 million for the current six-month period from $208.6 million for the prior year six-month period. The increase was primarily driven by a $29.5 million increase in net income during the current six-month period, partially offset by a $4.9 million decrease in cost of revenue, a non-cash expense, primarily because our consumer loan portfolios had a higher percentage of customers with established payment histories during the current six-month period as compared to the prior year six-month period.
Other significant changes in net cash provided by operating activities for the current six-month period compared to the prior year six-month period included cash flows from the following activities:
| the addition of related party payables, net resulted in a $11.5 million increase in net cash provided by operating activities, primarily due to income taxes paid by Cash America on our behalf; and |
| changes in prepaid expenses and other assets resulted in a $8.3 million decrease in net cash provided by operating activities, primarily due to higher miscellaneous receivables balances and changes in prepaid marketing expenses. |
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Net cash provided by operating activities increased $62.8 million, or 16.7%, to $438.3 million for 2013 from $375.5 million for 2012. The increase was primarily driven by a $19.2 million increase in net income during 2013 and a $26.6 million increase in the cost of revenue, a non-cash expense, primarily as a result of increased lending activity. Increases in outstanding customer loan balances immediately require an increase in the balance sheet reserve for potential loan losses and generate the cost of revenue, a non-cash expense, during the period. The related cash expense for uncollectible loans is captured as the difference in consumer loans originated or acquired and consumer loans repaid for those loans that are uncollectible. These amounts are reflected in the cash flows from investing activities.
Other significant changes in net cash provided by operating activities for 2013 compared to 2012 included cash flows from the following activities:
| changes in deferred income taxes, net, resulted in a $7.7 million increase in net cash provided by operating activities, primarily due to increases in deferred tax liabilities related to amortizable intangible assets; |
| depreciation and amortization expense increased $3.9 million in 2013 compared to 2012, primarily due to increased expenditures for capitalized software and equipment to support product innovations and the acceleration of depreciation related to the phase-out of certain loan platforms in 2013; and |
| changes in accounts payable and accrued expenses resulted in a $3.1 million increase in net cash provided by operating activities, primarily due to the timing of payments of marketing and lead purchase costs. |
Net cash provided by operating activities for 2012 increased $119.6 million, or 46.7%, to $375.5 million from $255.9 million for 2011. The increase was primarily driven by a $21.8 million increase in net income during 2012 and an $86.8 million increase in the cost of revenue, a non-cash expense, primarily as a result of increased lending activity.
Other significant changes in net cash provided by operating activities for 2012 compared to 2011 included cash flows from the following activities:
| changes in current intercompany income taxes resulted in an $11.0 million decrease in net cash provided by operating activities in 2011 when we began paying Cash America for the full balance of intercompany income taxes payable; and |
| changes in accounts payable and accrued expenses resulted in a $5.0 million decrease in net cash provided by operating activities, primarily due to timing of payments of marketing, legal and lead purchase costs. |
Management believes cash flows from operations and available cash balances and borrowings will be sufficient to fund our future operating liquidity needs, including in the case of our separation from Cash America.
Cash Flows from Investing Activities
Net cash used in investing activities decreased $17.6 million, or 11.8%, for the current six-month period compared to the prior year six-month period, primarily due to a $19.6 million decrease in net cash invested in consumer loans due to a higher rate of increase in consumer loans repaid compared to consumer loans originated or acquired.
Net cash used in investing activities increased $38.2 million, or 10.5%, for 2013 compared to 2012, primarily due to a $42.4 million increase in consumer loans originated or acquired, net of consumer loans repaid, primarily resulting from growth in our installment loan and line of credit account products.
Net cash used in investing activities increased $84.0 million, or 29.8%, for 2012 compared to 2011, primarily due to an $80.0 million increase in consumer loans originated or acquired, net of consumer loans repaid. This increase was primarily due to the increase in demand for all consumer loan products in domestic and international markets.
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Expenditures for property and equipment increased $2.0 million to $6.8 million in the current six-month period compared to $4.8 million in the prior year six-month period, primarily related to increases in technology development costs to support our growth. Expenditures for property and equipment used $14.9 million of cash in 2013 compared to $17.9 million in 2012. The $3.0 million year-over-year decrease primarily related to reduced spending on leasehold improvements. Expenditures for property and equipment used $17.9 million in 2012 compared to $15.1 million in 2011. The $2.8 million year-over-year increase primarily related to increases in technology development costs to support our growth, the purchase of computer hardware and for leasehold improvements. Management anticipates that total expenditures for property and equipment for the twelve months ended December 31, 2014 will be between $18 million and $24 million, primarily for continued development activities related to our technology platform, the purchase of computer hardware and for leasehold improvements.
Cash flows from investing activities in 2011 exclude a $5.0 million purchase from Cash America of preferred stock representing a minority interest in an early-stage privately-held developing consumer financial services entity, which is included in Other assets in the consolidated balance sheets, because this is a non-cash item. See Note 15 in the Notes to Consolidated Financial Statements.
Cash Flows from Financing Activities
Net cash used in financing activities increased $35.8 million to $78.8 million in the current six-month period from $43.0 million in the prior year six-month period.
During the current six-month period, we issued the Notes and entered into the Credit Agreement. We used all of the net proceeds of the Note offering, or $479.0 million, to repay all of our intercompany indebtedness due to Cash America, which was $361.4 million as of May 30, 2014, and the remaining net proceeds were used to pay a significant portion of $122.4 million in cash dividends we paid to Cash America, of which $120.7 million was paid on May 30, 2014 and $1.7 million was paid on June 30, 2014. Also, we incurred $16.3 million of debt issuance costs in the current six-month period resulting from the issuance of the Notes and the Credit Agreement. See Senior Notes and Credit Facility above for additional information about the Notes and Credit Agreement, respectively. In addition, cash flows used in financing activities for the current six-month period reflects $70.3 million of net payments to Cash America (excluding the $361.4 million repayment on May 30, 2014) compared to $39.8 million of net payments in the prior year six-month period.
Net cash used in financing activities increased $19.6 million to $28.6 million in 2013 from $9.0 million in 2012. The increase was due to an increase in payments to Cash America on the affiliate line of credit primarily driven by the increase in net cash provided by operating activities.
Net cash used in financing activities was $9.0 million in 2012 compared to net cash provided by financing activities of $43.1 million in 2011. The difference of $52.1 million for these respective years was primarily due to reduced borrowings from Cash America as our cash flow from operations increased over these periods. Cash provided by financing activities in 2011 excludes a $75.0 million dividend paid on September 6, 2011 to Cash America in the form of a promissory note. See Note 15 in the Notes to Consolidated Financial Statements.
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CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The following table summarizes our contractual obligations at June 30, 2014 and the effect such obligations are expected to have on our liquidity and cash flows in future periods (in thousands):
2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | Total | ||||||||||||||||||||||
Long-term debt (a) |
$ | | $ | | $ | | $ | | $ | | $ | 500,000 | $ | 500,000 | ||||||||||||||
Interest on long-term debt (b) |
24,375 | 48,750 | 48,750 | 48,750 | 48,750 | 121,875 | 341,250 | |||||||||||||||||||||
Non-cancelable leases |
1,624 | 2,533 | 1,781 | 1,132 | 469 | 351 | 7,890 | |||||||||||||||||||||
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Total |
$ | 25,999 | $ | 51,283 | $ | 50,531 | $ | 49,882 | $ | 49,219 | $ | 622,226 | $ | 849,140 | ||||||||||||||
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(a) | Represents obligations under the Notes. See Liquidity and Capital ResourcesSenior Notes. |
(b) | Represents cash payments for interest on the Notes. See Liquidity and Capital ResourcesSenior Notes. |
OFF-BALANCE SHEET ARRANGEMENTS
In certain markets, we arrange for consumers to obtain consumer loan products from independent third-party lenders through our CSO programs. For consumer loan products originated by third-party lenders under the CSO programs, each lender is responsible for providing the criteria by which the customers application is underwritten and, if approved, determining the amount of the consumer loan. We are responsible for assessing whether or not we will guarantee such loan. When a customer executes an agreement with us under our CSO programs, we agree, for a fee payable to us by the customer, to provide certain services to the customer, one of which is to guarantee the customers obligation to repay the loan received by the customer from the third-party lender if the customer fails to do so. The guarantee represents an obligation to purchase specific loans if they go into default, which loans generally have terms of less than 90 days. As of June 30, 2014 and 2013 and December 31, 2013, the outstanding amount of active consumer loans originated by third-party lenders under the CSO programs was $34.9 million, $35.1 million and $41.4 million, respectively, which were guaranteed by us.
We and our domestic subsidiaries participate jointly and severally with certain subsidiaries of Cash America and guarantee Cash Americas $300 million in aggregate principal amount of 5.75% Senior Notes due May 15, 2018 that were issued on May 15, 2013 and Cash Americas domestic and multi-currency line of credit due 2018. Under the provisions of Cash Americas debt agreements, we have liability in the event Cash America defaults in its payment obligations or fails to comply with the covenants under the debt agreements or upon the occurrence of specified events contained in the debt agreements, including the event of bankruptcy, insolvency or reorganization of Cash America. These guarantees of Cash Americas debt agreements will be released upon consummation of the separation and distribution. If the separation and distribution do not occur before March 31, 2015 and our guarantees of Cash Americas indebtedness are not released on or before that date, our Credit Agreement will mature and our borrowings under our Credit Agreement will become due, making it more difficult for us to obtain funds to pay our obligations, including our obligations under the Notes and our Credit Agreement, unless we then are able to secure a replacement credit facility. In such event, the interest rate on the Notes would also increase by 2.0% per annum. We believe we will not have to make any payments under our guarantees of Cash Americas indebtedness; therefore, no liability has been reflected on the accompanying consolidated balance sheets. We will be released from liability under such guarantees upon completion of the separation and distribution.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to our operations result primarily from changes in foreign currency exchange rates. Currently, we periodically use forward currency exchange contracts to minimize risk of foreign currency exchange rate fluctuations in the United Kingdom and Australia. Our forward currency exchange contracts are non-designated derivatives. Any gain or loss resulting from these contracts is recorded as income or loss and is included in Foreign currency transaction gain (loss) in our consolidated statements of income. The following table sets forth, by each foreign currency hedged, the notional amounts of forward currency exchange contracts as of December 31, 2013, the total gains or losses recorded in 2013, and sensitivity analysis of hypothetical 10% declines in the exchange rates of the currencies (U.S. dollars in thousands).
Notional amount of
outstanding contracts as of December 31, 2013 |
Gain/(loss)
recorded in 2013 (a) |
Sensitivity
Analysis (b) |
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British Pound |
$ | 76,760 | $ | (2,212 | ) | $ | (4,988 | ) | ||||
Australian dollar |
4,786 | 399 | (312 | ) | ||||||||
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Total |
$ | 81,546 | $ | (1,813 | ) | $ | (5,300 | ) | ||||
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(a) | The gains (losses) on these derivatives substantially offset the (losses) gains on the hedged portion of international intercompany balances. |
(b) | Represents the decrease to net income attributable to us due to a hypothetical 10% weakening of the foreign currency against the U.S. dollar. |
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BUSINESS
Overview
We are a leading provider of online financial services. In 2013, we extended approximately $2.6 billion in credit to borrowers. We currently offer or arrange loans to customers in thirty-three states in the United States and in the United Kingdom, Australia and Canada. In June 2014, we launched a pilot program in Brazil where we have begun arranging loans, and we are also launching a pilot program to serve customers in China. We use our proprietary technology, analytics and customer service capabilities to quickly evaluate, underwrite and fund loans, allowing us to offer consumers credit when and how they want it. Our customers include the large and growing number of consumers who have bank accounts but use alternative financial services because of their limited access to more traditional consumer credit from banks, credit card companies and other lenders. We were an early entrant into online lending, launching our online business in 2004, and have completed over 27 million customer transactions and collected approximately 12 terabytes of consumer behavior data since launch, allowing us to better analyze and underwrite our customer base. We have significantly diversified our business over the past several years and currently offer or arrange multiple loan products in the United States, the United Kingdom, Australia, Canada and Brazil, and we are launching a new pilot program in China. These loan products include short-term loans, installment loans and line of credit accounts.
We believe our customers highly value our services as an important component of their personal finances because our products are convenient, quick and often less expensive than other available alternatives. We attribute the success of our business to our advanced and innovative technology systems, the proprietary analytical models we use to predict loan performance, our sophisticated customer acquisition programs, our dedication to customer service and our talented employees.
We have developed a proprietary underwriting system based on data we have collected over our ten years of online lending experience. This system employs advanced risk analytics to decide whether to approve loan transactions, to structure the amount and terms of the loans we offer pursuant to jurisdiction-specific regulations and to provide customers with their funds quickly and efficiently. Our systems closely monitor loan collection and portfolio performance data that we use to continually refine the analytical models and statistical measures used in making our credit, marketing and collection decisions.
Our flexible and scalable technology platform allows us to process and complete customers transactions quickly and efficiently. In 2013, we processed approximately 4.9 million transactions, and we continue to grow our loan portfolio and increase the number of customers we serve through both desktop and mobile platforms. Our highly customizable technology platform allows us to efficiently develop and deploy new products to adapt to evolving regulatory requirements and consumer preference, and to enter new markets quickly. In July 2012 we launched a new product in the United States designed to serve near-prime customers, and recently we introduced a similar product in the United Kingdom. In June 2014, we launched a new pilot program in Brazil, and we are launching a pilot program to serve customers in China. We also intend to introduce new products to serve the needs of small businesses in the United States. These products are intended to allow us to further diversify our product offerings, customer base and geographic scope. In 2013, we derived 51.7% of our total revenue from the United States and 48.3% of our total revenue internationally, with 97.4% of international revenue (representing 47.1% of our total revenue) generated in the United Kingdom. See Managements Discussion and Analysis of Financial Condition and Results of OperationsRecent Regulatory DevelopmentsFinancial Conduct Authority included elsewhere in this information statement for a discussion about our expectations for our U.K. business going forward.
We have been able to consistently acquire new customers and successfully generate repeat business from customers when they need a loan. We believe our customers are loyal to us because they are satisfied with our products and services. We acquire new customers from a variety of sources, including visits to our own websites, mobile sites or applications, and through direct marketing, affiliate marketing, lead providers and relationships with other lenders. We believe that the online convenience of our products and our availability 24/7 to accept loan applications with quick results are important to our customers.
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Once a potential new customer submits an application, we provide a quick credit decision. We have developed a series of sophisticated proprietary scoring models to support our various loan products. We believe that these models are an integral component of our operations and they allow us to complete a high volume of customer transactions while actively managing risk and the related credit quality of our loan portfolios. We believe our successful application of these technology innovations differentiates our capabilities relative to competitive platforms as evidenced by our history of strong growth and stable credit quality. If a loan is approved we typically fund the loan the next business day or, in some cases, the same day. During the entire process, from application through payment, we provide access to our in-house and well-trained customer service team. All of our operations, from customer acquisition through collections, are structured to build customer satisfaction and loyalty, in the event that a customer has a need for our products in the future.
Products and Services
Our online consumer loans provide customers with a deposit of funds to their bank account or debit card in exchange for a commitment to repay the amount deposited plus fees and/or interest. We originate, arrange, guarantee or purchase short-term consumer loans, installment loans and line of credit accounts. We have only one reportable segment that includes all of our online financial services.
Short-term consumer loans . Short-term loans are unsecured short-term loans written by us or by a third-party lender through our CSO programs that we arrange and guarantee. We offer or arrange short-term consumer loans in 24 states in the United States, the United Kingdom and Canada. Short-term loans generally have terms of seven to 90 days, with proceeds promptly deposited in the customers bank account or on a debit card in exchange for a pre-authorized debit from their account. Our short-term consumer loans contributed approximately 33.8% of our total revenue for the six months ended June 30, 2014, 50.9% in 2013, 69.6% in 2012 and 83.4% in 2011.
Due to the credit risk and high transaction costs of serving our customer segment, the fees we charge are generally considered to be higher than the fees charged to consumers with superior credit histories by banks and similar lenders who are typically unwilling to make unsecured loans to alternative credit consumers.
Through our CSO programs, we provide services related to third-party lenders short-term consumer loan products by acting as a credit services organization or credit access business on behalf of consumers in accordance with applicable state laws. Services offered under our CSO programs include credit-related services such as arranging loans with independent third-party lenders and assisting in the preparation of loan applications and loan documents, or CSO loans. Under our CSO programs, we guarantee consumer loan payment obligations to the third party lender in the event the customer defaults on the loan. When a consumer executes an agreement with us under our CSO programs, we agree, for a fee payable to us by the consumer, to provide certain services to the consumer, one of which is to guarantee the consumers obligation to repay the loan received by the consumer from the third-party lender if the consumer fails to do so. For CSO loans, each lender is responsible for providing the criteria by which the consumers application is underwritten and, if approved, determining the amount of the consumer loan. We in turn are responsible for assessing whether or not we will guarantee such loan. The guarantee represents an obligation to purchase specific loans, which generally have terms of less than 90 days, if they go into default. As of December 31, 2013 and 2012, the outstanding amount of active consumer loans originated by third-party lenders under the CSO programs was $41.4 million and $48.2 million, respectively, which were guaranteed by us.
Installment loans . Installment loans are longer-term multi-payment unsecured loans that generally require the pay-down of portions of the outstanding principal balance in multiple installments. We offer multi-payment, unsecured installment loan products in the United Kingdom, Australia and in 14 states in the United States. Generally, terms for our installment loan products are between two and 12 months, but certain loans have available terms up to 60 months. These loans generally have higher principal amounts than short term loans and
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are repaid in installments over the term of the loan. The loan may be repaid early at any time with no prepayment charges. Our installment loans contributed approximately 30.1% of our total revenue for the six months ended June 30, 2014, 26.6% in 2013, 19.1% in 2012 and 10.0% in 2011.
Line of credit accounts . Line of credit accounts consist of draws made through our unsecured line of credit products. We offer line of credit accounts in seven states in the United States and in the United Kingdom, which allow customers to draw on the line of credit in increments of their choosing up to their credit limit. Customers may pay off their account balance in full at any time or make required minimum payments in accordance with their terms of the line of credit account. As long as the customers account is in good standing, customers may continue to borrow on their line of credit. Our line of credit accounts contributed approximately 36.1% of our total revenue for the six months ended June 30, 2014, 22.3% in 2013, 11.1% in 2012 and 6.4% in 2011.
Our Markets
We currently provide our services in the following countries:
United States. We began our online business in the United States in May 2004. As of the date of this information statement, we provide services in 33 states under the names CashNetUSA at www.cashnetusa.com and NetCredit at www.netcredit.com. In 2013, we originated, guaranteed or purchased $1.3 billion in loans and acquired more than 340,000 new customers in the United States. The United States represented 51.7% of our total revenue in 2013.
United Kingdom . We provide services in the United Kingdom under the names QuickQuid at www.quickquid.co.uk, QuickQuid FlexCredit at www.quickquidflexcredit.co.uk, Pounds to Pocket at www.poundstopocket.co.uk and OnStride Financial at www.onstride.co.uk. We began our QuickQuid short-term consumer loan business in July 2007, our Pounds to Pocket installment loan business in September 2010, our QuickQuid FlexCredit line of credit account business in March 2013, and we recently launched our OnStride near-prime installment loan business. In 2013, we originated $1.2 billion in loans and acquired more than 240,000 new customers in the United Kingdom. The United Kingdom represented 47.1% of our total revenue in 2013. Our results from operations for the six-month period ended June 30, 2014 and for the year ended December 31, 2013 do not include the full impact of changes and expected changes in our U.K. operations resulting from recent regulatory and legislative changes. As a result, such results are not indicative of our future results of operations and cash flow from our U.K. operations. See Managements Discussion and Analysis of Financial Condition and Results of OperationsRecent Regulatory DevelopmentsFinancial Conduct Authority included elsewhere in this information statement for a discussion about our expectations for our U.K. business going forward.
Australia. We provide services under the name DollarsDirect at www.dollarsdirect.com.au in Australia, and we began providing services there in May 2009. Australia represented 0.7% of our total revenue in 2013.
Canada. We began providing services in Canada in October 2009. As of the date of this information statement, we provide services in the provinces of Ontario, British Columbia, Alberta and Saskatchewan under the name DollarsDirect at www.dollarsdirect.ca. Canada represented 0.5% of our total revenue in 2013.
Brazil. On June 30, 2014, we launched a pilot program in Brazil where we arrange loans for a third party lender in accordance with applicable law under the name Simplic at www.simplic.com.br. We also guarantee the payment of these loans by agreeing to purchase the loans from the third-party lender under certain circumstances. The loans may be repaid in one payment or in two or three equal installments, depending on the loan terms selected by the customer, with loan duration ranging from 15 days for loans repaid in a single payment up to 105 days for loans payable in three installments. We will receive fees and interest on these loans in connection with the services we provide. We began receiving revenue from this pilot program in July 2014. Our plans for Brazil will largely depend on our results from this pilot program.
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Key Financial and Operating Metrics
We have achieved significant growth since we began our online business as we have expanded both our product offerings and the geographic markets we serve. We measure our business using several financial and operating metrics. Our key metrics include domestic and international combined consumer loans outstanding, in addition to other measures described under Managements Discussion and Analysis of Financial Condition and Results of Operations.
This growth in product offerings and geographic markets has resulted in significant revenue diversification.
Additional financial information regarding our operating segment and each of the geographic areas in which we do business is provided in Note 16. Operating Segment Information to our Audited Financial Statements and Note 4. Operating Segment Information to our Unaudited Financial Statements. See Managements Discussion and Analysis of Financial Condition and Results of OperationsRecent Regulatory DevelopmentsFinancial Conduct Authority included elsewhere in this information statement for a discussion about our expectations for our U.K. business going forward.
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Our Industry
The Internet has transformed how consumers shop for and acquire products and services. According to International Data Corporation, global Internet usage increased 51% from 2009 to 2013, from 1.8 billion to 2.7 billion users, and is expected to increase an additional 33%, to 3.5 billion users, by 2017. As Internet accessibility has grown, a number of traditional financial services such as banking, bill payment and investing have become widely available online. A recent study by CFI Group found that approximately 82% of bank customers in a U.S. sample used their banks website at least once in the last 30 days. This level of use highlights the extent to which consumers now accept the Internet for conducting their financial transactions and are willing to entrust their financial information to online companies. Moreover, the CFI Group study suggests that bank customers are actually more likely to bank online than at a branch. We believe the increased acceptance of online financial services has led to an increased demand for online lending, the benefits of which include customer privacy, easy access, security, 24/7 availability, speed of funding and transparency of fees and interest.
We use the Internet to serve the large and growing number of underbanked consumers who have bank accounts but use alternative financial services because of their limited access to more traditional consumer credit from banks, credit card companies and other lenders. Demand from these consumers has been fueled by several demographic and socioeconomic trends, including an overall increase in the population and stagnant to declining growth in the household income for working-class individuals. The necessity for alternative financial services was highlighted by a 2011 report from The National Bureau of Economic Research, which found that half of the Americans surveyed reported that it is unlikely that they would be able to gather $2,000 to cover a financial emergency, even if given a month to obtain funds.
We believe that consumers seek online lending services for numerous reasons, including because they often:
| prefer the simplicity, transparency and convenience of these services; |
| require access to financial services outside of normal banking hours; |
| have an immediate need for cash for financial challenges and unexpected expenses; |
| have been unable to access certain traditional lending or other credit services; |
| seek an alternative to the high cost of bank overdraft fees, credit card and other late payment fees and utility late payment fees or disconnect and reconnection fees; and |
| wish to avoid potential negative credit consequences of missed payments with traditional creditors. |
Our Customers
Our customer base is comprised largely of individuals living in households that earn between $25,000 and $50,000 annually in the United States and between £15,000 and £25,000 annually in the United Kingdom, most of whom are considered sub-prime borrowers. Based on our analysis of industry data, we believe our addressable markets are approximately 51 million and 15 million households in the United States and the United Kingdom, respectively. The short-term lending market is sizable in both the United States and the United Kingdom. The Center for Financial Services Innovation has estimated that the short-term and installment lending market in the United States represented approximately $58 billion in loan volume in 2012. The U.K. Parliamentary Commission on Banking Standards recently estimated that the high-cost credit market, which includes short-term lending, represented over £10 billion in loan volume as of June 2013.
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Our Competitive Strengths
We believe that the following competitive strengths position us well for continued growth:
| Significant operating history and first mover advantage. As an early entrant in the online lending sector, we have accumulated approximately 12 terabytes of customer data from more than 27 million transactions during the past ten years. This database allows us to market to a customer base with an established borrowing history as well as to better evaluate and underwrite new customers, leading to better loan performance. In order to develop a comparable database, we believe that competitors would need to incur high marketing and customer acquisition costs, overcome consumer brand loyalties and have sufficient capital to withstand higher early losses associated with unseasoned loan portfolios. Additionally, we are licensed in all jurisdictions which require licensing and believe that it would be difficult and time consuming for a new entrant to obtain such licenses. We have also created strong brand recognition over our ten year operating history and we continue to invest in our brands, such as CashNetUSA, NetCredit, Pounds to Pocket, QuickQuid, DollarsDirect, QuickQuid FlexCredit and OnStride Financial to further increase our visibility. |
| Proprietary analytics, data and underwriting . We have developed a fully integrated decision engine that evaluates and rapidly makes credit and other determinations throughout the customer relationship, including automated decisions regarding marketing, underwriting, customer contact and collections. Our decision engine currently handles more than 100 algorithms and over 1,000 variables. These algorithms are constantly monitored, validated, updated and optimized to continuously improve our operations. Our proprietary models are built on ten years of lending history, using advanced statistical methods that take into account our experience with the millions of transactions we have processed during that time and the use of data from multiple third-party sources. Since we designed our system specifically for our specialized products, we believe our system provides more predictive assessments of future loan behavior than traditional credit assessments, such as FICO, and therefore, results in better evaluation of our customer base. |
| Scalable and flexible technology platform. Our proprietary technology platform is designed to be powerful enough to handle the large volume of data required to evaluate customer applications and flexible enough to capitalize on changing customer preferences, market trends and regulatory requirements. This platform has enabled us to achieve significant growth over the last ten years as we have expanded both our product offerings and the geographic markets we serve. We began offering installment loans in the United States and United Kingdom in 2008 and 2010, respectively, and added line of credit products in the United States and United Kingdom in 2010 and 2013, respectively. We have experienced significant growth in these products, with revenue contribution from installment and line of credit products increasing from 11.7% of total revenue in 2010 to 48.9% of total revenue in 2013 and 66.1% of total revenue for the six months ended June 30, 2014. Similarly, total revenue contribution from our international operations, primarily in the United Kingdom, has grown at a compound annual growth rate of 73.8%, from $40.5 million, or 15.9% of total revenue in 2009, to $369.8 million, or 48.3% of total revenue in 2013. Our results from operations for the six-month period ended June 30, 2014 and for the year ended December 31, 2013 do not include the full impact of changes and expected changes in our U.K. operations resulting from recent regulatory and legislative changes. As a result, such results are not indicative of our future results of operations and cash flow from our U.K. business. See Managements Discussion and Analysis of Financial Condition and Results of OperationsRecent Regulatory DevelopmentsFinancial Conduct Authority included elsewhere in this information statement for a discussion about our expectations for our U.K. business going forward. Due to the scalability of our platform, we were able to achieve this growth without significant investment in additional infrastructure, and over the past three years capital expenditures have averaged only 2.6% of revenue per year. We expect our advanced technology and underwriting platform to help continue to drive significant growth in our business. |
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Focus on consumer experience. We believe that alternative credit consumers are not adequately served by traditional lenders. To better serve these consumers, we use customer-focused business |
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practices, including 24/7 customer service by phone, email, fax and web chat. We continuously work to improve customer satisfaction by evaluating information from website analytics, customer surveys, call center feedback and focus groups. Our call center teams receive training on a regular basis and are monitored by quality assurance managers. We believe customers who wish to access credit again often return to us because of our dedication to customer service, the transparency of our fees and interest charges and our adherence to trade association best practices. |
| Diligent regulatory compliance. We conduct our business in a highly regulated industry. We are focused on regulatory compliance and have devoted significant resources to comply with laws that apply to us, while we believe many of our online competitors have not. We tailor our lending products and services to comply with the specific requirements of each of the jurisdictions in which we operate, including laws and regulations relating to fees, loan durations and renewals or extensions, loan amounts, disclosures and underwriting requirements. Our compliance experience and proprietary technology platform allow us to launch new products and to enter new geographic regions with a focus on compliance with applicable laws and customer protection. We are members of industry trade groups, including the Online Lenders Alliance in the United States and the Consumer Finance Association in the United Kingdom, which have promulgated best practices for our industry that we have adopted. The flexibility of our online platform enables us to rapidly adapt our products as necessary to comply with changes in regulation, without the need for costly and time consuming retraining of store-based employees and other expenses faced by our storefront competitors. |
| Proven history of growth and profitability. Over the last five years, we grew our net consumer loans, which are the gross outstanding balances for our consumer loans carried in the consolidated balance sheets net of the allowance for estimated loan losses, at a compound annual growth rate of 49.5%, from $60.8 million as of December 31, 2009 to $303.5 million as of December 31, 2013. Over the same period, our revenue grew at a compound annual growth rate of 31.6%, from $255.0 million in 2009 to $765.3 million in 2013, while Adjusted EBITDA grew at a compound annual growth rate of 36.3%, from $47.0 million to $162.2 million. Adjusted EBITDA has further improved to $209.4 million during the LTM Period. Adjusted EBITDA margin has likewise improved, increasing over 700 basis points from 18.4% of revenue in 2009 to 25.6% of revenue for the LTM Period. Our results from operations for the six-month period ended June 30, 2014 and for the year ended December 31, 2013 do not include the full impact of changes and expected changes in our U.K. operations resulting from recent regulatory and legislative changes. As a result, such results are not indicative of our future results of operations and cash flow from our U.K. business. See Managements Discussion and Analysis of Financial Condition and Results of OperationsRecent Regulatory DevelopmentsFinancial Conduct Authority included elsewhere in this information statement for a discussion about our expectations for our U.K. business going forward. |
| Talented, highly educated employees. We believe we have one of the most skilled and talented teams of professionals in the industry. Our employees have exceptional educational backgrounds, with numerous post-graduate and undergraduate degrees in science, technology, engineering and mathematics fields. We hire and develop top talent from graduate and undergraduate programs at institutions such as Carnegie Mellon University, Northwestern University and the University of Chicago. The extensive education of our team is complemented by the experience our leadership team obtained at leading technology firms and financial services companies such as Intel, optionsXpress, First American Bank and JPMorgan Chase. |
Our Growth Strategy
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Increase penetration in existing markets through direct marketing . We believe that we have reached only a small number of the potential customers for our products and services in the markets in which we currently operate. We continue to focus on our direct customer acquisition channels, with direct marketing (traditional and digital) generating more than 52% of our new customer transactions in 2013, |
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as compared to 32% in 2009. We believe these channels will ultimately allow us to reach a larger customer base at a lower acquisition cost than the traditional online lead purchasing model. Additionally, as our smaller and less sophisticated competitors, both online and storefront, struggle to adapt to both regulatory developments and evolving consumer preference, we believe we have the opportunity to gain significant market share. |
| Expand globally to reach new markets . We intend to build on our global reach by entering new markets, particularly in Latin America and Asia. When pursuing geographic expansion, factors we consider include, among others, whether there is (i) widespread Internet usage, (ii) an established and interconnected banking system and (iii) government policy that promotes the extension of credit. Our launches into the United Kingdom in 2007 and Australia and Canada in 2009 demonstrate that we can quickly and efficiently enter new markets. Our revenue from international operations has increased from $1.6 million in 2007, or 0.9% of our total revenue, to $369.8 million in 2013, or 48.3% of our total revenue. Our results from operations for the six-month period ended June 30, 2014 and for the year ended December 31, 2013 do not include the full impact of changes and expected changes in our U.K. operations resulting from recent regulatory and legislative changes. As a result, such results are not indicative of our future results of operations and cash flow from our U.K. business. See Managements Discussion and Analysis of Financial Condition and Results of OperationsRecent Regulatory DevelopmentsFinancial Conduct Authority included elsewhere in this information statement for a discussion about our expectations for our U.K. business going forward. We launched a new pilot program in Brazil on June 30, 2014, and we are launching a new pilot program in China and believe that these countries have significant populations of underserved consumers. |
| Introduce new products and services . We plan to attract new categories of consumers not served by traditional lenders through the introduction of new products and services. We have introduced new products to expand our businesses from solely single-payment consumer loans to installment loans and line of credit accounts, using our analytics expertise and our flexible and scalable technology platform. We are also introducing new products to serve the needs of small businesses in the United States. In addition, we intend to continue to evaluate and offer new products and services that complement our online specialty financial services in order to meet the growing needs of our consumers. In 2012, we launched NetCredit, a longer duration installment loan product for near-prime consumers in the United States, and we recently launched OnStride Financial, a similar near-prime product, in the United Kingdom. |
Online Loan Process
When a customer takes out a new loan, loan proceeds are promptly deposited in the customers bank account or on to a debit card in exchange for a pre-authorized debit for repayment of the loan from the customers account. Where permitted by law and approved by us, a customer may choose to renew a loan before payment becomes due by agreeing to pay an additional finance charge. If a loan is renewed, the renewal is considered a new loan.
We have created a quick and simple process for customers to apply for an online loan, as shown below:
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Technology Platform
Our proprietary technology platform is built for scalability and flexibility and is based on proven open source software. The technology platform was designed to be powerful enough to handle the large volumes of data required to evaluate customer applications and flexible enough to capitalize on changing customer preferences, market trends and regulatory changes. The scalability and flexibility of our technology platform allows us to enter new markets and launch new products quickly, typically within three to six months from conception to launch.
We continually employ technological innovations to improve our technology platform, which performs a variety of integrated and core functions, including:
| Front-end system , which includes external websites, landing pages and mobile sites and applications that customers use when applying for loans and managing their accounts; |
| Back-end and customer relationship management, or CRM, systems , which maintain customer-level data and are used by our call center employees to provide real-time information for all inquiries. Our back-end system and CRM system includes, among other things, our contact management system, operational and marketing management system, automated phone system, Interactive Voice Response and call center performance management system; |
| Decision engine , which rapidly evaluates and makes credit decisions throughout the customer relationship; and |
| Financial system , which manages the external interface for funds transfers and provides daily accounting, reconciliation and reporting functions. |
The key elements of our technology platform include:
| Scalable Information Technology infrastructure. Our Information Technology infrastructure allows us to meet customer demand and accommodate business growth. Our services rely on accessing, evaluating and creating large volumes of data including, for example, information collected from approximately 14 million credit reports during 2013. This rich dataset has grown significantly over our ten year history and will continue to grow as our business expands. We believe that our scalable IT infrastructure enables us to meet substantial growth demands. |
| Flexible software and integration systems. Our software system is designed to allow us to enter new markets and launch new products rapidly, modify our business operations quickly and account for complex regulatory requirements imposed by the jurisdictions in which we operate. We have developed a proprietary software solution that allows us to innovate faster and to improve the customer experience. Our integration system allows us to easily interface with banks and other strategic partners in order to deliver the best financial products possible. Our software and integration systems and their flexibility allow us much more control over the continually evolving aspects of our business. |
| Rapid development processes. Our software development life cycle is rapid and iterative to increase the efficiency of our platform. We are able to implement software updates while maintaining our system stability. |
| Security. We collect and store personally identifiable customer information, including names, addresses, social security numbers and bank account information. We have safeguards designed to protect this information. We also created controls to limit employee access to that information and to monitor that access. Our safeguards and controls have been independently verified through regular and recurring audits and assessments. |
| Redundant disaster recovery. Our technology platform is distributed across two different locations. This provides redundancy, fault tolerance and disaster recovery functionality in case of a catastrophic outage. |
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Proprietary Data and Analytics
Decision Engine
We have developed a fully integrated decision engine that evaluates and rapidly makes credit and other determinations throughout the customer relationship, including automated decisions regarding marketing, underwriting, customer contact and collections. Our decision engine currently handles more than 100 algorithms and over 1,000 variables. The algorithms in use are constantly monitored, validated, updated and optimized to continuously improve our operations. In order to support the daily running and ongoing improvement of our decision engine, we have assembled a highly skilled team of more than 50 data and analytics professionals.
Proprietary Data, Models and Underwriting
Our proprietary models are built on ten years of history, using advanced statistical methods that take into account our experience with the millions of transactions we have processed during that time and the use of data from multiple third-party sources. We continually update our underwriting models to manage risk of defaults and to structure loan terms. Our system completes these assessments within seconds of receiving the customers data.
Our underwriting system is able to assess risks associated with each customer individually based on specific customer information and historical trends in our portfolio. We use a combination of numerous factors when evaluating a potential customer, which can include a customers income, rent or mortgage payment amount, external credit bureau scores, amount and status of outstanding debt and other recurring expenditures, fraud reports, repayment history, charge-off history and the length of time the customer has lived at his or her current address. Since we designed our system specifically for our specialized products, we believe our system provides more predictive assessments of future loan behavior and results in better evaluation of our customer base when compared to traditional credit assessments, such as FICO.
Fraud Prevention
Our robust fraud prevention system is built from in-depth analysis of previous fraud incidences and information from third party data sources. We continuously develop and implement ongoing improvements to reduce losses due to fraudulent activity. Our fraud prevention system incorporates algorithms to differentiate customers in an effort to identify suspected fraudulent activity and to reduce our risks of loss from fraud.
Our fraud prevention team has implemented systems that systematically monitor indicators of fraudulent activity and are positioned to respond to suspicious activity quickly. While no system can completely protect against losses from fraud, we believe our systems provide protection against significant fraud losses.
Marketing
We use a multi-channel approach to marketing, with both broad-reach and highly-targeted channels, including television, digital, direct mail, telemarketing and partner marketing (which includes lead providers and marketing affiliates). The goal of our marketing is to promote our brands and products in the online lending marketplace and to directly acquire new customers at low cost. Our marketing has successfully built strong awareness of and preference for our brands, as our products have achieved market leadership through the following:
| Traditional advertising . We use television, direct mail, radio and outdoor advertisements, supported by technology infrastructure and key vendors, to drive and optimize website traffic and loan volume. We believe our investments through these channels have helped create strong brand awareness and preference in the consumer segments and markets we serve. |
| Digital acquisition . Our online marketing efforts include pay-per-click, keyword advertising, search engine optimization, marketing affiliate partnerships, social media programs and mobile advertising integrated with our operating systems and technology from vendors that allow us to optimize customer acquisition tactics within the daily operations cycle. |
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| Partner Marketing . We purchase qualified leads for prospective new customers from a number of online lead providers and through marketing affiliate partnerships. We believe that our rapid decision-making on lead purchases, strong customer conversion rate and significant scale in each of our markets make us a preferred partner for lead providers and affiliates while at the same time our technology and analytics help us determine the right price for the right leads. |
| User experience and conversion. We measure and monitor website visitor usage metrics and regularly test website design strategies to improve customer experience and conversion rates. |
Our brand, technology and analytics powered approach to marketing has enabled us to increase the percentage of customers sourced through direct marketing (where we have more visibility and control than in the lead purchase or affiliate channels) from approximately 32% in 2009 to 52% in 2013, and we believe we have also improved customer brand loyalty during the same period.
Customer Service
We believe that our in-house call center and our emphasis on superior customer service are significant contributors to our growth in annual customer transactions. To best serve our consumers, we use customer oriented business practices, such as offering 24/7 customer service. We continuously work to improve our customers experience and satisfaction by evaluating information from website analytics, customer satisfaction surveys, call center feedback, call monitoring and focus groups. Our call center teams receive training on a regular basis, are monitored by quality assurance managers and adhere to rigorous internal service-level agreements. We do not outsource our call center operations. We have two call center facilities, one in our corporate offices in Chicago and another in Gurnee, Illinois, a Chicago suburb. As of December 31, 2013, we had 615 employees in our call centers supporting our customers.
Collections
We operate centralized collection teams within our two call centers to coordinate a consistent approach. We have implemented payment and loan collection policies and practices designed to optimize regulatory compliant loan repayment, while also providing excellent customer service. Our collections employees are trained to help the customer understand available payment alternatives and make arrangements to repay the loan. We use a variety of collection strategies to satisfy a delinquent loan, such as settlements and payment plans.
Call center employees contact customers following the first missed payment and periodically thereafter. Our primary methods of contacting past due customers are through phone calls, letters and emails. At times, we sell loans that we are unable to collect to debt collection companies or place the debt for collection with debt collection companies.
Competition
We have many competitors. Our principal competitors are consumer loan companies, CSOs, online lenders, credit card companies, consumer finance companies, pawnshops and other financial institutions that offer similar financial services. Many of our U.S. competitors operate using other business models, including a tribal model where the lender follows the laws of a Native American tribe regardless of the state in which the customer resides and a single-state model where the lender is generally licensed in one state and follows only the laws and regulations of that state regardless of the state in which the customer resides.
We believe that the principal competitive factors in the consumer loan industry consist of the ability to provide sufficient loan size to meet consumers loan requests, speed of funding, customer privacy, ease of access, transparency of fees and interest and customer service. We believe we have a significant competitive advantage as an early mover in many of the markets that we serve. New entrants face obstacles typical to launching new lending operations, such as successfully implementing underwriting and fraud prevention processes, incurring high marketing and customer acquisition costs, overcoming consumer brand loyalty and having or obtaining
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sufficient capital to withstand early losses associated with unseasoned loan portfolios. In addition, there are substantial regulatory and compliance costs, including the need for expertise to customize products and obtain licenses to lend in various states in the United States and in many international jurisdictions. Our proprietary technology, analytics expertise, scale, international reach, brand recognition and regulatory compliance would be difficult for a new competitor to duplicate.
Because numerous competitors offer consumer loan products and services, and many of our competitors are privately held, it is difficult for us to determine our exact competitive position in the market. However, we believe our principal online competitors in the United States include Advantage Cash Services, Think Finance, and EZMoney. Storefront consumer loan lenders that offer loans online or in storefronts are also a source of competition in some of the markets where we offer consumer loans, including Advance America, Ace Cash Express, Check n Go, Dollar Financial and Check Into Cash. In the United Kingdom, we believe that our principal online competitors include PaydayUK, Wonga, Lending Stream, Mr. Lender and Sunny. In Australia, we believe our main online competitors are Nimble, Cash Converters and First Stop Money. In Canada, the industry has been dominated by storefront lenders, and as a result, our principal competitors are not online lenders but storefront lenders, such as Money Mart, The Cash Store and Cash Money.
Our products also compete with those of other financial institutions, such as banks, credit unions, pawn shops, credit services organizations, auto title lenders and consumer finance companies, which can offer loans on an unsecured as well as a secured basis. We believe that there is also indirect competition to some of our products, including bank overdraft facilities and banks and retailers insufficient funds policies, many of which may be more expensive alternative approaches for consumers to cover their bills and expenses than the consumer loan products we offer.
Intellectual Property
Protecting our rights to our intellectual property is critical, as it enhances our ability to offer distinctive services and products to our customers, which differentiates us from our competitors. We rely on a combination of trademark laws and trade secret protections in the United States and other jurisdictions, as well as confidentiality procedures and contractual provisions, to protect the intellectual property rights related to our proprietary analytics, predictive underwriting models and software systems. We have several registered trademarks, including CashNetUSA, QuickQuid, DollarsDirect and our e logo. These trademarks have varying expiration dates, and we believe they are materially important to us and we anticipate maintaining them and renewing them.
Seasonality
Demand for our short-term consumer loan products and services in the United States has historically been highest in the third and fourth quarters of each year, corresponding to the holiday season, and lowest in the first quarter of each year, corresponding to our customers receipt of income tax refunds. Typically, our cost of revenue for our short term consumer loan products, which represents our loan loss provision, is lowest as a percentage of revenue in the first quarter of each year, corresponding to our customers receipt of income tax refunds, and increases as a percentage of revenue for the remainder of each year. Consequently, we experience seasonal fluctuations in our domestic operating results and cash needs.
Employees
As of December 31, 2013, we had 1,027 employees.
Properties
We lease our corporate headquarters, which are located in Chicago, Illinois. We also maintain a leased office in Gurnee, Illinois for one of our call center operations. We believe that our existing facilities are adequate to support our existing operations and that, as needed, we will be able to obtain suitable additional facilities on commercially reasonable terms. As discussed under Regulation and Legal ProceedingsForeign RegulationUnited Kingdom, we also expect to open an office in the United Kingdom consistent with U.K. supervisory requests.
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Corporate Information
Enova was incorporated under the laws of the State of Delaware on September 7, 2011. On September 13, 2011, Cash America contributed to us all of the capital stock of the subsidiaries owned by it through which Cash America has engaged in its e-commerce business prior to the contribution in exchange for 33 million shares of our common stock. Our principal executive offices are located at 200 W. Jackson Blvd., Suite 2400, Chicago, Illinois 60606, and our telephone number is (312) 568-4200. Our corporate website is located at www.enova.com. The information contained on or accessible from our websites is not incorporated by reference into this information statement, and you should not consider information on our websites as part of this information statement.
Market and Industry Data
The market and industry data contained in this information statement, including trends in our markets and our position within such markets, are based on a variety of sources, including our good faith estimates, which are derived from our review of internal surveys, information obtained from customers and publicly available information, as well as from independent industry publications, reports by market research firms and other published independent sources. Although we believe these sources are reliable, we have not independently verified the information. None of the independent industry publications used in this information statement were prepared on our or Cash Americas behalf.
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REGULATION AND LEGAL PROCEEDINGS
U.S. Federal Regulation
Consumer Lending Laws. Our consumer loan business is subject to the federal Truth in Lending Act, or TILA, and its underlying regulations, known as Regulation Z, and the Fair Credit Reporting Act, or FCRA. These laws require us to provide certain disclosures to prospective borrowers and protect against unfair credit practices. The principal disclosures required under TILA are intended to promote the informed use of consumer credit. Under TILA, when acting as a lender, we are required to disclose certain material terms related to a credit transaction, including, but not limited to, the annual percentage rate, finance charge, amount financed, total of payments, the number and amount of payments and payment due dates to repay the indebtedness. The FCRA regulates the collection, dissemination and use of consumer information, including consumer credit information. The federal Equal Credit Opportunity Act prohibits us from discriminating against any credit applicant on the basis of any protected category, such as race, color, religion, national origin, sex, marital status or age, and requires us to notify credit applicants of any action taken on the individuals credit application.
Consumer Reports and Information. The use of consumer reports and other personal data used in credit underwriting is governed by the FCRA and similar state laws governing the use of consumer credit information. The FCRA establishes requirements that apply to the use of consumer reports and similar data, including certain notifications to consumers where their loan application has been denied because of information contained in their consumer report. The FCRA requires us to promptly update any credit information reported to a credit reporting agency about a consumer and to allow a process by which consumers may inquire about credit information furnished by us to a consumer reporting agency.
Information-Sharing Laws. We are also subject to the federal Fair and Accurate Credit Transactions Act, which limits the sharing of information with affiliates for marketing purposes and requires us to adopt written guidance and procedures for detecting, preventing and responding appropriately to mitigate identity theft and to adopt various policies and procedures and provide training and materials that address the importance of protecting non-public personal information and aid us in detecting and responding to suspicious activity, including suspicious activity that may suggest a possible identity theft red flag, as appropriate.
Marketing Laws. Our advertising and marketing activities are subject to several federal laws and regulations including the FTC Act, which prohibits unfair or deceptive acts or practices and false or misleading advertisements in all aspects of our business. As a financial services company, any advertisements related to our products must also comply with the advertising requirements set forth in TILA. Also, any of our telephone marketing activities must comply with the Telephone Consumer Protection Act, or the TCPA, and the Telephone Sales Rule, or the TSR. The TCPA prohibits the use of automatic telephone dialing systems for communications with wireless phone numbers without express consent of the consumer, and the TSR established the Do Not Call Registry and sets forth standards of conduct for all telemarketing. Our advertising and marketing activities are also subject to the CAN-SPAM Act of 2003 which establishes certain requirements for commercial email messages and specifies penalties for the transmission of commercial email messages that are intended to deceive the recipient as to the source of content.
Protection of Military Members and Dependents. Federal law also limits the annual percentage rate to 36% on certain consumer loans made to active duty members of the U.S. military, reservists and members of the National Guard and their immediate families. This 36% annual percentage rate cap applies to a variety of consumer loan products, including short-term consumer loans. Therefore, due to these rate restrictions, we are unable to offer certain short-term consumer loans to active duty military personnel, active reservists and members of the National Guard and their immediate dependents. Federal law also limits the annual percentage rate on existing loans when the consumer becomes an active-duty member of the military during the life of a loan, or the spouse or dependent of an active duty member of the military during the life of the loan. Pursuant to federal law, the interest rate must be reduced to 6% per year on amounts outstanding during the time in which the servicemember is on active duty.
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Funds Transfer and Signature Authentication Laws. The consumer loan business is also subject to the federal Electronic Funds Transfer Act and various other laws, rules and guidelines relating to the procedures and disclosures required in debiting or crediting a debtors bank account relating to a consumer loan (i.e., ACH funds transfer). Furthermore, we are subject to various state and federal e-signature rules mandating that certain disclosures be made and certain steps be followed in order to obtain and authenticate e-signatures.
Debt Collection Practices. Additionally, our CSO programs are required to comply with the federal Fair Debt Collection Practices Act, or FDCPA, and we also use the FDCPA as a guide in connection with operating our other collection activities. We are also required to comply with all applicable state collection practices laws.
Privacy and Security of Non-Public Customer Information. We are also subject to various federal and state laws and regulations relating to privacy and data security. Under these laws, including the federal Gramm-Leach-Bliley Act, we must disclose to consumers our privacy policy and practices, including those policies relating to the sharing of consumers nonpublic personal information with third parties. This disclosure must be made to consumers when the customer relationship is established and, in some cases, at least annually thereafter. These regulations also require us to ensure that our systems are designed to protect the confidentiality of consumers nonpublic personal information. These regulations also dictate certain actions that we must take to notify consumers if their personal information is disclosed in an unauthorized manner.
Anti-Money Laundering and Economic Sanctions. We are also subject to certain provisions of the USA PATRIOT Act and the Bank Secrecy Act under which we must maintain an anti-money laundering compliance program covering certain of our business activities. In addition, OFAC prohibits us from engaging in financial transactions with specially designated nationals. Certain of our subsidiaries are also registered as money services businesses with the U.S. Treasury Department and must re-register with the Treasury Departments Financial Crimes Enforcement Network, or FinCEN, at least every two years. Such subsidiaries must also maintain a list of names and addresses of, and other information about, their businesses and must make that list available to any requesting law enforcement agency. This list must be updated at least annually.
Anticorruption. We are also subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, which generally prohibits companies and their agents or intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business and/or other benefits.
CFPB
In July 2010, the U.S. Congress passed the Dodd-Frank Act and Title X of the Dodd-Frank Act created the CFPB, which regulates consumer financial products and services, including consumer loans that we offer. The CFPB has regulatory, supervisory and enforcement powers over providers of consumer financial products and services, including explicit supervisory authority to examine and require registration of such providers.
On November 20, 2013, Cash America consented to the issuance of a Consent Order by the CFPB pursuant to which it agreed, without admitting or denying any of the facts or conclusions made by the CFPB from its 2012 review of Cash America and us, to pay a civil money penalty of $5 million and to set aside $8 million for a period of 180 days to fund any further payments to eligible Ohio customers in connection with Cash Americas Ohio Reimbursement Program. The Consent Order also relates to issues self-disclosed to the CFPB during its 2012 examination of Cash America and us, including the making of a limited number of loans to consumers who may have been active-duty members of the military at the time of the loan at rates in excess of the military annual percentage rate permitted by the federal Military Lending Act, and for which we have made refunds of approximately $33,500; for certain failures to timely provide and preserve records and information in connection with the CFPBs examination of us and Cash America; for certain conduct in the examination process; and certain conduct giving rise to the Ohio Reimbursement Program initiated by Cash America. In addition, as a result of the CFPBs review, we are in the process of enhancing our compliance management programs and implementing additional policies and procedures to address the issues identified by the CFPB. These new
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policies, procedures and other initiatives are in many cases subject to review and potential objection by the CFPB. We are also required to provide periodic reports to the CFPB. We are subject to the restrictions and obligations of the Consent Order, including the CFPBs order that we ensure compliance with federal consumer financial laws and develop more robust compliance policies and procedures.
On April 24, 2013, the CFPB issued a report entitled Payday Loans and Deposit Advance Products: A White Paper of Initial Findings, indicating that it had engaged in an in-depth review of short-term small dollar loans, including payday loans. The report discusses the initial findings of the CFPB regarding short-term payday loans, a category which the CFPB and some other regulators use to include certain of our short-term loan products, provided by non-bank financial institutions at storefront locations and deposit account advances offered by depository institutions. While the CFPBs study stated that these products may work for some consumers for whom an expense needs to be deferred for a short period of time, the CFPB also stated that its findings raised substantial consumer protection concerns related to the sustained use of payday loans and deposit account advances. The report also indicated that the CFPB planned to analyze the effectiveness of limitations such as cooling-off periods between payday loans, in curbing sustained use and other harms. In furtherance of that report, on March 25, 2014, the CFPB held a hearing on payday lending and issued a report entitled CFPB Data Point: Payday Lending, presenting the results of several analyses of consumers use of payday loans. The report presents the CFPBs findings as to borrowers loan sequences, which refers to a series of loans a borrower may take out following an initial loan. The CFPB found that payday borrowing typically involves multiple renewals following an initial loan, rather than distinct loans separated by at least 15 days. The report states that for the majority of loan sequences that last for more than one loan, there is no reduction in the principal amount between the first and last loan in the sequence. In the reports and subsequent statements, the CFPB reiterated its commitment to use its various tools to protect consumers from unlawful acts and practices in connection with the offering of consumer financial products and services. Both the April 24, 2013 white paper and the March 25, 2014 report indicated that the CFPB did not include online payday loans as part of its analysis, but the CFPB has indicated that it is currently analyzing borrowing activity by consumers using online payday loans. The CFPB has announced that it is in the late stages of considering the formulation of rules regarding short-term consumer loans that will ensure that consumers can get the credit they need without long-term impact to their financial futures. These rules will likely impose limitations on payday lending. We do not currently know the nature and extent of the rules that the CFPB will adopt or when proposed rules will be published, but the CFPB could propose rules during 2014.
For further discussion of the CFPB and its regulatory, supervisory and enforcement powers, see Risk FactorsRisks Related to Our Business and Industry The Consumer Financial Protection Bureau has examination authority over our U.S. business that could have a significant impact on our U.S. business .
U.S. State Regulation
Our business is regulated under a variety of enabling state statutes, all of which are subject to change and which may impose significant costs or limitations on the way we conduct or expand our business. As of the date of this information statement, we operate in 33 states that have specific statutes and regulations that enable us to offer economically viable products. We currently do not conduct business in the remaining states or in the District of Columbia because we do not believe it is economically feasible to operate in those jurisdictions due to specific statutory or regulatory restrictions, such as interest rate ceilings, caps on the fees that may be charged, or costly operational requirements. However, we may later offer our products or services in any of these states or the District of Columbia if we believe doing so may become economically viable because of changes in applicable statutes or regulations or if we determine we can broaden our product offerings to operate under existing laws and regulations.
The scope of state regulation, including the fees and terms of our products and services, varies from state to state. The terms of our products and services vary from state to state in order to comply with the laws and regulations of the states in which we operate. In addition, our advertising and marketing activities and disclosures are subject to review under various state consumer protection laws and other applicable laws and regulations.
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The states with laws that specifically regulate our products and services typically limit the principal amount of a consumer loan and set maximum fees or interest rates that customers may be charged. Some states also limit a customers ability to renew a short-term consumer loan and require various disclosures to consumers. State statutes often specify minimum and maximum maturity dates for consumer loans such as ours and, in some cases, specify mandatory cooling-off periods between transactions. Our collection activities regarding past due amounts are subject to consumer protection laws and state regulations relating to debt collection practices. In addition, some states require certain disclosures or content to accompany our advertising or marketing materials. Also, some states require us to report loan activity to state-wide databases and restrict the number and/or principal amount of loans a consumer may have outstanding at any particular time or over the course of a particular period of time, typically twelve months.
In Texas and Ohio where we offer our CSO programs, we comply with that jurisdictions Credit Services Organization Act or a similar statute. These laws generally define the services that we can provide to consumers and require us to provide a contract to the customer outlining our services and the cost of those services to the customer. In addition, these laws may require additional disclosures to consumers and may require us to be registered with the jurisdiction and/or be bonded.
We must also comply with state restrictions on the use of lead providers. In 2013, California began enforcing its short-term lending statute to require lead providers to be licensed in order to provide leads to licensed lenders, causing us to discontinue the use of lead providers in California. In April 2014, the Attorney General of the State of Illinois filed a lawsuit against a lead provider, alleging that the lead provider offered and arranged payday loans without a license. As a result, we recently discontinued the use of lead providers in Illinois. Although we cannot predict what measures will be taken, we expect that other states may propose or enact similar restrictions on lead providers in the future.
Over the last few years, legislation that prohibits or severely restricts our products and services has been introduced or adopted in a number of states. As a result, we have ceased doing business in five states where we formerly conducted business, and we have also modified our business operations in other states where restrictive legislation has been enacted. Additional regulations targeting or otherwise directly affecting our products and services have also been passed recently in Idaho, Utah and Wyoming and proposed recently in Alabama, Louisiana, Minnesota, Missouri, Rhode Island, Texas and Wisconsin. In addition, other states may debate and, in the future, adopt legislation that could adversely impact our products and services.
Local RegulationUnited States
In addition to state and federal laws and regulations, our industry is subject to various local rules and regulations. These local rules and regulations are subject to change and vary widely from city to city. Local jurisdictions efforts to restrict short-term lending have been increasing. Typically, these local ordinances apply to storefront operations, however, local jurisdictions could attempt to enforce certain business conduct and registration requirements on online lenders lending to residents of that jurisdiction, even though no such attempt has been made previously. Actions taken in the future by local governing bodies to impose other restrictions on consumer lenders such as us could impact our business.
Foreign Regulation
United Kingdom
In the United Kingdom, we are subject to regulation by the Financial Conduct Authority, or the FCA, and must comply with the FCAs rules and regulations set forth in the FCA Handbook, the Financial Services and Markets Act 2000, or the FSMA, the Consumer Credit Act 1974, as amended, or the CCA, and secondary legislation passed under the CCA, among other rules and regulations. We must also follow the Irresponsible Lending Guidance, or the Guidance, of the Office of Fair Trading, or the OFT, which provides greater clarity for lenders as to business practices that the OFT (and now the FCA) believes constitute irresponsible lending under the CCA.
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In December 2012, the U.K. Parliament passed the Financial Services Act 2012, or the FSA Act 2012, which created a new regulatory framework for the supervision and regulation of the consumer credit industry in the United Kingdom. The FSA Act 2012 mandated that, in April 2014, the FCA take over responsibility for regulating consumer credit from the OFT, and it also made changes to the CCA and the FSMA. We have obtained interim permission from the FCA to provide consumer credit and to perform related activities and must apply to become approved for full authorization from the FCA to continue to provide consumer credit, which will require that we satisfy, and continue to satisfy, certain minimum standards set out in the FSMA, which will result in additional costs to us. The FCA is expected to complete the process of reviewing applications for full authorization by April 1, 2016, and there is no guarantee that we will receive full authorization. As a threshold condition to full authorization and the current interim permissions that we hold, the FCA must be satisfied that we can be effectively supervised. We currently do not have a physical presence in the United Kingdom, as business functions have historically been performed remotely from our facilities in the United States. In order to help alleviate the FCAs concerns about effective supervision, we are in the process of establishing an office in the United Kingdom. Furthermore, the FCA must approve certain persons conducting controlled functions with respect to the operation and supervision of our U.K. business.
The FCA regulates consumer credit and related activities in accordance with the guidance of the FSMA and the FCA Handbook, which includes prescriptive regulations and carries across many of the standards set out in the CCA and its secondary legislation as well as the Guidance. The FSMA gives the FCA the power to authorize, supervise, examine and bring enforcement actions against providers of consumer credit such as us, as well as to make rules for the regulation of consumer credit. On February 28, 2014, the FCA issued the Consumer Credit Sourcebook, or the CONC, contained in the FCA Handbook; the CONC incorporates prescriptive regulations for lenders such as us, including mandatory affordability checks on borrowers, limiting the number of rollovers to two, restricting how lenders can advertise, banning advertisements it deems misleading, and introducing a limit of two unsuccessful attempts on the use of continuous payment authority (which provides a creditor the ability to directly debit a customers account for payment when authorized by the customer to do so) to pay off a loan. Certain provisions of the CONC took effect on April 1, 2014, and other provisions for high cost short-term credit providers such as us, such as the limits on rollovers, continuous payment authority and advertising, took effect on July 1, 2014. Due to the transfer of the consumer credit regime to the FCA, we have made and are in the process of making significant modifications to many of our business practices to address the FCAs requirements. These modifications include adjustments to our affordability assessment practices and underwriting standards that govern who will qualify for a loan from us, reductions in certain maximum loan amounts, alterations to our advertising practices and adjustments to our collections processes (including our practices relating to continuous payment authority) and debt forbearance processes (or our practices regarding customers who have indicated that they are experiencing financial difficulties), all of which we believe will result in a significant year-over-year decrease in our U.K. consumer loan volume, U.K. loan balances and U.K. revenue for the remainder of 2014 and potentially into 2015 as a result of our adapting our U.K. business practices in response to the requirements of the FCA. The implementation of stricter affordability assessments and underwriting standards will result in a decrease in the number of consumer loans written, the average consumer loan amount and the total amount of consumer loans written to new and returning customers. Additionally, the changes we are making to our collections and debt forbearance practices in the United Kingdom could result in lower collection rates, and we will experience an increase in compliance- and administrative-related costs for our U.K. operations. In addition, the FCA could require us to make additional changes to our business that could further negatively affect future results for our U.K. operations. We are still assessing the potential impact of the changes we are making to our U.K. operations and what effect such changes may have on our business, but the impact of these changes is likely to be significant for the balance of 2014 and potentially into 2015 and could result in a material adverse effect on our U.K. business and our prospects, results of operations, financial condition and cash flows.
In addition, on December 18, 2013, the U.K. passed the Financial Services (Banking Reform) Act, which includes an amendment that requires the FCA to introduce rules with a view to securing an appropriate degree of protection for borrowers against excessive charges on high-cost short-term consumer loans by January 2, 2015. Pursuant to this amendment, on July 15, 2014, the FCA published a proposal for a price cap on what may
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be charged on high-cost short-term consumer loans, such as those made by us, and is requesting comments on the proposal. The consultation paper indicated a maximum rate of 0.8% of principal per day, and limits the total fees, interest (including post-default interest) and charges (including late fees which are capped at £15) to an aggregate amount not to exceed 100% of the principal amount loaned. The FCA is collecting comments on the proposal and is expected to issue a final rule later this year. If the final rule is comparable to the parameters established in the consultation paper, we will be required to modify our U.K. high-cost short-term consumer loan products. We are still assessing the full impact of the potential cost of credit cap changes as they are currently proposed and what effect such changes may have on our business, prospects, results of operations and financial condition; however, after we have made all of the other changes to our U.K. business as discussed in the section entitled Risk FactorsRisks Related to Our Business and Industry Our primary regulators in the United Kingdom have expressed and continue to express serious concerns about our compliance with applicable U.K. regulations, which has caused and will continue to cause us to make significant changes to our U.K. business that will negatively impact our operations and results, and this impact will likely be significant, we do not currently expect the impact of the modifications made to address a final cost of credit rule that tracks the proposed parameters to be significant. We can provide no assurance that the final rule that is adopted by the FCA will have similar parameters as the proposed rule, and if the final rule is more restrictive, we could have to make additional modifications to the products we offer in the United Kingdom or cease offering such products. Any changes we make to our U.K. operations as a result of the final rule could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.
In the United Kingdom, we are also subject to the requirements of the Data Protection Act 1988, or the DPA, and are required to be fully registered as a data-controller under the DPA. We are also required to be certified under the European Union Safe Harbor provisions, which allow European Union data to be passed to non-European Union countries.
The FCA has stated that previous and upcoming measures regarding the payday loan industry will likely force about a quarter of the firms out of the industry. For recent developments related to the FCA, including serious concerns that have been expressed by the FCA regarding our compliance with U.K. legal and regulatory requirements, such as the requirement that our business be capable of being effectively supervised by the FCA given our location outside the United Kingdom and compliance with FCA rules and principles and our affordability assessment and debt forbearance practices, see Risk FactorsRisks Related to Our Business and Industry Our primary regulators in the United Kingdom have expressed and continue to express serious concerns about our compliance with applicable U.K. regulations, which has caused and will continue to cause us to make significant changes to our U.K. business that will negatively impact our operations and results, and this impact will likely be significant, Due to restructuring of the consumer credit regulatory framework in the United Kingdom, we are required to obtain full authorization from our U.K. regulators to continue providing consumer credit and perform related activities in the United Kingdom, and there is no guarantee that we will receive full authorization to continue offering consumer loans in the United Kingdom., The United Kingdom has imposed, and continues to impose, increased regulation of the short-term high-cost credit industry with the stated expectation that some firms will exit the market, Competition regulators in the United Kingdom are currently reviewing our industry and could order remedial action, which could materially adversely affect our business or even impair our ability to continue our current operations in the United Kingdom. and Many U.K. regulatory matters are subject to increased uncertainty because supervision of the U.K. consumer credit regime has recently been transferred to the FCA, which previously did not hold such authority.
In June 2013, the OFT referred the payday lending industry in the United Kingdom to the Competition Commission, which is now the Competition & Markets Authority, or the CMA, for a market investigation. The CMA has been gathering data from industry participants, including us, in connection with its review of the U.K. payday lending industry to determine whether certain features of the payday lending industry prevent, restrict or distort competition (which is also referred to as having an adverse effect on competition) and, if so, what remedial action should be taken. On June 11, 2014, the CMA released a provisional findings report, which indicated that it believes that many payday lenders fail to compete on price. The CMA also indicated that it will
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look at potential ways to increase price competition, which could include the establishment of an independent price comparison website, requiring more clear upfront disclosure of borrowing costs if a loan is not paid back in full and on time, requiring periodic account statements to be provided to borrowers and requiring greater transparency about the role played by lead generators. The CMA also indicated it is expanding its review of the payday lending industry to include lead generators. The CMA has announced that it expects to hold hearings on its provisional findings this summer and to announce its provisional decision on remedies in the fall of 2014. The CMA is required to complete its report by June 26, 2015, although it has stated publicly that it expects to publish its final report in December 2014 or January 2015. If the investigations final conclusions indicate that remedial action is necessary for the payday loan industry, the CMA will decide whether to order such remedial action itself or whether it should recommend certain actions or remedies be taken by the FCA, or other government bodies or organizations.
Furthermore, we are subject to the Bribery Act, which prohibits the giving or receiving of a bribe to any person, including but not limited to public officials, and makes failing to prevent bribery by relevant commercial organizations a criminal offense. This offense applies when any person associated with the organization offers or accepts bribes anywhere in the world intending to obtain or retain a business advantage for the organization or in the conduct of business. The Bribery Act is applicable to businesses that operate in the United Kingdom such as us. The Bribery Act is broader in scope than the U.S. FCPA in that it directly addresses commercial bribery in addition to bribery of government officials and it does not recognize certain exceptions, notably facilitation payments that are permitted by the U.S. FCPA.
In the United Kingdom, we are also subject to specific anti-money laundering and counter terrorist financing requirements that require us to develop and maintain anti-money laundering and counter terrorist financing policies and procedures including reporting suspicious activity to the Serious Organised Crime Agency pursuant to the Proceeds of Crime Act 2002 and the Terrorism Act 2000.
Australia
In Australia, we must comply with the responsible lending guidelines under the National Consumer Credit Protection Act (2010), or the NCCPA, which was amended in 2012. The amendment includes limitations on permissible fees and interest charged on certain consumer loans, including consumer loans made by us. We have altered the product we offer in Australia and expect the product offering will be less profitable. For discussion of the adverse impact that the amendment to the NCCPA may have on our operations in Australia, see Risk FactorsRisks Related to Our Business and Industry Our business in Australia has become less profitable due to compliance with new regulations there, and if our new product offering is not sustainable, this could require us to exit the Australian market and We are subject to anticorruption laws including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010, anti-money laundering laws and economic sanctions laws, and our failure to comply therewith, particularly as we continue to expand internationally, could result in penalties that could harm our reputation and have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.
Canada
In Canada, regulation of the short-term consumer lending industry is conducted at the provincial level. In general, the regulations require lenders to be licensed, set maximum fees, prohibit rollovers and regulate collection practices.
In foreign jurisdictions where we operate, our advertising and marketing activities and disclosures are subject to regulation under various consumer protection laws and other applicable laws and regulations.
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Legal Proceedings
On March 8, 2013, Flemming Kristensen, on behalf of himself and others similarly situated, filed a purported class action lawsuit in the U.S. District Court of Nevada against us and other unaffiliated lenders and lead providers. The lawsuit alleges that the lead provider defendants sent unauthorized text messages to consumers on behalf of us and the other lender defendants in violation of the Telephone Consumer Protection Act. The complaint seeks class certification, statutory damages, an injunction against wireless spam activities, and attorneys fees and costs. We filed an answer to the complaint denying all liability. On March 26, 2014, the Court granted class certification. Discovery is ongoing. Neither the likelihood of an unfavorable ruling nor the ultimate liability, if any, with respect to this matter can be determined at this time, and we are currently unable to estimate a range of reasonably possible losses, as defined by ASC 450-20-20, for this litigation. We believe that the plaintiffs claims in the complaint are without merit and intend to vigorously defend this lawsuit.
We are also a defendant in certain routine litigation matters encountered in the ordinary course of our business. Certain of these matters are covered to an extent by insurance. In the opinion of management, the resolution of these matters is not expected to have a material adverse effect on our financial position, results of operations or liquidity.
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CORPORATE GOVERNANCE AND MANAGEMENT
Executive Officers
The following table sets forth information regarding the individuals who serve as our executive officers. After the distribution, if it occurs, none of these individuals will continue to be executive officers or employees of Cash America.
NAME |
POSITION WITH ENOVA |
AGE AS OF
JUNE 30, 2014 |
||
David A. Fisher |
President & Chief Executive Officer | 45 | ||
Kirk Chartier |
Senior Vice PresidentChief Marketing Officer | 50 | ||
Alex T. King |
Senior Vice PresidentOperations | 41 | ||
Arad Levertov |
Senior Vice PresidentOperations | 37 | ||
Robert S. Clifton |
Vice PresidentChief Financial Officer and Treasurer | 50 | ||
Joseph DeCosmo |
Vice PresidentChief Analytics Officer | 48 | ||
Sean Rahilly |
Vice PresidentChief Compliance Officer | 41 | ||
Daniel Shteyn |
Vice PresidentOperations | 45 | ||
Lisa M. Young |
Vice PresidentGeneral Counsel & Secretary | 47 |
There are no family relationships among any of the officers named above. Each officer of Enova holds office from the date of election until removal or termination of employment with Enova. Set forth below is additional information regarding the executive officers identified above.
David A. Fisher has served as our President and Chief Executive Officer since March 29, 2013. Mr. Fisher served as our Chief Executive Officer since January 29, 2013 when he joined Enova. Mr. Fisher has also served as our Director since February 11, 2013. Prior to joining the Company, Mr. Fisher was Chief Executive Officer of optionsXpress Holdings, Inc., or optionsXpress, from October 2007 until The Charles Schwab Corporation, or Schwab, acquired the business in September 2011. Following the acquisition, Mr. Fisher served as President of optionsXpress until March 2012. Mr. Fisher also served as the President of optionsXpress from March 2007 to October 2007 and as the Chief Financial Officer of optionsXpress from August 2004 to March 2007. Prior to joining optionsXpress, Mr. Fisher served as Chief Financial Officer of Potbelly Sandwich Works from February 2001 to July 2004, and before that in the roles of Chief Financial Officer and General Counsel for Prism Financial Corporation. In addition, Mr. Fisher has served on the Board of Directors of InnerWorkings, Inc., since November 2011 and has served on the Board of Directors of GrubHub, Inc. since May 2012. Mr. Fisher also served on the Boards of Directors of optionsXpress from October 2007 until September 2011 and CBOE Holdings, Inc. from January 2007 until October 2011. Mr. Fisher received a Bachelor of Science degree in Finance from the University of Illinois and a law degree from Northwestern University School of Law.
Kirk Chartier has served as our Senior Vice PresidentChief Marketing Officer since he joined Enova in April 2013. Prior to joining Enova, Mr. Chartier was the Executive Vice President & Chief Marketing Officer of optionsXpress Holdings from January 2010 until Schwab acquired the business in September 2011. Following the acquisition, Mr. Chartier served as Vice President of Schwab through May 2012. From 2004 to 2010, Mr. Chartier was the Senior Managing Principal and Business Strategy Practice Leader for the Zyman Group, a marketing and strategy consultancy owned by MDC Partners, where he also served in interim senior marketing executive roles for Fortune 500 companies, including Safeco Insurance. Mr. Chartier has held executive roles at technology companies including as Senior Vice President of Business Services & eCommerce for CommerceQuest, as Vice President of Online Marketing & Strategy for THINK New Ideas and as a Corporate Auditor for the General Electric Company. He started his career as a combat pilot with the U.S. Marine Corps and is a veteran of Desert Storm. Mr. Chartier received a Master in Business Administration from Syracuse University, a Bachelor of Arts in Economics from the College of the Holy Cross, and a Bachelor of Science in Engineering from Worcester Polytechnic Institute.
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Alex T. King has served as our Senior Vice PresidentOperations since September 2011. Mr. King joined Enova (then known as CashNetUSA) in September 2006 as Director of Program/Product Management. Mr. King served as Vice PresidentProgram Management from September 2007 to July 2008 and Vice PresidentUnited Kingdom Operations from July 2008 to August 2011, when he became Senior Vice PresidentOperations. From January 2004 to September 2006, Mr. King was involved in the management of a start-up company and responsible for preparation of the business plan, raising start-up capital and managing operations. Prior to that, Mr. King was a consultant for McKinsey & Company and a Commercial Lending Officer with DBS Bank in Singapore. Mr. King received a Bachelor of Science degree in Business Administration, with a dual major in finance and economics, from the University of Florida and a Master of Business Administration from The University of Chicago.
Arad Levertov has served as our Senior Vice PresidentOperations since January 2014. Mr. Levertov joined Enova in June 2010 as a U.K. Strategy and Operations Senior Associate and became Vice PresidentOperations in November 2011. From August 2005 to June 2008, Mr. Levertov worked as a production manager at Intel Corporation. From August 2003 to August 2005, Mr. Levertov was a systems developer for Intel Corporation. Prior to that, Mr. Levertov served in the Israel Defense Forces. Mr. Levertov received a Bachelor of Science degree in Industrial Engineering and Management from Ben-Gurion University and a Master of Business Administration from Duke University.
Robert S. Clifton has served as our Vice PresidentChief Financial Officer and Treasurer since July 2014. Mr. Clifton joined Enova in December 2011 as Vice PresidentAccounting. From February 2011 until November 2011, Mr. Clifton served as Vice PresidentAccounting of Ignite Restaurant Group, Inc., operator of Joes Crab Shack and Brick House Tavern + Tap restaurant brands. Prior to that, Mr. Clifton served as Senior Vice PresidentOperations DevelopmentRetail Services Division for Cash America from January 2009 until July 2010. He served as Cash Americas Senior Vice PresidentFinanceRetail Services Division from October 2007 until January 2009 and as Vice PresidentCorporate Development and Strategic Activities from September 2005 until October 2007. Mr. Clifton also held multiple positions in Cash Americas accounting department from the time he joined Cash America in December 1991 until September 2005. Mr. Clifton began his career with Coopers & Lybrand and is a certified public accountant. Mr. Clifton received a Bachelor of Business Administration degree in Accounting from Texas Christian University and a Master of Business Administration from Southern Methodist University.
Joseph DeCosmo has served as our Vice PresidentChief Analytics Officer since joining Enova in January of 2014. Prior to joining Enova, from October 2012 until January 2014, Mr. DeCosmo served as a Director of West Monroe Partners, a management and technology consulting firm, where he led their Advanced Analytics practice. From September 2011 until October 2012, Mr. DeCosmo was Vice President of Analytics for HAVI Global Solutions located in suburban Chicago. Mr. DeCosmo also served as Executive Vice President of Analytics and Consulting Services for The Allant Group from 2005 to September 2011. Prior to The Allant Group, Mr. DeCosmo founded and led an independent analytics firm called DeCosmo and Associates from 1995 to 2005, when the business was acquired by The Allant Group. Mr. DeCosmo began his career in 1987 at Argonne National Laboratory, spent three years in regulatory and business research at Illinois Bell, and three years at Donnelley Marketing. Mr. DeCosmo is a current board member and President-Elect of the Chicago Chapter of the American Statistical Association, a Past-President of The Chicago Association of Direct Marketing, and a member of the Advisory Board of the University of Illinois at Chicagos College of Business Administration. Mr. DeCosmo holds a Bachelor of Arts in Economics from Lewis University and a Master of Arts in Economics from The University of Illinois at Chicago.
Sean Rahilly has served as our Vice PresidentChief Compliance Officer since joining Enova in October 2013. Mr. Rahilly previously served as Assistant General Counsel and Compliance Officer of First American Bank from September 2006 to September 2013. He also served as First American Banks Vice PresidentCommunity Reinvestment Act and Compliance Officer from January 2006 to September 2006, Vice PresidentCompliance Manager from November 2003 to January 2006 and Assistant Vice PresidentCompliance and Community
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Reinvestment Act from July 2002 to November 2003. Prior to joining First American Bank, Mr. Rahilly served as an attorney with the Law Offices of Victor J. Cacciatore, a project assistant with Schiff Hardin & Waite and in various roles with Pullman Bank and Trust Company. He received a Bachelor of Science in Accountancy from DePaul University College of Commerce and a Juris Doctor from DePaul University College of Law.
Daniel Shteyn has served as our Vice PresidentOperations since September 2011. Mr. Shteyn joined Enova (then known as CashNetUSA) in October 2009 as Senior DirectorCanadian Operations, became responsible for Australian Operations in May 2010 and became Vice President in July 2011. From September 2008 to February 2009, Mr. Shteyn was a partner at Morgan Geare, a boutique Canadian merchant bank. From May 2005 until September 2008, Mr. Shteyn worked as an equity research analyst with Desjardins Securities Inc., a Canadian full-service investment dealer. Prior to that, Mr. Shteyn was an investment banker with TD Securities Inc., the investment banking arm of TD Bank Financial Group. Mr. Shteyn is a member of the Order of Chartered Professional Accountants of Québec, and he received a Bachelor of Commerce, a Graduate Diploma in Public Accountancy and a Master of Business Administration from McGill University in Montréal, Québec, Canada.
Lisa M. Young has served as our Vice PresidentGeneral Counsel and Secretary since September 2011. Ms. Young joined Enova (then known as CashNetUSA) in June 2009 as General Counsel and became Vice PresidentGeneral Counsel in August 2011. Ms. Young previously served as Vice PresidentAssistant General Counsel of JPMorgan Chase following the merger of Bank One and JPMorgan Chase in July 2004, and she served in this position until she joined us in 2009. From May 2003 to June 2004, she served as Senior Counsel with Bank One. Prior to joining Bank One, Ms. Young served as an attorney in the Consumer Financial Services Litigation practice groups of McGuireWoods LLP and Lovells LLP (currently known as Hogan Lovells US LLP) and as a litigation attorney at Goldberg Kohn Ltd. She received a Bachelor of Science degree in Electrical Engineering from the University of Notre Dame and a Juris Doctor from Northwestern University.
Board of Directors
The following table sets forth information regarding individuals who currently serve as our Board of Directors. We are in the process of identifying additional directors for membership on our Board of Directors, and we will provide information regarding additional directors in an amendment to this information statement. Following the distribution, our Board of Directors will consist of at least five members. It is anticipated that our Board of Directors will ultimately consist of seven members.
NAME |
AGE AS OF
|
|||
Daniel R. Feehan |
63 | |||
David A. Fisher |
45 |
Mr. Feehan is Cash Americas Chief Executive Officer and President and serves on Cash Americas board of directors. We expect that Mr. Feehan will serve on our Board of Directors during a transitional period not to exceed two years from the date of the distribution so that we can rely on his industry experience, leverage his relationships with banking and regulatory groups and to provide a sense of business continuity. After the distribution, we expect Mr. Feehan to continue to be an executive officer and director of Cash America.
Set forth below is additional information regarding the directors identified above, as well as a description of the specific skills and qualifications they provide our Board of Directors.
Daniel R. Feehan has been on our Board of Directors since September 13, 2011. Mr. Feehan has served as the Chief Executive Officer and President of Cash America since February 2000. He served as the Companys President and Chief Operating Officer from January 1990 until February 2000, except that he served as Chairman and Co-Chief Executive Officer of one of the Companys subsidiaries from February 1998 to February 1999 before returning to the position of President and Chief Operating Officer of Cash America. Mr. Feehan joined
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Cash America in 1988, serving as its Chief Financial Officer before becoming President and Chief Operating Officer in 1990. Mr. Feehan currently serves as a director at Cash America, AZZ incorporated and RadioShack Corporation where he has served since 1984, 2000 and 2003, respectively. Mr. Feehan has announced his intent to retire from the role of President and Chief Executive Officer of Cash America at the end of April 2015 and his intent to remain on the Cash America Board of Directors following his retirement. Mr. Feehan received a Bachelor of Business Administration degree in Accounting from Texas A&M University. We believe Mr. Feehans qualifications to sit on our board of directors include, among other things, his leadership experience, specifically his experience as Chief Executive Officer of Cash America, his knowledge of the consumer finance industry and its regulatory environment, his experience and background in finance and accounting and his experience as a director of multiple publicly traded companies, which has given him a strong understanding of public company corporate governance.
David A. Fisher has served as our Chief Executive Officer since January 29, 2013 when he joined Enova. Mr. Fisher became our Chief Executive Officer and President on March 29, 2013. Mr. Fisher has also served as our Director since February 11, 2013. We believe Mr. Fishers qualifications to sit on our board of directors include, among other things, his leadership experience, specifically his experience as Chief Executive Officer of the Company and of optionsXpress, his knowledge of the consumer finance industry and his experience in leading highly-regulated international companies gained through his tenure at the Company and at optionsXpress, his experience and background in finance, legal and compliance matters, and his experience as a director of multiple companies, which has given him a strong understanding of public company corporate governance.
Director Independence
Following the distribution, we intend to have our common stock listed on the NYSE. Under the rules of the NYSE, independent directors must comprise a majority of our Board of Directors within a specified period following the completion of the distribution. In addition, the rules of the NYSE require that, subject to specified exceptions, each member of a listed companys audit, compensation, and nominating and governance committees must be independent within a specified period following the completion of the distribution. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or Exchange Act. Under the rules of the NYSE, a director will only qualify as an independent director if, in the opinion of that companys Board of Directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In order to be considered independent for purposes of Rule 10A-3, a member of an audit committee of a listed company may not, other than in his or her capacity as a member of the audit committee, the Board of Directors, or any other board committee: (1) accept, directly or indirectly, any consulting, advisory, or other compensatory fee from the listed company or any of its subsidiaries; or (2) be an affiliated person of the listed company or any of its subsidiaries. Each member of the management development and compensation committee, or the Compensation Committee, must also qualify as a non-employee director as defined in Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the Exchange Act) and as an outside director as defined for purposes of Section 162(m) of the Code (Section 162(m)).
Our Board of Directors has determined that none of [ ], [ ] and [ ], representing [ ] of our [ ] directors, has a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is independent as that term is defined under the rules of the NYSE. Our Board of Directors also determined that [ ], [ ] and [ ], who will comprise our audit committee, [ ], [ ] and [ ] who will comprise our Compensation Committee, and [ ], [ ] and [ ], who will comprise our nominating and governance committee, satisfy the independence standards for those committees established by the rules of the NYSE and applicable SEC rules. In making these determinations, our Board of Directors considered the relationships that each non-employee director has with our company and all other facts and circumstances our Board of Directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director.
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Risk Management and Oversight
Our full Board of Directors will oversee our risk management process. Our Board of Directors oversees a company-wide approach to risk management, carried out by our management. Our full Board of Directors determines the appropriate risk for us generally, assesses the specific risks faced by us, and reviews the steps taken by management to manage those risks.
While the full Board of Directors maintains the ultimate oversight responsibility for the risk management process, its committees oversee risks in certain specified areas. In particular, our Compensation Committee will be responsible for overseeing the management of risks relating to our executive compensation plans and arrangements, and the incentives created by the compensation awards it administers. Our audit committee will oversee management of enterprise risks as well as financial and regulatory compliance risks. Effective upon the listing of our common stock on the NYSE, our nominating and corporate governance committee will be responsible for overseeing the management of risks associated with the independence of our Board of Directors. Pursuant to our Board of Directors instruction, management regularly reports on applicable risks to the relevant committee or the full Board of Directors, as appropriate, with additional review or reporting on risks conducted as needed or as requested by our board and its committees.
Qualification of Directors
We expect our Board of Directors to consist of individuals with appropriate skills and experiences to meet board governance responsibilities and contribute effectively to our company. Under its expected charter, the Nominating and Governance Committee will seek to ensure the Board of Directors reflects a range of talents, ages, skills, diversity and expertise, particularly in the areas of accounting and finance, management, domestic and international markets, governmental/regulatory matters, leadership and e-commerce industries, sufficient to provide sound and prudent guidance with respect to our operations and interests. Our Board of Directors will seek to maintain a diverse membership, but will not have a separate policy on diversity at the time of our separation from Cash America.
Committees of the Board of Directors
Before the completion of the distribution, our Board of Directors will establish an audit committee, a Compensation Committee, and a nominating and corporate governance committee, each of which will operate pursuant to a charter that will be adopted by our Board of Directors prior to the completion of the distribution. Upon the completion of the distribution, the composition and functioning of all of our committees will comply with all applicable requirements of the Sarbanes-Oxley Act of 2002, the requirements of the NYSE and SEC rules and regulations.
Audit Committee
We expect that the primary responsibilities of our audit committee will be to oversee the accounting and financial reporting processes of our company as well as our affiliated and subsidiary companies, and to oversee the internal and external audit processes. The audit committee will also assist the Board of Directors in fulfilling its oversight responsibilities by reviewing the financial information which is provided to stockholders and others, and the system of internal controls which management and the Board of Directors have established. The audit committee will oversee the independent auditors, including their independence and objectivity. In addition, our internal audit and compliance functions will report directly to the audit committee. Audit committee members will not be acting as professional accountants or auditors, and their functions are not intended to duplicate or substitute for the activities of management and the independent auditors. The audit committee will be empowered to retain independent legal counsel and other advisors as it deems necessary or appropriate to assist the audit committee in fulfilling its responsibilities, and to approve the fees and other retention terms of the advisors.
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Compensation Committee
We expect that the primary responsibilities of our Compensation Committee will be to periodically review and approve the compensation and other benefits for our employees, officers and independent directors, including reviewing and approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer and our other executive officers in light of those goals and objectives, setting compensation for these officers based on those evaluations and reviewing the succession planning for our executive officers. Our Compensation Committee will also administer and have discretionary authority over the issuance of stock awards under our stock compensation plans.
Nominating and Corporate Governance Committee
We expect that our nominating and corporate governance committee will oversee all aspects of our corporate governance functions. The nominating and corporate governance committee will be responsible for, among other things, assisting our Board of Directors in identifying prospective director nominees and recommending nominees for each annual meeting of stockholders to the Board of Directors, reviewing developments in corporate governance practices and developing and recommending governance principles applicable to our Board of Directors, overseeing the evaluation of our Board of Directors, overseeing our related party transaction policy, and recommending members for each board committee to our Board of Directors.
Director Compensation
We will provide information regarding director compensation in an amendment to this information statement.
Decision-Making Process to Determine Director Compensation
Director compensation will be reviewed annually by the Compensation Committee with the assistance of such third-party consultants as the Compensation Committee deems advisable, and will be set by action of our Board of Directors.
Executive Compensation
Our executive compensation program is described in Executive Compensation and Compensation Discussion and Analysis included elsewhere in this information statement.
Corporate Governance Policy
We expect our Board of Directors to adopt a corporate governance policy to assist the board in the exercise of its duties and responsibilities and to serve the best interests of us and our stockholders. A copy of this policy will be posted on our website upon completion of the distribution. These guidelines, which will provide a framework for the conduct of the boards business, may provide, among other things, that:
| directors are responsible for attending board meetings and meetings of committees on which they serve and to review in advance of meetings material distributed for such meetings; |
| the boards principal responsibility is to oversee and direct our management; |
| at least a majority of the board shall be independent directors; |
| our nominating and corporate governance committee is responsible for nominating members for election to our Board of Directors and will consider candidates submitted by stockholders; |
| our Board of Directors believes that it is important for each director to have a financial stake in us to help align the directors interests with those of our stockholders; |
| our directors may serve on up to four other public company boards, but our Board of Directors expects that each member be fully committed to devoting adequate time to his or her duties to us; |
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| the independent directors meet in executive session on a regular basis, but not less than quarterly; |
| each of our audit committee, Compensation Committee, and nominating and corporate governance committee must consist solely of independent directors; |
| our Compensation Committee must consist solely of outside directors as defined for purposes of Section 162(m); |
| new directors participate in an orientation program and all directors are required to periodically attend, at our expense, continuing educational programs to further their understanding of our business and enhance their performance on our board; and |
| our Board of Directors and its committees will sponsor annual self-evaluations to determine whether members of the board are functioning effectively. |
Code of Business Conduct and Ethics
We expect our Board of Directors to adopt a code of business conduct and ethics that applies to all of our employees, officers, and directors, including our chief executive officer, chief financial officer, and those officers responsible for financial reporting. Upon completion of the distribution, the code of business conduct and ethics will be available on our website at www.enova.com. Information on, or accessible through, our websites is not part of this prospectus. We expect that any amendments to the code, or any waivers of its requirements, will be disclosed on our website.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 2013, we did not have a compensation committee. However, the Cash America Compensation Committee served that function with respect to our executive compensation. Decisions for the post-distribution compensation of those who will serve as our executive officers are expected to be made by our Compensation Committee and will be reflected in an amendment to this information statement. See Compensation Discussion and Analysis included elsewhere in this information statement.
Communications with the Board of Directors
Upon our separation from Cash America, our Board of Directors will maintain a process for stockholders and interested parties to communicate with the Board of Directors. Stockholders and interested parties may write or call our Board of Directors by contacting our Corporate Secretary as provided below:
Mailing Address: |
Enova International, Inc. 200 West Jackson Blvd., Suite 2400 Chicago, Illinois 60606 Attention: General Counsel & Secretary |
|
Phone Number: | (312) 568-4200 |
Relevant communications will be distributed to the Board of Directors or to any individual director or directors, as appropriate, depending on the facts and circumstances outlined in the communication. In that regard, certain items unrelated to the duties and responsibilities of the Board of Directors will be excluded, such as: business solicitations or advertisements; junk mail and mass mailings; new product suggestions; product complaints; product inquiries; resumes and other forms of job inquiries; spam; and surveys. In addition, material that is unduly hostile, threatening, illegal or similarly unsuitable may be excluded. Any communication that is filtered out will be made available to any outside director upon request.
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EXECUTIVE COMPENSATION
We expect that as of the distribution date, our named executive officers will include the following:
Name |
Position |
|
David A. Fisher (1) |
President and Chief Executive Officer (Principal Executive Officer) | |
Robert S. Clifton |
Vice PresidentChief Financial Officer and Treasurer (Principal Financial and Accounting Officer) | |
Alex T. King |
Senior Vice PresidentOperations | |
Arad Levertov |
Senior Vice PresidentOperations | |
Daniel Shteyn |
Vice PresidentOperations | |
Timothy S. Ho (2) |
Former President (Former Principal Executive Officer) |
(1) | Mr. Fisher joined Enova on January 29, 2013. Mr. Fisher is also an executive officer of Cash America. |
(2) | Mr. Ho left Enova on March 29, 2013. |
These individuals are our principal executive officer, our principal accounting/financial officer and our three (3) most highly compensated executive officers (other than our principal executive officer and principal accounting/financial officer) and our former principal executive officer. For purposes of the executive compensation discussion in this information statement, we refer to these individuals collectively as our named executive officers. References in this information statement to Cash Americas named executive officers refer to the executive officers listed in the summary compensation table of Cash Americas proxy statement in connection with its 2014 annual meeting of shareholders.
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COMPENSATION DISCUSSION AND ANALYSIS
Overview of Compensation Program
Prior to the separation and distribution, we operated as the E-Commerce Division of Cash America, or the E-Commerce Division; therefore, the historical compensation of our named executive officers included in this information statement reflects the design and objectives of the executive compensation programs of Cash America that are ultimately overseen by the Cash America Compensation Committee. After the separation and distribution, our Compensation Committee will oversee our executive compensation policies and practices and will seek to ensure that our executive officers total compensation is fair, reasonable and competitive. For more information about our Compensation Committee, its authority and responsibilities, see Corporate Governance and ManagementCommittees of the Board of DirectorsCompensation Committee in this information statement.
This Compensation Discussion and Analysis describes how Cash Americas compensation program is designed and how it has historically operated with respect to our named executive officers. This Compensation Discussion and Analysis also describes how we anticipate our compensation program will be designed and how it will operate after completion of the separation and distribution.
2013 Compensation
Letter Agreement with Mr. Fisher.
In connection with Mr. Fishers appointment as Chief Executive OfficerE-Commerce Division, Cash America entered into a letter agreement with Mr. Fisher, or the Fisher Letter Agreement, when he joined Enova on January 29, 2013. The Fisher Letter Agreement set forth Mr. Fishers employment and compensation package and was not an employment agreement. Mr. Fishers 2013 compensation package, which was established in accordance with the Fisher Letter Agreement, is detailed below under 2013 Compensation and in the compensation tables that follow.
Retention Bonus Agreement with Mr. King.
On December 30, 2013, we entered into a retention bonus agreement, or the Retention Bonus Agreement, with Mr. King. The Retention Bonus Agreement provides Mr. King with the opportunity to receive retention bonuses over a three-year period in the aggregate amount of $700,000. The retention bonuses vest and become payable as follows: $233,334 on December 31, 2013; $233,333 on December 31, 2014 and $233,333 on December 31, 2015. Each portion of the retention bonuses will vest if Mr. King remains employed through the applicable vesting date or if he (i) is involuntarily terminated without cause, (ii) voluntarily terminates his employment for good reason, (iii) dies or (iv) becomes disabled prior to the applicable vesting date.
Cash America Severance Agreements and Severance Pay Plan.
Prior to 2013, Cash America entered into Executive Change-in-Control Severance Agreements with certain of its executive officers, including Mr. Ho (whose agreement terminated when he left Enova in March 2013). Cash America entered into such an agreement with Mr. Fisher when he joined Enova in January 2013. These agreements were designed to promote stability and continuity of senior management in the event of a potential change-in-control of Cash America.
In addition, Cash America has a Severance Pay Plan for Executives, including our named executive officers. While severance agreements are generally handled on a case-by-case basis and are subject to the discretion of Cash Americas Chief Executive Officer and the Cash America Compensation Committee, the Severance Pay Plan for Executives provides compensation guidance in the case of involuntary termination of our executive officers.
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Information about payments that may be made to Mr. Fisher and our other named executive officers upon termination or a change-in-control of Cash America is provided under the heading Potential Payments Upon Termination or Change-in-Control.
Continued Employment and Separation Agreement for Mr. Ho.
On January 29, 2013, we entered into an agreement with Mr. Ho detailing the terms of his continued employment through the date of his separation, which occurred on March 29, 2013, and his separation, or the Continued Employment and Separation Agreement. The Continued Employment and Separation Agreement was to provide Mr. Ho with two years of base salary continuation to be paid through March 2015 in the aggregate amount of $860,000 (before any applicable withholding), two years of medical benefits and a lump sum cash payment of $24,808 to cover vacation pay less the value of any vacation taken prior to his separation date. The Continued Employment and Separation Agreement included certain releases and non-disclosure, non-solicitation and non-competition covenants, among other terms and conditions. When Mr. Ho left Enova on March 29, 2013, all of his outstanding short- and long-term incentive awards expired and/or were forfeited on that date.
On January 7, 2014, we entered into a letter agreement with Mr. Ho and Springleaf Holdings, Inc., or Springleaf, which amended the terms of the Continued Employment and Separation Agreement, or the Springleaf Amendment. Under the Springleaf Amendment, Mr. Ho agreed to (i) an extension of the period covered by certain non-solicitation and non-competition covenants and (ii) a $265,000 reduction in the aggregate amount of base salary continuation payable from the date of the Springleaf Amendment through March 2015. As a result of the Springleaf Amendment, the aggregate amount of base salary continuation payable under the Continued Employment and Separation Agreement was reduced to $595,000.
Determination of 2013 Compensation Elements.
2013 Compensation for the Executive Officers of Cash America. In 2013, Mr. Fisher, who was Chief Executive OfficerE-Commerce Division, was a named executive officer of Cash America and, therefore, the Cash America Compensation Committee was responsible for determining his compensation during 2013. In determining compensation for each of Cash Americas named executive officers, including our Chief Executive Officer for 2013, the Cash America Compensation Committee considered each element of the executive officers compensation and how that element fit into each officers compensation package as a whole. The Cash America Compensation Committee designed the 2013 compensation packages for its executive officers with a goal of balancing short-term compensation, including base compensation and short-term incentive compensation, with long-term compensation. In assessing each executive officers compensation package, the Cash America Compensation Committee considered how much of the overall compensation package is subject to achieving certain financial targets on both a short-term basis and a long-term basis. The Cash America Compensation Committee utilized both short-term incentive compensation and long-term incentive compensation that is tied to financial performance to link the compensation of Cash Americas named executive officers to shareholder interests so that its executives can receive pay commensurate with financial performance on both a short- and long-term basis.
2013 Compensation for our Named Executive Officers. The 2013 compensation levels for Messrs. Clifton, King, Levertov and Shteyn were determined by Cash Americas Chief Executive Officer in consultation with Mr. Ho and the E-Commerce Divisions People Resources team at the beginning of 2013. In addition, Mr. King received compensation adjustments in March 2013 that were determined by Cash Americas Chief Executive Officer in consultation with Mr. Fisher and the E-Commerce Divisions People Resources team. While general industry survey data, individual performance and internal equity criteria were taken into account, the final compensation levels were based primarily on Mr. Hos and Mr. Fishers qualitative review and recommendations, as applicable, to Cash Americas Chief Executive Officer.
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Compensation Consultant and Peer Group. In late 2012, the Cash America Compensation Committee engaged Mercer, LLC, or Mercer, to review and update the Cash America peer group to be used by the Cash America Compensation Committee in determining future compensation for the Cash America named executive officers. The following publicly traded companies were identified as the Cash America peer group:
Peer Companies
Aarons, Inc. |
Global Payments, Inc. |
|
Aéropostale, Inc. |
Heartland Payment Systems, Inc. |
|
Ascena Retail Group, Inc. |
Jos A Bank Clothiers, Inc. |
|
Brown Shoe Company, Inc. |
Pier 1 Imports, Inc. |
|
Chicos FAS, Inc. |
Rent-A-Center, Inc. |
|
DFC Global Corp. |
Stage Stores, Inc. |
|
DSW, Inc. |
Ulta Salon Cosmetics & Fragrance, Inc. |
|
Equinix, Inc. |
United Online, Inc. |
|
EZCORP, Inc. |
World Acceptance Corporation |
|
First Cash Financial Services, Inc. |
Zale Corporation |
Cash Americas Compensation Committee did not engage in benchmarking in 2013 and did not establish named executive officer compensation to fall within a certain percentile of the competitive group for 2013. Rather, the Cash America Compensation Committee referred to the publicly-available compensation information of peer companies as a general reference.
In late 2012, the Cash America Compensation Committee also engaged Mercer to review the potential compensation package of our Chief Executive Officer, Mr. Fisher, who was hired in January 2013. The Cash America Compensation Committee considered the information provided by Mercer in determining Mr. Fishers compensation package when he was hired, but they did not establish his compensation to fall within a certain percentile of our competitive group. Mr. Fishers compensation was set at a level that the Cash America Compensation Committee believed to be competitive in the market where we compete for talent.
The Cash America Compensation Committee did not engage Mercer to perform any services during 2013, and Mercer did not determine or recommend the amount or form of compensation for any of our named executive officers in 2013 in connection with any of the services they provided during 2012.
Base Salary
Mr. Fishers base salary for 2013 was set by the Cash America Compensation Committee when he joined Enova in January 2013 at a level believed to be competitive in the market where we compete for talent (as described above). In determining the 2013 salary for Messrs. Clifton, King, Levertov and Shteyn, Cash Americas Chief Executive Officer took into consideration the overall performance of the E-Commerce Division, each officers breadth of responsibilities, impact on financial and operational results over the prior year, leadership, and accomplishments that affected the performance and achievement of goals throughout the year. Cash Americas Chief Executive Officer also considered a qualitative assessment made by Mr. Ho of each of these items and by Mr. Fisher with regard to Mr. Kings compensation adjustments in March 2013.
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The annual salaries for our named executive officers in 2013, including their percentage increase over their 2012 salaries, if any, were as follows:
Name |
2013
Annual Salary |
2012
Annual Salary |
Percentage Increase
from 2013 to 2012 |
|||||||||
Mr. Fisher |
$ | 525,000 | $ | | | % | ||||||
Mr. Clifton |
233,500 | 215,000 | 8.6 | |||||||||
Mr. King (1) |
350,000 | 300,000 | 16.7 | |||||||||
Mr. Levertov |
275,000 | 260,000 | 5.8 | |||||||||
Mr. Shteyn (2) |
242,868 | 242,868 | | |||||||||
Mr. Ho (3) |
430,000 | 430,000 | |
(1) | Mr. King received a 3.5% salary increase in February 2013 to $310,500. Mr. King also received an additional 12.7% increase in March 2013 for a total 16.7% salary increase in 2013 compared to 2012 to reflect his ability and leadership in materially increasing the financial contributions of Enova in addition to his work in key business development initiatives. |
(2) | Mr. Shteyn lives in Canada and splits his time between offices in Montreal, Canada and our offices in Chicago, Illinois. Since Mr. Shteyn lives in Canada, his salary is paid in Canadian dollars, or CAD. Mr. Shteyns salary reflected in the table is shown in U.S. dollars, converted using an exchange rate of $0.97147 per CAD, which is the average of the daily exchange rates for each month used to translate the 2013 results of our Canadian operations to U.S. dollars for U.S. financial reporting. |
(3) | Mr. Ho left Enova on March 29, 2013. |
Short-Term Incentive Compensation and Bonuses
Overview . The Cash America Compensation Committee annually approves short-term incentive, or STI, plans, which are broad-based incentive plans that provide our named executive officers and certain other employees the opportunity to earn annual short-term incentive-based cash awards, or STI awards, primarily based on our annual performance.
2013 STI Plans . The 2013 STI plan for Mr. Fisher was administered under Cash Americas Senior Executive Bonus Plan. The 2013 STI plan for Messrs. Clifton, King, Levertov, and Shteyn was administered under an STI plan for our officers and certain other of our employees. None of our employees, except Mr. Fisher, was guaranteed a payment under the 2013 STI plans. In addition, the 2013 STI plans contained a clawback provision that allows us to recoup all or some of the payments made pursuant to the STI plans under certain circumstances when there is a material restatement of our financial results.
The target STI award amounts for 2013 expressed as a percentage of base salary, or Target Awards, for our named executive officers for the 2013 STI plans were as follows:
Name |
Target Percentage
of Base Salary |
|||
Mr. Fisher |
75 | % | ||
Mr. Clifton |
30 | % | ||
Mr. King (1) |
47 | % | ||
Mr. Levertov |
30 | % | ||
Mr. Shteyn |
30 | % | ||
Mr. Ho (2) |
|
(1) | Mr. King received an increase in his base salary on March 17, 2013, and his Target Award increased from 35% to 50% of his base salary. His 2013 STI Target Award for the portion of the year before the increase was calculated at 35% of base salary, and his 2013 STI Target Award for the balance of the year following the increase was calculated at 50% of base salary. Using a daily proration based on a 365-day year, this resulted in a blended average of approximately 47%. |
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(2) | Mr. Ho left Enova on March 29, 2013. Because we entered into the Continued Employment and Separation Agreement with Mr. Ho on January 29, 2013, Mr. Ho was not eligible to participate in the 2013 STI plan. |
Our 2013 STI plans were based on our earnings before interest, income taxes, depreciation and amortization expenses, or EBITDA, adjusted for certain items, which is a non-GAAP financial measure, or STI Adjusted EBITDA, for 2013, or 2013 STI Adjusted EBITDA, and had the following requirements in order for potential STI awards to be earned and paid pursuant to the STI plan:
| Earnings Threshold: Potential STI awards began to accrue based on a formula set forth in the STI plans once a certain earnings threshold established for the 2013 STI Adjusted EBITDA was exceeded, or the Earnings Threshold. |
| Earnings Target: If a certain earnings target for the 2013 STI Adjusted EBITDA was achieved, then the named executive officer was eligible to receive a cash payment equal to 100% of his Target Award, or the Earnings Target. If the Earnings Target was exceeded, each named executive officer was eligible to receive a cash payment in excess of his Target Award calculated in accordance with the STI plans. |
The Earnings Threshold for the 2013 STI plans was $135.4 million, and the Earnings Target for the 2013 STI plans was $155.9 million. Our actual 2013 STI Adjusted EBITDA was $165.6 million, which is comprised of $152.6 million of income from operations of the Cash America E-Commerce Division (which is included in footnote 20 to Cash Americas Consolidated Audited Financial Statements filed with its Annual Report on Form 10-K for the year ended December 31, 2013), increased by a net adjustment in accordance with the 2013 STI plans in the amount of $13.0 million. Thus, the 2013 STI Adjusted EBITDA significantly exceeded the Earnings Target.
2013 Bonuses
Additional discretionary bonus awards were also considered for each named executive officer to reflect their individual contributions during 2013 that significantly impacted our financial results, and discretionary bonuses were awarded to certain of our named executive officers as set forth below.
Payments under the 2013 STI Plan and Discretionary Bonus Payments.
The 2013 STI payment for Mr. Fisher was based solely on our 2013 STI Adjusted EBITDA, and the 2013 STI payments for Messrs. Clifton, King, Levertov, and Shteyn were based on a combination of financial results and individual performance. A comprehensive individual performance review of all of our employees was completed at the end of the year with each employee designated into one of six individual performance categories, or Categories. The Target Awards were adjusted by an individual performance factor applied to each Category where Category 1 was assigned a 0% individual performance factor, Category 2 was 44%, Category 3 was 74%, Category 4 was 100%, Category 5 was 140% and Category 6 was 150%. By using this distribution of individual performance factors we were able to differentiate and reward for individual performance while not exceeding the final STI award pool, which was equal to 143.9% of the Target Award and based solely on the financial performance of Enova.
The 2013 STI payments and bonus payments were as follows:
Name |
Payment
under the 2013 STI Plan |
Bonus | Total | |||||||||
David A. Fisher |
$ | 523,141 | (1) | | $ | 523,141 | ||||||
Robert S. Clifton |
$ | 73,636 | (2) | | $ | 73,636 | ||||||
Alex T. King |
$ | 230,411 | (3) | $ | 53,701 | (3) | $ | 284,112 | ||||
Arad Levertov |
$ | 164,440 | (4) | $ | 46,984 | (4) | $ | 211,424 | ||||
Daniel Shteyn |
$ | 77,462 | (2) | | $ | 77,462 |
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(1) | Represents a payment that was 143.9% of the 2013 Target Award for Mr. Fisher and was based solely on the performance of Enova, as Mr. Fishers 2013 STI award was based 100% on the 2013 STI Adjusted EBITDA. Because Enova exceeded its Earning Target for the 2013 STI Adjusted EBITDA, Mr. Fishers payment exceeded his Target Award amount and was calculated in accordance with the 2013 STI plan. |
(2) | Messrs. Clifton and Shteyn received payments equal to 106% of their 2013 Target Awards, which are comprised of (i) a 143.9% financial performance factor; and (ii) a 74% individual performance factor. |
(3) | Mr. King received a payment equal to 176% of his 2013 Target Award, which is comprised of (i) a 143.9% financial performance factor; (ii) a 100% individual performance factor; and (iii) a $53,701 discretionary bonus reflecting his ability and leadership in materially increasing the financial contributions of Enova in addition to his work in key business development initiatives. Mr. King also received a retention bonus for 2013 as described further below. |
(4) | Mr. Levertov received a payment equal to 258% of his 2013 Target Award, which is comprised of (i) a 143.9% financial performance factor; (ii) a 140% individual performance factor; and (iii) a $46,984 discretionary bonus reflecting his leadership in materially increasing the financial contributions of the U.K. business of Enova. |
The 2013 STI plan for Mr. Fisher provided that, consistent with the Fisher Letter Agreement that was entered into with Mr. Fisher when he accepted employment on January 29, 2013, Mr. Fisher would receive the greater of the actual short-term incentive earned according to the terms of the 2013 STI plan or 75% of his 2013 Target Award. Because Enova exceeded its Earnings Target, Mr. Fishers payment exceeded his Target Award amount and he received a payment that was 143.9% of his Target Award, which was calculated in accordance with the 2013 STI plan.
All STI award and bonus payments were paid in 2014 and were based on our 2013 performance and related considerations, as applicable. The STI award and bonus payments are reflected in the Summary Compensation Table in the Non-Equity Incentive Plan Compensation column and the Bonus column, respectively and as applicable.
Payment under Retention Bonus Agreement with Mr. King.
Mr. King vested in the first portion of his bonus payable under the Retention Bonus Agreement on December 31, 2013, and he received a payment of $233,334 in January 2014.
Long-Term Incentive Compensation
Performance Units.
In order to ensure that our employees have long-term incentive compensation tied to our performance, the Cash America Compensation Committee has, for our officers and certain of our employees, historically utilized grants of cash-based performance units, or Performance Units, under the Cash America International, Inc. First Amended and Restated 2004 Long-Term Incentive Plan, as amended, or the Cash America LTIP, the vesting and payment of which are tied solely to our performance. Grants of Performance Units are typically approved by the Cash America Compensation Committee at the beginning of each year.
In March 2013, the Cash America Compensation Committee approved a grant of Performance Units to Messrs. Fisher, Clifton, King, Levertov and Shteyn. The material terms of the Performance Unit grant are as follows:
|
Subject to continued employment with Cash America or an affiliate and the achievement of a certain compound annual growth rate, or CAGR, in the EBITDA of Enova, adjusted for certain items, or LTI Adjusted EBITDA, on each of the vesting dates, or the EBITDA Growth Requirement, the Performance Units will vest as follows: 12.5% of the award on January 1, 2014, 37.5% of the award on January 1, 2015 and 50% of the award on January 1, 2016. For purposes of the 2016 vesting date, |
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Mr. Fishers employment will be treated as continuing through the vesting date if he voluntarily terminates his employment between February 1, 2015 and December 31, 2015 and meets certain notice requirements. |
| If the EBITDA Growth Requirement is not met on each vesting date, the Performance Units scheduled to vest on that date will be forfeited. |
| The Performance Unit award agreement provides that the portion of the Performance Units that vest in 2014, 2015 and 2016 are to be valued based on the increase in LTI Adjusted EBITDA for 2013, 2014 and 2015, respectively compared with LTI Adjusted EBITDA for 2012. |
| Payments for all Performance Units that vest will be made within a reasonable period of time each year following the Cash America Compensation Committees certification that the vesting requirements have been met. |
| In addition, the grant is subject to a clawback provision that allows us to recoup all or some of the payments made pursuant to the award under certain circumstances when there is a material restatement of our financial results. |
The following table shows the number and the targeted value (in dollars and as a percentage of base salary) of Performance Units granted to each of our named executive officers in March 2013, which the Cash America Compensation Committee determined in consultation with Cash Americas chief executive officer for Mr. Fisher and with Mr. Fisher and Cash Americas chief executive officer for each of our other named executive officers:
Name |
Number of
Performance Units Granted (#) |
Targeted Value of
the Performance Unit Grant (1) |
Targeted Value
as a Percentage of Base Salary (1) |
|||||||||
Mr. Fisher |
13,668 | $ | 787,500 | 150 | % | |||||||
Mr. Clifton |
3,445 | $ | 198,475 | 85 | % | |||||||
Mr. King |
10,631 | $ | 612,500 | 175 | % | |||||||
Mr. Levertov |
7,159 | $ | 412,500 | 150 | % | |||||||
Mr. Shteyn |
2,388 | $ | 137,602 | 57 | % |
(1) | Assumes target performance. The maximum amount that may be paid under these Performance Unit grants is 300% of the target amount. |
The payments made under the 2013 Performance Units that vested on January 1, 2014 are included in the Non-Equity Incentive Compensation column of the 2013 Summary Compensation Table. See The Separation and the DistributionTreatment of Short- and Long-Term Incentive Compensation for additional information regarding treatment of all unvested Performance Units at the time of the separation and distribution.
Restricted Stock Units.
In addition, in January 2013, the Cash America Compensation Committee elected to award a special one-time grant of time-based RSUs under the Cash America LTIP to Mr. Fisher when he joined Enova as its Chief Executive Officer. The Cash America Compensation Committee awarded Mr. Fisher this one-time RSU grant as a sign-on bonus in order to be competitive when hiring Mr. Fisher. In addition, this grant is consistent with Cash Americas compensation philosophy of encouraging stock ownership in Cash America by its executive officers and is aligned with shareholder interests.
Mr. Fishers special one-time RSU grant was comprised of 14,260 RSUs that are scheduled to vest on the earlier of January 29, 2015 or the date, if ever, that our stock becomes publicly traded. The number of RSUs granted to Mr. Fisher was determined by dividing $600,000 by the average closing price of Cash America common stock for the 20 trading-day period ending on the day before the grant date. Under the terms of the RSU award
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agreement, Mr. Fisher is entitled to receive one share of Cash America common stock for each RSU upon vesting. In addition, under the terms of the RSU award agreement, if Mr. Fisher leaves Cash America for any reason he will forfeit any unvested portion of his RSU award, except in the event of certain changes-in-control. In addition, the RSU award agreement for Mr. Fisher contains a clawback provision that allows Cash America to recoup all or some of the RSUs under certain circumstances in the event that there is a material restatement of Cash Americas financial results. See The Separation and the DistributionTreatment of Short- and Long-Term Incentive Compensation for additional information regarding treatment of Mr. Fishers unvested RSUs at the time of the separation and distribution.
Retirement and Other Benefits
Prior to July 1, 2012, our officers were eligible to participate in a 401(k) savings plan, a nonqualified savings plan and a supplemental executive retirement plan sponsored by Cash America. On July 1, 2012, we established and now sponsor our own 401(k) Savings Plan, or the Enova 401(k), our own nonqualified savings plan, or the Enova NQSP, and our own supplemental executive retirement plan, or the Enova SERP, in which most of our named executive officers and other eligible employees may now participate. We expect to continue utilizing these existing plans following the separation and distribution.
Enova 401(k) and Enova NQSP.
Substantially all of our employees and those of our U.S. subsidiaries are eligible to participate in the Enova 401(k). Certain of our highly-compensated employees, including our named executive officers other than Mr. Shteyn, are also eligible to participate in the Enova NQSP. Because Mr. Shteyn performs services for us in Canada, he participates in a Canada Group Registered Retirement Savings Plan rather than the Enova 401(k) and the Enova NQSP.
We match 50% of the first 5% of pay that each employee contributes to the Enova 401(k). All employee contributions are fully vested upon contribution. Our matching contributions vest ratably over an employees first five years of service with us or Cash America and also become fully vested if an employee dies, becomes disabled or reaches age 59 1/2 during employment. Employees may select from among several mutual funds when investing their 401(k) account funds.
The Enova NQSP is a nonqualified retirement savings plan into which participants may contribute portions of their salary in excess of the 401(k) contribution limits. Enova NQSP participants can also defer up to 80% of their STI awards and annual bonuses into the Enova NQSP. If a participants pay exceeds the IRS limit on amounts that can be taken into account for contributions to the Enova 401(k), we match 50% of the first 5% of compensation deferred to the Enova NQSP in excess of the 401(k) compensation limit; however, if a participant participates in both the Enova 401(k) and the Enova NQSP, the combined match to both plans will be limited to 50% of the first 5% of the participants pay. Our matching contributions in the NQSP vest under the same vesting schedule that applies to the Enova 401(k) plan. This plan generally offers the same investment options as the Enova 401(k).
We generally distribute each participants Enova NQSP account in a lump sum shortly after the participants separation from service with us and all of our affiliates. Alternatively, a participant can elect to receive his or her Enova NQSP account at a later date or receive payments in up to 10 annual installments. Most officers cannot receive a distribution of any portion of their account during the first six months after their separation from service. A participant generally may not receive any portion of his or her Enova NQSP account while employed, unless the participant makes an in-service distribution election before the deferred compensation is earned or suffers a severe financial hardship. We may pay Enova NQSP distributions from a Rabbi trust associated with the Enova NQSP or from the general assets of the entity that is the participants employer. A participant would have the rights of a general unsecured creditor of the entity that is his or her employer for any Enova NQSP benefits he or she is owed.
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Canada Group Registered Retirement Savings Plan.
We match 100% of Mr. Shteyns regular payroll contributions made to a Canadian Group Registered Retirement Savings Plan, up to a maximum company contribution of 9%, for services performed in Canada. All contributions are fully vested when made. Mr. Shteyn is the only named executive officer who participates in this Canadian plan.
Supplemental Executive Retirement Plan.
We provide supplemental executive retirement plan benefits to our officers, other than Mr. Shteyn, as a supplement to their retirement benefits under the Enova SERP. After the end of each plan year, we make discretionary supplemental contributions that are credited to the Enova SERP account of each named executive officer who was employed by us on the last day of the plan year. The rate of return of a participants Enova SERP account is determined by the rate of return on deemed investments in mutual funds that a participant selects. Enova SERP participants deemed investment options are generally the same as the investment options available under the Enova 401(k). Participants vest in their Enova SERP accounts over their first five years of service with us or Cash America and are fully vested in their Enova SERP accounts and new contributions to those accounts after that five year period.
We generally distribute each participants Enova SERP account as a lump sum soon after the participants separation from service with us and all of our affiliates. An Enova SERP participant may, however, elect to defer receipt of the Enova SERP account for at least an additional five years beyond his separation from service and may also elect to receive the Enova SERP account in up to ten annual installments. Most officers cannot receive a distribution of any portion of their account during the first six months after their separation from service. A participant generally may not withdraw any portion of his Enova SERP account during employment, except in the case of a severe financial hardship. We may pay Enova SERP benefits from a Rabbi trust associated with the Enova SERP or from the general assets of the entity that is the participants employer. A participant would have the rights of a general unsecured creditor of the entity that is his or her employer for any Enova SERP benefits he or she is owed.
The Cash America Compensation Committee annually determines the amount of the supplemental contribution to be made for each officer for the plan year. The targeted (but non-binding) amount of the supplemental contribution for each plan year is a percentage of each officers compensation. The compensation on which the supplemental contribution is based is the base salary, plus the lesser of (a) the officers target STI award payable during the plan year for the preceding years performance and (b) the actual STI award paid during the plan year based on the preceding years performance. The contribution amounts are prorated for the portion of the year that an officer was eligible to participate in the Enova SERP, and are credited to the officers Enova SERP account in February of the following year. For 2013, the supplemental contributions for each of our named executive officers, reflected as a percentage of the combined base salary paid during the year and the target STI award for the 2012 year, are listed below. If the separation and distribution occurs, we expect our Compensation Committee to administer the Enova SERP and annually determine the supplemental contributions for each of our named executive officers.
Name |
SERP Contribution | |||
Mr. Fisher |
10.5 | % | ||
Mr. Clifton |
4.5 | |||
Mr. King |
7.5 | |||
Mr. Levertov |
4.5 | |||
Mr. Shteyn (1) |
| |||
Mr. Ho (2) |
|
(1) | Mr. Shteyn was not eligible to receive a 2013 Enova SERP contribution because his employer is a Canadian subsidiary that does not participate in the Enova SERP. |
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(2) | Mr. Ho was not eligible to receive a 2013 Enova SERP contribution because he left Enova before the end of 2013. |
For each of the Enova 401(k), the Enova NQSP and the Enova SERP, Mr. Fisher was not vested in any portion of our contributions at the end of 2013 because he joined Enova in January 2013. Mr. Clifton and Mr. King had more than five years of service, including service with Cash America, and were fully vested at the end of 2013. Mr. Levertov was 80% vested at the end of 2013. Mr. Ho had more than five years of service and was fully vested when he left Enova in March 2013.
Perquisites and Other Personal Benefits
Enova provides perquisites and other personal benefits to its officers that it believes are reasonable and consistent with its overall compensation program. A description of these perquisites and personal benefits, including the attributed costs, for our named executive officers for the year ended December 31, 2013 are included in the All Other Compensation column of the Summary Compensation Table and described in the notes to that table.
Compensation Prior to 2013
January 2012 Performance Unit Grant.
In January 2012, it was expected that a proposed initial public offering of Enova common stock which was subsequently withdrawn in July 2012, or the Withdrawn IPO, would be completed during 2012, and it was expected that had the Withdrawn IPO been completed, Messrs. King, Levertov, Shteyn and Ho would have received long-term incentive compensation from Enova. Since the Withdrawn IPO was expected to be completed during 2012, the Cash America Compensation Committee decided not to make a grant of Performance Units in January 2012 to Messrs. King, Levertov, Shteyn and Ho.
Since Mr. Clifton was hired in 2011 after the 2011 annual Performance Unit grant date, the Cash America Compensation Committee approved a special one-time grant of 5,000 Performance units to Mr. Clifton in January 2012 based on recommendations made by Mr. Ho and Cash Americas chief executive officer. The Performance Units granted to Mr. Clifton in January 2012 vested equally over a two-year period with one-half of the Performance Units vesting on each of January 1, 2013 and 2014, subject to continued employment with Cash America or an affiliate and the satisfaction of certain conditions related to an increase in LTI Adjusted EBITDA of Enova each year over a two-year period ending December 31, 2013. The unit value of each Performance Unit was be based on a percentage of the yearly increase in LTI Adjusted EBITDA divided by 33,333 for the first vesting date and 33,334 for second vesting date. The actual amount paid to Mr. Clifton in 2014 for Performance Units vesting January 1, 2014 based on Enovas financial performance in 2013 is included in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table.
July 2012 Performance Unit Grants
On July 25, 2012, the Cash America Compensation Committee approved the grant of Performance Units to Messrs. Clifton, King, Levertov, Shteyn and Ho. This performance unit grant was approved following the withdrawal of the Withdrawn IPO. The Cash America Compensation Committee chose to award our executive officers with Performance Units to incentivize the achievement of sustained incremental annual growth in earnings in the E-Commerce Division. The material terms of the Performance Unit grant are as follows:
| Each one-third of the Performance Units are to be valued based on the year-over-year increase in LTI Adjusted EBITDA for 2012, 2013 and 2014, with the 2012 valuation based only on the last six months of 2012 compared to the last six months of 2011 and the 2013 and 2014 valuations based on fiscal years 2013 and 2014, respectively, compared to each of their previous years. |
|
Subject to continued employment with Cash America or an affiliate and the achievement of a certain EBITDA Growth Requirement on each of the vesting dates, the Performance Units will vest as follows: 16 2/3% of the award on January 1, 2013, 16 2/3% of the award on January 1, 2014 and 66 2/3% of the |
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award on January 1, 2015. If the EBITDA Growth Requirement is not met on each vesting date, the Performance Units scheduled to vest on that date will remain unvested and will again be eligible to vest on subsequent vesting dates, if any, subject to continued employment with Cash America or an affiliate and the achievement of the EBITDA Growth Requirement on such subsequent vesting date. |
| Payments for all Performance Units that vest will be made within a reasonable period of time each year following the Cash America Compensation Committees certification that the vesting requirements have been met. |
| In addition, Mr. Hos grant is subject to a clawback provision that allows us to recoup all or some of the payments made pursuant to the award under certain circumstances when there is a material restatement of our financial results. |
The number of Performance Units granted to each named executive officer was based on the officers position with Enova and on individual recommendations made by Cash Americas chief executive officer for Mr. Ho and by Mr. Ho and Cash Americas chief executive officer for each other named executive officer. The award agreements for the Performance Units did not specify target values, and the Performance Units do not have a maximum payout. The following table shows the number of the Performance Units and the estimated total dollar value of the July 2012 grant, as estimated at the time of grant, for each of our named executive officers:
Name |
Number of
Performance Units Granted (#) |
Estimated Total
Value of the Performance Unit Grant ($) (1) |
||||||
Mr. Fisher (2) |
| | ||||||
Mr. Clifton |
2,901 | $ | 216,000 | |||||
Mr. King |
7,002 | $ | 520,000 | |||||
Mr. Levertov |
5,502 | $ | 409,000 | |||||
Mr. Shteyn |
2,901 | $ | 216,000 | |||||
Mr. Ho (3) |
9,501 | $ | 706,000 |
(1) | The amounts in this column were the total estimated values of the Performance Units on the date of grant, which assumed a hypothetical level of year-over-year increase in EBITDA of Enova for each of the 2012, 2013 and 2014 valuation periods. These amounts were only estimates and did not reflect future earnings projections for Enova. |
(2) | Mr. Fisher joined Enova on January 29, 2013. |
(3) | Mr. Ho left Enova on March 29, 2013. All outstanding unvested Performance Units under this grant expired and were forfeited on that date. |
In addition, in 2011 the Cash America Compensation Committee also made grants of Performance Units to certain of our named executive officers, the final vesting for which occurred on January 1, 2014. The payments for the Performance Units granted in 2011 and 2012 that vested on January 1, 2014 were based on our EBITDA performance and are included in the Non-Equity Incentive Compensation column of the Summary Compensation Table. See The Separation and the DistributionTreatment of Short- and Long-Term Incentive Compensation for additional information regarding treatment of all unvested Performance Units at the time of the separation and distribution.
Our Compensation Philosophy and Objectives after the Distribution
Following the distribution, our Compensation Committee will determine the design of our executive compensation program. While we are still in the process of determining specific details of our compensation program, we anticipate that our compensation program will generally be similar to Cash Americas compensation program. In particular, we anticipate that our Compensation Committee will implement the executive compensation policy described below setting out our compensation philosophy and objectives.
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We believe that compensation should be performance-based and competitive in the markets and industries in which we compete for talent. We also believe that we should provide our executives with compensation that is closely linked to our stockholders financial interests and that reflects each executives contributions to enhancing the value of our stockholders investment in us. In addition, we believe in pay for performance and discouraging excessive risk taking by our executive officers.
The competitive group with which we compare ourselves will be selected by our Compensation Committee from time to time. This group may be the same or different from those used prior to the distribution, as described below under Executive Compensation Practices after the Separation and DistributionCompensation Consultants.
Executive Compensation Practices after the Separation and Distribution
General
We believe that the principal elements of our executive compensation after the completion of the separation and distribution will continue to be:
| Base salary; |
| A performance-based short-term annual incentive award paid in cash; |
| Long-term incentive compensation awards; |
| Retirement plans; |
| Health insurance and other benefits also available to employees generally; and |
| Certain additional benefits available to officers. |
We expect the elements of our compensation program to be similar to our historical compensation program under Cash America, with the exception of long-term incentive compensation. We expect that our executive officers will receive grants under a long-term incentive plan that our stockholder, Cash America, will adopt prior to the distribution that will consist of equity-based compensation rather than cash-based Performance Units similar to those that they have received under Cash Americas compensation program.
In addition to our retirement and other employee benefit plans that we adopted in 2012, we have adopted, or expect to adopt, several new compensation plans in connection with the separation and distribution that would become effective at or near the time the separation is completed. These plans are described under Plans We Have Adopted or Expect to Adopt. When making decisions about each compensation element, we expect that our Compensation Committee will review the overall compensation we pay to our executive officers and review and consider the competitive market for executives and compensation levels and compensation components provided by companies with whom we compete for executive talent. In general, the proportion of an executive officers compensation that is at risk and subject to achieving incentive targets will increase with the executives position and responsibility.
Compensation Committees Role in Establishing Compensation
Our Compensation Committee will approve, or recommend to the independent members of the Board of Directors for approval, all compensation decisions, including grants of equity awards, for our executive officers, including our named executive officers. A key function of our Compensation Committee will be to help ensure that our executives are fairly compensated based upon their performance and contribution to our growth and profitability and that its compensation decisions support our compensation philosophy and objectives, as well as stockholder interests. The Compensation Committee chair will set the agenda for all committee meetings, with input from management.
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Managements Role in Establishing Compensation
Our chief executive officer will be the primary management contact with our Compensation Committee. Our chief executive officer will recommend to the Compensation Committee changes in compensation for other executive officers, including our other named executive officers, based on an assessment of each individuals responsibilities and contribution to our results and potential for future contributions to our success. Neither the chief executive officer nor other executive officers will be involved in recommendations for changes in the chief executive officers compensation.
Compensation Consultants
The Cash America Compensation Committee has engaged an independent compensation consultant to perform a formal review of base salaries, short-term incentives and long-term incentives for each of our named executive officers compared to persons holding comparable positions with similar duties at other publicly-traded companies. We expect the compensation consultant to develop a group of peer companies that it determines to be of similar size and scope to us and would provide appropriate comparisons for establishing competitive compensation levels. In addition, we expect the compensation consultant to refer to compensation practices and levels implemented at companies that were recently spun off from parent companies or that recently completed an initial public offering. We expect the compensation consultant to recommend a range of base salary levels, a percentage of salary to which short-term incentive compensation should be targeted, and target long-term incentive values for each of our executives, including our named executive officers. We plan to include information regarding the compensation consultants review of executive compensation matters, including a determination of our executive compensation peer group in an amendment to this information statement.
Deductibility of Executive Compensation
Our Compensation Committee will review and consider the deductibility of executive compensation under Code Section 162(m), which provides that we may not deduct compensation of more than $1 million that is paid to certain individuals. This limitation does not apply to certain performance-based pay. Our Compensation Committee may, in certain situations, approve compensation that will not meet these deductibility requirements in order to ensure competitive levels of compensation for our executive officers, including our named executive officers.
Equity Ownership
Our Compensation Committee is expected to establish stock ownership guidelines similar to those that have been adopted by Cash America that require a certain level of ownership of our stock by our executive officers. We anticipate that our executive officers will have up to five years following the distribution to achieve the applicable stock ownership guidelines that are adopted. Cash Americas ownership guidelines require ownership of Cash America stock that is six times base salary for its chief executive officer, three times base salary for other executive officers and five times the annual retainer for directors.
Plans We Have Adopted or Expect to Adopt
We have adopted, or expect to adopt, the following plans or agreements, which will continue to be or become effective at or near the time we complete the distribution.
Short-Term Incentive Plans and Discretionary Bonus Plan
In January 2014, the Cash America Compensation Committee approved cash-based STI plans for (i) our Chief Executive Officer and (ii) certain of our other employees, including our executive officers, that are based on our 2014 performance. Following the separation and distribution, these STI plans will be administered by our Compensation Committee. While we do not intend to adjust the terms of the outstanding STI plans for 2014, which is based on our performance in 2014, certain adjustments to the financial targets may be made to reflect the different costs and expenses associated with operating as a separate company.
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Prior to the separation and distribution, we expect to adopt one or more STI plans that would be used as the foundation for establishing the terms and conditions of annual STI award programs for plan years following 2014, or the Post-2014 STI Plans. The Post-2014 STI Plans are intended to increase stockholder value and our success by motivating certain of our employees, including our executives, (a) to perform to the best of their abilities, and (b) to achieve our objectives. These plans are intended to provide executives, including our named executive officers, and certain other employees with the opportunity to earn STI based on the achievement of goals relating to the performance of us and our individual business units and relating to individual performance. We anticipate that one of the STI plans will be a Senior Executive Bonus Plan that will allow our Compensation Committee to designate certain amounts payable under the plan as payments intended to qualify as performance-based compensation under Code Section 162(m).
Prior to the separation and distribution, we also expect to adopt a Discretionary Bonus Plan. The Discretionary Bonus Plan is intended to increase stockholder value and our success by providing our officers and other employees with discretionary bonus awards based on exceptional individual achievement or exceptional performance by us or our individual business units.
Long-Term Incentive Plan
Prior to the separation and distribution, we expect to adopt the Enova LTIP that will be administered by our Compensation Committee. The purpose of the Enova LTIP is to promote the interests of Enova and its stockholders by giving us a competitive advantage in attracting, retaining and motivating employees, officers, consultants and directors capable of assuring our future success, to offer such persons incentives that are directly linked to the profitability of our business and increases in stockholder value, to afford such persons an opportunity to acquire a proprietary interest in Enova and to provide a means to assume and govern certain awards granted under the Enova LTIP.
We expect that the Enova LTIP will permit the Compensation Committee to be authorized to grant awards in any of the following forms:
| Stock Options. Stock options would allow the holder to purchase shares of our common stock at a price not less than the fair market value of the shares as of the grant date, or the exercise price. Stock options may be designated under the Code as nonqualified stock options (which may be granted to all participants) or incentive stock options under Code Section 422 (which may be granted to qualifying employees, but not to nonemployee directors or prospective employees). The maximum term of each stock option under the Enova LTIP is expected to be ten years. |
| Stock Appreciation Rights. Stock Appreciation Rights, or SARs, which may be granted as separate awards or in tandem with stock options, would give the holder the right to receive the difference (payable in cash, shares of common stock or a combination thereof) between the fair market value per share of common stock on the date of exercise, or if specified under the terms of the grant, the average selling price per share of common stock during a period of up to 30 days before the date of exercise, and the grant price of the award (which cannot be less than the fair market value of the underlying stock as of the grant date). The maximum term of SARs under the Enova LTIP is expected to be ten years. |
| Performance Units. Performance units are denominated in cash and vesting would be contingent upon the achievement of certain performance goals over a period of time established by our Compensation Committee at the time of grant. |
| Restricted Stock and Restricted Stock Units. Restricted stock is common stock that is issued subject to specified restrictions and RSUs represent the right to receive common stock or cash, measured by the value of our common stock, in the future. The grant or vesting of restricted stock or RSUs may be performance-based, time-based or both. |
| Other Share Based or Share-Related Awards. Other share-based or share-related awards that are consistent with the purpose of the Enova LTIP and the interests of Enova are also expected to be permitted under the Enova LTIP. |
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We will provide information regarding the Enova LTIP that is adopted in an amendment to this information statement.
Retirement and Other Benefits
On July 1, 2012, we established and now sponsor the Enova 401(k), the Enova NQSP, and the Enova SERP, in which our named executive officers and other eligible employees may now participate. We expect to continue utilizing these existing plans following the distribution.
Severance Arrangements for Executives
We expect to enter into executive change-in-control severance and restrictive covenant agreements with each of our executive officers that will specify the payments that our named executive officers are to receive upon separation in connection with or during a specified period following a change-in-control of Enova. These agreements would be designed to promote stability and continuity of senior management. We do not expect to include provisions in these agreements that would require us to make gross-up payments for any excise taxes that may be payable under IRS rules and we intend to include certain covenants, such as confidentiality, noncompetition and nonsolicitation covenants, in our executive change-in-control severance and restrictive covenant agreements. A severance pay plan for executives will provide guidance for severance pay, continued medical and health benefits, payment of accrued but unpaid vacation and paid time off and an allowance for outplacement services for our executive officers following certain terminations not related to a change-in-control.
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2013 Summary Compensation Table
The following table and footnotes discuss the compensation of our named executive officers:
Name and Principal Position |
Year | Salary (1) | Bonus (1) (2) |
Stock
Awards (3) |
Non-Equity Incentive
Plan Compensation (1) (4) (5) (6) |
All Other
Compensation (7) |
Total | |||||||||||||||||||||
David A. Fisher (8) |
2013 | $ | 472,500 | $ | | $ | 687,189 | $ | 641,659 | $ | 77,008 | $ | 1,878,356 | |||||||||||||||
President and Chief Executive Officer (Principal Executive Officer) |
||||||||||||||||||||||||||||
Robert S. Clifton |
2013 | $ | 231,365 | $ | | $ | | $ | 487,753 | $ | 79,192 | $ | 798,310 | |||||||||||||||
Vice PresidentChief Financial Officer and Treasurer (Principal Financial Officer) |
||||||||||||||||||||||||||||
Alex T. King |
2013 | $ | 339,673 | $ | 287,035 | $ | | $ | 997,387 | $ | 84,701 | $ | 1,708,796 | |||||||||||||||
Senior Vice PresidentOperations |
||||||||||||||||||||||||||||
Arad Levertov |
2013 | $ | 273,525 | $ | 46,984 | $ | | $ | 377,978 | $ | 54,000 | $ | 752,487 | |||||||||||||||
Senior Vice PresidentOperations |
||||||||||||||||||||||||||||
Daniel Shteyn (9) |
2013 | $ | 242,868 | $ | | $ | | $ | 209,124 | $ | 57,011 | $ | 509,003 | |||||||||||||||
Vice PresidentOperations |
||||||||||||||||||||||||||||
Timothy S. Ho (10) |
2013 | $ | 115,769 | $ | | $ | | $ | | $ | 650,504 | $ | 766,273 | |||||||||||||||
Former President (Former Principal Executive Officer) |
2012 | 428,846 | | | 1,233,122 | 107,707 | 1,769,675 | |||||||||||||||||||||
2011 | 411,539 | | 616,634 | 1,193,033 | 97,258 | 2,318,464 |
(1) | Portions of the amounts in these columns have been deferred under the Enova 401(k) plan or the Enova NQSP for certain of our named executive officers. |
(2) | The amount in this column for Mr. King includes $233,334 that vested on December 31, 2013 under his Retention Bonus Agreement and was paid in January 2014. See Compensation Discussion and Analysis2013 CompensationRetention Bonus Agreement with Mr. King for additional information. The other amounts in this column are discretionary bonuses based on individual contributions during 2013 and paid in January 2014 as follows: Mr. King: $53,701 and Mr. Levertov: $46,984. See Compensation Discussion and Analysis2013 CompensationShort-Term Incentive Compensation and Bonuses for additional information regarding these bonus payments. |
(3) | Mr. Fishers special one-time RSU grant consisted only of time-based RSUs granted under the Cash America LTIP. The amount shown represents the grant date fair value in compliance with ASC 718, for this RSU award. In accordance with ASC 718, the amount in this column was calculated by multiplying the number of RSUs granted by the closing stock price of Cash Americas common stock on the last trading day preceding the grant date, which was $48.19. |
( 4) | The 2013 amounts shown in this column reflect payments made in 2014 based on 2013 performance and are detailed in the following table: |
Name |
2013 Actual STI
Paid in 2014 (a) |
Paid in 2014
Based on 2013 Performance under the Terms of Performance Units Granted in February 2011 and January 2012 (b) |
Paid in 2014
Based on 2013 Performance under the Terms of Performance Units Granted in July 2012 (c) |
Paid in 2014
Based on 2013 Performance under the Terms of Performance Units Granted in March 2013 (d) |
Total | |||||||||||||||
Mr. Fisher |
$ | 523,141 | $ | | $ | | $ | 118,518 | $ | 641,659 | ||||||||||
Mr. Clifton |
73,636 | 340,560 | 40,943 | 32,614 | 487,753 | |||||||||||||||
Mr. King |
230,411 | 567,510 | 98,821 | 100,645 | 997,387 | |||||||||||||||
Mr. Levertov |
164,440 | 68,112 | 77,651 | 67,775 | 377,978 | |||||||||||||||
Mr. Shteyn |
77,462 | 68,112 | 40,943 | 22,607 | 209,124 | |||||||||||||||
Mr. Ho |
| | | | |
(a) | Reflects cash awards earned in 2013 and paid in 2014 under the Cash America 2013 STI plans. |
(b) | The amount for Mr. Clifton reflects the payment made in 2014 for 50% of the Performance Units granted to Mr. Clifton in January 2012 that vested on January 1, 2014. The amounts for Messrs. King, Levertov and Shteyn reflect the payments made in 2014 for the portion of the Performance Units granted in February 2011 that vested on January 1, 2014 (which is 33 1/3% of the number of Performance Units granted to each executive). The final vesting date for these awards was January 1, 2014. See Compensation Discussion and AnalysisCompensation Prior to 2013 for additional information regarding these Performance Unit grants. |
(c) | Reflects payments made in 2014 for the portion of the Performance Units granted in July 2012 that vested on January 1, 2014 (which is 16 2/3% of the number of Performance Units granted to each executive). See Compensation Discussion and AnalysisCompensation Prior to 2013 for additional information regarding this Performance Unit grant. |
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(d) | Reflects payments made in 2014 for the portion of the Performance Units granted in 2013 that vested on January 1, 2014 (which is 12.5% of the number of Performance Units granted to each executive). See Compensation Discussion and Analysis2013 Compensation Long-Term Incentive CompensationPerformance Units for additional information. |
(5) | The 2012 amount shown in this column for Mr. Ho reflects payments made in 2013 based on 2012 performance and are detailed in the following schedule: |
Name |
2012 Actual STI
Paid in 2013 (a) |
Paid in 2013
Based on 2012 Performance under the Terms of Performance Units Granted in 2011 (b) |
Paid in 2013
Based on July December 2012 Performance under the Terms of Performance Units Granted in July 2012 (c) |
Total | ||||||||||||
Mr. Ho |
$ | 315,046 | $ | 815,208 | $ | 102,868 | $ | 1,233,122 |
(a) | Reflects amount earned in 2012 and paid in 2013 under the Cash America 2012 STI plan. |
(b) | Reflects a payment made in 2013 for the portion of the Performance Units granted in February 2011 that vested on January 1, 2013 (which is 33 1/3% of the number of Performance Units granted to Mr. Ho). See Compensation Discussion and AnalysisCompensation Prior to 2013 for additional information. |
(c) | Reflects a payment made in 2013 for the portion of the Performance Units granted in July 2012 that vested on January 1, 2013 (which is 16 2/3% of the number of Performance Units granted to Mr. Ho in July 2012). See Compensation Discussion and AnalysisCompensation Prior to 2013 for additional information. |
(6) | The 2011 amount shown in this column for Mr. Ho reflects payments made in 2012 based on 2011 performance and are detailed in the following schedule: |
Name |
2011 Actual STI
Paid in 2012 (a) |
Paid in 2012
Based on 2011 Performance under the Terms of Performance Units Granted in 2011 (b) |
Total | |||||||||
Mr. Ho |
$ | 521,028 | $ | 672,005 | $ | 1,193,033 |
(a) | Reflects amount earned in 2011 and paid in 2012 under the Cash America 2011 STI plan. |
(b) | Reflects a payment made in 2012 for the portion of the Performance Units granted in February 2011 that vested on January 1, 2012 (which is 33 1/3% of the number of Performance Units granted to Mr. Ho). |
(7) | The 2013 amounts shown include the following: |
Name |
Nonqualified
Savings Plan Contributions by Enova |
SERP
Contributions by Enova (a) |
401(k)
Contributions by Enova |
Canada
Retirement Savings Plan Contributions by Enova |
Perquisites,
Personal Benefits and Other (b) |
Total | ||||||||||||||||||
Mr. Fisher |
$ | | $ | 49,613 | $ | 4,712 | $ | | $ | 22,683 | $ | 77,008 | ||||||||||||
Mr. Clifton |
| 13,024 | 3,825 | | 62,343 | 79,192 | ||||||||||||||||||
Mr. King |
6,261 | 33,350 | 6,375 | | 38,715 | 84,701 | ||||||||||||||||||
Mr. Levertov |
| 15,634 | | | 38,366 | 54,000 | ||||||||||||||||||
Mr. Shteyn |
| | | 27,728 | 29,283 | 57,011 | ||||||||||||||||||
Mr. Ho |
4,395 | | 6,375 | | 639,734 | (c) | 650,504 |
(a) | Includes contributions made by Enova in 2014 that were earned in 2013. |
(b) | Consists of supplemental health care and insurance benefits for all of the named executive officers, an auto allowance for all of our named executive officers other than Mr. Fisher and Mr. Ho, allowances for club dues and / or professional financial services for Messrs. Clifton, King, Levertov, and Shteyn, relocation costs paid on behalf of Mr. Clifton (including $7,544 of related tax gross-up), an employee recognition award paid to Mr. Ho (including $5 of related tax gross-up), and amounts paid or payable under Mr. Hos Continued Employment and Separation Agreement and the Springleaf Amendment. The amount of supplemental health care and insurance benefits for each of Messrs. Clifton and Levertov is $25,224. Except as noted below with respect to Mr. Ho, none of the other individual amounts exceed $25,000. |
(c) | In addition to Mr. Hos supplemental health care and insurance benefits for 2013, this amount includes $595,000 payable to Mr. Ho over the 24-month period following Mr. Hos separation and a lump sum payment made in 2013 for Mr. Hos accrued and unused paid time off. See Compensation Discussion and Analysis2013 CompensationContinued Employment and Separation Agreement for Mr. Ho for additional information. |
(8) | Mr. Fisher joined Enova on January 29, 2013. |
(9) | Mr. Shteyns cash-based Performance Units and $12,000 of Mr. Shteyns perquisites were denominated in U.S. dollars. All other payments to Mr. Shteyn were denominated in CAD. All CAD-denominated payments made to Mr. Shteyn have been converted into U.S. dollars at a rate of $0.971470 per CAD, which is the average of the daily exchange rates for each month used to translate the 2013 results of our Canadian operations to U.S. dollars for U.S. financial reporting. |
(10 ) | Mr. Ho left Enova on March 29, 2013. |
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Grants of Plan-based Awards for 2013
The following table provides information about the equity and non-equity awards made to our named executive officers under the Cash America LTIP and our STI plans during 2013.
Name |
Grant Date |
Performance
Units Granted (#) |
Estimated Possible Payouts
under Non-Equity Incentive Plan Awards |
All Other Stock
Awards: Number of Shares of Stock or Units (#) (1) |
Grant Date
Fair Value of Stock and Option Awards ($) (2) |
|||||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | ||||||||||||||||||||||||||
David A. Fisher |
2/14/13 | (3) | | $ | 272,659 | $ | 363,545 | $ | 727,090 | | | |||||||||||||||||
3/28/13 | (4) | 13,668 | $ | 66,537 | $ | 787,500 | $ | 2,362,500 | | | ||||||||||||||||||
1/29/13 | | | | | 14,260 | $ | 687,189 | |||||||||||||||||||||
Robert S. Clifton |
2/14/13 | (3) | | | $ | 69,548 | $ | 278,192 | | | ||||||||||||||||||
3/28/13 | (4) | 3,445 | $ | 16,544 | $ | 198,475 | $ | 595,425 | | | ||||||||||||||||||
Alex T. King |
2/14/13 | (3) | | | $ | 161,039 | $ | 644,156 | | | ||||||||||||||||||
3/28/13 | (4) | 10,631 | $ | 51,052 | $ | 612,500 | $ | 1,837,500 | | | ||||||||||||||||||
Arad Levertov |
2/14/13 | (3) | | | $ | 82,093 | $ | 328,372 | | | ||||||||||||||||||
3/28/13 | (4) | 7,159 | $ | 34,379 | $ | 412,500 | $ | 1,237,500 | | | ||||||||||||||||||
Daniel Shteyn |
2/14/13 | (3) | | | $ | 72,861 | $ | 291,444 | | | ||||||||||||||||||
3/28/13 | (4) | 2,388 | $ | 11,468 | $ | 137,602 | $ | 412,806 | | | ||||||||||||||||||
Timothy S. Ho (5) |
| | | | | | |
(1) | A time-based RSU award was made to Mr. Fisher under the Cash America LTIP in 2013. See Compensation Discussion and Analysis2013 CompensationLong-Term Incentive CompensationRestricted Stock Units, for further information. |
(2) | The amount shown represents the grant date fair value in compliance with ASC 718 for RSU awards that were granted under the Cash America LTIP. In accordance with ASC 718, the grant date fair value is based on the closing stock price of Cash America common stock on the last trading day before the grant date, which was $48.19 for the RSUs granted to Mr. Fisher. |
(3) | The amounts shown represent potential cash-based payments under our 2013 STI plans. See Compensation Discussion and Analysis2013 CompensationShort-Term Incentive Compensation and Bonuses for additional information regarding our 2013 STI plans, including a description of the Earnings Threshold and Earnings Target under the plans covering our named executive officers. The threshold amount shown for Mr. Fisher represents 75% of his 2013 STI Target Award in accordance with the Fisher Letter Agreement. The actual payments that our named executive officers received under the Cash America 2013 STI plans are included in the Non-Equity Incentive Compensation column of the Summary Compensation Table. Mr. Shteyns 2013 STI award was denominated in CAD and has been converted into U.S. dollars at a rate of $0.971470 per CAD, as described in footnote 9 of the Summary Compensation Table. |
(4) | Represent grants of cash-based Performance Units made during 2013 under the Cash America LTIP. The threshold values were not specified in the Performance Unit award agreements, but the E-Commerce Division must achieve the EBITDA Growth Requirement through each applicable vesting date for any portion of the awards to vest on that date. The threshold amounts represent the minimum amount that would be paid to each named executive officer if the minimum EBITDA Growth Requirement that is required for vesting were achieved only as of the first vesting date of the award. The targeted value assumes target performance over the three-year term of the grant, and the maximum amount that may be paid under these Performance Unit grants is 300% of the target amount. See Compensation Discussion and Analysis2013 CompensationLong-Term Incentive CompensationPerformance Units for additional information regarding these Performance Units. The actual payments that our named executive officers received in February 2014 for the portion of their 2013 Performance Unit awards that vested on January 1, 2014 is included in the Non-Equity Incentive Plan Compensation column in the Summary Compensation Table. |
(5) | Mr. Ho left Enova on March 29, 2013 and did not participate in the 2013 Cash America STI plan or receive grants under the Cash America LTIP during 2013. |
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Outstanding Equity Awards at 2013 Year End
The following table provides information on our named executive officers holdings of unvested RSUs of Cash America as of December 31, 2013. All shares refer to shares of Cash America common stock.
Stock Awards | ||||||||
Name |
Number of Shares
or Units of Stock That Have Not Vested (1) |
Market Value of
Shares or Units of Stock That Have Not Vested (2) |
||||||
David A. Fisher |
14,260 | $ | 546,158 | |||||
Robert S. Clifton |
| | ||||||
Alex T. King |
| | ||||||
Arad Levertov |
| | ||||||
Daniel Shteyn |
| | ||||||
Timothy S. Ho (3) |
| |
(1) | Includes a grant of time-based RSUs to Mr. Fisher on January 29, 2013 under the Cash America LTIP that will become 100% vested on the earlier of January 29, 2015 or the date, if ever, that Enovas stock becomes publicly traded. See Compensation Discussion and Analysis2013 CompensationLong-Term Incentive CompensationRestricted Stock Units for additional information regarding Mr. Fishers RSU grant in 2013. |
(2) | The market value of the unvested RSUs is based on the closing price of Cash Americas common stock as of December 30, 2013, which was $38.30. |
(3) | Mr. Hos unvested RSUs, all of which were granted on January 26, 2011, were forfeited when he left Enova on March 29, 2013. The number forfeited consisted of 4,663 time-based RSUs and a maximum of 6,219 performance-based RSUs. |
Option Exercises and Stock Vested in 2011
The following table provides information on the aggregate number of shares acquired in 2013 upon the vesting of RSUs and the value realized, each before payment of any applicable withholding tax and broker commissions. All shares refer to shares of Cash America common stock.
Stock Awards | ||||||||
Name |
Number of Shares
Acquired on Vesting (1) |
Value Realized
on Vesting (2) |
||||||
David A. Fisher |
| | ||||||
Robert S. Clifton |
| | ||||||
Alex T. King |
| | ||||||
Arad Levertov |
| | ||||||
Daniel Shteyn |
| | ||||||
Timothy S. Ho |
2,333 | $ | 112,474 |
(1) | Reflects the number of shares acquired by Mr. Ho in 2013 upon the vesting on January 31, 2013 of time-based RSUs that were granted on January 26, 2011 under the Cash America LTIP. |
(2) | Value reflects the closing price of Cash America common stock on the last trading day preceding the vesting date. |
182
Nonqualified Deferred Compensation for 2013
The following table shows compensation deferred by each named executive officer under the Enova NQSP and the Enova SERP and, with respect to Mr. Clifton, amounts previously deferred under the Cash America Nonqualified Savings Plan, or the Cash America NQSP. Additional information about the Enova NQSP and the Enova SERP is included under Compensation Discussion and Analysis2013 CompensationRetirement and Other Benefits.
Name |
Plan |
Executive
Contributions in 2013 (1) |
Company
Contributions in 2013 (2) |
Aggregate
Earnings in 2013 (3) |
Aggregate
Withdrawals/ Distributions (4) |
Aggregate
Balance at 12/31/2013 (5) (6) |
||||||||||||||||
David A. Fisher |
Enova NQSP | $ | | $ | | $ | | $ | | $ | | |||||||||||
Enova SERP | | 49,613 | | | 49,613 | |||||||||||||||||
Robert S. Clifton |
Enova NQSP and
Cash America NQSP |
| | 11,304 | 44,398 | 54,045 | ||||||||||||||||
Enova SERP | | 13,024 | 1,976 | | 25,329 | |||||||||||||||||
Alex T. King |
Enova NQSP | 25,271 | 6,261 | 17,003 | | 96,318 | ||||||||||||||||
Enova SERP | | 33,350 | 21,369 | | 145,294 | |||||||||||||||||
Arad Levertov |
Enova NQSP | | | | | | ||||||||||||||||
Enova SERP | | 15,634 | 2,543 | | 31,494 | |||||||||||||||||
Daniel Shteyn (7) |
Enova NQSP | | | | | | ||||||||||||||||
Enova SERP | | | | | | |||||||||||||||||
Timothy S. Ho (8) |
Enova NQSP | 21,541 | 4,395 | 6,494 | 189,760 | | ||||||||||||||||
Enova SERP | | | 12,574 | 318,914 | |
(1) | All executive contributions to the Enova NQSP described in this column are included within amounts reported in the Salary and Non-Equity Incentive Plan Compensation columns of the Summary Compensation Table for 2013. |
(2) | All Company contributions to the Enova NQSP and the Enova SERP described in this column are included within the All Other Compensation column of the Summary Compensation Table for 2013. The contributions to the Enova SERP specified in this column reflect the contributions that were earned in 2013 and made in February 2014. |
(3) | The amounts in this column, which are not included in the Summary Compensation Table, reflect the rate of return on hypothetical investments that each named executive officer has selected for his Enova NQSP and Enova SERP accounts from an array of investment options that may be changed by the participant in each plan at any time and that generally mirrors the funds in the Enova 401(k) plan, except investments in Cash America common stock are not available under the Enova NQSP or the Enova SERP. The 2013 annual rates of return for the investment options available for all or most of the calendar year ended December 31, 2013, as reported by the record keeper of the plans, were as follows: |
Name of Fund |
Rate of
Return |
Name of Fund |
Rate of
Return |
|||||||
PIMCO Total Return Admin |
(2.17 | )% |
Artisan Mid Cap Inv |
37.39 | % | |||||
Oakmark Equity & Income 1 |
24.25 |
T. Rowe Price Small Cap Value |
32.74 | |||||||
BlackRock Equity Dividend A |
24.35 |
Thornburg International Value R5 |
15.63 | |||||||
Fidelity Spartan 500 Index Advantage |
32.33 |
Vanguard Money Market |
0.02 | |||||||
Harbor Capital Appreciation Adm. |
37.30 |
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On December 18, 2013 two of the investment options available under the Enova NQSP and the Enova SERP were replaced. The BlackRock Equity Dividend A fund was replaced with the Invesco Comstock fund and the Thornburg International Value R5 fund was replaced with the Oakmark International fund. The 2013 annual rates of return for the replacement investment options, as reported by the record keeper of the plans, were as follows:
Name of Fund |
Rate of
Return |
Name of Fund |
Rate of
Return |
|||||||
Invesco Comstock |
35.24 | % |
Oakmark International |
29.34 | % |
(4) | The amount shown for Mr. Clifton represents a distribution from the Cash America NQSP. Mr. Clifton previously was employed by Cash America and participated in the Cash America NQSP until he left Cash America in July 2010. He had elected to receive a portion of his Cash America NQSP account balance in annual installments following his separation from service. As required by tax regulations, that election remained in effect after Mr. Clifton joined Enova in December 2011. |
(5) | Includes the 2013 Enova SERP contributions shown under the Company Contributions in 2013 column that were made in February 2014 for the named executive officers that were employed as of December 31, 2013. |
(6) | Mr. Fisher was not vested in any portion of his Enova SERP balance at December 31, 2013. Messrs. Clifton and King were fully vested in their Enova NQSP and Enova SERP balances at December 31, 2013. The vested portion of Mr. Levertovs Enova SERP balance at December 31, 2013 was $25,195. |
(7) | Mr. Shteyn does not participate in the Enova NQSP or the Enova SERP. |
(8) | Mr. Ho was fully vested when he left Enova on March 29, 2013. |
Potential Payments upon Termination or Change-in-Control
Payments Made Upon Resignation, Retirement, Termination, Death or Disability
Severance Pay Plan for Executives . While severance agreements are generally handled on a case-by-case basis and are subject to the discretion of Cash Americas Chief Executive Officer and the Cash America Compensation Committee, Cash Americas Severance Pay Plan for Executives provides compensation guidance in the case of an involuntary termination of our officers. Under Cash Americas Severance Pay Plan for Executives each of our named executive officers could receive severance pay or benefits if his employment is involuntarily terminated due to restructuring, job elimination or other circumstances that Cash America determines warrant the provision of severance benefits. Upon termination of employment for any of these reasons, if the executive agrees to a general release of Cash America and its affiliates related to employment claims arising from the termination and a promise to comply with confidentiality, noncompetition and/or nonsolicitation provisions, the executive generally will be entitled to severance pay equal to the number of months of base salary and payable over the period reflected in the table below:
Years of Employment |
Vice President | Senior Vice President |
President or CEO
of a Division of Cash America |
|||||||||
1 but less than 5 |
4 months | 6 months | 12 months | |||||||||
5 but less than 10 |
6 months | 9 months | 18 months | |||||||||
10 but less than 15 |
9 months | 12 months | 24 months | |||||||||
15 or more |
12 months | 18 months | 24 months |
In addition, each executive receives:
| Continued medical and health care benefits for the shorter of the period set forth in the table above or the period during which the former executive is covered by COBRA, with our continuing to pay the portion of COBRA premiums that exceed the portion of health care premiums that current employees are required to pay, or Employer COBRA Premiums, and for the costs of supplemental health care benefits in excess of the amount current executives are required to pay, or Employer Supplemental Executive Health Care Premiums; and |
| A lump sum equal to all accrued but unpaid vacation and paid time off. |
184
Other benefits and perquisites would cease on the officers termination date.
Regardless of whether a named executive officers employment terminates due to retirement, resignation, involuntary termination, death or disability, he is entitled to receive amounts earned during his term of employment. Such amounts include: unpaid non-equity incentive compensation earned during the previous year under the STI plan; vested grants under the Cash America LTIP or any previous incentive plan; and vested contributions and earnings under the Enova 401(k) plan, the Enova NQSP and the Enova SERP. In addition, if the named executive officer dies, his estate would receive payments under the group life insurance plan.
Each named executive officer would forfeit any unvested RSUs or cash-based Performance Units granted under the Cash America LTIP upon his resignation, retirement or any termination, including by reason of his disability or death, except as described below for terminations during specified periods following a change-in-control. In addition, for vesting under Mr. Fishers 2013 grant of cash-based Performance Units, Mr. Fishers employment will be treated as continuing through the final January 1, 2016 vesting date if he voluntarily terminates his employment between February 1, 2015 and December 31, 2015 and meets certain notice requirements. Under the Cash America LTIP the Cash America Compensation Committee has the discretion to amend an award agreement so as to allow for vesting of unvested RSUs, unless such amendment would (a) adversely affect the rights of the holder of such award without such holders consent, (b) cause the award to cease to qualify, if applicable, for an exemption under Code Section 162(m) or (c) cause the recipient to become subject to tax under Code Section 409A(a)(1).
In all cases we have complete discretionary authority to award greater or lesser amounts of severance pay and benefits.
Retention Bonus Agreement with Mr. King.
Under the Retention Bonus Agreement, Mr. King is entitled to receive any unvested portion of his retention bonuses if he (i) is involuntarily terminated without cause, (ii) voluntarily terminates his employment for good reason (including a reduction in his duties or compensation or certain changes in his place of employment), (iii) dies or (iv) becomes disabled prior to the applicable vesting date for that portion of the retention bonus. See Compensation Discussion and Analysis2013 CompensationRetention Bonus Agreement with Mr. King for additional information.
Payments made Upon a Change-in-Control
Cash Americas Executive Change-in-Control Severance Agreements with Cash Americas named executive officers other than its chief executive officer, including Mr. Fisher, specify the payments that Cash Americas named executive officers are to receive if they are terminated in connection with or during a specified period following a change-in-control.
Cash Americas Executive Change-in-Control Severance Agreements.
Cash Americas Executive Change-in-Control Severance Agreement with Mr. Fisher provides that if, within 24 months after a change-in-control of Cash America, Cash America terminates Mr. Fisher without cause or if Mr. Fisher voluntarily terminates his employment with good reason (including a reduction in his duties or compensation or relocation of place of employment), then Mr. Fisher will be entitled to:
| earned and unpaid salary; |
| a pro-rated portion of the target annual bonus (or short-term incentive compensation) under the existing bonus (or short-term incentive compensation) plan based on the number of months employed during the year; |
185
| a lump sum equal to all accrued but unpaid vacation and paid time off; |
| a lump sum equal to two times the higher of Mr. Fishers annual rate of base salary on the date of termination or on the date of change-in-control; |
| a lump sum equal to two times the greater of (i) the target bonus (or short-term incentive compensation) for the year, or (ii) the actual bonus (or short-term incentive compensation) for the preceding year; |
| immediate vesting of any outstanding unvested cash-based and equity-based long-term incentive awards with the amount paid with respect to (i) cash-based awards to be equal to the greater of (A) the amount calculated under the award agreement based on the higher of the target or the actual achievement of the performance goals or (B) the amount to which Mr. Fisher would be entitled under the provisions of the award agreement, and (ii) performance-based equity awards to be equal to the maximum amount available under each award; |
| continued medical and health care benefits for 24 months, consisting of Employer COBRA Premiums to be paid over an 18-month period and an amount equal to (i) six times the first monthly Employer COBRA Premium and (ii) 24 times the first monthly Employer Supplemental Executive Health Care Premium, paid in a lump sum; and |
| executive placement services from an executive search/placement firm of up to $50,000. |
Certain payments under Cash Americas Executive Change-in-Control Severance Agreements will be delayed for six months if required by Code Section 409A of the Internal Revenue Code. In addition, Cash Americas Executive Change-in-Control Severance Agreements provide that a change-in-control is deemed to occur under the circumstances described below under Change-in-Control Definitions.
Accelerated Vesting of Awards under the Cash America Long-Term Incentive Plan.
The agreements relating to the RSUs granted under the Cash America LTIP provide that the vesting and payment of RSUs would be accelerated if there is a change-in-control. The agreements related to the cash-based Performance Units granted under the Cash America LTIP provide that accelerated vesting and payment of the Performance Units that are scheduled to vest within twelve months of the change-in-control would be accelerated if there is a change-in-control, provided that the CAGR growth requirements under the award agreements are met as of the date of the change-in-control. In addition, the agreements related to the cash-based Performance Units granted in July 2012 provide for accelerated vesting and payment (subject to CAGR requirements) of the outstanding portion of the July 2012 awards for which the payment value is based on performance through a year ending before the date of the change-in-control.
Accelerated Vesting under the Enova SERP and the Enova NQSP . The Enova SERP provides that the vesting under the Enova SERP would be accelerated if there is a change-in-control or if the executives employment is terminated as a result of his job being abolished. The Enova NQSP provides that the vesting of the unvested portion of Enovas matching amounts contributed to a named executive officers Enova NQSP account would accelerate in the event of a change-in-control or if the executives employment is terminated as a result of death or disability or of his job being abolished.
Change-in-Control Definitions.
Cash Americas Change-in-Control Severance Agreement with Mr. Fisher and the RSU awards and Performance Unit awards granted under the Cash America LTIP each provide that a change-in-control is deemed to occur:
| if any person or group acquires ownership of Cash America stock that, together with all other Cash America stock held by that person or group, constitutes more than 50% of the total voting power or total fair market value of the stock of Cash America; |
186
| if, during any 12-month period, any person or group acquires ownership of Cash America stock with at least 35% of the total voting power; |
| if, during any 12-month period, a majority of the Cash America directors at the beginning of such period are replaced, other than in specific circumstances; or |
| if, during any 12-month period, any person or group acquires assets of Cash America with an aggregate fair market value of at least 50% of the fair market value of all of Cash Americas gross assets immediately prior to such acquisition or acquisitions. |
The Enova SERP and the Enova NQSP both provide that a change-in-control is deemed to occur:
| if any person or group acquires ownership of Enova stock that, together with all of Enovas other stock held by that person or group, constitutes more than 50% of the total voting power or total fair market value of Enova stock; |
| if, during any 12-month period, any person or group acquires ownership of Enova stock with at least 30% of the total voting power; |
| if, during any 12-month period, a majority of the Enova directors at the beginning of such period are replaced, other than in specific circumstances; or |
| if, during any 12-month period, any person or group acquires Enovas assets with an aggregate fair market value of at least 40% of the fair market value of all of Enovas gross assets immediately prior to such acquisition or acquisitions. Cash Americas change in ownership of our stock, through a public offering or otherwise, is not considered a change-in-control under the Enova SERP or the Enova NQSP. |
Distribution of Nonqualified Deferred Compensation
Our named executive officers are entitled to receive the vested amounts in their accounts under the Enova NQSP and the Enova SERP if their employment with us and with Cash America terminates. The last column in the Nonqualified Deferred Compensation Table reports each named executive officers aggregate balance at December 31, 2013 under each plan. All of our named executive officers except for Mr. Fisher and Mr. Levertov were fully vested in their Enova SERP balances at December 31, 2013. Mr. Levertovs vested Enova SERP balance is shown in footnote 6 of the Nonqualified Deferred Compensation Table. Mr. Fisher was not vested in any of his Enova SERP balance at December 31, 2013. All of our named executive officers who had balances in the Enova NQSP at December 31, 2013 were fully vested. The account balances continue to be credited with increases or decreases reflecting changes in the value of the investments against which the account balances are calculated, and to accrue interest income or dividend payments, as applicable, between the termination event and the date distributions are made. Therefore, amounts that the named executive officer would actually receive would differ from those shown in the Nonqualified Deferred Compensation Table or, in Mr. Levertovs case, in footnote 6 to the Nonqualified Deferred Compensation Table.
Potential Payments
The following tables and disclosures show potential payments to our named executive officers, except Mr. Ho, under Cash Americas or our existing contracts, agreements, plans or arrangements, whether written or unwritten, for various scenarios involving a change-in-control or termination of employment, assuming a December 31, 2013 termination date and, where applicable, using the closing price of Cash Americas common stock of $38.30 (as reported on the NYSE as of December 31, 2013), and assuming that the applicable named executive officers had met requirements under our or Cash Americas incentive compensation plans that the executive be employed as of year-end to receive benefits relating to the year. As of December 31, 2013, each executive had received all of the base salary earned during 2013, except for the portion earned in the final payroll period that began in 2013 and ended in 2014.
187
Mr. Ho left Enova on March 29, 2013. See 2013 CompensationContinued Employment and Separation Agreement for Mr. Ho and the Summary Compensation Table for information regarding amounts paid to Mr. Ho in connection with his separation from Enova.
David A. Fisher
Retirement, Death
or Disability |
Involuntary
Termination Other than for Cause (1) |
Involuntary
Termination Other than for Cause/ Voluntary Termination with Good Reason Following a Change-in- Control |
||||||||||
Severance |
$ | | $ | $ | 1,777,090 | (2) | ||||||
Short-term incentive compensation |
523,141 | (3) | 523,141 | (3) | 363,545 | (4) | ||||||
Accelerated vesting of Cash America LTIP RSU awards |
| | 546,158 | (5) | ||||||||
Accelerated vesting of Cash America LTIP Performance Unit Awards |
| | 948,144 | (6) | ||||||||
Accelerated vesting of SERP balance |
| | 49,613 | (7) | ||||||||
Continued health benefits |
| | 70,145 | (8) | ||||||||
Accrued & unused paid time off |
42,404 | (9)(10) | 42,404 | (9) | 42,404 | (9) | ||||||
Outplacement benefits |
| | 50,000 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 565,545 | $ | 565,545 | $ | 3,847,099 | ||||||
|
|
|
|
|
|
(1) | Mr. Fisher was employed for less than one year as of December 31, 2013 and would not have been eligible for payments under our Severance Pay Plan for Executives if his employment had been involuntarily terminated on that date. |
(2) | This amount is (a) two times Mr. Fishers base salary as of December 31, 2013 and (b) two times his target STI award that would be payable under the terms of Cash Americas 2013 STI plan. To be paid as a lump sum. |
(3) | This amount is the actual 2013 STI award paid to Mr. Fisher. |
(4) | This amount is the target award under the 2013 STI plan. |
(5) | Includes all unvested time-based RSUs. |
(6) | This is the value, based on the actual performance of the e-commerce segment, as of December 31, 2013, of all unvested 13,668 cash-based Performance Units granted to Mr. Fisher under the Cash America LTIP during 2013. |
(7) | Represents the unvested portion of Mr. Fishers Enova SERP balance at December 31, 2013. |
(8) | Consists of Employer COBRA Premiums to be paid over an 18-month period and an amount equal to (i) six times the first monthly Employer COBRA Premium and (ii) 24 times the first monthly Employer Supplemental Executive Health Care Premium, paid in a lump sum. |
(9) | Calculated based on Mr. Fishers salary at December 31, 2013. Assumes none of Mr. Fishers 168 hours of accrued paid time off available for the 2013 year had been used. |
(10 ) | Under certain circumstances, the state where Mr. Fisher is employed requires payment of accrued and unused vacation. |
188
Robert S. Clifton
Resignation,
Retirement, Death or Disability |
Involuntary
Termination Other than for Cause |
Involuntary
Termination Other than for Cause Following a Change- in- Control |
Voluntary
Termination Following a Change- in-Control |
|||||||||||||
Severance |
$ | | $ | 77,833 | (1) | $ | 77,833 | (1) | $ | | ||||||
Short-term incentive compensation |
73,636 | (2) | 73,636 | (2) | 73,636 | (2) | 73,636 | (2) | ||||||||
Accelerated vesting of Cash America LTIP RSU awards |
| | | | ||||||||||||
Accelerated vesting of Cash America LTIP Performance Unit Awards |
| | 486,469 | (3) | 486,469 | (3) | ||||||||||
Continued health benefits |
| 11,864 | (4) | 11,864 | (4) | | ||||||||||
Accrued & unused paid time off |
18,860 | (5)(6) | 18,860 | (5) | 18,860 | (5) | 18,860 | (5) | ||||||||
Outplacement benefits |
| | | | ||||||||||||
Tax gross-ups |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 92,496 | $ | 182,193 | $ | 668,662 | $ | 578,965 | ||||||||
|
|
|
|
|
|
|
|
(1) | Includes four months base salary payable over a four-month period following termination. |
(2) | This amount is the actual 2013 STI award paid to Mr. Clifton. |
(3) | This is the value as of December 31, 2013 of (a) 2,500 cash-based Performance Units granted to Mr. Clifton on January 25, 2012; (b) 1,451 cash-based Performance Units granted to Mr. Clifton on July 25, 2012 and (c) 431 cash-based Performance Units granted to Mr. Clifton during 2013, all of which were granted under the Cash America LTIP. See Compensation Discussion and Analysis2013 CompensationLong-Term Incentive CompensationPerformance Units and Compensation Discussion and AnalysisCompensation Prior to 2013 for additional information. |
(4) | Consists of Employer COBRA Premiums to be paid over a four-month period and Employer Supplemental Executive Health Care Premiums to be paid over a four-month period. |
(5) | Calculated based on Mr. Cliftons salary at December 31, 2013. Assumes none of Mr. Cliftons 168 hours of accrued paid time off available for the 2013 year had been used. |
(6) | Under certain circumstances, the state where Mr. Clifton is employed requires payment of accrued and unused vacation. |
189
Alex T. King
Resignation or
Retirement |
Death, Disability
or Voluntary Termination with Good Reason |
Involuntary
Termination Other than for Cause |
Involuntary
Termination Other than for Cause Following a Change-in- Control |
Voluntary
Termination with Good Reason Following a Change-in- Control |
Voluntary
Termination Following a Change-in- Control |
|||||||||||||||||||
Severance |
$ | | | $ | 262,500 | (1) | $ | 262,500 | (1) | $ | | $ | | |||||||||||
Short-term incentive compensation |
284,112 | (2) | 284,112 | (2) | 284,112 | (2) | 284,112 | (2) | 284,112 | (2) | 284,112 | (2) | ||||||||||||
Accelerated vesting of Cash America LTIP RSU awards |
| | | | | | ||||||||||||||||||
Accelerated vesting of Cash America LTIP Performance Unit Awards |
| | | 941,609 | (3) | 941,609 | (3) | 941,609 | (3) | |||||||||||||||
Continued health benefits |
| | 26,499 | (4) | 26,499 | (4) | | | ||||||||||||||||
Accrued & unused paid time off |
28,269 | (5)(6) | 28,269 | (5) | 28,269 | (5) | 28,269 | (5) | 28,269 | (5) | 28,269 | (5) | ||||||||||||
Outplacement benefits |
| | | | | | ||||||||||||||||||
Retention bonus |
233,334 | (7) | 700,000 | (8) | 700,000 | (8) | 700,000 | (8) | 700,000 | (8) | 233,334 | (7) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 545,715 | $ | 1,012,381 | $ | 1,301,380 | $ | 2,242,989 | $ | 1,953,990 | $ | 1,487,324 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Includes nine months base salary payable over a nine-month period following termination. |
(2) | This amount is the actual 2013 STI award and discretionary bonus paid to Mr. King. |
(3) | This is the value as of December 31, 2013 of (a) 4,166 cash-based Performance Units granted to Mr. King during 2011; (b) 3,501 cash-based Performance Units granted to Mr. King during 2012 and (c) 1,329 cash-based Performance Units granted to Mr. King during 2013, all of which were granted under the Cash America LTIP. See Compensation Discussion and Analysis2013 CompensationLong-Term Incentive CompensationPerformance Units and Compensation Discussion and AnalysisCompensation Prior to 2013 for additional information. |
(4) | Consists of Employer COBRA Premiums to be paid over a nine-month period and Employer Supplemental Executive Health Care Premiums to be paid over a nine-month period. |
(5) | Calculated based on Mr. Kings salary at December 31, 2013. Assumes none of Mr. Kings 168 hours of accrued paid time off available for the 2013 year had been used. |
(6) | Under certain circumstances, the state where Mr. King is employed requires payment of accrued and unused vacation. |
(7) | This amount is the portion of Mr. Kings retention bonus that actually vested on December 31, 2013 under the terms of Mr. Kings Retention Bonus Agreement. |
(8) | Includes $466,000 of Mr. Kings retention bonus for which payment would be accelerated under the terms of the Retention Bonus Agreement. |
190
Arad Levertov
Resignation,
Retirement, Death or Disability |
Involuntary
Termination Other than for Cause |
Involuntary
Termination Other than for Cause Following a Change- in-Control |
Voluntary
Termination Following a Change- in-Control |
|||||||||||||
Severance |
$ | | $ | 91,667 | (1) | $ | 91,667 | (1) | $ | | ||||||
Short-term incentive compensation |
211,424 | (2) | 211,424 | (2) | 211,424 | (2) | 211,424 | (2) | ||||||||
Accelerated vesting of Cash America LTIP RSU awards |
| | | | ||||||||||||
Accelerated vesting of Cash America LTIP Performance Unit Awards |
| | 350,761 | (3) | 350,761 | (3) | ||||||||||
Continued health benefits |
| 11,864 | (4) | 11,864 | (4) | | ||||||||||
Accrued & unused paid time off |
22,212 | (5)(6) | 22,212 | (5) | 22,212 | (5) | 22,212 | (5) | ||||||||
Outplacement benefits |
| | | | ||||||||||||
Accelerated vesting of SERP balance |
| | 6,299 | (7) | 6,299 | (7) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 233,636 | $ | 337,167 | $ | 694,227 | $ | 590,696 | ||||||||
|
|
|
|
|
|
|
|
(1) | Includes four months base salary payable over a four-month period following termination. Mr. Levertov was Vice PresidentOperations as of December 31, 2013. |
(2) | This amount is the actual 2013 STI award and discretionary bonus paid to Mr. Levertov. |
(3) | This is the value as of December 31, 2013 of (a) 500 cash-based Performance Units granted to Mr. Levertov during 2011; (b) 2,751 cash-based Performance Units granted to Mr. Levertov during 2012 and (c) 895 cash-based Performance Units granted to Mr. Levertov during 2013, all of which were granted under the Cash America LTIP. See Compensation Discussion and Analysis2013 CompensationLong-Term Incentive CompensationPerformance Units and Compensation Discussion and AnalysisCompensation Prior to 2013 for additional information. |
(4) | Consists of Employer COBRA Premiums to be paid over a four-month period and Employer Supplemental Executive Health Care Premiums to be paid over a four-month period. |
(5) | Calculated based on Mr. Levertovs salary at December 31, 2013. Assumes none of Mr. Levertovs 168 hours of accrued paid time off available for the 2013 year had been used. |
(6) | Under certain circumstances, the state where Mr. Levertov is employed requires payment of accrued and unused vacation. |
(7) | Represents the unvested portion of Mr. Levertovs Enova SERP balance at December 31, 2013. |
191
Daniel Shteyn
Resignation,
Retirement, Death or Disability |
Involuntary
Termination Other than for Cause |
Involuntary
Termination Other than for Cause Following a Change- in-Control |
Voluntary
Termination Following a Change- in-Control |
|||||||||||||
Severance (7) |
$ | | $ | 80,956 | (1) | $ | 80,956 | (1) | $ | | ||||||
Short-term incentive compensation (7) |
77,462 | (2) | 77,462 | (2) | 77,462 | (2) | 77,462 | (2) | ||||||||
Accelerated vesting of Cash America LTIP RSU awards |
| | | | ||||||||||||
Accelerated vesting of Cash America LTIP Performance Unit Awards |
| | 204,014 | (3) | 204,014 | (3) | ||||||||||
Continued health benefits (7) |
| 1,967 | (4) | 1,967 | (4) | | ||||||||||
Accrued & unused paid time off (7) |
19,616 | (5)(6) | 19,616 | (5) | 19,616 | (5) | 19,616 | (5) | ||||||||
Outplacement benefits |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 97,078 | $ | 180,001 | $ | 384,015 | $ | 301,092 | ||||||||
|
|
|
|
|
|
|
|
(1) | Includes four months base salary payable over a four-month period following termination. |
(2) | This amount is the actual 2013 STI award paid to Mr. Shteyn. |
(3) | This is the value as of December 31, 2013 of (a) 500 cash-based Performance Units granted to Mr. Shteyn during 2011; (b) 1,451 cash-based Performance Units granted to Mr. Shteyn during 2012 and (c) 298 cash-based Performance Units granted to Mr. Shteyn during 201 3 , all of which were granted under the Cash America LTIP. See Compensation Discussion and Analysis2013 CompensationLong-Term Incentive CompensationPerformance Units and Compensation Discussion and AnalysisCompensation Prior to 2013 for additional information. |
(4) | Consists of Employer Supplemental Executive Health Care Premiums to be paid over a four-month period. |
(5) | Calculated based on Mr. Shteyns salary at December 31, 2013. Assumes none of Mr. Shteyns 168 hours of accrued paid time off available for the 2013 year had been used. |
(6) | Under certain circumstances, the state where Mr. Shteyn is employed while in the U.S. requires payment of accrued and unused vacation. |
(7) | These amounts are denominated in CAD and have been converted into U.S. dollars at a rate of $0.971470 per CAD, as described in footnote 9 of the Summary Compensation Table. |
192
RECENT SALES OF UNREGISTERED SECURITIES
On September 13, 2011, Cash America contributed to Enova International, Inc. all of the stock of its wholly-owned subsidiary, Enova Online Services, Inc., in exchange for 33 million shares of our common stock pursuant to Section 4(2) of the Securities Act. We did not register the issuance of such shares under the Securities Act because such issuance did not constitute a public offering.
On May 30, 2014, we issued and sold the Notes. The Notes bear interest at a rate of 9.75% and were sold at a discount of the principal amount thereof to yield 10.0% to maturity. The Notes were sold to Jefferies LLC, as initial purchaser. The notes were resold to qualified institutional buyers in accordance with Rule 144A under the Securities Act and outside the United States pursuant to Regulation S under the Securities Act. See Financing ArrangementsSenior Notes for additional information regarding the Notes.
193
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the date of this information statement, all of the outstanding shares of our common stock are owned by Cash America. Immediately after the distribution, Cash America will retain 20 percent of our outstanding common stock. For a description of certain voting arrangements relating to the shares of our common stock retained by Cash America, see Certain Relationships and Related-Party TransactionsAgreements Between Us and Cash AmericaStockholders and Registration Rights Agreement included elsewhere in this information statement. The following table provides information with respect to the expected beneficial ownership of our common stock immediately after the distribution by (1) each stockholder who is expected to be a beneficial owner of more than 5 percent of our outstanding common stock based on publicly available information, (2) each of our directors, (3) each executive officer named in the Summary Compensation Table and (4) all of our executive officers and directors as a group. Except as otherwise noted above or in the footnotes below, each person or entity identified below has sole voting and investment power with respect to such securities. To the extent our directors and executive officers own Cash America common stock as of the record date for the distribution, they will participate in the distribution on the same terms as other holders of Cash America common stock. The mailing address for each of the directors and executive officers listed below is 200 W. Jackson Blvd., Suite 2400, Chicago, Illinois 60606.
We have based the percentages below on each persons beneficial ownership of Cash America common stock as of [ ], 2014 unless we indicate some other basis for the share amounts. We estimate that, based on the [ ] shares of Cash America common stock outstanding as of [ ], 2014, based on the distribution of 80 percent of our common stock and applying the distribution ratio, we will have approximately 33,000,000 shares of common stock outstanding immediately after the distribution.
Principal Stockholders and Address |
Number of Shares Beneficially Owned |
Percent of Common Stock Outstanding |
||
Cash America International, Inc. 1600 W. 7 th Street Fort Worth, TX 76102 |
||||
Daniel R. Feehan |
||||
David A. Fisher |
||||
Alex T. King |
||||
Arad Levertov |
||||
Robert S. Clifton |
||||
Daniel Shteyn |
||||
All directors and executive officers as a group |
194
DESCRIPTION OF CAPITAL STOCK
General
The following is a summary of the rights of our capital stock and certain provisions of our certificate of incorporation and bylaws. For more detailed information, please see the forms of our amended and restated certificate of incorporation and amended and restated bylaws filed as exhibits to the registration statement of which this information statement is a part. The following information assumes the filing of our amended and restated certificate of incorporation with the Delaware Secretary of State.
Our authorized capital stock consists of 275,000,000 shares, with a par value of $0.00001 per share, of which:
| 250,000,000 shares are designated as common stock; and |
| 25,000,000 shares are designed as preferred stock. |
As of [ ], 2014, there were outstanding 33,000,000 shares of our common stock, all held by Cash America.
Common Stock
Each holder of common stock is entitled to one vote for each share on all matters to be voted upon by the stockholders and there are no cumulative voting rights. Subject to preferences to which holders of preferred stock may be entitled, holders of common stock are entitled to receive ratably those dividends, if any, that may be declared from time to time by our Board of Directors out of funds legally available for the payment of dividends. See Dividend Policy for additional information. In the event of a liquidation, dissolution or winding up of us, holders of our common stock would be entitled to share in our assets remaining after the payment of liabilities and the satisfaction of any liquidation preference granted to holders of any outstanding shares of preferred stock. Holders of our common stock have no preemptive or conversion rights or other subscription rights and there are no redemption or sinking fund provisions applicable to our common stock. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of holders of shares of any series of preferred stock that we may designate in the future.
Preferred Stock
After the completion of the distribution, no shares of preferred stock will be outstanding. Pursuant to our amended and restated certificate of incorporation, our Board of Directors will have the authority, without further action by our stockholders, to issue from time to time up to 25,000,000 shares of preferred stock in one or more series. Our Board of Directors may designate the rights, preferences, privileges and restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preference, sinking fund terms and the number of shares constituting any series or the designation of any series. The issuance of preferred stock could have the effect of restricting dividends on our common stock, diluting the voting power of our common stock, impairing the liquidation rights of our common stock or delaying, deterring or preventing a change in control. Such issuance could have the effect of decreasing the market price of the common stock. The issuance of preferred stock or even the ability to issue preferred stock could also have the effect of delaying, deterring or preventing a change in control.
Registration Rights
After the completion of the distribution, Cash America will be entitled to certain rights with respect to the registration of our common stock under the Securities Act, under the terms of a stockholders and registration rights agreement between us and Cash America. See Certain Relationships and Related-Party TransactionsAgreements Between Us and Cash AmericaStockholders and Registration Rights Agreement.
Anti-Takeover Provisions
We expect our certificate of incorporation and our bylaws which will be in effect upon the completion of the distribution, will contain certain provisions that could have the effect of delaying, deterring or preventing another
195
party from acquiring control of us. These provisions and certain provisions of Delaware law, which are summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our Board of Directors. We believe that the benefits of increased protection of our potential ability to negotiate more favorable terms with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us.
Authorized but Unissued Shares
Our authorized but unissued shares of common stock and preferred stock will be available for future issuance without stockholders approval. We may use additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. In addition, as discussed above, our Board of Directors has the ability to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us. The existence of authorized but unissued shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
No Stockholder Action by Written Consent
Our certificate of incorporation will provide that our stockholders may act only at an annual or special meeting of stockholders and may not act by written consent.
Special Meetings of Stockholders
Our bylaws will provide that special meetings of stockholders may be called only by a majority of our Board of Directors, the Chairman of our Board of Directors, our President or our Secretary. Stockholders may not call special meetings.
Advance Notice of Nominations and Proposals
Our bylaws include advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of our Board of Directors or a committee of our Board of Directors. Our bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirers own slate of directors or otherwise attempting to obtain control of our company.
Filling of Board Vacancies
Our bylaws include advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of our Board of Directors or a committee of our Board of Directors. Our bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed. These provisions may also discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirers own slate of directors or otherwise attempting to obtain control of our company.
No Cumulative Voting
Our certificate of incorporation and bylaws do not permit cumulative voting in the election of directors. Cumulative voting allows a stockholder to vote a portion or all of its shares for one or more candidates for seats on the Board of Directors. Without cumulative voting, a minority stockholder may not be able to gain as many seats on our Board of Directors as the stockholder would be able to gain if cumulative voting were permitted. The absence of cumulative voting makes it more difficult for a minority stockholder to gain a seat on our Board of Directors to influence our boards decision regarding a takeover.
196
Amendment of our Governing Documents
Our certificate of incorporation will provide that the affirmative vote of the holders of at least 80 percent of our voting stock then outstanding is required to amend certain provisions of the certificate of incorporation, including those relating to the voting rights of stockholders, the number and classification of the Board of Directors, indemnification of our Board of Directors, term and removal of directors, the calling of special meetings of stockholders, the limitation on stockholders to act by written consent and exclusive venue for specified disputes. Our certificate of incorporation will also provide that the affirmative vote of holders of at least 80 percent of the voting power of the voting stock then outstanding will be required to amend certain provisions of our bylaws. Our certificate of incorporation will also confer upon our Board of Directors the right to amend our bylaws.
Exclusive Forum
Our certificate of incorporation will provide that, unless our Board of Directors otherwise determines, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breach of a fiduciary duty owed by any of our directors or officers to us or our stockholders, creditors or other constituents, any action asserting a claim against us or any of our directors or officers arising pursuant to any provision of the DGCL or our certificate of incorporation or bylaws (as either may be amended from time to time) or any action asserting a claim against us or any of our directors or officers governed by the internal affairs doctrine.
Section 203 of the Delaware General Corporation Law
In general, Section 203 of the DGCL, referred to as Section 203, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder unless:
| prior to that date, the Board of Directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; |
| upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85.0% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by persons who are directors and also officers and by excluding employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or |
| on or subsequent to that date, the business combination is approved by the Board of Directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder. |
In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15.0% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by such entity or person. Section 203 defines business combination to include: (i) any merger or consolidation involving the corporation and the interested stockholder; (ii) any sale, transfer, pledge or other disposition of 10.0% or more of the assets of the corporation involving the interested stockholder; (iii) subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; (iv) any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or (v) the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.
While a Delaware corporation may opt out of Section 203 either by an express provision in its original certificate of incorporation or in an amendment to its certificate of incorporation or bylaws approved by its stockholders, we have not elected to opt out of Section 203.
197
Anti-Takeover Effect
The provisions of Delaware law and the provisions of our amended and restated certificate of incorporation and amended and restated bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they might also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions might also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders might otherwise deem to be in their best interests.
Limitation on Liability of Directors, Indemnification of Directors and Officers, and Insurance
The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors fiduciary duties as directors, and our certificate of incorporation will include such an exculpation provision. Our certificate of incorporation will provide that no director will be liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation on liability is not permitted under the DGCL, as now in effect or as amended. Currently, Section 102(b)(7) of the DGCL requires that liability be imposed for the following:
| Any breach of the directors duty of loyalty to our company or our stockholders |
| Any act or omission not in good faith or which involved intentional misconduct or a knowing violation of law |
| Unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL. |
| Any transaction from which the director derived an improper personal benefit |
Additionally, Section 145 of the DGCL provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys fees), judgments, fines and amounts paid in settlement in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, in which such person is made a party by reason of the fact that the person is or was a director, officer, employee or agent of the corporation (other than an action by or in the right of the corporationa derivative action), if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe such persons conduct was unlawful. A similar standard is applicable in the case of derivative actions, except that indemnification only extends to expenses (including attorneys fees) incurred in connection with the defense or settlement of such action, and the statute requires court approval before there can be any indemnification where the person seeking indemnification has been found liable to the corporation. The statute provides that it is not exclusive of other indemnification that may be granted by a corporations bylaws, disinterested director vote, stockholder vote, agreement or otherwise. Our certificate of incorporation and bylaws will provide that, to the fullest extent authorized or permitted by the DGCL, as now in effect or as amended, we will indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding by reason of the fact that such person, or a person of whom he or she is the legal representative, is or was our director or officer, or by reason of the fact that our director or officer is or was serving, at our request, as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans maintained or sponsored by us. We will indemnify such persons against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action if such person acted in good faith and in a manner reasonably believed to be in our best interests and, with respect to any criminal proceeding, had no reason to believe their conduct was unlawful. A similar standard will be applicable in the case of derivative actions, except that indemnification will only extend to expenses (including attorneys fees) incurred in connection with the defense or settlement of such
198
actions, and court approval will be required before there can be any indemnification where the person seeking indemnification has been found liable to us. Any amendment of this provision will not reduce our indemnification obligations relating to actions taken before an amendment.
We also intend to obtain insurance policies that insure our directors and officers and those of our subsidiaries against certain liabilities they may incur in their capacity as directors and officers. The insurance will provide coverage, subject to its terms and conditions, if the company is unable to (e.g., due to bankruptcy) or unwilling to indemnify the directors and officers for a covered act.
Exchange Listing
We plan to apply to list our common stock on the New York Stock Exchange under the symbol ENVA.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock will be Computershare. The transfer agents address is:
Computershare
211 Quality Circle
Suite 210
College Station, TX 77845
-or-
P.O. Box 30170
College Station, TX 77842-3170
(800) 546-5141 or (201) 680-6578
199
DELIVERY OF INFORMATION STATEMENT
The SEC has adopted rules that permit companies and intermediaries, such as brokers, to satisfy delivery requirements for information statements with respect to two or more stockholders sharing the same address by delivery of a single information statement to those stockholders. This process, known as householding, is intended to provide greater convenience for stockholders, and cost savings for companies, by reducing the number of duplicate documents that stockholders receive. Unless contrary instructions from one or more stockholders sharing an address have been received, only one copy of this information statement will be delivered to those multiple stockholders sharing an address.
If, at any time, a stockholder no longer wishes to participate in householding and would prefer to receive separate copies of the information statement, the stockholder should notify his or her intermediary or, if shares are registered in the stockholders name, should contact us at the address, telephone number or e-mail address provided below. Any stockholder who currently receives multiple copies of the information statement at his or her address and would like to request householding of communications should contact his or her intermediary or, if shares are registered in the stockholders name, should contact us at the address, telephone number or e-mail address provided below. Additionally, we will deliver, promptly upon written or oral request directed to the address, telephone number or e-mail address below, a separate copy of this information statement to any stockholders sharing an address to which only one copy was mailed.
Enova International, Inc.
Attention: Investor Relations
200 W. Jackson Blvd., Suite 2400
Chicago, Illinois 60606
[ ]@enova.com
(312) 568-4200
200
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form 10 with the SEC with respect to the shares of our common stock that Cash America shareholders will receive in the distribution. This information statement is a part of that registration statement and, as allowed by SEC rules, does not include all of the information set forth in the registration statement and the exhibits and schedules to the registration statement. For additional information relating to our company and to the separation and the distribution, reference is made to the registration statement and the exhibits and schedules to the registration statement. Statements contained in this information statement as to the contents of any contract or document referred to are not necessarily complete and, in each instance, if the contract or document is filed as an exhibit to the registration statement, we refer you to the copy of the contract or document filed as an exhibit to the registration statement. Each such statement is qualified in all respects by reference to the applicable contract or document.
Following the distribution, we will file annual, quarterly and special reports, proxy statements and other information with the SEC. We intend to furnish our stockholders with annual reports containing consolidated financial statements audited by an independent registered public accounting firm. The registration statement is, and any of these future filings with the SEC will be, available to the public over the Internet on the SECs website at www.sec.gov . You may read and copy any filed document at the SECs public reference rooms in Washington, D.C. at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at (800) SEC-0330 for further information about the public reference rooms.
Following the distribution, we plan to make our filings with the SEC available free of charge on our website at www.enova.com and to provide our filings free of charge upon written request to our Investor Relations department at Enova International, Inc., Attention: Investor Relations, 200 West Jackson Blvd., Chicago, IL 60606.
The information contained on or accessible from our websites is not incorporated by reference into this information statement, and you should not consider information on our websites as part of this information statement.
No person is authorized to give any information or to make any representations or warranties with respect to the matters described in this information statement other than those contained in this information statement and, if given or made, such information or representation or warranty must not be relied upon as having been authorized by us or by Cash America.
201
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Cash America International, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, stockholders equity, and cash flows present fairly, in all material respects, the financial position of Enova International, Inc. and its subsidiaries at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Fort Worth, Texas
April 30, 2014
F-2
ENOVA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
DECEMBER 31, | ||||||||
2013 | 2012 | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 47,480 | $ | 37,548 | ||||
Consumer loans, net |
303,467 | 228,390 | ||||||
Prepaid expenses and other assets |
8,686 | 10,860 | ||||||
Deferred tax assets |
30,914 | 31,990 | ||||||
|
|
|
|
|||||
Total current assets |
390,547 | 308,788 | ||||||
Property and equipment, net |
39,405 | 41,759 | ||||||
Goodwill |
255,869 | 255,875 | ||||||
Intangible assets, net |
45 | 168 | ||||||
Other assets |
6,286 | 6,278 | ||||||
|
|
|
|
|||||
Total Assets |
$ | 692,152 | $ | 612,868 | ||||
|
|
|
|
|||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 49,614 | $ | 47,720 | ||||
|
|
|
|
|||||
Total current liabilities |
49,614 | 47,720 | ||||||
Deferred tax liabilities |
45,306 | 39,843 | ||||||
Other liabilities |
51 | | ||||||
Affiliate line of credit |
424,133 | 427,889 | ||||||
|
|
|
|
|||||
Total Liabilities |
$ | 519,104 | $ | 515,452 | ||||
|
|
|
|
|||||
Commitments and Contingencies |
||||||||
Stockholders Equity: |
||||||||
Common stock, $0.00001 par value, 250,000,000 shares authorized, 33,000,000 shares issued and outstanding |
| | ||||||
Preferred stock, $0.00001 par value, 25,000,000 shares authorized, no shares issued and outstanding |
| | ||||||
Retained earnings |
169,947 | 96,682 | ||||||
Accumulated other comprehensive income |
3,101 | 734 | ||||||
|
|
|
|
|||||
Total Stockholders Equity |
173,048 | 97,416 | ||||||
|
|
|
|
|||||
Total Liabilities and Stockholders Equity |
$ | 692,152 | $ | 612,868 | ||||
|
|
|
|
See Notes to Consolidated Financial Statements
F-3
ENOVA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(amounts in thousands, except per share data)
YEAR ENDED DECEMBER 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Revenue |
$ | 765,323 | $ | 660,928 | $ | 480,340 | ||||||
Cost of Revenue |
315,052 | 288,474 | 201,687 | |||||||||
|
|
|
|
|
|
|||||||
Gross Profit |
450,271 | 372,454 | 278,653 | |||||||||
Expenses |
||||||||||||
Marketing |
135,336 | 108,810 | 73,329 | |||||||||
Operations and technology |
70,776 | 63,505 | 52,371 | |||||||||
General and administrative |
84,420 | 72,690 | 65,401 | |||||||||
Depreciation and amortization |
17,143 | 13,272 | 11,263 | |||||||||
|
|
|
|
|
|
|||||||
Total Expenses |
307,675 | 258,277 | 202,364 | |||||||||
|
|
|
|
|
|
|||||||
Income from Operations |
142,596 | 114,177 | 76,289 | |||||||||
Affiliate interest expense |
(19,788 | ) | (20,996 | ) | (17,420 | ) | ||||||
Foreign currency transaction loss |
(1,176 | ) | (342 | ) | (487 | ) | ||||||
|
|
|
|
|
|
|||||||
Income before Income Taxes |
121,632 | 92,839 | 58,382 | |||||||||
Provision for income taxes |
43,594 | 33,967 | 21,350 | |||||||||
|
|
|
|
|
|
|||||||
Net Income |
$ | 78,038 | $ | 58,872 | $ | 37,032 | ||||||
|
|
|
|
|
|
|||||||
Earnings per share |
||||||||||||
Earnings per common share, basic and diluted |
$ | 2.36 | $ | 1.78 | $ | 1.12 | ||||||
Weighted average shares outstanding, basic and diluted |
33,000 | 33,000 | 33,000 |
See Notes to Consolidated Financial Statements
F-4
ENOVA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
YEAR ENDED DECEMBER 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Net Income |
$ | 78,038 | $ | 58,872 | $ | 37,032 | ||||||
Other comprehensive income (loss), net of tax: |
||||||||||||
Foreign currency translation gain (loss) (1) |
2,367 | 1,487 | (547 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total other comprehensive income (loss), net of tax |
2,367 | 1,487 | (547 | ) | ||||||||
|
|
|
|
|
|
|||||||
Comprehensive Income |
$ | 80,405 | $ | 60,359 | $ | 36,485 | ||||||
|
|
|
|
|
|
(1) | Net of tax (provision) benefit of $(1,322), $(836) and $305 for the years ended December 31, 2013, 2012 and 2011, respectively. |
See Notes to Consolidated Financial Statements
F-5
ENOVA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(amounts in thousands)
COMMON STOCK |
RETAINED
EARNINGS |
ACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS) |
TOTAL
STOCKHOLDERS EQUITY |
|||||||||||||||||
SHARES | AMOUNT | |||||||||||||||||||
Balance at December 31, 2010 |
33,000 | $ | | $ | 79,783 | $ | (206 | ) | $ | 79,577 | ||||||||||
Net equity transactions with parent |
787 | | 787 | |||||||||||||||||
Net income |
37,032 | | 37,032 | |||||||||||||||||
Dividends paid to Cash America ($2.27 per share) |
(75,000 | ) | | (75,000 | ) | |||||||||||||||
Foreign currency translation loss, net of tax |
| (547 | ) | (547 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at December 31, 2011 |
33,000 | | 42,602 | (753 | ) | 41,849 | ||||||||||||||
Net equity transactions with parent |
(4,792 | ) | | (4,792 | ) | |||||||||||||||
Net income |
58,872 | | 58,872 | |||||||||||||||||
Foreign currency translation gain, net of tax |
| 1,487 | 1,487 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at December 31, 2012 |
33,000 | | 96,682 | 734 | 97,416 | |||||||||||||||
Net equity transactions with parent |
(4,773 | ) | | (4,773 | ) | |||||||||||||||
Net income |
78,038 | | 78,038 | |||||||||||||||||
Foreign currency translation gain, net of tax |
| 2,367 | 2,367 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at December 31, 2013 |
33,000 | $ | | $ | 169,947 | $ | 3,101 | $ | 173,048 | |||||||||||
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-6
ENOVA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
YEAR ENDED DECEMBER 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Cash Flows from Operating Activities |
||||||||||||
Net Income |
$ | 78,038 | $ | 58,872 | $ | 37,032 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
17,143 | 13,272 | 11,263 | |||||||||
Cost of revenue |
315,052 | 288,474 | 201,687 | |||||||||
Non-cash affiliate interest expense |
19,788 | 20,996 | 17,420 | |||||||||
Stock-based compensation |
250 | 146 | 176 | |||||||||
Deferred income taxes, net |
5,238 | (2,425 | ) | 2,446 | ||||||||
Other |
261 | 5 | 18 | |||||||||
Changes in operating assets and liabilities, net of assets acquired Finance and service charges receivable on consumer loans |
(5,697 | ) | (6,900 | ) | (9,068 | ) | ||||||
Prepaid expenses and other assets |
1,842 | (200 | ) | (2,244 | ) | |||||||
Accounts payable, accrued expenses and other liabilities |
6,378 | 3,257 | 8,230 | |||||||||
Current intercompany income taxes payable |
5 | 11 | (11,027 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
438,298 | 375,508 | 255,933 | |||||||||
|
|
|
|
|
|
|||||||
Cash Flows from Investing Activities |
||||||||||||
Consumer loans originated or acquired |
(1,344,851 | ) | (1,140,215 | ) | (857,029 | ) | ||||||
Consumer loans repaid |
955,984 | 793,748 | 590,602 | |||||||||
Purchases of property and equipment |
(14,872 | ) | (17,872 | ) | (15,073 | ) | ||||||
Investment in non-marketable securities |
| (1,000 | ) | | ||||||||
Other investing activities |
| (178 | ) | | ||||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
(403,739 | ) | (365,517 | ) | (281,500 | ) | ||||||
|
|
|
|
|
|
|||||||
Cash Flows from Financing Activities |
||||||||||||
Net equity transactions with parent |
(5,023 | ) | (4,938 | ) | 425 | |||||||
(Payments to) borrowings from affiliates |
(23,544 | ) | (4,070 | ) | 42,705 | |||||||
|
|
|
|
|
|
|||||||
Net cash (used in) provided by financing activities |
(28,567 | ) | (9,008 | ) | 43,130 | |||||||
|
|
|
|
|
|
|||||||
Effect of exchange rates on cash |
3,940 | 2,154 | (805 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net increase in cash and cash equivalents |
9,932 | 3,137 | 16,758 | |||||||||
Cash and cash equivalents at beginning of year |
37,548 | 34,411 | 17,653 | |||||||||
|
|
|
|
|
|
|||||||
Cash and cash equivalents at end of year |
$ | 47,480 | $ | 37,548 | $ | 34,411 | ||||||
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-7
1. Nature of the Company
Enova International, Inc. (the Company) operates an Internet-based lending platform to serve customers in need of cash to fulfill their financial responsibilities. Through a network of direct and indirect marketing activities, the Company offers funds to its customers through a variety of unsecured consumer loan products. The business is operated strictly through the Internet to provide a convenient, fully-automated financial solution to its customers. As of December 31, 2013, the Company offered consumer loans under the names CashNetUSA and NetCredit in 32 states in the United States, under the names QuickQuid, QuickQuid FlexCredit and Pounds to Pocket in the United Kingdom and under the name DollarsDirect in Australia and Canada. As of December 31, 2013, the Company is a wholly-owned subsidiary of Cash America International, Inc. (Cash America).
The Company originates, guarantees or purchases consumer loans (collectively referred to as consumer loans throughout this discussion). Consumer loans provide customers with cash in their account, typically in exchange for an obligation to repay the amount advanced plus fees and/or interest. Consumer loans include short-term loans, line of credit accounts and installment loans.
Short-term loans include unsecured short-term loans written by the Company or by a third-party lender through the Companys credit services organization and credit access business programs (CSO programs as further described below) that the Company guarantees. Line of credit accounts include draws made through the Companys line of credit product. Installment loans are longer-term multi-payment loans that generally require the pay-down of portions of the outstanding principal balance in multiple installments.
Through the Companys CSO programs the Company provides services related to a third-party lenders consumer loan products in some markets by acting as a credit services organization or credit access business on behalf of consumers in accordance with applicable state laws. Services offered under the CSO programs include credit-related services such as arranging loans with independent third-party lenders and assisting in the preparation of loan applications and loan documents (CSO loans). Under the CSO programs, the Company guarantees consumer loan payment obligations to the third-party lender in the event that the customer defaults on the loan. CSO loans are not included in the Companys financial statements, but the Company has established a liability for the estimated losses in support of the guarantee on these loans in its consolidated balance sheets.
2. Significant Accounting Policies
Basis of Presentation
On September 7, 2011, Cash America formed a new company, Enova International, Inc. On September 13, 2011, Cash America contributed to Enova International, Inc. all of the stock of its wholly-owned subsidiary, Enova Online Services, Inc., in exchange for 33 million shares of the Companys common stock. The consolidated financial information presented reflects the retrospective application of this contribution.
The consolidated financial statements of the Company reflect the historical results of operations and cash flows of the Company during each respective period. The financial statements include goodwill and intangible assets arising from businesses previously acquired. The financial statements also include the allocation of certain assets and liabilities that have historically been held at the Cash America corporate level but which are specifically identifiable or allocable to Enova. All intercompany transactions between Enova and Cash America are considered to be effectively settled in the financial statements at the time the transaction is recorded. The net effect of the settlement of these transactions is primarily reflected as a change in Affiliate line of credit on the consolidated balance sheets. Certain other transactions with Cash America, such as stock-based compensation, foreign currency transactions and settlement of certain intercompany allocations from Cash America, are settled as net equity transactions with parent in Retained earnings on the consolidated balance sheets. In addition, the historical financial statements include allocations of costs relating to certain functions historically provided by
F-8
Cash America, including corporate services such as executive oversight, insurance and risk management, government relations, internal audit, treasury, licensing, and to a limited extent finance, accounting, tax, legal, human resources, compensation and benefits, compliance and support for certain information systems related to financial reporting. The expense allocations have been determined on a basis that Cash America and the Company consider to be reasonable reflections of the utilization of services provided by Cash America. See General and Administrative Expenses for an explanation of this allocation method. Also see Note 14 for additional information on the Companys relationship with Cash America. The financial information included herein may not be indicative of the consolidated financial position, operating results, changes in stockholders equity and cash flows of the Company in the future, or if the Company had been a separate company during the periods presented.
Reclassifications
Certain operating expense amounts reported for prior periods have been reclassified to conform to the current years presentation.
Revision of Prior Period Financial Statements
Cash and cash equivalents, consumer loans, net, and accounts payable and accrued expenses as of December 31, 2011 and 2010 were revised to correct the classification of cash and accounts payable and to correct for consumer loans that had not been funded as of the balance sheet date. The correction resulted in a decrease in cash and cash equivalents of $3.7 million and $1.5 million, a decrease in consumer loans, net of $1.0 million and $1.2 million and a decrease in accounts payable and accrued expenses of $4.7 million and $2.7 million as of December 31, 2011 and 2010, respectively. In the consolidated statement of cash flows for the year ended December 31, 2011, the correction resulted in a decrease in net cash provided by operating activities of $2.0 million, a decrease in net cash used in investing activities of $0.2 million, a decrease in cash and cash equivalents at beginning of year of $1.5 million and a decrease in cash and cash equivalents at end of year of $3.7 million. Management determined that the impact on previously issued financial statements was immaterial, however, management determined it was appropriate to correct the presentation of the consolidated statement of cash flows for the year ended December 31, 2011.
Use of Estimates
The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the dates of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, allowance for losses on consumer loans, goodwill, long-lived and intangible assets, income taxes, contingencies and litigation. Management bases its estimates on historical experience, empirical data and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates.
Foreign Currency Translations
The functional currencies for the Companys subsidiaries that serve residents of the United Kingdom, Australia and Canada are the British pound, the Australian dollar and the Canadian dollar, respectively. The assets and liabilities of these subsidiaries are translated into U.S. dollars at the exchange rates in effect at each balance sheet date, and the resulting adjustments are recorded in Accumulated other comprehensive income (loss) (AOCI) as a separate component of stockholders equity. Revenue and expenses are translated at the monthly average exchange rates occurring during each period.
F-9
Cash and Cash Equivalents
The Company considers deposits in banks and short-term investments with original maturities of 90 days or less as cash and cash equivalents.
Revenue Recognition
The Company recognizes consumer loan fees as revenue for each of the loan products it offers. Revenue in the consolidated statements of income include: interest income, finance charges, fees for services provided through the CSO programs (CSO fees), service charges, draw fees, minimum fees, late fees, nonsufficient funds fees and any other fees or charges permitted by applicable laws and pursuant to the agreement with the borrower. For short-term loans that the Company offers, interest and finance charges are recognized on an effective yield basis over the term of the loan, and fees are recognized when assessed to the customer. CSO fees are recognized on an effective yield basis over the term of the loan. For line of credit accounts, interest is recognized during the period based upon the balance outstanding and the contractual interest rate, and fees are recognized when assessed to the customer. For installment loans, revenue is recognized on an effective yield basis over the term of the loan and fees are recognized when assessed to the customer. Unpaid and accrued interest and fees are included in Consumer loans, net in the consolidated balance sheets.
Current and Delinquent Consumer Loans
The Company classifies its consumer loans as either current or delinquent. Short-term loans are considered delinquent when payment of an amount due is not made as of the due date. If a line of credit account or installment loan customer misses one payment, that payment is considered delinquent. If a line of credit account or installment loan customer does not make two consecutive payments, the entire account or loan is classified as delinquent. The Company allows for normal payment processing time before considering a loan delinquent but does not provide for any additional grace period.
The Company generally does not accrue interest on delinquent consumer loans and does not resume accrual of interest on a delinquent loan unless it is returned to current status. In addition, delinquent consumer loans generally may not be renewed, and if, during its attempt to collect on a delinquent consumer loan, the Company allows additional time for payment through a payment plan or a promise to pay, it is still considered delinquent. All payments received are first applied against accrued but unpaid interest and fees and then against the principal balance of the loan.
Allowance and Liability for Estimated Losses on Consumer Loans
The Company monitors the performance of its consumer loan portfolio and maintains either an allowance or liability for estimated losses on consumer loans (including fees and interest) at a level estimated to be adequate to absorb credit losses inherent in the portfolio. The allowance for losses on the Companys owned consumer loans reduces the outstanding loan balance in the consolidated balance sheets. The liability for estimated losses related to loans guaranteed under the CSO programs is initially recorded at fair value and is included in Accounts payable and accrued expenses in the consolidated balance sheets.
In determining the allowance or liability for estimated losses on consumer loans, the Company applies a documented systematic methodology. In calculating the allowance or liability for loan losses, outstanding loans are divided into discrete groups of short-term loans, line of credit accounts and installment loans and are analyzed as current or delinquent. Increases in either the allowance or the liability, net of charge-offs and recoveries, are recorded as a Cost of revenue in the consolidated statements of income.
The allowance or liability for short-term loans classified as current is based on historical loss rates adjusted for recent default trends for current loans. For delinquent short-term loans, the allowance or liability is based on a six-month rolling average of loss rates by stage of collection. For line of credit accounts and installment loan
F-10
portfolios, the Company generally uses a migration analysis to estimate losses inherent in the portfolio. The allowance or liability calculation under the migration analysis is based on historical charge-off experience and the loss emergence period, which represents the average amount of time between the first occurrence of a loss event to the charge-off of a loan. The factors the Company considers to assess the adequacy of the allowance or liability include past due performance, historical behavior of monthly vintages, underwriting changes and recent trends in delinquency in the migration analysis.
The Company fully reserves and generally charges off consumer loans once the loan or a portion of the loan has been classified as delinquent for 60 consecutive days. If a loan is deemed uncollectible before it is fully reserved, it is charged off at that point. Consumer loans classified as delinquent generally have an age of one to 59 days from the date any portion of the loan became delinquent, as defined above. Recoveries on loans previously charged to the allowance are credited to the allowance when collected.
Property and Equipment
Property and equipment is recorded at cost. The cost of property retired or sold and the related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in the consolidated statements of income. Costs associated with repair and maintenance activities are expensed as incurred. Depreciation expense is generally provided on a straight-line basis, using the following estimated useful lives:
Computer hardware and software |
2 to 5 years | |||
Furniture, fixtures and equipment |
3 to 7 years | |||
Leasehold improvements (1) |
2 to 10 years |
(1) | Leasehold improvements are depreciated over the lesser of the estimated useful life, remaining lease term, or 10 years. |
Software Development Costs
The Company applies Accounting Standards Codification (ASC) 350-40, Internal Use Software (ASC 350-40), to its software purchase and development activities. Under ASC 350-40, eligible internal and external costs incurred for the development of computer applications, as well as for upgrades and enhancements that result in additional functionality of the applications, are capitalized to Property and equipment on the consolidated balance sheets. Internal and external training and maintenance costs are charged to expense as incurred or over the related service period. When a software application is placed in service, the Company begins amortizing the related capitalized software costs using the straight-line method based on its estimated useful life, which currently ranges from two to five years.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. In accordance with ASC 350, IntangiblesGoodwill and Other (ASC 350), the Company tests goodwill and intangible assets with an indefinite life for potential impairment annually as of June 30 and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
The Company uses the income approach to complete its annual goodwill assessment. The income approach uses future cash flows and estimated terminal values for the Company that are discounted using a market participant perspective to determine the fair value, which is then compared to the carrying value to determine if there is impairment. The income approach includes assumptions about revenue growth rates, operating margins and terminal growth rates discounted by an estimated weighted-average cost of capital derived from other publicly-traded companies that are similar but not identical from an operational and economic standpoint. The Company completed its annual assessment of goodwill as of June 30, 2013 and determined that the fair value of its goodwill exceeded carrying value, and, as a result, no impairment existed at that date.
F-11
As of December 31, 2013, the Company had $255.9 million of goodwill, all of which is expected to be deductible for tax purposes.
Long-Lived Assets Other Than Goodwill
An evaluation of the recoverability of property and equipment and intangible assets subject to amortization is performed whenever the facts and circumstances indicate that the carrying value may be impaired. An impairment loss is recognized if the future undiscounted cash flows associated with the asset and the estimated fair value of the asset are less than the assets corresponding carrying value. The amount of the impairment loss, if any, is the excess of the assets carrying value over its estimated fair value.
The Company amortizes intangible assets subject to amortization on the basis of their expected periods of benefit, generally three to five years. The costs of start-up activities and organization costs are charged to expense as incurred.
Hedging and Derivatives Activity
Cash America periodically uses foreign currency forward contracts, which are considered derivative instruments, to minimize the effects of foreign currency risk in the United Kingdom and Australia related to the operations of the Company. The Company participates in Cash Americas derivative and hedging programs, which are coordinated through a centralized treasury function; therefore, the assets and liabilities related to derivative instruments are not recorded in the Companys financial statements. The forward contracts are not designated as hedges as defined by ASC 815, Derivatives and Hedging ; therefore, any changes in the fair value of the forward contracts are recognized in Foreign currency transaction loss in the consolidated statements of income. See Note 13.
Non-Marketable Equity Securities
The Company accounts for its non-marketable equity securities in accordance with ASC 325, InvestmentsOther . Non-marketable equity securities are recorded on a cost basis. The Company evaluates non-marketable equity securities for impairment on a quarterly basis. If an impairment of an equity security is determined to be other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary-impairment is identified. Non-marketable equity securities are held in Other assets on the consolidated balance sheets.
As of December 31, 2013, the Company owned a $6.0 million investment in the preferred stock of an early-stage privately-held developing consumer financial services entity. The entity is not currently profitable and has historically funded its operations through a series of capital contributions from investors. The Companys impairment evaluation of this investment as of December 31, 2013 determined that an impairment loss was not probable as of that date. The Company will continue to evaluate the impairment risk of this entity by monitoring and assessing the entitys ability to raise capital or generate profits to fund its future operations.
Marketing Expenses
Marketing expenses consist of online marketing costs such as sponsored search and advertising on social networking sites, and offline marketing costs such as television, radio and print advertising. In addition, marketing expenses include lead purchase costs paid to marketers in exchange for providing information or applications from potential customers interested in using the Companys services. Online marketing and lead purchase costs are expensed as incurred. The production costs associated with offline marketing are expensed as incurred. Other marketing costs are expensed as incurred.
The Company also has an agreement with an independent third party pursuant to which the Company pays a portion of the net revenue received from the customers referred to the Company by such third party. The Company also has an arrangement with Cash America pursuant to which the Company pays either a lead purchase fee or a portion of the net revenue received from the customers referred to the Company by Cash America. These referral fees are expensed as incurred and included in Marketing in the consolidated statements of income.
F-12
Operations and Technology Expenses
Operations and technology expenses include all expenses related to the direct operations and technology infrastructure related to loan underwriting and processing. This includes call center and operations personnel costs, software maintenance expense, underwriting data from third-party vendors, and telephony costs.
General and Administrative Expenses
General and Administrative expenses primarily include the Companys corporate personnel costs, as well as legal, occupancy, and other related costs. In addition, general and administrative expenses include expense allocations for certain corporate service functions historically provided by Cash America, such as executive oversight, insurance and risk management, government relations, internal audit, treasury, licensing, and to a limited extent finance, accounting, tax, legal, human resources, compensation and benefits, compliance and support for certain information systems related to financial reporting. Cash America allocates these expenses to the Company based on the Companys share of Cash Americas corporate services expenses incurred for the consolidated entity. Actual corporate services costs that may have been incurred if the Company had been a stand-alone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees, and strategic decisions made in areas such as information technology and infrastructure. The Company believes that the expenses in these financial statements are reported on a basis that fairly represents the utilization of the services provided. These financial statements do not necessarily reflect the financial position or results of operations that would have existed if the Company had been operated as a stand-alone entity during the periods covered and may not be indicative of future results of operations and financial position. See Note 14 for additional information.
Stock-Based Compensation
During the periods presented, certain employees received stock-based compensation in the form of restricted stock units from Cash America. The Company accounts for its stock-based employee compensation plans in accordance with ASC 718, CompensationStock Compensation (ASC 718) . In accordance with ASC 718, the Company recognizes compensation expense over the remaining vesting periods for stock-based awards. These awards are reflected as a net equity transaction with parent in the Companys statement of stockholders equity. During the years ended December 31, 2011 and 2012, certain employees received performance-based stock awards. For these awards, compensation expense is originally based on the number of shares that would vest if the Company achieved the level of performance that management estimates is the most probable outcome at the grant date. Throughout the requisite service period, management monitors the probability of achievement of the performance condition and adjusts stock-based compensation expense if necessary. See Note 12.
Income Taxes
The provision for income taxes is based on income before income taxes as reported for financial statement purposes. Deferred income taxes are provided for in accordance with the assets and liability method of accounting for income taxes in order to recognize the tax effects of temporary differences between financial statement and income tax accounting.
In the Companys financial statements, income tax expense and deferred tax balances have been calculated on a separate tax return basis although Enovas operations have historically been included as part of consolidated and unitary tax returns with Cash America and its affiliated companies. With the exception of certain entities outside of the United States, Enova settles its current tax balances with Cash America on a quarterly basis through an adjustment to its affiliate line of credit with Cash America.
The Company accounts for uncertainty in income taxes in accordance with ASC 740, Income Taxes (ASC 740). ASC 740 requires that a more-likely-than-not threshold be met before the benefit of a tax position may be recognized in the consolidated financial statements and prescribes how such benefit should be measured. It also provides guidance on recognition adjustment, classification, accrual of interest and penalties, accounting in interim periods, disclosure and transition.
F-13
The Company performs an evaluation of the recoverability of its deferred tax assets on a quarterly basis. The Company establishes a valuation allowance if it is more likely than not (greater than 50 percent) that all or some portion of the deferred tax asset will not be realized. The Company analyzes several factors, including the nature and frequency of operating losses, the Companys carryforward period for any losses, the reversal of future taxable temporary differences, the expected occurrence of future income or loss and the feasibility of available tax planning strategies to protect against the loss of deferred tax assets. See Note 9 for further discussion.
It is the Companys policy to classify interest and penalties on income tax liabilities as interest expense and general and administrative expense, respectively.
Earnings Per Share
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the year. Diluted earnings per share is calculated by giving effect to the potential dilution that could occur if securities or other contracts to issue common shares were exercised and converted into common shares during the year.
Adopted Accounting Standards
In February 2013, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220)Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02), which improves the reporting of reclassifications out of AOCI. ASU 2013-02 requires an entity to report the effect of significant reclassifications out of AOCI by the respective line items on the consolidated statements of income that compose net income if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income. For other amounts that are not required under GAAP to be reclassified in their entirety from AOCI to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. The Company adopted ASU 2013-02 on January 1, 2013, and the adoption did not have a material effect on its financial position, results of operations or other comprehensive income.
In July 2012, the FASB issued ASU 2012-02, IntangiblesGoodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment (ASU 2012-02) . ASU 2012-02 provides companies with the option to assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not (a likelihood of more than 50 percent) that the indefinite-lived intangible asset is impaired. If a company concludes that it is more likely than not that the asset is impaired, it is required to determine the fair value of the intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying value in accordance with ASC 350. If a company concludes otherwise, no further quantitative assessment is required. ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, although early adoption is permitted. The Company adopted ASU 2012-02 on January 1, 2013, and the adoption did not have a material effect on its financial position or results of operations.
In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities (Topic 210) (ASU 2011-11). ASU 2011-11 requires a company to provide enhanced disclosures about financial instruments and derivative instruments that are either presented on a net basis on the balance sheet or are subject to an enforceable master netting or similar arrangement. In January 2013, the FASB issued ASU No. 2013-01, Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities (ASU 2013-01), which limits the scope of ASU 2011-11 by requiring additional disclosure about financial instruments and derivative instruments that are either offset in the statement of financial position or subject to an enforceable master netting arrangement. ASU 2013-01 requires retrospective disclosure for all comparative periods. ASU 2011-11 and ASU 2013-01 are effective for annual and interim reporting periods beginning January 1, 2013. The Company adopted ASU 2011-11 and ASU 2013-01 on January 1, 2013, and the adoption of these standards did not have a material effect on its financial position or results of operations. See Note 17 for further discussion.
F-14
In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment (ASU 2011-08). This update is intended to simplify goodwill impairment testing by adding an optional qualitative review step to assess whether the required quantitative impairment analysis that exists under GAAP is necessary. Under ASU 2011-08, a company will not be required to calculate the fair value of a reporting unit that contains recorded goodwill unless it concludes, based on the qualitative assessment, that it is more likely than not (a likelihood of more than 50 percent) that the fair value of that reporting unit is less than its book value. If such a decline in fair value is deemed more likely than not to have occurred, then the quantitative goodwill impairment test that exists under current GAAP must be completed. If not, goodwill is deemed not impaired and no further testing is required until the next annual test date, unless conditions or events before that date raise concerns of potential impairment. The amended goodwill impairment guidance does not affect the manner in which a company estimates fair value. The Company adopted ASU 2011-08 on January 1, 2012 and exercised its option to bypass the qualitative assessment and utilized only a quantitative assessment in its annual goodwill assessment, which was completed in June 2012, and its additional goodwill assessment completed in September 2012. See Notes 4 and 22. The adoption of ASU 2011-08 did not have a material effect on the Companys financial position or results of operations.
In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income (ASU 2011-05), which enhances comparability between entities that report under GAAP and those that report under International Financial Reporting Standards (IFRS). ASU 2011-05 requires companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement of equity. ASU 2011-05 is effective for the Companys interim and annual periods beginning after December 15, 2011 and must be applied retrospectively. In December 2011, the FASB issued ASU No. 2011-12, Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05 (ASU 2011-12). ASU 2011-12 effectively defers only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The Company adopted ASU 2011-05 and ASU 2011-12 on January 1, 2012 and the adoption did not have a material effect on its financial position or results of operations.
In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (ASU 2011-04), which amends ASC 820, Fair Value Measurement (ASC 820). ASU 2011-04 provides a consistent definition and measurement of fair value, as well as similar disclosure requirements between GAAP and IFRS. ASU 2011-04 changes certain fair value measurement principles, clarifies the application of existing fair value measurement and expands the ASC 820 disclosure requirements, particularly for Level 3 fair value measurements. ASU 2011-04 is effective for the Company prospectively for interim and annual periods beginning after December 15, 2011. The Company adopted ASU 2011-04 on January 1, 2012 and the adoption did not have a material effect on its financial position or results of operations.
Accounting Standards to be Adopted in Future Periods
In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (ASU 2013-11), which provides guidance on the presentation of unrecognized tax benefits when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendments in this update are effective for fiscal years (and interim periods within those years) beginning after December 15, 2013. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The Company does not expect ASU 2013-11 to have a material effect on the Companys financial condition or results of operations.
In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830): Parents Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of
F-15
Assets within a Foreign Entity or of an Investment in a Foreign Entity (a consensus of the FASB Emerging Issues Task Force) (ASU 2013-05), which applies to the release of the cumulative translation adjustment into net income when a parent either sells all or a part of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. ASU 2013-05 is effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The Company does not expect ASU 2013-05 to have a material effect on the Companys financial condition or results of operations.
In February 2013, the FASB issued ASU 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date . ASU 2013-04 requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date as the amount the reporting entity agreed to pay plus additional amounts the reporting entity expects to pay on behalf of its co-obligors. The guidance further provides for disclosure of the nature and amount of the obligation. ASU 2013-04 is effective for interim and annual reporting periods beginning after December 15, 2013. The Company does not expect ASU 2013-04 to have a material effect on the Companys financial condition or results of operations.
3. Consumer Loans, Credit Quality Information and Allowances and Liabilities for Estimated Losses
Consumer loan fee revenue generated from the Companys consumer loans for the years ended December 31, 2013, 2012 and 2011 was as follows (dollars in thousands):
YEAR ENDED DECEMBER 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Interest and fees on short-term loans |
$ | 389,706 | $ | 459,835 | $ | 400,810 | ||||||
Interest and fees on line of credit accounts |
170,496 | 73,532 | 30,590 | |||||||||
Interest and fees on installment loans |
203,924 | 126,202 | 48,054 | |||||||||
|
|
|
|
|
|
|||||||
Total consumer loan fees |
$ | 764,126 | $ | 659,569 | $ | 479,454 | ||||||
Other |
1,197 | 1,359 | 886 | |||||||||
|
|
|
|
|
|
|||||||
Total Revenue |
$ | 765,323 | $ | 660,928 | $ | 480,340 | ||||||
|
|
|
|
|
|
The components of Company-owned consumer loan portfolio receivables at December 31, 2013 and 2012 were as follows (dollars in thousands):
F-16
Changes in the allowance for losses for the Company-owned loans and the liability for estimated losses on the Companys guarantees of third-party lender-owned loans through the CSO programs for the years ended December 31, 2013, 2012 and 2011 were as follows (dollars in thousands):
YEAR ENDED DECEMBER 31, 2013 | ||||||||||||||||
SHORT-
TERM LOANS |
LINE OF
CREDIT ACCOUNTS |
INSTALLMENT
LOANS |
TOTAL | |||||||||||||
Allowance for losses for Company-owned consumer loans: |
||||||||||||||||
Balance at beginning of period |
$ | 41,942 | $ | 12,565 | $ | 27,845 | $ | 82,352 | ||||||||
Cost of revenue |
136,534 | 72,308 | 106,787 | 315,629 | ||||||||||||
Charge-offs |
(192,504 | ) | (63,001 | ) | (116,853 | ) | (372,358 | ) | ||||||||
Recoveries |
34,796 | 6,714 | 14,544 | 56,054 | ||||||||||||
Effect of foreign currency translation |
(302 | ) | 658 | 285 | 641 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | 20,466 | $ | 29,244 | $ | 32,608 | $ | 82,318 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liability for third-party lender-owned consumer loans: |
||||||||||||||||
Balance at beginning of period |
$ | 2,624 | $ | | $ | | $ | 2,624 | ||||||||
Decrease in liability |
(577 | ) | | | (577 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | 2,047 | $ | | $ | | $ | 2,047 | ||||||||
|
|
|
|
|
|
|
|
YEAR ENDED DECEMBER 31, 2012 | ||||||||||||||||
SHORT-
TERM LOANS |
LINE OF
CREDIT ACCOUNTS |
INSTALLMENT
LOANS |
TOTAL | |||||||||||||
Allowance for losses for Company-owned consumer loans: |
||||||||||||||||
Balance at beginning of period |
$ | 42,880 | $ | 3,723 | $ | 12,451 | $ | 59,054 | ||||||||
Cost of revenue |
176,701 | 36,251 | 75,182 | 288,134 | ||||||||||||
Charge-offs |
(210,557 | ) | (31,399 | ) | (65,493 | ) | (307,449 | ) | ||||||||
Recoveries |
31,675 | 3,990 | 5,174 | 40,839 | ||||||||||||
Effect of foreign currency translation |
1,243 | | 531 | 1,774 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | 41,942 | $ | 12,565 | $ | 27,845 | $ | 82,352 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liability for third-party lender-owned consumer loans: |
||||||||||||||||
Balance at beginning of period |
$ | 2,284 | $ | | $ | | $ | 2,284 | ||||||||
Increase in liability |
340 | | | 340 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | 2,624 | $ | | $ | | $ | 2,624 | ||||||||
|
|
|
|
|
|
|
|
F-17
YEAR ENDED DECEMBER 31, 2011 | ||||||||||||||||
SHORT-
TERM LOANS |
LINE OF
CREDIT ACCOUNTS |
INSTALLMENT
LOANS |
TOTAL | |||||||||||||
Allowance for losses for Company-owned consumer loans: |
||||||||||||||||
Balance at beginning of period |
$ | 30,104 | $ | 3,023 | $ | 2,895 | $ | 36,022 | ||||||||
Cost of revenue |
160,280 | 7,825 | 33,594 | 201,699 | ||||||||||||
Charge-offs |
(168,107 | ) | (7,877 | ) | (24,807 | ) | (200,791 | ) | ||||||||
Recoveries |
21,060 | 752 | 1,012 | 22,824 | ||||||||||||
Effect of foreign currency translation |
(457 | ) | | (243 | ) | (700 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | 42,880 | $ | 3,723 | $ | 12,451 | $ | 59,054 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liability for third-party lender-owned consumer loans: |
||||||||||||||||
Balance at beginning of period |
$ | 2,296 | $ | | $ | | $ | 2,296 | ||||||||
Decrease in liability |
(12 | ) | | | (12 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | 2,284 | $ | | $ | | $ | 2,284 | ||||||||
|
|
|
|
|
|
|
|
In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for short-term loans and is required to purchase any defaulted loans it has guaranteed. The guarantee represents an obligation to purchase specific loans that go into default. As of December 31, 2013 and 2012, the amount of consumer loans guaranteed by the Company was $41.4 million and $48.2 million, respectively, representing amounts due under consumer loans originated by third-party lenders under the CSO programs. The estimated fair value of the liability for estimated losses on consumer loans guaranteed by the Company of $2.0 million and $2.6 million as of December 31, 2013 and 2012, respectively, is included in Accounts payable and accrued expenses in the consolidated balance sheets.
4. Property and Equipment
As an online financial services provider, a significant amount of capital is invested in developing computer software and systems infrastructure. Major classifications of property and equipment at December 31, 2013 and 2012 were as follows (dollars in thousands):
The Company capitalized internal software development costs of $6.6 million, $8.1 million and $7.2 million during 2013, 2012 and 2011, respectively.
The Company recognized depreciation expense of $17.0 million, $13.0 million and $9.9 million during 2013, 2012 and 2011, respectively.
F-18
5. Goodwill and Other Intangible Assets
Goodwill is tested for impairment at least annually. See Note 2 for further discussion.
Goodwill
Changes in the carrying value of goodwill for the years ended December 31, 2013 and 2012 were as follows (dollars in thousands):
Balance as of January 1, 2013 |
$ | 255,875 | ||
Effect of foreign currency translation |
(6 | ) | ||
|
|
|||
Balance as of December 31, 2013 |
$ | 255,869 | ||
|
|
|||
Balance as of January 1, 2012 |
$ | 255,786 | ||
Acquisitions |
88 | |||
Effect of foreign currency translation |
1 | |||
|
|
|||
Balance as of December 31, 2012 |
$ | 255,875 | ||
|
|
Acquired Intangible Assets
Acquired intangible assets that are subject to amortization as of December 31, 2013 and 2012, were as follows (dollars in thousands):
AS OF DECEMBER 31, | ||||||||||||||||||||||||
2013 | 2012 | |||||||||||||||||||||||
COST |
ACCUMULATED
AMORTIZATION |
NET | COST |
ACCUMULATED
AMORTIZATION |
NET | |||||||||||||||||||
Customer relationships |
$ | 2,743 | $ | (2,727 | ) | $ | 16 | $ | 2,746 | $ | (2,713 | ) | $ | 33 | ||||||||||
Lead provider relationships |
2,489 | (2,489 | ) | | 2,489 | (2,489 | ) | | ||||||||||||||||
Trademarks |
372 | (343 | ) | 29 | 359 | (259 | ) | 100 | ||||||||||||||||
Non-competition agreements |
| | | 270 | (235 | ) | 35 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | 5,604 | $ | (5,559 | ) | $ | 45 | $ | 5,864 | $ | (5,696 | ) | $ | 168 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Non-competition agreements are amortized over the applicable terms of the contract. Customer and lead provider relationships are generally amortized over three to five years based on the pattern of economic benefits provided. Trademarks are generally amortized over three years on a straight-line basis.
Amortization
Amortization expense for acquired intangible assets was $0.1 million, $0.3 million and $1.4 million for the years ended December 31, 2013, 2012 and 2011, respectively.
Estimated future amortization expense for the years ended December 31, is as follows (dollars in thousands):
YEAR |
AMOUNT | |||
2014 |
$ | 43 | ||
2015 |
2 | |||
|
|
|||
Total |
$ | 45 | ||
|
|
F-19
6. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses at December 31, 2013 and 2012, were as follows (dollars in thousands):
7. Marketing Expenses
Marketing expenses for the years ended December 31, 2013, 2012 and 2011 were as follows (dollars in thousands):
YEAR ENDED DECEMBER 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Advertising |
$ | 74,294 | $ | 50,776 | $ | 23,259 | ||||||
Customer procurement expense including lead purchase costs |
52,418 | 49,381 | 43,074 | |||||||||
Customer referral and revenue sharing expense |
8,624 | 8,653 | 6,996 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 135,336 | $ | 108,810 | $ | 73,329 | ||||||
|
|
|
|
|
|
See Note 2 for further discussion.
8. Affiliate Line of Credit
The Company depends on Cash Americas support for its financing requirements and has in place an affiliate revolving credit agreement related to amounts outstanding with Cash America (the Credit Agreement). On April 12, 2012, the Company entered into a $450 million credit agreement with Cash America to refinance and replace its outstanding affiliate notes payable and to fund its operating needs. Borrowings under the Credit Agreement are unsecured and are evidenced by a promissory note payable to Cash America. Borrowings bear interest at a fluctuating interest rate equal to the prevailing LIBOR rate per annum (based upon a one month interest period) plus 4.5%, or in certain circumstances equal to the prevailing alternate base rate per annum plus 2.0%. The alternate base rate is equal to the greater of (a) the U.S. prime rate, (b) the federal funds effective rate plus 0.5%, and (c) the sum of the one-month LIBOR plus 1.0%. Interest accruing on borrowings made under the revolving line of credit are payable to Cash America and are settled through an adjustment to its affiliate line of credit with Cash America on a monthly basis. At December 31, 2013 and 2012, the Company had outstanding amounts payable under the Credit Agreement of $424.1 million and $427.9 million, respectively.
Subject to the terms and conditions set forth in the Credit Agreement, the Company is permitted to borrow, repay and re-borrow funds from Cash America on a revolving credit basis in a maximum amount equal to $450 million. The Credit Agreement contains a number of covenants that restrict the Companys ability to incur additional indebtedness, create liens on assets, sell assets, make investments, and pay dividends and distributions. In addition, the Company is required to comply with certain financial covenants, including a maximum leverage ratio and a minimum fixed charge coverage ratio. The Company is required to apply the net proceeds received from each public or private offering of the Companys common stock, other equity or debt instruments, and from the disposition of assets outside the ordinary course of business, to reduce the outstanding balance of the Companys obligations under the Credit Agreement, and, except in the case of an initial public offering, the maximum available borrowings under the Credit Agreement will be reduced by the amount of each such
F-20
payment. The Credit Agreement, however, provides that Cash America is not obligated to make any advances to the Company if Cash America is, or by virtue of such advance would be, in default under any of its obligations in its credit facility. The borrowings under the Credit Agreement will mature on the earlier to occur of June 1, 2015 or such time as Cash America ceases to beneficially own shares of the Companys common stock representing 50% or more of the total voting power of the outstanding shares generally entitled to elect directors, at which time all principal and accrued and unpaid interest becomes due and payable to Cash America.
Interest rates on the Credit Agreement ranged from 4.69% to 4.75% during the twelve months ended December 31, 2013, and from April 12, 2012 to December 31, 2012 interest on the Credit Agreement was 4.75%.
As of December 31, 2013 and 2012, the Company was in compliance with all covenants and other requirements set forth in the Credit Agreement.
As of December 31, 2013, annual maturities of the Credit Agreement for each of the five years after December 31, 2013 and thereafter are as follows (dollars in thousands):
YEAR |
AMOUNT | |||
2014 |
$ | | ||
2015 |
424,133 | |||
2016 |
| |||
2017 |
| |||
2018 |
| |||
Thereafter |
| |||
|
|
|||
Total |
$ | 424,133 | ||
|
|
9. Income Taxes
The components of the Companys deferred tax assets and liabilities as of December 31, 2013 and 2012 were as follows (dollars in thousands):
F-21
The components of the provision for income taxes and the income to which it relates for the years ended December 31, 2013, 2012 and 2011 are shown below (dollars in thousands):
YEAR ENDED DECEMBER 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Income (loss) before income taxes: |
||||||||||||
Domestic |
$ | 119,974 | $ | 94,349 | $ | 58,404 | ||||||
International |
1,658 | (1,510 | ) | (22 | ) | |||||||
|
|
|
|
|
|
|||||||
Income before income taxes |
$ | 121,632 | $ | 92,839 | $ | 58,382 | ||||||
|
|
|
|
|
|
|||||||
Current provision (benefit): |
||||||||||||
Federal |
$ | 37,639 | $ | 35,327 | $ | 18,491 | ||||||
International |
56 | 17 | (4 | ) | ||||||||
State and local |
682 | 1,049 | 417 | |||||||||
|
|
|
|
|
|
|||||||
Total current provision for income taxes |
$ | 38,377 | $ | 36,393 | $ | 18,904 | ||||||
|
|
|
|
|
|
|||||||
Deferred provision (benefit): |
||||||||||||
Federal |
$ | 5,122 | $ | (2,399 | ) | $ | 2,548 | |||||
International |
| | | |||||||||
State and local |
95 | (27 | ) | (102 | ) | |||||||
|
|
|
|
|
|
|||||||
Total deferred provision for income taxes |
$ | 5,217 | $ | (2,426 | ) | $ | 2,446 | |||||
|
|
|
|
|
|
|||||||
Total provision for income taxes |
$ | 43,594 | $ | 33,967 | $ | 21,350 | ||||||
|
|
|
|
|
|
The Company has no uncertain income tax positions as defined by ASC 740 for the years ended December 31, 2013, 2012 or 2011. The effective tax rate on income differs from the federal statutory rate of 35% for the following reasons (dollars in thousands):
YEAR ENDED DECEMBER 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Tax provision computed at the federal statutory income tax rate |
$ | 42,571 | $ | 32,494 | $ | 20,434 | ||||||
State and local income taxes, net of federal tax benefits |
505 | 664 | 205 | |||||||||
Tax effect of Regulatory Penalty (1) |
871 | | | |||||||||
Valuation allowance |
(457 | ) | 470 | | ||||||||
Other |
104 | 339 | 711 | |||||||||
|
|
|
|
|
|
|||||||
Total provision |
$ | 43,594 | $ | 33,967 | $ | 21,350 | ||||||
|
|
|
|
|
|
|||||||
Effective tax rate |
35.8 | % | 36.6 | % | 36.6 | % |
(1) | Represents the tax effect of the $2.5 million CFPB penalty paid in 2013, which is nondeductible for tax purposes, in connection with the Regulatory Penalty. See Note 10 for further information. |
As of December 31, 2012, a valuation allowance was established against deferred tax assets for net operating losses, totaling $0.5 million, related to its Mexico subsidiary which the Company did not expect to realize. In 2013, the $0.5 million valuation allowance was decreased due to the recognition of taxable income by the Mexico subsidiary, causing full utilization of the net operating losses.
As of December 31, 2013, the Companys 2010 through 2012 tax years were open to examination by the Internal Revenue Service and major state taxing jurisdictions, and the 2011 through 2012 tax years of the Companys Mexican subsidiary were open to examination by the Mexican taxing authorities.
F-22
10. Commitments and Contingencies
Leases
The Company leases its headquarters in Chicago, Illinois and a call center facility in Gurnee, Illinois under operating leases with remaining terms ranging from one to six years and certain rights to extend for additional periods. The Company is responsible for paying its proportionate share of the actual operating expenses and real estate taxes under certain of these arrangements. The operating expenses and real estate taxes are not included in the table below. Future minimum rentals due under non-cancelable leases are as follows for each of the years ending December 31 (dollars in thousands):
YEAR |
AMOUNT | |||
2014 |
$ | 2,791 | ||
2015 |
2,824 | |||
2016 |
2,833 | |||
2017 |
1,665 | |||
2018 |
469 | |||
Thereafter |
351 | |||
|
|
|||
Total |
$ | 10,933 | ||
|
|
Rent expense was $2.7 million, $2.4 million and $2.2 million for the years ended December 31, 2013, 2012 and 2011, respectively.
Guarantees
In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders and is required to purchase the loan should a customer not make payments as required by the contract. The guarantee represents an obligation to purchase specific loans that go into default, which generally have terms of less than 60 days. At December 31, 2013 and 2012, the amount of consumer loans guaranteed by the Company was $41.4 million and $48.2 million, respectively, representing amounts due under consumer loans originated by third-party lenders under the CSO programs. The liability related to these guarantees of $2.0 million and $2.6 million at December 31, 2013 and 2012 is included in Accounts payable and accrued expenses in the accompanying consolidated balance sheets.
The Company and its domestic subsidiaries participate jointly and severally with other subsidiaries of Cash America and guarantee long-term debt of Cash America of $638.2 million and $468.1 million, at December 31, 2013 and 2012, respectively. The debt matures at various dates occurring through 2022. Under the provisions of the debt agreements, the Company has liability in the event Cash America defaults in its payment obligations or fails to comply with the covenants under the various debt agreements or upon the occurrence of specified events contained in the various debt agreements, including the event of bankruptcy, insolvency or reorganization of Cash America. The Company believes it will not have to make any payments under these guarantees; therefore, no liability has been reflected on the accompanying consolidated balance sheets.
Litigation
On January 6, 2014, Elizabeth Burger, on behalf of herself and others similarly situated, filed a purported class action lawsuit in the U.S. District Court for the Southern District of Ohio against the Companys subsidiary, CNU Online Holdings, LLC, the Companys parent company, Cash America, and other unaffiliated lenders. The lawsuit alleges, among other things, that the Companys credit service organization activities in Ohio violate various laws in Ohio, including the Short-Term Loan Act, the Consumer Sales Practices Act, and the General Usury Act. The complaint seeks class certification, an unspecified amount of actual damages, statutory damages not to exceed $5,000 for each putative class member, an unspecified amount of punitive damages, pre-judgment interest, a declaration that the Companys activities violate the Short-Term Loan Act and the Consumer Sales Practices Act, and attorneys fees and costs. On January 23, 2014, the parties filed a joint motion to stay the
F-23
litigation pending a decision from the Ohio Supreme Court in the case captioned Ohio Neighborhood Finance, Inc. v. Scott , which will impact the issues alleged in the case. On January 28, 2014, the court granted the joint motion to stay and stayed the litigation pending a decision from the Ohio Supreme Court. Neither the likelihood of an unfavorable ruling nor the ultimate liability, if any, with respect to this matter can be determined at this time, and the Company is currently unable to estimate a range of reasonably possible losses, as defined by ASC 450-20-20, ContingenciesLoss ContingenciesGlossary (ASC 450-20-20), for this litigation. We believe that the plaintiffs claims in the complaint are without merit and intend to vigorously defend this lawsuit.
On March 8, 2013, Flemming Kristensen, on behalf of himself and others similarly situated, filed a purported class action lawsuit in the U.S. District Court of Nevada against the Company and other unaffiliated lenders and lead providers. The lawsuit alleges that the lead provider defendants sent unauthorized text messages to consumers on behalf of the Company and the other lender defendants in violation of the Telephone Consumer Protection Act. The complaint seeks class certification, statutory damages, an injunction against wireless spam activities, and attorneys fees and costs. The Company filed an answer to the complaint denying all liability. On March 26, 2014, the Court granted class certification. Discovery is ongoing. Neither the likelihood of an unfavorable ruling nor the ultimate liability, if any, with respect to this matter can be determined at this time, and the Company is currently unable to estimate a range of reasonably possible losses, as defined by ASC 450-20-20, for this litigation. The Company believes that the plaintiffs claims in the complaint are without merit and intends to vigorously defend this lawsuit.
The Company is also a defendant in certain routine litigation matters encountered in the ordinary course of its business. Certain of these matters are covered to an extent by insurance. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Companys financial position, results of operations or liquidity.
Consumer Financial Protection Bureau (CFPB)
On November 20, 2013, Cash America consented to the issuance of a Consent Order by the CFPB pursuant to which it agreed, without admitting or denying any of the facts or conclusions made by the CFPB from its 2012 review of Cash America and the Company, to pay a civil money penalty of $5.0 million, which is non-deductible for tax purposes. The Company and Cash America agreed to allocate $2.5 million of this penalty to the Company (the Regulatory Penalty).
11. Employee Benefit Plans
Prior to July 1, 2012, substantially all employees of the Company were eligible to participate in the Cash America International, Inc. 401(k) Savings Plan. Effective on July 1, 2012, the Company established the Enova International, Inc. 401(k) Savings Plan, which is open to substantially all employees of the Company and its subsidiaries. New employees are automatically enrolled in this plan unless they elect not to participate. Prior to July 1, 2012, the Cash America International, Inc. Nonqualified Savings Plan was available to certain members of Company management. The Enova International, Inc. Nonqualified Savings Plan was established effective July 1, 2012 and is available in lieu of the Cash America International, Inc. Nonqualified Savings Plan to certain members of Company management. Participants may contribute up to 75% of their earnings to the 401(k) Savings Plan subject to regulatory and other plan restrictions. Nonqualified Savings Plan participants may contribute up to 80% of their annual bonus and up to 50% of their other eligible compensation to the Nonqualified Savings Plan. The Company makes matching cash contributions of 50% of each participants contributions, based on participant contributions of up to 5% of compensation. Company contributions vest at the rate of 20% each year after one year of service; thus a participant is 100% vested after five years of service. The Companys consolidated contributions to the 401(k) Savings Plan and the Nonqualified Savings Plan were $1.1 million, $1.0 million and $0.8 million for the years ended December 31, 2013, 2012 and 2011, respectively.
In addition to the plans mentioned above, certain officers of the Company participated prior to 2012 in Cash Americas Supplemental Executive Retirement Plan (CAI SERP), which was established in 2003. Effective on January 1, 2012, the Company established the Enova International, Inc. Supplemental Executive Retirement Plan
F-24
(SERP) in which certain officers and certain other employees of the Company participate. Under this defined contribution plan, the Company makes an annual supplemental cash contribution to the SERP based on the objectives of the plan as approved by the Companys Board of Directors and the Management Development and Compensation Committee of the Board of Directors of Cash America. Prior to 2012, the Company made such contributions to the CAI SERP. The Company recorded compensation expense of $0.2 million for SERP contributions for each of the years ended December 31, 2013, 2012 and 2011.
The Nonqualified Savings Plan and the SERP are non-qualified deferred compensation plans. Benefits under the Nonqualified Savings Plan and the SERP are unfunded. As of December 31, 2013, 2012 and 2011, the Company held securities in rabbi trusts to pay benefits under these plans, including benefits accrued under the corresponding Cash America plans. These securities are classified as trading securities, and the unrealized gains and losses on these securities are netted with the costs of the plans in General and administrative expenses in the consolidated statements of income. The SERP and the Nonqualified Savings Plan do not provide for accelerated vesting as a result of the separation of the Company into a separate publicly traded company.
Amounts included in the consolidated balance sheets relating to the Nonqualified Savings Plan and the SERP were as follows (dollars in thousands):
AS OF DECEMBER 31, | ||||||||
2013 | 2012 | |||||||
Prepaid expenses and other assets |
$ | 559 | $ | 869 | ||||
Accounts payable and accrued expenses |
$ | 723 | $ | 1,065 |
In 2013, 2012 and 2011, Cash Americas Board of Directors approved grants of Performance Units under the Cash America International, Inc. First Amended and Restated 2004 Long-Term Incentive Plan, as Amended (Cash America LTIP) that, upon vesting, are paid solely in cash to the Companys officers and certain of its other employees. Generally, each grant of Performance Units vests over a three-year period, subject to continued employment with Cash America and the satisfaction of certain conditions related to an increase in the Companys earnings before interest, taxes, depreciation and amortization (EBITDA) over the periods specified at the time of grant. The unit value of each award is based on a percentage of the increase in EBITDA over the prior year EBITDA. Payments for all Performance Units that vest will be made within a reasonable period of time each year following certification of the applicable performance results by the Management Development and Compensation Committee of the Cash America Board of Directors. In addition, the Performance Unit award agreements are subject to a clawback provision that allows Cash America to recoup all or some of the payments made under certain circumstances when there is a material restatement of Cash Americas financial results. The agreements provide for immediate vesting and payment of awards that are outstanding and scheduled to vest within 12 calendar months following the date of a change in control of Cash America. For awards granted in 2013 and in July 2012, the agreements provide similar vesting and payment provisions in the event of a change in control of the Company or the Companys stock becomes publicly traded. The Companys EBITDA must achieve certain thresholds before payments will be made under any Performance Units outstanding as of December 31, 2013.
Prior to the Cash America LTIP awards in January 2011, Cash America awarded units to the Companys officers and certain other employees under other similar long term incentive plans it had established in 2007 and 2008. No awards were outstanding under these plans as of December 31, 2013.
The Company recorded compensation expense of $6.2 million, $6.4 million and $3.9 million related to all Performance Unit awards for the years ended December 31, 2013, 2012 and 2011, respectively.
12. Stock-Based Compensation
In 2013, Cash Americas Board of Directors approved a grant of RSUs to the Companys Chief Executive Officer under the Cash America LTIP. Each vested RSU entitles the holder to receive a share of common stock of Cash America. This grant vests over a two year period, but is subject to continued employment with Cash America.
F-25
In 2011, Cash Americas Board of Directors approved a grant of Performance-Based Restricted Stock Units (Performance RSUs) to the Companys President under the Cash America LTIP. This grant of Performance RSUs was scheduled to vest in a lump sum in 2014. Also in 2011, Cash Americas Board of Directors approved a grant of Restricted Stock Units (RSUs) to the Companys President. This grant of RSUs vested over a three year period and each vested RSU entitled the holder to receive a share of common stock of Cash America. Both grants were subject to continued employment with Cash America. On March 29, 2013, the President left the Company and all outstanding unvested Performance RSUs and RSUs were forfeited on that date.
In accordance with ASC 718, the grant date fair value of RSUs is based on Cash Americas closing stock price on the day before the grant date and is amortized to expense over the vesting periods. The agreements relating to awards granted under the Cash America LTIP provide that the vesting and payment of awards would be accelerated if there is a change in control of Cash America. In addition, vesting of the RSU award outstanding at December 31, 2013 will accelerate if any of the Companys common stock becomes publicly traded.
The following table summarizes the restricted stock unit activity during 2013, 2012 and 2011:
YEAR ENDED DECEMBER 31, | ||||||||||||||||||||||||
2013 | 2012 | 2011 | ||||||||||||||||||||||
UNITS |
WEIGHTED
AVERAGE FAIR VALUE AT DATE OF GRANT |
UNITS |
WEIGHTED
AVERAGE FAIR VALUE AT DATE OF GRANT |
UNITS |
WEIGHTED
AVERAGE FAIR VALUE AT DATE OF GRANT |
|||||||||||||||||||
Outstanding at beginning of year |
13,215 | $ | 39.66 | 16,667 | $ | 38.97 | 3,680 | $ | 32.05 | |||||||||||||||
Units granted |
14,260 | 48.19 | | | 15,548 | 39.66 | ||||||||||||||||||
Shares issued |
(2,333 | ) | 39.66 | (3,452 | ) | 36.34 | (2,197 | ) | 33.82 | |||||||||||||||
Units forfeited |
(10,882 | ) | 39.66 | | | (364 | ) | 29.43 | ||||||||||||||||
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Outstanding at end of year |
14,260 | $ | 48.19 | 13,215 | $ | 39.66 | 16,667 | $ | 38.97 | |||||||||||||||
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Units vested at end of year |
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Compensation expense related to RSUs totaling $0.2 million ($0.2 million net of related taxes), $0.1 million ($92 thousand net of related taxes) and $0.2 million ($0.1 million net of related taxes) was recognized for the years ended December 31, 2013, 2012 and 2011, respectively. Total unrecognized compensation cost related to RSUs at December 31, 2013 was $0.4 million, which will be recognized over a weighted average period of approximately 1.1 years. The outstanding RSUs had an aggregate intrinsic value of $0.5 million at December 31, 2013.
13. Derivative Instruments
Cash America uses forward currency exchange contracts to minimize the effects of foreign currency risk in the United Kingdom and Australia. The forward currency exchange contracts are non-designated derivatives. Any gain or loss resulting from these contracts is recorded as income or loss and is included in Foreign currency transaction loss in the Companys consolidated statements of income. The Company participates in Cash Americas derivative and hedging programs, which are coordinated through a centralized treasury function; therefore, the assets and liabilities related to derivative instruments are not recorded in the Companys financial statements; however, the gains and losses associated with Cash Americas foreign currency forward contracts that relate to the Companys business are included as Foreign currency transaction loss in the consolidated statements of income. The notional amounts recorded by Cash America were $81.5 million and $93.8 million at December 31, 2013 and 2012, respectively. Neither Cash America nor the Company currently manages its exposure to risk from foreign currency exchange rate fluctuations through the use of forward currency exchange contracts in Canada.
F-26
The following table presents information on the effect of derivative instruments on the consolidated results of operations and AOCI for the years ended December 31, 2013, 2012 and 2011 (dollars in thousands):
(1) | The gains (losses) on these derivatives substantially offset the (losses) gains on the hedged portion of international intercompany balances. |
14. Related Party Transactions
Cash America provides certain corporate service functions, such as executive oversight, insurance and risk management, government relations, internal audit, treasury, licensing, and to a limited extent finance, accounting, tax, legal, human resources, compensation and benefits, compliance and support for certain information systems related to financial reporting. The costs of such services were allocated to the Company based on the Companys share of Cash Americas corporate services expenses incurred for the consolidated entity. Actual corporate services costs that may have been incurred if the Company had been a stand-alone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees, and strategic decisions made in areas such as information technology and infrastructure. The Company believes that the expenses in these financial statements are reported on a basis that fairly represents the utilization of the services provided. These financial statements do not necessarily reflect the financial position or results of operations that would have existed if the Company had been operated as a stand-alone entity during the periods covered and may not be indicative of future results of operations and financial position. General and administrative expenses include allocations by Cash America of $10.0 million, $10.6 million and $18.0 million for 2013, 2012 and 2011, respectively.
Cash America provides financing, some cash management, and other treasury services to the Company. The Company receives funding from Cash America for operating and investing cash needs. The Company also pays Cash America for its share of income taxes as though the Company had been taxed separately from Cash America and had prepared separate tax returns. Cash America periodically uses forward currency exchange contracts and foreign debt instruments to minimize risk of foreign currency exchange rate fluctuations in the United Kingdom and Australia. The Company participates in Cash Americas derivative and hedging programs, which are coordinated through a centralized treasury function. See Note 13 for further discussion on derivative instruments.
The Company pays Cash America compensation for loans made to or arranged for customers who were referred from Cash America. The Company paid $1.2 million for each of the years ended December 31, 2013, 2012 and 2011, pursuant to this arrangement. In addition, the Company administers the consumer loan underwriting model utilized by Cash Americas Retail Services Division in exchange for the reimbursement of the Companys direct third party costs incurred in providing the service. The Company received $0.9 million, $1.5 million and $1.4 million for the years ended December 31, 2013, 2012 and 2011, respectively, pursuant to this arrangement.
On December 22, 2011, the Company purchased from Cash America preferred stock representing a minority interest in an early-stage privately-held developing consumer financial services entity. The purchase price
F-27
represents the amount Cash America paid to originally purchase the minority interest in March 2011. The Company purchased the investment from Cash America, in part, to more effectively align this asset with other assets held by the Company.
Payments the Company owes Cash America for all of these transactions, offset by any credits or fees Cash America may owe the Company in connection with these transactions, are made through the borrowing agreements between Cash America and certain subsidiaries of the Company. The amount due to Cash America has been classified as Affiliate line of credit on the consolidated balance sheets. At December 31, 2013 and 2012, respectively, the Company had outstanding unsecured Credit Agreement obligations of $424.1 million and $427.9 million. See Note 8 for further discussion of the Credit Agreement.
The Company and its domestic subsidiaries participate jointly and severally with other subsidiaries of Cash America and guarantee long-term debt of Cash America. See Note 10.
15. Supplemental Disclosures of Cash Flow Information
The following table sets forth certain cash and non-cash activities for the years ended December 31 (dollars in thousands):
YEAR ENDED DECEMBER 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Cash paid during the year for: |
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Income taxes remitted through affiliate line of credit |
$ | 34,829 | $ | 33,619 | $ | 37,045 | ||||||
Non-cash investing and financing activities: |
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Consumer loans renewed |
$ | 599,227 | $ | 620,097 | $ | 562,014 | ||||||
Investment in non-marketable equity securities |
$ | | $ | | $ | 5,000 | ||||||
Dividend to Cash America |
$ | | $ | | $ | 75,000 | ||||||
Affiliate interest expense |
$ | 19,788 | $ | 20,996 | $ | 17,420 |
16. Operating Segment Information
The Company provides online financial services to alternative credit consumers in the United States, United Kingdom, Australia and Canada and has one reportable segment, which is composed of the Companys domestic and international operations. The Company has aggregated all components of its business into a single reportable segment based on the similarities of the economic characteristics, the nature of the products and services, the nature of the production and distribution methods, the type of customer and the nature of the regulatory environment.
F-28
The Company allocates certain corporate expenses (primarily general and administrative expenses and to a lesser extent, marketing and operations and technology) between the domestic and international components based on revenue. The following tables present information on the Companys domestic and international operations for the years ended December 31, 2013, 2012 and 2011 (dollars in thousands).
YEAR ENDED DECEMBER 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Revenue |
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Domestic |
$ | 395,549 | $ | 334,066 | $ | 254,752 | ||||||
International |
369,774 | 326,862 | 225,588 | |||||||||
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Total revenue |
$ | 765,323 | $ | 660,928 | $ | 480,340 | ||||||
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Income from operations |
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Domestic |
$ | 73,858 | $ | 55,011 | $ | 52,550 | ||||||
International |
68,738 | 59,166 | 23,739 | |||||||||
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Total income from operations |
$ | 142,596 | $ | 114,177 | $ | 76,289 | ||||||
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Depreciation and amortization |
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Domestic |
$ | 14,536 | $ | 11,988 | $ | 10,413 | ||||||
International |
2,607 | 1,284 | 850 | |||||||||
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Total depreciation and amortization |
$ | 17,143 | $ | 13,272 | $ | 11,263 | ||||||
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Expenditures for property and equipment |
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Domestic |
$ | 12,527 | $ | 15,628 | $ | 13,866 | ||||||
International |
2,345 | 2,244 | 1,207 | |||||||||
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Total expenditures for property and equipment |
$ | 14,872 | $ | 17,872 | $ | 15,073 | ||||||
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Geographic Information
The following table presents the Companys revenue and long-lived assets by geographic region for the years ended December 31, 2013, 2012 and 2011 (dollars in thousands):
YEAR ENDED DECEMBER 31, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Revenue |
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United States |
$ | 395,549 | $ | 334,066 | $ | 254,752 | ||||||
United Kingdom |
360,186 | 308,415 | 211,915 | |||||||||
Other international countries |
9,588 | 18,447 | 13,673 | |||||||||
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Total revenue |
$ | 765,323 | $ | 660,928 | $ | 480,340 | ||||||
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F-29
The Companys long-lived assets, which consist of the Companys property and equipment, were $39.4 million and $41.8 million at December 31, 2013 and 2012, respectively. The operations for the Companys domestic and international businesses are primarily located within the United States, and the value of any long-lived assets located outside of the United States is immaterial.
17. Fair Value Measurements
Recurring Fair Value Measurements
In accordance with ASC 820, certain of the Companys assets and liabilities, which are carried at fair value, are classified in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The Companys financial assets that are measured at fair value on a recurring basis as of December 31, 2013 and 2012 are as follows (dollars in thousands):
DECEMBER 31,
2013 |
FAIR VALUE MEASUREMENTS USING | |||||||||||||||
LEVEL 1 | LEVEL 2 | LEVEL 3 | ||||||||||||||
Financial assets: |
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Nonqualified savings plan assets (1) |
$ | 559 | $ | 559 | $ | | $ | | ||||||||
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Total |
$ | 559 | $ | 559 | $ | | $ | | ||||||||
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DECEMBER 31,
2012 |
FAIR VALUE MEASUREMENTS USING | |||||||||||||||
LEVEL 1 | LEVEL 2 | LEVEL 3 | ||||||||||||||
Financial assets |
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Nonqualified savings plan assets (1) |
$ | 869 | $ | 869 | $ | | $ | | ||||||||
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Total |
$ | 869 | $ | 869 | $ | | $ | | ||||||||
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(1) | The non-qualified savings plan assets have an offsetting liability of equal amount, which is included in Accounts payable and accrued expenses in the Companys consolidated balance sheets. |
The fair value of the nonqualified savings plan assets is measured under a Level 1 input. These assets are publicly traded equity securities for which market prices are readily observable. During the years ended December 31, 2013 and 2012, there were no transfers of assets in or out of Level 1 fair value measurements. The Company participates in Cash Americas derivative and hedging programs, which are coordinated through a centralized treasury function; therefore, the assets and liabilities related to derivative instruments are not recorded in the Companys financial statements; however, the gains and losses associated with Cash Americas foreign currency forward contracts that relate to the Companys business are included as Foreign currency transaction loss in the consolidated statements of income.
Fair Value Measurements on a Non-Recurring Basis
The Company measures non-financial assets and liabilities such as property and equipment and intangible assets at fair value on a nonrecurring basis or when events or circumstances indicate that the carrying amount of the assets may be impaired. At December 31, 2013 and 2012, there were no assets or liabilities recorded at fair value on a nonrecurring basis.
F-30
Financial Assets and Liabilities Not Measured at Fair Value
The Companys financial assets and liabilities as of December 31, 2013 and 2012 that are not measured at fair value in the consolidated balance sheets are as follows (dollars in thousands):
DECEMBER 31,
2013 |
FAIR VALUE MEASUREMENTS USING | |||||||||||||||
LEVEL 1 | LEVEL 2 | LEVEL 3 | ||||||||||||||
Financial assets: |
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Cash and cash equivalents |
$ | 47,480 | $ | 47,480 | $ | | $ | | ||||||||
Short-term loans and line of credit accounts, net (1) |
156,845 | | | 156,845 | ||||||||||||
Installment loans, net (1) |
146,622 | | | 146,622 | ||||||||||||
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Total |
$ | 350,947 | $ | 47,480 | $ | | $ | 303,467 | ||||||||
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Financial liabilities: |
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Liability for estimated losses on consumer loans guaranteed by the Company |
$ | 2,047 | $ | | $ | | $ | 2,047 | ||||||||
Affiliate line of credit |
424,133 | | 429,978 | | ||||||||||||
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Total |
$ | 426,180 | $ | | $ | 429,978 | $ | 2,047 | ||||||||
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DECEMBER 31,
2012 |
FAIR VALUE MEASUREMENTS USING | |||||||||||||||
LEVEL 1 | LEVEL 2 | LEVEL 3 | ||||||||||||||
Financial assets: |
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Cash and cash equivalents |
$ | 37,548 | $ | 37,548 | $ | | $ | | ||||||||
Short-term loans and line of credit accounts, net (1) |
134,665 | | | 134,665 | ||||||||||||
Installment loans, net (1) |
93,725 | | | 93,725 | ||||||||||||
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Total |
$ | 265,938 | $ | 37,548 | $ | | $ | 228,390 | ||||||||
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Financial liabilities: |
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Liability for estimated losses on consumer loans guaranteed by the Company |
$ | 2,624 | $ | | $ | | $ | 2,624 | ||||||||
Affiliate line of credit |
427,889 | | 437,759 | | ||||||||||||
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Total |
$ | 430,513 | $ | | $ | 437,759 | $ | 2,624 | ||||||||
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(1) | Short-term loans, line of credit accounts and installment loans are included in Consumer loans, net on the consolidated balance sheets. |
Cash and cash equivalents bear interest at market rates and have maturities of less than 90 days.
Short-term loans, line of credit accounts and installment loans are carried in the consolidated balance sheet net of the allowance for estimated loan losses, which is calculated by applying historical loss rates combined with recent default trends to the gross consumer loan balance. The unobservable inputs used to calculate the fair value of these loans include historical loss rates, recent default trends and estimated remaining loan terms; therefore, the carrying value approximates the fair value. Short-term loans and line of credit accounts have relatively short maturity periods that are generally 12 months or less. The fair value of installment loans is estimated using a discounted cash flow analysis, which considers interest rates offered for loans with similar terms to borrowers of similar credit quality. The carrying values of the Companys installment loans approximate the fair value of these loans. Unsecured installment loans typically have terms between two and 12 months, but may have available terms up to 36 months.
In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for short-term loans and is required to purchase any defaulted loans it has guaranteed. The estimated fair value of the liability for estimated losses on consumer loans guaranteed by the Company was $2.0 million and $2.6 million as of December 31, 2013 and 2012, respectively. The Company measures the fair
F-31
value of its liability for third-party lender-owned consumer loans under Level 3 inputs. The fair value of these liabilities is calculated by applying historical loss rates combined with recent default trends to the gross consumer loan balance. The unobservable inputs used to calculate the fair value of these loans include historical loss rates, recent default trends and estimated remaining loan terms; therefore, the carrying value of these liabilities approximates the fair value.
The Company measures the fair value of its affiliate line of credit using Level 2 inputs. The fair value of the Companys affiliate line of credit is estimated based on market values for debt issues with similar characteristics or rates currently available for debt with similar terms. As of December 31, 2013 and 2012, the Companys affiliate line of credit had a higher fair market value than the carrying value due to the difference in yield when compared to similar types of credit.
18. Withdrawal of Proposed Initial Public Offering of Enova International, Inc.
On September 15, 2011, Enova International, Inc. (Enova) filed a registration statement on Form S-1 (Registration Statement) with the SEC in connection with a proposed initial public offering (IPO) of its common stock. On July 25, 2012, Enova filed an Application for Withdrawal of Registration Statement with the SEC to withdraw its Registration Statement, together with all exhibits and amendments. The Registration Statement had not been declared effective by the SEC, and no securities have been sold in connection with the offering pursuant to the Registration Statement.
During the year ended December 31, 2012, expenses that were previously capitalized totaling $3.9 million were recognized in earnings due to the withdrawal of the Registration Statement and are included in General and administrative expenses in the consolidated statements of income.
19. Quarterly Financial Data (Unaudited)
The Companys operations are subject to seasonal fluctuations. Demand has historically been highest in the third and fourth quarters of each year, corresponding to the holiday season, and lowest in the first quarter of each year, corresponding to customers receipt of income tax refunds in the United States. Typically, the Companys cost of revenue, which represents its loan loss provision, is lowest as a percentage of revenue in the first quarter of each year. The following is a summary of the quarterly results of operations for the years ended December 31, 2013 and 2012 (dollars in thousands, except per share data):
FIRST
QUARTER |
SECOND
QUARTER |
THIRD
QUARTER |
FOURTH
QUARTER |
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2013 |
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Total Revenue |
$ | 182,312 | $ | 176,143 | $ | 198,098 | $ | 208,770 | ||||||||
Cost of Revenue |
67,998 | 70,160 | 90,389 | 86,505 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross Profit |
$ | 114,314 | $ | 105,983 | $ | 107,709 | $ | 122,265 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Income |
$ | 22,808 | $ | 18,428 | $ | 17,088 | $ | 19,714 | ||||||||
Diluted earnings per share (1) |
$ | 0.69 | $ | 0.56 | $ | 0.52 | $ | 0.60 | ||||||||
Diluted weighted average common shares (2) |
33,000 | 33,000 | 33,000 | 33,000 | ||||||||||||
2012 |
||||||||||||||||
Total Revenue |
$ | 143,622 | $ | 152,436 | $ | 177,774 | $ | 187,096 | ||||||||
Cost of Revenue |
58,210 | 67,157 | 77,928 | 85,179 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross Profit |
$ | 85,412 | $ | 85,279 | $ | 99,846 | $ | 101,917 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Net Income |
$ | 14,113 | $ | 13,484 | $ | 15,458 | $ | 15,817 | ||||||||
Diluted earnings per share (1) |
$ | 0.43 | $ | 0.41 | $ | 0.47 | $ | 0.48 | ||||||||
Diluted weighted average common shares (2) |
33,000 | 33,000 | 33,000 | 33,000 |
F-32
(1) | The sum of the quarterly earnings per share amounts may not total to each full year amount presented in the Companys financial statements because these computations are made independently for each quarter and for the full year and take into account the weighted average number of common shares outstanding for each period. |
(2) | See Note 2 for Basis of Presentation. |
20. Subsequent Events
Subsequent events have been reviewed through April 30, 2014, the date these financial statements were available to be issued.
On April 10, 2014, Cash America announced that its Board of Directors has authorized its management to review potential strategic alternatives, including a tax-free distribution of the Company. While a final decision has not been made, if a distribution were to occur, Cash America would be separated into two independent public companies, one operating storefront lending businesses and the other, Enova International, Inc., operating an online lending business.
If Cash Americas Board of Directors approves a separation, a transaction could be completed in late 2014 or early 2015, subject to market, regulatory and other conditions, including, if the separation takes the form of a tax-free distribution, the receipt of a private letter ruling from the Internal Revenue Service and an opinion from Cash Americas tax counsel. The Company currently expects that any distribution would be in the form of a tax-free distribution of at least 80% of the Companys common stock to Cash Americas shareholders. The separation is subject to a number of conditions, including final approval by Cash Americas Board of Directors of transaction specifics. In addition, external events beyond the control of the Company and Cash America could impact the timing or occurrence of a separation.
F-33
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
(Unaudited)
June 30, | December 31, | |||||||||||
2014 | 2013 | 2013 | ||||||||||
Assets |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 79,785 | $ | 50,210 | $ | 47,480 | ||||||
Consumer loans, net |
291,966 | 232,930 | 303,467 | |||||||||
Prepaid expenses and other assets |
13,797 | 7,859 | 8,686 | |||||||||
Deferred tax assets |
25,841 | 30,219 | 30,914 | |||||||||
|
|
|
|
|
|
|||||||
Total current assets |
411,389 | 321,218 | 390,547 | |||||||||
Property and equipment, net |
38,000 | 37,212 | 39,405 | |||||||||
Goodwill |
255,869 | 255,867 | 255,869 | |||||||||
Intangible assets, net |
14 | 99 | 45 | |||||||||
Other assets |
22,341 | 6,278 | 6,286 | |||||||||
|
|
|
|
|
|
|||||||
Total assets |
$ | 727,613 | $ | 620,674 | $ | 692,152 | ||||||
|
|
|
|
|
|
|||||||
Liabilities and Stockholders Equity |
||||||||||||
Current liabilities: |
||||||||||||
Accounts payable and accrued expenses |
$ | 51,003 | $ | 46,849 | $ | 49,614 | ||||||
Related party payable, net |
11,451 | | | |||||||||
|
|
|
|
|
|
|||||||
Total current liabilities |
62,454 | 46,849 | 49,614 | |||||||||
Deferred tax liabilities |
48,757 | 42,282 | 45,306 | |||||||||
Noncurrent income taxes payable |
| 795 | | |||||||||
Other liabilities |
107 | | 51 | |||||||||
Long-term debt |
493,863 | 397,894 | 424,133 | |||||||||
|
|
|
|
|
|
|||||||
Total liabilities |
$ | 605,181 | $ | 487,820 | $ | 519,104 | ||||||
|
|
|
|
|
|
|||||||
Commitments and contingencies |
||||||||||||
Stockholders equity: |
||||||||||||
Common stock, $0.00001 par value, 250,000,000 shares authorized, 33,000,000 shares issued and outstanding |
| | | |||||||||
Preferred stock, $0.00001 par value, 25,000,000 shares authorized, no shares issued and outstanding |
| | | |||||||||
Retained earnings |
116,266 | 134,978 | 169,947 | |||||||||
Accumulated other comprehensive income (loss) |
6,166 | (2,124 | ) | 3,101 | ||||||||
|
|
|
|
|
|
|||||||
Total stockholders equity |
122,432 | 132,854 | 173,048 | |||||||||
|
|
|
|
|
|
|||||||
Total liabilities and stockholders equity |
$ | 727,613 | $ | 620,674 | $ | 692,152 | ||||||
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-34
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(Unaudited)
Six Months Ended
June 30, |
||||||||
2014 | 2013 | |||||||
Revenue |
$ | 409,947 | $ | 358,455 | ||||
Cost of Revenue |
133,276 | 138,158 | ||||||
|
|
|
|
|||||
Gross Profit |
276,671 | 220,297 | ||||||
Expenses |
||||||||
Marketing |
59,306 | 58,069 | ||||||
Operations and technology |
35,008 | 34,546 | ||||||
General and administrative |
51,358 | 43,888 | ||||||
Depreciation and amortization |
8,434 | 9,028 | ||||||
|
|
|
|
|||||
Total Expenses |
154,106 | 145,531 | ||||||
|
|
|
|
|||||
Income from Operations |
122,565 | 74,766 | ||||||
Interest expense, net |
(12,065 | ) | (9,829 | ) | ||||
Foreign currency transaction loss |
(400 | ) | (286 | ) | ||||
|
|
|
|
|||||
Income before Income Taxes |
110,100 | 64,651 | ||||||
Provision for income taxes |
39,416 | 23,415 | ||||||
|
|
|
|
|||||
Net Income |
$ | 70,684 | $ | 41,236 | ||||
|
|
|
|
|||||
Earnings Per Share: |
||||||||
Earnings per common share, basic and diluted |
$ | 2.14 | $ | 1.25 | ||||
Weighted average common shares outstanding, basic and diluted |
33,000 | 33,000 |
See Notes to Consolidated Financial Statements
F-35
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands)
(Unaudited)
Six Months Ended
June 30, |
||||||||
2014 | 2013 | |||||||
Net Income |
$ | 70,684 | $ | 41,236 | ||||
Other comprehensive gain (loss), net of tax: |
||||||||
Foreign currency translation gain (loss) (a) |
3,065 | (2,858 | ) | |||||
|
|
|
|
|||||
Total other comprehensive gain (loss), net of tax |
3,065 | (2,858 | ) | |||||
|
|
|
|
|||||
Comprehensive Income |
$ | 73,749 | $ | 38,378 | ||||
|
|
|
|
(a) | Net of tax (provision) benefit of $(1,716) and $1,613 for the six months ended June 30, 2014 and 2013, respectively. |
See Notes to Consolidated Financial Statements
F-36
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands, except share data)
(Unaudited)
Common Stock |
Retained
Earnings |
Accumulated
Other Comprehensive Income (Loss) |
Total
Stockholders Equity |
|||||||||||||||||
Shares | Amount | |||||||||||||||||||
Balance at December 31, 2012 |
33,000 | $ | | $ | 96,682 | $ | 734 | $ | 97,416 | |||||||||||
Net Equity transactions with parent |
(2,940 | ) | | (2,940 | ) | |||||||||||||||
Net income |
41,236 | | 41,236 | |||||||||||||||||
Foreign currency translation loss, net of tax |
| (2,858 | ) | (2,858 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at June 30, 2013 |
33,000 | $ | | $ | 134,978 | $ | (2,124 | ) | $ | 132,854 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at December 31, 2013 |
33,000 | $ | | $ | 169,947 | $ | 3,101 | $ | 173,048 | |||||||||||
Net Equity transactions with parent |
(1,981 | ) | | (1,981 | ) | |||||||||||||||
Net income |
70,684 | | 70,684 | |||||||||||||||||
Dividend paid to Cash America ($3.71 per share) |
(122,384 | ) | | (122,384 | ) | |||||||||||||||
Foreign currency translation gain, net of tax |
| 3,065 | 3,065 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance at June 30, 2014 |
33,000 | $ | | $ | 116,266 | $ | 6,166 | $ | 122,432 | |||||||||||
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements
F-37
ENOVA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended June 30, | ||||||||
2014 | 2013 | |||||||
Cash Flows from Operating Activities |
||||||||
Net Income |
$ | 70,684 | $ | 41,236 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
8,434 | 9,028 | ||||||
Amortization of deferred loan costs and debt discount |
321 | | ||||||
Cost of revenue |
133,276 | 138,158 | ||||||
Non-cash affiliate interest expense |
7,629 | 9,829 | ||||||
Stock-based compensation |
170 | 292 | ||||||
Deferred income taxes, net |
6,965 | 5,859 | ||||||
Other |
160 | (18 | ) | |||||
Changes in operating assets and liabilities: |
||||||||
Finance and service charges on consumer loans |
2,339 | (1,139 | ) | |||||
Prepaid expenses and other assets |
(5,089 | ) | 3,184 | |||||
Accounts payable and accrued expenses |
1,601 | 1,356 | ||||||
Related party payable, net |
11,451 | | ||||||
Current intercompany income taxes payable |
(45 | ) | 845 | |||||
Other operating assets and liabilities |
| 3 | ||||||
|
|
|
|
|||||
Net cash provided by operating activities |
237,896 | 208,633 | ||||||
|
|
|
|
|||||
Cash Flows from Investing Activities |
||||||||
Consumer loans originated or acquired |
(662,868 | ) | (607,893 | ) | ||||
Consumer loans repaid |
538,465 | 463,917 | ||||||
Purchases of property and equipment |
(6,828 | ) | (4,846 | ) | ||||
|
|
|
|
|||||
Net cash used in investing activities |
(131,231 | ) | (148,822 | ) | ||||
|
|
|
|
|||||
Cash Flows from Financing Activities |
||||||||
Issuance of long-term debt |
493,810 | | ||||||
Dividends paid to Cash America |
(122,384 | ) | | |||||
Debt issuance costs paid |
(16,323 | ) | | |||||
Net equity transactions with parent |
(2,151 | ) | (3,221 | ) | ||||
Payments to affiliates |
(431,762 | ) | (39,825 | ) | ||||
|
|
|
|
|||||
Net cash used in financing activities |
(78,810 | ) | (43,046 | ) | ||||
|
|
|
|
|||||
Effect of exchange rates on cash |
4,450 | (4,103 | ) | |||||
|
|
|
|
|||||
Net increase in cash and cash equivalents |
32,305 | 12,662 | ||||||
Cash and cash equivalents at beginning of year |
47,480 | 37,548 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of period |
$ | 79,785 | $ | 50,210 | ||||
|
|
|
|
|||||
Supplemental Disclosures |
||||||||
Consumer loans renewed |
$ | 189,605 | $ | 312,021 |
See Notes to Consolidated Financial Statements
F-38
1. Significant Accounting Policies
Basis of Presentation
On September 7, 2011, Cash America International, Inc. (Cash America) formed a new company, Enova International, Inc. (the Company). On September 13, 2011, Cash America contributed to Enova International, Inc. all of the stock of its wholly-owned subsidiary, Enova Online Services, Inc., in exchange for 33 million shares of the Companys common stock. The consolidated financial information presented reflects the retrospective application of this contribution.
The consolidated financial statements of the Company reflect the historical results of operations and cash flows of the Company during each respective period. The financial statements include goodwill and intangible assets arising from businesses previously acquired. The financial statements also include the allocation of certain assets and liabilities that have historically been held at the Cash America corporate level but which are specifically identifiable or allocable to Enova. Certain transactions with Cash America, such as stock-based compensation and foreign currency transactions, are considered to be effectively settled as net equity transactions with parent in Retained earnings in the consolidated balance sheets at the time the transaction is recorded. Certain other intercompany transactions between Enova and Cash America are reflected as a change in Related party payable, net in the consolidated balance sheets and are settled a month in arrears. Prior to May 30, 2014, all intercompany transactions between Enova and Cash America were considered to be effectively settled in the financial statements at the time the transaction is recorded. The net effect of the settlement of these transactions was primarily reflected as a change in Long-term debt in the consolidated balance sheets. In addition, the historical financial statements include allocations of costs relating to certain functions historically provided by Cash America, including corporate services such as executive oversight, insurance and risk management, government relations, internal audit, treasury, licensing, and to a limited extent finance, accounting, tax, legal, human resources, compensation and benefits, compliance and support for certain information systems related to financial reporting. The expense allocations have been determined on a basis that Cash America and the Company consider to be reasonable reflections of the utilization of services provided by Cash America. Also see Note 7 for additional information on the Companys relationship with Cash America. The financial information included herein may not be indicative of the consolidated financial position, operating results, changes in stockholders equity and cash flows of the Company in the future, or if the Company had been a separate company during the periods presented.
The financial statements presented as of June 30, 2014 and 2013 and December 31, 2013 and for the six-month periods ended June 30, 2014 and 2013 are unaudited but, in managements opinion, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for such interim periods. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States of America. Operating results for the six-month periods are not necessarily indicative of the results that may be expected for the full fiscal year.
These financial statements and related notes should be read in conjunction with the Companys audited consolidated financial statements as of December 31, 2013 and 2012 and for the years ended December 31, 2013, 2012 and 2011 and related notes.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. In accordance with Accounting Standards Codification (ASC) 350-20-35, GoodwillSubsequent Measurement , the Company tests goodwill for potential impairment annually as of June 30 and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
F-39
The Company uses the income approach to complete its annual goodwill assessment. The income approach uses expected future cash flows and estimated terminal values for each of the Companys reporting units that are discounted using a market participant perspective to determine the estimated fair value of each reporting unit, which is then compared to the carrying value of that reporting unit to determine if there is impairment. The income approach includes assumptions about revenue growth rates, operating margins and terminal growth rates discounted by an estimated weighted-average cost of capital derived from other publicly-traded companies that are similar but not identical from an operational and economic standpoint. The Company completed its annual assessment of goodwill as of June 30, 2014 and determined that the fair value of its goodwill is in excess of carrying value, and, as a result, no impairment existed at that date.
Adopted Accounting Standards
In April 2014, the Financial Accounting Standards Board (the FASB) issued Accounting Standards Update (ASU) 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (ASU 2014-08). The amendments in ASU 2014-08 change the criteria for reporting discontinued operations and enhance disclosures in this area. The new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income or loss attributable to a disposal of an individually significant component of an organization that does not qualify for discontinued operations presentation in the financial statements. The Company is required to adopt ASU 2014-08 prospectively for all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning after December 15, 2014 and interim periods within annual periods beginning on or after December 15, 2014. Early adoption is permitted. The Company adopted ASU 2014-08 on June 30, 2014, and the adoption did not have a material effect on its financial position or results of operations.
In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (ASU 2013-11), which provides guidance on the presentation of unrecognized tax benefits when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. The amendments in this update are effective for fiscal years (and interim periods within those years) beginning after December 15, 2013. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The Company prospectively adopted ASU 2013-11 on January 1, 2014, and the adoption did not have a material effect on its financial condition or results of operations.
In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830): Parents 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 (a consensus of the FASB Emerging Issues Task Force) (ASU 2013-05), which applies to the release of the cumulative translation adjustment into net income when a parent either sells all or a part of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. ASU 2013-05 is effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The Company adopted ASU 2013-05 on January 1, 2014, and the adoption did not have a material effect on its financial condition or results of operations.
In February 2013, the FASB issued ASU No. 2013-04, Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (ASU 2013-04). ASU 2013-04 requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date as the amount the reporting entity agreed to pay plus additional amounts the reporting entity expects to pay on behalf of its co-obligors. The guidance further provides for disclosure of the nature and amount of the obligation. ASU 2013-04 is effective for interim and
F-40
annual reporting periods beginning after December 15, 2013. The Company adopted ASU 2013-04 on January 1, 2014, and the adoption did not have a material effect on its financial condition or results of operations.
Accounting Standards to be Adopted in Future Periods
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition . ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption is not permitted. The Company is still assessing the impact of ASU 2014-09 on its financial position and results of operations.
2. Consumer Loans, Credit Quality Information and Allowances and Liabilities for Estimated Losses on Consumer Loans
Consumer loan fee revenue generated from the Companys consumer loans for the six months ended June 30, 2014 and 2013 was as follows (dollars in thousands):
Six Months Ended
June 30, |
||||||||
2014 | 2013 | |||||||
Interest and fees on short-term loans |
$ | 138,685 | $ | 218,042 | ||||
Interest and fees on installment loans |
123,247 | 88,072 | ||||||
Interest and fees on line of credit accounts |
147,930 | 51,516 | ||||||
|
|
|
|
|||||
Total consumer loan revenue |
409,862 | 357,630 | ||||||
Other |
85 | 825 | ||||||
|
|
|
|
|||||
Total Revenue |
$ | 409,947 | $ | 358,455 | ||||
|
|
|
|
Current and Delinquent Consumer Loans
The Company classifies its consumer loans as either current or delinquent. Short-term loans are considered delinquent when payment of an amount due is not made as of the due date. If a line of credit account or installment loan customer misses one payment, that payment is considered delinquent. If a line of credit account or installment loan customer does not make two consecutive payments, the entire account or loan is classified as delinquent. The Company allows for normal payment processing time before considering a loan delinquent but does not provide for any additional grace period.
The Company generally does not accrue interest on delinquent consumer loans and does not resume accrual of interest on a delinquent loan unless it is returned to current status. In addition, delinquent consumer loans generally may not be renewed, and if, during its attempt to collect on a delinquent consumer loan, the Company allows additional time for payment through a payment plan or a promise to pay, it is still considered delinquent. Generally all payments received are first applied against accrued but unpaid interest and fees and then against the principal balance of the loan.
Allowance and Liability for Estimated Losses on Consumer Loans
The Company monitors the performance of its consumer loan portfolio and maintains either an allowance or liability for estimated losses on consumer loans (including fees and interest) at a level estimated to be adequate to absorb credit losses inherent in the portfolio. The allowance for losses on the Companys owned consumer loans
F-41
reduces the outstanding loan balance in the consolidated balance sheets. The liability for estimated losses related to loans guaranteed under its credit services organization programs (CSO programs) is initially recorded at fair value and is included in Accounts payable and accrued expenses in the consolidated balance sheets.
In determining the allowance or liability for estimated losses on consumer loans, the Company applies a documented systematic methodology. In calculating the allowance or liability for loan losses, outstanding loans are divided into discrete groups of short-term loans, line of credit accounts and installment loans and are analyzed as current or delinquent. Increases in either the allowance or the liability, net of charge-offs and recoveries, are recorded as a Cost of revenue in the consolidated statements of income.
The allowance or liability for short-term loans classified as current is based on historical loss rates adjusted for recent default trends for current loans. For delinquent short-term loans, the allowance or liability is based on a six-month rolling average of loss rates by stage of collection. For line of credit accounts and installment loan portfolios, the Company generally uses a migration analysis to estimate losses inherent in the portfolio. The allowance calculation under the migration analysis is based on historical charge-off experience and the loss emergence period, which represents the average amount of time between the first occurrence of a loss event to the charge-off of a loan. The factors the Company considers to assess the adequacy of the allowance or liability include past due performance, historical behavior of monthly vintages, underwriting changes and recent trends in delinquency in the migration analysis.
The Company fully reserves and generally charges off consumer loans once the loan or a portion of the loan has been classified as delinquent for 60 consecutive days. If a loan is deemed uncollectible before it is fully reserved, it is charged off at that point. Consumer loans classified as delinquent generally have an age of one to 59 days from the date any portion of the loan became delinquent, as defined above. Recoveries on loans previously charged to the allowance are credited to the allowance when collected.
The components of Company-owned consumer loan portfolio receivables at June 30, 2014 and 2013 and December 31, 2013 were as follows (dollars in thousands):
As of June 30, 2014 | ||||||||||||||||
Short-term
Loans |
Line of Credit
Accounts |
Installment
Loans |
Total | |||||||||||||
Current loans |
$ | 41,551 | $ | 112,392 | $ | 157,247 | $ | 311,190 | ||||||||
Delinquent loans |
18,589 | 10,017 | 19,964 | 48,570 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total consumer loans, gross |
60,140 | 122,409 | 177,211 | 359,760 | ||||||||||||
Less: Allowance for losses |
(18,248 | ) | (21,579 | ) | (27,967 | ) | (67,794 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Consumer loans, net |
$ | 41,892 | $ | 100,830 | $ | 149,244 | $ | 291,966 | ||||||||
|
|
|
|
|
|
|
|
As of June 30, 2013 | ||||||||||||||||
Short-term
Loans |
Line of Credit
Accounts |
Installment
Loans |
Total | |||||||||||||
Current loans |
$ | 78,815 | $ | 49,166 | $ | 115,414 | $ | 243,395 | ||||||||
Delinquent loans |
43,075 | 8,905 | 14,803 | 66,783 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total consumer loans, gross |
121,890 | 58,071 | 130,217 | 310,178 | ||||||||||||
Less: Allowance for losses |
(38,584 | ) | (12,109 | ) | (26,555 | ) | (77,248 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Consumer loans, net |
$ | 83,306 | $ | 45,962 | $ | 103,662 | $ | 232,930 | ||||||||
|
|
|
|
|
|
|
|
F-42
As of December 31, 2013 | ||||||||||||||||
Short-term
Loans |
Line of Credit
Accounts |
Installment
Loans |
Total | |||||||||||||
Current loans |
$ | 57,368 | $ | 112,969 | $ | 160,585 | $ | 330,922 | ||||||||
Delinquent loans |
23,385 | 12,833 | 18,645 | 54,863 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total consumer loans, gross |
80,753 | 125,802 | 179,230 | 385,785 | ||||||||||||
Less: Allowance for losses |
(20,466 | ) | (29,244 | ) | (32,608 | ) | (82,318 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Consumer loans, net |
$ | 60,287 | $ | 96,558 | $ | 146,622 | $ | 303,467 | ||||||||
|
|
|
|
|
|
|
|
Changes in the allowance for losses for the Company-owned loans and the liability for losses on the Companys guarantees of third-party lender-owned loans during the six months ended June 30, 2014 and 2013 were as follows (dollars in thousands):
Six Months Ended June 30, 2014 | ||||||||||||||||
Short-term
Loans |
Line of Credit
Accounts |
Installment
Loans |
Total | |||||||||||||
Allowance for losses for Company-owned consumer loans: |
||||||||||||||||
Balance at beginning of period |
$ | 20,466 | $ | 29,244 | $ | 32,608 | $ | 82,318 | ||||||||
Cost of revenue |
36,456 | 45,699 | 51,587 | 133,742 | ||||||||||||
Charge-offs |
(55,413 | ) | (61,588 | ) | (67,563 | ) | (184,564 | ) | ||||||||
Recoveries |
16,502 | 7,776 | 10,845 | 35,123 | ||||||||||||
Effect of foreign currency translation |
237 | 448 | 490 | 1,175 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | 18,248 | $ | 21,579 | $ | 27,967 | $ | 67,794 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liability for third-party lender-owned consumer loans: |
||||||||||||||||
Balance at beginning of period |
$ | 2,047 | $ | | $ | | $ | 2,047 | ||||||||
Decrease in liability |
(466 | ) | | | (466 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | 1,581 | $ | | $ | | $ | 1,581 | ||||||||
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2013 | ||||||||||||||||
Short-term
Loans |
Line of Credit
Accounts |
Installment
Loans |
Total | |||||||||||||
Allowance for losses for Company-owned consumer loans: |
||||||||||||||||
Balance at beginning of period |
$ | 41,942 | $ | 12,565 | $ | 27,845 | $ | 82,352 | ||||||||
Cost of revenue |
77,109 | 16,474 | 45,011 | 138,594 | ||||||||||||
Charge-offs |
(97,032 | ) | (20,079 | ) | (51,317 | ) | (168,428 | ) | ||||||||
Recoveries |
18,109 | 3,162 | 5,963 | 27,234 | ||||||||||||
Effect of foreign currency translation |
(1,544 | ) | (13 | ) | (947 | ) | (2,504 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | 38,584 | $ | 12,109 | $ | 26,555 | $ | 77,248 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liability for third-party lender-owned consumer loans: |
||||||||||||||||
Balance at beginning of period |
$ | 2,624 | $ | | $ | | $ | 2,624 | ||||||||
Decrease in liability |
(436 | ) | | | (436 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at end of period |
$ | 2,188 | $ | | $ | | $ | 2,188 | ||||||||
|
|
|
|
|
|
|
|
Guarantees of Consumer Loans
In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for short-term loans and is required to purchase any defaulted loans it has guaranteed. The guarantee represents an obligation to purchase specific loans that go into default. Short-term loans that are
F-43
guaranteed generally have terms of less than 90 days. As of June 30, 2014 and 2013 and December 31, 2013, the amount of consumer loans guaranteed by the Company was $34.9 million, $35.4 million and $41.4 million, respectively, representing amounts due under consumer loans originated by third-party lenders under the CSO programs. The liability for estimated losses on consumer loans guaranteed by the Company of $1.6 million, $2.2 million and $2.0 million, as of June 30, 2014 and 2013 and December 31, 2013, respectively, is included in Accounts payable and accrued expenses in the accompanying consolidated balance sheets.
3. Long-term debt
$75.0 Million Revolving Credit Facility
On May 14, 2014, the Company and its domestic subsidiaries as guarantors, entered into a credit agreement among the Company, the guarantors, Jefferies Finance, LLC as administrative agent and Jefferies Group, LLC as lender (the Credit Agreement). The Credit Agreement provides for an unsecured revolving credit facility of up to $75.0 million, including a multi-currency sub-facility that gives the Company the ability to borrow up to $25.0 million that may be specified in foreign currencies subject to the terms and conditions of the Credit Agreement. Interest on the amounts borrowed will be charged, at the Companys option, at either the London Interbank Offered Rate (LIBOR) for one week or one-, two-, three- or six-month periods, as selected by the Company, plus a margin varying from 2.50% to 3.75% or at the agents base rate plus a margin varying from 1.50% to 2.75%. The margin for the borrowings under the Credit Agreement is dependent on the Companys cash flow leverage ratios. The Company will also be required to pay a fee on the unused portion of the line of credit ranging from 0.25% to 0.50% based on the Companys cash flow leverage ratios. The Credit Agreement will mature on June 30, 2017. However, if the Companys guarantees of Cash America indebtedness are not released on or before March 31, 2015, the Credit Agreement provides that it will instead mature on March 31, 2015. There were no outstanding borrowings under the Credit Agreement as of June 30, 2014.
The Credit Agreement also includes a sub-limit of up to $20.0 million for standby or commercial letters of credit that is guaranteed by the Companys domestic subsidiaries. In the event that an amount is paid by the issuing bank under a letter of credit, it will be due and payable by the Company on demand. Pursuant to the terms of the Credit Agreement, the Company agrees to pay fees equal to the LIBOR margin per annum on the undrawn amount of each outstanding standby Letter of Credit plus a one-time commercial letter of credit fee of 0.20% of the face amount of each commercial Letter of Credit plus 0.25% per annum on the average daily amount of the total Letter of Credit exposure. The Company had no outstanding letters of credit as of June 30, 2014.
In connection with the issuance of the Credit Agreement, the Company incurred debt issuance costs of approximately $1.6 million in the six months ended June 30, 2014, which primarily consisted of underwriting fees and legal expenses. The unamortized balance of these costs as of June 30, 2014 is included in Other assets in the consolidated balance sheets. These costs are being amortized to interest expense over a period of 37 months, the term of the Credit Agreement.
$500.0 Million 9.75% Senior Unsecured Notes
On May 30, 2014, the Company issued and sold $500.0 million in aggregate principal amount of 9.75% Senior Notes due 2021 (the Senior Notes). The Senior Notes bear interest at a rate of 9.75% annually on the principal amount payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2014. The Senior Notes were sold at a discount of the principal amount to yield 10.0% to maturity. The Senior Notes will mature on June 1, 2021. The Senior Notes are unsecured debt obligations of the Company, and are unconditionally guaranteed by all of the Companys domestic subsidiaries. The Senior Notes were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, as amended, or the Securities Act, and outside the United States pursuant to Regulation S under the Securities Act.
The Senior Notes are governed by an indenture (the Senior Notes Indenture), dated May 30, 2014, between the Company, the Companys domestic subsidiaries, as guarantors, and U.S. Bank National Association, as trustee.
F-44
The Senior Notes Indenture contains certain covenants that, among other things, limit the Companys and certain of its subsidiaries ability to incur additional debt, acquire or create new subsidiaries, create liens, engage in certain transactions with affiliates and consolidate or merge with or into other companies. The Senior Notes Indenture provides for customary events of default, including nonpayment, failure to comply with covenants or other agreements in the Senior Notes Indenture, any subsidiary guarantee ceasing to be in full force and effect or any guarantor denying or disaffirming its obligations under its subsidiary guarantee, and certain events of bankruptcy or insolvency. If any event of default occurs and is continuing, the trustee or the holders of at least 25% in principal amount of the then outstanding Senior Notes may declare the then outstanding Senior Notes to be due and payable immediately.
The Senior Notes are redeemable at the Companys option, in whole or in part, at any time prior to June 1, 2017 at 100% of the aggregate principal amount of Senior Notes redeemed plus the applicable make whole redemption price specified in the Senior Notes Indenture, plus accrued and unpaid interest, if any, to the redemption date and (ii) at any time on or after June 1, 2017 at a premium specified in the Senior Notes Indenture that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. In addition, prior to June 1, 2017, at its option, the Company may redeem up to 35% of the aggregate principal amount of the Senior Notes at a redemption price equal to 109.75% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date, with the proceeds of certain equity offerings as described in the Senior Notes Indenture. In addition, if the Company and its subsidiaries guarantee of certain indebtedness of Cash America as described in the Senior Notes Indenture is not released on or before March 31, 2015 then the Company may redeem all of the Senior Notes outstanding at a redemption price equal to 103% of the aggregate principal amount, plus accrued and unpaid interest, if any, to the redemption date (the Special Redemption), and if the Special Redemption does not occur, then the interest rate on the Senior Notes will increase 2.0% per annum until the Company and its subsidiaries no longer guarantee certain indebtedness of Cash America as described in the Senior Notes Indenture. If a change of control occurs, as that term is defined in the Senior Notes Indenture, the holders of the Senior Notes will have the right, subject to certain conditions, to require the Company to repurchase their Senior Notes at a purchase price equal to 101% of the aggregate principal amount, plus accrued and unpaid interest, if any, as of the date of repurchase.
Additionally, on May 30, 2014, the Company entered into a registration rights agreement with Jefferies, LLC as the initial purchaser (the Registration Rights Agreement) of the Senior Notes, pursuant to which the Company agreed to use commercially reasonable efforts to cause a registration statement to be declared effective on or prior to the 360th day following the closing date relating to an exchange offer of the Senior Notes for identical new notes registered under the Securities Act. In certain circumstances, the Company may be required to file a shelf registration to cover resales of the Senior Notes. If the Company does not comply with certain covenants set forth in the Registration Rights Agreement, it must pay liquidated damages to holders of the Senior Notes.
The Company used all of the net proceeds of the Note offering, or $479.0 million, to repay all of its intercompany indebtedness due to Cash America, which was $361.4 million as of May 30, 2014, and the remaining net proceeds were used to pay a significant portion of a dividend to Cash America on May 30, 2014.
As of June 30, 2014, the carrying amount of the Senior Notes was $493.9 million, which included an unamortized discount of $6.1 million. The discount is being amortized to interest expense over a period of seven years, through the maturity date of June 1, 2021. The total interest expense recognized was $4.3 million for the six months ended June 30, 2014, of which $0.1 million represented the non-cash amortization of the discount. In connection with the issuance of the Senior Notes, the Company incurred approximately $14.7 million for issuance costs, which primarily consisted of underwriting fees, legal and other professional expenses. These costs are being amortized to interest expense over seven years and are included in Other assets in the consolidated balance sheets.
Prior to issuing the Senior Notes, the Company depended on Cash Americas support for a significant portion of its financing requirements and had in place a $450 million affiliate revolving credit agreement related to amounts outstanding with Cash America (the Affiliate Line of Credit). Borrowings under the Affiliate Line of Credit
F-45
bore interest at a fluctuating interest rate equal to the prevailing LIBOR rate per annum (based upon a one month interest period) plus 4.5%, or in certain circumstances equal to the prevailing alternate base rate per annum plus 2.0%. The alternate base rate was equal to the greater of (a) the U.S. prime rate, (b) the federal funds effective rate plus 0.5%, and (c) the sum of the one-month LIBOR plus 1.0%. Interest accruing on borrowings made under the revolving line of credit were payable to Cash America and were settled through an adjustment to its affiliate line of credit with Cash America on a monthly basis. At June 30, 2013 and December 31, 2013, the Company had outstanding unsecured amounts payable under the Affiliate Line of Credit of $399.4 million and $424.1 million, respectively.
Weighted-average interest rates on long-term debt were 5.76% and 4.75% during the six months ended June 30, 2014 and 2013, respectively.
As of June 30, 2014 and 2013 and December 31, 2013, the Company was in compliance with all covenants and other requirements set forth in the prevailing long-term debt agreement(s).
4. Operating Segment Information
The Company provides online financial services to alternative credit consumers in the United States, United Kingdom, Australia, Canada and Brazil and has one reportable segment, which is composed of the Companys domestic and international operations. The Company has aggregated all components of its business into a single reportable segment based on the similarities of the economic characteristics, the nature of the products and services, the nature of the production and distribution methods, the type of customer and the nature of the regulatory environment.
The Company allocates certain corporate expenses (primarily general and administrative expenses and to a lesser extent, marketing and operations and technology expenses) between its domestic and international components based on revenue. The following tables present information on the Companys domestic and international operations for the six months ended June 30, 2014 and 2013 (dollars in thousands).
Six Months Ended
June 30, |
||||||||
2014 | 2013 | |||||||
Revenue |
||||||||
Domestic |
$ | 217,873 | $ | 178,933 | ||||
International |
192,074 | 179,522 | ||||||
|
|
|
|
|||||
Total revenue |
$ | 409,947 | $ | 358,455 | ||||
|
|
|
|
|||||
Income from operations |
||||||||
Domestic |
$ | 85,617 | $ | 42,138 | ||||
International |
36,948 | 32,628 | ||||||
|
|
|
|
|||||
Total income from operations |
$ | 122,565 | $ | 74,766 | ||||
|
|
|
|
|||||
Depreciation and amortization |
||||||||
Domestic |
$ | 7,353 | $ | 7,633 | ||||
International |
1,081 | 1,395 | ||||||
|
|
|
|
|||||
Total depreciation and amortization |
$ | 8,434 | $ | 9,028 | ||||
|
|
|
|
|||||
Expenditures for property and equipment |
||||||||
Domestic |
$ | 6,083 | $ | 3,894 | ||||
International |
745 | 952 | ||||||
|
|
|
|
|||||
Total expenditures for property and equipment |
$ | 6,828 | $ | 4,846 | ||||
|
|
|
|
F-46
June 30, | ||||||||
2014 | 2013 | |||||||
Property and equipment, net |
||||||||
Domestic |
$ | 32,834 | $ | 31,223 | ||||
International |
5,166 | 5,989 | ||||||
|
|
|
|
|||||
Total property and equipment, net |
$ | 38,000 | $ | 37,212 | ||||
|
|
|
|
|||||
Assets |
||||||||
Domestic |
$ | 522,364 | $ | 430,807 | ||||
International |
205,249 | 189,867 | ||||||
|
|
|
|
|||||
Total assets |
$ | 727,613 | $ | 620,674 | ||||
|
|
|
|
Geographic Information
The following table presents the Companys revenue and long-lived assets by geographic region for the six months ended June 30, 2014 and 2013 (dollars in thousands):
Six Months Ended
June 30, |
||||||||
2014 | 2013 | |||||||
Revenue |
||||||||
United States |
$ | 217,873 | $ | 178,933 | ||||
United Kingdom |
187,396 | 174,303 | ||||||
Other international countries |
4,678 | 5,219 | ||||||
|
|
|
|
|||||
Total revenue |
$ | 409,947 | $ | 358,455 | ||||
|
|
|
|
The Companys long-lived assets, which consist of the Companys property and equipment, were $38.0 million and $37.2 million at June 30, 2014 and 2013, respectively. The operations for the Companys domestic and international businesses are primarily located within the United States, and the value of any long-lived assets located outside of the United States is immaterial.
5. Commitments and Contingencies
Litigation
On March 8, 2013, Flemming Kristensen, on behalf of himself and others similarly situated, filed a purported class action lawsuit in the U.S. District Court of Nevada against the Company and other unaffiliated lenders and lead providers. The lawsuit alleges that the lead provider defendants sent unauthorized text messages to consumers on behalf of the Company and the other lender defendants in violation of the Telephone Consumer Protection Act. The complaint seeks class certification, statutory damages, an injunction against wireless spam activities, and attorneys fees and costs. The Company filed an answer to the complaint denying all liability. On March 26, 2014, the Court granted class certification. Discovery is ongoing. Neither the likelihood of an unfavorable ruling nor the ultimate liability, if any, with respect to this matter can be determined at this time, and the Company is currently unable to estimate a range of reasonably possible losses, as defined by ASC 450-20-20, ContingenciesLoss ContingenciesGlossary, for this litigation. The Company believes that the plaintiffs claims in the complaint are without merit and intends to vigorously defend this lawsuit.
The Company is also a defendant in certain routine litigation matters encountered in the ordinary course of its business. Certain of these matters are covered to an extent by insurance. In the opinion of management, the resolution of these matters will not have a material adverse effect on the Companys financial position, results of operations or liquidity.
F-47
Consumer Financial Protection Bureau (CFPB)
On November 20, 2013, Cash America consented to the issuance of a Consent Order by the CFPB pursuant to which it agreed, without admitting or denying any of the facts or conclusions made by the CFPB from its 2012 review of Cash America and the Company, to pay a civil money penalty of $5.0 million, which is non-deductible for tax purposes. The Company and Cash America agreed to allocate $2.5 million of this penalty to the Company.
6. Derivative Instruments
The Company periodically uses derivative instruments to manage risk from changes in market conditions that may affect the Companys financial performance. The Company primarily uses derivative instruments to manage its primary market risks, which are interest rate risk and foreign currency exchange rate risk.
The Company uses forward currency exchange contracts to minimize the effects of foreign currency risk in the United Kingdom and Australia. The forward currency exchange contracts are non-designated derivatives. Any gain or loss resulting from these contracts is recorded as income or loss and is included in Foreign currency transaction loss in the Companys consolidated statements of income. Neither Cash America nor the Company currently manages its exposure to risk from foreign currency exchange rate fluctuations through the use of forward currency exchange contracts in Canada.
The Companys derivative instruments are presented in its financial statements on a net basis. The following table presents information related to the Companys derivative instruments as of June 30, 2014 (dollars in thousands):
Assets |
As of June 30, 2014 | |||||||||||||||
Notional
Amount |
Gross Amounts
of Recognized Assets |
Gross Amounts
Offset in the Consolidated Balance Sheets (1) |
Net Amounts of Assets
Presented in the Consolidated Balance Sheets (2) |
|||||||||||||
Non-designated derivatives: |
||||||||||||||||
Forward currency exchange contracts |
$ | 35,843 | $ | | $ | (93 | ) | $ | (93 | ) | ||||||
|
|
|
|
|
|
|
|
(1) | As of June 30, 2014, the Company had no gross amounts of recognized derivative instruments that the Company makes an accounting policy election not to offset. In addition, there is no financial collateral related to the Companys derivatives. The Company has no liabilities that are subject to an enforceable master netting agreement or similar arrangement. |
(2) | Represents the fair value of forward currency contracts, which is recorded in Prepaid expenses and other assets in the consolidated balance sheets. |
Prior to June 2014, the Company participated in Cash Americas derivative and hedging programs, which are coordinated through a centralized treasury function; therefore, the assets and liabilities related to derivative instruments were not recorded in the Companys financial statements, however, the gains and losses associated with Cash Americas foreign currency forward contracts that relate to the Companys business are included as Foreign currency transaction loss in the consolidated statements of income. The notional amounts recorded by Cash America were $87.6 million and $81.5 million at June 30, 2013 and December 31, 2013, respectively.
F-48
The following table presents information on the effect of derivative instruments on the consolidated results of operations and accumulated other comprehensive income (AOCI) for the six months ended June 30, 2014 and 2013 (dollars in thousands):
Gains (Losses)
Recognized in Income |
Gains (Losses)
Recognized in AOCI |
Gains (Losses)
Reclassified From AOCI into Income |
||||||||||||||||||||||
Six months ended
June 30, |
Six months ended
June 30, |
Six months ended
June 30, |
||||||||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||
Non-designated derivatives: |
||||||||||||||||||||||||
Forward currency exchange contracts (1) |
$ | (1,755 | ) | $ | 5,251 | $ | | $ | | $ | | $ | | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
$ | (1,755 | ) | $ | 5,251 | $ | | $ | | $ | | $ | | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | The gains (losses) on these derivatives substantially offset the (losses) gains on the hedged portion of the foreign intercompany balances. |
7. Related Party Transactions
Cash America provides certain corporate service functions, such as executive oversight, insurance and risk management, government relations, internal audit, treasury, licensing, and to a limited extent finance, accounting, tax, legal, human resources, compensation and benefits, compliance and support for certain information systems related to financial reporting. The costs of such services were allocated to the Company based on the Companys share of Cash Americas corporate services expenses incurred for the consolidated entity. Actual corporate services costs that may have been incurred if the Company had been a stand-alone company would depend on a number of factors, including the chosen organizational structure, what functions were outsourced or performed by employees, and strategic decisions made in areas such as information technology and infrastructure. The Company believes that the expenses in these financial statements are reported on a basis that fairly represents the utilization of the services provided. These financial statements do not necessarily reflect the financial position or results of operations that would have existed if the Company had been operated as a stand-alone entity during the periods covered and may not be indicative of future results of operations and financial position. General and administrative expenses include allocations by Cash America of $5.2 million and $5.8 million for the six months ended June 30, 2014 and 2013, respectively.
Cash America provides some cash management and other treasury services to the Company. The Company also pays Cash America for its share of income taxes as though the Company had been taxed separately from Cash America and had prepared separate tax returns.
The Company pays Cash America compensation for loans made to or arranged for customers who were referred from Cash America. The Company paid $0.4 million and $0.5 million for the six months ended June 30, 2014 and 2013, respectively, pursuant to this arrangement. In addition, the Company administers the consumer loan underwriting model utilized by Cash Americas Retail Services Division in exchange for the reimbursement of the Companys direct third-party costs incurred in providing the service. The Company received $0.3 million and $0.5 million for the six months ended June 30, 2014 and 2013, respectively, pursuant to this arrangement.
The cumulative effect of the transactions described above is reflected as a change in Related party payable, net in the consolidated balance sheets. The balance is settled a month in arrears. The balance of Related party payable, net at June 30, 2014 is $11.5 million.
The Company and its subsidiaries participate jointly and severally with all subsidiaries of Cash America and guarantee long-term debt of Cash America of $300.0 million, $458.0 million and $638.2 million at June 30, 2014 and 2013 and December 31, 2013, respectively. The debt as of June 30, 2014 matures in 2018. Under the
F-49
provisions of Cash Americas debt agreements, the Company has liability in the event Cash America defaults in its payment obligations or fails to comply with the covenants under the various debt agreements or upon the occurrence of specified events contained in the various debt agreements, including the event of bankruptcy, insolvency or reorganization of Cash America. The Company believes it will not have to make any payments under these guarantees; therefore, no liability has been reflected on the accompanying consolidated balance sheets.
8. Fair Value Measurements
Recurring Fair Value Measurements
In accordance with ASC 820, Fair Value Measurements and Disclosures, certain of the Companys assets and liabilities, which are carried at fair value, are classified in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The Companys financial assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2014 and 2013 and December 31, 2013 are as follows (dollars in thousands):
June 30,
2014 |
Fair Value Measurements Using | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
Financial assets (liabilities) |
||||||||||||||||
Forward currency exchange contracts |
$ | (93 | ) | $ | | $ | (93 | ) | $ | | ||||||
Nonqualified savings plan assets (1) |
734 | 734 | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 641 | $ | 734 | $ | (93 | ) | $ | | |||||||
|
|
|
|
|
|
|
|
|||||||||
June 30,
2013 |
Fair Value Measurements Using | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
Financial assets (liabilities) |
||||||||||||||||
Nonqualified savings plan assets (1) |
$ | 1,064 | $ | 1,064 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 1,064 | $ | 1,064 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31,
2013 |
Fair Value Measurements Using | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
Financial assets (liabilities) |
||||||||||||||||
Nonqualified savings plan assets (1) |
$ | 559 | $ | 559 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 559 | $ | 559 | $ | | $ | | ||||||||
|
|
|
|
|
|
|
|
(1) | The non-qualified savings plan assets have an offsetting liability of equal amount, which is included in Accounts payable and accrued expenses in the Companys consolidated balance sheets. |
The Company measures the fair value of its forward currency exchange contracts under Level 2 inputs as defined by ASC 820-10. For these forward currency exchange contracts, current market rates are used to determine fair value. The significant inputs used in these models are derived from observable market rates. The fair value of the Companys nonqualified savings plan assets are measured under a Level 1 input. These assets are publicly traded equity securities for which market prices are readily observable. During the six months ended June 30, 2014 and 2013, there were no transfers of assets in or out of Level 1 fair value measurements. Prior to June 2014, the Company participated in Cash Americas derivative and hedging programs, which are coordinated through a centralized treasury function; therefore, the assets and liabilities related to derivative instruments were not
F-50
recorded in the Companys financial statements; however, the gains and losses associated with Cash Americas foreign currency forward contracts that relate to the Companys business are included as Foreign currency transaction loss in the consolidated statements of income.
Financial Assets and Liabilities Not Measured at Fair Value
The Companys financial assets and liabilities as of June 30, 2014 and 2013 and December 31, 2013 that are not measured at fair value in the consolidated balance sheets are as follows (dollars in thousands):
June 30,
2014 |
Fair Value Measurements Using | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
Financial assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 79,785 | $ | 79,785 | $ | | $ | | ||||||||
Short-term loans and line of credit accounts, net (1) |
142,722 | | | 142,722 | ||||||||||||
Installment loans, net (1) |
149,244 | | | 149,244 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 371,751 | $ | 79,785 | $ | | $ | 291,966 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial liabilities: |
||||||||||||||||
Liability for estimated losses on consumer loans guaranteed by the Company |
$ | 1,581 | $ | | $ | | $ | 1,581 | ||||||||
Senior Notes |
493,863 | | 498,125 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 495,444 | $ | | $ | 498,125 | $ | 1,581 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
June 30,
2013 |
Fair Value Measurements Using | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
Financial assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 50,210 | $ | 50,210 | $ | | $ | | ||||||||
Short-term loans and line of credit accounts, net (1) |
129,268 | | | 129,268 | ||||||||||||
Installment loans, net (1) |
103,662 | | | 103,662 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 283,140 | $ | 50,210 | $ | | $ | 232,930 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial liabilities: |
||||||||||||||||
Liability for estimated losses on consumer loans guaranteed by the Company |
$ | 2,188 | $ | | $ | | $ | 2,188 | ||||||||
Affiliate Line of Credit |
397,894 | | 405,256 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 400,082 | $ | | $ | 405,256 | $ | 2,188 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31,
2013 |
Fair Value Measurements Using | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
Financial assets: |
||||||||||||||||
Cash and cash equivalents |
$ | 47,480 | $ | 47,480 | $ | | $ | | ||||||||
Short-term loans and line of credit accounts, net (1) |
156,845 | | | 156,845 | ||||||||||||
Installment loans, net (1) |
146,622 | | | 146,622 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 350,947 | $ | 47,480 | $ | | $ | 303,467 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Financial liabilities: |
||||||||||||||||
Liability for estimated losses on consumer loans guaranteed by the Company |
$ | 2,047 | $ | | $ | | $ | 2,047 | ||||||||
Affiliate Line of Credit |
424,133 | | 429,978 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 426,180 | $ | | $ | 429,978 | $ | 2,047 | ||||||||
|
|
|
|
|
|
|
|
(1) | Short-term loans, line of credit accounts and installment loans are included in Consumer loans, net in the consolidated balance sheets. |
F-51
Cash and cash equivalents bear interest at market rates and have maturities of less than 90 days.
Short-term loans, line of credit accounts and installment loans are carried in the consolidated balance sheet net of the allowance for estimated loan losses, which is calculated by applying historical loss rates combined with recent default trends to the gross consumer loan balance. The unobservable inputs used to calculate the fair value of these loans include historical loss rates, recent default trends and estimated remaining loan terms; therefore, the carrying value approximates the fair value. Short-term loans and line of credit accounts have relatively short maturity periods that are generally 12 months or less. The fair value of installment loans is estimated using a discounted cash flow analysis, which considers interest rates offered for loans with similar terms to borrowers of similar credit quality. The carrying values of the Companys installment loans approximate the fair value of these loans. Unsecured installment loans typically have terms between two and 12 months, but may have available terms up to 60 months.
In connection with its CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for short-term loans and is required to purchase any defaulted loans it has guaranteed. The estimated fair value of the liability for estimated losses on consumer loans guaranteed by the Company was $1.6 million, $2.2 million and $2.0 million as of June 30, 2014 and 2013 and December 31, 2013, respectively. The Company measures the fair value of its liability for third-party lender-owned consumer loans under Level 3 inputs. The fair value of these liabilities is calculated by applying historical loss rates combined with recent default trends to the gross consumer loan balance. The unobservable inputs used to calculate the fair value of these loans include historical loss rates, recent default trends and estimated remaining loan terms; therefore, the carrying value of these liabilities approximates the fair value.
The Company measures the fair value of its long-term debt using Level 2 inputs. The fair value of the Companys long term debt is estimated based on quoted prices in markets that are not active. As of June 30, 2014 and 2013 and December 31, 2013, the Companys Senior Notes and Affiliate Line of Credit had a higher fair market value than the carrying value due to the difference in yield when compared to similar types of credit.
9. Subsequent Events
Subsequent events have been reviewed through July 31, 2014, the date these financial statements were available to be issued.
On April 10, 2014, Cash America announced that its Board of Directors authorized management to review potential strategic alternatives, including a tax-free spin-off, for the separation of the Company. After evaluating separation alternatives for the Company, Cash Americas management has recommended that Cash Americas Board of Directors pursue a tax-free spin-off, and Cash Americas Board of Directors has authorized the filing of a Registration Statement on Form 10 with the Securities and Exchange Commission by the Company in connection with the proposed spin-off. If a spin-off occurs, Cash America will be separated into two publicly traded companies: Enova International, Inc., which would own and operate Cash Americas online lending business, and Cash America International, Inc., which would own and operate Cash Americas storefront lending businesses.
Cash Americas Board of Directors has not yet approved the separation, but if it is approved, a transaction could be completed in late 2014 or early 2015, subject to market, regulatory and other conditions, including, if the separation takes the form of a tax-free spin-off, the receipt of a private letter ruling from the Internal Revenue Service, an opinion from Cash Americas tax counsel and a solvency opinion from an independent financial advisor. Cash America currently expects that any spin-off would be in the form of a tax-free distribution of 80 percent of the Companys common stock to Cash Americas shareholders.
The separation is subject to a number of conditions, including final approval by Cash Americas Board of Directors of transaction specifics. In addition, external events beyond the control of Cash America and the Company could impact the timing or occurrence of a separation. There can be no assurance that any separation or other transaction will occur or, if one does occur, there can be no assurance as to its form, terms or timing.
F-52