As filed with the Securities and Exchange Commission on November 28, 2017.
Registration No. 333-221081
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 3
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CURO GROUP HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
6199 (Primary Standard Industrial Classification Code Number) |
90-0934597 (I.R.S. Employer Identification Number) |
3527 North Ridge Road
Wichita, Kansas 67205
(316) 425-1410
(Address, including Zip Code, and Telephone Number, including Area Code, of registrants principal executive offices)
Vin Thomas
Chief Legal Officer
3527 North Ridge Road
Wichita, Kansas 67205
(316) 425-1410
(Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service)
Copies to:
Cristopher Greer
Willkie Farr & Gallagher LLP
|
F. Holt Goddard Jonathan Michels White & Case LLP 1221 Avenue of the Americas New York, NY 10020
(212)
819-8200
|
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☒ (Do not check if a smaller reporting company) |
Smaller reporting company ☐ | Emerging growth company ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period with any new or revised accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
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Title of Each
Class of Securities
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Amount to be
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Proposed Maximum Offering Price Per Share |
Proposed Maximum
Aggregate Offering Price(2) |
Amount of
Registration Fee(3) |
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Common Stock, $0.001 par value per share |
7,666,667 |
$16.00 |
$122,666,672 | $15,272.00 | ||||
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(1) | Includes an additional 1,000,000 shares that the underwriters have the option to purchase. |
(2) | Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(a) under the Securities Act of 1933, as amended. |
(3) | The Registrant previously paid a registration fee of $12,450.00 in connection with the initial filing of this Registration Statement. |
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until a registration statement filed with the Securities and Exchange Commission is declared effective. This preliminary prospectus is not an offer to sell these securities, and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED NOVEMBER 28, 2017
6,666,667 Shares
CURO Group Holdings Corp.
Common Stock
We are selling 6,666,667 shares of our common stock.
This is the initial public offering of shares of common stock of CURO Group Holdings Corp. Prior to this offering, there has been no public market for our common stock. We anticipate that the initial public offering price will be between $14.00 and $16.00 per share. Our common stock has been authorized for listing on The New York Stock Exchange under the symbol CURO.
We have granted the underwriters a 30-day option to purchase up to 1,000,000 shares from us at the initial public offering price, less the underwriting discounts and commissions.
We are an emerging growth company as the term is used in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to comply with certain reduced public company reporting requirements. See SummaryImplications of Being an Emerging Growth Company.
Investing in our common stock involves risks. See Risk Factors on page 18.
Price to
Public |
Underwriting
Discounts and Commissions |
Proceeds to
CURO Group Holdings Corp. (before expenses)(1) |
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Per Share |
$ | $ | $ | |||||||||
Total |
$ | $ | $ |
(1) | See Underwriting for information relating to underwriting compensation, including certain expenses of the underwriters to be reimbursed by the Company. |
Neither the Securities and Exchange Commission, any state securities commission nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriters expect to deliver the shares on or about , 2017.
Credit Suisse | Jefferies | Stephens Inc. | ||
William Blair | ||||
Janney Montgomery Scott |
The date of this prospectus is , 2017.
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M ANAGEMENT S D ISCUSSION AND A NALYSIS OF F INANCIAL C ONDITION AND R ESULTS OF O PERATIONS |
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F-1 |
You should rely only on the information contained in this document or to which we have referred you. Neither we nor the underwriters have authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities under applicable law. The information in this document may only be accurate on the date of this document regardless of the time of delivery of this prospectus or of any sale of shares of our common stock, and the information in any free writing prospectus that we may provide you in connection with this offering is accurate only as of the date of that free writing prospectus. Our business, financial condition, results of operations and future growth prospects may have changed since those dates. This prospectus is not an offer to sell or the solicitation of an offer to buy shares of our common stock in any circumstances under which such offer or solicitation is unlawful.
Dealer Prospectus Delivery Obligation
Until , (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.
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This prospectus contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. See Risk Factors and Special Note Regarding Forward-Looking Statements.
We do not intend our use or display of other companies tradenames, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other company. Each trademark, tradename or service mark of any other company appearing in this prospectus is the property of its respective holder.
We or one of our subsidiaries own or have applied for ownership of the marks CURO, CURO Financial Technologies Corp., Speedy Cash ® , RC Rapid Cash SM , OPT+ SM , Rapid Cash, Avio Credit, LendDirect and Wage Day Advance. All other trademarks, service marks and trade names appearing in this prospectus are the property of their respective owners.
In this prospectus, when we refer to
| CURO, we are referring to CURO Group Holdings Corp. and its subsidiaries, including CURO Financial Technologies Corp.; |
| CFTC, we are referring to CURO Financial Technologies Corp.; |
| CURO Intermediate, we are referring to CURO Intermediate Holdings Corp.; |
| the FFL Holders, we are referring to Friedman Fleischer & Lowe Capital Partners II, L.P., FFL Executive Partners II, L.P. and FFL Parallel Fund II, L.P.; and |
| the Founder Holders, we are referring to Doug Rippel, Chad Faulkner and Mike McKnight and certain of their family trusts and affiliated entities. |
Unless otherwise specified herein or the context otherwise requires, all references to $, U.S.$, USD or dollars in this prospectus refer to U.S. dollars, all references to C$ refer to Canadian dollars, and all references to £, pound sterling or GBP refer to British pounds sterling. The C$ and GBP are the functional currency of our Canadian and U.K. operations, respectively.
For investors outside the United States: neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus outside of the United States.
Industry and Market Data
This prospectus includes statistical data, market data and other industry data and forecasts, which we obtained from market research, publicly available information and independent industry publications and reports, including those by the Pew Research Center, CFI Group and FactorTrust. We have supplemented these data and forecasts where necessary with information from publicly available sources and our own internal estimates. We use these sources and estimates and believe them to be reliable, but they involve a number of assumptions and limitations.
The sources of certain industry and market data contained in this prospectus are listed below.
| ACORN Canada, Its Expensive to be Poor: How Canadian Banks are Failing Low Income Communities ; May 2016. |
| Board of Governors of the Federal Reserve System, Report on the Economic Well-Being of U.S. Households in 2015 , May 2016. |
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| Center for Financial Services Innovation, or CFSI, 2016 Financially Underserved Market Size Study ; November 2016. |
| CFI Group, Bank Satisfaction Barometer ; 2016. |
| FactorTrust, The FactorTrust Underbanked Index ; May 2017. |
| FICO, U S Average FICO Score Hits 700: A Milestone for Consumers ; July 2017. |
| Financial Credit Authority, High-cost credit ; July 2017. |
| JPMorgan Chase & Co., Weathering Volatility: Big Data on the Financial Ups and Downs of U.S. Individuals , 2015. |
| L.E.K. Consulting, Consumer Specialist Lending Newly Sustainable or Another Boom-and-Bust ; Volume XVIII, Issue 10. |
| Pew Research Center, Smartphone Ownership and Internet Usage Continues to Climb in Emerging Economies ; February 2016. |
| Pricewaterhouse Coopers LLP, or PWC, Banking the Under-Banked: The Growing Demand for Near Prime Credit , 2016. |
The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in Risk Factors and elsewhere in this prospectus. These and other factors could cause our and the industrys results to differ materially from those expressed in the estimates made by the independent parties and by us.
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The following summary highlights information contained elsewhere in this prospectus and does not contain all of the information that you should consider before investing in our common stock. You should read this entire prospectus, including the sections entitled Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and the related notes to those statements before making an investment decision. The terms we, our, us, CURO and the Company, as used in this prospectus, refer to CURO Group Holdings Corp. and its consolidated subsidiaries, except where otherwise stated or where it is clear that the terms mean only CURO Group Holdings Corp. exclusive of its subsidiaries. Unless the context otherwise indicates or requires, the term Curo Platform and platform, as used in this prospectus, refer to our Companys proprietary IT systems and operating platform.
Company Overview
We are a growth-oriented, technology-enabled, highly-diversified consumer finance company serving a wide range of underbanked consumers in the United States, Canada and the United Kingdom and are a market leader in our industry based on revenues. We believe that we have the only true omni-channel customer acquisition, onboarding and servicing platform that is integrated across store, online, mobile and contact center touchpoints. Our IT platform, which we refer to as the Curo Platform, seamlessly integrates loan underwriting, scoring, servicing, collections, regulatory compliance and reporting activities into a single, centralized system. We use advanced risk analytics powered by proprietary algorithms and over 15 years of loan performance data to efficiently and effectively score our customers loan applications. Since 2010, we have extended $13.9 billion in total credit across approximately 36.5 million total loans, and our revenue of $828.6 million in 2016 represents a 26.3% compound annual growth rate, or CAGR, over the same time period.
We operate in the United States under two principal brands, Speedy Cash and Rapid Cash, and launched our new brand Avio Credit in the United States in the second quarter of 2017. In the United Kingdom, we operate online as Wage Day Advance and, prior to their closure in the third quarter of 2017, our stores were branded Speedy Cash. In Canada our stores are branded Cash Money and, we offer LendDirect installment loans online. As of September 30, 2017 our store network consisted of 405 locations across 14 U.S. states and seven Canadian provinces. As of September 30, 2017, we offered our online services in 26 U.S. states, five Canadian provinces and the United Kingdom.
We offer a broad range of consumer finance products including Unsecured Installment Loans, Secured Installment Loans, Open-End Loans and Single-Pay Loans. We have tailored our products to fit our customers particular needs as they access and build credit. Our product suite allows us to serve a broader group of potential borrowers than most of our competitors. The flexibility of our products, particularly our installment and open-end products, allows us to continue serving customers as their credit needs evolve and mature. Our broad product suite creates a diversified revenue stream and our omni-channel platform seamlessly delivers our products across all contact pointswe refer to it as Call, Click or Come In. We believe these complementary channels drive brand awareness, increase approval rates, lower our customer acquisition costs and improve customer satisfaction levels and customer retention.
We serve the large and growing market of individuals who have limited access to traditional sources of consumer credit and financial services. We define our addressable market as underbanked consumers in the United States, Canada and the United Kingdom. According to a study by CFSI, there are as many as 121 million Americans who are currently underserved by financial services companies. According to studies by ACORN Canada and PWC, the statistics in Canada and the United Kingdom are similar, with an estimated 15% of Canadian residents (approximately 5 million individuals) and an estimated 20% to 25% of United Kingdom
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residents (approximately 10 to 14 million individuals) classified as underbanked. Given our international footprint, this translates into an addressable market of approximately 140 million individuals. We believe that with our scalable omni-channel platform and diverse product offerings, we are well positioned to gain market share as sub-scale players struggle to keep pace with the technological evolution taking place in the industry.
Our customers require essential financial services and value timely, transparent, affordable and convenient alternatives to banks, credit card companies and other traditional financial services companies. According to a recent study by FactorTrust, underbanked customers in the United States tend to have the following characteristics:
| average age of 39 for applicants and 41 for borrowers; |
| applicants are 47% male and 53% female; |
| 41% are homeowners; |
| 45% have a bachelors degree or higher; and |
| the top five employment segments are Retail, Food Service, Government, Banking/Finance and Business Services. |
In the United States, our customers generally earn between $25,000 and $75,000 annually. In Canada, our customers generally earn between C$25,000 and C$60,000 annually. In the United Kingdom, our customers generally earn between £18,000 and £31,000 annually.
Products and Services
We provide Unsecured Installment Loans, Secured Installment Loans, Open-End Loans, Single-Pay Loans and a number of ancillary financial products including check cashing, proprietary reloadable prepaid debit cards (Opt+), credit protection insurance in the Canadian market, gold buying, retail installment sales and money transfer services. We have designed our products and customer journey to be consumer-friendly, accessible and easy to understand. Our platform and product suite enable us to provide several key benefits that appeal to our customers:
| transparent approval process; |
| flexible loan structure, providing greater ability to manage monthly payments; |
| simple, clearly communicated pricing structure; and |
| full account management online and via mobile devices. |
Our centralized underwriting platform and its proprietary algorithms are used for every aspect of underwriting and scoring of our loan products. The customer application, approval, origination and funding processes differ by state, country and by channel. Our customers typically have an active phone number, open checking account, recurring income and a valid government-issued form of identification. For in-store loans, the customer presents required documentation, including a recent pay stub or support for underlying bank account activity for in-person verification. For online loans, application data is verified with third-party data vendors, our proprietary algorithms and/or tech-enabled account verification. Our proprietary, highly scalable, scoring system employs a champion/challenger process whereby models compete to produce the most successful customer outcomes and profitable cohorts. Our algorithms use data relevancy and machine learning techniques to identify approximately 60 variables from a universe of approximately 11,600 that are the most predictive in terms of credit outcomes. The algorithms are continuously reviewed and refreshed and are focused on a number of factors related to disposable income, expense trends and cash flows, among other factors, for a given loan applicant. The
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predictability of our scoring models is driven by the combination of application data, purchased third-party data and our robust internal database of over 71 million records (as of September 30, 2017) associated with loan information. These variables are then combined in a series of algorithms to create a score that allows us to scale lending decisions.
Geography and Channel Mix
For the nine months ended September 30, 2017, our revenue distribution in the United States, Canada and United Kingdom was 76.4%, 19.5% and 4.1%, respectively.
Stores: As of September 30, 2017, we had 405 stores in 14 U.S. states and seven provinces in Canada, which included the following:
| 215 United States locations: Texas (92), California (36), Nevada (18), Arizona (13), Tennessee (11), Kansas (10), Illinois (8), Alabama (7), Missouri (5), Louisiana (5), Colorado (3), Oregon (3), Washington (2) and Mississippi (2); and |
| 190 Canadian locations: Ontario (121), Alberta (27), British Columbia (26), Saskatchewan (6), Nova Scotia (5), Manitoba (4) and New Brunswick (1). |
Online: We lend online in 26 U.S. states, five provinces in Canada and in England, Wales, Scotland and Northern Ireland in the United Kingdom. During the third quarter of 2017, we began offering loans online in Virginia.
The following charts reflect the revenue contribution, including CSO fees, of the products and services that we currently offer in the regions in which we operate.
Year Ended December 31, 2016 $829 million |
Nine Months Ended September 30, 2017 $697 million |
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|
|
For the year ended December 31, 2016 and the period ending September 30, 2017, revenue generated through our online channel was 33% and 37%, respectively.
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Overview of Loan Products
Below is an outline of the primary products we offered as of September 30, 2017.
Installment | ||||||||
Unsecured | Secured | Open-End | Single-Pay | |||||
Channel |
Online and in-store:
15 U.S. states, Canada and the United Kingdom(1) |
Online and in-store:
7 U.S. states |
Online: KS, TN, ID, UT,
VA, DE and RI In-store: KS and TN |
Online and
in-store:
12 U.S. states, Canada and the United Kingdom(1) |
||||
Approximate Average Loan Size (2) |
$636 | $1,299 | $463 | $335 | ||||
Duration |
Up to 48 months | Up to 42 months | Revolving / Open-ended | Up to 62 days | ||||
Pricing |
13.2% average
monthly interest rate(3) |
10.6% average
monthly interest rate(3) |
Daily interest rates
ranging from 0.74% to 0.99% |
Fees ranging from $13
to $25 per $100 borrowed |
(1) | Online only in the United Kingdom. |
(2) | Includes CSO loans. |
(3) | Weighted average of the contractual interest rates for the portfolio as of September 30, 2017. Excludes CSO fees. |
Unsecured Installment Loans
Unsecured Installment Loans are fixed-term, fully-amortizing loans with a fixed payment amount due each period during the term of the loan. These loans are originated and owned by us or by third-party lenders pursuant to credit services organization and credit access business statutes, which we refer to as our CSO programs. For CSO programs, we arrange, service and guarantee the loans. Payments are due bi-weekly or monthly to match the customers pay cycle. Customers may prepay without penalty or fees. Unsecured Installment Loan terms are governed by enabling state legislation in the United States, provincial and federal legislation in Canada and national regulations in the United Kingdom. Unsecured Installment Loans comprised 49.3%, and 40.0% of our consolidated revenue during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively. We believe that the flexible terms and lower payments associated with Installment Loans significantly expands our addressable market by allowing us to serve a broader range of customers with a variety of credit needs.
Secured Installment Loans
Secured Installment Loans are similar to Unsecured Installment Loans but are also secured by a vehicle title. These loans are originated and owned by us or by third-party lenders through our CSO programs. For these loans the customer provides clear title or security interest in the vehicle as collateral. The customer receives the benefit of immediate cash but retains possession of the vehicle while the loan is outstanding. The loan requires periodic payments of principal and interest with a fixed payment amount due each period during the term of the loan. Payments are due bi-weekly or monthly to match the customers pay cycle. Customers may prepay without penalty or fees. Secured Installment Loan terms are governed by enabling state legislation in the United States. Secured Installment Loans comprised 10.5% and 9.8% of our consolidated revenue during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.
Open-End Loans
Open-End Loans are a line of credit for the customer without a specified maturity date. Customers may draw against their line of credit, repay with minimum, partial or full payments and redraw as needed. We report
% ancillary revenue 7% 5% 5% % ancillary revenue 5% 4% 4% % online revenue 28% 30% 33% % online revenue 30% 35% 39%
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and earn interest on the outstanding loan balances drawn by the customer against their approved credit limit. Typically, customers do not draw the full amount of their credit limit. Customers may prepay without penalty or fees. Loan terms are governed by enabling state legislation in the United States. Unsecured Open-End Loans comprised 6.6% and 7.0% of our consolidated revenue during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively. Secured Open-End Loans are offered as part of our product mix in states with enabling legislation and accounted for approximately 0.9% and 1.0% of our consolidated revenue during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.
Single-Pay Loans
Single-Pay Loans are generally unsecured short-term, small-denomination loans whereby a customer receives cash in exchange for a post-dated personal check or a pre-authorized debit from the customers bank account. These loans are originated and owned by us or by third-party lenders through our CSO programs. We agree to defer deposit of the check or debiting of the customers bank account until the loan due date which typically falls on the customers next pay date. Single-Pay Loans are governed by enabling state legislation in the United States, federal and provincial regulations in Canada and national regulation in the United Kingdom. Single-Pay Loans comprised 28.4% and 37.8% of our consolidated revenue during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.
Ancillary products
We also provide a number of ancillary financial products including check cashing, proprietary reloadable prepaid debit cards (Opt+), credit protection insurance in the Canadian market, gold buying, retail installment sales and money transfer services. We had 112,607 active Opt+ cards as of September 30, 2017, which includes any card with a positive balance or transaction in the past 90 days. Opt+ customers have loaded over $1.5 billion to their cards since we started offering this product.
CSO Programs
Through our CSO programs, we act as a credit services organization/credit access business on behalf of customers in accordance with applicable state laws. We currently offer loans through CSO programs in stores and online in the state of Texas and online in the state of Ohio. In Texas we offer Unsecured Installment Loans and Secured Installment Loans with a maximum term of 180 days. In Ohio we offer an Unsecured Installment Loan product with a maximum term of 18 months. As a CSO we earn revenue by charging the customer a fee, or the CSO fee, for arranging an unrelated third-party to make a loan to that customer. When a customer executes an agreement with us under our CSO programs, we agree, for a CSO 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 the customer receives from the third-party lender. CSO fees are calculated based on the amount of the customers outstanding loan. For CSO loans, each lender is responsible for providing the criteria by which the customers application is underwritten and, if approved, determining the amount of the customer loan. We in turn are responsible for assessing whether or not we will guarantee the loan. This guarantee represents an obligation to purchase specific loans if they go into default.
As of September 30, 2017, the maximum amount payable under all such guarantees was $59.1 million, compared to $59.6 million at December 31, 2016. Should we be required to pay any portion of the total amount of the loans we have guaranteed, we will attempt to recover the amount we pay from the customers. We hold no collateral in respect of the guarantees. Our guarantee liability was $16.9 million and $17.1 million at September 30, 2017 and December 31, 2016, respectively.
Since CSO loans are made by a third party lender, we do not include them in our Consolidated Balance Sheets as loans receivable. CSO fees receivable are included in Prepaid expense and other in our Consolidated
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Balance Sheets. We receive payments from customers for these fees on their scheduled loan repayment due dates.
The majority of revenue generated through our CSO programs was for Unsecured Installment Loans, which comprised 96.2% and 91.6% of total CSO revenue for the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.
Total revenue generated through our CSO programs comprised 26.5% and 26.1% of our consolidated revenue during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.
Industry Overview
We operate in a segment of the financial services industry that provides lending products to underbanked consumers in need of convenient and flexible access to credit and other financial products. Up to 140 million individuals fall within the definition of our target market. In the United States alone, according to a study by CFSI, these underserved consumers spent an estimated $126.5 billion on fees and interest related to credit products similar to those we offer.
We believe our target consumers have a need for tailored financing products to cover essential expenses. According to a study by the Federal Reserve, 44% of American adults could not cover an emergency expense costing $400, or would cover it by selling an asset or borrowing money. Additionally, a study conducted by JPMorgan Chase & Co., which analyzed the transaction information of 2.5 million of its account holders, found that 41% of those sampled experienced month-to-month income swings of more than 30%.
We compete against a wide variety of consumer finance providers including online and branch-based consumer lenders, credit card companies, pawnshops, rent-to-own and other financial institutions that offer similar financial services. A study by CFSI has estimated that spending on credit products offered by our industry exhibited a 10.0% CAGR from 2010 to 2015. This growth has been accompanied by shrinking access to credit for our customer base as evidenced by an estimated $142 billion reduction in the availability of non-prime consumer credit from the 2008 to 2009 credit crisis to 2015 (based on analysis of master pool trust data of securitizations for major credit card issuers).
In addition to the beneficial secular trends broadly impacting the consumer finance landscape, we believe we are well positioned to grow our market share as a result of several changes we have observed related to consumer preferences within alternative financial services. Specifically, we believe that a combination of evolving consumer preferences, increasing use of mobile devices and overall adoption rates for technology are driving significant change in our industry.
| Shifting preference towards installment loan s We believe from our experience in offering installment loan products since 2008 that single-pay loans are becoming less popular or less suitable for a growing portion of our customers. Customers generally have shown a preference for our Installment Loan products, which typically have longer terms, lower periodic payments and a lower relative cost. Offering more flexible terms and lower payments also significantly expands our addressable market by broadening our products appeal to a larger proportion of consumers in the market. |
| Increasing adoption of online channels Our experience is that customers prefer service across multiple channels or touch points. Approximately 63% of respondents in a recent study by CFI Group said they conducted more than half of their banking activities electronically. That same group of respondents reported an overall level of satisfaction that met or exceeded the average. In 2017, our online revenue of $257 million represented 37% of our 2017 consolidated revenues through September 30, 2017. |
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| Increasing adoption of mobile apps and devices With the proliferation of pay-as-you-go and other smartphone plans, many of our underbanked customers have moved directly to mobile devices for loan origination and servicing. According to a 2016 study by the Pew Research Center involving the United States, the United Kingdom and Canada, smartphone penetration is 72%, 68% and 67%, respectively. Additionally, 43% of respondents to a study by CFI Group said they conduct transactions using a mobile banking app. Five years ago, less than 30% of our U.S. customers reached us via a mobile device. In the third quarter of 2017, that percentage was over 80%. |
Our Strengths
We believe the following competitive strengths differentiate us and serve as barriers for others seeking to enter our market.
| Unique omni-channel platform / site-to-store capability We believe we have the only fully-integrated store, online, mobile and contact center platform to support omni-channel customer engagement. We offer a seamless Call, Click or Come In capability for customers to apply for loans, receive loan proceeds, make loan payments and otherwise manage their accounts in store, online or over the phone. Customers can utilize any of our three channels at any time and in any combination to obtain a loan, make a payment or manage their account. In addition, we have our Site-to-Store capability in which online customers that do not qualify for a loan online are referred to a store to complete a loan transaction with one of our associates. These aspects of our platform enable us to source a larger number of customers, serve a broader range of customers and continue serving these customers for longer periods of time while lowering cost per funded loan. |
| Industry leading product and geographic diversification In addition to channel diversification, we have increased our diversification by product and geography allowing us to serve a broader range of customers with a flexible product offering. As part of this effort, we have also developed and launched new brands and will continue to develop new brands with differentiated marketing messages. These initiatives have helped diversify our revenue streams, enabling us to appeal to a wider array of borrowers. |
| Leading analytics and information technology drives strong credit risk management We have developed a bespoke, proprietary IT platform, referred to as the Curo Platform, which is a unified, centralized platform that seamlessly integrates activities related to customer acquisition, underwriting, scoring, servicing, collections, compliance and reporting. Our IT platform is built upon over 15 years of continually updated customer data comprising over 71 million loan records (as of September 30, 2017) used to formulate our robust, proprietary underwriting algorithms. This platform then automatically applies multi-algorithmic analysis to a customers loan application to produce a Curo Score, which drives our underwriting decision. Globally, as of September 30, 2017 we had 183 employees who write code and manage our networks and infrastructure for our IT platform. This fully-integrated IT platform enables us to make real-time, data-driven changes, to our acquisition and risk models, which yield significant benefits in terms of customer acquisition costs and credit performance. |
| Multi-faceted marketing strategy drives low customer acquisition costs Our marketing strategy includes a combination of strategic direct mail, television advertisements and online and mobile-based digital campaigns, as well as strategic partnerships. Our global Marketing, Risk and Credit Analytics team, consisting of 72 professionals as of September 30, 2017, uses our integrated IT platform to cross reference marketing spend, new customer account data and granular credit metrics to optimize our marketing budget across these channels in real time to produce higher quality new loans. Besides these diversified marketing programs, our stores play a critical role in creating brand awareness and driving new customer acquisition. From January 2015 through the end of September 2017, we acquired nearly 1.9 million new customers in North America. For the first nine months of 2017 compared to the first nine months of 2015, our average first-pay defaults in the United States improved by 203 bps, while our average cost per funded loan decreased from $72.90 to $63.30. |
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| Focus on customer experience We focus on customer service and experience and have designed our stores, website and mobile application interfaces to appeal to our customers needs. We continue to augment our web and mobile app interfaces to enhance our Call, Click or Come In strategy, with a focus on adding functionality across all our channels. Our stores are branded with distinctive and recognizable signage, conveniently located and typically open seven days a week. Furthermore, we have highly experienced managers in our stores, which we believe is a critical component to driving customer retention, lowering acquisition costs and driving store-level margins. For example as of September 30, 2017, the average tenure for our U.S. store managers was over nine years and over 11 years for regional directors. |
| Strong compliance culture with centralized collections operations We seek to consistently engage in proactive and constructive dialogue with regulators in each of our jurisdictions and have made significant investments in best-practice automated tools for monitoring, training and compliance management. As of September 30, 2017, our compliance group consisted of 28 individuals based in all three countries in which we operate and our compliance management systems are integrated into our proprietary IT platform. Additionally, our in-house centralized collections strategy, supported by our proprietary back-end customer database and analytics team, drives an effective, compliant and highly-scalable model. |
| Demonstrated access to capital markets and diversified funding sources We have raised over $1.1 billion of debt financing in six separate offerings since 2008, most recently in October 2017. See Managements Discussion and Analysis of Financial Condition and Results of OperationsRecent Developments We also closed a $150 million nonrecourse installment loan financing facility in 2016 and have routinely accessed banks and other lenders for revolving credit capacity. We believe this is a significant differentiator from our peers who may have trouble accessing capital markets to fund their business models if credit markets tighten. For more information, see Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources. |
| Experienced and innovative management team and sponsor Our senior leadership team is among the most experienced in the industry with over a century of collective experience and an average tenure at CURO of over eight years. We also have deep bench strength across key functional areas including accounting, compliance, IT and legal. Our equity sponsor, FFL Partners, LLC, or FFL Partners, has been our partner since 2008 and has contributed significant resources to helping define our growth strategy. |
| History of growth and profitability Throughout our operating history we have maintained strong profitability and growth. Between 2010 and 2016 we grew revenue, Adjusted EBITDA, net income and Adjusted Earnings at a CAGR of 26.3%, 25.4%, 21.9% and 19.9%, respectively. At the same time, we have grown our product offerings to better serve our growing and expanding customer base. |
Growth Strategy
| Leverage our capabilities to continue growing installment and open-end products I nstallment and open-end products accounted for 58% of our consolidated revenue for the year ended December 31, 2016, up from 19% in 2010, and we believe that our customers greatly prefer these products. We believe that these products will continue to account for a greater share of our revenue and provide us a competitive advantage versus other consumer lenders with narrower product focus. We believe that our ability to continue to be successful in developing and managing new products is based upon our capabilities in three key areas. |
| Underwriting: Installment and open-end products generally have lower yields than single-pay products, which necessitates more stringent credit criteria supported by more sophisticated credit analytics. Our industry leading analytics platform combines data from over 71 million records associated with loan information from third-party reporting agencies and has helped to reduce average first-pay defaults in the United States by approximately 203 bps for the first nine months of 2017 compared to the first nine months of 2016. |
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| Collections and Customer Service: Installment and open-end products have longer terms than single-pay loans, in some cases up to 48 months. These longer terms drive the need for a more comprehensive collection and default servicing strategy that emphasizes curing a default and putting the customer back on a track to repay the loan. We utilize a centralized collection model that prevents our store management personnel from ever having to contact customers to resolve a delinquency. We have also invested in building new contact centers in all three of the countries in which we operate, each of which utilizes sophisticated dialer technologies to help us contact our customers in a scalable, efficient manner. |
| Funding: The shift to larger balance installment loans with extended terms and open-end loans with revolving terms requires more substantial and more diversified funding sources. Given our deep and successful track record in accessing diverse sources of capital, we believe that we are well-positioned to support future new product transition. |
| Serve additional types of borrowers In addition to growing our existing suite of installment and open-end lending products, we are focused on expanding the total number of customers that we are able to serve through product, geographic and channel expansion. This includes expansion of our online channel, particularly in the United Kingdom, as well as continued targeted additions to our physical store footprint. We also continue to introduce additional products to address our customers preference for longer term products that allow for greater flexibility in managing their monthly payments. |
| In the second quarter of 2017, we launched Avio Credit, a new online product branded in the United States targeting individuals in the 600-675 FICO band. This product is structured as an Unsecured Installment Loan with varying principal amounts and loan terms up to 48 months. As of April 2017, 10% of U.S. consumers had FICO scores between 600 and 649. A further 13.2% of U.S. consumers had FICO scores between 650 and 699, a portion of whom would fall into the credit profile targeted by our Avio Credit product. |
| We expect to expand our LendDirect brand in Canada to include additional provinces and increase acquisition efforts in existing markets. We also plan to open LendDirect stores in Canada during the fourth quarter of 2017. Seven million Canadians have a FICO score below 700. We estimate that the consumer credit opportunity for this customer segment exceeds C$165 billion. We believe these customers represent a highly-fragmented market with low penetration. |
| In the United Kingdom, we expect to launch online longer-term loans, some supported by a guarantor. According to a study by the Financial Conduct Authority, in 2016, the U.K. guarantor market alone comprised approximately £300 million in loans outstanding and had annual originations of approximately £200 million in 2016. A report by L.E.K. Consulting found that this market experienced double digit percentage growth from 2008 to 2017. We believe it is currently dominated by one lender but otherwise largely made up of smaller participants with growth challenges. |
| Continue to bolster our core business through enhancement of our proprietary risk scoring models We continuously refine and update our credit models to drive additional improvements in our performance metrics. By regularly updating our credit underwriting algorithms we can continue to expand the value of each of our customer relationships through improved credit performance. By combining these underwriting improvements with data driven marketing spend, we believe our optimization efforts will produce margin expansion and earnings growth. |
| Expand credit for our borrowers Through extensive testing and our proprietary underwriting, we have successfully increased credit limits for customers, enabling us to offer the right loan to the right customer. The favorable take rates and successful credit performance have improved overall vintage and portfolio performance. For the first nine months of 2017, our average loan amount for Unsecured and Secured Installment Loans rose by $128 (a 26% increase) and $247 (a 24% increase), respectively, versus the same period in 2016. |
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| Continue to improve the customer journey and experience We have projects in our development pipeline to enhance our Call, Click or Come In customer experience and execution, ranging from redesign of web and app interfaces to enhanced service features to payments optimization. |
| Enhance our network of strategic partnerships Our strategic partnership network generates applicants that we then close through our diverse array of marketing channels. By further leveraging these existing networks and expanding the reach of our partnership platform to include new relationships, we can increase the number of overall leads we receive. |
Corporate and Other Information
The CURO business was founded in 1997. CURO Financial Technologies Corp., or CFTC (then known as Speedy Cash Holdings Corp.), was incorporated in Delaware on July 16, 2008. On September 10, 2008, our founders sold or otherwise contributed all of the outstanding equity of the various operating entities that comprised the CURO business to a wholly-owned subsidiary of CFTC in connection with an investment in CFTC by Friedman Fleischer & Lowe Capital Partners II, L.P. and its affiliated funds, or FFL Partners. CURO Group Holdings Corp. (then known as Speedy Group Holdings Corp.) was incorporated in Delaware on February 7, 2013 as the parent company of CFTC. On May 11, 2016, we changed the name of Speedy Group Holdings Corp. to CURO Group Holdings Corp. We similarly changed the names of some of its subsidiaries.
Our directors, including the Founder Holders, executive officers and the FFL Holders, currently collectively own approximately 89.36% of our common stock. Following the completion of this offering, our directors, including the Founder Holders, executive officers and the FFL Holders will beneficially own approximately 76.05% of our outstanding common stock. For additional information on the beneficial ownership of our common stock prior to and immediately after the completion of this offering, see Principal Stockholders.
Our principal business office is located at 3527 North Ridge Road, Wichita, Kansas 67205. Our website address is www.curo.com . We do not incorporate the information contained on, or accessible through, our corporate website into this prospectus, and you should not consider it to be part of this prospectus.
Implications of Being an Emerging Growth Company
As a company with less than $1.07 billion in revenue during our last fiscal year, we qualify as an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.
An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise generally applicable to public companies. As an emerging growth company:
| we are required to have only two years of audited financial statements, two years of selected financial data and only two years of related Managements Discussion and Analysis of Financial Condition and Results of Operations disclosure; |
| we are not required to engage an auditor to report on the effectiveness of our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act; |
| we are not required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board, or PCAOB, regarding a supplement to the auditors report providing additional information about the audit and the financial statements ( i.e. , an auditor discussion and analysis); |
| we are not required to submit certain executive compensation matters to stockholder advisory votes, such as say-on-pay, say-on-frequency and say-on-golden parachutes; |
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| we are not required to disclose certain executive compensation-related items, such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officers compensation to median employee compensation, or to include a compensation committee report, provided we comply with the scaled compensation disclosure rules applicable to smaller reporting companies; and |
| we may take advantage of an extended transition period for complying with new or revised accounting standards, allowing us to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. |
We have elected to take advantage of these reduced reporting and other requirements available to us as an emerging growth company. As a result of these elections, the information that we provide in this prospectus may be different from the information you may receive from other public companies. In addition, it is possible that certain investors will find our common stock less attractive as a result of our elections, which may result in a less active trading market for our shares and more volatility in our stock price.
We may take advantage of these provisions until we are no longer an emerging growth company. We could remain an emerging growth company until the last day of the fifth fiscal year after this offering, or until the earliest of the following: (i) the last day of the first fiscal year in which our total annual gross revenues are at least $1.07 billion; (ii) the date that we become a large accelerated filer as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur as of the end of the fiscal year in which, among other things, the market value of our voting and non-voting common equity securities held by non-affiliates is at least $700 million as of the last business day of our most recently completed second fiscal quarter; or (iii) the date on which we have issued more than $1 billion in nonconvertible debt securities during the preceding three-year period.
Summary Risk Factors
Investing in our common stock involves substantial risk. The risks described under the heading Risk Factors immediately following this summary may cause us to not realize the full benefits of our strengths or may cause us to be unable to successfully execute all or part of our strategy. Some of the more significant challenges include the following:
| the recently adopted CFPB rule on payday, vehicle title, and certain high-cost installment loans could, if enacted, have a material adverse effect on our business and results of operations; |
| the extent to which federal, state, local and foreign governmental regulation of consumer lending and related financial products and services limits or prohibits the operation of our business; |
| our failure to comply with applicable laws and regulations, and resulting fines, penalties or other sanctions that could adversely affect our business and results of operations; |
| the impact of proposed rules and regulations that, if enacted, could have a material adverse effect on our business and results of operations; |
| future changes to regulations to which we are subject could restrict us in ways that adversely affect our business and results of operations; |
| the adverse impact of existing or new local regulation of our industry; |
| the impact of the complex regulatory environment in which we operate, which increase our costs of compliance and the risk that we may fail to comply; |
| the risk that our interpretation and application of laws and regulations related to consumer lending activities differs from the interpretations applied by federal, state, local and foreign regulatory bodies; |
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| the effect of judicial decisions, agency rulemaking, or amendments to law on the legality or enforceability of our agreements; |
| current and future litigation and regulatory proceedings against us may impact our results of operations, cash flow and financial condition; |
| risks associated with negative public perception of our products and services; |
| the adverse impact of material modifications of U.S. laws and regulations and existing trade agreements by the new U.S. presidential administration on our business, financial condition, and results of operations; |
| our substantial indebtedness may expose us to material risks, and could adversely affect our business, results of operations and financial condition, as we currently depend in large part on debt financing to provide the cash needed to fund the loans we originate; |
| our business could be adversely affected by a lack of sufficient debt financing at acceptable prices or disruptions in the credit markets, which could reduce our access to credit and our ability to fund loans; |
| risks associated with our ability to refinance our substantial indebtedness; |
| risks associated with a lack of sufficient debt financing made to our business on acceptable terms; |
| our ability to protect our proprietary technology and analytics or keep up with that of our competitors; |
| risks associated with disruption in the availability of our information systems; |
| risks associated with information provided by customers or third parties being inaccurate, and causing us to misjudge a customers qualification to receive a loan; |
| because of the non-prime nature of our customers, our business has much higher rates of charge-offs than traditional lenders, and if we are unable to price our loan products to take into account the credit risks of our customers, our operating results and financial condition could be adversely affected. |
| risks associated with the failure of our proprietary credit and fraud scoring system to effectively price the credit risk of our prospective or existing customers; |
| risks associated with the handling of customer personal data and cyber-attacks that could result in liability or harm to our reputation; |
| risks associated with failure of third parties who provide us products, services or support, including our ability to maintain relationships with banks and other third-party electronic payment solutions providers; |
| our ability to maintain relationships with third-party service providers to offer credit services organizations, or CSO, loans in Texas and Ohio; |
| the adverse impact of employee and third-party theft and errors as well as liability resulting from crimes at our stores; |
| the adequacy of our allowance for loan losses, accrual for third-party loan losses and estimates of losses; |
| changes in demand for our products and services; |
| risks associated with effectively managing our growth; |
| our ability to integrate acquisitions into our existing business operations; |
| the sufficiency of indemnifications associated with assumed liabilities of acquired entities to cover our exposures to litigation and settlement costs; |
| our ability to attract and retain qualified management and employees; |
| the possible impairment of goodwill; |
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| the seasonality of our lending business; |
| our ability to find suitable real estate to support future new store development; |
| our ability to keep up with rapid changes in e-commerce and the uses of the Internet; |
| the fragmentation of our industry and competition from various other sources providing similar financial products, or other alternative sources of credit, to consumers; |
| risks related to the international scope of our business and operations; |
| the adverse impact of natural disasters and other business disruptions on our future revenue and financial condition; and |
| the FFL Holders and the Founder Holders will together have a controlling interest following this offering, and their interests may conflict with ours or yours in the future. |
You should carefully consider all of the information included in this prospectus, including matters set forth under the headings Risk Factors and Special Note Regarding Forward-Looking Statements, before deciding to invest in our common stock.
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Issuer |
CURO Group Holdings Corp. |
Offering price per share |
$ |
Common stock offered by us |
6,666,667 shares (7,666,667 shares if the underwriters fully exercise their option to purchase additional shares). |
Common stock to be outstanding immediately after completion of this offering |
44,561,419 shares (45,561,419 shares if the underwriters fully exercise their option to purchase additional shares). |
Use of proceeds |
We estimate that our net proceeds from this offering will be approximately $88.5 million (or $102.5 million if the underwriters fully exercise their option to purchase additional shares), based on an assumed price to the public in this offering of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses. We plan to use our net proceeds from this offering to purchase, redeem, defease or otherwise repay portions of the 12.00% Senior Secured Notes due 2022, or the 12.00% Senior Secured Notes, issued by CFTC and pay fees, expenses, premiums and accrued interest in connection therewith. See Use of Proceeds. |
Dividend policy |
See Dividend Policy for a discussion of our policy on paying dividends. |
Directed share program |
The underwriters have reserved for sale at the initial public offering price up to 5% of the common stock in this offering for employees, directors and other persons associated with us who have expressed an interest in purchasing our common stock in the offering. If purchased by certain of these persons, these shares will be subject to a 180-day lock-up restriction. The number of shares available for sale to the general public in the offering will be reduced to the extent these persons purchase the reserved shares. Any reserved shares they do not purchase will be offered by the underwriters to the general public on the same terms as the other shares in this offering. See Underwriting. |
Proposed listing symbol |
Our common stock has been authorized for listing on The New York Stock Exchange under the symbol CURO. |
Risk factors |
Investing in our common stock involves substantial risks. You should carefully read and consider the information set forth under the heading Risk Factors and all other information set forth in this prospectus before deciding to invest in our common stock. |
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The number of shares of our common stock to be outstanding after this offering is based on 37,894,752 shares outstanding as of September 30, 2017 and excludes:
| 1,977,480 shares of our common stock issuable upon the exercise of options outstanding as of November 27, 2017 at a weighted average price of $3.04 per share; |
| 5,000,000 shares of our common stock reserved for issuance pursuant to our 2017 Incentive Plan as of November 27, 2017; and |
| 2,500,000 shares of our common stock reserved for issuance pursuant to our Employee Stock Purchase Plan as of November 27, 2017. |
Unless we specifically state otherwise, the information in this prospectus assumes:
| that the price to the public of our common stock in this offering will be $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus; |
| that holders will not exercise options issued under our equity incentive plans; |
| the application of a 36-for-1 split of our common stock to occur immediately prior to the completion of this offering; |
| the filing of our amended and restated certificate of incorporation to occur immediately prior to the completion of this offering; and |
| the underwriters do not exercise their option to purchase additional shares of common stock from us in this offering. |
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Summary Consolidated Financial And Other Data
Set forth below is our summary consolidated financial and other data as of and for the periods indicated. We have derived the summary consolidated financial and other data as of and for the years ended December 31, 2016 and 2015 from our audited consolidated financial statements and the accompanying notes thereto included elsewhere in this prospectus. We have derived the summary consolidated financial and other data as of and for the nine month periods ended September 30, 2017 and 2016 from our unaudited consolidated financial statements that are included elsewhere in this prospectus and that, in our opinion, include all adjustments, consisting of normal, recurring adjustments, necessary for the fair presentation of such information. Our historical results for any prior period are not necessarily indicative of results we may expect or achieve in any future period. Our results for any interim period are not necessarily indicative of results we may achieve during a full year.
The following information is only a summary and may not be complete. Accordingly, you should read these summary consolidated financial data in conjunction with the sections entitled Use of Proceeds, Capitalization, Selected Historical Consolidated Financial Data, Managements Discussion and Analysis of Financial Condition and Results of Operations and our audited and unaudited consolidated financial statements and the notes thereto contained elsewhere in this prospectus.
(in thousands, except per share data) |
Nine Months Ended
September 30, (unaudited) |
Year Ended
December 31, |
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2017 | 2016 | 2016 | 2015 | |||||||||||||
Consolidated Statements of Income Data: |
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Revenue |
$ | 696,643 | $ | 609,692 | $ | 828,596 | $ | 813,131 | ||||||||
Provision for losses |
226,523 | 177,756 | 258,289 | 281,210 | ||||||||||||
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Net revenue |
470,120 | 431,936 | 570,307 | 531,921 | ||||||||||||
Cost of providing services |
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Salaries and benefits |
79,554 | 79,359 | 104,541 | 107,059 | ||||||||||||
Occupancy |
41,421 | 40,368 | 54,509 | 53,288 | ||||||||||||
Office |
15,519 | 14,294 | 20,463 | 19,929 | ||||||||||||
Other costs of providing services |
40,954 | 39,385 | 53,617 | 47,380 | ||||||||||||
Advertising |
35,599 | 28,925 | 43,921 | 65,664 | ||||||||||||
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Total cost of providing services |
213,047 | 202,331 | 277,051 | 293,320 | ||||||||||||
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Gross margin |
257,073 | 229,605 | 293,256 | 238,601 | ||||||||||||
Operating (income) expense |
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Corporate and district |
103,605 | 95,109 | 125,119 | 129,046 | ||||||||||||
Interest expense |
60,694 | 48,179 | 64,334 | 65,020 | ||||||||||||
Loss (gain) on extinguishment of debt |
12,458 | (6,991 | ) | (6,991 | ) | | ||||||||||
Restructuring |
7,393 | 2,967 | 3,618 | 4,291 | ||||||||||||
Goodwill and intangible asset impairment charges |
| | | 2,882 | ||||||||||||
Other (income) expense |
192 | (559 | ) | (845 | ) | 1,488 | ||||||||||
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Total operating expense |
184,342 | 138,705 | 185,235 | 202,727 | ||||||||||||
Net income before taxes |
72,731 | 90,900 | 108,021 | 35,874 | ||||||||||||
Provision for income tax expense |
29,988 | 35,041 | 42,577 | 18,105 | ||||||||||||
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Net income |
$ | 42,743 | $ | 55,859 | $ | 65,444 | $ | 17,769 | ||||||||
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Basic earnings per share(1) |
$ | 1.13 | $ | 1.47 | $ | 1.73 | $ | 0.47 | ||||||||
Diluted earnings per share(1) |
$ | 1.10 | $ | 1.44 | $ | 1.69 | $ | 0.46 |
(1) | The per share information has been adjusted to give effect to the 36-for-1 stock split approved by our board of directors on November 8, 2017 that will occur prior to the effectiveness of the registration statement of which this prospectus is a part, or the Registration Statement. |
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(in thousands, except per share data) |
Nine Months Ended
September 30, (unaudited) |
Year Ended
December 31, |
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2017 | 2016 | 2016 | 2015 | |||||||||||||
Non-GAAP Statement of Operations Data and Other Operating Data (unaudited): |
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Adjusted Earnings(2) |
$ | 59,372 | $ | 55,688 | $ | 66,411 | $ | 24,656 | ||||||||
EBITDA(3) |
$ | 147,545 | $ | 153,323 | $ | 191,260 | $ | 120,006 | ||||||||
Adjusted EBITDA(4) |
$ | 173,257 | $ | 150,260 | $ | 189,361 | $ | 130,876 | ||||||||
Adjusted EBITDA Margin(5) |
24.9 | % | 24.6 | % | 22.9 | % | 16.1 | % | ||||||||
Gross Margin Percentage(6) |
36.9 | % | 37.7 | % | 35.4 | % | 29.3 | % | ||||||||
Number of stores (at period end) |
405 | 420 | 420 | 420 | ||||||||||||
Selected Balance Sheet Data (at period end): |
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Cash |
$ | 95,545 | $ | 175,418 | $ | 193,525 | $ | 100,561 | ||||||||
Gross loans receivable |
$ | 393,423 | $ | 244,602 | $ | 286,196 | $ | 252,180 | ||||||||
Less: allowance for loan losses |
(71,271 | ) | (33,302 | ) | (39,192 | ) | (32,948 | ) | ||||||||
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Loans receivable, net |
$ | 322,152 | $ | 211,300 | $ | 247,004 | $ | 219,232 | ||||||||
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Total assets |
$ | 762,139 | $ | 721,119 | $ | 780,798 | $ | 666,017 | ||||||||
Total liabilities (including debt) |
$ | 696,249 | $ | 682,716 | $ | 739,943 | $ | 685,399 | ||||||||
Total stockholders equity (deficit) |
$ | 65,890 | $ | 38,403 | $ | 40,855 | $ | (19,382 | ) |
(2) | We define Adjusted Earnings as net income plus or minus certain non-cash or other adjusting items. We provide Adjusted Earnings in this prospectus because our management finds its useful in evaluating the performance and underlying operations of our business. We provide a detailed description of Adjusted Earnings and how we use it, including a reconciliation of Adjusted Earnings to net income, under Managements Discussion and Analysis of Financial Condition and Results of OperationsSupplemental Non-GAAP Financial Information. |
(3) | We define EBITDA as earnings before interest, income taxes, depreciation and amortization. We provide EBITDA in this prospectus because our management finds it useful in evaluating the performance and underlying operations of our business. We provide a detailed description of EBITDA and how we use it, along with a reconciliation of EBITDA to net income, under Managements Discussion and Analysis of Financial Condition and Results of OperationsSupplemental Non-GAAP Financial Information. |
(4) | We define Adjusted EBITDA as earnings before interest, income taxes, depreciation and amortization, plus or minus certain non-cash or other adjusting items. We provide Adjusted EBITDA in this prospectus because our management finds it useful in evaluating the performance and underlying operations of our business. We provide a detailed description of Adjusted EBITDA and how we use it, along with a reconciliation of Adjusted EBITDA to net income, under Managements Discussion and Analysis of Financial Condition and Results of OperationsSupplemental Non-GAAP Financial Information. |
(5) | Calculated as Adjusted EBITDA as a percentage of revenue. |
(6) | Calculated as Gross Margin as a percentage of revenue. |
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Investing in our common stock involves a high degree of risk. You should consider and read carefully all of the risks and uncertainties described below, as well as other information included in this prospectus, including our consolidated financial statements and related notes appearing at the end of this prospectus, before making an investment decision. The risks described below are not the only ones we face. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition or results of operations. In such case, the trading price of our common stock could decline, and you may lose all or part of your original investment. This prospectus also contains forward-looking statements and estimates that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks and uncertainties described below.
Risks Relating to the Regulation of Our Industry
The CFPB promulgated new rules applicable to our loans that could have a material adverse effect on our business and results of operations.
The CFPB adopted a new rule applicable to payday vehicle title, and certain high-cost installment loans in October 2017, which we refer to as the CFPB Rule, with most provisions becoming effective in August 2019. See Regulatory Environment and ComplianceU.S. RegulationsU.S. Federal RegulationsCFPB Rule. This CFPB Rule establishes ability-to-repay, or ATR, requirements for covered short-term loans, such as our single-payment loans, and for covered longer-term balloon-payment loans, such as our revolving lines of credit, as currently structured. It establishes penalty fee prevention provisions that will apply to all of our loans, including our covered short-term loans, covered longer-term balloon-payment loans and our installment loans, which are covered longer-term loans under the CFPB Rule.
Covered short-term loans are consumer loans with a term of 45 days or less. Covered longer-term balloon payment loans include consumer loans with a term of more than 45 days where (i) the loan is payable in a single payment, (ii) any payment is more than twice any other payment, or (iii) the loan is a multiple advance loan that may not fully amortize by a specified date and the final payment could be more than twice the amount of other minimum payments. Covered longer-term loans are consumer loans with a term of more than 45 days where (i) the total cost of credit exceeds an annual rate of 36%, and (ii) the lender obtains a form of leveraged payment mechanism giving the lender a right to initiate transfers from the consumers account. Post-dated checks, authorizations to initiate ACH payments and authorizations to initiate prepaid or debit card payments are all leveraged payment mechanisms under the CFPB Rule. While there are certain coverage exceptionsfor example, an exception for typical pawn loansthey do not apply to our loans.
The ATR provisions of the CFPB Rule apply to covered short-term loans and covered longer-term balloon-payment loans but not to covered longer term loans. Under these provisions, to make a covered short-term loan or a covered longer-term balloon-payment loan, a lender has two options.
| A full payment test, under which the lender must make a reasonable determination of the consumers ability to repay the loan in full and cover major financial obligations and living expenses over the term of the loan and the succeeding 30 days. Under this test, the lender must take account of the consumers basic living expenses and obtain and generally verify evidence of the consumers income and major financial obligations. |
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A principal-payoff option, under which the lender may make up to three sequential loans, without engaging in an ATR analysis. The first of these so-called Section 1041.6 Loans in any sequence of Section 1041.6 Loans without a 30-day cooling off period between them is limited to $500, the second is limited to two-thirds of the first and the third is limited to one-third of the first. A lender may not use this |
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option if (1) the consumer had in the past 30 days an outstanding covered short-term loan or an outstanding longer-term balloon-payment loan that is not a Section 1041.6 Loan, or (2) the new Section 1041.6 Loan would result in the consumer having more than six covered short-term loans (including Section 1041.6 Loans) during a consecutive 12-month period or being in debt for more than 90 days on such loans during a consecutive 12-month period. For Section 1041.6 Loans, the lender cannot take vehicle security or structure the loan as open-end credit. |
We believe that conducting a comprehensive ATR analysis will be costly and that many of our short-term borrowers will not be able to pass a full payment test. Accordingly, we expect that the full payment test option will have little if any utility for us. The option to make Section 1041.6 Loans using the principal-payoff option may be more viable but the restrictions on these loans under the CFPB Rule will significantly reduce the permitted borrowings by individual consumers. Although we hope that the CFPB Rule will produce offsetting industry consolidation to our benefit, there can be no assurance that any positive effects from such a consolidation will be sufficient to compensate for the adverse impact the ATR provisions will have on individual borrowings.
The CFPB Rules penalty fee prevention provisions, which will apply to all covered loans, may have a greater impact on our operations than the ATR provisions of the CFPB Rule. Under these provisions, if two consecutive attempts to collect money from a particular account of the borrower are unsuccessful due to insufficient funds, the lender cannot make any further attempts to collect from such account unless and until it provides notice of the unsuccessful attempts to the borrower and obtains from the borrower a new and specific authorization for additional payment transfers. Obtaining such authorization will be costly and in many cases not possible.
Additionally, the penalty fee prevention provisions will require the lender generally to give the consumer at least three business days advance notice before attempting to collect payment by accessing a consumers checking, savings, or prepaid account. These requirements will necessitate revisions to our payment, customer notification, and compliance systems and create delays in initiating automated collection attempts where payments we initiate are initially unsuccessful.
In short, if and when the CFPB Rule goes into effect, the penalty fee prevention provisions will require substantial modifications in our current practices. These modifications would increase costs and reduce revenues. Accordingly, this aspect of the CFPB Rule could have a substantial adverse impact on our results of operations. However, as of the date hereof, these provisions will not become effective before July 2019, at the earliest, and the CFPB Rule remains subject to potential override by disapproval under the Congressional Review Act. Moreover, the current CFPB Director announced his resignation, effective as of November 24, 2017. His successor could suspend, delay, modify or withdraw the CFPB Rule. Further, we expect that important elements of the CFPB Rule will be subject to legal attack, including application of the penalty fee provisions to card payments (where issuing banks do not charge penalty fees on declined transactions). Thus, it is impossible to predict whether and when the CFPB Rule (and the penalty fee provisions) will go into effect and, if so, whether and how it (and they) might be modified. While we will make every effort to be in compliance with the new CFPB Rule by July 2019, we make no assurances that we will be fully compliant by the time the rule becomes effective. For a further discussion of the CFPB Rule and the impact it may have on our operations, see Regulatory Environment and Compliance U.S. Regulations U.S. Federal Regulations CFPB Rule and Managements Discussion and Analysis of Financial Condition and Results of Operations Potential Future Impact of CFPB Rule.
Our industry is strictly regulated everywhere we operate, and these regulations could have an adverse effect on our business and results of operations.
We are subject to substantial regulation everywhere we operate. In the United States and Canada, our business is subject to a variety of statutes and regulations enacted by government entities at the federal, state or provincial, and municipal levels. In the United Kingdom, we are subject to statutes and regulations enacted by
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the U.K. government, as well as directly applicable European Union legislation. These regulations affect our business in many ways, and include regulations relating to:
| the amount we may charge in interest rates and fees; |
| the terms of our loans (such as maximum and minimum durations), repayment requirements and limitations, number and frequency of loans, maximum loan amounts, renewals and extensions, required repayment plans and reporting and use of state-wide databases; |
| underwriting requirements; |
| collection and servicing activity, including initiation of payments from consumer accounts; |
| the establishment and operation of credit services organizations or credit access businesses, which we refer to as CSOs and CABs in this prospectus; |
| licensing, reporting and document retention; |
| unfair, deceptive and abusive acts and practices; |
| non-discrimination requirements; |
| disclosures, notices, advertising and marketing; |
| loans to members of the military and their dependents; |
| requirements governing electronic payments, transactions, signatures and disclosures; |
| check cashing; |
| money transmission; |
| currency and suspicious activity recording and reporting; |
| privacy and use of personally identifiable information and consumer data, including credit reports; |
| anti-money laundering and counter-terrorist financing requirements, including currency and suspicious transaction recording and reporting; |
| posting of fees and charges; and |
| repossession practices in certain jurisdictions where we operate as a title lender, including requirements regarding notices and prompt remittance of excess proceeds for the sale of repossessed automobiles. |
We provide a more detailed description of the regulations to which we are subject and the regulatory environment in the jurisdictions in which we operate under Regulatory Environment and Compliance elsewhere in this prospectus.
These regulations affect our business in many ways, including affecting the loans and other products we can offer, the prices we can charge, the other terms of our loans and other products, the customers to whom we are allowed to lend, how we obtain our customers, how we communicate with our customers, how we pursue repayment of our loans, and many others. Consequently, these restrictions adversely affect our loan volume, revenues, delinquencies and other aspects of our business, including our results of operations.
If we fail to adhere to applicable laws and regulations, we could be subject to fines, civil penalties and other relief that could adversely affect our business and results of operations.
The governmental entities that regulate our business have the ability to sanction us and obtain redress for violations of these regulations, either directly or through civil actions, in a variety of different ways, including:
| ordering remedial or corrective actions, including changes to compliance systems, product terms, and other business operations; |
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| imposing fines or other monetary penalties, including for substantial amounts; |
| ordering the payment of restitution, damages or other amounts to customers, including multiples of the amounts charged; |
| disgorgement of revenue or profit from certain activities; |
| imposing cease and desist orders, including orders requiring affirmative relief, targeting specific business activities; |
| subjecting our operations to additional regulatory examinations during a remediation period; |
| changes to our U.K. business practices in response to the requirements of the Financial Conduct Authority; |
| revocation of licenses to operate in a particular jurisdiction; |
| ordering the closure of one or more stores; and |
| other consequences. |
We provide a more detailed description of the potential consequences we face for non-compliance with laws and regulations under Regulatory Environment and Compliance elsewhere in this prospectus.
Many of the government entities that regulate us have the authority to examine us on a regular basis to determine whether we are complying with applicable laws and regulations and to identify and sanction non-compliance. In the United States, the Consumer Financial Protection Bureau, or CFPB, conducts examinations of our business, which include inspecting our books and records and inquiring about our business practices and policies, such as our marketing practices, loan application and origination practices, electronic payment practices, collection practices, and our supervision of our third-party service providers. The CFPB commenced its first examination of us in 2014 and issued its final report of examination in September 2015. The 2014 examination had no material impact on our financial condition or results of operations. The CFPB commenced its second examination of us in February 2017, and completed the related field work in June 2017. The scope of the 2017 examination included a review of our Compliance Management System, our customer account agreements and disclosures, our substantive compliance with applicable federal laws and certain select matters requiring attention. The CFPB completed the field work for this examination in June 2017 but has not yet provided us with its final report of examination. We cannot predict any potential impact until the CFPB provides us with its final report of examination, although we do not currently have any reason to expect any material impact of the examination on our results of operations or financial condition.
During 2017, it was determined that a limited universe of borrowers may have incurred bank overdraft or non-sufficient funds fees because of possible borrower confusion about certain electronic payments we initiated on their loans. As a result, we have decided to reimburse those fees through payments or credits against outstanding loan balances, subject to per-customer dollar limitations, upon receipt of (i) claims from potentially affected borrowers stating that they were in fact confused by our practices and (ii) bank statements from such borrowers showing they incurred these fees at a time that they might reasonably have been confused about our practices. Based on the terms of the reimbursement offer we are currently considering, we do not expect our financial cost under the offer to exceed $4 million. However, if we decide or are forced to modify the terms of the offerfor example, to eliminate or modify caps on per-borrower refunds or to make refunds to a larger universe of borrowersthe refund offer could have a greater impact than we currently anticipate.
We are subject to these types of examinations and audits on an ongoing basis from federal, state and provincial regulators. These examinations and audits increase the likelihood that any failure to comply (or perceived failure to comply) with applicable laws and regulations will be identified and sanctioned.
If we fail to comply with federal, state, provincial or local laws and regulations, or if supervisory or enforcement authorities believe we have failed to comply, we could suffer any of the actions listed above,
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including fines, penalties, consumer redress, disgorgement of profits, adverse changes to our business and being forced to cease operations in applicable jurisdictions. Any of these could have a material adverse effect on our business and results of operations. Our compliance with applicable laws and regulations could also be challenged in class action lawsuits that could adversely affect our business and results of operations.
In addition to the anticipated refund offer, at least in part to meet CFPB expectations, we have made in recent years, and are continuing to make, certain enhancements to our compliance procedures and consumer disclosures. For example, we are in the process of evaluating our payment practices. Even in advance of the effective date of the CFPB Rule (and even if the CFPB Rule does not become effective), it is possible that we will make changes to these practices in a manner that will increase costs and/or reduce revenues.
The regulations to which we are subject change from time to time, and future changes, including some that have been proposed, could restrict us in ways that adversely affect our business and results of operations.
The laws and regulations to which we are subject change from time to time, and there has been a general increase in the volume and burden of laws and regulations that apply to us in the jurisdictions in which we operate, at the federal, state, provincial and municipal levels. We describe certain proposed laws and regulations that could apply to our business in greater detail under Regulatory Environment and Compliance elsewhere in this prospectus.
At the U.S. federal level for example, in 2017 the CFPB adopted the CFPB Rule and a final rule prohibiting the use of mandatory arbitration clauses with class action waivers in consumer financial services contracts, or the CFPB Anti-Arbitration Rule. On November 1, 2017, the President approved a congressional resolution under the Congressional Review Act overturning the CFPB Anti-Arbitration Rule. Accordingly, the rule will not become effective, and, pursuant to the Congressional Review Act, substantially similar rules may only be reissued with specific legislative authorization. Additionally, the CFPB has announced tentative plans to propose rules affecting debt collection, debt accuracy and verification. Also, during the past few years, legislation, ballot initiatives and regulations have been proposed or adopted in various states that would prohibit or severely restrict our short-term consumer lending. We, along with others in the short-term consumer loan industry, intend to continue to inform and educate federal, state and local legislators and regulators and to oppose legislative or regulatory actions and ballot initiatives that would prohibit or severely restrict short-term consumer loans. Nevertheless, if changes in law with that effect were taken nationwide or in states in which we have a significant number of stores, such changes could have a material adverse effect on our loan-related activities and revenues.
In Canada, most of the provinces have proposed or enacted legislation or regulations that limit the amount that lenders offering single-pay loans may charge or that limit certain business practices of single-pay lenders. Some provinces have also proposed or enacted legislation or regulations that impose a higher regulatory burden on installment loans or open-end loans that are determined to be high cost. In the United Kingdom, Parliament and the applicable regulatory bodies have been expanding laws and regulations applicable to our industry, including proposals that would expand rules of conduct and similar duties of responsibility to certain senior managers and other employees of our businesses and that could change the price cap applicable to certain consumer loans, including the scope of loans subject to the cap. There are also forthcoming regulatory changes due to come into force in 2017 and 2018 relating to the implementation of new EU data protection and anti-money laundering laws in the United Kingdom, to replace or supplement U.K. legislation in these areas. Compliance with the new regulations is expected to be more onerous than the existing regime.
We expect that the interest in increasing the regulation of our industry will continue. It is possible that the laws and regulations currently proposed, or other future laws and regulations, will be enacted and will adversely affect our pricing, product mix, compliance costs, or other business activities in a way that is detrimental to our results of operations.
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Existing or new local regulation of our industry could adversely affect our business and results of operations.
In recent years, a number of local laws have been passed by municipalities that regulate aspects of our business. For example, a number of municipalities have sought to use zoning and occupancy regulations to limit consumer lending storefronts. If additional local laws are passed that affect our business, this could materially restrict our business operations, increase our compliance costs or exacerbate the risks associated with the complexity of our regulatory environment.
Approximately 45 different Texas municipalities have enacted ordinances that regulate aspects of products offered under our credit access business or CAB programs, including loan sizes and repayment terms. The Texas ordinances have forced us to make substantial changes to the loan products we offer and have resulted in litigation initiated by the City of Austin challenging the terms of our modified loan products. We believe that: (i) the Austin ordinance (like its counterparts elsewhere in the state) conflicts with Texas state law and (ii) our product in any event complies with the ordinance, when it is properly construed. An Austin trial court agreed with our position that the ordinance conflicts with Texas law and, accordingly, did not address our second argument. In August 2017, an Austin appellate court reversed this decision and remanded the case to the trial court for further proceedings consistent with its opinion (including, presumably, a decision on our second argument). However, in October 2017 we appealed this appellate decision. Accordingly, we will not have a final determination of the lawfulness of our CAB program under the Austin ordinance (and similar ordinances in other Texas cities) for some time. A final adverse decision could potentially result in material monetary liability in Austin and elsewhere and would force us to restructure the loans we arrange in Texas.
The regulatory environment in which we operate is very complex, which increases our costs of compliance and the risk that we may fail to comply in ways that adversely affect our business.
The regulatory environment in which we operate is very complex, with applicable regulations being enacted by multiple agencies at each level of government. Accordingly, our regulatory requirements, and consequently, the actions we must take to comply with regulations, vary considerably among the many jurisdictions where we operate. Managing this complex regulatory environment is difficult and requires considerable compliance efforts. It is costly to operate in this environment, and it is possible that our costs of compliance will increase materially over time. This complexity also increases the risks that we will fail to comply with regulations in a way that could have a material adverse effect on our business and results of operations.
Judicial decisions could potentially render our arbitration agreements unenforceable.
We include pre-dispute arbitration provisions in our loan agreements. These provisions are designed to allow us to resolve any customer disputes through individual arbitration rather than in court. Our arbitration provisions 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.
In July 2017, the CFPB issued the CFPB Anti-Arbitration Rule, designed to prohibit the use of mandatory arbitration clauses with class action waivers in agreements for consumer financial services products. However, on November 1, 2017, the President approved a congressional resolution under the Congressional Review Act overturning the CFPB Anti-Arbitration Rule. Accordingly, the rule will not become effective, and, pursuant to the Congressional Review Act, substantially similar rules may only be reissued with specific legislative authorization.
Our use of pre-dispute arbitration provisions will remain dependent on whether courts continue to enforce these provisions. We take the position that the Federal Arbitration Act, or the FAA, requires that arbitration agreements containing class action waivers of the type we use be enforced in accordance with their terms. In the
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past, a number of courts, including the California and Nevada Supreme Courts, have concluded that arbitration agreements with class action waivers are unconscionable and hence unenforceable, particularly where a small dollar amount is in controversy on an individual basis. However, in April 2011, the U.S. Supreme Court in a 5-4 decision in AT&T Mobility v. Concepcion held that the FAA preempts state laws that would otherwise invalidate consumer arbitration agreements with class action waivers. Our arbitration agreements differ in some respects from the agreement at issue in Concepcion , and some courts have continued since Concepcion to find reasons to find arbitration agreements unenforceable. Thus, it is possible that one or more courts could use the differences between our arbitration agreements and the agreement at issue in Concepcion as a basis for a refusal to enforce our arbitration agreements, particularly if such courts are hostile to our kind of lending or to pre-dispute mandatory consumer arbitration agreements. Further, it is possible that a change in composition at the U.S. Supreme Court, including the replacement of Justice Scalia by Justice Gorsuch, could result in a change in the U.S. Supreme Courts treatment of arbitration agreements under the FAA. If our arbitration agreements were to become unenforceable for some reason, we could experience an increase to our costs to litigate and settle customer disputes and exposure to potentially damaging class action lawsuits, with a potential material adverse effect on our business and results of operations.
Current and future legal, class action and administrative proceedings directed towards our industry or us may have a material adverse impact on our results of operations, cash flows and financial condition.
We have been the subject of administrative proceedings and lawsuits in the past, and may be involved in future proceedings, lawsuits or other claims. Other companies in our industry have also been subject to regulatory proceedings, class action lawsuits and other litigation regarding the offering of consumer loans. We could be adversely affected by interpretations of state, federal, foreign and provincial laws in those legal and regulatory proceedings, even if we are not a party to those proceedings. We anticipate that lawsuits and enforcement proceedings involving our industry, and potentially involving us, will continue to be brought in the future.
We may incur significant expenses associated with the defense or settlement of current or future lawsuits, the potential exposure for which is uncertain. The adverse resolution of legal or regulatory proceedings, whether by judgment or settlement, could force us to refund fees and interest collected, refund the principal amount of advances, pay damages or other monetary penalties or modify or terminate our operations in particular local, state, provincial or federal jurisdictions. The defense of such legal proceedings, even if successful, requires significant time and attention from our senior officers and other management personnel that would otherwise be spent on other aspects of our business, and requires the expenditure of substantial amounts for legal fees and other related costs. Settlement of proceedings may also result in significant cash payouts, foregoing future revenues and modifications to our operations. Additionally, an adverse judgment or settlement in a lawsuit or regulatory proceeding could in certain circumstances provide a basis for the termination, non-renewal, suspension or denial of a license required for us to do business in a particular jurisdiction (or multiple jurisdictions). A sufficiently serious violation of law in one jurisdiction or with respect to one product could have adverse licensing consequences in other jurisdictions and/or with respect to other products. Thus, legal and enforcement proceedings could have a material adverse effect on our business, future results of operations, financial condition and our ability to service our debt obligations.
Public perception of our business and products as being predatory or abusive could negatively affect our business, results of operations and financial condition.
Certain consumer advocacy groups, politicians, government officials and media organizations promote the view that short-term single-payment loans and other alternative financial services like those we offer are predatory or abusive toward consumers. Widespread adoption of this opinion could potentially have negative consequences for our business, including lawsuits, adverse legislative or regulatory changes, difficulty attracting and retaining qualified employees, decreased demand for our products and services and reluctance or refusal of other parties, such as banks or other electronic payment processors, to transact business with us. These consequences could have a material adverse impact on our business and results of operations.
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Material modifications of U.S. laws and regulations and existing trade agreements by the new U.S. presidential administration could adversely affect our business, financial condition and results of operations.
The new U.S. presidential administration may initiate significant changes in U.S. laws and regulations and existing international trade agreements, including the North American Free Trade Agreement, and these changes could affect a wide variety of industries and businesses, including those businesses we own and operate. It remains unclear what the new U.S. presidential administration will do, if anything, with respect to existing laws, regulations or trade agreements. If the new presidential administration materially modifies U.S. laws and regulations and international trade agreements this could adversely affect our business and results of operations.
Risks Relating to Our Business
Our substantial indebtedness could adversely affect our business, results of operations and financial condition.
As of September 30, 2017, we had approximately $589.0 million of total gross debt outstanding. This amount does not reflect the issuance of $135 million aggregate principal amount of 12.00% Senior Secured Notes due 2022 by CFTC on November 2, 2017. Our high level of indebtedness could have significant effects on our business, including the following:
| it may be more difficult for us to satisfy our financial obligations; |
| our ability to obtain additional financing for working capital, capital expenditures, strategic acquisitions or general corporate purposes may be impaired; |
| we must use a substantial portion of our cash flow from operations to pay interest on our debt, which reduces funds available to use for operations, invest in our business, pay dividends to our shareholders and use for other purposes; |
| we could be at a competitive disadvantage compared to those of our competitors that may have proportionately less debt; |
| the terms of our debt restricts our ability to pay dividends; and |
| our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate may be limited. |
For instance, as described above, if future changes in regulations affecting our products or services are enacted, they could adversely impact current product offerings or alter the economic performance of our existing products and services. The terms of existing or future debt instruments may restrict us from adopting some of these alternatives.
If our cash flows and capital resources are insufficient to fund our debt service obligations, or if we confront regulatory uncertainty in our industry or challenges in debt capital markets, we may not be able to refinance our indebtedness prior to maturity on favorable terms, or at all. In addition, prevailing interest rates or other factors at the time of refinancing could increase our interest or other debt capital expense. A refinancing of our indebtedness could also require us to comply with more onerous covenants and restrictions on our business operations. If we are unable to refinance our indebtedness prior to maturity we will be required to pursue alternative measures that could include restructuring our current indebtedness, selling all or a portion of our business or assets, seeking additional capital, reducing or delaying capital expenditures or taking other steps to address obligations under the terms of our indebtedness.
Our ability to meet our expenses thus depends on our future performance, which will be affected by financial, business, economic, regulatory and other factors, many of which we cannot control. Our business may
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not generate sufficient cash flow from operations in the future and our currently anticipated growth in revenue and cash flow may not be realized, either or both of which could result in our being unable to repay indebtedness, or to fund other liquidity needs. If we do not have enough funds, we may be required to refinance all or part of our then existing debt, sell assets or borrow more funds, which we may not be able to accomplish on terms acceptable to us, or at all. In addition, the terms of existing or future debt agreements may restrict us from pursuing any of these alternatives.
Because we depend in large part on third-party lenders to provide the cash needed to fund our loans, an inability to affordably access third-party financing could adversely affect our business.
Our principal sources of liquidity to fund the loans we make to our customers are cash provided by operations, funds from third-party lenders under our CSO programs and our Non-Recourse U.S. SPV Facility, which finances the origination of eligible U.S. Unsecured and Secured Installment Loans. However, we cannot guarantee we will be able to secure additional operating capital from third-party lenders or refinance our existing revolving credit facilities on reasonable terms or at all. As the volume of loans that we make to customers increases, or if provision for losses or expenses rise due to various factors, we may have to expand our borrowing capacity on our existing Non-Recourse U.S. SPV Facility (as discussed below) or add new sources of capital. The availability of these financing sources depends on many factors, some of which lie outside of our control. In the event of a sudden or unexpected shortage of funds in the banking system or capital markets, we may not be able to maintain necessary levels of funding without incurring high funding costs, suffering a reduction in the term of funding instruments or having to liquidate certain assets. If our cost of borrowing increases or we are unable to arrange new or alternative methods of financing on favorable terms, we may have to curtail our origination of loans, which could adversely affect our business and results of operations.
We may be unable to protect our proprietary technology and analytics or keep up with that of our competitors.
The success of our business depends to a significant degree upon the protection of our proprietary technology, including our proprietary credit and fraud scoring models, which we use for pricing loans. We seek to protect our intellectual property with non-disclosure agreements we sign with third parties and employees and through standard measures to protect trade secrets. We also implement cybersecurity policies and procedures to prevent unauthorized access to our systems and technology. However, we may be unable to deter misappropriation of our proprietary information, detect unauthorized use or take appropriate steps to enforce our intellectual property rights. Our employees, including those working on our Curo Platform, have not been required to execute agreements assigning us proprietary rights to technology developed in the scope of their employment, although we intend to have employees sign such agreements in the future. Additionally, while we currently have a number of registered trademarks and pending applications for trademark registration, we do not own any patents or copyrights with respect to our intellectual property.
If competitors learn our trade secrets (especially with regard to our marketing and risk management capabilities), others attempt to acquire patent protection of algorithms similar to ours, or our employees attempt to make commercial use of the technology they develop for us, it could be difficult to successfully prosecute to recover damages. Additionally, a third-party may attempt to reverse engineer or otherwise obtain and use our proprietary technology without our consent. The pursuit of a claim against a third-party or employee for infringement of our intellectual property could be costly, and there can be no guarantee that any such efforts would be successful. If we are unable to protect our software and other proprietary intellectual property rights, or to develop technologies that are as adaptive to changing consumer trends or appealing to consumers as the technologies of our competitors, we could face a disadvantage relative to our competitors.
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Any disruption in the availability of our information technology systems could adversely affect our business operations.
We rely heavily upon our Curo Platform in almost every aspect of our business, including to process customer transactions, provide customer service, determine loan amounts, manage collections, account for our business activities, support regulatory compliance and to generate the reporting used by management for analytical, loss management and decision-making purposes. Our store and online platform is part of an integrated data network designed to manage cash levels, facilitate underwriting decisions, reconcile cash balances and report revenue and expense transaction data. Our Curo Platform could be disrupted and become unavailable due to a number of factors, including power outages, a failure of one or more of our information technology, telecommunications or other systems, and cyber-attacks on or sustained disruptions of these systems. Our back-up systems and security measures could fail to prevent a disruption in the availability of our information technology systems. A disruption in our Curo platform could prevent us from performing fundamental aspects of our business, including loan underwriting, customer service, payments and collections, internal reporting, and regulatory compliance.
If we do not effectively price the credit risk of our prospective or existing customers, our operating results and financial condition could be materially and adversely impacted.
Our business has much higher rates of charge-offs than traditional lenders. Accordingly, we must price our loan products to take into account the credit risks of our customers. In deciding whether to extend credit to prospective customers and the terms on which to provide that credit, including the price, we rely heavily on the credit models in our proprietary Curo Platform. These models take into account, among other things, information from customers, third parties and an internal database of loan records gathered through monitoring the performance of our customers over time. Any failure of our Curo Platform to effectively price credit risk could lead to higher-than-anticipated customer defaults, which could lead to higher charge-offs and losses for us, or overpricing, which could lead us to lose customers. Our models could become less effective over time, receive inaccurate information or otherwise fail to accurately estimate customer losses in certain circumstances. If we are unable to maintain and improve the credit models in our proprietary Curo Platform, or if they do not perform up to target standards, they may fail to adequately predict the creditworthiness of customers or to assess prospective customers financial ability to repay their loans. This could further hinder our growth and have an adverse effect on our business and results of operations.
If the information provided by customers or third parties to us is inaccurate, we may misjudge a customers qualification to receive a loan, and our operating results may be harmed.
Our lending decisions are based partly on information provided to us by loan applicants. To the extent that these applicants provide information to us in a manner that we are unable to verify, our scoring may not accurately reflect the associated risk. In addition, data provided by third-party sources is a significant component of our scoring of loan applications and this data may contain inaccuracies. Inaccurate analysis of credit data that could result from false loan application information could harm our reputation, business and operating results.
In addition, we use identity and fraud check analyzing data provided by external databases to authenticate each customers identity. There is a risk, however, that these checks could fail, and fraud may occur. We may not be able to recoup funds underlying loans made in connection with inaccurate statements, omissions of fact or fraud, in which case our revenue, operating results and profitability will be harmed. Fraudulent activity or significant increases in fraudulent activity could also lead to regulatory intervention, negatively impact our operating results, brand and reputation and require us to take steps to reduce fraud risk, which could increase our costs.
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Improper disclosure of customer personal data, including by means of a cyber-attack, could result in liability and harm our reputation. Cybersecurity risks and security breaches, in general, could result in increasing costs in an effort to minimize those risks and to respond to cyber incidents.
We store and process large amounts of personally identifiable information, including data that is considered sensitive customer information. We believe that we maintain adequate policies and procedures, including anti-virus and malware software and access controls, and use appropriate safeguards to protect against attacks. It is possible that our security controls over personal data, our training of employees and other practices we follow may not prevent the improper disclosure of personally identifiable information. Such disclosure could harm our reputation and subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue.
In addition, we are subject to cybersecurity risks and security breaches, which could result in the unauthorized disclosure or appropriation of customer data. To date none of these actual or attempted cyber-attacks has had a material effect on our operations or financial condition. However, we may not be able to anticipate or implement effective preventive measures against these types of security breaches, especially because the techniques change frequently or are not recognized until launched. We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. Actual or anticipated attacks and risks may cause us to incur increasing expenses, including costs to deploy additional personnel and protection technologies, train employees, and engage third-party experts and consultants. It is also possible that our protective measures would fail prevent a cyber-attack and the resulting disclosure or appropriation of customer data. A significant data breach could harm our reputation, diminish our customer confidence and subject us to significant legal claims, any of which may contribute to a loss of customers and have a material adverse effect on us.
In addition, federal and some state regulators are considering promulgating rules and standards to address cybersecurity risks and many U.S. states have already enacted laws requiring companies to notify individuals of data security breaches involving their personal data. In the United Kingdom, U.K. businesses are presently subject to the Data Protection Act 1998, which requires that appropriate technical and organizational measures shall be taken against unauthorized or unlawful processing of personal data and against accidental loss or destruction of, or damage to, personal data. As a result of its membership of the EU, U.K. businesses are subject to directly applicable European Regulation in respect of personal data, U.K. businesses will be required to comply with new obligations from May 25, 2018, which will impose greater responsibility, and the U.K. government have indicated that they are to enact direct U.K. laws applicable after Brexit to similar effect, which will require companies to notify individuals of most data security breaches involving their personal data. These mandatory disclosures regarding a security breach are costly to implement and may lead to widespread negative publicity, which may cause customers to lose confidence in the effectiveness of our data security measures.
The failure of third parties who provide products, services or support to us could disrupt our operations or result in a loss of revenue.
Some of our lending activity depends in part on support we receive from unaffiliated third parties. This includes third-party lenders who make loans to our customers under our CSO programs as well as other third-parties that provide services to facilitate lending, loan underwriting and payment processing in our online lending consumer loan channels. The loss of our 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.
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In Texas and Ohio, we rely on third-party lenders to conduct business.
In Texas and Ohio we operate as a CSO, also known as a credit services organization, or a credit access business, also known as a CAB, arranging for unrelated third-parties to make loans to our customers. During 2016, our CSO programs in Texas and Ohio generated revenues of $205.7 million and $9.2 million, respectively. During the nine months ended September 30, 2017, our CSO programs in Texas and Ohio generated revenues of $172.4 million and $12.6 million, respectively. There are a limited number of third-party lenders that make these types of loans and there is significant demand and competition for the business of these companies. These third parties rely on borrowed funds in order to make consumer loans. If these third-parties lose their ability to make loans or become unwilling to make loans to us and we are unable to find another third-party lender, we would be unable to continue offering loans in Texas and Ohio as a CSO, which would prevent us from receiving revenue from these activities. This would adversely affect our revenue and results of operations.
Our core operations are dependent upon maintaining relationships with banks and other third-party electronic payment solutions providers. Any inability to manage cash movements through the banking system or the Automated Clearing House, or ACH, system would materially impact our business.
We maintain relationships with commercial banks and third-party payment processors. These entities provide a variety of treasury management services including providing depository accounts, transaction processing, merchant card processing, cash management, and ACH processing. We rely on commercial banks to receive and clear deposits, provide cash for our store locations, perform wire transfers and ACH transactions and process debit card transactions. We rely on the ACH system to deposit loan proceeds into customer bank accounts and to electronically withdraw authorized payments from those accounts. It has been reported that the U.S. Department of Justice and the Federal Deposit Insurance Corporation, as well as other federal regulators, have taken or threatened actions, commonly referred to as Operation Choke Point, intended to discourage banks and other financial services providers from providing access to banking and third-party payment processing services to lenders in our industry. We can give no assurances that actions akin to Operation Choke Point will not intensify or resume, or that the effect of such actions against banks and/or third-party payment processors will not pose a future threat to our ability to maintain relationships with commercial banks and third-party payment processors. The failure or inability of retail banks and/or third-party payment providers to continue to provide services to us could adversely affect our operations if we are unable or unsuccessful in replacing those providers with comparable service providers.
Because we maintain a significant supply of cash in our stores, we may be subject to cash shortages due to employee and third-party theft and errors. We also may be subject to liability as a result of crimes at our stores.
Our business requires us to maintain a significant supply of cash in each of our stores. As a result, we are subject to the risk of cash shortages resulting from theft and errors by employees and third-parties. Although we have implemented various programs in an effort to reduce these risks, maintain insurance coverage for theft and utilize various security measures at our facilities, it is possible that employee and third-party theft and errors will occur in material amounts. Cash shortages from employee and third-party theft and errors were $0.2 million (0.03% of consolidated revenue) and $0.3 million (0.05% of consolidated revenue) in the nine months ended September 30, 2017 and 2016, respectively. The extent of our cash shortages could increase as we expand the nature and scope of our products and services. Although we have experienced break-ins by third parties at our stores in the past, none of these has had, either individually or in the aggregate, a material adverse impact on our operations. Going forward, theft and errors could lead to cash shortages and could adversely affect our business, prospects, results of operations and financial condition. It is also possible that violent crimes such as armed robberies may be committed at our stores. We could experience liability or adverse publicity arising from such crimes. For example, we may be liable if an employee, customer or bystander suffers bodily injury or other harm. Any such event may have a material adverse effect on our business, prospects, results of operations and financial condition.
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If our allowance for loan losses is not adequate to absorb our actual losses, our results of operations and financial condition may be adversely affected.
We face the risk that our customers will fail to repay their loans in full. We maintain an allowance for loan losses for estimated probable losses on company-funded loans and loans in default. See Note 1, Summary of Significant Accounting Policies and Nature of Operations of our Notes to Consolidated Financial Statements included elsewhere in this prospectus for factors considered by management in estimating the allowance for loan losses. We also maintain a credit services guarantee liability for estimated probable losses on loans funded by unrelated third-party lenders under our CSO programs, but for which we are responsible. As of September 30, 2017, the sum of our aggregate reserve and allowance for losses on loans and guarantee liability not in default (including loans funded by unrelated third-party lenders under our CSO programs) was $88.2 million. This reserve, however, is an estimate. Actual losses are difficult to forecast, especially if such losses stem from factors beyond our historical experience, and unlike traditional banks, we are not subject to periodic review by bank regulatory agencies of our allowance for loan losses. As a result, our allowance for loan losses may not be comparable to that of traditional banks subject to regulatory oversight or sufficient to cover actual losses. If actual losses are greater than our reserve and allowance, our results of operations and financial condition could be adversely affected.
Adverse economic conditions could cause demand for our loan products to decline or make it more difficult for our customers to make payments on our loans and increase our default rates.
We derive the majority of our revenue from consumer lending. Factors that may influence demand for our products and services include macroeconomic conditions, such as employment, personal income and consumer sentiment. Our underwriting standards require, among other things, our customers to have a steady source of income as a prerequisite for making a loan. Therefore, if unemployment increases among our customer base, the number of loans we originate will likely decline and the number of loan defaults could increase. Additionally, if consumers become more pessimistic regarding the outlook for the economy and therefore spend less and save more, demand for consumer loans in general may decline. Accordingly, poor economic conditions could adversely affect our business and results of operations.
If negative assertions regarding businesses like ours become widespread, they could reduce demand for our loan products.
Negative press coverage and efforts of special interest groups to persuade customers that the consumer loans and other alternative financial services provided by us are predatory and abusive could also negatively affect demand for our products and services. If consumers accept this negative characterization of our business or our products on a widespread basis, demand for our loans could significantly decline, which would negatively affect our revenues and results of operations. Should we fail to adapt to significant changes in our customers demand for our products or services, our revenues could decrease significantly and our results of operations could be harmed. Even if we do make changes to existing products or services or introduce new products or services to fulfill changing customer demands, our customers may resist or reject such products or services.
Our business and results of operations may be adversely affected if we are unable to manage our growth effectively.
There can be no assurance that we will be able to successfully grow our business or that our current business, results of operations and financial condition will not suffer if we fail to prudently manage our growth. Failure to grow the business and generate estimated future levels of cash flow could inhibit our ability to service our debt obligations. Our expansion strategy, which contemplates disciplined growth in Canada and the United States, increasing the market share of our online operations, selectively expanding our offering of installment loans and potential expansion in other international markets, is subject to significant risks. The profitability of our current operations and any future growth is dependent upon a number of factors, including the ability to
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obtain and maintain financing to support these opportunities, the ability to hire, train and retain an adequate number of qualified employees, the ability to obtain and maintain any required regulatory permits and licenses and other factors, some of which are beyond our control, such as the continuation of favorable regulatory and legislative environments. Imprudent or poor investments could drain our capital resources and negatively impact our liquidity. As a result, the profitability of our current operations could suffer if our growth strategy is not successfully implemented.
The failure to successfully integrate newly acquired businesses into our operations could negatively impact our profitability.
From time to time, we may consider opportunities to acquire other products or technologies that may enhance our product platform or technology, expand the breadth of our markets or customer base, or advance our business strategies. The success of the acquisitions we have completed, as well as future acquisitions is, and will continue to be, dependent upon our ability to effectively integrate the management, operations and technology of acquired businesses into our existing management, operations and technology platforms. Integration can be complex, expensive and time-consuming. The failure to successfully integrate acquired businesses into our organization in a timely and cost-effective manner could materially adversely affect our business, prospects, results of operations and financial condition. It is also possible that the integration process could result in the loss of key employees, the disruption of ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers, employees or other third-parties or our ability to achieve the anticipated benefits of such acquisitions and could harm our financial performance. We do not know if we will be able to identify acquisitions we deem suitable, whether we will be able to successfully complete any such acquisitions on favorable terms or at all, or whether we will be able to successfully integrate any acquired products or technologies. Additionally, an additional risk inherent in any acquisition is that we fail to realize a positive return on our investment.
Indemnifications associated with assumed liabilities of acquired entities may be insufficient to cover our exposures to litigation and settlement costs.
In 2011, we completed the acquisition of Cash Money Group, Inc., or Cash Money. While the agreement governing our Cash Money acquisition provides us with limited indemnification for litigation and settlement costs for activities related to Cash Moneys operations prior to the acquisition of Cash Money, our recourse with respect to those matters is limited to set-off against a C$7.5 million escrow note. Through September 30, 2017, we have set off approximately C$4.2 million of class action settlement costs and related expenses, and C$0.3 million of tax indemnification amounts against the escrow note. The balance of this escrow note is included in the Consolidated Balance Sheets as Subordinated Shareholder Debt.
In August 2012, we completed the acquisition of The Money Store, L.P., which operated under the name The Money Box ® Check Cashing, or The Money Box. The Money Box acquisition agreement provides us with limited indemnification for certain matters related to The Money Boxs operations prior to the date of the acquisition of The Money Box; however, our recovery is limited in most cases to an aggregate amount of $2.4 million and our ability to make claims is subject to certain time limitations. To date, no indemnification payments have been made or claimed under The Money Box acquisition agreement.
In 2013, we completed the acquisition of Wage Day Advance Limited, or Wage Day. The Wage Day acquisition agreement provides us with limited indemnification for certain matters related to Wage Days operations prior to the date of the Wage Day acquisition. To date, no indemnification payments or claims have been made under this provision.
These indemnifications provide us with only limited recourse against the sellers of these businesses in the event we incur substantial costs in connection with actions occurring prior to our acquisition of the businesses.
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The agreements limit the amount we can recover, limit the causes of action for which we can pursue recovery, and place other restrictions on our ability to recover for such losses. Accordingly, if we incur substantial costs for issues arising prior to our acquisitions of these businesses, our financial position and results of operations may be adversely affected.
If we lose key management or are unable to attract and retain the talent required to operate and grow our business or if we are required to substantially increase our labor costs to attract and retain qualified employees, our business and results of operations could be adversely affected.
Our continued growth and future success will depend on our ability to retain the members of our senior management team, who possess valuable knowledge of, and experience with, the legal and regulatory environment of our industry, who have experience operating in our international markets and who have been instrumental in developing our strategic plans and procuring capital to enable the pursuit of those plans. The loss of the services of one or more members of senior management and our inability to attract new skilled management could harm our business and future development. We do not maintain any key man insurance policies with respect to any senior management or employees.
Labor costs represent a significant portion of our total expenses. If we are required to substantially increase our labor costs in order to attract or retain a sufficient number of qualified employees for our current operations, we may not be able to operate our business in a cost-effective manner. We also believe having experienced employees and staff continuity in our stores is an important contributor to the success of our business. If we were unable to retain our experienced managers and staff, it could adversely affect our customer service and our loan volume could suffer.
Goodwill comprises a significant portion of our total assets. We assess goodwill for impairment at least annually, which could result in a material, non-cash write-down, which would have a material adverse effect on our results of operations and financial condition.
The carrying value of our goodwill was $145.7 million, or approximately 19.1% of our total assets, as of September 30, 2017. We assess goodwill for impairment on an annual basis at a reporting unit level. Goodwill is assessed 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 value. During the third quarter of 2015, due to the decline in our overall financial performance in the United Kingdom, we determined that a triggering event had occurred requiring an impairment evaluation of our goodwill and other intangible assets in the United Kingdom. As a result, during the third quarter of 2015, we recorded non-cash impairment charges of $2.9 million, which comprised a $1.8 million charge related to the Wage Day trade name, a $0.2 million charge related to the customer relationships acquired as part of the Wage Day acquisition, and a $0.9 million non-cash goodwill impairment charge in our United Kingdom reporting segment.
Our impairment reviews require extensive use of accounting judgment and financial estimates. Application of alternative assumptions and definitions, such as reviewing goodwill for impairment at a different organizational level, could produce significantly different results. We may be required to recognize impairment of goodwill based on future events or circumstances which could include a significant change in the business climate, a change in strategic direction, legal factors, operating performance indicators, a change in the competitive environment, the sale or disposition of a significant portion of a reporting unit, or future economic factors such as unfavorable changes in the estimated future discounted cash flows of our reporting units. Impairment of goodwill could result in material charges that could, in the future, result in a material, non-cash write-down of goodwill, which could have an adverse effect on our results of operations and financial condition.
Due to the current economic environment and the uncertainties regarding the impact that future economic consequences will have on our reporting units, there can be no assurance that our estimates and assumptions made for purposes of our annual goodwill impairment test will prove to be accurate predictions of the future. If
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our assumptions regarding forecasted revenues or margins for certain of our reporting units are not achieved, we may be required to record goodwill impairment losses in future periods. It is not possible at this time to determine if any such future impairment will occur, and if it does occur, whether such charge would be material.
Our lending business is somewhat seasonal, which causes our revenues to fluctuate and may adversely affect our ability to service our debt obligations.
Our U.S. lending business typically experiences reduced demand in the first quarter as a result of our customers receipt of tax refund checks. Demand for our U.S. lending services is generally greatest during the fourth quarter. This seasonality requires us to manage our cash flows over the course of the year. If a governmental authority were to pursue economic stimulus actions or issue additional tax refunds or tax credits at other times during the year, such actions could have a material adverse effect on our business, prospects, results of operations and financial condition during those periods.
Our lending businesses in Canada and the United Kingdom are somewhat seasonal, although to a lesser extent than our U.S. lending business. We typically experience our highest demand in Canada in the third and fourth calendar quarters with lower demand in the first quarter; however, the reduction in volume relating to tax refunds is not as prevalent as in the United States. If our consolidated revenues were to fall substantially below what we would normally expect during certain periods, our annual financial results and our ability to service our debt obligations could be adversely affected.
Adverse real estate market conditions or zoning restrictions may result in increased operating costs or a reduction in new store development, which could impact our profitability and growth plans.
We lease all of our store locations. An increase in lease costs, property taxes or maintenance costs for lease renewals or new store locations could result in increased operating costs for these locations, thereby negatively impacting the stores operating margins.
A recent trend among some municipalities in the United States and in Canada has been to enact zoning restrictions in certain markets. These zoning restrictions may limit the number of payday lending stores that can operate in an area or require certain distance requirements between competitors, residential areas or highways. These restrictions may make it more difficult to find suitable location for future expansion, thereby negatively impacting our growth plans.
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 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.
Competition in the financial services industry could cause us to lose market share and revenues.
The industry in which we operate is highly fragmented. While we believe the market for U.S. storefronts is mature, it is likely that competition for market share will intensify. We believe the Canadian market is less
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saturated, but still experiences significant competition by both large, well-financed operators as well as significant numbers of smaller competitors. We believe that online lending in the United Kingdom is more widely accepted among consumers than in either the United States or in Canada, and that customers are more likely to transact business via the internet and using mobile phones. Across all geographies, we see a growing number of sophisticated online-based lenders. Increased competition in any of the geographies in which we operate could lead to consolidation in our industry. If our competitors get stronger through consolidation, and we are unable to identify attractive consolidation opportunities, we could be at a competitive disadvantage and could experience declining market share and revenue. If these events materialize, they could negatively affect our ability to generate sufficient cash flow to fund our operations and service our debt obligations.
In addition to increasing competition among companies that offer traditional consumer loan products, there is a risk of losing market share to new market entrants. Increased competition from secured title loan lenders, pawn lenders and unsecured installment loan lenders could also adversely affect our revenues.
Our growth strategy calls for opening additional stores in the United States and Canada, and to expand our online presence in each of those geographies. If our competitors aggressively pursue store expansion, competition for store sites could result in our failing to open our planned number of stores, or increase our costs to secure additional sites, both of which could result in slower growth and diminished operating performance. Increased competition in our online business could result in higher advertising and marketing costs to attract and retain customers, leading to lower margins.
The international scope of our operations leads to increased cost and complexity, which could negatively impact our operations.
The international nature of our operations has increased the complexity of managing our business. This has led to enhanced administrative burdens related to regulatory compliance, tax compliance, labor controls and other federal, state, provincial and local requirements. Additional resources, both internal and external, have been added to comply with these increasing requirements, resulting in an increase in our corporate costs. In addition, it remains to be seen what impact the recent vote by the United Kingdom to leave the European Union will have on the U.K. economy and our U.K. operations. Future changes to laws or regulations may result in further cost increases, thereby negatively impacting our profitability.
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.
We rely on trademark protection to distinguish our products from the products of our competitors.
We rely on trademark protection to distinguish our products from the products of our competitors. We have registered various trademarks, including The Money Box, Speedy Cash ® , OPT+ SM and Rapid Cash, in the United States and/or Canada, and are in the process of registering other trademarks in those jurisdictions. We have not registered any trademarks in the United Kingdom. For trademarks we use that are not registered, and as permitted by applicable local law, we rely on common law trademark protection. Third parties may oppose our trademark applications, or otherwise challenge our use of the trademarks, and may be able to use our trademarks in jurisdictions where they are not registered or otherwise protected by law. If our trademarks are successfully
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challenged or if a third party is using confusingly similar or identical trademarks in particular jurisdictions before we do, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require us to devote additional resources to marketing new brands. If others are able to use our trademarks, our ability to distinguish our products may be impaired, which could adversely affect our business.
We may be subject to damages resulting from claims that our employees or we have wrongfully used or disclosed alleged trade secrets of their former employers.
Many of our employees were previously employed at other financial technology companies, including our competitors or potential competitors, and we may hire employees in the future that are so employed. We could in the future be subject to claims that these employees, or we, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. If we fail in defending against such claims, a court could order us to pay substantial damages and prohibit us from using technologies or features that are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers. If any of these technologies or features are important to our products, this could prevent us from selling those products and could have a material adverse effect on our business. Even if we are successful in defending against these claims, such litigation could result in substantial costs and divert the attention of management.
Risks Relating to this Offering and Owning Our Common Stock
An active trading market for our common stock may not develop and the market price for our common stock may decline below the initial public offering price.
Prior to this offering, there has not been a public market for our common stock. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market, or how liquid that market may become. An active trading market for our common stock may never develop or be sustained, which could adversely impact your ability to sell your shares and could depress the market price of your shares. In addition, the public offering price for our common stock has been determined through negotiations among us and the representatives of the underwriters and may not be indicative of prices that will prevail in the open market upon the completion of this offering. Consequently, you may be unable to sell your shares of our common stock at prices equal to or greater than the price you paid for them. We cannot predict the prices at which our common stock will trade. The initial public offering price may not bear any relationship to the market price at which our common stock will trade after this offering or to any other established criteria of the value of our business.
The market price of our common stock is likely to be volatile and could decline following this offering, resulting in a substantial loss of your investment.
The stock market in general has been highly volatile. As a result, the market price and trading volume for our common stock may also be highly volatile, and investors in our common stock may experience a decrease in the value of their shares, including decreases unrelated to our operating performance or prospects. Factors that could cause the market price of our common stock to fluctuate significantly include:
| our operating and financial performance and prospects and the performance of other similar companies; |
| our quarterly or annual earnings or those of other companies in our industry; |
| conditions that impact demand for our products and services; |
| the publics reaction to our press releases, financial guidance and other public announcements, and filings with the SEC; |
| changes in earnings estimates or recommendations by securities or research analysts who track our common stock; |
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| market and industry perception of our level of success in pursuing our growth strategy; |
| strategic actions by us or our competitors, such as acquisitions or restructurings; |
| changes in government and other regulations; |
| changes in accounting standards, policies, guidance, interpretations or principles; |
| arrival or departure of members of senior management or other key personnel; |
| the number of shares to be publicly traded after this offering; |
| sales of common stock by us, our investors or members of our management team; |
| factors affecting the industry in which we operate, including competition, innovation, regulation, the economy and other factors; and |
| changes in general market, economic and political conditions in the U.S. and global economies or financial markets, including those resulting from natural disasters, telecommunications failures, cyber-attacks, civil unrest in various parts of the world, acts of war, terrorist attacks or other catastrophic events. |
Any of these factors may result in large and sudden changes in the trading volume and market price of our common stock and may prevent you from being able to sell your shares at or above the price you paid for them.
Following periods of volatility in the market price of a companys securities, stockholders often file securities class action lawsuits against such company. Our involvement in a class action lawsuit could be costly to defend and divert our senior managements attention and, if adversely determined, could involve substantial damages.
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. Our common stock does not currently have and may never obtain research coverage by securities and industry analysts. If there is no coverage of us by securities or industry analysts, the trading price for our shares could be negatively impacted. In the event we obtain securities or industry analyst coverage and one or more of these analysts downgrades our shares 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 us or fails to publish reports on us regularly, demand for our shares could decrease, which could cause our stock price or trading volume to decline.
We are an emerging growth company, and any decision on our part to comply with certain reduced disclosure requirements applicable to emerging growth companies could make our common stock less attractive to investors.
We are an emerging growth company, as defined in the JOBS Act, enacted in April 2012, and, for as long as we continue to be an emerging growth company, we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies, including, but not limited to, reduced disclosure obligations regarding executive compensation (including Chief Executive Officer pay ratio disclosure) in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Additionally, until we cease to be an emerging growth company, we are not required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act. As an emerging growth company, we have elected to use the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our
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consolidated financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies.
We may take advantage of these exemptions until such time that we are no longer an emerging growth company. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock. We could remain an emerging growth company for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues are at least $1.07 billion, (ii) the date that we become a large accelerated filer as defined in Rule 12b-2 under the Exchange Act, which would occur if, among other things, the market value of our common equity securities held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in nonconvertible debt securities during the preceding three-year period.
We cannot predict whether investors will find our common stock less attractive if we choose to rely on one or more of the exemptions described above. If investors find our common stock less attractive as a result of any decisions to reduce future disclosure, there may be a less active trading market for our common stock and our stock price may be more volatile.
The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business, particularly after we are no longer an emerging growth company.
We have historically operated as a private company and have not been subject to the same financial and other reporting and corporate governance requirements as a public company. After this offering, 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 New York Stock Exchange, or NYSE, and the Sarbanes-Oxley Act, which will impose significant compliance costs and obligations upon us. The changes necessitated by becoming a public company will require a significant commitment of additional resources and management oversight, which will increase our operating costs. These changes will also place significant additional demands on our finance and accounting staff, which may not have prior public company experience or experience working for a newly public company, and on our financial accounting and information systems, and we may need to, in the future, hire additional accounting and financial staff with appropriate public company reporting experience and technical accounting knowledge. Other expenses associated with being a public company include increases in auditing, accounting and legal fees and expenses, investor relations expenses, increased directors fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees, as well as other expenses. As a public company, we will be required, among other things, to:
| prepare and file periodic reports, and distribute other stockholder communications, in compliance with the federal securities laws and the NYSE rules; |
| define and expand the roles and the duties of our board of directors and its committees and adopt a set of corporate governance guidelines; |
| maintain a majority independent board of directors and fully independent audit, compensation and nominating and corporate governance committees, in compliance with the federal securities laws and the NYSE rules; |
| institute more comprehensive compliance, investor relations and internal audit functions; 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 PCAOB. |
In particular, upon the completion of this offering, the Sarbanes-Oxley Act will require us to maintain disclosure controls and procedures and report on their effectiveness, and to maintain and document our internal
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control over financial reporting document and test their effectiveness in accordance with an established internal control framework, and, after our first annual report, to report on our conclusions as to the effectiveness of our internal controls. Likewise, once we are no longer an emerging growth company, 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. As described in the previous risk factor, we expect to qualify as an emerging growth company upon the completion of this offering and could potentially qualify as an emerging growth company until December 31, 2022. Any failure to implement required new or improved controls, or difficulties encountered in their implementation or in remediating any weaknesses discovered in the internal controls, could harm our operating results, cause us to fail to meet our reporting obligations, or require us to restate our financial statements from prior periods. Any of these could lead investors to 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.
We may not pay regular cash dividends on our common stock and, consequently, your ability to achieve a return on your investment may depend on appreciation in the price of our common stock.
Any decision to declare and pay dividends will be dependent on a variety of factors, including earnings, cash flow generation, financial position, results of operations, the terms of our indebtedness and other contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. The terms of our indebtedness limit the ability of CFTC to pay dividends to CURO Group Holdings Corp., which would be necessary for us to pay dividends on our common stock. For more information, see Dividend Policy. As a result, you should not rely on an investment in our common stock to provide dividend income and the success of an investment in our common stock may depend upon an appreciation in its value.
Future offerings of debt or equity securities may rank senior to our common stock and may result in dilution of your investment.
If we decide to issue debt securities in the future, which would rank senior to shares of our common stock, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. We and, indirectly, our stockholders will bear the cost of issuing and servicing such securities. We may also issue preferred equity, which will have superior rights relative to our common stock, including with respect to voting and liquidation.
Furthermore, if we raise additional capital by issuing new convertible or equity securities at a lower price than the initial public offering price, your interest will be diluted. This may result in the loss of all or a portion of your investment. If our future access to public markets is limited or our performance decreases, we may need to carry out a private placement or public offering of our common stock at a lower price than the initial public offering price.
Because our decision to issue debt, preferred or other equity or equity-linked securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our common stock will bear the risk of our future offerings reducing the market price of our common stock and diluting the value of their shareholdings in us.
The market price of our common stock could be negatively affected by future sales of our common stock.
If we or our existing stockholders, our directors, their affiliates, or our executive officers, sell, or are perceived as intending to sell, a substantial number of our common stock in the public market, the market price of our common stock could decrease significantly.
We, our executive officers and directors and certain of our significant stockholders have agreed with the underwriters not to dispose of or hedge any of the shares of our common stock or securities convertible into or
38
exchangeable for shares of our common stock during the period from the date of this prospectus continuing through the date that is 180 days after the date of this prospectus, except with the prior written consent of Credit Suisse Securities (USA) LLC and Jefferies LLC.
These shares of common stock will be freely tradable (subject to certain current public information requirements) after the expiration date of the lock-up agreements, excluding any acquired or held by persons who may be deemed to be our affiliates as defined in Rule 144 under the Securities Act, which will continue to be subject to the volume and other restrictions of Rule 144 under the Securities Act. At any time following the closing of this offering, subject, however, to the 180-day lock-up agreement entered into with the underwriters, the holders of 33,862,572 shares of our common stock are entitled to require that we register their shares under the Securities Act for resale into the public markets. All shares sold pursuant to an offering covered by such registration statement would be freely transferable.
In addition, on or as soon as practicable after, the effective date of this prospectus, we intend to file a registration statement on Form S-8 under the Securities Act registering 9,477,480 shares of our common stock reserved for future issuance under our equity incentive plans. See the information under the heading Shares Eligible for Future Sale for a more detailed description of the shares that will be available for future sales upon completion of this offering.
Purchasing our common stock through this offering will result in an immediate and substantial dilution of your investment.
The initial public offering price of our common stock is substantially higher than the net tangible book value per share of our common stock. Therefore, if you purchase our common stock in this offering, your interest will be diluted immediately to the extent of the difference between the initial public offering price per share of our common stock and the net tangible book value per share of our common stock after this offering. See Dilution.
Provisions in our charter documents could discourage a takeover that stockholders may consider favorable.
Certain provisions in our governing documents could make a merger, tender offer or proxy contest involving us difficult, even if such events would be beneficial to the interests of our stockholders. Among other things, these provisions:
| permit our board of directors to establish the number of directors and fill any vacancies and newly created directorships; |
| authorize the issuance of blank check preferred stock that our board of directors could use to implement a stockholder rights plan; |
| provide that our board of directors is expressly authorized to amend or repeal any provision of our bylaws; |
| restrict the forum for certain litigation against us to Delaware; |
| establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon by stockholders at annual stockholder meetings; |
| establish a classified board of directors with three staggered classes of directors, where directors may only be removed for cause (unless we de-classify our board of directors); |
| require that actions to be taken by our stockholders be taken only at an annual or special meeting of our stockholders, and not by written consent; and |
| establish certain limitations on convening special stockholder meetings. |
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These provisions may delay or prevent attempts by our stockholders to replace members of our management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. These provisions also may delay, prevent or deter a merger, acquisition, tender offer, proxy contest or other transaction that might otherwise result in our stockholders receiving a premium over the market price for their common stock. We believe these provisions will protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers or investors aiming to effect changes in management to negotiate with our board of directors and by providing our board of directors with more time to assess any proposal. However, such anti-takeover provisions could also depress the price of our common stock by acting to delay or prevent a change in control of us.
For information regarding these and other provisions, see Description of Capital Stock.
Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the General Corporation Law of the State of Delaware, our amended and restated certificate of incorporation or our amended and restated bylaws or any action asserting a claim against us that is governed by the internal affairs doctrine. This choice of forum provision may limit a stockholders ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may discourage these types of lawsuits.
The FFL Holders and Founder Holders will together own more than 50% of our common stock, and their interests may conflict with ours or yours in the future.
Immediately following this offering, investment funds associated with the FFL Holders and the Founder Holders will beneficially own approximately 28.67% and 44.81% of our common stock, respectively, or approximately 28.06% and 43.86%, respectively, if the underwriters exercise in full their option to purchase additional shares. As a result, the FFL Holders and the Founder Holders will collectively have the ability to elect all of the members of our board of directors and thereby control our policies and operations, including the appointment of management, future issuances of our common stock or other securities, the payment of dividends, if any, on our common stock, the incurrence or modification of debt by us, certain amendments to our amended and restated certificate of incorporation and amended and restated bylaws, and the entering into of extraordinary transactions, and their interests may not in all cases be aligned with your interests. In addition, the FFL Holders together with Founder Holders may have an interest in pursuing acquisitions, divestitures and other transactions that, in their respective judgment, could enhance their investment, even though such transactions might involve risks to you. For example, the FFL Holders together with the Founder Holders could cause us to make acquisitions that increase our indebtedness or cause us to sell revenue-generating assets.
Prior to the completion of this offering, we, the FFL Holders and the Founder Holders expect to enter into the Amended and Restated Investor Rights Agreement. See Certain Relationships and Related-Party TransactionsRelated-Party TransactionsAmended and Restated Investor Rights Agreement.
The FFL Holders and their affiliated funds are in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us.
40
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements in addition to historical information. These forward-looking statements are included throughout this prospectus, including in the sections entitled Summary, Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and Business and relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. Words such as anticipate, assume, believe, budget, continue, could, estimate, expect, future, intend, may, objective, outlook, plan, potential, predict, project, should, will and variations of these words and the negative of these or similar words or expressions generally indicate a forward-looking statement in this prospectus.
Forward-looking statements reflect our current expectations regarding future events, results or outcomes. These expectations may or may not be realized. Some of these expectations may be based upon assumptions or judgments that prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our financial condition, results of operations and cash flows.
Our forward-looking statements are not guarantees of future performance, and actual events, results and outcomes may differ materially from our expectations suggested in any forward-looking statements due to a variety of factors, including, among others, those set forth in the section entitled Risk Factors. Although it is not possible to identify all of these factors, they include, among others, the following:
| the recently adopted CFPB rule on payday, vehicle title, and certain high-cost installment loans could, if enacted, have a material adverse effect on our business and results of operations; |
| the extent to which federal, state, local and foreign governmental regulation of consumer lending and related financial products and services limits or prohibits the operation of our business; |
| our failure to comply with applicable laws and regulations, and resulting fines, penalties or other sanctions that could adversely affect our business and results of operations; |
| the impact of proposed rules and regulations that, if enacted, could have a material adverse effect on our business and results of operations; |
| future changes to regulations to which we are subject could restrict us in ways that adversely affect our business and results of operations; |
| the adverse impact of existing or new local regulation of our industry; |
| the impact of the complex regulatory environment in which we operate, which increase our costs of compliance and the risk that we may fail to comply; |
| the risk that our interpretation and application of laws and regulations related to consumer lending activities differs from the interpretations applied by federal, state, local and foreign regulatory bodies; |
| the effect of judicial decisions, agency rulemaking, or amendments to law on the legality or enforceability of our agreements; |
| current and future litigation and regulatory proceedings against us may impact our results of operations, cash flow and financial condition; |
| risks associated with negative public perception of our products and services; |
| the adverse impact of material modifications of U.S. laws and regulations and existing trade agreements by the new U.S. presidential administration on our business, financial condition, and results of operations; |
| our substantial indebtedness may expose us to material risks, and could adversely affect our business, results of operations and financial condition, as we currently depend in large part on debt financing to provide the cash needed to fund the loans we originate; |
41
| our business could be adversely affected by a lack of sufficient debt financing at acceptable prices or disruptions in the credit markets, which could reduce our access to credit and our ability to fund loans; |
| risks associated with our ability to refinance our substantial indebtedness; |
| risks associated with a lack of sufficient debt financing made to our business on acceptable terms; |
| our ability to protect our proprietary technology and analytics or keep up with that of our competitors; |
| risks associated with disruption in the availability of our information systems; |
| risks associated with information provided by customers or third parties being inaccurate, and causing us to misjudge a customers qualification to receive a loan; |
| because of the non-prime nature of our customers, our business has much higher rates of charge-offs than traditional lenders, and if we are unable to price our loan products to take into account the credit risks of our customers, our operating results and financial condition could be adversely affected. |
| risks associated with the failure of our proprietary credit and fraud scoring system to effectively price the credit risk of our prospective or existing customers; |
| risks associated with the handling of customer personal data and cyber-attacks that could result in liability or harm to our reputation; |
| risks associated with failure of third parties who provide us products, services or support, including our ability to maintain relationships with banks and other third-party electronic payment solutions providers; |
| our ability to maintain relationships with third-party service providers to offer credit services organizations, or CSO, loans in Texas and Ohio; |
| the adverse impact of employee and third-party theft and errors as well as liability resulting from crimes at our stores; |
| the adequacy of our allowance for loan losses, accrual for third-party loan losses and estimates of losses; |
| changes in demand for our products and services; |
| risks associated with effectively managing our growth; |
| our ability to integrate acquisitions into our existing business operations; |
| the sufficiency of indemnifications associated with assumed liabilities of acquired entities to cover our exposures to litigation and settlement costs; |
| our ability to attract and retain qualified management and employees; |
| the possible impairment of goodwill; |
| the seasonality of our lending business; |
| our ability to find suitable real estate to support future new store development; |
| our ability to keep up with rapid changes in e-commerce and the uses of the Internet; |
| the fragmentation of our industry and competition from various other sources providing similar financial products, or other alternative sources of credit, to consumers; |
| risks related to the international scope of our business and operations; |
| the adverse impact of natural disasters and other business disruptions on our future revenue and financial condition; and |
| the FFL Holders and the Founder Holders will together have a controlling interest following this offering, and their interests may conflict with ours or yours in the future. |
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Any one of these factors or a combination of these factors could materially affect our future results of operations and could influence whether any forward-looking statements ultimately prove to be accurate. Our forward-looking statements speak only as of the date hereof and are not guarantees of future performance. Actual results and future performance may differ materially from those suggested in any forward-looking statements. We undertake no obligation to update these statements unless we are required to do so under applicable laws.
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We estimate that the net proceeds from the sale of 6,666,667 shares of common stock that we are offering will be approximately $88.5 million, at an assumed initial public offering price of $15.00 per share (the midpoint of the price range set forth on the cover page of this prospectus) and after deducting estimated underwriting discounts and offering expenses. If the underwriters fully exercise their option to purchase additional shares, we estimate that our net proceeds will be approximately $102.5 million.
A $1.00 increase (decrease) in the assumed initial public offering price of $15.00 per share would increase (decrease) the net proceeds to us from this offering by $6.2 million, assuming the underwriters do not exercise their option to purchase additional shares and assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.
We intend to use the net proceeds from this offering to purchase, redeem, defease or otherwise repay portions of the 12.00% Senior Secured Notes issued by CFTC and pay fees, expenses, premiums and accrued interest in connection therewith. CFTC issued $470 million aggregate principal amount of the 12.00% Senior Secured Notes on February 15, 2017 in a private offering exempt from the registration requirements of the Securities Act and used the proceeds of that offering, together with available cash, to redeem Curo Intermediates outstanding 10.75% Senior Secured Notes due 2018, redeem our 12.00% Senior Cash Pay Notes due 2017 and pay fees, expenses, premiums and accrued interest in connection therewith. On November 2, 2017, CFTC issued $135 million aggregate principal amount of additional 12.00% Senior Secured Notes in a private offering exempt from the registration requirements of the Securities Act and used the proceeds from that offering, together with available cash, to pay a cash dividend to our stockholders and pay fees and expenses in connection therewith. See Managements Discussion and Analysis of Financial Condition and Results of Operations Recent Developments.
Pending the use of proceeds from this offering as described above, we plan to invest the net proceeds we receive in this offering in short-term and intermediate term interest-bearing obligations, investment grade investments, certificates of deposit or direct or guaranteed U.S. government obligations.
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On May 12, 2017, we declared a dividend of $28.0 million, which was paid to our stockholders on May 15, 2017, on August 2, 2017, we declared a dividend of $8.5 million, which was paid to our stockholders on August 11, 2017 and on October 16, 2017, we declared a dividend of $5.5 million, which was paid to our stockholders on October 16, 2017. In connection with issuance of the additional 12.00% Senior Secured Notes on November 2, 2017, we declared a dividend of $140 million on November 2, 2017, which was paid to our stockholders on November 2, 2017. We have otherwise not paid regular or special dividends since our inception in 2013. The terms of our indebtedness limit the ability of CFTC to pay dividends to CURO Group Holdings Corp., which would be necessary for us to pay dividends on our common stock.
Any future determinations relating to our dividends and earning retention policies will be made at the discretion of our board of directors, who will review such policies from time to time in light of the Companys earnings, cash flow generation, financial position, results of operations, the terms of our indebtedness and other contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant.
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The following table sets forth our cash and cash equivalents and capitalization as of September 30, 2017:
| on an actual basis; |
| on an as adjusted basis to give effect to (1) the issuance of $135 million aggregate principal amount of additional 12.00% Senior Secured Notes by CFTC and (2) our declaration and payment of a $140 million dividend, all of which occurred on November 2, 2017, collectively referred to as the Offering Adjustments; and |
| on a pro forma basis to give effect to the Offering Adjustments, the issuance and sale by us of 6,666,667 shares of common stock in this offering at an assumed initial public offering price of $15.00 per share (the midpoint of the range set forth on the cover page of this prospectus), and our receipt and application of the net proceeds therefrom as described in Use of Proceeds. |
The information below is illustrative only, and our cash and cash equivalents, additional paid-in capital, total stockholders equity and total capitalization following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of the offering determined at the pricing of this offering. You should read this table together with Summary, Selected Consolidated Financial Data, Managements Discussion and Analysis of Financial Condition and Results of Operations, Underwriting and our unaudited interim and audited annual consolidated financial statements and the related notes included elsewhere in this prospectus.
As of September 30, 2017 | ||||||||||||
(in thousands, except share data) |
Actual |
As
Adjusted |
Pro
Forma(2) |
|||||||||
Cash and cash equivalents (1) |
$ | 95,545 | $ | 90,545 | $ | 90,545 | ||||||
|
|
|
|
|
|
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Debt |
||||||||||||
Non-Recourse U.S. SPV Facility |
$ | 116,590 | $ | 116,590 | $ | 116,590 | ||||||
12.00% Senior Secured Notes(3) |
470,000 | 605,000 | 526,000 | |||||||||
Subordinated shareholder debt |
2,401 | 2,401 | 2,401 | |||||||||
|
|
|
|
|
|
|||||||
Total debt |
588,991 | 723,991 | 644,991 | |||||||||
Equity |
||||||||||||
Common Stock, $0.001 par value; 72,000,000 shares authorized and 37,894,752 shares issued and outstanding, actual; and 225,000,000 shares authorized and 37,894,752 shares issued and outstanding, pro forma(4) |
$ | 1 | $ | 1 | $ | 1 | ||||||
(Dividends in excess of paid-in capital)/Paid-in capital |
(35,686 | ) | (35,686 | ) | 52,814 | |||||||
Retained earnings |
143,079 | 3,079 | (6,421 | ) | ||||||||
Accumulated other comprehensive loss |
(41,504 | ) | (41,504 | ) | (41,504 | ) | ||||||
|
|
|
|
|
|
|||||||
Total stockholders equity(5) |
65,890 | (74,110 | ) | 4,890 | ||||||||
|
|
|
|
|
|
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Total capitalization |
$ | 654,881 | $ | 649,881 | $ | 649,881 | ||||||
|
|
|
|
|
|
(1) | As Adjusted amount does not reflect the payment of fees and expenses related to the Additional Notes Offering or any issue premium associated with the 12.00% Senior Secured Notes. |
(2) | Each $1.00 of increase (decrease) in the public offering price per share would increase (decrease) our total stockholders equity by $5.6 million (assuming the underwriters do not exercise their option to purchase additional shares). |
(3) | As Adjusted amount does not reflect any issue premium associated with the 12.00% Senior Secured Notes. |
(4) | The information regarding our common stock takes into account a 36-for-1 split of our common stock approved by our board of directors on November 8, 2017 that will occur prior to the effectiveness of the Registration Statement and the pro forma information regarding our common stock also takes into account the filing of our amended and restated certificate of incorporation that will occur immediately prior to the closing of this offering. |
(5) | Pro Forma amount includes the payment of a 12.00% premium in connection with the redemption of the 12.00% Senior Secured Notes as described in Use of Proceeds. |
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If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the initial public offering price per share and the net tangible book value per share of our common stock immediately after this offering. Net tangible book value per share is determined by dividing our total tangible assets less total liabilities by the total number of shares of common stock outstanding as of September 30, 2017.
Our net tangible book value as of September 30, 2017 was a deficit of $112.8 million, or $2.98 per share of common stock. After giving effect to the Offering Adjustments, our tangible net book value as of September 30, 2017 would have been a deficit of $252.8 million, or approximately $6.67 per share. After giving effect to the Offering Adjustments, the issuance and sale by us of 6,666,667 shares of common stock in this offering at an assumed initial public offering price of $15.00 per share, which is the midpoint of the range set forth on the cover page of this prospectus, and the deduction of estimated underwriting discounts and estimated offering expenses, our net tangible book value as of September 30, 2017 would have been a deficit of $164.3 million, or approximately $3.69 per share. This amount represents an immediate increase in net tangible book value of $2.98 per share to our existing stockholders and an immediate dilution in net tangible book value of approximately $18.69 per share to new investors purchasing shares of common stock in this offering at the assumed initial public offering price.
The following table illustrates this per share dilution:
Assumed initial public offering price per share |
$ | 15.00 | ||||||
Net tangible book value (deficit) per share as of September 30, 2017 (after giving effect to the Offering Adjustments) |
$ | (6.67 | ) | |||||
Increase in net tangible book value per share attributable to new investors in this offering |
$ | 2.98 | ||||||
Net tangible book value (deficit) per share after this offering |
$ | (3.69 | ) | |||||
|
|
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Dilution per share to new investors |
$ | 18.69 | ||||||
|
|
Each $1.00 increase or decrease in the assumed initial public offering price of $15.00 per share would increase or decrease our net tangible book value after the offering by approximately $6.2 million, or approximately $0.14 per share, and the dilution per share to investors participating in this offering by approximately $0.86 per share, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same.
If the underwriters exercise their option in full to purchase 1,000,000 additional shares of common stock from us in this offering, the net tangible book value per share after the offering would be a deficit of $3.30 per share, the increase in the net tangible book value per share to existing stockholders would be $3.37 per share and the dilution to new investors purchasing common stock in this offering would be $18.30 per share.
We have not issued any shares of common stock in the last five years.
Following this offering, our existing stockholders will hold 85.04% of our common stock, and new investors will hold 14.96% of our common stock (excluding options and restricted stock unit awards granted to existing stockholders). If the underwriters fully exercise their option to purchase additional shares, our existing stockholders would hold 83.17% of our common stock, and new investors would hold 16.83% of our common stock.
The above discussion is based on 37,894,752 shares of common stock outstanding as of September 30, 2017 after giving effect to a 36-for-1 split of our common stock approved by our board of directors on November 8, 2017 that will occur prior to the effectiveness of the Registration Statement, and excludes:
| 1,977,480 shares of our common stock issuable upon the exercise of options outstanding as of November 27, 2017 at a weighted average price of $3.04 per share; |
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| 5,000,000 shares of our common stock reserved for issuance pursuant to our 2017 Incentive Plan as of November 27, 2017; and |
| 2,500,000 shares of our common stock reserved for issuance pursuant to our Employee Stock Purchase Plan as of November 27, 2017. |
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SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below is our selected consolidated financial data as of and for the periods indicated. We have derived the selected consolidated financial data as of and for the years ended December 31, 2016 and 2015 from our audited consolidated financial statements and the accompanying notes thereto included elsewhere in this prospectus. We have derived the selected consolidated financial data as of and for the nine month periods ended September 30, 2017 and 2016 from our unaudited consolidated financial statements that are included elsewhere in this prospectus and that, in our opinion, include all adjustments, consisting of normal, recurring adjustments, necessary for the fair presentation of such information. Our historical operating results are not necessarily indicative of results we may expect or achieve in any future period. Our results for the nine months ended September 30, 2017 are not necessarily indicative of results we may achieve during a full year.
The following information is only a summary and may not be complete. Accordingly, you should read these selected consolidated financial data in conjunction with the sections entitled Use of Proceeds, Capitalization, Managements Discussion and Analysis of Financial Condition and Results of Operations and our audited and unaudited consolidated financial statements and the notes thereto contained elsewhere in this prospectus.
(in thousands, except per share data) |
Nine Months Ended
September 30, (unaudited) |
Year Ended
December 31, |
||||||||||||||
2017 | 2016 | 2016 | 2015 | |||||||||||||
Consolidated Statements of Income Data: |
||||||||||||||||
Revenue |
$ | 696,643 | $ | 609,692 | $ | 828,596 | $ | 813,131 | ||||||||
Provision for losses |
226,523 | 177,756 | 258,289 | 281,210 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net revenue |
470,120 | 431,936 | 570,307 | 531,921 | ||||||||||||
Cost of providing services |
||||||||||||||||
Salaries and benefits |
79,554 | 79,359 | 104,541 | 107,059 | ||||||||||||
Occupancy |
41,421 | 40,368 | 54,509 | 53,288 | ||||||||||||
Office |
15,519 | 14,294 | 20,463 | 19,929 | ||||||||||||
Other costs of providing services |
40,954 | 39,385 | 53,617 | 47,380 | ||||||||||||
Advertising |
35,599 | 28,925 | 43,921 | 65,664 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cost of providing services |
213,047 | 202,331 | 277,051 | 293,320 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross margin |
257,073 | 229,605 | 293,256 | 238,601 | ||||||||||||
Operating (income) expense |
||||||||||||||||
Corporate and district |
103,605 | 95,109 | 125,119 | 129,046 | ||||||||||||
Interest expense |
60,694 | 48,179 | 64,334 | 65,020 | ||||||||||||
Loss (gain) on extinguishment of debt |
12,458 | (6,991 | ) | (6,991 | ) | | ||||||||||
Restructuring costs |
7,393 | 2,967 | 3,618 | 4,291 | ||||||||||||
Goodwill and intangible asset impairment charges |
| | | 2,882 | ||||||||||||
Other (income)/expense |
192 | (559 | ) | (845 | ) | 1,488 | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expense |
184,342 | 138,705 | 185,235 | 202,727 | ||||||||||||
Net income before taxes |
72,731 | 90,900 | 108,021 | 35,874 | ||||||||||||
Provision for income tax expense |
29,988 | 35,041 | 42,577 | 18,105 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 42,743 | $ | 55,859 | $ | 65,444 | $ | 17,769 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Basic earnings per share(1) |
$ | 1.13 | $ | 1.47 | $ | 1.73 | $ | 0.47 | ||||||||
Diluted earnings per share(1) |
$ | 1.10 | $ | 1.44 | $ | 1.69 | $ | 0.46 |
(1) | The per share information has been adjusted to give effect to the 36-for-1 stock split approved by our board of directors on November 8, 2017 that will occur prior to the effectiveness of the Registration Statement. |
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(in thousands, except per share data) |
Nine Months Ended
September 30, (unaudited) |
Year Ended
December 31, |
||||||||||||||
2017 | 2016 | 2016 | 2015 | |||||||||||||
Non-GAAP Statement of Operations Data and Other Operating Data (unaudited): |
||||||||||||||||
Adjusted Earnings(2) |
$ | 59,372 | $ | 55,688 | $ | 66,411 | $ | 24,656 | ||||||||
EBITDA(3) |
$ | 147,545 | $ | 153,323 | $ | 191,260 | $ | 120,006 | ||||||||
Adjusted EBITDA(4) |
$ | 173,257 | $ | 150,260 | $ | 189,361 | $ | 130,876 | ||||||||
Adjusted EBITDA Margin(5) |
24.9 | % | 24.6 | % | 22.9 | % | 16.1 | % | ||||||||
Gross Margin Percentage(6) |
36.9 | % | 37.7 | % | 35.4 | % | 29.3 | % | ||||||||
Number of stores (at period end) |
405 | 420 | 420 | 420 | ||||||||||||
Selected Balance Sheet Data (at period end) |
||||||||||||||||
Cash |
$ | 95,545 | $ | 175,418 | $ | 193,525 | $ | 100,561 | ||||||||
Gross loans receivable |
$ | 393,423 | $ | 244,602 | $ | 286,196 | $ | 252,180 | ||||||||
Less: allowance for loan losses |
(71,271 | ) | (33,302 | ) | (39,192 | ) | (32,948 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Loans receivable, net |
$ | 322,152 | $ | 211,300 | $ | 247,004 | $ | 219,232 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total assets |
$ | 762,139 | $ | 721,119 | $ | 780,798 | $ | 666,017 | ||||||||
Total liabilities (including debt) |
$ | 696,249 | $ | 682,716 | $ | 739,943 | $ | 685,399 | ||||||||
Total stockholders equity |
$ | 65,890 | $ | 38,403 | $ | 40,855 | $ | (19,382 | ) |
(2) | We define Adjusted Earnings as net income plus or minus certain non-cash or other adjusting items. We provide Adjusted Earnings in this prospectus because our management finds its useful in evaluating the performance and underlying operations of our business. We provide a detailed description of Adjusted Earnings and how we use it, including a reconciliation of Adjusted Earnings to net income, under Managements Discussion and Analysis of Financial Condition and Results of OperationsSupplemental Non-GAAP Financial Information. |
(3) | We define EBITDA as earnings before interest, income taxes, depreciation and amortization. We provide EBITDA in this prospectus because our management finds it useful in evaluating the performance and underlying operations of our business. We provide a detailed description of EBITDA and how we use it, along with a reconciliation of EBITDA to net income, under Managements Discussion and Analysis of Financial Condition and Results of OperationsSupplemental Non-GAAP Financial Information. |
(4) | We define Adjusted EBITDA as earnings before interest, income taxes, depreciation and amortization, plus or minus certain non-cash or other adjusting items. We provide Adjusted EBITDA in this prospectus because our management finds it useful in evaluating the performance and underlying operations of our business. We provide a detailed description of Adjusted EBITDA and how we use it, along with a reconciliation of Adjusted EBITDA to net income, under Managements Discussion and Analysis of Financial Condition and Results of OperationsSupplemental Non-GAAP Financial Information. |
(5) | Calculated as Adjusted EBITDA as a percentage of revenue. |
(6) | Calculated as Gross Margin as a percentage of revenue. |
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with the Selected Consolidated Financial Data and our consolidated financial statements and the related notes thereto included elsewhere in this prospectus. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from managements expectations. Factors that could cause such differences are discussed in the sections entitled Special Note Regarding Forward-Looking Statements and Risk Factors. We undertake no obligation to update any forward-looking statements or other statements we may make in the following discussion or elsewhere in this document even though these statements may be affected by events or circumstances occurring after the forward-looking statements or other statements were made. Therefore, no reader of this document should rely on these statements being current as of any time other than the date of this prospectus. See Special Note Regarding Forward-Looking Statements.
Overview
We are a growth-oriented, technology-enabled, highly-diversified consumer finance company serving a wide range of underbanked consumers in the United States, Canada and the United Kingdom and are a market leader in our industry based on revenues. We believe that we have the only true omni-channel customer acquisition, onboarding and servicing platform in our industry that is integrated across store, online, mobile and contact center touchpoints. Our IT platform, which we refer to as the Curo Platform, seamlessly integrates loan underwriting, scoring, servicing, collections, regulatory compliance and reporting activities into a single, centralized system. We use advanced risk analytics powered by proprietary algorithms and over 15 years of loan performance data to efficiently and effectively score our customers loan applications. Since 2010, we have extended $13.9 billion in total credit across approximately 36.5 million total loans, and our revenue of $828.6 million in 2016 represents a 26.3% compound annual growth rate, or CAGR, over the same time period.
We operate in the United States under two principal brands, Speedy Cash and Rapid Cash, and launched our new brand Avio Credit in the United States in the second quarter of 2017. In the United Kingdom we operate online as Wage Day Advance and Juo Loans and, prior to their closure in the third quarter of 2017, our stores were branded Speedy Cash. In Canada our stores are branded Cash Money and we offer LendDirect installment loans online. As of September 30, 2017, our store network consisted of 405 locations across 14 U.S. states and seven Canadian provinces. As of September 30, 2017, we offered our online services in 26 U.S. states, five Canadian provinces, and the United Kingdom.
Company History
The CURO business was founded in 1997 to meet the growing needs of consumers looking for access to credit. The Company set out to offer a variety of convenient, easily-accessible financial and loan services and over its 20 years of operations, expanded across the United States, Canada and the United Kingdom.
CURO Financial Technologies Corp., or CFTC (then known as Speedy Cash Holdings Corp.), was incorporated in Delaware on July 16, 2008. On September 10, 2008, our founders sold or otherwise contributed all of the outstanding equity of the various operating entities that comprised the CURO business to a wholly-owned subsidiary of CFTC in connection with an investment in CFTC by Friedman Fleischer & Lowe Capital Partners II, L.P. and its affiliated funds, or FFL Partners. CURO Group Holdings Corp. (then known as Speedy Group Holdings Corp.) was incorporated in Delaware on February 7, 2013 as the parent company of CFTC. On May 11, 2016, we changed the name of Speedy Group Holdings Corp. to CURO Group Holdings Corp. We similarly changed the names of some of its subsidiaries.
In May 2011, we completed the acquisition of Cash Money Group, Inc., a Canadian entity, for approximately $104.5 million.
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In August 2012, we completed the acquisition of The Money Store, L.P., a Texas limited partnership which operated as The Money Box ® Check Cashing for approximately $26.1 million.
In February 2013, we completed the acquisition of Wage Day Advance Limited, a United Kingdom entity, for approximately $80.9 million. We subsequently effected a corporate name change of Wage Day Advance Limited to CURO Transatlantic Limited, although we still operate online in the United Kingdom as Wage Day Advance.
In October 2015, we opened a state-of-the-art fintech office in Chicago to continue to attract and retain talented IT development and data science professionals. As of September 30, 2017, this office was staffed with 24 professionals.
In March 2016, we launched LendDirect, an online Installment Loan brand in Alberta, Canada. These loans are now offered in four provinces.
In June 2017, we launched Avio Credit, an online Installment Loan brand in the U.S. market. These loans are currently available in California, Missouri, South Carolina and Wisconsin.
Recent Developments
Additional Notes Offering and Dividend
On November 2, 2017, CFTC issued $135 million principal amount of additional 12.00% Senior Secured Notes in a private offering exempt from the registration requirements of the Securities Act, or the Additional Notes Offering. The proceeds from the Additional Notes Offering were used, together with available cash, to (i) pay a cash dividend, in an amount of $140 million, to CFTCs sole stockholder, the Company, and ultimately our stockholders and (ii) pay fees, expenses, premiums and accrued interest in connection with the Additional Notes Offering. CFTC received the consent of the holders holding a majority in the outstanding principal amount outstanding of the current 12.00% Senior Secured Notes to a one-time waiver with respect to the restrictions contained in Section 5.07(a) of the indenture governing the 12.00% Senior Secured Notes to permit the dividend.
Senior Secured Revolving Loan Facility
On September 1, 2017, we closed a $25 million Senior Secured Revolving Loan Facility, or the Senior Revolver. The negative covenants of the Senior Revolver generally conform to the related provisions of the Indenture governing the 12.00% Senior Secured Notes. We believe this facility complements our other financing sources, while providing seasonal short-term liquidity. Under the Senior Revolver, there is $25 million maximum availability, including up to $5 million of standby letters of credit, for a one-year term, renewable for successive terms following annual review. The Senior Revolver accrues interest at the one-month LIBOR (which may not be negative) plus 5.00% per annum and is repayable on demand. The terms of the Senior Revolver require that the outstanding balance be reduced to $0 for at least 30 consecutive days in each calendar year. The Senior Revolver is guaranteed by all of our subsidiaries that guarantee the 12.00% Senior Secured Notes and is secured by a lien on substantially all of our assets and the guarantor subsidiaries that is senior to the lien securing the 12.00% Senior Secured Notes. The Senior Revolver was undrawn at September 30, 2017.
U.K. Store Closures
In the third quarter of 2017, the Boards of Directors of the Company and its U.K. subsidiaries approved a plan to close the remaining 13 Speedy Cash branch locations in the United Kingdom. The affected branches closed during the third quarter and our financial results include $7.4 million of related charges primarily for the remaining net cash obligations for store leases, employee redundancy and severance payments ($5.9 million), and the noncash write-off of fixed assets and leasehold improvements ($1.5 million).
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Hurricane Harvey Impact
In a good-faith effort to help our store and online customers in the affected areas of Houston, Corpus Christi and the surrounding areas we waived loan payments that were due during the period from August 25, 2017 to September 8, 2017. This affected approximately 22,500 customers and amounted to approximately $3.0 million in total loan payments. The waived payments and losses on secured installment loans in the market increased our provision for losses by approximately $3.3 million. Property damage to our 18 stores in the affected areas was not material. Our stores in the Texas markets resumed normal operations in September.
Products and Services
We designed our products and customer journey to be consumer-friendly, accessible and easy to understand. Below is an outline of our loan products as of September 30, 2017.
Installment | ||||||||
Unsecured | Secured | Open-End | Single-Pay | |||||
Channel |
Online and in-store: 15
U.S. states, Canada and the United Kingdom(1) |
Online and
in-store:
7
U.S. states |
Online: KS, TN, ID,
VA, UT, DE and
RI.
|
Online and in-store: 12
U.S. states, Canada and the United Kingdom(1) |
||||
Approximate Average Loan Size(2) |
$636 | $1,299 | $463 | $335 | ||||
Duration |
Up to 48 months | Up to 42 months | Revolving/Open-ended | Up to 62 days | ||||
Pricing |
13.2% average
monthly interest rate(3) |
10.6% average
monthly interest rate(3) |
Daily interest rates
ranging from 0.74% to 0.99% |
Fees ranging from $13
to $25 per $100 borrowed. |
(1) | Online only in the United Kingdom. |
(2) | Includes CSO loans. |
(3) | Weighted average of the contractual interest rates for the portfolio as of September 30, 2017. Excludes CSO fees. |
Unsecured Installment Loans
Unsecured Installment Loans are fixed-term, fully-amortizing loans with a fixed payment amount due each period during the term of the loan. Loans are originated and owned by us or third-party lenders pursuant to credit services organization and credit access business statutes, which we refer to as our CSO programs. For CSO programs, we arrange and guarantee the loans. Payments are due bi-weekly or monthly to match the customers pay cycle. Customers may prepay without penalty or fees. Unsecured Installment Loan terms are governed by enabling state legislation in the United States, provincial and federal legislation in Canada and national regulation in the United Kingdom. Unsecured Installment Loans comprised 49.3% and 40.0% of our consolidated revenue during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively. We believe that the flexible terms and lower payments associated with Installment Loans significantly expand our addressable market by allowing us to serve a broader range of customers with a variety of credit needs.
Secured Installment Loans
Secured Installment Loans are similar to Unsecured Installment Loans but are also secured by a vehicle title. These loans are originated and owned by us or by third-party lenders through our CSO programs. For these loans the customer provides clear title or security interest in the vehicle as collateral. The customer receives the benefit of immediate cash but retains possession of the vehicle while the loan is outstanding. The loan requires periodic payments of principal and interest with a fixed payment amount due each period during the term of the loan. Payments are due bi-weekly or monthly to match the customers pay cycle. Customers may prepay without
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penalty or fees. Secured Installment Loan terms are governed by enabling state legislation in the United States. Secured Installment Loans comprised 10.5% and 9.8% of our consolidated revenue during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.
Open-End Loans
Open-End Loans are a line of credit for the customer without a specified maturity date. Customers may draw against their line of credit, repay with minimum, partial or full payment and redraw as needed. We report and earn interest on the outstanding loan balances drawn by the customer against their approved credit limit. Customers may prepay without penalty or fees. Typically, customers do not draw the full amount of their credit limit. Loan terms are governed by enabling state legislation in the United States. Unsecured Open-End Loans comprised 6.6% and 7.0% of our consolidated revenue during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively. Secured Open-End Loans are offered as part of our product mix in states with enabling legislation and accounted for approximately 0.9% and 1.0% of our consolidated revenue during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.
Single-Pay Loans
Single-Pay Loans are generally unsecured short-term, small-denomination loans whereby a customer receives cash in exchange for a post-dated personal check or a pre-authorized debit from the customers bank account. These loans are originated and owned by us or by third-party lenders through our CSO programs. We agree to defer deposit of the check or debiting of the customers bank account until the loan due date which typically falls on the customers next pay date. Single-Pay Loans are governed by enabling state legislation in the United States, federal and provincial regulations in Canada and national regulation in the United Kingdom Single-Pay Loans comprised 28.4% and 37.8% of our consolidated revenue during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.
Ancillary Products
We also provide a number of ancillary financial products including check cashing, proprietary reloadable prepaid debit cards (Opt+), money transfer services, gold buying, credit protection insurance in the Canadian market and retail installment sales. Ancillary products comprised 4.3% and 4.4% of our consolidated revenue during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.
CSO Programs
Through our CSO programs, we act as a credit services organization/credit access business on behalf of customers in accordance with applicable state laws. We currently offer loans through CSO programs in stores and online in the state of Texas and online in the state of Ohio. In Texas we offer Unsecured Installment Loans and Secured Installment Loans with a maximum term of 180 days. In Ohio we offer an Unsecured Installment Loan product with a maximum term of 18 months. As a CSO we earn revenue by charging the customer a fee, or the CSO Fee, for arranging an unrelated third-party to make a loan to that customer. When a customer executes an agreement with us under our CSO programs, we agree, for a CSO 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 the customer receives from the third-party lender. CSO fees are calculated based on the amount of the customers outstanding loan. For CSO loans, each lender is responsible for providing the criteria by which the customers application is underwritten and, if approved, determining the amount of the customer loan. We in turn are responsible for assessing whether or not we will guarantee the loan. This guarantee represents an obligation to purchase specific loans if they go into default.
As of September 30, 2017, the maximum amount payable under all such guarantees was $59.1 million, compared to $59.6 million at December 31, 2016. Should we be required to pay any portion of the total amount of the loans we have guaranteed, we will attempt to recover the amount we pay from the customers. We hold no collateral in respect of the guarantees.
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These guarantees are performance guarantees as defined in ASC Topic 460. Performance guarantees are initially accounted for pursuant to ASC Topic 460 and recognized at fair value, and subsequently pursuant to ASC Topic 450 as contingent liabilities when we incur losses as the guarantor. The initial measurement of the guarantee liability is recorded at fair value and reported in the Credit services organization guarantee liability line in our Consolidated Balance Sheets. The initial fair value of the guarantee is the price we would pay to a third party market participant to assume the guarantee liability. There is no active market for transferring the guarantee liability. Accordingly, we determine the initial fair value of the guarantee by estimating the expected losses on the guaranteed loans. The expected losses on the guaranteed loans are estimated by assessing the nature of the loan products, the credit worthiness of the borrowers in the customer base, our historical loan default history for similar loans, industry loan default history, and historical collection rates on similar products, current default trends, past-due account roll rates, changes to underwriting criteria or lending policies, new store development or entrance into new markets, changes in jurisdictional regulations or laws, recent credit trends and general economic conditions. We review the factors that support estimates of expected losses and the guarantee liability monthly. In addition, because the majority of the underlying loan customers make bi-weekly payments, loan-pool payment performance is evaluated more frequently than monthly.
Our guarantee liability was $16.9 million and $17.1 million at September 30, 2017 and December 31, 2016, respectively. This liability represents the unamortized portion of the guarantee obligation required to be recognized at inception of the performance guarantee in accordance with ASC Topic 460 and a contingent liability for those performance guarantees where it is probable that we will be required to purchase the guaranteed loan from the lender in accordance with ASC Topic 450.
CSO fees are calculated based on the amount of the customers outstanding loan. We comply with the applicable 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. For services we provide under our CSO programs, we receive payments from customers on their scheduled loan repayment due dates. The CSO fee is earned ratably over the term of the loan as the customers make payments. If a loan is paid off early, no additional CSO fees are due or collected. The maximum CSO loan term is 180 days and 18 months in Texas and Ohio, respectively. During the year ended December 31, 2016 and the nine months ended September 30, 2017, approximately 53.2% and 52.9%, respectively, of Unsecured Installment Loans, and 62.5% and 52.7%, respectively, of Secured Installment Loans originated under CSO programs were paid off prior to the original maturity date.
Since CSO loans are made by a third party lender, we do not include them in our Consolidated Balance Sheets as loans receivable. CSO fees receivable are included in Prepaid expense and other in our Consolidated Balance Sheets. We receive payments from customers for these fees on their scheduled loan repayment due dates.
The majority of revenue generated through our CSO programs was for Unsecured Installment Loans, which comprised 96.2% and 91.6% of total CSO revenue for the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.
Total revenue generated through our CSO programs comprised 26.5% and 26.1% of our consolidated revenue during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.
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Our revenue diversification, including CSO fees, by product for the periods indicated, with percentages rounded up to the nearest whole digit:
Year Ended December 31, 2016 $829 million |
Nine Months Ended September 30, 2017 $697 million |
|
|
|
For the year ended December 31, 2016 and the period ending September 30, 2017, revenue generated through our online channel was 33% and 37%, respectively, of consolidated revenue.
Components of Our Results of Operations
Revenue
We offer a variety of loan products including Installment, Open-End and Single-Pay Loans. Revenue in our consolidated statements of income includes: interest income, finance charges, CSO fees, late fees and non-sufficient funds fees as permitted by applicable laws and pursuant to the agreement with the customer. Product offerings differ by jurisdiction and are governed by the laws in each separate jurisdiction.
Installment Loans are fully amortizing loans with a fixed payment amount due each period during the term of the loan. We record revenue from Installment Loans on a simple-interest basis. Accrued interest and fees are included in gross loans receivable in the Consolidated Balance Sheets.
Open-End Loans are a revolving line-of-credit with no defined loan term. We record revenue from Open-End Loans on a simple-interest basis. Accrued interest and fees are included in gross loans receivable in the Consolidated Balance Sheets.
Single-Pay Loans are primarily payday loans. Revenues from Single-Pay loan products are recognized each period on a constant-yield basis ratably over the term of each loan. We defer recognition of unearned fees based on the remaining term of the loan at the end of each reporting period.
We also provide a number of ancillary financial products including check cashing, proprietary reloadable prepaid debit cards (Opt+), credit protection insurance in the Canadian market, gold buying, retail installment sales and money transfer services.
Provision for Losses
We calculate provision for losses based on evaluation of the historical and expected cumulative net losses inherent in the underlying loan portfolios, by vintage, and several other quantitative and qualitative factors. We apply the resulting loss provision rate to our loan originations to determine the provision for losses. Accordingly, at the time we originate a loan, we recognize a loss on a portion of the loan balance based upon the applicable
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loss provision rate. We would then recognize any revenue in connection with that loan over the life of the loan, as described above. We may also record additional provision for losses for owned loans in connection with the periodic assessment of the adequacy of the Allowance for loan losses.
Q1 Loss Recognition Change
Effective January 1, 2017, we modified the timeframe in which Installment Loans are charged-off and made related refinements to our loss provisioning methodology. Prior to January 1, 2017, we deemed all loans uncollectible and charged-off when a customer missed a scheduled payment and the loan was considered past-due. Because of the Companys continuing shift from Single-Pay to Installment Loan products and our analysis of payment patterns on early-stage versus late-stage delinquencies, we revised our estimates and now consider Installment Loans uncollectible when the loan has been contractually past-due for 90 consecutive days. Consequently, past-due Installment Loans and related accrued interest remain in loans receivable, with disclosure of past-due balances, for 90 days before being charged off against the allowance for loan losses. All recoveries on charged-off loans are credited to the allowance for loan losses. We evaluate the adequacy of the allowance for loan losses compared to the related gross loans receivable balances that include accrued interest.
In the income statement, the provision for losses for Installment Loans is based on assessment of the cumulative net losses inherent in the underlying loan portfolios, by vintage, and several other quantitative and qualitative factors. The resulting loss provision rate is applied to loan originations to determine the provision for losses. In addition to improving estimated collectability and loss recognition for Installment Loans, we also believe these refinements result in a loss provisioning methodology that is better aligned with industry comparisons and practices.
The aforementioned change was treated as a change in accounting estimate for accounting purposes and applied prospectively beginning January 1, 2017, which we refer to throughout this prospectus as the Q1 Loss Recognition Change.
The change affects comparability to prior periods as follows:
| Gross Combined Loans Receivablebalances in 2017 include Installment Loans that are up to 90 days past-due with related accrued interest, while balances in prior periods do not include these loans. |
| Revenuesfor the nine months ended September 30, 2017, revenues include accrued interest on past-due loan balances, while revenues in prior periods do not include these amounts. |
| Provision for Lossesprospectively, loans charged off on day 91 include accrued interest. Thus, provision rates in 2017 have been adjusted to account for both principal and accrued interest. Additionally, because loss provision rates are applied to originations while charge-offs and recoveries are applied to the allowance for loan losses, provisioning is less affected by seasonality for the first quarter income tax refunds in the United States, which increases recoveries of delinquent balances. |
For a full discussion of the change, refer to Note 1, Summary of Significant Accounting Policies and Nature of Operations in our Notes to Consolidated Interim Financial Statements included elsewhere in this prospectus.
Cost of Providing Services
Salaries and Benefits
Salaries and benefits include personnel-related costs for our store operations, including salaries, benefits and bonuses and are driven by the number of employees.
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Occupancy
Occupancy and equipment includes rent expense for our leased facilities, as well as depreciation, maintenance, insurance, and utility expense.
Office
Office includes expenses related to software, computer hardware, bank service charges, credit scoring charges and other office supplies.
Other Costs of Providing Services
Our other costs of providing services includes expenses related to operations such as processing fees, collections expense, security expense, taxes, repairs and professional fees.
Advertising
Advertising includes costs associated with attracting, retaining and/or reactivating customers as well as creating awareness for the brands we promote. Creative, web and print design capabilities exist within the Company and are rarely outsourced. The use of third-party agencies is limited to mass-media production and placement. Advertising expense also includes costs for all marketing activities including paid search, advertising on social networking sites, affiliate programs, direct response television, radio air time and direct mail.
All advertising costs are expensed as incurred. Cost-per-funded loan, or CPF, is a key metric for measuring the effectiveness and efficiency of our advertising spend. CPF is the amount of direct advertising and promotional costs during a period divided by the number of new customer loans originated during the period. New loans to existing or returning customers are not included in the denominator of CPF because we believe little or no incremental cost is incurred to make loans to existing customers or returning customers
Operating Expense
Corporate, District and Other Expenses
Corporate, district and other expenses include costs such as salaries and benefits associated with our corporate and district-level employees, as well as other corporate-related costs such as rent, insurance, professional fees, utilities, travel and entertainment expenses and depreciation expense.
Interest Expense
Interest expense primarily includes interest related to our Notes and our Non-Recourse U.S. SPV Facility.
Other Expenses
Other (income) and expense includes the foreign currency impact to our intercompany balances, gains or losses on foreign currency exchanges and disposals of fixed assets and other miscellaneous income and expense amounts.
Discussion of Revenue by Product and Segment and Related Loan Portfolio Performance
Revenue by Product
Unsecured and Secured Installment revenue includes interest income, CSO fees, and non-sufficient-funds or returned-items fees on late or defaulted payments on past-due loans (to which we refer collectively in this prospectus as late fees). Late fees comprise less than one-half of one percent of Installment revenues.
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Open-End revenues include interest income on outstanding revolving balances and other usage or maintenance fees as permitted by underlying statutes.
Single-Pay revenues represent deferred presentment or other fees as defined by the underlying state, provincial or national regulations.
The following table summarizes revenue by product, including CSO fees, for the periods indicated:
Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 | |||||||||||||||||||||||||||||||
(in thousands) |
United
States |
Canada |
United
Kingdom |
Total |
United
States |
Canada |
United
Kingdom |
Total | ||||||||||||||||||||||||
Unsecured Installment |
$ | 311,884 | $ | 13,244 | $ | 18,237 | $ | 343,365 | $ | 229,358 | $ | 328 | $ | 6,713 | $ | 236,399 | ||||||||||||||||
Secured Installment |
73,249 | | | 73,249 | 60,346 | | | 60,346 | ||||||||||||||||||||||||
Open-End |
52,342 | | | 52,342 | 49,862 | | 3 | 49,865 | ||||||||||||||||||||||||
Single-Pay |
78,961 | 108,676 | 10,289 | 197,926 | 86,300 | 130,862 | 18,481 | 235,643 | ||||||||||||||||||||||||
Ancillary |
15,476 | 13,899 | 386 | 29,761 | 17,241 | 9,662 | 536 | 27,439 | ||||||||||||||||||||||||
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|
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Total revenue |
$ | 531,912 | $ | 135,819 | $ | 28,912 | $ | 696,643 | $ | 443,107 | $ | 140,852 | $ | 25,733 | $ | 609,692 | ||||||||||||||||
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During the nine months ended September 30, 2017, total lending revenue (excluding revenues from ancillary products) grew $84.6 million, or 14.5%, to $666.9 million, compared to the prior year period, predominantly driven by growth in Secured and Unsecured Installment loan revenue. Unsecured Installment Loan revenues rose 45.2% on related origination increase of 60.8%. Secured Installment revenues increased $12.9 million, or 21.4%, on related origination increase of 43.5%. Single-Pay revenues were affected primarily by regulatory changes in Canada (rate changes in Ontario and British Columbia and product changes in Alberta), but U.S. and U.K. Single-Pay revenues also decreased 8.5% and 44.3%, respectively, because of continued mix shift from Single-Pay to other loan products. Ancillary revenues increased 8.5% versus the same period a year ago primarily due to insurance revenue related to our Canadian installment product, partially offset by a decrease in check cashing fees. U.K. revenue increased by $3.2 million, or 12.4% ($5.8 million or 22.5% on a constant currency basis).
Year Ended December 31, 2016 | Year Ended December 31, 2015 | |||||||||||||||||||||||||||||||
(in thousands) |
United
States |
Canada |
United
Kingdom |
Total |
United
States |
Canada |
United
Kingdom |
Total | ||||||||||||||||||||||||
Unsecured Installment |
$ | 318,460 | $ | 1,143 | $ | 11,110 | $ | 330,713 | $ | 295,007 | $ | 322 | $ | 19,054 | $ | 314,383 | ||||||||||||||||
Secured Installment |
81,453 | | | 81,453 | 86,307 | | 18 | 86,325 | ||||||||||||||||||||||||
Open-End |
66,945 | | 3 | 66,948 | 51,304 | | 7 | 51,311 | ||||||||||||||||||||||||
Single-Pay |
117,609 | 173,779 | 21,888 | 313,276 | 116,714 | 170,852 | 34,031 | 321,597 | ||||||||||||||||||||||||
Ancillary |
22,332 | 13,155 | 719 | 36,206 | 24,331 | 13,686 | 1,498 | 39,515 | ||||||||||||||||||||||||
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Total revenue |
$ | 606,799 | $ | 188,077 | $ | 33,720 | $ | 828,596 | $ | 573,663 | $ | 184,860 | $ | 54,608 | $ | 813,131 | ||||||||||||||||
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Total lending revenue (excluding revenues from ancillary products) increased $18.8 million, or 2.4%, compared to the prior year, driven by growth in Installment and Open-End Loans. Unsecured Installment revenues rose 5.2% on related gross combined loan receivables growth of 29.0%, led by 7.9% growth in the United States (primarily in Texas, California and Missouri). U.K. Unsecured Installment revenues declined 41.7% because we discontinued a longer-term Installment Loan product in late 2015 due to regulatory changes. Secured Installment revenues decreased 5.6% mostly driven by competitive pressures in Nevada and Arizona. Open-End revenues grew 30.5% year-over-year primarily because in Kansas and Tennessee we replaced Single-pay products with Open-End products. Single-Pay revenues declined 2.6%. In the United States, the decline was primarily driven by the aforementioned changes in Kansas and in Tennessee. Ancillary revenues were down 8.4% year-over-year primarily because secular declines in check usage continue to affect check-cashing revenues and we experienced tighter margins on foreign currency exchange. U.K. revenue comparisons
59
are also affected meaningfully by a weaker pound. On a constant-currency basis, U.K. revenue declined $16.5 million, or 30.2%, compared to the prior year.
Loan Volume and Portfolio Performance Analysis
We consider first-pay defaults (the number of customers that default on their first payment, or FPD) to be an early leading indicator of customer credit performance. FPD levels are dependent upon underwriting and scoring effectiveness, strategic or tactical management decisions to tighten or expand customer credit availability within scoring bands, seasonality, product terms and structure, origination channel and geography. Following is a recap by channel of origination for the United States and Canada:
| U.S. Online FPD has ranged from 20.1% in the second quarter of 2015 to 13.2% in the first quarter of 2017. FPD for the nine months ended September 30, 2017, 2016 and 2015 has averaged 14.9%, 16.9% and 18.4%, respectively. During 2015, FPD was affected by elevated levels of new customer investment. New customers have higher FPD rates than returning or existing customers. In periods such as the second and third quarters of 2015 when we increased new customer acquisition spend to take advantage of online market disruptions, the percentage of new-customer volume to total-customer volume increases as does FPD. U.S. Online FPD rates were lower in 2016 because the percentage of new customers to total volume decreased year-over-year and the data from the high volume of new customers acquired in 2015 allowed us to improve our scoring models. Through the nine months ended September 30, 2017, we have increased customer acquisition spend versus the same periods in 2016 and have acquired more online customers period-over-period, but FPD has improved primarily because of improved underwriting and scoring. |
| U.S. Store FPD averaged 14.0%, 14.7% and 15.4% for the nine months ended September 30, 2017, 2016, 2015, respectively. New customers as a percentage of total customers has been more stable than U.S. online mix so the improving trends are primarily due to improved underwriting and scoring and product and geographical mix shifts. |
| For Canada, online volume is relatively low and FPD rates are sensitive to product changes and the launch of our LendDirect online Installment product in early-2016. Canadian online FPD rates have trended from an average of 12.8%, 14.9% and 14.3% for the nine months ended September 30, 2017, 2016 and 2015, respectively. |
| Canada Store FPD has remained relatively stable, averaging 7.9%, 8.7% and 9.1%, in the nine months ended September 30, 2017, 2016 and 2015 respectively. Other than Alberta, Canada, store volume is almost entirely Single-Pay Loans for which FPD rates are very stable. |
Cost-per-funded loan, or CPF, is dependent primarily upon marketing channel, seasonality, strategic and tactical objectives for targeted vintage performance, online versus store customer acquisition mix, underwriting and scoring effectiveness and application-to-funded loan conversion rates. Following is a recap of CPF (rounded to the nearest tenth) by country:
| U.S. CPF ranged from $82.40 in the third quarter of 2015 to $33.50 in the first quarter of 2016. CPF for the nine months ended September 30, 2017, 2016 and 2015 has averaged $63.30, $48.20 and $72.90, respectively. CPF for 2015 was affected by the aforementioned high levels of new customer investment, primarily in the online channel. CPF tends to be higher in the online channel because of the relative cost of the marketing channels and lower application-to-funded conversion rates. CPF for 2016 was lower than 2015 because of more stable mix between online and store customer acquisition and improving scoring that resulted in better relative approval rates. CPF in the nine months ended September 30, 2017 has been slightly higher to the same period in 2016 because a higher percentage of new customer volume is online. |
|
Canada CPF ranged from $88.60 in the third quarter of 2017 to $52.80 in the first quarter of 2016. CPF for the nine months ended September 30, 2017, 2016 and 2015 has averaged $73.40, $60.20 and $81.10, respectively. Canada CPF change is due primarily to the same reasons as the U.S. trends described above, |
60
but historically has been less sensitive to online versus store mix because online has been a relatively low percentage of total new customer acquisition. |
| U.K. CPF ranged from $125.00 in the third quarter of 2015 to $71.40 in the first quarter of 2017. U.K. CPF for the nine months ended September 30, 2017, 2016 and 2015 has averaged $73.90, $91.70 and $109.70, respectively. U.K. CPF is affected primarily by reformulation of all of our U.K. loan products after 2014 regulatory changes, changes in product terms and mix and rebuilding of the overall executive and marketing and analytics leadership teams and organization. |
We currently have relationships with four unaffiliated third-party lenders. We periodically evaluate the competitive terms of our unaffiliated third-party lender contracts and such evaluation may result transfer of volume and loan balances between lenders. The process does not require significant effort or resources outside the normal course of business and we believe the incremental cost of changing or acquiring new unaffiliated third-party lender relationships to be immaterial.
Unsecured Installment Loans
Unsecured Installment revenue and gross combined loans receivable increased from the prior year quarter due to growth in the United States, primarily in Texas (CSO), California and Ohio (CSO); growth in Canada, primarily in Alberta; and growth in the United Kingdom. Gross combined Unsecured Installment Loan balances (excluding past due loans) grew $79.6 million, or 67.6%, compared to September 30, 2016, on $86.0 million (63.6%) and $212.9 million (60.8%) higher originations during the three and nine months, respectively.
Loss provision rates rose in the third quarter of 2017 versus the second quarter of 2017 for Company Owned loans primarily due to seasonality. Loss provision rates increased for loans Guaranteed by the Company versus the second quarter of 2017 and the third quarter of 2016 due to seasonality similar to Company Owned loans and because of the effect of waiving loan payments for customers affected by Hurricane Harvey. For more information, see Recent DevelopmentsHurricane Harvey Impact. Seasonally, third quarter loan vintages consistently perform worse than those of earlier quarters in the fiscal year. Based on our experience, the input of our store operators, feedback from our collections and contact center activities and analysis of weekly payment default trends, this is primarily because of the increased expenses that families with children returning to school incur in July and August.
Provisions as a percentage of loan originations for both Company Owned and loans Guaranteed by the Company were higher for the nine months ended September 30, 2017 compared to the same period a year ago, primarily because of the Q1 Loss Recognition Change. For more information, see Components of our Results of OperationsProvision for LossesQ1 Loss Recognition Change. Provision as a percentage of originations Guaranteed by the Company and the provision as a percentage of gross loans receivable Guaranteed by the Company were elevated in the third quarter of 2017 for the effect of the aforementioned loan payments that we waived for customers affected by Hurricane Harvey.
The Unsecured Installment CSO guarantee liability as a percentage of Unsecured Installment gross loans guaranteed by the Company declined from 27.7% in the third quarter of 2016 to 23.8% this third quarter because of improved underwriting and credit scoring. We made several refinements to our Texas scoring models over the course of 2017 resulting in better credit performance. The result of such refinements is a lower required CSO guarantee liability percentage despite the aforementioned increases in the related loss rates for the Q1 Loss Recognition Change and Hurricane Harvey relief in August.
61
2017 | 2016 | |||||||||||||||||||
(dollars in thousands, except average loan amount, unaudited) |
Third
Quarter |
Second
Quarter |
First
Quarter |
Fourth
Quarter |
Third
Quarter |
|||||||||||||||
Unsecured Installment loans: |
||||||||||||||||||||
Revenue - Company Owned |
$ | 61,653 | $ | 52,550 | $ | 51,206 | $ | 39,080 | $ | 34,057 | ||||||||||
Provision for losses - Company Owned |
29,079 | 17,845 | 19,309 | 24,557 | 12,523 | |||||||||||||||
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Net revenue - Company Owned |
$ | 32,574 | $ | 34,705 | $ | 31,897 | $ | 14,523 | $ | 21,534 | ||||||||||
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Net charge-offs - Company Owned |
$ | 23,858 | $ | 18,858 | $ | (4,918 | ) | $ | 18,836 | $ | 10,741 | |||||||||
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Revenue - Guaranteed by the Company |
$ | 67,132 | $ | 52,599 | $ | 58,225 | $ | 55,234 | $ | 51,320 | ||||||||||
Provision for losses - Guaranteed by the Company |
36,212 | 23,575 | 19,940 | 22,364 | 26,626 | |||||||||||||||
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Net revenue - Guaranteed by the Company |
$ | 30,920 | $ | 29,024 | $ | 38,285 | $ | 32,870 | $ | 24,694 | ||||||||||
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Net charge-offs - Guaranteed by the Company |
$ | 34,904 | $ | 27,309 | $ | 17,088 | $ | 21,144 | $ | 25,103 | ||||||||||
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Unsecured Installment gross combined loans receivable: |
||||||||||||||||||||
Company owned |
$ | 181,831 | $ | 156,075 | $ | 131,386 | $ | 102,090 | $ | 65,746 | ||||||||||
Guaranteed by the Company(1)(2) |
67,438 | 58,289 | 53,978 | 62,360 | 52,079 | |||||||||||||||
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Unsecured Installment gross combined loans receivable(1)(2) |
$ | 249,269 | $ | 214,364 | $ | 185,364 | $ | 164,450 | $ | 117,825 | ||||||||||
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Unsecured Installment Allowance for loan losses(3) |
$ | 46,938 | $ | 41,406 | $ | 42,040 | $ | 17,775 | $ | 12,122 | ||||||||||
Unsecured Installment CSO guarantee liability(3) |
$ | 16,056 | $ | 14,748 | $ | 18,482 | $ | 15,630 | $ | 14,410 | ||||||||||
Unsecured Installment Allowance for loan losses as a percentage of Unsecured Installment gross loans receivable |
25.8 | % | 26.5 | % | 32.0 | % | 17.4 | % | 18.4 | % | ||||||||||
Unsecured Installment CSO guarantee liability as a percentage of Unsecured Installment gross loans guaranteed by the Company |
23.8 | % | 25.3 | % | 34.2 | % | 25.1 | % | 27.7 | % | ||||||||||
Unsecured Installment past-due balances: |
||||||||||||||||||||
Unsecured Installment gross loans receivable(4) |
$ | 41,353 | $ | 33,534 | $ | 28,913 | | | ||||||||||||
Unsecured Installment gross loans guaranteed by the Company(4) |
$ | 10,462 | $ | 8,204 | $ | 11,196 | | | ||||||||||||
Past-due Unsecured Installment gross loans receivablepercentage(2)(4) |
22.7 | % | 21.5 | % | 22.0 | % | | | ||||||||||||
Past-due Unsecured Installment gross loans guaranteed by the Companypercentage(2)(4) |
15.5 | % | 14.1 | % | 20.7 | % | | | ||||||||||||
Unsecured Installment other information: |
||||||||||||||||||||
Originations - Company owned(5) |
$ | 137,618 | $ | 119,636 | $ | 98,691 | $ | 111,412 | $ | 71,801 | ||||||||||
Average loan amount - Company owned |
$ | 730 | $ | 697 | $ | 687 | $ | 646 | $ | 512 | ||||||||||
Originations - Guaranteed by the Company(1)(5) |
$ | 83,680 | $ | 68,338 | $ | 55,112 | $ | 71,858 | $ | 63,472 | ||||||||||
Average loan amount - Guaranteed by the Company |
$ | 526 | $ | 485 | $ | 482 | $ | 478 | $ | 463 | ||||||||||
Unsecured Installment ratios: |
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Provision as a percentage of originations - Company Owned |
21.1 | % | 14.9 | % | 19.6 | % | 22.0 | % | 17.4 | % | ||||||||||
Provision as a percentage of gross loans receivable - Company Owned |
16.0 | % | 11.4 | % | 14.7 | % | 24.1 | % | 19.0 | % | ||||||||||
Provision as a percentage of originations - Guaranteed by the Company |
43.3 | % | 34.5 | % | 36.2 | % | 31.1 | % | 41.9 | % | ||||||||||
Provision as a percentage of gross loans receivable - Guaranteed by the Company |
53.7 | % | 40.4 | % | 36.9 | % | 35.9 | % | 51.1 | % |
(1) | Includes loans originated by third-party lenders through CSO programs, which are not included in our consolidated financial statements. |
(2) | Non-GAAP measure. |
(3) | Allowance for loan losses is reported as a contra-asset reducing gross loans receivable while the CSO guarantee liability is reported as a liability on our Consolidated Balance Sheets. |
(4) | As part of the Q1 Loan Loss Recognition Change past-due receivables remain on our balance sheet until charged off. In all prior periods loans were written-off when a customer missed a scheduled payment. |
(5) | We have revised previously-reported origination statistics to conform to current year methodology. |
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Secured Installment Loans
Secured Installment loan revenue and gross combined loans receivable increased from the prior year quarter due primarily to growth in California and Arizona. Gross combined Secured Installment loan balances (excluding past due loans) increased by $12.9 million, or 21.3%, compared to September 30, 2016, driven by $15.3 million, or 40.9% higher originations during the third quarter of 2017 as compared to the third quarter of 2016. Provision as a percentage of originations increased due to improved collection trends on secured installment loans.
2017 | 2016 | |||||||||||||||||||
(dollars in thousands, except average loan amount, unaudited) |
Third
Quarter |
Second
Quarter |
First
Quarter |
Fourth
Quarter |
Third
Quarter |
|||||||||||||||
Secured Installment Loans: |
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Revenue |
$ | 26,407 | $ | 23,173 | $ | 23,669 | $ | 21,107 | $ | 19,920 | ||||||||||
Provision for losses |
6,512 | 4,955 | 7,436 | 7,159 | 6,897 | |||||||||||||||
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Net revenue |
$ | 19,895 | $ | 18,218 | $ | 16,233 | $ | 13,948 | $ | 13,023 | ||||||||||
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Net charge-offs |
$ | 11,597 | $ | 6,481 | $ | (2,235 | ) | $ | 6,588 | $ | 5,503 | |||||||||
Secured Installment gross combined loan balances: |
||||||||||||||||||||
Company owned |
$ | 84,983 | $ | 76,286 | $ | 67,455 | $ | 63,157 | $ | 56,305 | ||||||||||
Guaranteed by the Company(1)(2) |
3,747 | 3,791 | 3,758 | 4,581 | 4,259 | |||||||||||||||
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Secured Installment gross combined loans receivable(1)(2) |
$ | 88,730 | $ | 80,077 | $ | 71,213 | $ | 67,738 | $ | 60,564 | ||||||||||
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Secured Installment Allowance for loan losses(3) |
$ | 14,111 | $ | 19,196 | $ | 20,270 | $ | 10,737 | $ | 10,135 | ||||||||||
Secured Installment CSO guarantee liability(3) |
$ | 834 | $ | 834 | $ | 1,287 | $ | 1,148 | $ | 1,179 | ||||||||||
Secured Installment Allowance for loan losses as a percentage of Secured Installment gross loans receivable |
16.6 | % | 25.2 | % | 30.0 | % | 17.0 | % | 18.0 | % | ||||||||||
Secured Installment CSO guarantee liability as a percentage of Secured Installment gross loans guaranteed by the Company |
22.3 | % | 22.0 | % | 34.2 | % | 25.1 | % | 27.7 | % | ||||||||||
Secured Installment past-due balances: |
||||||||||||||||||||
Secured Installment past-due gross loans receivable(4) |
$ | 14,660 | $ | 12,091 | $ | 9,539 | | | ||||||||||||
Secured Installment past-due gross loans receivable guaranteed by the Company(4) |
605 | 539 | 647 | | | |||||||||||||||
Past-due gross Secured Installment gross loans receivable - percentage(2)(4) |
17.3 | % | 15.8 | % | 14.1 | % | | | ||||||||||||
Past-due gross Secured Installment gross loans receivable guaranteed by the Companypercentage(2)(4) |
16.1 | % | 14.2 | % | 17.2 | % | | | ||||||||||||
Secured Installment other information: |
||||||||||||||||||||
Originations(1)(5) |
$ | 52,526 | $ | 45,596 | $ | 37,641 | $ | 43,803 | $ | 37,266 | ||||||||||
Average loan amount(1)(5) |
$ | 1,299 | $ | 1,231 | $ | 1,326 | $ | 1,197 | $ | 1,070 | ||||||||||
Secured Installment ratios: |
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Provision as a percentage of originations |
12.4 | % | 10.9 | % | 19.8 | % | 16.3 | % | 18.5 | % | ||||||||||
Provision as a percentage of gross combined loans receivable |
7.3 | % | 6.2 | % | 10.4 | % | 10.6 | % | 11.4 | % |
(1) | Includes loans originated by third-party lenders through CSO programs, which are not included in our consolidated financial statements. |
(2) | Non-GAAP measure. |
(3) | Allowance for loan losses is reported as a contra-asset reducing gross loans receivable while the CSO guarantee liability is reported as a liability on our Consolidated Balance Sheets. |
63
(4) | As part of the Q1 Loan Loss Recognition Change past-due receivables remain on our balance sheet until charged off. In all prior periods loans were written-off when a customer missed a scheduled payment. |
(5) | We have revised certain previously-reported origination statistics to conform to current year methodology. |
Open-End Loans
Net revenue and provision for losses improved compared to the third quarter of 2016. This was mostly due to receivables growth in the Kansas and Tennessee online markets and the maturation of the Tennessee market, which began offering open-end loans in the third quarter of 2015. Overall, Open-End loan balances increased by $4.5 million, or 16.1%, compared to September 30, 2016.
Net revenue was higher but loss rates were higher sequentially primarily due to seasonality.
2017 | 2016 | |||||||||||||||||||
(dollars in thousands, except average loan amount, unaudited) |
Third
Quarter |
Second
Quarter |
First
Quarter |
Fourth
Quarter |
Third
Quarter |
|||||||||||||||
Open-End Loans: |
||||||||||||||||||||
Revenue |
$ | 18,630 | $ | 15,805 | $ | 17,907 | $ | 17,085 | $ | 16,652 | ||||||||||
Provision for losses |
6,348 | 4,298 | 3,265 | 6,283 | 7,295 | |||||||||||||||
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Net revenue |
$ | 12,282 | $ | 11,507 | $ | 14,642 | $ | 10,802 | $ | 9,357 | ||||||||||
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Net charge-offs |
$ | 5,991 | $ | 4,343 | $ | 3,876 | $ | 6,085 | $ | 7,133 | ||||||||||
Open-End gross combined loan balances: |
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Company owned |
$ | 32,133 | $ | 26,771 | $ | 25,626 | $ | 30,462 | $ | 27,678 | ||||||||||
Allowance for loan losses |
$ | 4,880 | $ | 4,523 | $ | 4,572 | $ | 5,179 | $ | 4,981 | ||||||||||
Open-End Allowance for loan losses as a percentage of Open-End gross loans receivable |
15.2 | % | 16.9 | % | 17.8 | % | 17.0 | % | 18.0 | % | ||||||||||
Open-End other information: |
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Originations(1) |
$ | 9,388 | $ | 6,646 | $ | 5,463 | $ | 9,880 | $ | 8,621 | ||||||||||
Average loan amount(1) |
$ | 463 | $ | 451 | $ | 454 | $ | 459 | $ | 448 | ||||||||||
Open-End ratios: |
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Provision as a percentage of originations |
67.6 | % | 64.7 | % | 59.8 | % | 63.6 | % | 84.6 | % | ||||||||||
Provision as a percentage of gross combined loans receivable |
19.8 | % | 16.1 | % | 12.7 | % | 20.6 | % | 26.4 | % |
(1) We have revised certain previously-reported origination statistics to conform to current year methodology.
64
Single-Pay
Single-Pay revenue, provision and combined loans receivable during the three and nine months ended September 30, 2017 were affected by regulatory changes in Canada (rate changes in Ontario and British Columbia and product shift from Single-Pay to Installment in Alberta). Single-Pay revenue in the United States also declined compared to the prior year due to the continued shift toward Installment and Open-End products. The improvement in the provision for losses in the third quarter of 2017 as compared to the third quarter of 2016 was primarily due to a lower proportion of Single-Pay Loans in the United Kingdom where loan loss rates are higher than in the United States and Canada.
2017 | 2016 | |||||||||||||||||||
(dollars in thousands, unaudited) |
Third
Quarter |
Second
Quarter |
First
Quarter |
Fourth
Quarter |
Third
Quarter |
|||||||||||||||
Single-Pay Loans: |
||||||||||||||||||||
Revenue |
$ | 70,895 | $ | 63,241 | $ | 63,790 | $ | 77,617 | $ | 82,020 | ||||||||||
Provision for losses |
20,632 | 14,289 | 11,399 | 19,655 | 23,113 | |||||||||||||||
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|
|
|
|
|
|
|
|||||||||||
Net revenue |
$ | 50,263 | $ | 48,952 | $ | 52,391 | $ | 57,962 | $ | 58,907 | ||||||||||
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|
|
|
|
|
|
|||||||||||
Net charge-offs |
$ | 20,515 | $ | 13,849 | $ | 12,499 | $ | 20,468 | $ | 22,914 | ||||||||||
Single-Pay gross combined loan balances: |
||||||||||||||||||||
Company owned |
$ | 94,476 | $ | 91,230 | $ | 80,375 | $ | 90,487 | $ | 94,873 | ||||||||||
Guaranteed by the Company(1)(2) |
| | 48 | 1,092 | 2,326 | |||||||||||||||
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Single-Pay gross combined loans receivable(1)(2) |
$ | 94,476 | $ | 91,230 | $ | 80,423 | $ | 91,579 | $ | 97,199 | ||||||||||
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Allowance for loan losses(3) |
$ | 5,342 | $ | 5,313 | $ | 4,720 | $ | 5,501 | $ | 6,064 | ||||||||||
CSO guarantee liability(3) |
| | $ | 16 | $ | 274 | $ | 644 | ||||||||||||
Single-Pay Allowance for loan losses as a percentage of Single-pay gross loans receivable |
5.7 | % | 5.8 | % | 5.9 | % | 6.1 | % | 6.4 | % | ||||||||||
Single-Pay CSO guarantee liability as a percentage of Single-Pay gross loans guaranteed by the Company |
| | 33.3 | % | 25.1 | % | 27.7 | % |
(1) | Includes loans originated by third-party lenders through CSO programs, which are not included in our consolidated financial statements. |
(2) | Non-GAAP measure. |
(3) | Allowance for loan losses is reported as a contra-asset reducing gross loans receivable while the CSO guarantee liability is reported as a liability on our Consolidated Balance Sheets. |
Supplemental Non-GAAP Financial Information
Non-GAAP Financial Measures
In addition to the financial information prepared in conformity with U.S. GAAP, we provide certain non-GAAP financial measures as defined under SEC rules, including:
| EBITDA (earnings before interest, income taxes, depreciation and amortization); |
| Adjusted EBITDA (EBITDA plus or minus certain non-cash and other adjusting items); |
| Adjusted Earnings and Adjusted Earnings Per Share, or the Adjusted Earnings Measures (net income plus or minus gain (loss) on extinguishment of debt, restructuring and other costs, goodwill and intangible asset impairments, transaction-related costs, share-based compensation, intangible asset amortization and cumulative tax effect of adjustments, on a total and per share basis); and |
| Gross Combined Loans Receivable (includes loans originated by third-party lenders through CSO programs which are not included in our consolidated financial statements). |
65
We believe that presentation of non-GAAP financial information is meaningful and useful in understanding the activities and business metrics of our operations. We believe 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 our business.
We believe 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 our business that may not otherwise be apparent when relying on financial measures calculated in accordance with GAAP. In addition, we believe that the adjustments shown below are useful to investors in order to allow them to compare our financial results during the periods shown without the effect of each of these income or expense items. In addition, we believe that EBITDA, Adjusted EBITDA and Adjusted Earnings are frequently used by securities analysts, investors and other interested parties in the evaluation of public companies in our industry, many of which present EBITDA, Adjusted EBITDA and/or Adjusted Earnings when reporting their results.
We provide non-GAAP financial information for informational purposes and to enhance understanding of our GAAP consolidated financial statements. EBITDA, Adjusted EBITDA, Adjusted Earnings and Gross Combined Loans Receivable should not be considered as alternatives to income from continuing operations or any other performance measure derived in accordance with U.S. GAAP, or as an alternative to cash flows from operating activities or any other liquidity measure derived in accordance with U.S. GAAP. Rather, these measures should be considered in addition to results prepared in accordance with U.S. GAAP, but should not be considered a substitute for, or superior to, U.S. GAAP results. Readers should consider the information in addition to, but not instead of or superior to, our 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.
Description and Reconciliations of Non-GAAP Financial Measures
EBITDA, Adjusted EBITDA and the Adjusted Earnings Measures
EBITDA, Adjusted EBITDA and the Adjusted Earnings Measures have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of our income or cash flows as reported under U.S. GAAP. Some of these limitations are:
| they do not include our cash expenditures or future requirements for capital expenditures or contractual commitments; |
| they do not include changes in, or cash requirements for our working capital needs; |
| they do not include the interest expense, or the cash requirements necessary to service interest or principal payments on our debt; |
| depreciation and amortization are non-cash expense items reported in our statements of cash flows; and |
| other companies in our industry may calculate these measures differently, limiting their usefulness as comparative measures. |
We evaluate our stores based on revenue per store, net charge-offs at each store and EBITDA per store, with consideration given to the length of time a store has been open and its geographic location. We monitor newer stores for their progress to profitability and their rate of revenue growth.
We believe EBITDA and Adjusted EBITDA 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 is also useful to investors to help assess our estimated enterprise value. The computation of Adjusted EBITDA as presented below may differ from the computation of similarly-titled measures provided by other companies.
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The following table sets forth a reconciliation of our net income to EBITDA and EBITDA to Adjusted EBITDA for the periods indicated:
Nine Months Ended
September 30, (unaudited) |
Year Ended
December 31, |
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(dollars in thousands) |
2017 | 2016 | 2016 | 2015 | ||||||||||||
Net income |
$ | 42,743 | $ | 55,859 | $ | 65,444 | $ | 17,769 | ||||||||
Provision for income taxes |
29,988 | 35,041 | 42,577 | 18,105 | ||||||||||||
Interest expense |
60,694 | 48,179 | 64,334 | 65,020 | ||||||||||||
Depreciation and amortization |
14,120 | 14,244 | 18,905 | 19,112 | ||||||||||||
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EBITDA |
147,545 | 153,323 | 191,260 | 120,006 | ||||||||||||
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(Gain) loss on extinguishment of debt(1) |
12,458 | (6,991 | ) | (6,991 | ) | | ||||||||||
Restructuring and other costs(2) |
7,393 | 2,967 | 3,618 | 4,291 | ||||||||||||
Legal settlement cost(3) |
2,311 | | | | ||||||||||||
Goodwill and intangible asset impairment(4) |
| | | 2,882 | ||||||||||||
Other adjustments(5) |
(733 | ) | (22 | ) | (3 | ) | 1,602 | |||||||||
Share-based cash and non-cash compensation(6) |
1,760 | 837 | 1,148 | 1,271 | ||||||||||||
Transaction-related costs(7) |
2,523 | 146 | 329 | 824 | ||||||||||||
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Adjusted EBITDA |
173,257 | 150,260 | $ | 189,361 | $ | 130,876 | ||||||||||
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Adjusted EBITDA Margin |
24.9 | % | 24.6 | % | 22.9 | % | 16.1 | % |
(1) | For the nine months ended September 30, 2017, the $12.5 million loss from the extinguishment of debt was due to the redemption of CURO Intermediates 10.75% Senior Secured Notes due 2018 and our 12.00% Senior Cash Pay Notes due 2017. For year ended December 31, 2016, the $7.0 million gain resulted from the Companys purchase of CURO Intermediates 10.75% Senior Secured Notes in September 2016. |
(2) | Restructuring costs of $4.3 million for the year ended December 31, 2015 represented the expected costs to be incurred related to the closure of ten underperforming stores in the United Kingdom, restructuring costs of $3.6 million for the year ended December 31, 2016 represented the elimination of certain corporate positions in our Canadian headquarters and the costs incurred related to the closure of seven underperforming stores in Texas. Restructuring costs of $1.5 million for the nine months ended September 30, 2016 primarily represented the expected costs to be incurred related to the closure of six underperforming stores in Texas. Restructuring costs in the nine months ended September 30, 2017 were due to the closure of the remaining 13 U.K. stores. |
(3) | Legal settlement cost relates to the accrual for the settlement of Harrison, et al v. Principal Investments, Inc. et al . See litigation discussion in Note 18, Litigation in the Notes to our Interim Consolidated Financial Statements for further detail. |
(4) | Goodwill and intangible asset impairment charges in 2015 include a non-cash goodwill impairment charge of $0.9 million, and non-cash impairment charges related to the Wage Day trade name intangible asset and customer relationship intangible asset of $1.8 million and $0.2 million, respectively. |
(5) | Other adjustments include deferred rent and the intercompany foreign exchange impact. Deferred rent represents the non-cash component of rent expense. Rent expense is recognized ratably on a straight-line basis over the lease term. |
(6) | The Company approved the adoption of a share-based compensation plan during 2010 for key members of its senior management team. The estimated fair value of share-based awards is recognized as non-cash compensation expense on a straight-line basis over the vesting period. During the second and third quarters of 2017, option holders were paid a bonus in conjunction with the dividend paid during the quarter. The expense recognized during the quarter related to the payment of the dividend on vested options. The remaining bonus will be paid over the vesting period of the unvested stock options. |
(7) | Transaction-related costs include professional fees paid in connection with potential transactions. |
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In addition to reporting financial results in accordance with GAAP, we have provided the Adjusted Earnings Measures. We believe 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.
The following table provides reconciliations between net income and diluted earnings per share calculated in accordance with GAAP to the Adjusted Earnings Measure, which are shown net of tax (in thousands, except per share data):
Nine Months Ended
September 30, (unaudited) |
Year Ended
December 31, |
|||||||||||||||
(in thousands, except per share data) |
2017 | 2016 | 2016 | 2015 | ||||||||||||
Net income |
$ | 42,743 | $ | 55,859 | $ | 65,444 | $ | 17,769 | ||||||||
Adjustments: |
||||||||||||||||
Loss (gain) on extinguishment of debt(1) |
12,458 | (6,991 | ) | (6,991 | ) | | ||||||||||
Restructuring costs(2) |
7,393 | 2,967 | 3,618 | 4,291 | ||||||||||||
Legal settlement cost(3) |
2,311 | | | | ||||||||||||
Goodwill and intangible asset impairment(4) |
| | | 2,882 | ||||||||||||
Transaction-related costs(5) |
2,523 | 146 | 329 | 824 | ||||||||||||
Share-based cash and non-cash compensation(6) |
1,760 | 837 | 1,148 | 1,271 | ||||||||||||
Intangible asset amortization |
1,807 | 2,708 | 3,492 | 4,645 | ||||||||||||
Cumulative tax effect of adjustments |
(11,623 | ) | 162 | (629 | ) | (7,026 | ) | |||||||||
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Adjusted Earnings |
$ | 59,372 | $ | 55,688 | $ | 66,411 | $ | 24,656 | ||||||||
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Diluted earnings per share(7) |
$ | 1.10 | $ | 1.44 | $ | 1.69 | $ | 0.46 | ||||||||
Adjustments: |
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Loss (gain) on extinguishment of debt(1) |
0.32 | (0.18 | ) | (0.18 | ) | | ||||||||||
Restructuring costs(2) |
0.19 | 0.08 | 0.09 | 0.11 | ||||||||||||
Legal settlement costs(3) |
0.06 | | | | ||||||||||||
Goodwill and intangible asset impairment(4) |
| | | 0.07 | ||||||||||||
Transaction-related costs(5) |
0.06 | 0.00 | 0.01 | 0.02 | ||||||||||||
Share-based cash and non-cash compensation(6) |
0.05 | 0.02 | 0.03 | 0.03 | ||||||||||||
Intangible asset amortization |
0.05 | 0.07 | 0.09 | 0.12 | ||||||||||||
Cumulative tax effect of adjustments |
(0.30 | ) | 0.00 | (0.02 | ) | (0.18 | ) | |||||||||
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Adjusted Earnings per share |
$ | 1.52 | $ | 1.44 | $ | 1.71 | $ | 0.63 | ||||||||
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(1) | For the nine months ended September 30, 2017, the $12.5 million loss from the extinguishment of debt was due to the redemption of CURO Intermediates 10.75% Senior Secured Notes due 2018 and our 12.00% Senior Cash Pay Notes due 2017. For year ended December 31, 2016, the $7.0 million gain resulted from the Companys purchase of CURO Intermediates 10.75% Senior Secured Notes in September 2016. |
(2) | Restructuring costs of $4.3 million for the year ended December 31, 2015 represented the expected costs to be incurred related to the closure of ten underperforming stores in the United Kingdom, restructuring costs of $3.6 million for the year ended December 31, 2016 represented the elimination of certain corporate positions in our Canadian headquarters and the costs incurred related to the closure of seven underperforming stores in Texas. Restructuring costs of $1.5 million for the nine months ended September 30, 2016 primarily represented the expected costs to be incurred related to the closure of six underperforming stores in Texas. Restructuring costs in the nine months ended September 30, 2017 were due to the closure of the remaining 13 U.K. stores. |
(3) | Legal settlement cost relates to the accrual for the settlement of Harrison, et al v. Principal Investments, Inc. et al . See litigation discussion in Note 18, Litigation in the Notes to our Interim Consolidated Financial Statements for further detail. |
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(4) | Goodwill and intangible asset impairment charges in 2015 include a non-cash goodwill impairment charge of $0.9 million, and non-cash impairment charges related to the Wage Day trade name intangible asset and customer relationship intangible asset of $1.8 million and $0.2 million, respectively. |
(5) | Transaction-related costs include professional fees paid in connection with potential transactions. |
(6) | The Company approved the adoption of a share-based compensation plan during 2010 for key members of its senior management team. The estimated fair value of share-based awards is recognized as non-cash compensation expense on a straight-line basis over the vesting period. During the second and third quarters of 2017, option holders were paid a bonus in conjunction with the dividend paid during the quarter. The expense recognized during the quarter related to the payment of the dividend on vested options. The remaining bonus will be paid over the vesting period of the unvested stock options. |
(7) | The per share information has been adjusted to give effect to the 36-for-1 stock split approved by our board of directors on November 8, 2017 that will occur prior to the effectiveness of the Registration Statement. |
Gross Combined Loans Receivable
In addition to reporting loans receivable information in accordance with U.S. GAAP (see Note 7, Loans Receivable and Revenue in the Notes to Interim Consolidated Financial Statements included elsewhere in this prospectus), we provide below gross combined loans receivable consisting of owned loans receivable plus loans funded by third-party lenders through the CSO programs, which we guarantee but do not include in our Consolidated Financial Statements. Management believes this analysis provides investors with important information needed to evaluate overall lending performance.
The following table reconciles our Company-owned gross loans receivable to gross combined loans receivable.
Three Months Ended | ||||||||||||||||||||||||||||||||
(in millions) |
September 30,
2017 |
June 30,
2017 |
March 31,
2017 |
December 31,
2016 |
September 30,
2016 |
June 30,
2016 |
March 31,
2016 |
December 31,
2015 |
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Company-owned gross loans receivable |
$ | 393.4 | $ | 350.3 | $ | 304.8 | $ | 286.2 | $ | 244.6 | $ | 233.1 | $ | 220.7 | $ | 252.2 | ||||||||||||||||
Gross loans receivable guaranteed by the Company |
71.2 | 62.1 | 57.8 | 68.0 | 58.7 | 52.6 | 45.4 | 60.2 | ||||||||||||||||||||||||
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Gross combined loans receivable |
$ | 464.6 | $ | 412.4 | $ | 362.6 | $ | 354.2 | $ | 303.3 | $ | 285.7 | $ | 266.1 | $ | 312.4 | ||||||||||||||||
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Gross combined loans receivable by product are presented below:
Gross Combined Loans Receivable
Gross combined loans receivable were $464.6 million and $303.3 million at September 30, 2017 and 2016, respectively. The increase was a result of Installment Loan growth from higher originations and the Q1 Loss Recognition Change to include past due loan balances since January 1, 2017. Installment Loans that are up to 90 days past due are included in gross combined loans receivable in amounts disclosed in the table above. Excluding the year-over-year effect of such past-due loans, gross combined loans receivable increased $94.3 million or 31.1% during the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016.
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Results of Operations
Nine Months Ended September 30, 2017 Compared with Nine Months Ended September 30, 2016
The following table sets forth our results of operations for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016:
Nine Months Ended
September 30, (unaudited) |
Change | |||||||||||||||
(dollars in thousands) |
2017 | 2016 | $ | % | ||||||||||||
Consolidated Statements of Income Data: |
||||||||||||||||
Revenue |
$ | 696,643 | $ | 609,692 | $ | 86,951 | 14.3 | % | ||||||||
Provision for losses |
226,523 | 177,756 | 48,767 | 27.4 | % | |||||||||||
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Net revenue |
470,120 | 431,936 | 38,184 | 8.8 | % | |||||||||||
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Advertising costs |
35,599 | 28,925 | 6,674 | 23.1 | % | |||||||||||
Non-advertising costs of providing services |
177,448 | 173,406 | 4,042 | 2.3 | % | |||||||||||
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Total cost of providing services |
213,047 | 202,331 | 10,716 | 5.3 | % | |||||||||||
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Gross margin |
257,073 | 229,605 | 27,468 | 12.0 | % | |||||||||||
Operating expense: |
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Corporate, district and other |
103,797 | 94,550 | 9,247 | 9.8 | % | |||||||||||
Interest expense |
60,694 | 48,179 | 12,515 | 26.0 | % | |||||||||||
Loss (gain) on extinguishment of debt |
12,458 | (6,991 | ) | 19,449 | # | |||||||||||
Restructuring costs |
7,393 | 2,967 | 4,426 | # | ||||||||||||
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Total operating expense |
184,342 | 138,705 | 45,637 | 32.9 | % | |||||||||||
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Net income before taxes |
72,731 | 90,900 | (18,169 | ) | (20.0 | )% | ||||||||||
Provision for income taxes |
29,988 | 35,041 | (5,053 | ) | (14.4 | )% | ||||||||||
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Net income |
$ | 42,743 | $ | 55,859 | $ | (13,116 | ) | (23.5 | )% | |||||||
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Net income |
$ | 42,743 | $ | 55,859 | $ | (13,116 | ) | (23.5 | )% | |||||||
Adjustments: |
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Loss (gain) on extinguishment of debt(1) |
12,458 | (6,991 | ) | 19,449 | # | |||||||||||
Restructuring costs(2) |
7,393 | 2,967 | 4,426 | # | ||||||||||||
Legal settlement costs(3) |
2,311 | | 2,311 | # | ||||||||||||
Transaction-related costs(4) |
2,523 | 146 | 2,377 | # | ||||||||||||
Share-based cash and non-cash compensation(5) |
1,760 | 837 | 923 | # | ||||||||||||
Intangible asset amortization |
1,807 | 2,708 | (901 | ) | (33.3 | )% | ||||||||||
Cumulative tax effect of adjustments |
(11,623 | ) | 162 | (11,785 | ) | # | ||||||||||
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Adjusted Earnings |
$ | 59,372 | $ | 55,688 | $ | 3,684 | 6.6 | % | ||||||||
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# | Variance greater than 100% or not meaningful. |
(1) | For the nine months ended September 30, 2017, the $12.5 million loss from the extinguishment of debt was due to the redemption of CURO Intermediates 10.75% Senior Secured Notes due 2018 and our 12.00% Senior Cash Pay Notes due 2017. For the nine months ended September 30, 2016, the $7.0 million gain resulted from the Companys purchase of CURO Intermediates 10.75% Senior Secured Notes in September 2016. |
(2) | Restructuring costs of $7.4 million for the nine months ended September 30, 2017 relate to the closure of the remaining 13 stores in the U.K. during the third quarter of 2017. Restructuring costs of $1.5 million for the nine months ended September 30, 2016 primarily represented costs related to the closure of six underperforming stores in Texas. |
71
(3) | Legal settlement cost relates to the accrual for the settlement of the Harrison, et al v. Principal Investment, Inc. et al . See litigation discussion in Note 18, Litigation in the Notes of our Interim Consolidated Financial Statements included elsewhere in this prospectus for further detail. |
(4) | Transaction-related costs include professional fees paid in connection with potential transactions. |
(5) | The Company approved the adoption of a share-based compensation plan during 2010 for key members of its senior management team. The estimated fair value of share-based awards is recognized as non-cash compensation expense on a straight-line basis over the vesting period. During the second quarter of 2017, option holders were paid a bonus in conjunction with the dividend paid during the quarter. The expense recognized during the quarter related to the payment of the dividend on vested options. The remaining bonus will be paid over the vesting period of the unvested stock options. |
Revenue and Net Revenue
Revenue increased $87.0 million, or 14.3%, to $696.6 million for the nine months ended September 30, 2017 from $609.7 million for the prior year period. U.S. revenue increased $88.8 million on volume growth, U.K. revenue increased $3.2 million, and Canada declined $5.0 million because of regulatory impacts on rates and product mix.
Provision for losses increased $48.8 million, or 27.4%, to $226.5 million for the nine months ended September 30, 2017 from $177.8 million for the prior year period because of higher origination volumes and higher loan balances. This is explained more fully in the segment analysis that follows.
Cost of Providing Services.
The total cost of providing services increased $10.7 million, or 5.3%, to $213.0 million for the nine months ended September 30, 2017, compared to $202.3 million for the nine months ended September 30, 2016 due primarily to 23.1% higher marketing spend as well as increases in occupancy, office and other operating expenses. This is explained more fully in the segment analysis that follows.
Operating Expenses
Corporate, district and other expenses increased $9.2 million primarily because of $2.3 million in legal settlement costs, and higher payroll, collections, office and technology-related costs.
Other changes in operating expenses were impacted by (i) a pretax loss of $12.5 million on the extinguishment of debt, primarily of CURO Intermediate Holdings 10.75% Senior Secured Notes due 2018 during the nine months ended September 30, 2017, (ii) a prior year gain of $7.0 million gain on the extinguishment of debt which resulted from the open-market repurchase of $25.1 million of Senior Secured Notes due 2018, (iii) $7.4 million of restructuring costs related to the closure of the remaining 13 stores in the U.K. during the third quarter of 2017 and (iv) $3.0 million of restructuring costs in the third quarter of 2016 primarily related to Canadian back-office consolidation. Interest expense in the current year period increased by approximately $12.5 million which was the result of accrued interest on the retired notes through the redemption notice period and increased debt outstanding.
Provision for Income Taxes.
Our effective tax rate for the nine months ended September 30, 2017 was 41.2% compared to 38.5% for the prior year. The change in the effective tax rate from the prior year quarter was primarily due to a change in the mix of income by jurisdiction. In the nine months ended September 30, 2017, U.K. results were impacted by the $7.4 million of restructuring costs related to the closure of the remaining 13 United Kingdom stores during the third quarter. We recorded a 100% valuation allowance against the resulting deferred tax.
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Nine Months Ended September 30, 2017 Compared with Nine Months Ended September 30, 2016 - Segment Analysis
We report financial results for three reportable segments: the United States, Canada and the United Kingdom. Following are a recap of results of operations for the segment and period indicated:
U.S. Segment Results |
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Nine Months Ended September 30,
(unaudited) |
Change | |||||||||||||||
(dollars in thousands) |
2017 | 2016 | $ | % | ||||||||||||
Consolidated Statements of Income Data |
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Revenue |
$ | 531,912 | $ | 443,107 | $ | 88,805 | 20.0 | % | ||||||||
Provision for losses |
180,658 | 142,598 | 38,060 | 26.7 | % | |||||||||||
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Net revenue |
351,254 | 300,509 | 50,745 | 16.9 | % | |||||||||||
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Advertising costs |
24,596 | 18,947 | 5,649 | 29.8 | % | |||||||||||
Non-advertising costs of providing services |
125,304 | 121,960 | 3,344 | 2.7 | % | |||||||||||
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Total cost of providing services |
149,900 | 140,907 | 8,993 | 6.4 | % | |||||||||||
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Gross margin |
201,354 | 159,602 | 41,752 | 26.2 | % | |||||||||||
Operating expense |
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Corporate, district and other |
78,299 | 65,532 | 12,767 | 19.5 | % | |||||||||||
Interest expense |
60,563 | 48,127 | 12,436 | 25.8 | % | |||||||||||
Loss on extinguishment of debt |
12,458 | (6,991 | ) | 19,449 | # | |||||||||||
Intercompany interest income |
(3,747 | ) | (3,888 | ) | 141 | (3.6 | )% | |||||||||
Restructuring and other costs |
| 1,528 | (1,528 | ) | # | |||||||||||
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Total operating expense |
147,573 | 104,308 | 43,265 | 41.5 | % | |||||||||||
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Net income before taxes |
53,781 | 55,294 | (1,513 | ) | (2.7 | )% | ||||||||||
Provision for income taxes |
23,722 | 25,250 | (1,528 | ) | (6.1 | )% | ||||||||||
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Net income |
30,059 | 30,044 | 15 | 0.0 | % | |||||||||||
Provision for income taxes |
23,722 | 25,250 | (1,528 | ) | (6.1 | )% | ||||||||||
Interest expense |
56,816 | 44,239 | 12,577 | 28.4 | % | |||||||||||
Depreciation and amortization |
10,200 | 9,801 | 399 | 4.1 | % | |||||||||||
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EBITDA |
120,797 | 109,334 | 11,463 | 10.5 | % | |||||||||||
Loss (gain) on extinguishment of debt |
12,458 | (6,991 | ) | 19,449 | # | |||||||||||
Restructuring and other costs |
2,523 | 1,674 | 849 | # | ||||||||||||
Legal settlement costs |
2,311 | | 2,311 | # | ||||||||||||
Other adjustments |
(47 | ) | 110 | (157 | ) | # | ||||||||||
Share-based cash and non-cash compensation |
1,756 | 837 | 919 | # | ||||||||||||
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Adjusted EBITDA |
$ | 139,798 | $ | 104,964 | $ | 34,834 | 33.2 | % | ||||||||
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#Variance greater than 100% or not meaningful
U.S revenue growth was driven by a $51.9 million, or 21.8%, increase in gross combined loans receivable (excluding past due loans) to $531.9 million at September 30, 2017 compared to $443.1 million in the prior year period. Strong volume growth in our Unsecured Installment originations, which increased year-over-year $106.4 million, or 32.1%. Secured Installment originations grew $41.2 million, or 43.5%, compared to the same period a year ago.
73
The increase of $38.1 million, or 26.7%, in provision for losses was primarily driven by a $36.9 million, or 34.1%, increase in Unsecured Installment Loan gross receivables (excluding past due loans), but was also affected by the Q1 Loss Recognition Change as follows:
| Volume impact. Unsecured and Secured Installment Loan origination dollar volume increased $106.4 million and $41.2 million, respectively year-over-year. Applying last years provision rates for the nine months ended September 30, 2017 as a percentage of originations, Unsecured and Secured Installment volume added $27.2 million and $5.8 million, respectively to the provision for losses versus the same period a year ago. |
| Rate impact . The provision rate as a percentage of originations for Unsecured Installment Loans for the nine months ended September 30, 2017 was 29.2% versus 25.6% the same period in the prior year, and the provision rate as a percentage of originations for Secured Installment Loans for the nine months ended September 30, 2017 was 13.9% versus 14.0% in the same period in the prior year. The Unsecured Installment Loan increase is due to two factors. First, historically the first quarter provision rates for all products have been lower seasonally because of higher recoveries from tax refunds and related seasonal decline in loan balances. Prospectively, we would expect less seasonal effect in first quarters. Second, provision rates for the nine months ended September 30, 2017 were adjusted to include accrued interest on past-due loans. The Secured Installment Loans remain flat due to lower provisioning in the current year. The change in provision rate for the Unsecured and Secured Installment Loans origination volume for the nine months ended September 30, 2017 added approximately $11.3 million and $0.2 million, respectively, to the provision for losses. |
| Past-due loan impact. The Q1 Loss Recognition Change added an average of $23.6 million and $8.6 million of Unsecured and Secured Installment past-due principal balances, respectively, that would not have been recognized prior to January 1, 2017 since loans were previously charged off when a scheduled payment was missed. Using current Unsecured and Secured loss provision rates as a percentage of gross combined loans receivable, this change added approximately $4.0 million to the provision for losses. |
This change in estimate resulted in approximately $56.0 million of Installment Loans at September 30, 2017 that remained on our balance sheet that were between 1 and 90 days delinquent, as compared to none in the prior year period. Additionally, the installment allowance for loan losses as of September 30, 2017 of $71.3 million includes an estimated allowance of $36.4 million for the Installment Loans between 1 and 90 days delinquent, as compared to none in the prior year period.
This change in estimate resulted in an approximately $11.1 million of Installment Loans guaranteed by the company at September 30, 2017 that were between 1 and 90 days delinquent, as compared to none in the prior year period. Additionally, the installment CSO guarantee liability as of September 30, 2017 of $16.9 million includes an estimated liability of $7.8 million for the Installment Loans guaranteed by the company that were between 1 and 90 days delinquent, as compared to none in the prior year period.
Recap of year-over-year change in U.S. provision for losses:
Nine Months Ended September 30, 2017 compared to Nine
Months Ended September 30, 2016 |
||||||||||||
(in millions) |
Unsecured
Installment |
Secured
Installment |
Consolidated | |||||||||
Installment Loans impact: |
||||||||||||
Volume impact |
$ | 27.2 | $ | 5.8 | $ | 33.0 | ||||||
Rate impact |
11.3 | 0.2 | 11.5 | |||||||||
Past-due impact |
4.3 | (0.3 | ) | 4.0 | ||||||||
|
|
|
|
|
|
|||||||
Total Installment Loan impact |
42.8 | 5.7 | 48.5 | |||||||||
Other impact (Single Pay, Open-End and Ancillary) |
| | (10.4 | ) | ||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 42.8 | $ | 5.7 | $ | 38.1 | ||||||
|
|
|
|
|
|
74
U.S. cost of providing services for the nine months ended September 30, 2017 were $149.9 million, an increase of $9.0 million, or 6.4% compared to $140.9 million for the nine months ended September 30, 2016. This increase was due primarily to $5.6 million (29.8%) higher marketing spend, as well as increases in volume-driven expenses and increases in store security and maintenance costs.
Operating expenses were $147.6 million for the nine months ended September 30, 2017, an increase of $43.3 million, or 41.5%, compared to $104.3 million in the prior year period primarily due to the following:
| A pretax loss in the current year of $12.5 million on the extinguishment of CURO Intermediates 10.75% Senior Secured Notes due 2018, compared to a gain of $7.0 million on the extinguishment of debt which resulted from the open-market repurchase of $25.1 million of Senior Secured Notes in the prior year period. |
| An increase in interest expense in the current year period of approximately $12.4 million resulting from accrued interest on the retired notes through the redemption notice period, and increased debt outstanding. |
| An increase in corporate, district and other expenses of $12.8 million, primarily for higher payroll costs from increases in technology and analytical headcount. |
| $2.3 million related to the legal settlement in the second quarter of 2017 which increased professional. See litigation discussion in Note 18, Litigation in the Notes of our Interim Consolidated Financial Statements included elsewhere in this prospectus for further detail. |
Canada Segment Results |
||||||||||||||||
Nine Months Ended September 30,
(unaudited) |
Change | |||||||||||||||
(dollars in thousands) |
2017 | 2016 | $ | % | ||||||||||||
Revenue |
$ | 135,819 | $ | 140,852 | $ | (5,033 | ) | (3.6 | )% | |||||||
Provision for losses |
36,246 | 27,793 | 8,453 | 30.4 | % | |||||||||||
|
|
|
|
|
|
|||||||||||
Net revenue |
99,573 | 113,059 | (13,486 | ) | (11.9 | )% | ||||||||||
Advertising costs |
6,944 | 6,320 | 624 | 9.9 | % | |||||||||||
Non-advertising costs of providing services |
46,718 | 45,789 | 929 | 2.0 | % | |||||||||||
|
|
|
|
|
|
|||||||||||
Total cost of providing services |
53,662 | 52,109 | 1,553 | 3.0 | % | |||||||||||
|
|
|
|
|
|
|||||||||||
Gross margin |
45,911 | 60,950 | (15,039 | ) | (24.7 | )% | ||||||||||
Corporate, district and other |
12,407 | 13,693 | (1,286 | ) | (9.4 | )% | ||||||||||
Interest expense |
142 | 73 | 69 | 94.5 | % | |||||||||||
Intercompany interest expense |
3,262 | 3,058 | 204 | 6.7 | % | |||||||||||
Restructuring and other costs |
| 933 | (933 | ) | # | |||||||||||
|
|
|
|
|
|
|||||||||||
Total operating expense |
15,811 | 17,757 | (1,946 | ) | (11.0 | )% | ||||||||||
|
|
|
|
|
|
|||||||||||
Net income before taxes |
30,100 | 43,193 | (13,093 | ) | (30.3 | )% | ||||||||||
Provision for income taxes |
6,266 | 9,909 | (3,643 | ) | (36.8 | )% | ||||||||||
|
|
|
|
|
|
|||||||||||
Net income |
23,834 | 33,284 | (9,450 | ) | (28.4 | )% | ||||||||||
Provision for income taxes |
6,266 | 9,909 | (3,643 | ) | (36.8 | )% | ||||||||||
Interest expense |
3,404 | 3,131 | 273 | 8.7 | % | |||||||||||
Depreciation and amortization |
3,389 | 3,762 | (373 | ) | (9.9 | )% | ||||||||||
|
|
|
|
|
|
|||||||||||
EBITDA |
36,893 | 50,086 | (13,193 | ) | (26.3 | )% | ||||||||||
Restructuring and other costs |
| 933 | (933 | ) | # | |||||||||||
Other adjustments |
(654 | ) | (359 | ) | (295 | ) | (82.2 | )% | ||||||||
|
|
|
|
|
|
|||||||||||
Adjusted EBITDA |
$ | 36,239 | $ | 50,660 | $ | (14,421 | ) | (28.5 | )% | |||||||
|
|
|
|
|
|
#Variance greater than 100% or not meaningful
75
Revenue in Canada was affected by product transition in Alberta from Single-Pay Loans to Unsecured Installment Loans and the impact of regulatory rate changes in Ontario and British Columbia.
Non-Alberta Single-Pay revenue decreased $1.3 million, or 1.2% to $107.3 million for the nine months ended September 30, 2017 and was affected by lower rates from provincial regulatory changes effective January 1, 2017. The impact of the rate changes was offset by higher origination volumes resulting in a modest increase in related revenue. The year-over-year effect of regulatory rate changes in Ontario and British Columbia would have implied a decline in revenue of $14.1 million. However, higher origination volumes offset the effect of rate changes by approximately $12.1 million. Single-Pay origination dollar volumes in Canada (excluding Alberta) increased $68.0 million, or 13.3%, to $578.1 million from $510.0 million in the prior year, and Single-Pay ending receivables (excluding Alberta) increased $8.8 million, or 21.3%, to $50.1 million from $41.3 million in the prior year period.
In Alberta, Single-Pay receivables in the nine months ended September 30, 2016 averaged $7.3 million and related Single-Pay revenue was $22.2 million. In the nine months ended September 30, 2017, Alberta had $32.0 million in average Unsecured Installment receivables and $10.4 million of related revenue. As of September 30, 2017 $42.5 million of Unsecured Installment receivables were outstanding in Alberta.
The provision for losses rose $8.5 million or 30.4% to $36.2 million for the nine months ended September 30, 2017, compared to $27.8 million in the prior year period. As in the U.S., the increase was due to higher loan volume.
The cost of providing services in Canada increased $1.6 million, or 3.0%, to $53.7 million for the nine months ended September 30, 2017, compared to $52.1 million in the prior year period due primarily to an increase in occupancy expense, based on a higher number of stores in operation during the nine months ended September 30, 2017 as compared to the prior year, as well as an increase in store maintenance costs and higher marketing spend.
76
Operating expenses decreased $1.9 million, or 11.0%, to $15.8 million in the nine months ended September 30, 2017, from $17.8 million in the prior year period, due to the consolidation of certain back-office functions during the third quarter of 2016.
U.K. Segment Results |
||||||||||||||||
Nine Months Ended September 30,
(unaudited) |
Change | |||||||||||||||
(dollars in thousands) |
2017 | 2016 | $ | % | ||||||||||||
Revenue |
$ | 28,912 | $ | 25,733 | $ | 3,179 | 12.4 | % | ||||||||
Provision for losses |
9,619 | 7,365 | 2,254 | 30.6 | % | |||||||||||
|
|
|
|
|
|
|||||||||||
Net revenue |
19,293 | 18,368 | 925 | 5.0 | % | |||||||||||
Advertising costs |
4,059 | 3,658 | 401 | 11.0 | % | |||||||||||
Non-advertising costs of providing services |
5,426 | 5,657 | (231 | ) | (4.1 | )% | ||||||||||
|
|
|
|
|
|
|||||||||||
Total cost of providing services |
9,485 | 9,315 | 170 | 1.8 | % | |||||||||||
|
|
|
|
|
|
|||||||||||
Gross margin |
9,808 | 9,053 | 755 | 8.3 | % | |||||||||||
Corporate, district and other |
13,091 | 15,325 | (2,234 | ) | (14.6 | )% | ||||||||||
Interest income |
(11 | ) | (21 | ) | 10 | 47.6 | % | |||||||||
Intercompany interest expense |
485 | 830 | (345 | ) | (41.6 | )% | ||||||||||
Restructuring and other costs |
7,393 | 506 | 6,887 | # | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total operating expense |
20,958 | 16,640 | 4,318 | 25.9 | % | |||||||||||
|
|
|
|
|
|
|||||||||||
Net loss before taxes |
(11,150 | ) | (7,587 | ) | (3,563 | ) | (47.0 | )% | ||||||||
Benefit for income taxes |
| (118 | ) | 118 | # | |||||||||||
|
|
|
|
|
|
|||||||||||
Net loss |
(11,150 | ) | (7,469 | ) | (3,681 | ) | (49.3 | )% | ||||||||
Benefit for income taxes |
| (118 | ) | 118 | # | |||||||||||
Interest expense |
474 | 809 | (335 | ) | (41.4 | )% | ||||||||||
Depreciation and amortization |
531 | 681 | (150 | ) | (22.0 | )% | ||||||||||
|
|
|
|
|
|
|||||||||||
EBITDA |
(10,145 | ) | (6,097 | ) | (4,048 | ) | (66.4 | )% | ||||||||
Other adjustments |
(28 | ) | 227 | (255 | ) | # | ||||||||||
Restructuring and other costs |
7,393 | 506 | 6,887 | # | ||||||||||||
|
|
|
|
|
|
|||||||||||
Adjusted EBITDA |
$ | (2,780 | ) | $ | (5,364 | ) | $ | 2,584 | 48.2 | % | ||||||
|
|
|
|
|
|
#Variance greater than 100% or not meaningful
U.K. revenue improved $3.2 million, or 12.4% to $28.9 million for the nine months ended September 30, 2017 from $25.7 million in the prior year period. On a constant currency basis, revenue was up $5.8 million, or 22.5%. Provision for losses increased $2.3 million, or 30.6%, and increased $3.1 million, or 41.9% on a constant currency basis, due to growth in Installment Loan receivables.
The cost of providing services in the United Kingdom increased slightly from the prior year period. On a constant currency basis the cost of providing services increased $1.0 million, or 11.2%.
Operating expenses increased $4.3 million, or 25.9%, from the prior year period, and on a constant currency basis increased $6.1 million, or 36.9%, due to restructuring costs of $7.4 million related to the closure of the remaining 13 stores in the United Kingdom during the nine months ended September 30, 2017, compared to $0.5 million in the prior year period. This increase was partially offset by a decline in payroll expense at our U.K. corporate office.
77
Year Ended December 31, 2016 Compared with Year Ended December 31, 2015
The following table sets forth our results of operations for the year ended December 31, 2016 compared with the year ended December 31, 2015:
Year Ended December 31, | Change | |||||||||||||||
(dollars in thousands) |
2016 | 2015 | $ | % | ||||||||||||
Consolidated Statements of Income Data: |
||||||||||||||||
Revenue |
$ | 828,596 | $ | 813,131 | $ | 15,465 | 1.9 | % | ||||||||
Provision for losses |
258,289 | 281,210 | (22,921 | ) | (8.2 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Net revenue |
570,307 | 531,921 | 38,386 | 7.2 | ||||||||||||
Cost of Providing Services |
277,051 | 293,320 | (16,269 | ) | (5.5 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Gross Margin |
293,256 | 238,601 | 54,655 | 22.9 | ||||||||||||
Operating Expense |
||||||||||||||||
Corporate, district and other |
124,274 | 130,534 | (6,260 | ) | (4.8 | ) | ||||||||||
Interest expense |
64,334 | 65,020 | (686 | ) | (1.1 | ) | ||||||||||
Goodwill and intangible asset impairment charges |
| 2,882 | (2,882 | ) | # | |||||||||||
Gain on extinguishment of debt |
(6,991 | ) | | (6,991 | ) | # | ||||||||||
Restructuring costs |
3,618 | 4,291 | (673 | ) | (15.7 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Total operating expense |
185,235 | 202,727 | (17,492 | ) | (8.6 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Net Income Before Taxes |
108,021 | 35,874 | 72,147 | # | ||||||||||||
Provision for income taxes |
42,577 | 18,105 | 24,472 | # | ||||||||||||
|
|
|
|
|
|
|||||||||||
Net Income |
$ | 65,444 | $ | 17,769 | $ | 47,675 | # | |||||||||
|
|
|
|
|
|
|||||||||||
Net Income |
$ | 65,444 | $ | 17,769 | $ | 47,675 | # | |||||||||
Adjustments: |
||||||||||||||||
Gain on extinguishment of debt(1) |
(6,991 | ) | | (6,991 | ) | # | ||||||||||
Restructuring costs(2) |
3,618 | 4,291 | (673 | ) | (15.7 | ) | ||||||||||
Goodwill and intangible asset impairment(3) |
| 2,882 | (2,882 | ) | # | |||||||||||
Transaction-related costs(3) |
329 | 824 | (495 | ) | (60.1 | ) | ||||||||||
Share-based compensation(4) |
1,148 | 1,271 | (123 | ) | (9.7 | ) | ||||||||||
Intangible asset amortization |
3,492 | 4,645 | (1,153 | ) | (24.8 | ) | ||||||||||
Cumulative tax effect of adjustments |
(629 | ) | (7,026 | ) | 6,397 | 91.0 | % | |||||||||
|
|
|
|
|
|
|||||||||||
Adjusted Earnings |
$ | 66,411 | $ | 24,656 | $ | 41,755 | # | |||||||||
|
|
|
|
|
|
#Variance greater than 100% or not meaningful
(1) | For the year ended December 31, 2016, the $7.0 million gain on extinguishment of debt resulted from the Companys purchase of CURO Intermediates 10.75% Senior Secured Notes in September 2016. |
(2) | Restructuring costs of $4.3 million for the year ended December 31, 2015 represented the expected costs to be incurred related to the closure of ten underperforming stores in the United Kingdom. Restructuring costs of $3.6 million for the year ended December 31, 2016 represented the elimination of certain corporate positions in our Canadian headquarters and the costs incurred related to the closure of seven under-performing stores in Texas. |
(3) | Transaction-related costs include professional fees paid in connection with potential transactions. |
(4) | The Company approved the adoption of a share-based compensation plan during 2010 for key members of its senior management team. The estimated fair value of share-based awards is recognized as non-cash compensation expense on a straight-line basis over the vesting period. |
Revenue and Net Revenue
Revenue increased $15.5 million, or 1.9%, to $828.6 million for the year ended December 31, 2016 from $813.1 million for the prior year. Volume growth in the United States and revenue growth in Canada driven by de novo store expansion and modest same-store volume growth, were partially offset by a decline in U.K.
78
revenue due to currency translation impact, product mix and volume changes, as well as the closure of nearly half of the U.K. stores in December 2015. A detailed discussion of results by segment is included in the Segment Analysis below.
Provision for losses decreased by $22.9 million, or 8.2%, to $258.3 million in the year ended December 31, 2016 from $281.2 million in the prior year. Improved performance in the United States resulted from continuous refinements and improvements to scoring models, portfolio seasoning, and improved collection efforts. Lower relative customer acquisition spend in 2016 reduced the volume mix attributable to new customers compared to the same period a year ago. In the United Kingdom, loss provisions have improved because of tightened underwriting and seasoning. The increase in the provision for losses in Canada was due to the growth of newer bankline loan products, which have a higher provision rate as a percent of revenue than traditional Canadian single-pay products.
Cost of Providing Services
The total cost of providing services decreased $16.3 million, or 5.5%, to $277.1 million in 2016, compared to $293.3 million in the prior year primarily due to a decline in advertising expense of $21.7 million, or 33.1%, compared to the prior year, as we normalized customer acquisition in 2016 to maintain earning-asset levels but without the elevated levels of new customer investment of 2015. In addition, cost-per-funded loan improved significantly year-over-year so less total spend was necessary to drive similar customer volumes. Salaries and benefits also declined compared to the prior year driven by the closure of ten stores in the United Kingdom in December 2015. These declines were partially offset by an increase in other store operating expense which was attributable to higher collections costs, partially offset by a decline in store maintenance costs associated with store refurbishments that took place in the prior year.
Operating Expense
Corporate, district and other expenses declined 4.8% in the year ended December 31, 2016 primarily because of U.K. store closures in 2015, a decrease in payroll costs at our U.K. corporate office, and declines in U.K. collections and office expense, as well as the impact of Canadian back-office consolidation during 2016, and the impact of certain intangible assets related to the 2011 Cash Money acquisition which became fully amortized. These declines were partially offset by an increase in U.S. corporate expense from higher payroll costs for additional headcount (primarily analytics and technology) and an increase in variable, performance-based compensation, as well as an increase in professional fees and office expense.
Other changes in operating expenses were affected by a pretax gain of $7.0 million related to the discount on the repurchase of $25.1 million of CFTCs outstanding May 2011 10.75% Senior Secured Notes, as well as $3.6 million of restructuring costs related to the elimination of certain positions, primarily Finance and IT, at our Canadian headquarters, and the closure of seven underperforming The Money Box stores in Texas, and one store in Missouri that we were unable to reopen after it was damaged by a fire, and costs related to the 2015 closure of ten U.K. stores.
Results in 2015 were also impacted by a $2.9 million non-cash goodwill and intangible asset impairment charges, and $4.3 million of costs related to the closure of ten U.K. stores mentioned above. These costs primarily consisted of adjustments to lease obligations associated with these locations.
Provision for Income Taxes
Our effective tax rate for the year ended December 31, 2016 was 39.4% compared to 50.5% for the year ended December 31, 2015. Our recorded income tax expense is affected by our mix of domestic and foreign earnings.
79
2016 Compared to 2015Segment Analysis
Following is the detail of the results of operations for the each segment for the years ended December 31, 2016 and 2015:
U.S. Segment Results |
||||||||||||||||
Year Ended December 31, | Change | |||||||||||||||
(dollars in thousands) |
2016 | 2015 | $ | % | ||||||||||||
Revenue |
$ | 606,798 | $ | 573,664 | $ | 33,134 | 5.8 | % | ||||||||
Provision for losses |
207,748 | 222,867 | (15,119 | ) | (6.8 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Net revenue |
399,050 | 350,797 | 48,253 | 13.8 | ||||||||||||
Cost of providing services |
194,722 | 199,169 | (4,447 | ) | (2.2 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Gross Margin |
204,328 | 151,628 | 52,700 | 34.8 | ||||||||||||
Operating Expenses |
||||||||||||||||
Corporate, district and other |
75,907 | 69,455 | 6,452 | 9.3 | ||||||||||||
Interest expense |
64,276 | 64,910 | (634 | ) | (1.0 | ) | ||||||||||
(Gain) Loss on extinguishment of debt |
(6,991 | ) | | (6,991 | ) | # | ||||||||||
Intercompany interest income |
(5,741 | ) | (5,848 | ) | 107 | 1.8 | ||||||||||
Restructuring costs |
1,726 | | 1,726 | # | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total operating expense |
129,177 | 128,517 | 660 | 0.5 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Net Income before Taxes |
75,151 | 23,111 | 52,040 | # | ||||||||||||
Provision for income taxes |
30,055 | 7,814 | 22,241 | # | ||||||||||||
|
|
|
|
|
|
|||||||||||
Net Income |
$ | 45,096 | $ | 15,297 | $ | 29,799 | # | |||||||||
|
|
|
|
|
|
|||||||||||
Net Income |
$ | 45,096 | $ | 15,297 | $ | 29,799 | # | |||||||||
Adjustments: |
||||||||||||||||
Gain on extinguishment of debt |
(6,991 | ) | | (6,991 | ) | # | ||||||||||
Restructuring costs |
1,726 | | 1,726 | # | ||||||||||||
Transaction-related costs |
329 | 824 | (495 | ) | (60.1 | ) | ||||||||||
Share-based compensation |
1,148 | 1,271 | (123 | ) | (9.7 | ) | ||||||||||
Intangible asset amortization |
2,680 | 2,330 | 350 | 15.0 | % | |||||||||||
Cumulative tax effect of adjustments |
437 | (2,235 | ) | 2,672 | # | |||||||||||
|
|
|
|
|
|
|||||||||||
Adjusted Earnings |
$ | 44,425 | $ | 17,487 | $ | 26,938 | # | |||||||||
|
|
|
|
|
|
#Variance greater than 100% or not meaningful
Total revenue for our U.S. operations was $606.8 million for 2016, an increase of $33.1 million, or 5.8%, compared to the prior year. Revenue growth was driven by our online channel.
Gross margin for our U.S. operations for 2016 was $204.3 million, an increase of $52.7 million, or 34.8%, compared to the prior year. Gross margin as a percent of revenue improved to 33.7%, compared to 26.4% in the prior year from improvement in the provision for losses due to relative new customer mix and growth, related portfolio seasoning, and improved credit scoring and collection trends; as well as a $21.7 million decrease in advertising expense.
Operating expenses in the United States were flat with the prior year. An increase in corporate expense from higher payroll costs for additional headcount (primarily analytics and technology), an increase in variable, performance-based compensation, as well as an increase in professional fees and office expense, was more than
80
offset by a $7.0 million gain on the extinguishment of $25.1 million of CURO Financial Technologies May 2011 10.75% Senior Secured Notes.
Canada Segment Results |
||||||||||||||||
Year Ended December 31, | Change | |||||||||||||||
(dollars in thousands) |
2016 | 2015 | $ | % | ||||||||||||
Revenue |
$ | 188,078 | $ | 184,859 | $ | 3,219 | 1.7 | % | ||||||||
Provision for losses |
39,917 | 37,317 | 2,600 | 7.0 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Net revenue |
148,161 | 147,542 | 619 | 0.4 | ||||||||||||
Cost of providing services |
69,522 | 70,073 | (551 | ) | (0.8 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Gross Margin |
78,639 | 77,469 | 1,170 | 1.5 | ||||||||||||
Operating Expenses |
||||||||||||||||
Corporate, district and other |
28,001 | 31,121 | (3,120 | ) | (10.0 | ) | ||||||||||
Interest expense |
85 | 149 | (64 | ) | (43.0 | ) | ||||||||||
Intercompany interest expense |
4,602 | 4,761 | (159 | ) | (3.3 | ) | ||||||||||
Restructuring costs |
898 | | 898 | # | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total operating expense |
33,586 | 36,031 | (2,445 | ) | (6.8 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Net Income Before Taxes |
45,053 | 41,438 | 3,615 | 8.7 | ||||||||||||
Provision for income taxes |
12,662 | 11,266 | 1,396 | 12.4 | ||||||||||||
|
|
|
|
|
|
|||||||||||
Net Income |
$ | 32,391 | $ | 30,172 | $ | 2,219 | 7.4 | |||||||||
|
|
|
|
|
|
|||||||||||
Net Income |
$ | 32,391 | $ | 30,172 | $ | 2,219 | 7.4 | |||||||||
Adjustments: |
||||||||||||||||
Restructuring costs |
898 | | 898 | # | ||||||||||||
Intangible asset amortization |
806 | 1,989 | (1,183 | ) | (59.5 | ) | ||||||||||
Cumulative tax effect of adjustments |
(671 | ) | (1,004 | ) | 333 | 33.2 | ||||||||||
|
|
|
|
|
|
|||||||||||
Adjusted Earnings |
$ | 33,424 | $ | 31,157 | $ | 2,267 | 7.3 | % | ||||||||
|
|
|
|
|
|
#Variance greater than 100% or not meaningful
Total revenue for our Canadian operations was $188.1 million for 2016, an increase of $3.2 million, or 1.7%, compared to the prior year. Growth in Canada was driven by our de novo store expansion and modest same-store volume growth in Ontario, Nova Scotia, British Columbia and Saskatchewan, which offset a $3.8 million, or 11.8%, decline in Alberta due to the statutory rate change.
The gross margin for our Canadian operations for 2016 was $78.6 million, an increase of $1.2 million, or 1.5%, compared to the prior year. Gross margin as a percent of revenue declined slightly in the current year to 41.8% from 41.9% for the prior year.
81
Operating expenses in Canada decreased $2.4 million, or 6.8%, from the prior year due primarily to the net impact of the elimination of 35 corporate positions in our Canadian headquarters (primarily finance and technology). Amortization expense also declined as certain intangible assets related to the 2011 Cash Money acquisition became fully amortized.
U.K. Segment Results |
||||||||||||||||
Year Ended December 31, | Change | |||||||||||||||
(dollars in thousands) |
2016 | 2015 | $ | % | ||||||||||||
Revenue |
$ | 33,720 | $ | 54,608 | $ | (20,888 | ) | (38.3 | )% | |||||||
Provision for losses |
10,624 | 21,026 | (10,402 | ) | (49.5 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Net revenue |
23,096 | 33,582 | (10,486 | ) | (31.2 | ) | ||||||||||
Cost of providing services |
12,807 | 24,078 | (11,271 | ) | (46.8 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Gross Margin |
10,289 | 9,504 | 785 | 8.3 | ||||||||||||
Operating Expenses |
||||||||||||||||
Corporate, district and other |
20,366 | 29,958 | (9,592 | ) | (32.0 | ) | ||||||||||
Interest income |
(27 | ) | (39 | ) | 12 | 30.8 | ||||||||||
Goodwill and impairment charges |
| 2,882 | (2,882 | ) | # | |||||||||||
Intercompany interest expense |
1,139 | 1,087 | 52 | 4.8 | ||||||||||||
Restructuring costs |
994 | 4,291 | (3,297 | ) | (76.8 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Total operating expense |
22,472 | 38,179 | (15,707 | ) | (41.1 | ) | ||||||||||
|
|
|
|
|
|
|||||||||||
Net Loss Before Taxes |
(12,183 | ) | (28,675 | ) | 16,492 | 57.5 | ||||||||||
Income tax benefit |
(140 | ) | (975 | ) | 835 | 85.6 | ||||||||||
|
|
|
|
|
|
|||||||||||
Net Loss |
$ | (12,043 | ) | $ | (27,700 | ) | $ | 15,657 | 56.5 | |||||||
|
|
|
|
|
|
|||||||||||
Net Loss |
$ | (12,043 | ) | $ | (27,700 | ) | $ | 15,657 | 56.5 | |||||||
Adjustments: |
||||||||||||||||
Goodwill and impairment charges |
| 2,882 | (2,882 | ) | # | |||||||||||
Restructuring costs |
994 | 4,291 | (3,297 | ) | (76.8 | ) | ||||||||||
Intangible asset amortization |
6 | 326 | (320 | ) | (98.2 | ) | ||||||||||
Cumulative tax effect of adjustments |
(394 | ) | (3,787 | ) | 3,393 | 89.6 | ||||||||||
|
|
|
|
|
|
|||||||||||
Adjusted Earnings |
$ | (11,437 | ) | $ | (23,988 | ) | $ | 12,551 | 52.3 | % | ||||||
|
|
|
|
|
|
#Variance greater than 100% or not meaningful
Total revenue in the United Kingdom was $33.7 million for 2016, a decrease of $20.9 million, or 38.3%. The decline in the British Pound Sterling from an average exchange rate of $1.5282 for the year ended December 31, 2015 to an average exchange rate of $1.3552 for the year ended December 31, 2016, had a negative impact on our consolidated results. On a constant currency basis, revenue in the United Kingdom decreased $16.5 million, or 30.2%, compared to the prior year. Revenue declined in the United Kingdom because of product mix and volume changes, as well as the closure of nearly half of the U.K. stores in December 2015.
The gross margin for our U.K. operations for 2016 was $10.3 million, an increase of $0.8 million, or 8.3%, compared to the prior year. Gross margin as a percent of revenue improved to 30.5% compared to 17.4% in the prior year. Improvement in the provision for losses, lower advertising expense, and the impact of the closure of the ten stores to occupancy and salaries and benefits expense all contributed to gross margin improvement.
82
Unaudited Quarterly Results of Operations
The following table contains our unaudited consolidated quarterly statement of income data for each of the eight quarters preceding and including the quarter ended September 30, 2017. We derived this information from our unaudited consolidated financial statements, which, in the opinion of management have been prepared on the same basis as our audited consolidated financial statements and include all adjustments necessary for the fair presentation of the financial information for the quarters presented. You should read this information in conjunction with the consolidated financial statements and related notes included elsewhere in this prospectus.
Three Months Ended | ||||||||||||||||||||||||||||||||
Sep 30,
2017 |
Jun 30,
2017 |
Mar 31,
2017 |
Dec 31,
2016 |
Sep 30,
2016 |
Jun 30,
2016 |
Mar 31,
2016 |
Dec 31,
2015 |
|||||||||||||||||||||||||
Revenue |
$ | 255,119 | $ | 216,944 | $ | 224,580 | $ | 218,904 | $ | 212,924 | $ | 194,307 | $ | 202,461 | $ | 216,843 | ||||||||||||||||
Provision for losses |
99,341 | 65,446 | 61,736 | 80,987 | 77,024 | 58,029 | 42,249 | 83,996 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net revenue |
155,778 | 151,498 | 162,844 | 137,917 | 135,900 | 136,278 | 160,212 | 132,847 | ||||||||||||||||||||||||
Cost of providing services |
||||||||||||||||||||||||||||||||
Salaries and benefits |
26,821 | 26,300 | 26,433 | 25,182 | 26,273 | 26,108 | 26,978 | 25,834 | ||||||||||||||||||||||||
Occupancy |
13,815 | 13,511 | 14,095 | 14,141 | 13,345 | 13,864 | 13,159 | 13,780 | ||||||||||||||||||||||||
Office |
5,715 | 4,936 | 4,868 | 6,169 | 4,816 | 4,729 | 4,749 | 6,152 | ||||||||||||||||||||||||
Other costs of providing services |
12,991 | 13,108 | 14,855 | 14,232 | 12,600 | 12,430 | 14,355 | 13,331 | ||||||||||||||||||||||||
Advertising |
16,270 | 11,641 | 7,688 | 14,996 | 11,831 | 10,296 | 6,798 | 14,351 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total cost of providing services |
75,612 | 69,496 | 67,939 | 74,720 | 68,865 | 67,427 | 66,039 | 73,448 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Gross margin |
80,166 | 82,002 | 94,905 | 63,197 | 67,035 | 68,851 | 94,173 | 59,399 | ||||||||||||||||||||||||
Operating (income) expense |
||||||||||||||||||||||||||||||||
Corporate and district |
34,254 | 36,085 | 33,266 | 29,556 | 30,807 | 32,056 | 32,700 | 35,417 | ||||||||||||||||||||||||
Interest expense |
18,844 | 18,484 | 23,366 | 16,155 | 15,987 | 16,039 | 16,153 | 16,415 | ||||||||||||||||||||||||
Loss (gain) on extinguishment of debt |
| | 12,458 | | (6,991 | ) | | | | |||||||||||||||||||||||
Restructuring costs |
7,393 | | | 651 | 1,486 | 186 | 1,295 | 4,257 | ||||||||||||||||||||||||
Other (income)/ expense |
(7 | ) | 472 | (273 | ) | (286 | ) | (114 | ) | (464 | ) | 19 | 2,229 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Total other expense |
60,484 | 55,041 | 68,817 | 46,076 | 41,175 | 47,817 | 50,167 | 58,318 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net income (loss) before taxes |
19,682 | 26,961 | 26,088 | 17,121 | 25,860 | 21,034 | 44,006 | 1,081 | ||||||||||||||||||||||||
Provision for income tax expense (benefit) |
9,920 | 10,619 | 9,450 | 7,536 | 10,083 | 7,862 | 17,096 | (7,242 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net income (loss) |
$ | 9,762 | $ | 16,342 | $ | 16,638 | $ | 9,585 | $ | 15,777 | $ | 13,172 | $ | 26,910 | $ | 8,323 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Adjustments to arrive at Adjusted Earnings: |
||||||||||||||||||||||||||||||||
Net income (loss) |
$ | 9,762 | $ | 16,342 | $ | 16,638 | $ | 9,585 | $ | 15,777 | $ | 13,172 | $ | 26,910 | $ | 8,323 | ||||||||||||||||
Loss (gain) on extinguishment of debt |
| | 12,458 | | (6,991 | ) | | | | |||||||||||||||||||||||
Restructuring costs |
7,393 | | | 651 | 1,486 | 186 | 1,295 | 4,257 | ||||||||||||||||||||||||
Legal settlement cost |
361 | 1,950 | | | | | | | ||||||||||||||||||||||||
Transaction-related costs |
123 | 146 | 2,254 | 183 | 146 | | | (46 | ) | |||||||||||||||||||||||
Share-based cash and non-cash compensation |
454 | 1,180 | 126 | 311 | 318 | 213 | 306 | 318 | ||||||||||||||||||||||||
Intangible asset amortization |
634 | 590 | 583 | 784 | 509 | 1,121 | 1,078 | 1,093 | ||||||||||||||||||||||||
Cumulative effect of tax adjustments |
(4,518 | ) | (1,523 | ) | (5,582 | ) | (791 | ) | 1,824 | (623 | ) | (1,039 | ) | (2,839 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Adjusted Earnings (Loss) |
$ | 14,209 | $ | 18,685 | $ | 26,477 | $ | 10,723 | $ | 13,069 | $ | 14,069 | $ | 28,550 | $ | 11,106 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Adjustments to arrive at Adjusted EBITDA: |
||||||||||||||||||||||||||||||||
Net income (loss) |
$ | 9,762 | $ | 16,342 | $ | 16,638 | $ | 9,585 | $ | 15,777 | $ | 13,172 | $ | 26,910 | $ | 8,323 | ||||||||||||||||
Provision for income taxes |
9,920 | 10,619 | 9,450 | 7,536 | 10,083 | 7,862 | 17,096 | (7,242 | ) | |||||||||||||||||||||||
Interest expense |
18,844 | 18,484 | 23,366 | 16,155 | 15,987 | 16,039 | 16,153 | 16,415 | ||||||||||||||||||||||||
Depreciation and amortization |
4,790 | 4,676 | 4,654 | 4,661 | 3,916 | 5,547 | 4,781 | 4,815 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
EBITDA |
43,316 | 50,121 | 54,108 | 37,937 | 45,763 | 42,620 | 64,940 | 22,311 | ||||||||||||||||||||||||
Loss (gain) on extinguishment of debt |
| | 12,458 | | (6,991 | ) | | | | |||||||||||||||||||||||
Restructuring costs |
7,393 | | | 651 | 1,486 | 186 | 1,295 | 4,257 | ||||||||||||||||||||||||
Legal settlement cost |
361 | 1,950 | | | | | | | ||||||||||||||||||||||||
Other adjustments |
(218 | ) | (201 | ) | (314 | ) | 19 | 26 | (282 | ) | 234 | 2,268 | ||||||||||||||||||||
Share-based cash and non-cash compensation |
454 | 1,180 | 126 | 311 | 318 | 213 | 306 | 318 | ||||||||||||||||||||||||
Transaction-related costs |
123 | 146 | 2,254 | 183 | 146 | | | (46 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Adjusted EBITDA |
$ 51,429 | $ | 53,196 | $ | 68,632 | $ | 39,101 | $ | 40,748 | $ | 42,737 | $ | 66,775 | $ | 29,108 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
Store Count
From January 1, 2015 through September 30, 2017 we opened 50 stores: 20 in the United States and 30 in Canada. During the same period we closed 38 stores: 13 stores in Texas that were primarily underperforming former Money Box stores, one store in Missouri that we were unable to reopen due to fire damage, one store in Canada due to a lease that was not renewed, and 23 store locations in the United Kingdom as part of a plan to reduce operating losses in the wake of ongoing regulatory and market changes in the United Kingdom.
United States | Canada | United Kingdom | Total | |||||||||||||
January 1, 2015 store count |
209 | 161 | 23 | 393 | ||||||||||||
De novo store openings |
19 | 23 | | 42 | ||||||||||||
Closed stores |
(5 | ) | | (10 | ) | (15 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2015 store count |
223 | 184 | 13 | 420 | ||||||||||||
De novo store openings |
1 | 7 | | 8 | ||||||||||||
Closed stores |
(8 | ) | | | (8 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
December 31, 2016 store count |
216 | 191 | 13 | 420 | ||||||||||||
De novo store openings |
| | | | ||||||||||||
Closed stores |
(1 | ) | (1 | ) | (13 | ) | (15 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
September 30, 2017 store count |
215 | 190 | | 405 | ||||||||||||
|
|
|
|
|
|
|
|
Currency Information
We operate in the United States, Canada and the United Kingdom and report our consolidated results in U.S. dollars.
Changes in our reported revenues and net income include the effect of changes in currency exchange rates. All balance sheet accounts are translated into U.S. dollars at the currency exchange rate in effect at the end of each period. The income statement is translated at the average rates of exchange for the period. Currency translation adjustments are recorded as a component of Accumulated Other Comprehensive Income in stockholders equity.
Constant Currency Analysis
We have operations in the United States, Canada and the United Kingdom. In the nine months ended September 30, 2017 and 2016, approximately 23.6% and 27.4%, respectively, of our revenues were originated in currencies other than the U.S. Dollar. For the years ended December 31, 2016 and 2015, approximately 26.8% and 29.5%, respectively, of our revenues were originated in currencies other than the U.S. Dollar. As a result, changes in our reported results include the impacts of changes in foreign currency exchange rates for the Canadian Dollar and the British Pound Sterling.
Nine Months Ended September 30, 2017 and 2016
Average Exchange Rates | ||||||||||||||||
Nine Months Ended September 30, | Change | |||||||||||||||
2017 | 2016 | $ | % | |||||||||||||
Canadian Dollar |
$ | 0.7656 | $ | 0.7571 | $ | 0.0085 | 1.1 | % | ||||||||
British Pound Sterling |
$ | 1.2754 | $ | 1.3927 | $ | (0.1173 | ) | (8.4 | )% |
84
Year Ended December 31, 2016 and 2015
Average Exchange Rates | ||||||||||||||||
Year Ended December 31, | Change | |||||||||||||||
2016 | 2015 | $ | % | |||||||||||||
Canadian Dollar |
$ | 0.7551 | $ | 0.7832 | $ | (0.0281 | ) | (3.6 | )% | |||||||
British Pound Sterling |
1.3552 | 1.5282 | (0.1730 | ) | (11.3 | ) |
As additional information, we have provided a constant currency analysis below to remove the impact of the fluctuation in foreign exchange rates and utilize constant currency results in our analysis of segment performance. All conversion rates below are based on the U.S. Dollar equivalent to one of the applicable foreign currencies. We believe that the constant currency assessment below is a useful measure in assessing the comparable growth and profitability of our operations.
The revenues and gross margin below for the nine months ended September 30, 2017 were calculated using the actual average exchange rate for the nine months ended September 30, 2016:
Nine Months Ended
September 30, (unaudited) |
Change | |||||||||||||||
(dollars in thousands) |
2017 | 2016 | $ | % | ||||||||||||
Revenuesconstant currency basis: |
||||||||||||||||
Canada |
$ | 134,132 | $ | 140,852 | $ | (6,720 | ) | (4.8 | )% | |||||||
United Kingdom |
31,535 | 25,733 | 5,802 | 22.5 | % | |||||||||||
Gross marginconstant currency basis: |
||||||||||||||||
Canada |
$ | 45,438 | $ | 60,950 | $ | (15,512 | ) | (25.5 | )% | |||||||
United Kingdom |
10,719 | 9,053 | 1,666 | 18.4 | % |
The revenues and gross margin below for the year ended December 31, 2016 were calculated using the actual average exchange rate for the year ended December 31, 2015.
Year Ended
December 31, |
Change | |||||||||||||||
(dollars in thousands) |
2016 | 2015 | $ | % | ||||||||||||
Revenuesconstant currency basis: |
||||||||||||||||
Canada |
$ | 194,974 | $ | 184,859 | $ | 10,115 | 5.5 | % | ||||||||
United Kingdom |
38,110 | 54,608 | (16,498 | ) | (30.2 | )% | ||||||||||
Gross marginconstant currency basis: |
||||||||||||||||
Canada |
$ | 81,447 | $ | 77,469 | $ | 3,978 | 5.1 | % | ||||||||
United Kingdom |
11,518 | 9,504 | 2,014 | 21.2 | % |
Liquidity and Capital Resources
Our principal sources of liquidity to fund the loans we make to our customers are cash provided by operations, funds from third-party lenders under our CSO programs and our Non-Recourse U.S. SPV Facility, which finances the origination of eligible U.S. Unsecured and Secured Installment Loans at an advance rate of 80%. In February 2017, we issued our 12.00% Senior Secured Notes to refinance similar notes that were nearing maturity and whose proceeds had been used primarily for acquisitions and general corporate purposes. As of September 30, 2017, we were in compliance with all financial ratios, covenants and other requirements set forth in our debt agreements. We anticipate that our primary use of cash will be to fund growth in our working capital, finance capital expenditures and meet our debt obligations. Our level of cash flow provided by operating activities typically experiences some seasonal fluctuation related to our levels of net income and changes in working capital levels, particularly loan receivables.
85
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. We have the ability to adjust our volume of lending to consumers which would reduce cash outflow requirements while increasing cash inflows through loan repayments to the extent we experience any short-term or long-term funding shortfalls. We may also sell or securitize our assets, draw on our available line of credit, enter into additional refinancing agreements and reduce our capital spending in order to generate additional liquidity. We believe our cash on hand and available borrowings provide us with sufficient liquidity for at least the next twelve months.
Borrowings
Our long-term debt consisted of the following as of September 30, 2017, December 31, 2016 and December 31, 2015 (net of deferred financing costs):
(in thousands) |
September 30,
2017 (unaudited) |
December 31,
2016 |
December 31,
2015 |
|||||||||
12.00% Senior Secured Notes |
$ | 449,737 | $ | | $ | | ||||||
May 2011 10.75% Senior Secured Notes due 2018 |
| 223,164 | 246,692 | |||||||||
May 2012 10.75% Senior Secured Notes due 2018 |
| 89,734 | 89,406 | |||||||||
February 2013 10.75% Senior Secured Notes due 2018 |
| 101,184 | 101,937 | |||||||||
Senior Cash Pay Notes |
| 124,365 | 123,640 | |||||||||
Non-Recourse U.S. SPV Facility |
112,135 | 63,054 | | |||||||||
ABL Facility |
| 23,406 | | |||||||||
Revolving credit facility |
| | 8,050 | |||||||||
|
|
|
|
|
|
|||||||
Total long-term debt, including current portion |
561,872 | 624,907 | 569,725 | |||||||||
Less: current maturities of long-term debt |
| 147,771 | 8,050 | |||||||||
|
|
|
|
|
|
|||||||
Long-term debt |
$ | 561,872 | $ | 477,136 | $ | 561,675 | ||||||
|
|
|
|
|
|
Available Credit Facilities and Other Resources
12.00% Senior Secured Notes
On February 15, 2017, CFTC issued $470.0 million aggregate principal amount of 12.00% Senior Secured Notes due March 1, 2022, or the 12.00% Senior Secured Notes. Interest on the 12.00% Senior Secured Notes is payable semiannually, in arrears, on March 1 and September 1 of each year, beginning on September 1, 2017. The proceeds from the 12.00% Senior Secured Notes were used, together with available cash, to (i) redeem the outstanding 10.75% Senior Secured Notes due 2018 of our wholly-owned subsidiary, CURO Intermediate, (ii) redeem our outstanding 12.00% Senior Cash Pay Notes due 2017, or the Senior Cash Pay Notes and (iii) pay fees, expenses, premiums and accrued interest in connection with the offering. The extinguishment of all of the 10.75% Senior Secured Notes due 2018 and the Senior Cash Pay Notes resulted in a pretax loss of $12.5 million in the nine months ended September 30, 2017.
In connection with this debt issuance we capitalized financing costs of approximately $14.0 million, the balance of which are included in the Interim Consolidated Balance Sheets as a component of Long-Term Debt, and are being amortized over the term of the 12.00% Senior Secured Notes and included as a component of interest expense.
The 12.00% Senior Secured Notes rank senior in right of payment to all of our and our guarantor entities existing and future subordinated indebtedness and equal in right of payment with all our and our guarantor entities existing and future senior indebtedness of the Company, including borrowings under our revolving credit facilities. The 12.00% Senior Secured Notes and the guarantees are effectively subordinated to our credit facilities and certain other indebtedness to the extent of the value of the assets securing such indebtedness and to liabilities of our subsidiaries that are not guarantors.
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The 12.00% Senior Secured Notes are secured by liens on substantially all of our and the guarantors assets, subject to certain exceptions. On or after March 1, 2019, we may redeem some or all of the Notes at a premium that will decrease over time, plus accrued and unpaid interest, if any to the applicable date of redemption. Prior to March 1, 2019, we will be able to redeem up to 40% of the Notes at a redemption price of 112% of the principal amount of the Notes redeemed, plus accrued and unpaid interest to the redemption date with the net cash proceeds of certain equity offerings. Prior to March 1, 2019, subject to certain terms and conditions, we may redeem the Notes, in whole or in part, by paying a make-whole premium plus accrued and unpaid interest to the redemption date.
On November 2, 2017, CFTC issued $135 million aggregate principal amount of additional 12.00% Senior Secured Notes in a private offering exempt from the registration requirements of the Securities Act. See Recent Developments for additional information.
Non-Recourse U.S. SPV Facility
On November 17, 2016, CURO Receivables Finance I, LLC, a Delaware limited liability company, and our wholly-owned subsidiary, which we refer to in this prospectus as the SPV Borrower, entered into a five-year revolving credit facility with Victory Park Management, LLC and certain other lenders, or our Non-Recourse U.S. SPV Facility. This facility provides for an $80.0 million term loan and $45.0 million of initial revolving borrowing capacity, with the ability to expand the revolving borrowing capacity over time and an automatic expansion to $70.0 million on the six-month anniversary of the closing date, May 17, 2017. On November 17, 2016, CURO Intermediate entered into a six-month recourse credit facility with Victory Park Management, LLC and certain other lenders, or the ABL Facility, which provided for $25.0 million of borrowing capacity. The ABL Facility matured in May 2017 and was fully converted to the Non-Recourse SPV Facility. See Note 11, Long-Term Debt of our Notes to Interim Consolidated Financial Statements included elsewhere in this prospectus for further detail.
Senior Revolver
On September 1, 2017, we closed a $25 million Senior Secured Revolving Loan Facility, or the Senior Revolver. The negative covenants of the Senior Revolver generally conform to the related provisions in the Indenture for our 12.00% Senior Secured Notes. We believe this facility complements our other financing sources, while providing seasonal short-term liquidity. Under the Senior Revolver, there is $25 million maximum availability, including up to $5 million of standby letters of credit, for a one-year term, renewable for successive terms following annual review. The Senior Revolver accrues interest at the one-month LIBOR (which may not be negative) plus 5.00% per annum and is repayable on demand. The terms of the Senior Revolver require that the outstanding balance be reduced to $0 for at least 30 consecutive days in each calendar year. The Senior Revolver is guaranteed by all subsidiaries of CURO that guarantee our 12.00% Senior Secured Notes and is secured by a lien on substantially all assets of CURO and the guarantor subsidiaries that is senior to the lien securing our 12.00% Senior Secured Notes. The Senior Revolver was undrawn at September 30, 2017.
Cash Money Revolving Credit Facility
On November 4, 2011, one of our Canadian subsidiaries, Cash Money, entered into a CAD 7.5 million revolving credit facility, or the Cash Money Revolving Credit Facility, which is intended to afford us an additional element of liquidity to meet the short-term working capital needs of our Canadian operations. Aggregate draws on the Cash Money Revolving Credit Facility are limited to the lesser of: (i) the borrowing base, which is defined as a percentage of cash, deposits in transit and accounts receivable, and (ii) CAD 7.5 million.
The Cash Money Revolving Credit Facility is collateralized by substantially all of Cash Moneys assets and contains various covenants that include, among other things, that the aggregate borrowings outstanding under the
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facility not exceed the borrowing base, restrictions on the encumbrance of assets and the creation of indebtedness. Borrowings under the Cash Money Revolving Credit Facility are subject to compliance with these covenants. Borrowings under the Cash Money Revolving Credit Facility bear interest (per annum) at the prime rate of a Canadian chartered bank plus 1.95%.
The Cash Money Revolving Credit Facility was undrawn at September 30, 2017 and December 31, 2016. On September 30, 2016, the CAD 7.5 million borrowing capacity under our revolving credit facility was reduced by $0.2 million in stand-by letters of credit.
Balance Sheet Changes September 30, 2017 compared to December 31, 2016
Cash Cash decreased from 2016 year-end primarily because of the redemption of the Companys 10.75% Senior Secured Notes due 2017 and CURO Intermediates 10.75% Senior Secured Notes due 2018, or the Former Senior Secured Notes. On February 15, 2017, the Company issued $470 million of its 12.00% Senior Secured Notes. The proceeds were used to redeem the $539.9 million outstanding of Former Senior Secured Notes. In total, the redemption of the Former Senior Secured Notes required $122.5 million of our cash after including accrued interest, prepayment penalties, transaction costs and original-issue discount. The decrease in cash from the refinancing was offset partially by cash generated by operations in the first nine months of 2017.
Restricted Cash Restricted cash increased from 2016 year-end because of increased cash in our consolidated wholly-owned, bankruptcy-remote special purpose subsidiaries, or VIEs, from underlying Installment Loan volume growth.
Gross Loans Receivable and Allowance for Loan Losses Changes in Gross Loans Receivable and related Allowance for Loan Losses are due to high customer demand and loan origination volumes during the first nine months of 2017, concentrated in Installment Loans. The Company originated $563.1 million and $135.8 million of Unsecured and Secured Installment Loans, respectively, in the first nine months of 2017.
Other Assets Other assets increased primarily because of our $5.0 million investment in Cognical Holdings, Inc. preferred stock. For additional information, see Note 14, Financial Instruments and Concentrations of our Notes to Interim Consolidated Financial Statements included elsewhere in this prospectus.
Long-term debt (including current maturities) and Accrued Interest Changes from year-end 2016 are due to the refinancing of the Former Senior Secured Notes and the conversion of the ABL Facility to the Non-Recourse U.S. SPV Facility. See Note 11, Long-Term Debt of our Notes to Interim Consolidated Financial Statements included elsewhere in this prospectus for detailed discussion of changes in debt balances.
Cash Flows
The following highlights our cash flow activity and the sources and uses of funding during the periods indicated:
Nine Months Ended | Year Ended | |||||||||||||||
(in thousands) |
September 30,
2017 (unaudited) |
September 30,
2016 (unaudited) |
December 31,
2016 |
December 31,
2015 |
||||||||||||
Net cash provided by operating activities |
$ | 29,412 | $ | 85,829 | $ | 47,712 | $ | 17,114 | ||||||||
Net cash (used in) provided by investing activities |
(16,252 | ) | (3,811 | ) | (12,922 | ) | (26,255 | ) | ||||||||
Net cash (used in) provided by financing activities |
(115,555 | ) | (8,050 | ) | 59,382 | (12,321 | ) |
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Nine Months Ended September 30, 2017 and 2016
Cash flows provided by operating activities
During the nine months ended September 30, 2017 our operating activities provided net cash of $29.4 million. Contributing to current year net cash provided by operating activities were net income of $42.7 million, and non-cash expenses, such as depreciation and amortization, the provision for loan losses, and a loss on debt extinguishment for a total of $256.9 million, partially offset by changes in our operating assets and liabilities of $270.2 million. The most significant change within operating assets and liabilities was a $295.1 million increase in loans receivable.
Cash flows used in investing activities
During the nine months ended September 30, 2017, we used cash of $16.3 million to increase our restricted cash balances by approximately $3.4 million to purchase approximately $7.9 million of property and equipment, including software licenses and to purchase $5.0 of Cognical Holdings preferred shares. The increase in restricted cash was primarily attributable to our Non-Recourse U.S. SPV Facility.
Cash flows used in financing activities
Net cash used for the nine months ended September 30, 2017 was $115.6 million. During this period we extinguished our 10.75% Senior Secured Notes for $426.0 million (which included $8.9 million of call premium) and extinguished our Senior Cash Pay Notes for $130.1 million. These payments were partially financed by proceeds of $447.6 million (net of $14.0 million of debt issuance costs and $8.5 million of discount on notes issued) from the issuance of the 12.00% Senior Secured Notes. We also had net borrowings of $24.9 million from our Non-Recourse U.S. SPV Facility and our ABL Facility. We also paid dividends of $36.5 million to our stockholders.
Years Ended December 31, 2016 and 2015
Cash flows provided by operating activities
During the year ended December 31, 2016 our operating activities provided net cash of $47.7 million, compared to $17.1 million in net cash used in operating activities during the year ended December 31, 2015. Contributing to net cash provided by operating activities in 2016 were net income of $65.4 million, and non-cash expenses, such as depreciation and amortization, the provision for loan losses, and a benefit related to deferred income taxes, of $278.7 million; non-cash restructuring costs of $0.5 million, partially offset by a $7.0 million non-cash benefit from a gain on debt extinguishment and a $290.0 million net decrease in cash resulting from changes in operating assets and liabilities. The most significant change within operating assets and liabilities was a $287.8 million increase in loans receivable, net of provision for losses.
Loans receivable will fluctuate from period to period depending on the timing of loan issuances and collections. A seasonal decline in consumer loans receivable typically takes place during the first quarter of the year and is driven by income tax refunds in the United States. Customers receiving income tax refunds will use the proceeds to pay outstanding loan balances, resulting in an increase of our net cash balances and a decrease of our consumer loans receivable balances. Consumer loans receivable balances typically reflect growth during the remainder of the year.
Cash flows used in investing activities
During the year ended December 31, 2016 we used net cash of $16.0 million for the purchase of property and equipment, including software licenses, partially offset by a $3.1 million decrease in our restricted cash
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balance. This compared to $26.3 million in net cash used in investing activities during the year ended December 31, 2015. The growth in property and equipment was driven primarily by capital expenditures associated with new store openings in Canada, store refreshes in the United States, and expenditures for software licenses. For the year ended December 31, 2016 we also received £1.4 million ($1.9 million) of funds previously placed in a collateral account with a U.K. banking institution, and received $4.0 million of funds previously placed in a collateral account with a U.S. banking institution. As a result of the borrowings from the Non-Recourse U.S. SPV Facility, approximately $2.8 million of cash was restricted.
Cash flows provided by (used in) financing activities
During the year ended December 31, 2016, net cash provided by financing activities was $59.4 million, compared to $12.3 million in net cash used in financing activities during the year ended December 31, 2015. The change was primarily due to $91.7 million of proceeds received from new borrowings from our newly created Non-Recourse U.S. SPV Facility and ABL Facility. In addition, we incurred additional deferred financing costs associated with this debt. During the year ended December 31, 2016, CURO Intermediate used cash of $18.9 million to purchase $25.1 million of outstanding May 2011 10.75% Senior Secured Notes at 71.25% of the principal, plus accrued and unpaid interest of $1.0 million via an open-market purchase. During the year, we also received proceeds from draws on our credit facilities of $30.0 million, and repaid $38.1 million of the outstanding balance of borrowings on our credit facilities. Borrowings under our credit facilities provided us with short-term liquidity and were used for working capital requirements and to fund capital expenditures.
Contractual Obligations
As discussed in Liquidity and Capital ResourcesBorrowings, on February 15, 2017, CFTC issued $470.0 million of 12.00% Senior Secured Notes. Interest on the notes is payable semiannually, in arrears, on March 1 and September 1 of each year, beginning on September 1, 2017. The proceeds from the notes and available cash were used to (i) redeem 10.75% Senior Secured Notes due 2018 of our subsidiary, CURO Intermediate, (ii) redeem our 12.00% Senior Cash Pay Notes due 2017, and (iii) pay fees, expenses, premiums and accrued interest in connection with the offering.
On September 1, 2017, we closed a $25.0 million Senior Secured Revolving Loan Facility, or the Senior Revolver. The negative covenants of the Senior Revolver generally conform to the related provisions of the Indenture dated February 15, 2017 for our 12.00% Senior Secured Notes and complements our other financing sources, while providing seasonal short-term liquidity. The Senior Revolver was undrawn at September 30, 2017.
Additional Notes Offering and Dividend
On November 2, 2017, CFTC issued $135 million principal amount of additional 12.00% Senior Secured Notes in a private offering exempt from the registration requirements of the Securities Act, or the Additional Notes Offering. We used the proceeds from the Additional Notes Offering, together with available cash, to (i) pay a cash dividend, in an amount of $140 million, and (ii) pay fees and expenses in connection therewith. CFTC received the consent of the holders holding a majority in the outstanding principal amount outstanding of the current 12.00% Senior Secured Notes to a one-time waiver with respect to the restrictions contained in Section 5.07(a) of the indenture governing the 12.00% Senior Secured Notes to permit the dividend.
Other than the above transactions, or as otherwise disclosed in this prospectus, there have been no significant developments with respect to our contractual obligations since December 31, 2016.
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Historical
The following table sets forth a summary of our principal future legal obligations and commitments, as well as the interest payable on our senior secured notes and cash pay notes, as of December 31, 2016, prior to the issuance and redemption discussed above:
Payments Due by Period | ||||||||||||||||||||
(in thousands) |
Total |
Less Than
One Year |
One to
Three Years |
Three to
Five Years |
More
Than Five Years |
|||||||||||||||
Long-term obligations(1) |
$ | 633,826 | $ | 148,406 | $ | 417,109 | $ | 68,311 | $ | | ||||||||||
Interest on long-term obligations |
135,914 | 70,738 | 44,401 | 20,775 | | |||||||||||||||
Operating leases |
116,135 | 26,296 | 39,357 | 24,628 | 25,854 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 885,875 | $ | 245,440 | $ | 500,867 | $ | 113,714 | $ | 25,854 | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | Includes principal payment on our Senior Cash Pay Notes, which we redeemed in 2017; our ABL Facility, which matured in 2017; our 10.75% Senior Secured Notes due 2018, which we redeemed in 2017; the present value of the escrow note related to the Cash Money acquisition, which matures in 2019; and our Non-Recourse U.S. SPV Facility, which matures in 2021. |
Pro Forma
In February 2017, CFTC issued $470.0 million of 12.00% Senior Secured Notes and we redeemed two other series of outstanding notes. Additionally, in May 2017 our ABL Facility matured, and our Non-Recourse U.S. SPV Facility expanded by $70.0 million to a total capacity of $150.0 million. On November 2, 2017, CFTC issued $135 million principal amount of additional 12.00% Senior Secured Notes. The following table presents our principal future legal obligations and commitments, as of December 31, 2016, after giving pro forma impact to the above mentioned items.
Pro FormaPayments Due by Period | ||||||||||||||||||||
(in thousands) |
Total |
Less
Than One Year |
One to
Three Years |
Three to
Five Years |
More
Than Five Years |
|||||||||||||||
Long term obligations(1) |
$ | 698,944 | $ | 23,406 | $ | 2,227 | $ | 68,311 | $ | 605,000 | ||||||||||
Interest on long-term obligations |
408,914 | 39,338 | 167,301 | 165,975 | 36,300 | |||||||||||||||
Operating leases |
116,135 | 26,296 | 39,357 | 24,628 | 25,854 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total |
$ | 1,223,993 | $ | 89,040 | $ | 208,885 | $ | 258,914 | $ | 667,154 | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | Includes the present value of the escrow note related to the Cash Money acquisition, which matures in 2019; our Non-Recourse U.S. SPV Facility, which matures in 2021; and principal payments on CFTCs 12.00% Senior Secured Notes. |
Operating Leases
We have entered into operating lease agreements for the buildings in which we operate that expire at various times through 2030. The majority of the leases have an original term of five years with two, five-year renewal options. Most of the leases have escalation clauses and several also require payment of certain period costs including maintenance, insurance and property taxes.
Some of the leases are with related parties and have terms similar to the non-related party leases previously described. Rent expense on unrelated third-party leases for the years ended December 31, 2016, 2015 and 2014 was $23.1 million, $23.3 million, and $22.3 million, respectively; and for related-party leases was $3.3 million, $3.2 million, and $3.2 million, respectively.
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Future minimum lease payments that we are contractually obligated to make under operating leases are as follows at December 31, 2016.
(in thousands) |
Third Party | Related-Party | Total | |||||||||
2017 |
$ | 22,933 | $ | 3,363 | $ | 26,296 | ||||||
2018 |
20,382 | 1,115 | 21,497 | |||||||||
2019 |
17,030 | 830 | 17,860 | |||||||||
2020 |
13,307 | 725 | 14,032 | |||||||||
2021 |
9,921 | 675 | 10,596 | |||||||||
Thereafter |
24,330 | 1,524 | 25,854 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 107,903 | $ | 8,232 | $ | 116,135 | ||||||
|
|
|
|
|
|
Off-Balance Sheet Arrangements
We originate loans in all of our store locations and online, except for our operations in Texas and Ohio. In these states, we operate as a Credit Services Organization, or CSO, through three of our operating subsidiaries. Our CSO program in Texas is licensed as a Credit Access Business, or CAB, under Texas Finance Code Chapter 393 and regulated by the Texas Office of the Consumer Credit Commissioner. Our CSO program in Ohio is registered under the Credit Services Organization Act, Ohio Revised Code Sections 4712.01 to 4712.99, and regulated by the Ohio Department of Commerce Division of Financial Institutions. As a CAB, we charge our customers a fee, or CSO fee, for arranging an unrelated third-party to make a loan to that customer. When a customer executes an agreement with us under our CSO programs, we agree, for a CSO 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 the customer receives from the third-party lender. For CSO loans, each lender is responsible for providing the criteria by which the customers application is underwritten and, if approved, determining the amount of the customer loan. We in turn are responsible for assessing whether or not we will guarantee the loan. This guarantee represents an obligation to purchase specific loans if they go into default. Since the loans are made by a third-party lender, they are not included in our Consolidated Balance Sheets as loans receivable.
As of September 30, 2017, the maximum amount payable under all such guarantees was $59.1 million, compared to $59.6 million at December 31, 2016. Should we be required to pay any portion of the total amount of the loans we have guaranteed, we will attempt to recover the amount we pay from the customers. We hold no collateral in respect of the guarantees. The initial measurement of this guarantee liability is recorded at fair value and reported in the Credit services organization guarantee liability line in our Consolidated Balance Sheets. The fair value of the guarantee is measured by assessing the nature of the loan products, the credit worthiness of the borrowers in the customer base, the Companys historical loan default history for similar loans, industry loan default history, and historical collection rates on similar products, current default trends, past-due account roll rates, changes to underwriting criteria or lending policies, new store development or entrance into new markets, changes in jurisdictional regulations or laws, recent credit trends and general economic conditions. Our guarantee liability was $16.9 million and $17.1 million at September 30, 2017 and December 31, 2016, respectively.
Additionally, we enter into operating leases in the normal course of business. Our operating lease obligations are discussed in Note 18, Operating Leases of our Notes to Consolidated Financial Statements included elsewhere in this prospectus, and are also included in the table under Contractual Obligations above.
Critical Accounting Policies
We consider our accounting policies related to revenue recognition, provision for loan losses, allowance for loan losses and CSO guarantee liability, share-based compensation, goodwill, business combination accounting, identifiable intangible assets, and income taxes to be critical policies in understanding our historical and future performance.
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Revenue Recognition
We offer a variety of loan products including Installment, Open-End and Single-Pay Loans. Product offerings differ by jurisdiction and are governed by the laws in each separate jurisdiction.
Installment Loans, which include secured auto title installment loans and Unsecured Installment Loans, require periodic payments of principal and interest. Installment Loans are fully amortized loans with a fixed payment amount, which includes principal and accrued interest, due each period during the term of the loan. The loan terms for Installment Loans can range up to 48 months depending on state regulations. We record revenue from Installment loans on a simple-interest basis. Unpaid and accrued interest and fees are included in gross loans receivable in the Consolidated Balance Sheets.
Open-End Loans function much like a revolving line-of-credit, whereby the periodic payment is a set percentage of the customers outstanding loan balance, and there is no defined loan term. We record revenue from Open-End Loans on a simple interest basis. Unpaid and accrued interest and fees are included in gross loans receivable in the Consolidated Balance Sheets.
Single-Pay Loans are primarily payday loans and auto title loans. A Single-Pay auto title loan allows a customer to obtain a loan using their car as collateral for the loan with a typical loan term of 30 days. Revenues from Single-Pay Loan products are recognized each period on a constant-yield basis ratably over the term of each loan. We defer recognition of the unearned fees we expect to collect based on the remaining term of the loan at the end of each reporting period.
Check cashing fees, money order fees and other fees from ancillary products and services are generally recognized at the point-of-sale when the transaction is completed. We also earn revenue from the sale of credit protection insurance in the Canadian market. Insurance revenues are recognized ratably over the term of the loan.
Current and Past-Due Loans Receivable
We classify our loans receivable as either current or past-due. Single-Pay and Open-End Loans are considered past-due when a customer misses a scheduled payment and charged-off to the allowance for loan losses. The charge-off of Unsecured Installment and Secured Installment Loans was impacted by a change in accounting estimate in the nine months ended September 30, 2017.
Effective January 1, 2017, we modified the timeframe in which Installment Loans are charged-off and made related refinements to our loss provisioning methodology. Prior to January 1, 2017, we deemed all loans uncollectible and charged-off when a customer missed a scheduled payment and the loan was considered past-due. Because of the Companys continuing shift from Single-Pay to Installment Loan products and analysis of the timing and quantity of payments on early-stage versus late-stage delinquencies, we have revised our estimates and now consider Installment Loans uncollectible when the loan has been past-due for 90 consecutive days. Consequently, past-due Installment Loans remain in loans receivable, with disclosure of past-due balances, for 90 days before being charged-off against the allowance for loan losses. Subsequently, all recoveries on charged-off loans are credited to the allowance for loan losses.
In the income statement, the provision for losses for Installment Loans is based on an assessment of the cumulative net losses inherent in the underlying loan portfolios, by vintage, and other quantitative and qualitative factors. The resulting loss provision rate is applied to loan originations to determine the provision for losses. In addition to improving estimated collectability and loss recognition for Installment Loans, we also believe these refinements are better aligned with industry comparisons and practices.
The aforementioned change was treated as a change in accounting estimate. In accordance with Accounting Standards Codification 250 which addresses a change in accounting estimate, the change is being applied
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prospectively and is effective January 1, 2017. As a result, some credit quality metrics for the nine months ended September 30, 2017 may not be comparable to historical periods. Throughout the remainder of this report, we refer to the change in as the Q1 Loss Recognition Change.
Installment Loans generally are considered past-due when a customer misses a scheduled payment. Loans zero to 90 days past-due included in gross loans receivable. The Company accrues interest on past-due loans until charged off. The amount of the resulting charge-off includes unpaid principal, accrued interest and any uncollected fees, if applicable. Consequently, net loss rates that include accrued interest will be higher than under the methodology applied prior to January 1, 2017.
In addition to the revised loss provision rates to accommodate the change in estimate, $56.0 million of past-due Installment Loans were included in gross loans receivable as of September 30, 2017. Before the Q1 Loss Recognition Change, no past-due loans were included in gross loans receivable.
Allowance for Loan Losses
The allowance for loan losses is primarily based on back-testing of subsequent collections history by product and cumulative aggregate net losses by product and by vintage. We do not specifically reserve for any individual loan but rather segregate loans into separate pools based upon loan portfolios containing similar risk characteristics. Additional quantitative factors, such as current default trends, past-due account roll rates (expected future cash collections by past-due aging category based on current trends) and changes to underwriting and portfolio mix are also considered in evaluating the adequacy of the allowance and current provision rates. Qualitative factors such as the impact of new loan products, changes to underwriting criteria or lending policies, new store development or entrance into new markets, changes in jurisdictional regulations or laws, recent credit trends and general economic conditions impact managements judgment on the overall adequacy of the allowance for loan losses.
In addition to the effect on Installment provision rates and loan balances, the Q1 Loss Recognition Change affected comparability of activity in the related allowance for loan losses. Specifically, no Unsecured Installment or Secured Installment Loans were charged-off to the allowance for loan losses in the three months ended March 31, 2017 because charge-off effectively occurs on day 91 under the revised methodology and no affected loans originated during the period reached day 91 until April 2017. Actual charge-offs and recoveries on defaulted/charged-off loans from the three months ended March 31, 2017 will affect the allowance for loan losses in prospective periods. But, as discussed previously, the related net losses were recognized in the Interim Consolidated Statement of Income during the nine months ended September 30, 2017 by applying expected net loss provision rates to the related loan originations .
Credit Services Organization
Through our CSO programs, we act as a credit services organization/credit access business on behalf of customers in accordance with applicable state laws. We currently offer loans through CSO programs in stores and online in the state of Texas and online in the state of Ohio. In Texas we offer Unsecured Installment Loans and Secured Installment Loans with a maximum term of 180 days. In Ohio we offer an Unsecured Installment Loan product with a maximum term of 18 months. As a CSO we earn revenue by charging the customer a fee, or the CSO fee, for arranging an unrelated third-party to make a loan to that customer. When a customer executes an agreement with us under our CSO programs, we agree, for a CSO 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 the customer receives from the third-party lender. CSO fees are calculated based on the amount of the customers outstanding loan. For CSO loans, each lender is responsible for providing the criteria by which the customers application is underwritten and, if approved, determining the amount of the customer loan. We in turn are responsible for assessing whether or not we will guarantee the loan. This guarantee represents an obligation to purchase specific loans if they go into default.
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These guarantees are performance guarantees as defined in ASC Topic 460. Performance guarantees are initially accounted for pursuant to ASC Topic 460 and recognized at fair value, and subsequently pursuant to ASC Topic 450 as contingent liabilities when we incur losses as the guarantor. The initial measurement of the guarantee liability is recorded at fair value and reported in the Credit services organization guarantee liability line in our Consolidated Balance Sheets. The initial fair value of the guarantee is the price we would pay to a third party market participant to assume the guarantee liability. There is no active market for transferring the guarantee liability. Accordingly, we determine the initial fair value of the guarantee by estimating the expected losses on the guaranteed loans. The expected losses on the guaranteed loans are estimated by assessing the nature of the loan products, the credit worthiness of the borrowers in the customer base, our historical loan default history for similar loans, industry loan default history, and historical collection rates on similar products, current default trends, past-due account roll rates, changes to underwriting criteria or lending policies, new store development or entrance into new markets, changes in jurisdictional regulations or laws, recent credit trends and general economic conditions. We review the factors that support estimates of expected losses and the guarantee liability monthly. In addition, because the majority of the underlying loan customers make bi-weekly payments, loan-pool payment performance is evaluated more frequently than monthly.
Our guarantee liability represents the unamortized portion of the guarantee obligation required to be recognized at inception of the performance guarantee in accordance with ASC Topic 460 and a contingent liability for those performance guarantees where it is probable that we will be required to purchase the guaranteed loan from the lender in accordance with ASC Topic 450.
CSO fees are calculated based on the amount of the customers outstanding loan. We comply with the applicable 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. For services we provide under our CSO programs, we receive payments from customers on their scheduled loan repayment due dates. The CSO fee is earned ratably over the term of the loan as the customers make payments. If a loan is paid off early, no additional CSO fees are due or collected. The maximum CSO loan term is 180 days and 18 months in Texas and Ohio, respectively.
Since CSO loans are made by a third party lender, we do not include them in our Consolidated Balance Sheets as loans receivable. CSO fees receivable are included in Prepaid expense and other in our Consolidated Balance Sheets. We receive payments from customers for these fees on their scheduled loan repayment due dates.
Share-Based Compensation
In accordance with applicable accounting standards, we account for share-based compensation expense for awards to our employees and directors at the estimated fair value on the grant date. The fair value of stock option grants is determined using the Black-Scholes option pricing model, which requires us to make several highly subjective and complex assumptions including, but not limited to, risk-free interest rate and expected life, changes to which can materially affect the fair value estimate. Since our common stock is not publicly traded, the performance of the common stock of public traded companies from our industry sector, which we determined to include the alternative financial sector, were used to estimate the expected volatility of our stock. Our expected option term is calculated using the average of the vesting period and the original contractual term. The estimated fair value of share-based awards is recognized as compensation expense on a straight-line basis over the vesting period. Additionally, the recognition of share-based compensation expense requires an estimation of the number of awards that will ultimately vest and the number of awards that will ultimately be forfeited.
Goodwill
Goodwill is initially valued based on the excess of the purchase price of a business combination over the fair value of the acquired net assets recognized and represents the future economic benefits arising from other assets
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acquired that could not be individually identified and separately recognized. Intangible assets other than goodwill are initially valued at fair value. When appropriate, we utilize independent valuation experts to advise and assist us in determining the fair value of the identified intangible assets acquired in connection with a business acquisition and in determining appropriate amortization methods and periods for those intangible assets. Any contingent consideration included as part of the purchase is recognized at its fair value on the acquisition date. A liability resulting from contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved. Changes in the fair value of contingent consideration are recognized in earnings.
Our annual impairment review for goodwill consists of performing a qualitative assessment to determine whether it is more likely than not that a reporting units fair value is less than its carrying amount as a basis for determining whether or not further testing is required. We may elect to bypass the qualitative assessment and proceed directly to the two-step process, for any reporting unit, in any period. We can resume the qualitative assessment for any reporting unit in any subsequent period. If we determine, on the basis of qualitative factors, that it is more likely than not that the fair value of the reporting unit is less than the carrying amount, we will then apply a two-step process of determining the fair value of the reporting unit and comparing it to the carrying value of the net assets allocated to the reporting unit. When performing the two-step process, if the fair value of the reporting unit exceeds its carrying value, no further analysis or write-down of goodwill is required. In the event the estimated fair value of a reporting unit is less than the carrying value, additional analysis is required. The additional analysis compares the carrying amount of the reporting units goodwill with the implied fair value of the goodwill. The use of external independent valuation experts may be required to assist management in determining the fair value of the reporting unit. The implied fair value of the goodwill is the excess of the fair value of the reporting unit over the fair value amounts assigned to all of the assets and liabilities of that unit as if the reporting unit was acquired in a business combination and the fair value of the reporting unit represented the purchase price. If the carrying value of goodwill exceeds its implied fair value, an impairment loss equal to such excess is recognized, which could significantly and adversely impact reported results of operations and stockholders equity. During the fourth quarter of 2016, we performed the first step of the two-step process and determined that the implied fair value of our reporting units exceed their carrying values, and therefore, the second step was not performed and no further analysis or write-down of goodwill is required.
During the third quarter of 2015, due to the declines in our overall financial performance in the United Kingdom, we determined that a triggering event had occurred requiring an impairment evaluation of our goodwill and other intangible assets in the United Kingdom. As a result, during the third quarter of 2015, we recorded non-cash impairment charges of $2.9 million which were comprised of a $1.8 million charge related to the Wage Day trade name, a $0.2 million charge related to the customer relationships acquired as part of the acquisition of Wage Day, and a $0.9 million non-cash goodwill impairment charge in our U.K. reporting segment.
For the U.K. reporting unit, the estimated fair value as determined by the Discounted Cash Flow, or DCF, model was lower than the associated carrying value. As a result, management performed the second step of the impairment analysis in order to determine the implied fair value of the U.K.s goodwill. The results of the second-step analysis indicated that the implied fair value of goodwill was £17.7 million. Therefore, in 2015, we recorded a non-cash goodwill impairment charge of £0.6 million ($0.9 million). The key assumptions used to determine the fair value of the U.K. reporting unit included the following: (i) the discount rate was 11%; (ii) terminal period growth rate of 2.0%; and (iii) effective combined tax rate of 20%.
During the 2015 annual review of goodwill, we performed the qualitative assessment for our U.S. and Canada reporting units. Management concluded that it was not more likely than not that the estimated fair values of these two reporting units were less than their carrying values. As such, no further analysis was required for these reporting units. As part of this annual impairment test in the fourth quarter, we reviewed our analysis done in the third quarter for the United Kingdom and updated projections as appropriate. Management concluded as a result of this analysis that it was not more likely than not that the estimated fair values of the reporting units were less than their carrying values.
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The impairment of the goodwill on our U.K. reporting unit resulted primarily from changes to the regulatory environment in the United Kingdom that resulted in managements downward revision of its cash flow projections for the U.K. reporting unit. The primary driver of decreased volumes in the United Kingdom was the direct result of recent regulatory changes, primarily the new Financial Conduct Authority, or FCA, rules that took effect on July 1, 2014, which reduced loan refinancing transactions from three to two and reduced the number of continuous payment authority attempts from three to two. Additionally, the FCA implemented a rate cap on high-cost short-term credit products that took effect on January 2, 2015. This price cap includes three components: (i) an initial cap of 0.8% of the outstanding principal per day; (ii) a default fee fixed rate of £15; and (iii) a total cost of credit cap of 100% of the total amount borrowed applying to all interest, fees and charges. With the imposition of the new rate cap, we ceased offering any new Installment Loan products in the United Kingdom in favor of a new rate capped single pay loan product. Additionally, the increase in compliance requirements has driven up the administrative costs necessary to operate in the United Kingdom. We modeled the impact of all of these regulatory changes in the projections used in our second-step analysis.
Business combination accounting
We have acquired businesses in the past, and we may acquire additional businesses in the future. Business combination accounting requires us to determine the fair value of all assets acquired, including identifiable intangible assets, liabilities assumed, and contingent consideration issued in a business combination. The cost of the acquisition is allocated to these assets and liabilities in amounts equal to the estimated fair value of each asset and liability, and any remaining acquisition cost is classified as goodwill. This allocation process requires extensive use of estimates and assumptions, including estimates of future cash flows to be generated by the acquired assets. We engage third-party appraisal firms to assist in fair value determination when appropriate. Our acquisitions may also include contingent consideration, or earn-out provisions, which provide for additional consideration to be paid to the seller if certain future conditions are met. These earn-out provisions are estimated and recognized at fair value at the acquisition date based on projected earnings or other financial metrics over specified periods after the acquisition date. These estimates are reviewed during each reporting period and adjusted based upon actual results. Acquisition-related costs for potential and completed acquisitions are expensed as incurred, and are included in corporate expense in the Consolidated Statements of Income.
Income Taxes
A deferred tax asset or liability is recognized for the anticipated future tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the financial statements and for operating loss and tax credit carryforwards. A valuation allowance is provided when, in the opinion of management, it is more likely than not that some portion or all of a deferred tax asset will not be realized. Realization of the deferred tax assets is dependent on our ability to generate sufficient future taxable income and, if necessary, execution of our tax planning strategies. In the event we determine that sufficient future taxable income, taking into consideration tax planning strategies, may not generate sufficient taxable income to fully realize net deferred tax assets, we may be required to establish or increase valuation allowances by a charge to income tax expense in the period such a determination is made. This charge may have a material impact on recognized income tax expense on our Consolidated Statements of Income. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The recognition of a change in enacted tax rates may have a material impact on recognized income tax expense and on our Consolidated Statements of Income.
We follow accounting guidance which prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under this guidance, tax positions are initially recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax
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positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts. Application of this guidance requires numerous estimates based on available information. We consider many factors when evaluating and estimating our tax positions and tax benefits, and our recognized tax positions and tax benefits may not accurately anticipate actual outcomes. As we obtain additional information, we may need to periodically adjust our recognized tax positions and tax benefits. These periodic adjustments may have a material impact on our Consolidated Statements of Income. For additional information related to uncertain tax positions, see Note 13 Income Taxes of our Notes to Consolidated Financial Statements included elsewhere in this prospectus.
Recent Accounting Pronouncements
See Note 1, Summary of Significant Accounting Policies and Nature of Operations of our Notes to Consolidated Financial Statements included elsewhere in this prospectus for a discussion of recent accounting pronouncements.
Quantitative and Qualitative Disclosures About Market Risk
Concentration Risk
Revenues originated in Texas, Ontario, and California represented approximately 26.1%, 14.4%, and 15.1%, respectively, of our consolidated total revenues for the year ended December 31, 2016. Revenues originated in Texas, Ontario, and California represented approximately 26.1%, 15.1% and 13.7%, respectively, of our consolidated total revenues for the year ended December 31, 2015. Revenues originated in Texas, Ontario, and California represented approximately 25.7%, 13.1% and 17.6%, respectively, of our consolidated total revenues for the nine months ended September 30, 2017. Revenues originated in Texas, Ontario, and California represented approximately 25.8%, 15.0% and 15.0%, respectively, of our consolidated total revenues for the nine months ended September 30, 2016.
We hold cash at major financial institutions that often exceed FDIC insured limits. We manage our concentration risk by placing our cash deposits in high quality financial institutions and by periodically evaluating the credit quality of the financial institutions holding such deposits. Historically, we have not experienced any losses due to such cash concentration.
Financial instruments that potentially subject us to concentrations of credit risk primarily consist of our consumer loans receivable. Concentrations of credit risk with respect to consumer loans receivable are limited due to the large number of customers comprising our customer base.
Regulatory Risk
We are subject to regulation by federal, state and provincial governmental authorities that affect the products and services that we provide, particularly payday advance loans. The level and type of regulation for payday advance loans varies greatly by jurisdiction, ranging from jurisdictions with moderate regulations or legislation, to other jurisdictions having very strict guidelines and requirements.
To the extent that laws and regulations are passed that affect the manner in which we conduct business in any one of those markets, our financial position, results of operations and cash flows could be adversely affected. Additionally, our ability to meet the financial covenants included in our credit agreement could be negatively impacted.
Interest Rate Risk
We are exposed to interest rate risk on our Cash Money Revolving Credit Facility and our Non-Recourse U.S. SPV Facility. As of December 31, 2016, we were also exposed to interest rate risk on our ABL Facility,
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which matured in May 2017 and was repaid through a sale of the underlying collateral to the Non-Recourse U.S. SPV Facility. Our variable interest expense is sensitive to changes in the general level of interest rates. We may from time to time enter into interest rate swaps, collars or similar instruments with the objective of reducing our volatility in borrowing costs. We do not use derivative financial instruments for speculative or trading purposes. We had no derivative financial instruments related to interest rate risk outstanding as of December 31, 2016 or December 31, 2015.
All of our customer loan portfolios have fixed interest rates and fees that do not fluctuate over the life of the loan. Notwithstanding that, we support fixed rate lending in part with variable rate borrowing. We do not believe there is any material interest rate sensitivity associated with our customer loan portfolio. This is because of both the very high rates of return on our loans and their short duration.
The weighted average interest rate on the $91.7 million of variable debt outstanding on the Non-Recourse U.S. SPV Facility and ABL Facility, which matured in May 2017, as of December 31, 2016 was approximately 11.5%. The weighted average interest rate on the $8.1 million of variable debt outstanding on the Cash Money Revolving Credit Facility as of December 31, 2015 was approximately 7.0%. There was no debt outstanding under the Cash Money Revolving Credit Facility as of December 31, 2016.
Foreign Currency Exchange Rate Risk
As foreign currency exchange rates change, translation of the financial results of the United Kingdom and Canadian operations into U.S. Dollars will be impacted. Our operations in Canada and the United Kingdom represent a significant portion of our total operations, and as a result, a material change in foreign currency exchange rates in either country could have a significant impact on our consolidated financial position, results of operations or cash flows. From time to time, we may elect to purchase financial instruments as hedges against foreign exchange rate risks with the objective of protecting our results of operations in the United Kingdom and/or Canada against foreign currency fluctuations. We typically hedge anticipated cash flows between our foreign subsidiaries and domestic subsidiaries. As of December 31, 2016 we had entered into a cash flow hedge in which the hedging instrument is a forward extra ( which is a common zero cost strategy that allows the client to be fully protected at a predetermined budget rate while allowing for some profit participation if the spot rate moves in favor of the client) to sell GBP 4,800,000. This contract completed in April 2017.
We have performed an assessment that determined that all critical terms of the hedging instrument and the hedged transaction match and as such have qualitatively concluded that changes in the options intrinsic value will completely offset the change in the expected cash flows based on changes in the spot rate. In making that determination, the guidance in ASC 815-20-25-84 was used. Future assessment will be performed utilizing the guidance in ASC 815-20-35-9 through 35-13, Relative Ease of Assessing Effectiveness . Additionally, in accordance with ASC 815-20-25-82, since the effectiveness of this hedge is assessed based on changes in the options intrinsic value, the change in the time value of the contract would be excluded from the assessment of hedge effectiveness.
We record derivative instruments at fair value on the balance sheet as either an asset or liability on the balance sheet. Changes in the options intrinsic value, to the extent that they are effective as a hedge, are recorded in other comprehensive income (loss). For derivatives that qualify and have been designated as cash flow or fair value hedges for accounting purposes, changes in fair value have no net impact on earnings, to the extent the derivative is considered perfectly effective in achieving offsetting changes in fair value or cash flows attributable to the risk being hedged, until the hedged item is recognized in earnings (commonly referred to as the hedge accounting method). The contract completed in April 2017 and in the second quarter of 2017 we recorded a transaction loss of $0.3 million associated with this hedge. At December 31, 2015 we did not hold any financial instruments as hedges against foreign exchange rate risks.
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Potential Future Impact of CFPB Rule
Prospects for Effectiveness of the CFPB Rule
The CFPB Rule was adopted by the CFPB on or about October 4, 2017 but has not yet been published in the Federal Register. Most of its provisions are scheduled to become effective August 2019. See Regulatory Environment and ComplianceU.S. RegulationsU.S. Federal RegulationsCFPB Rule for a summary of the CFPB Rule. The CFPB Rule could potentially have a material adverse impact on our results of operations. See Risk FactorsRisks Relating to the Regulation of Our IndustryThe CFPB promulgated new rules applicable to our loans that could have a material adverse effect on our business and results of operations.
Even though the CFPB Rule has been approved as a final rule, it is possible that the CFPB Rule will not become effective in its current form. For example, Congress may override the CFPB Rule under the Congressional Review Act, just as it did to the CFPB Anti-Arbitration Rule. Moreover, the current CFPB Director has announced his resignation, effective as of November 24, 2017. The CFPB Rule could be withdrawn, modified or have its effectiveness indefinitely extended by his successor, or be successfully challenged in litigation.
Anticipated Impact of CFPB Rule on U.S. Single-Payment Short-Term Loans
One major aspect of the CFPB Rule is its ATR provisions, together with the related provisions applicable to alternative Section 1041.6 Loans. These provisions apply to our U.S. single-payment loans and lines of credit. We cannot be certain about the effects these provisions will have on our business but we do believe they may include the following effects.
Our U.S. single-payment loans represented 10.9% of total revenues for the quarter ending September 30, 2017, down from the same quarter in 2016. This percentage reduction reflects growth in our other loan products and an 11.2% decline in U.S. single-payment loan revenues in the third quarter of 2017 versus the prior year. In part in response to the CFPB Rule, we will continue to focus on longer-term installment and line of credit products in states with laws that accommodate such products. However, certain states, such as California, which currently accounts for 60% of our single-pay revenue, do not permit a small-dollar installment loan alternative, and we believe complying with the CFPB Rule could substantially reduce single-payment loan revenue in these states, perhaps by more than 50% from current levels.
As to our lines of credit, we expect to make modifications that will render the CFPB Rule inapplicable to these loans. Accordingly, we do not currently believe that these modifications will have a material adverse impact on us.
Anticipated Impact of CFPB Rule on Payments
The penalty fee prevention provision of the CFPB Rule mandates that if we initiate two consecutive unsuccessful payment attempts from the same bank account, whether by Automated Clearing House, or ACH, post-dated check, or payment card, we must obtain from our borrowers a new payment authorization before initiating a new payment attempt. Additionally, the penalty fee prevention provisions will require the lender generally to give the consumer at least three business days advance notice before attempting to collect payment by accessing a consumers checking, savings, or prepaid account.
While we are currently subject to NACHA restrictions on ACH payments and separate card network restrictions on presentments made on debit cards, these restrictions do not have the force of law and are significantly more liberal than the limit of two unsuccessful attempts articulated in the CFPB Rule. While the overwhelming majority of our electronic payments are collected in the first two attempts, depending on the type of loan and the timing of the payments, we currently make three or more attempts without obtaining a new
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payment authorization from the customer. We believe that enhanced customer relationship management, or CRM, tools to help obtain new payment authorizations, together with a more targeted, predictive approach to presenting electronic payments against customers bank accounts, will mitigate the impact of the penalty fee restrictions. As with the other requirements, we have until late 2019 to manage the transition. However, to the extent that we are unable to develop new and effective CRM tools and/or are unsuccessful in improving the timing of the permitted electronic payments, the implementation of the CFPB Rule on payments could have a material adverse effect on our results of operations.
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Company Overview
We are a growth-oriented, technology-enabled, highly-diversified consumer finance company serving a wide range of underbanked consumers in the United States, Canada and the United Kingdom and are a market leader in our industry based on revenues. We believe that we have the only true omni-channel customer acquisition, onboarding and servicing platform that is integrated across store, online, mobile and contact center touchpoints. Our IT platform, which we refer to as the Curo Platform, seamlessly integrates loan underwriting, scoring, servicing, collections, regulatory compliance and reporting activities into a single, centralized system. We use advanced risk analytics powered by proprietary algorithms and over 15 years of loan performance data to efficiently and effectively score our customers loan applications. Since 2010, we have extended $13.9 billion in total credit across approximately 36.5 million total loans, and our revenue of $828.6 million in 2016 represents a 26.3% compound annual growth rate, or CAGR, over the same time period.
We operate in the United States under two principal brands, Speedy Cash and Rapid Cash, and launched our new brand Avio Credit in the United States in the second quarter of 2017. In the United Kingdom we operate online as Wage Day Advance and Juo Loans and, prior to their closure in the third quarter of 2017, our stores were branded Speedy Cash. In Canada our stores are branded Cash Money and, we offer LendDirect installment loans online. As of September 30, 2017, our store network consisted of 405 locations across 14 U.S. states and seven Canadian provinces. As of September 30, 2017, we offered our online services in 26 U.S. states, five Canadian provinces and the United Kingdom.
We offer a broad range of consumer finance products, including Unsecured Installment Loans, Secured Installment Loans, Open-End Loans and Single-Pay Loans. We have tailored our products to fit our customers particular needs as they access and build credit. Our product suite allows us to serve a broader group of potential borrowers than most of our competitors. The flexibility of our products, particularly our installment and open-end products, allows us to continue serving customers as their credit needs evolve and mature. Our broad product suite creates a diversified revenue stream and our omni-channel platform seamlessly delivers our products across all contact pointswe refer to it as Call, Click or Come In. We believe these complementary channels drive brand awareness, increase approval rates, lower our customer acquisition costs and improve customer satisfaction levels and customer retention.
We serve the large and growing market of individuals who have limited access to traditional sources of consumer credit and financial services. We define our addressable market as underbanked consumers in the United States, Canada and the United Kingdom. According to a study by CFSI, there are as many as 121 million Americans who are currently underserved by financial services companies. According to studies by ACORN Canada and PWC, the statistics in Canada and the United Kingdom are similar, with an estimated 15% of Canadian residents (approximately 5 million individuals) and an estimated 20 to 25% of United Kingdom residents (approximately 10 to 14 million individuals) classified as underbanked. Given our international footprint, this translates into an addressable market of approximately 140 million individuals. We believe that with our scalable omni-channel platform and diverse product offerings, we are well positioned to gain market share as sub-scale players struggle to keep pace with the technological evolution taking place in the industry.
Industry Overview
We operate in a segment of the financial services industry that provides lending products to underbanked consumers in need of convenient and flexible access to credit and other financial products. Up to 140 million individuals fall within the definition of our target market. In the United States alone, according to a study by CFSI, these underserved consumers spent an estimated $126.5 billion on fees and interest related to credit products similar to those we offer.
We believe our target consumers have a need for tailored financing products to cover essential expenses. According to a study by the Federal Reserve, 44% of American adults could not cover an emergency expense
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costing $400 or would cover it by selling an asset or borrowing money. Additionally, a study conducted by JPMorgan Chase & Co., which analyzed the transaction information of 2.5 million of its account holders, found that 41% of those sampled experienced month-to-month income swings of more than 30%.
We compete against a wide variety of consumer finance providers including online and branch-based consumer lenders, credit card companies, pawnshops, rent-to-own and other financial institutions that offer similar financial services. A study by CFSI has estimated that spending on credit products offered by our industry exhibited a 10.0% CAGR from 2010 to 2015. This growth has been accompanied by shrinking access to credit for our customer base as evidenced by an estimated $142 billion reduction in the availability of non-prime consumer credit from the 2008 to 2009 credit crisis to 2015 (based on analysis of master pool trust data of securitizations for major credit card issuers).
In addition to the beneficial secular trends broadly impacting the consumer finance landscape, we believe we are well positioned to grow our market share as a result of several changes we have observed related to consumer preferences within alternative financial services. Specifically, we believe that a combination of evolving consumer preferences, increasing use of mobile devices and overall adoption rates for technology are driving significant change in our industry.
| Shifting preference towards installment loans We believe from our experience in offering installment loan products since 2008 that single-pay loans are becoming less popular or less suitable for a growing portion of our customers. Customers generally have shown a preference for our Installment Loan products, which typically have longer terms, lower periodic payments and a lower relative cost. Offering more flexible terms and lower payments also significantly expands our addressable market by broadening our products appeal to a larger proportion of consumers in the market. |
| Increasing adoption of online channels Our experience is that customers prefer service across multiple channels or touch points. Approximately 63% of respondents in a recent study by CFI Group said they conducted more than half of their banking activities electronically. That same group of respondents reported an overall level of satisfaction that met or exceeded the average. In 2017, our online revenue of $257 million represented 37% of our total 2017 revenues through September 30, 2017. |
| Increasing adoption of mobile apps and devices With the proliferation of pay-as-you-go and other smartphone plans, many of our underbanked customers have moved directly to mobile devices for loan origination and servicing. According to a study by the Pew Research Center involving the United States, the United Kingdom and Canada, smartphone penetration is 72%, 68% and 67%, respectively. Additionally, 43% of respondents to a 2016 study by CFI Group said they conduct transactions using a mobile banking app. Five years ago, less than 30% of our U.S. customers reached us with via a mobile device. In the third quarter of 2017, that percentage was over 80%. |
Our Strengths
We believe the following competitive strengths differentiate us and serve as barriers for others seeking to enter our market.
| Unique omni-channel platform / site-to-store capability We believe we have the only fully-integrated store, online, mobile and contact center platform to support omni-channel customer engagement. We offer a seamless Call, Click or Come In capability for customers to apply for loans, receive loan proceeds, make loan payments and otherwise manage their accounts in store, online or over the phone. Customers can utilize any of our three channels at any time and in any combination to obtain a loan, make a payment or manage their account. In addition, we have our Site-to-Store capability in which online customers that do not qualify for a loan online are referred to a store to complete a loan transaction with one of our associates. These aspects of our platform enable us to source a larger number of customers, serve a broader range of customers and continue serving these customers for longer periods of time while lowering cost-per-funded loan. |
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| Industry leading product and geographic diversification In addition to channel diversification, we have increased our diversification by product and geography allowing us to serve a broader range of customers with a flexible product offering. As part of this effort, we have also developed and launched new brands and will continue to develop new brands with differentiated marketing messages. These initiatives have helped diversify our revenue streams, enabling us to appeal to a wider array of borrowers. |
| Leading analytics and information technology drives strong credit risk management We have developed a bespoke, proprietary IT platform, referred to as the Curo Platform, which is a unified, centralized platform that seamlessly integrates activities related to customer acquisition, underwriting, scoring, servicing, collections, compliance and reporting. Our IT platform is underpinned by over 15 years of continually updated customer data comprising over 71 million loan records (as of September 30, 2017) used to formulate our robust, proprietary underwriting algorithms. This platform then automatically applies multi-algorithmic analysis to a customers loan application to produce a Curo Score which drives our underwriting decision. Globally, as of September 30, 2017 we had 183 employees who write code and manage our networks and infrastructure for our IT platform. This fully-integrated IT platform enables us to make real-time, data-driven changes to our acquisition and risk models which yield significant benefits in terms of customer acquisition costs and credit performance. |
| Multi-faceted marketing strategy drives low customer acquisition costs Our marketing strategy includes a combination of strategic direct mail, television advertisements and online and mobile-based digital campaigns, as well as strategic partnerships. Our global Marketing, Risk and Credit Analytics team, consisting of 72 professionals as of September 30, 2017, uses our integrated IT platform to cross reference marketing spend, new customer account data and granular credit metrics to optimize our marketing budget across these channels in real time to produce higher quality new loans. Besides these diversified marketing programs, our stores play a critical role in creating brand awareness and driving new customer acquisition. From January 2015 through the end of September 2017, we acquired nearly 1.9 million new customers in North America. For the first nine months of 2017 compared to the first nine months of 2015, our average first-pay defaults in the United States improved by 203 bps, while our average cost per funded loan decreased from $72.90 to $63.30. |
| Focus on customer experience We focus on customer service and experience and have designed our stores, website and mobile application interfaces to appeal to our customers needs. We continue to augment our web and mobile app interfaces to enhance our Call, Click or Come In strategy, with a focus on adding functionality across all our channels. Our stores are branded with distinctive and recognizable signage, conveniently located and typically open seven days a week. Furthermore, we have highly experienced managers in our stores, which we believe is a critical component to driving customer retention, lowering acquisition costs and driving store-level margins. For example, the average tenure for our U.S. store managers is over nine years and over 11 years for regional directors. |
| Strong compliance culture with centralized collections operations We seek to consistently engage in proactive and constructive dialogue with regulators in each of our jurisdictions and have made significant investments in best-practice automated tools for monitoring, training and compliance management. As of September 30, 2017 our compliance group consisted of 28 individuals based in all of the countries in which we operate, and our compliance management systems are integrated into our proprietary IT platform. Additionally, our in-house centralized collections strategy, supported by our proprietary back-end customer database and analytics team, drives an effective, compliant and highly-scalable model. |
| Demonstrated access to capital markets and diversified funding sources We have raised over $1.1 billion of debt financing in six separate offerings since 2008, most recently in October 2017. We also closed a $150 million nonrecourse installment loan financing facility in 2016 and have routinely accessed banks and other lenders for revolving credit capacity. We believe this is a significant differentiator from our peers who may have trouble accessing capital markets to fund their business models if credit markets tighten. For more information, see Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital Resources. |
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| Experienced and innovative management team and sponsor Our senior leadership team is among the most experienced in the industry with over a century of collective experience and an average tenure at CURO of over eight years. We also have deep bench strength across key functional areas including accounting, compliance, IT and legal. Our equity sponsor, FFL Partners, has been our partner since 2008 and has contributed significant resources to helping define our growth strategy. |
| History of growth and profitability Throughout our operating history we have maintained strong profitability and growth. Between 2010 and 2016 we grew revenue, Adjusted EBITDA, net income and Adjusted Earnings at a CAGR of 26.3%, 25.4%, 21.9% and 19.9%, respectively. At the same time, we have grown our product offerings to better serve our growing and expanding customer base. |
Growth Strategy
| Leverage our capabilities to continue growing installment and open-end products Installment and open-end products accounted for 58% of our consolidated revenue for the year ending December 31, 2016, up from 19% in 2010, and we believe that our customers greatly prefer these products. We believe that these products will continue to account for a greater share of our revenue and provide us a competitive advantage versus other consumer lenders with narrower product focus. We believe that our ability to continue to be successful in developing and managing new products is based upon our capabilities in three key areas. |
| Underwriting: Installment and open-end products generally have lower yields than single-pay products, which necessitates more stringent credit criteria supported by more sophisticated credit analytics. Our industry leading analytics platform combines data from over 71 million records (as of September 30, 2017) associated with loan information from third-party reporting agencies and has helped to reduce average first-pay defaults in the United States by approximately 203 bps for the first nine months of 2017 compared to the first nine months of 2015. |
| Collections and Customer Service: Installment and open-end products have longer terms than single-pay loans, in some cases up to 48 months. These longer terms drive the need for a more comprehensive collection and default servicing strategy that emphasizes curing a default and putting the customer back on a track to repay the loan. We utilize a centralized collection model that prevents our branch management personnel from ever having to contact customers to resolve a delinquency. We have also invested in building new contact centers in all of the countries in which we operate, each of which utilize sophisticated dialer technologies to help us contact our customers in a scalable, efficient manner. |
| Funding: The shift to larger balance installment loans with extended terms and open-end loans with revolving terms requires more substantial and more diversified funding sources. Given our deep and successful track record in accessing diverse sources of capital, we believe that we are well-positioned to support future new product transition. |
| Serve additional types of borrowers In addition to growing our existing suite of installment and open-end lending products, we are focused on expanding the total number of customers that we are able to serve through product, geographic and channel expansion. This includes expansion of our online channel, particularly in the United Kingdom, as well as continued targeted additions to our physical store footprint. We also continue to introduce additional products to address our customers preference for longer term products that allow for greater flexibility in managing their monthly payments. |
| In the second quarter of 2017, we launched Avio Credit, a new online product branded in the United States targeting individuals in the 600-675 FICO band. This product is structured as an Unsecured Installment Loan with varying principal amounts and loan terms up to 48 months. As of April 2017, 10% of U.S. consumers had FICO scores between 600 and 649. A further 13.2% of U.S. consumers had FICO scores between 650 and 699, a portion of whom would fall into the credit profile targeted by our Avio Credit product. |
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| We expect to expand our LendDirect brand in Canada to include additional provinces and increase acquisition efforts in existing markets. We also plan to open LendDirect stores in Canada during the fourth quarter of 2017. Seven million Canadians have a FICO score below 700. We estimate that the consumer credit opportunity for this customer segment exceeds C$165 billion. We believe these customers represent a highly-fragmented market with low penetration. |
| In the United Kingdom, we expect to launch online longer-term loans, some supported by a guarantor. According to a study by the Financial Conduct Authority, in 2016 the U.K. guarantor market alone comprised £300 million in loans outstanding and had annual originations of approximately £200 million in 2016. A report by L.E.K. Consulting found that this market experienced double digit percentage growth from 2008 to 2017. We believe it is currently dominated by one lender but otherwise largely made up of smaller participants with growth challenges. |
| Continue to bolster our core business through enhancement of our proprietary risk scoring models We continuously refine and update our credit models to drive additional improvements in our performance metrics. By regularly updating our credit underwriting algorithms we can continue to expand the value of each of our customer relationships through improved credit performance. By combining these underwriting improvements with data driven marketing spend, we believe our optimization efforts will produce margin expansion and earnings growth. |
| Expand credit for our borrowers Through extensive testing and our proprietary underwriting, we have successfully increased credit limits for customers, enabling us to offer the right loan to the right customer. The favorable take rates and successful credit performance have improved overall vintage and portfolio performance. For the first nine months of 2017, our average loan amount for Unsecured and Secured Installment Loans rose by $128 (a 26% increase) and $247 (a 24% increase), respectively, versus the same period in 2016. |
| Continue to improve the customer journey and experience We have projects in our development pipeline to enhance our Call, Click or Come In customer experience and execution, ranging from redesign of web and app interfaces to enhanced service features to payments optimization. |
| Enhance our network of strategic partnerships Our strategic partnership network generates applicants that we then close through our diverse array of marketing channels. By further leveraging these existing networks and expanding the reach of our partnership platform to include new relationships, we can increase the number of overall leads we receive. |
Customers
Our customers require essential financial services and value timely, transparent, affordable and convenient alternatives to banks, credit card companies and other traditional financial services companies. According to a recent study by FactorTrust, underbanked customers in the United States tend to have the following characteristics:
| average age of 39 for applicants and 41 for borrowers; |
| applicants are 47% male and 53% female; |
| 41% are homeowners; |
| 45% have a bachelors degree or higher; and |
| the top five employment segments are Retail, Food Service, Government, Banking/Finance and Business Services. |
In the United States, our customers generally earn between $25,000 and $75,000 annually. In Canada, our customers generally earn between C$25,000 and C$60,000 annually. In the United Kingdom our customers generally earn between £18,000 and £31,000 annually.
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Our customers utilize the services provided by our industry for a variety of reasons, including that they often:
| have immediate need for cash between paychecks; |
| have been rejected for traditional banking services; |
| maintain sufficient account balances to make a bank account economically efficient; |
| prefer and trust the simplicity, transparency and convenience of our products; |
| need access to financial services outside of normal banking hours; and |
| reject complicated fee structures in bank products (e.g., credit cards and overdrafts). |
Products and Services
We provide Unsecured Installment Loans, Secured Installment Loans, Open-End Loans, Single-Pay Loans and a number of ancillary financial products, including check cashing, proprietary reloadable prepaid debit cards (Opt+), credit protection insurance in the Canadian market, gold buying, retail installment sales and money transfer services. We have designed our products and customer journey to be consumer-friendly, accessible and easy to understand. Our platform and product suite enable us to provide several key benefits that appeal to our customers:
| transparent approval process; |
| flexible loan structure, providing greater ability to manage monthly payments; |
| simple, clearly communicated pricing structure; and |
| full account management online and via mobile devices. |
Our centralized underwriting platform and its proprietary algorithms are used for every aspect of underwriting and scoring of our loan products. The customer application, approval, origination and funding processes differ by state, country and by channel. Our customers typically have an active phone number, open checking account, recurring income and a valid government-issued form of identification. For in-store loans, the customer presents required documentation, including a recent pay stub or support for underlying bank account activity for in-person verification. For online loans, application data is verified with third-party data vendors, our proprietary algorithms and/or tech-enabled account verification. Our proprietary, highly scalable, scoring system employs a champion/challenger process whereby models compete to produce the most successful customer outcomes and profitable cohorts. Our algorithms use data relevancy and machine learning techniques to identify approximately 60 variables from a universe of approximately 11,600 that are the most predictive in terms of credit outcomes. The algorithms are continuously reviewed and refreshed and are focused on a number of factors related to disposable income, expense trends and cash flows, among other factors, for a given loan applicant. The predictability of our scoring models is driven by the combination of application data, purchased third-party data and our robust internal database of nearly over 71 million records (as of September 30, 2017) associated with loan information. These variables are then combined in a series of algorithms to create a score that allows us to scale lending decisions.
Geography and Channel Mix
For the nine months ending September 30, 2017, our revenue distribution in the United States, Canada and United Kingdom was 76.4%, 19.5% and 4.1%, respectively.
Stores: As of September 30, 2017, we had 405 stores in 14 U.S. states and seven provinces in Canada, which included the following:
| 215 United States locations: Texas (92), California (36), Nevada (18), Arizona (13), Tennessee (11), Kansas (10), Illinois (8), Alabama (7), Missouri (5), Louisiana (5), Colorado (3), Oregon (3), Washington (2) and Mississippi (2); |
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| 190 Canadian locations: Ontario (121), Alberta (27), British Columbia (26), Saskatchewan (6), Nova Scotia (5), Manitoba (4) and New Brunswick (1). |
Online: We lend online in 26 states in the United States, five provinces in Canada and in England, Wales, Scotland and Northern Ireland in the United Kingdom. During the third quarter of 2017, we began offering loans online in Virginia.
The following charts reflect the revenue contribution, including CSO fees, of the products and services that we currently offer and the revenues from these services in each of the regions in which we operate.
Year Ended December 31, 2016 $829 million |
Nine Months Ended September 30, 2017 $697 million |
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|
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For the year ended December 31, 2016 and the period ending September 30, 2017, revenue generated through our online channel was 33% and 37%, respectively.
Overview of Loan Products
Below is an outline of the primary products we offered as of September 30, 2017.
Installment |
||||||||
Unsecured |
Secured |
Open-End |
Single-Pay |
|||||
Channel |
Online and in-store: 15 U.S. states, Canada and the United Kingdom(1) | Online and in-store: 7 U.S. states |
Online: KS, TN, ID, UT, VA, DE and RI. In-store: KS and TN |
Online and in-store: 12 U.S. states, Canada and the United Kingdom(1) | ||||
Approximate Average Loan Size (2) |
$636 | $1,299 | $463 | $335 | ||||
Duration |
Up to 48 months | Up to 42 months | Revolving/Open-ended | Up to 62 days | ||||
Pricing |
13.2% average monthly interest rate(3) | 10.6% average monthly interest rate(3) | Daily interest rates ranging from 0.74% to 0.99% | Fees ranging from $13 to $25 per $100 borrowed |
(1) | Online only in the United Kingdom. |
(2) | Includes CSO loans. |
(3) | Weighted average of the contractual interest rates for the portfolio as of September 30, 2017. Excludes CSO fees. |
Unsecured Installment Loans
Unsecured Installment Loans are fixed-term, fully-amortizing loans with a fixed payment amount due each period during the term of the loan. These loans are originated and owned by us or by third-party lenders pursuant to credit services organization and credit access business statutes, which we refer to as our CSO programs. For
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CSO programs, we arrange, service and guarantee the loans. Payments are due bi-weekly or monthly to match the customers pay cycle. Customers may prepay without penalty or fees. Unsecured Installment Loan terms are governed by enabling state legislation in the United States, provincial and federal legislation in Canada and national regulations in the United Kingdom. Unsecured Installment Loans comprised 49.3%, and 40.0% of our consolidated revenue during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively. We believe that the flexible terms and lower payments associated with Installment Loans significantly expands our addressable market by allowing us to serve a broader range of customers with a variety of credit needs.
Secured Installment Loans
Secured Installment Loans are similar to Unsecured Installment Loans but are also secured by a vehicle title. These loans are originated and owned by us or by third-party lenders through our CSO programs. For these loans the customer provides clear title or security interest in the vehicle as collateral. The customer receives the benefit of immediate cash but retains possession of the vehicle while the loan is outstanding. The loan requires periodic payments of principal and interest with a fixed payment amount due each period during the term of the loan. Payments are due bi-weekly or monthly to match the customers pay cycle. Customers may prepay without penalty or fees. Secured Installment Loan terms are governed by enabling state legislation in the United States. Secured Installment Loans comprised 10.5% and 9.8% of our consolidated revenue during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.
Open-End Loans
Open-End Loans are a line of credit for the customer without a specified maturity date. Customers may draw against their line of credit, repay with minimum, partial or full payments and redraw as needed. We report and earn interest on the outstanding loan balances drawn by the customer against their approved credit limit. Typically, customers do not draw the full amount of their credit limit. Customers may prepay without penalty or fees. Loan terms are governed by enabling state legislation in the United States. Unsecured Open-End Loans comprised 6.6% and 7.0% of our consolidated revenue during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively. Secured Open-End Loans are offered as part of our product mix in states with enabling legislation and accounted for approximately 0.9% and 1.0% of our consolidated revenue during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.
Single-Pay Loans
Single-Pay Loans are generally unsecured short-term, small-denomination loans whereby a customer receives cash in exchange for a post-dated personal check or a pre-authorized debit from the customers bank account. These loans are originated and owned by us or by third-party lenders through our CSO programs. We agree to defer deposit of the check or debiting of the customers bank account until the loan due date which typically falls on the customers next pay date. Single-Pay Loans are governed by enabling state legislation in the United States, federal and provincial regulations in Canada and national regulation in the United Kingdom. Single-Pay Loans comprised 28.4% and 37.8% of our consolidated revenue during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.
Ancillary products
We also provide a number of ancillary financial products including check cashing, proprietary reloadable prepaid debit cards (Opt+), credit protection insurance in the Canadian market, gold buying, retail installment sales and money transfer services. We had 112,607 active Opt+ cards as of September 30, 2017, which includes any card with a positive balance or transaction in the past 90 days. Opt+ customers have loaded over $1.5 billion to their cards since we started offering this product.
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CSO Programs
Through our CSO programs, we act as a credit services organization/credit access business on behalf of customers in accordance with applicable state laws. We currently offer loans through CSO programs in stores and online in the state of Texas and online in the state of Ohio. In Texas we offer Unsecured Installment Loans and Secured Installment Loans with a maximum term of 180 days. In Ohio we offer an Unsecured Installment Loan product with a maximum term of 18 months. As a CSO we earn revenue by charging the customer a fee, or the CSO fee, for arranging an unrelated third-party to make a loan to that customer. When a customer executes an agreement with us under our CSO programs, we agree, for a CSO 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 the customer receives from the third-party lender. CSO fees are calculated based on the amount of the customers outstanding loan. For CSO loans, each lender is responsible for providing the criteria by which the customers application is underwritten and, if approved, determining the amount of the customer loan. We in turn are responsible for assessing whether or not we will guarantee the loan. This guarantee represents an obligation to purchase specific loans if they go into default.
As of September 30, 2017, the maximum amount payable under all such guarantees was $59.1 million, compared to $59.6 million at December 31, 2016. Should we be required to pay any portion of the total amount of the loans we have guaranteed, we will attempt to recover the amount we pay from the customers. We hold no collateral in respect of the guarantees. Our guarantee liability was $16.9 million and $17.1 million at September 30, 2017 and December 31, 2016, respectively.
The majority of revenue generated through our CSO programs was for Unsecured Installment Loans, which comprised 96.2% and 91.6% of total CSO revenue for the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.
Total revenue generated through our CSO programs comprised 26.5% and 26.1% of our consolidated revenue during the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.
Sales and Marketing
We are focused on capturing new accounts as demonstrated by the nearly 1.9 million new customers we acquired between January 2015 and the end of September 2017 in our U.S. market. For the first nine months of 2017 compared to the first nine months of 2015, our average first-pay defaults improved by 203 bps, while our average cost per funded loan decreased from $72.90 to $63.30. In 2015, we experienced an increase in advertising expense as a result of a strategy to gain market share during a period of time when we believed the online market was disrupted. We returned to more normalized spend levels in 2016 and first quarter of 2017 following the surge in advertising expense in 2015, but with better efficiency because of improved analytics and an accelerating shift to mobile and online.
United States
Our marketing efforts focus on a variety of targeted, direct response strategies. We use various forms of media to build brand awareness and drive customer traffic in stores, online and to our contact centers. These strategies include direct response spot television in each operating market, radio campaigns, point-of-purchase materials, a multi-listing and directory program for print and online yellow pages, local store marketing activities, prescreen direct mail campaigns, robust online marketing strategies and send a friend and word-of-mouth referrals from satisfied customers. We also utilize our unique capability to drive customers originated online to our store locationsa program we call Site-to-Store.
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Canada
The Cash Money platform has built strong brand awareness as a leading provider of alternative financial solutions in Canada. Cash Moneys marketing efforts have historically included high frequency television buys, print media and targeted publications, as well as local advertising in the communities we serve.
The charts below set forth the trends in advertising spending and new customers acquired, cost-per-funded loan, or CPF, and first-pay defaults, or FPD, for North America for the periods indicated. These trends are primarily attributable to our continually-improving analytics and channel-management capabilities that enable us to balance and manage dynamically the relationships between total marketing spend, application-to-funded conversion rates, new customers acquired and credit performance (expressed here as FPD). The tables also highlight the seasonality of customer acquisition strategies, especially in the United States where acquisition and performance in the first quarter of the year is affected by federal income tax refunds. Finally, we believe these metrics support our proven capability of maintaining strong new customer counts while improving credit quality and CPF.
Direct Advertising Spend and New Customers AcquiredNorth America
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Cost-per-Funded Loan
First-Pay Defaults
United Kingdom
Wage Day has built a strong brand name as a leading on-line provider of short-term consumer loans to individuals in the United Kingdom. Wage Days marketing efforts include direct marketing of its existing customer base through a variety of channels, including email and text messaging, and new customer acquisition through leads purchased through its affiliates.
Over the past several years, we have redesigned and reformulated our loan products, including the introduction of a new installment product in 2016, and enhanced our customer acquisition, underwriting and collection capabilities.
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The table below sets forth CPF information in the United Kingdom (in local currency) for the periods indicated:
United Kingdom: Cost-per-Funded Loan
Information Systems
The Curo Platform is our proprietary IT platform, which is a unified, centralized platform that seamlessly integrates activities related to customer acquisition, underwriting, scoring, servicing, collections, compliance and reporting. The Curo Platform is also designed to enable us to support and monitor compliance with regulatory and other legal requirements applicable to the financial products we offer. Our platform captures transactional history by store and by customer, which allows us to track loan originations, payments, defaults and payoffs, as well as historical collection activities on past-due accounts. In addition, our stores perform automated daily cash reconciliation at each store and every bank account in the system. This fully-integrated IT platform enables us to make real-time, data-driven changes to our acquisition and risk models, which yield significant benefits in terms of customer acquisition costs and credit performance. Each of our stores has secure, real-time access to corporate servers and the most up to date information to maintain consistent underwriting standards. All loan applications are scanned and electronic copies are centrally stored for convenient access and retrieval. Our IT platform is built upon by over 15 years of continually updated customer data comprising over 71 million loan records (as of September 30, 2017) to formulate our robust, proprietary underwriting algorithms. This platform then automatically applies multi-algorithmic analysis to a customers loan application to produce a Curo Score, which drives our underwriting decision. Globally, as of September 30, 2017 we had 183 employees who write code and manage our networks and infrastructure for our IT platform.
The Curo Platform is scalable and has been successfully implemented in Canada and the United Kingdom. We modified the Curo Platform to calculate foreign exchange rates and interest rate calculations in the methodology commonly used in Canada and the United Kingdom, and to meet Canadian and U.K. standards for electronic card capture and approval.
Collections
To enable store-level employees to focus on customer service and to improve effectiveness and compliance management, we operate centralized collection facilities in the United States, Canada and the United Kingdom. Our collections personnel are trained to optimize regulatory-compliant loan repayment while treating our customers fairly. Our collections personnel contact customers after a missed payment, primarily via phone calls, letters and emails and help the customer understand available payment arrangements or alternatives to satisfy the
% ancillary revenue 7% 5% 5% % ancillary revenue 5% 4% 4% % online revenue 28% 30% 33% % online revenue 30% 35% 39%
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deficiency. We use a variety of collections strategies, including payment plans, settlements and adjustments to due dates. Collections teams are trained to apply different strategies and tools for the various stages of delinquency and also vary methodologies by product type.
Our collections centers in Wichita, Kansas, Toronto, Ontario and Nottingham, United Kingdom employed 117, 79 and 61 collection professionals as of September 30, 2017, respectively.
We assign all our delinquent loan accounts in the United States to an affiliated third-party collection agency once they are 91 to 121 days past due. Under our policy, the precise number of days past due to trigger a referral varies by state and product and requires, among other things, that proper notice be delivered to the customer. Once a loan meets the criteria set forth in the policy, it is automatically referred for collection. We make changes to our policy periodically in response to various factors, including regulatory developments and market conditions. Our policy is established and implemented by our chief operating officer, senior vice president in charge of collections and our chief executive officer. As delinquent accounts are paid, the Curo Platform updates these accounts in real time. This ensures that collection activity will cease the moment a customers account is brought current or paid in full and considered in good standing. See Certain Relationships and Related-Party TransactionsRelated-Party Transactions for a description of our relationship with our third-party collection agency.
One of the primary metrics we use to measure collections effectiveness is Return on Collections, or ROC. ROC is total delinquent payments collected divided by total delinquent payments entering collections during a period. Through continuous enhancements in technology, processes and talent, we improved U.S. ROC from 65.8% for 2015 to 70.8% for 2016. For the same periods, ROC in Canada was stable in the range of 61.3% to 61.0%.
Competition
We believe that the primary factors upon which we compete are:
| range of services; |
| flexibility of product offering; |
| convenience; |
| reliability; |
| fees; and |
| speed. |
Our underbanked customers tend to value service that is quick and convenient, lenders that can provide the most appropriate structure and terms and payments that are affordable. We face competition in all of our markets from other alternative financial services providers, banks, savings and loan institutions, short-term consumer lenders and other financial services entities. Generally, the landscape is characterized by a small number of large, national participants with a significant presence in markets across the country and a significant number of smaller localized operators. Our competitors in the alternative financial services industry include monoline operators (both public and private) specializing in short-term cash advances, multiline providers offering cash advance services in addition to check cashing and other services and subprime specialty finance and consumer finance companies, as well as businesses conducting operations online and by phone.
Employees
We are committed to building and nurturing a distinctive corporate culture. Our core company values are:
| Winning with integrity. We compete hard and do what is right. |
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| Thriving on change. We embrace change from a proactive stance with flexibility and responsiveness. |
| Building relationships based on trust, honesty and respect. We approach all people with openness and candor. |
| Executing with urgency and passion. We move fast with a sense of excitement and an entrepreneurial spirit. |
| Keeping our commitments. We walk our talk and do what we say we will do. |
| Leading with humility . Check your ego; best idea wins. Ours is a shared success. |
As of September 30, 2017, we had a total of approximately 4,200 employees worldwide, approximately 3,000 of whom work in our stores. None of our employees is unionized or covered by a collective bargaining agreement, and we consider our current employee relations to be good.
We believe that customer service is critical to our continued success and growth. As such, we have staffed each of our stores with a full-time Store Manager or Branch Manager, or SM, that runs the day-to-day operations of the store. The SM is typically supported by a Senior Assistant Manager, or SAM, and/or an Assistant Manager, or AM, and nine to 12 full-time Customer Advocates. A newer store will typically ramp up with a SM, a SAM, two AMs and two Customer Advocates. Customer Advocates conduct the point-of-sale activities and greet and interact with customers from a secured area behind expansive windows. We believe staff continuity is critical to our business. We believe that our pay rates are equal to or better than all of our major competitors and we constantly evaluate our benefit plans to maintain their competitiveness.
STORE LEVEL ORGANIZATION |
||||||||||
POSITION |
DESCRIPTION/RESPONSIBILITY |
SEPTEMBER 30, 2017
HEADCOUNT |
AVERAGE
TENURE |
|||||||
Regional Director |
Oversee operations and supervise District Managers Responsible for compliance and overall performance |
9 | 11.7 | |||||||
District Manager |
Supervise up to nine stores Responsible for hiring, training and compliance |
61 | 10.8 | |||||||
Store Manager |
Responsible for day-to-day store operations Supervise store-level employees |
414 | 7.6 | |||||||
Senior Assistant Manager/Assistant Manager/Shift Lead |
Assist in supervising operations Monitor customer service and a resource for Advocates |
|
901
|
|
|
3.8
|
|
|||
Customer Advocate |
Conduct point-of-sale activities Responsible for individual transactions |
1,487 | 1.8 |
Property
As of September 30, 2017, the Company leased 215 stores in the United States and 190 stores in Canada. Our operating lease agreements for the buildings in which we operate expire at various times through 2030, and
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the majority of the leases have an original term of five years with two, five-year renewal options. Most of the leases have escalation clauses and several also require payment of certain period costs including maintenance, insurance and property taxes. We lease our principal executive offices, which are located in Wichita, Kansas. The leases cover approximately 52,000 square feet of office space. See Certain Relationships and Related Party TransactionsRelated-Party Transactions for additional information regarding operating lease agreements with real estate entities that are related to the Company through common ownership.
Legal Proceedings
Harrison, et al v. Principal Investments, Inc. et al
During the period relevant to this class action litigation, the Company pursued in excess of 16,000 claims in the limited actions and jurisdiction court in Clark County, Nevada, seeking repayment of loans on which customers had defaulted. The Company utilized outside counsel to file these debt collection lawsuits. On Scene Mediations, a process serving company, was employed to serve the summons and petitions in the majority of these cases. In an unrelated matter, the principal of On Scene Mediations was convicted of multiple accounts of perjury and filing false affidavits to obtain judgments on behalf of a Las Vegas collection agency. In September 2010, we were sued by four former customers in a proposed class action suit filed in the District Court in Clark County, Nevada. The plaintiffs in this case claimed that they, and others in the proposed class, were not properly served notice of the debt collection lawsuits by the Company.
On June 7, 2017, the parties reached a settlement in this matter. The Company accrued approximately $2.0 million as a result of this settlement as of September 30, 2017. At a hearing before the District Court in Clark County, Nevada, on July 24, 2017 the court granted preliminary approval of the settlement. On October 30, 2017, the court issued final approval of the class settlement.
City of Austin
We were cited on July 5, 2016 by the City of Austin, Texas for alleged violations of the Austin, Texas ordinance addressing products offered by CSOs. The Texas ordinances regulate aspects of products offered under our CAB programs, including loan sizes and repayment terms. We believe that: (1) the Austin ordinance (like its counterparts elsewhere in the state) conflicts with Texas state law and (2) our product in any event complies with the ordinance, when it is properly construed. An Austin trial court agreed with our position that the ordinance conflicts with Texas law and, accordingly, did not address our second argument. In August 2017, an Austin appellate court reversed a trial courts decision and remanded the case to trial court for further proceedings. We appealed the appellate decision in October 2017, and the appeal is currently pending. We will not have a final determination of the lawfulness of our CAB program under the Austin ordinance (and similar ordinances in other Texas cities) for some time. A final adverse decision could potentially result in material monetary liability in Austin and elsewhere and would force us to restructure the loans we arrange in Texas.
Other
We are also a defendant in certain routine litigation matters encountered in the ordinary course of our business. Certain of these matters may be covered to an extent by insurance. In the opinion of management, based upon the advice of legal counsel, the likelihood is remote that the impact of any pending legal proceedings and claims, either individually or in the aggregate, would have a material adverse effect on our consolidated financial condition, results of operations or cash flows. For more information, see Note 18, Litigation of our Notes to Interim Consolidated Financial Statements included elsewhere in this prospectus. 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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REGULATORY ENVIRONMENT AND COMPLIANCE
Regulations
The alternative financial services industry is regulated at the federal, state and local levels in the United States; at the federal and provincial levels in Canada; and at the central government level in the United Kingdom. In general, these regulations are designed to protect consumers and the public, while providing standard guidelines for business operations. Laws and regulations typically impose restrictions and requirements, such as governing interest rates and fees, maximum loan amounts, the number of simultaneous or consecutive loans, required waiting periods between loans, loan extensions and refinancings, payment schedules (including maximum and minimum loan durations), required repayment plans for borrowers claiming inability to repay loans, disclosures, security for loans and payment mechanisms, licensing, and in certain jurisdictions database reporting and loan utilization information. We are also subject to federal, state, provincial and local laws and regulations relating to our other financial products, including laws and regulations governing recording and reporting certain financial transactions, identifying and reporting suspicious activities and safeguarding the privacy of customers non-public personal information. For more information regarding the regulations applicable to our business and the risks to which they subject us, see the section entitled Risk Factors.
The legal environment is constantly changing as new laws and regulations are introduced and adopted, and existing laws and regulations are repealed, amended, modified and reinterpreted. We regularly work with authorities, both directly and through our active memberships in industry trade associations, to support our industry and to promote the development of laws and regulations that are equitable to businesses and consumers alike.
Regulatory authorities at various levels of government and voters have enacted, and will likely continue to propose, new rules and regulations impacting our industry. Due to the evolving nature of laws and regulations, further rulemaking could result in new or expanded regulations that may adversely impact current product offerings or alter the economic performance of our existing products and services. For example, a rule recently adopted by the CFPB threatens to do just that if and when it becomes effective. In addition, the CFPB is expected to propose a rule that will restrict debt collector communications with consumers. Although the rule is not expected to apply directly to the Companys activities, such a rule might impact third party debt collection on behalf of the Company and the CFPB might use its supervisory authority to impose similar restrictions on the Company. There is also uncertainty regarding how the CFPB might use its rulemaking and supervisory authority due to the announced departure of the agencys current director. We cannot provide any assurances that additional federal, state, provincial or local statutes or regulations will not be enacted in the future in any of the jurisdictions in which we operate. It is possible that future changes to statutes or regulations will have a material adverse effect on our results of operations and financial condition.
U.S. Regulations
U.S. Federal Regulations
The U.S. federal government and its respective agencies possess significant regulatory authority over consumer financial services. The body of laws to which we are subject has a significant impact on our operations. Recently, the CFPB adopted a new rule specifically targeted at payday, vehicle title and certain high-cost installment loans, or the CFPB Rule. The CFPB Rule is likely to have a significant impact on us if and when it becomes effective.
Dodd-Frank: In 2010, the U.S. Congress passed the Dodd-Frank Act. Title X of this legislation created the CFPB, which became operational in July 2011. Title X provides the CFPB with broad rule-making, supervisory and enforcement powers with regard to consumer financial services. Title X of Dodd-Frank also contains so-called UDAAP provisions declaring unlawful unfair, deceptive and abusive acts and practices in connection with the delivery of consumer financial services and giving the CFPB the power to enforce UDAAP
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prohibitions and to adopt UDAAP rules defining unlawful acts and practices. Additionally, the FTC Act prohibits unfair and deceptive acts and practices and gives the FTC enforcement authority to prevent and redress violations of this prohibition.
CFPB Rule: Pursuant to its authority to adopt UDAAP rules, the CFPB adopted a new rule applicable to payday, title and certain high-cost installment loans in October 2017. The provisions of this CFPB Rule directly applicable to us are scheduled to become effective in August 2019 . However, the CFPB Rule remains subject to potential override by congressional disapproval pursuant to the Congressional Review Act. Moreover, the current CFPB Director announced his resignation, effective as of November 24, 2017. His successor could suspend, delay, modify or withdraw the CFPB Rule. Further, we expect that important elements of the CFPB Rule will be subject to legal challenge by trade groups or other private parties. Thus, it is impossible to predict whether and when the CFPB Rule will go into effect and, if so, whether and how it might be modified.
In its current form, the CFPB Rule establishes ability-to-repay, or ATR, requirements for covered short-term loans and covered longer-term balloon-payment loans, as well as payment limitations on these loans and covered longer-term loans. Covered short-term loans are consumer loans with a term of 45 days or less. Covered longer-term balloon payment loans include consumer loans with a term of more than 45 days where (i) the loan is payable in a single payment, (ii) any payment is more than twice any other payment, or (iii) the loan is a multiple advance loan that may not fully amortize by a specified date and the final payment could be more than twice the amount of other minimum payments. Covered longer-term loans are consumer loans with a term of more than 45 days where (i) the total cost of credit exceeds an annual rate of 36%, and (ii) the lender obtains a form of leveraged payment mechanism giving the lender a right to initiate transfers from the consumers account. Post-dated checks, authorizations to initiate ACH payments and authorizations to initiate prepaid or debit card payments are all leveraged payment mechanisms under the CFPB Rule.
The CFPB Rule excludes from coverage, among other loans: (1) purchase-money credit secured by the vehicle or other goods financed (but not unsecured purchase-money credit or credit that finances services as opposed to goods); (2) real property or dwelling-secured credit if the lien is recorded or perfected; (3) credit cards; (4) student loans; (5) non-recourse pawn loans; and (6) overdraft services and overdraft lines of credit. These exclusions do not apply to our loans.
Under the provisions of the CFPB Rule applicable to covered short-term loans and covered longer-term balloon-payment loans, to make a conforming loan a lender will need to choose between the following two options.
| A full payment test, under which the lender must make a reasonable determination of the consumers ability to repay the loan in full and cover major financial obligations and living expenses over the term of the loan and the succeeding 30 days. Under this test, the lender must take account of the consumers basic living expenses and obtain and generally verify evidence of the consumers income and major financial obligations. However, in circumstances where a lender determines that a reliable income record is not reasonably available, such as when a consumer receives and spends income in cash, the lender may reasonably rely on the consumers statements alone as evidence of income. Further, unless a housing debt obligation appears on a national consumer report, the lender may reasonably rely on the consumers written statement regarding his or her housing expense. As part of the ATR determination, the CFPB Rule permits lenders and consumers in certain circumstances to rely on income from third parties, such as spouses, to which the consumer has a reasonable expectation of access, and to consider whether another person is regularly contributing to the payment of major financial obligations or basic living expenses. A 30-day cooling off period applies after a sequence of three covered short-term or longer-term balloon payment loans. |
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A principal-payoff option, under which the lender may make up to three sequential loans, or so-called Section 1041.6 Loans, without engaging in an ATR analysis. The first Section 1041.6 Loan in any |
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sequence of Section 1041.6 Loans without a 30-day cooling off period between loans is limited to $500, the second is limited to a principal amount that is at least one-third smaller than the principal amount of the first, and the third is limited to a principal amount that is at least two-thirds smaller than the principal amount of the first. A lender may not use this option if (i) the consumer had in the past 30 days an outstanding covered short-term loan or an outstanding longer-term balloon payment loan that is not a Section 1041.6 Loan, or (ii) the new Section 1041.6 Loan would result in the consumer having more than six covered short-term loans (including Section 1041.6 Loans) during a consecutive 12-month period or being in debt for more than 90 days on such loans during a consecutive 12-month period. For Section 1041.6 Loans, the lender cannot take vehicle security or structure the loan as open-end credit. |
Covered longer-term loans that are not balloon loans will not be subject to the foregoing requirements. However, these loans will be subject to the CFPB Rules penalty fee prevention provisions, which will apply to all covered loans. Under these provisions:
| If two consecutive attempts to collect money from a particular account of the borrower, made through any channel ( e.g., paper check, ACH, prepaid card) are unsuccessful due to insufficient funds, the lender cannot make any further attempts to collect from such account unless and until the lender has provided a new notice to the borrower and the borrower has provided a new and specific authorization for additional payment transfers. The CFPB Rule contains specific requirements and conditions for the authorization. While the CFPB has explained that these provisions are designed to limit bank penalty fees to which consumers may be subject, and while banks do not charge penalty fees on card authorization requests, the CFPB Rule nevertheless treats card authorization requests as payment attempts subject to these limitations. |
| A lender generally must give the consumer at least three business days advance notice before attempting to collect payment by accessing a consumers checking, savings, or prepaid account. The notice must include information such as the date of the payment request, payment channel and payment amount (broken down by principal, interest, fees, and other charges), as well as additional information for unusual attempts, such as when the payment is for a different amount than the regular payment, initiated on a date other than the date of a regularly scheduled payment or initiated in a different channel that the immediately preceding payment attempt. |
The CFPB Rule also requires the CFPBs registration of consumer reporting agencies as registered information systems to whom lenders must furnish information about covered short-term and longer-term balloon loans and from whom lenders must obtain consumer reports for use in extending such credit. If there is no registered information system or if no registered information system has been registered for at least 180 days, lenders will be unable to make Section 1041.6 Loans. The CFPB expects that there will be at least one registered information system in time for lenders to avail themselves of the option to make Section 1041.6 Loan by the effective date of the CFPB Rule.
The CFPB Rule remains subject to possible Congressional override by disapproval pursuant to the Congressional Review Act and possible invalidation in legal challenges by trade groups or other private parties. We cannot predict at this time whether Congress will allow the rule to stand or whether private legal challenges will be successful.
For a discussion of the potential impact of the CFPB Rule on the Company, see Risk FactorsRisks Relating to the Regulation of Our IndustryThe CFPB promulgated new rules applicable to our loans that could have a material adverse effect on our business and results of operations.
CFPB Enforcement: In addition to the Dodd-Frank Acts grant of rule-making authority, the Dodd-Frank Act gives the CFPB authority to pursue administrative proceedings or litigation for violations of federal consumer financial laws (including Dodd-Franks UDAAP provisions and the CFPBs own rules). In these proceedings, the CFPB can obtain cease and desist orders (which can include orders for restitution or rescission
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of contracts, as well as other kinds of affirmative relief) and monetary penalties ranging from $5,000 per day for ordinary violations of federal consumer financial laws to $25,000 per day for reckless violations and $1 million per day for knowing violations. Also, where a company has violated Title X of the Dodd-Frank Act or CFPB regulations promulgated thereunder (such as the CFPB Rule), the Dodd-Frank Act empowers state attorneys general and state regulators to bring civil actions for the kind of cease and desist orders available to the CFPB (and possibly also for the civil penalties available to the CFPB). Potentially, if the CFPB, the FTC or one or more state officials believe we have violated the foregoing laws, they could exercise their enforcement powers in ways that would have a material adverse effect on us.
CFPB Supervision and Examination: Additionally, the CFPB has supervisory powers over many providers of consumer financial products and services, including explicit authority to examine (and require registration) of payday lenders. The CFPB released its Supervision and Examination Manual, which includes a section on Short-Term, Small-Dollar Lending Procedures, and began field examinations of industry participants in 2012. The CFPB commenced its first supervisory examination of us in October 2014. The scope of the CFPBs examination included a review of our Compliance Management System, our Short-Term Small Dollar lending procedures, and our compliance with Federal consumer financial protection laws. The 2014 examination had no material impact on our financial condition or results of operations, and we received the final CFPB Examination Report in September 2015.
The CFPB commenced its second examination of us in February 2017 and completed the related field work in June 2017. The scope of the 2017 examination included a review of our Consumer Compliance Management System, our substantive compliance with applicable federal laws and certain select matters requiring attention. The CFPB has not yet provided us with its final report of examination. However, we have received and responded to preliminary findings.
Reimbursement Offer; Possible Changes in Payment Practices: During 2017 it was determined that a limited universe of borrowers may have incurred bank overdraft or non-sufficient funds fees because of possible borrower confusion about certain electronic payments we initiated on their loans. As a result, we have decided to reimburse those fees through payments or credits against outstanding loan balances, subject to per-customer dollar limitations, upon receipt of (i) claims from potentially affected borrowers stating that they were in fact confused by our practices and (ii) bank statements from such borrowers showing that they incurred these fees at a time that they might reasonably have been confused about our practices. Based on the terms of the reimbursement offer we are currently considering, we do not expect the net financial cost of this offer to exceed $4 million.
While we do not expect that matters arising from the CFPB examinations will have a material impact on the Company, at least in part to meet CFPB expectations, the Company has made in recent years, and is continuing to make, certain enhancements to its compliance procedures and consumer disclosures. For example, we are in the process of evaluating our payment practices. Even in advance of the effective date of the CFPB Rule (and even if the CFPB Rule does not become effective), we may make changes to these practices in a manner that will increase costs and/or reduce revenues.
MLA: The Military Lending Act, or MLA, enacted in 2006 and implemented by the Department of Defense, or DoD, imposes a 36% cap on the all-in annual percentage rates charged on certain loans to active-duty members of the U.S. military, reserves and National Guard and their respective dependents. As initially adopted, the MLA and related DoD rules applied to our loans with terms up to 90 days. However, in 2016, the DoD expanded its MLA regulations, effective in October 2016, to encompass some of our longer-term Installment Loans that were not previously covered. As a result, we ceased offering short-term consumer loans to these applicants in 2007 and all loans to these applicants in 2016.
Enumerated Consumer Financial Services Laws, TCPA and CAN-SPAM: Federal law imposes additional requirements on us with respect to our consumer lending. These requirements include disclosure requirements
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under the Truth in Lending Act, or TILA, and Regulation Z. TILA and Regulation Z require creditors to deliver disclosures to borrowers prior to consummation of both closed-end and open-end loans and, additionally for open-end credit products, periodic statements and change in terms notices. For closed-end loans, the annual percentage rate, the finance charge, the amount financed, the total of payments, the number and amount of payments and payment due dates, late fees and security interests must all be disclosed. For open end credit, the borrower must be provided with key information that includes annual percentage rates and balance computation methods, various fees and charges, and security interests.
Under the Equal Credit Opportunity Act, or ECOA, and Regulation B, we may not discriminate on various prohibited bases, including race, gender, national origin, marital status and the receipt of government benefits, retirement or part-time income, and we must also deliver notices specifying the basis for credit denials, as well as certain other notices. The Fair Credit Reporting Act, or FCRA, regulates the use of consumer reports and reporting of information to credit reporting agencies. These laws limit the permissible uses of credit reports and require us to provide notices to customers when we take adverse action or increase interest rates based on information obtained from third parties, including credit bureaus. We are also subject to additional federal requirements with respect to electronic signatures and disclosures under the Electronic Signatures In Global And National Commerce Act, or ESIGN; and requirements with respect to electronic payments under the Electronic Funds Transfer Act, or EFTA, and Regulation E. EFTA and Regulation E requirements also have an important impact on our prepaid debit card services business. These rules and regulations protect consumers engaging in electronic fund transfers and contain restrictions, require disclosures and provide consumers certain rights relating to electronic fund transfers, including requiring a written authorization, signed or similarly authenticated, in connection with certain credit transactions payable through payments that recur at substantially equal intervals. Additionally we are subject to compliance with the Telephone Consumer Protection Act, or the TCPA, and CAN-SPAM Act, and the regulations of the FCC, which include limitations on telemarketing calls, auto-dialed calls, pre-recorded calls, text messages and unsolicited faxes. While the Company believes that its practices comply with the TCPA, the TCPA has given rise to a spate of litigation nationwide.
The Company applies the rules under the Fair Debt Collection Practices Act, or FDCPA, as a guide to conducting its collections activities for delinquent loan accounts, as well as complying with applicable state collections laws.
Bank Secrecy Act and Anti-Money Laundering Laws: Under regulations of the U.S. Department of the Treasury, or the Treasury Department, adopted under the Bank Secrecy Act of 1970, or BSA, we must report currency transactions in an amount greater than $10,000 by filing a Currency Transaction Report, or CTR, and we must retain records for five years for purchases of monetary instruments for cash in amounts from $3,000 to $10,000. Multiple currency transactions must be treated as a single transaction if we have knowledge that the transactions are by, or on behalf of, the same person and result in either cash in or cash out totaling more than $10,000 during any one business day. We will file a CTR for any transaction which appears to be structured to avoid the required filing and the individual transaction or the aggregate of multiple transactions would otherwise meet the threshold and require the filing of a CTR.
The BSA also requires us to register as a money services business with the Financial Crimes Enforcement Network of the Treasury Department, or FinCEN. This registration is intended to enable governmental authorities to better enforce laws prohibiting money laundering and other illegal activities. We are registered as a money services business with FinCEN and must re-register with FinCEN by December 31 every other year. We must also maintain a list of names and addresses of, and other information about, our stores and must make that list available to FinCEN and any requesting law enforcement or supervisory agency. That store list must be updated at least annually.
Federal anti-money-laundering laws make it a criminal offense to own or operate a money transmittal business without the appropriate state licenses, which we maintain. In addition, the USA PATRIOT Act of 2001 and its corresponding federal regulations require us, as a financial institution, to establish and maintain an anti-
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money-laundering program. Such a program must include: (1) internal policies, procedures and controls designed to identify and report money laundering; (2) a designated compliance officer; (3) an ongoing employee-training program; and (4) an independent audit function to test the program. Because our compliance with other federal regulations has essentially a similar purpose, we do not believe compliance with these requirements has had or will have any material impact on our operations. In addition, federal regulations require us to report suspicious transactions involving at least $2,000 to FinCEN. The regulations generally describe four classes of reportable suspicious transactions-one or more related transactions that the money services business knows, suspects, or has reason to suspect (1) involve funds derived from illegal activity or are intended to hide or disguise such funds, (2) are designed to evade the requirements of the BSA (3) appear to serve no business or lawful purpose or (4) involve the use of the money service business to facilitate criminal activity.
The Office of Foreign Assets Control, or OFAC, publishes a list of individuals and companies owned or controlled by, or acting for or on behalf of, targeted or sanctioned countries. It also lists individuals, groups and entities, such as terrorists and narcotics traffickers, designated under programs that are not country-specific. Collectively, such individuals and companies are called Specially Designated Nationals. Their assets are blocked and we are generally prohibited from dealing with them.
Privacy Laws: The Gramm-Leach-Bliley Act of 1999 and its implementing federal regulations require us generally to protect the confidentiality of our customers nonpublic personal information and to disclose to our customers our privacy policy and practices, including those regarding sharing the customers nonpublic personal information with third-parties. That disclosure must be made to customers at the time the customer relationship is established and, subject to an exception, at least annually thereafter.
State and Local Regulation in the United States
Short-term consumer loans must comply with extensive laws of the states where our stores are located or, in the case of our online loans, where the borrower resides. These laws impose, among other matters, restrictions and requirements governing interest rates and fees; maximum loan amounts; the number of simultaneous or consecutive loans, and required waiting periods between loans; loan extensions and refinancings; payment schedules (including maximum and minimum loan durations); required repayment plans for borrowers claiming inability to repay loans; collections; disclosures; security for loans and payment mechanisms; licensing; and (in certain jurisdictions) database reporting and loan utilization information. While the federal FDCPA does not typically apply to our activities, comparable, and in some cases more rigorous, state laws do apply.
In the event of serious or systemic violations of state law by us or, in certain instances, our third-party service providers when acting on our behalf, we would be subject to a variety of regulatory and private sanctions. These could include license suspension or revocation (not necessarily limited to the state or product to which the violation relates); orders or injunctive relief, including orders providing for rescission of transactions or other affirmative relief; and monetary relief. Depending upon the nature and scope of any violation and/or the state in question, monetary relief could include restitution, damages, fines for each violation and/or payments to borrowers equal to a multiple of the fees we charge and, in some cases, principal as well. Thus, violations of these laws could potentially have a material adverse effect on our results of operations and financial condition.
The California Finance Lenders Law caps rates on loans under $2,500 but imposes no limit on loans valued $2,500 or higher. The DBO is currently evaluating whethercontrary to both our practice and general industry practicethe interest rate cap applies to loans in an original principal amount of $2,500 or more that are partially prepaid shortly after origination to reduce the principal balance to $2,500 or less. We provided the DBO with a detailed submission on this issue in September 2016, but the DBOs response remains pending.
During the past few years, legislation, ballot initiatives and regulations have been proposed or adopted in various states that would prohibit or severely restrict our short-term consumer lending. We, along with others in the short-term consumer loan industry, intend to continue to inform and educate legislators and regulators and to
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oppose legislative or regulatory action that would prohibit or severely restrict short-term consumer loans. Nevertheless, if legislative or regulatory action with that effect were taken in states in which we have a significant number of stores (or at the federal level), that action could have a material adverse effect on our loan-related activities and revenues.
In some states, check cashing companies or money transmission agents are required to meet minimum bonding or capital requirements and are subject to record-keeping requirements and/or fee limits.
Currently, approximately 30 states in the United States have enabling legislation that specifically allows direct loans of the type that we make. In Texas and Ohio, we operate under a CSO model. In Texas this model is expressly authorized under Section 393 of the Texas Finance Code. As a CSO, we serve as arranger for consumers to obtain credit from independent, non-bank consumer lending companies and we guaranty the lender against loss. As required by Texas law, we are registered as a CSO and also licensed as a CAB. Texas law subjects us to audit by the States Office of Consumer Credit Commissioner and requires us to provide expanded disclosures to customers regarding credit service products.
The Texas cities of Austin, Dallas, San Antonio, Houston and several others (nearly 45 cities in total as of September 30, 2017) have passed substantially similar local ordinances addressing products offered by credit access businesses or CABs. These local ordinances place restrictions on the amounts that can be loaned to customers and the terms under which the loans can be repaid. As of September 30, 2017, the Company operated 70 stores in cities with local ordinances. We have been cited by the City of Austin for alleged violations of the Austin ordinance but believe that: (i) the ordinance conflicts with Texas state law and (ii) our product in any event complies with the ordinance, when it is properly construed. An Austin trial court agreed with our position that the ordinance conflicts with Texas law and, accordingly, did not address our second argument. In August 2017, an Austin appellate court reversed this decision and remanded the case to the trial court for further proceedings consistent with its opinion (including, presumably, a decision on our second argument). However, in October 2017 we appealed this appellate decision. Accordingly, we will not have a final determination of the lawfulness of our CAB program under the Austin ordinance (and similar ordinances in other Texas cities) for some time. A final adverse decision could potentially result in material monetary liability in Austin and elsewhere and would force us to restructure the loans we arrange in Texas.
Our credit services organization or CSO company in Ohio is registered under the Ohio Credit Services Organization Act and regulated by the Ohio Department of Commerce Division of Financial Institutions. As a CSO, we provide credit services to our customers in accordance with the Credit Services Organization Act. Unlike Texas law, however, the Ohio Credit Services Organization Act does not expressly authorize the loan program we offer. Operating as a CSO allows us to charge a fee for arranging loans to our customers from unaffiliated third-party lenders, for assisting customers in preparing and completing the information and documents that the unaffiliated third-party lenders require the customers to submit in order to obtain loans and for providing guarantees of customer obligations to the unaffiliated third-party lenders. We determine whether we are prepared to guarantee the loans, using our own underwriting guidelines, and the lender applies its own underwriting guidelines in determining whether to make the loan. We obtain assurances from lenders that they comply with applicable federal and Ohio laws when setting loan terms. We offer loans online in Ohio.
Our businesses are regulated by state authorities in each state where we operate, whether through storefronts or online. We are subject to regular state examinations and audits and must address with the appropriate state agency any findings or criticisms resulting from these examinations and audits.
In addition to state laws governing our lending activities, most states have laws and regulations governing check cashing and money transmission, including licensing and bonding requirements and laws regarding maximum fees, recordkeeping and/or posting of fees, and our business is subject to various local rules, such as local zoning and occupancy regulations. These local rules and regulations are subject to change and vary widely from state to state and city to city.
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We cannot provide any assurances that additional state or local statutes or regulations will not be enacted in the future in any of the jurisdictions in which we operate. Additionally, we cannot provide any assurances that any future changes to statutes or regulations will not have a material adverse effect on our results of operations and financial condition.
Canadian Regulations
In May 2007, Canadian federal legislation was enacted that exempts from the criminal rate of interest provisions of the Criminal Code (which prohibit receiving (or entering into an agreement to receive) interest at an effective annual rate that exceeds 60% on the credit advanced under the loan agreement) cash advance loans of $1,500 or less if the term of the loan is 62 days or less (payday loans) and the person is licensed under provincial legislation as a short-term cash advance lender and the province has been designated under the Criminal Code . Currently, Ontario, Alberta, British Columbia, Manitoba, Nova Scotia, Prince Edward Island and Saskatchewan have provincial enabling legislation allowing for payday loans and have also been designated under the Criminal Code. New Brunswicks enabling legislation will come into force on January 1, 2018, at which time it will become a designated province under the Criminal Code. Newfoundland has proposed enabling legislation, but such legislation is not yet in force. Under the provincial payday lender legislation there are generally cost of borrowing disclosure requirements, collection activity requirements, caps on the cost of borrowing that may be recovered from borrowers and restrictions on certain types of lending practices, such as extending more than one payday loan to a borrower at any one time.
Canadian provinces periodically review the regulations for payday loan products. Some provinces specify a time period within the Act while other provinces are silent or simply note that reviews will be periodic.
Nova Scotia
On March 30, 2015, Nova Scotia completed its review process and reduced the maximum cost of borrowing from C$25 per C$100 to C$22 per C$100 effective in May of 2015. The remaining recommendations of the review Board, mainly an extended payment plan offering, are still with the respective minister for consideration. Cash Money operated five retail store locations as of September 30, 2017 and has an internet presence in Nova Scotia. We do not expect that any of the proposed changes will materially impact our operating results in Nova Scotia.
British Columbia
On September 21, 2016, the British Columbia Ministry of Public Safety and Solicitor General, or the Ministry, announced a reduction in the total cost of borrowing from C$23 per C$100 lent to C$17 per C$100 lent effective January 1, 2017. At the same time, the Ministry also announced a consultation titled Consumer Protection for British Columbians who use high-cost alternative financial services, seeking input on whether, and what additional, regulation may be warranted. The consultation concluded October 20, 2016 and the process and timing following this consultation are unknown.
As of September 30, 2017, the Company operated 26 of its 190 Canadian stores and conducted online lending in British Columbia. Revenues in British Columbia were approximately 10.3% of Canadian revenues and 2.0% of total consolidated revenues for the nine months ended September 30, 2017.
Ontario
On April 20, 2016, the Ontario Ministry of Government and Consumer Services, or the Ministry, published a 30-day consultation to consider the total cost of borrowing for payday lending in Ontario, which was C$21 per C$100 lent. The consideration is whether the rate should remain at C$21 or be lowered to C$19, C$17 or C$15 per C$100 lent. On August 30, 2016, the Ministry published another 30-day consultation seeking public input on
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a two stage reduction in the total cost of borrowing, proposing a maximum rate of C$18 per C$100 lent effective January 1, 2017 and a further reduction to C$15 per C$100 lent effective January 1, 2018.
On November 3, 2016, the Ministry held a press conference and issued a press release announcing the introduction of new legislation and also announcing a reduction in the total cost of borrowing to C$18 per C$100 lent effective January 1, 2017. While the proposed further reduction to C$15 per C$100 lent was updated in the posted regulations, it was our understanding that the Ministrys decisions on further reductions to the total cost of borrowing beyond January 1, 2017 was still under review and consideration.
In December 2015, Bill 156 titled the Alternative Financial Services Statute Law Amendment Act was introduced. This legislation proposed additional consumer protections such as a cooling-off period and extended repayment plan. This legislation also provided the Ministry with the authority, subject to a regulatory process, to impose additional requirements such as establishing a maximum loan amount. The Alternative Financial Services Statute Law Amendment Act passed second reading before the Parliament recessed in June of 2016.
Upon the Ontario Parliament returning from summer recess in September of 2016, the Premier of Ontario prorogued the legislature therefore all prior bills died and new legislation would need to be introduced. On November 3, 2016, the Ministry introduced Bill 59 titled Putting Consumers First Act (the Act). The Act encompassed many of the provisions of the previous legislation (the Alternative Financial Services Statute Law Amendment Act). The Ministry also incorporated the provisions of three other previous, unrelated pieces of legislation in the Act. Bill 59 officially received Royal Assent on April 13, 2017. A majority of the Single-Pay-loan-related provisions in the Act, including but not limited to installment repayment plans, advertising requirements, prohibitions on number of loans in a year and disclosure requirements are subject to a further regulatory process.
With respect to the regulatory process for the authorities granted to the Ministry in Bill 59, the Ministry of Government and Consumer Services issued a consultation document on July 7, 2017 requesting feedback on whether and how regulations should change regarding most notably extended payment plans, maximum loan amounts, a cooling off period between loans, and limits on fees charged to cash government checks. Responses to the July 7, 2017 consultation document were due by August 21, 2017. The Ministry summary accompanying the consultation document stated that it intends to enact regulations based on the outcome of the consultation in early 2018. We expect the revised regulations to include a reduction in the maximum rate and potentially some combination of an imposition of cooling off periods, extended payment plan requirements, maximum loan amounts and the maximum number of loans that may be entered into with the same borrower in a one-year period. The majority of changes to the Ontario legislation giving the regulator the power to enact regulations dealing with these matters will come into force on July 1, 2018.
We conducted online lending and operate 121 of our 190 Canadian stores in Ontario (as of September 30, 2017). Revenues originated in Ontario represented approximately 65.7% of revenue generated in Canada and 14.9% of our total consolidated revenues for the year ended December 31, 2016. Revenues originated in Ontario represented approximately 67.0% of revenue generated in Canada and 13.1% of our total consolidated revenues for the nine months ended September 30, 2017. Until these procedures have concluded and been formally announced, we cannot speculate on the final details and therefore the impact of these expected new regulations. Depending on the magnitude of the changes adopted, they could have a material adverse effect on our Ontario operations.
Alberta
On May 12, 2016, the Alberta Government introduced Bill 15 titled An Act to End Predatory Lending. The most notable provisions of this Bill included for loans in scope a reduction in the maximum cost of borrowing from C$23 to C$15 per C$100 lent and a requirement that all loans are repaid in installments. For customers paid semi-monthly, bi-weekly or on a more frequent basis, at least three installment payments would be required. For customers paid on a monthly basis, at least two installment payments would be required. All covered loan terms must be no less than 42 days and no greater than 62 days with no penalty for early repayment.
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Additionally, the Bill included a provision for a reduction in the cost of borrowing to 60% APR when alternative options for credit exist and are being utilized by a sufficient number of individuals.
On May 27, 2016, Bill 15 received Royal Assent. The maximum cost of borrowing of C$15 per C$100 lent became effective on August 1, 2016. On November 25, 2016, the Alberta Government issued the regulations for the installment payments, effective November 30, 2016.
The Company operated 27 of its 190 Canadian stores (as of September 30, 2017) and conducts online lending in Alberta. Revenues in Alberta were approximately 15.1% of Canadian revenues and 3.4% of total consolidated revenues for the year ended December 31, 2016, and were approximately 12.8% of Canadian revenues and 2.5% of total consolidated revenues for the nine months ended September 30, 2017. If we are unable to replace a significant portion of the affected revenues with other product offerings, this change could have a material adverse effect on our results for our Canadian operations.
Manitoba
On January 12, 2016, the province of Manitoba announced a Public Utilities Board, or PUB, hearing from April 12, 2016 through April 19, 2016 to specifically review and consider a reduction in the rate from C$17 per C$100 lent to C$15 per C$100 lent and a reduction in the maximum amount borrowers can loan from 30% of net pay to 25% of net pay. On June 17, 2016, the PUB issued its report to the government recommending that these proposed changes not be made. It is unknown if and when the government may adopt the recommendations of the PUB. As of September 30, 2017, the Company operated four stores in Manitoba.
Saskatchewan
Saskatchewan has amended its Payday Loan Regulations such that as of February 15, 2018, the maximum rate that may be charged to a borrower will be reduced from C$23 per C$100 lent to C$17 and the maximum fee for a dishonoured check will be reduced from C$50 to C$25. As of September 30, 2017, the Company operated six stores in Saskatchewan.
Installment loans are subject to the Criminal Code interest rate cap of 60%. Providers of these types of loans are also subject to provincial legislation that requires lenders to provide certain disclosures, prohibits the charging of certain default fees and extends certain rights to borrowers, such as prepayment rights. These laws are harmonized in many Canadian provinces. However, in Ontario, Bill 59 titled Putting Consumers First Act, which received Royal Assent on April 13, 2017, provides the Ontario Ministry with the authority to impose additional restrictions on lenders who offer installment loans, subject to a regulatory process, including: (i) requiring a lender to take into account certain factors with respect to the borrower before entering into a credit agreement with that borrower; (ii) capping the amount of credit that may be extended; (iii) prohibiting a lender from initiating contact with a borrower for the purpose of offering to refinance a loan; and (iv) capping the amount of certain fees that do not form part of the cost of borrowing. On July 7, 2017, the Ministry of Government and Consumer Services issued a consultation document requesting feedback on questions regarding a new regime for high-cost credit and limits on optional services, such as optional insurance. The proposed high-cost credit regime would apply to loans with an annual interest rate that exceeds 35%. The Ministry summary accompanying the consultation document stated that a further consultation paper would be issued this fall on those matters. The Ministry expects that regulation would be enacted in early 2019.
In Canada, the federal government generally does not regulate check cashing businesses, except in respect of federally regulated financial institutions (and other than the Criminal Code of Canada provisions noted above in respect of charging or receiving in excess of 60% interest on the credit advanced in respect of the fee for a check cashing transaction) nor do most provincial governments generally impose any regulations specific to the check cashing industry. The exceptions are the provinces of Quebec, where check cashing stores are not permitted to charge a fee to cash a government check; Manitoba, where the province imposes a maximum fee to
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be charged to cash a government check; Ontario, where legislation capping the amount of the fee that may be charged for cashing a government check will come into force on July 1, 2018; and British Columbia, where there is proposed legislation which will either restrict or impose a maximum fee that can be charged to cash a government check or any other check that may be designated by regulation. The province of Saskatchewan also regulates the check cashing business but only in respect of provincially regulated loan, trust and financing corporations. Cash Money does not operate in the province of Quebec.
The Financial Transaction and Reports Analysis Centre of Canada is responsible for ensuring that money services businesses comply with the legislative requirements of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, or the PCMLTFA. The PCMLTFA requires the reporting of large cash transactions involving amounts of $10,000 or more received in cash and international electronic funds transfer requests or receipts of $10,000 or more. The PCMLTFA also requires submitting suspicious transactions reports when there are reasonable grounds to suspect that a transaction or attempted transaction is related to the commission of a money laundering offense or to the financing of a terrorist activity, and the submission of terrorist financing reports where a person has possession or control of property that they know or believe to be owned or controlled by or on behalf of a terrorist or terrorist group. The PCMLTFA also imposes obligations on money services businesses in respect of record keeping, identity verification, and implementing a compliance policy.
U.K. Regulations
In the United Kingdom, consumer lending is governed by The Consumer Credit Act 1974, which was amended by the Consumer Credit Act 2006, or the CCA, and related rules and regulations supplemented by guidance. On April 1, 2014, the Financial Conduct Authority, or FCA, assumed responsibility for regulating consumer credit from the Office of Fair Trading, or OFT, as enacted under the Financial Services Act 2012. The FCA is the regulatory body in the United Kingdom that is responsible for the regulation and oversight of the consumer credit industry. Firms operating with consumer credit licenses originally issued by the OFT were required to register with the FCA in the fall of 2013 to obtain interim permission to conduct consumer credit activities from April 1, 2014 until they had applied for and obtained full authorization from the FCA. In February 2016, the Company was notified that its two lending businesses in the United Kingdom, SRC Transatlantic Limited and Wage Day Advance Limited, had received full authorization from the FCA to undertake certain categories of regulated consumer credit business under the Financial Services and Markets Act 2000.
While U.K. consumer credit businesses are principally regulated by the FCA, there is additional legislation and regulation that governs consumer credit, including the CCA. The CCA imposes various obligations on lenders, and any person who exercises the rights and duties of lenders to correctly document credit agreements and guarantees and indemnities, give borrowers rights to withdraw, provide post contract information such as statements of account, notices of sums in arrears and default notices, protect consumers who purchase a good or service from a linked supplier and not to take certain recovery or enforcement action until prescribed forms of post-contractual notices have been served and prescribed time periods have elapsed. Any failure to comply with such legislation or regulation may have serious consequences for our U.K. operations, as well as a risk that the FCA may revoke or suspend our authorization.
The FCA and its predecessor, the OFT, have already taken action against, and have imposed requirements on, a number of well-known U.K. financial institutions. In addition, our U.K. operations are subject to various regulations concerning consumer protection and data protection, among others. We are also subject to the powers of the U.K. Information Commissioners Office, or the ICO, to take enforcement action in relation to data protection.
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Financial Conduct Authority Regulation
The FCAs strategic objective is to ensure that its relevant markets function well. The FCA also has three operational objectives:
| to secure an appropriate degree of protection for consumers; |
| to protect and enhance the integrity of the U.K. financial system; and |
| to promote effective competition in the interests of consumers for regulated financial services or services carried out by regulated investment exchanges. |
Its supervisory approach is risk based and directly linked to customer outcomes; in particular, it will focus on factors that influence the delivery of its statutory objectives.
The FCA Handbook sets out the FCA rules and other provisions, which have been made under powers given to the FCA under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (as amended). Firms wishing to carry on regulated consumer credit activities must comply with all applicable sections of the FCA Handbook, as well as the applicable consumer credit laws and regulations.
The FCA Handbook provides both general sourcebooks (that all authorized firms must comply with) and specialist sourcebooks (that apply to firms carrying out a specific regulated activity). The FCA Handbook has a specialist consumer credit sourcebook, or CONC, for the consumer credit sector, which includes rules and guidance in relation to, inter alia, financial promotions, pre-contract responsibilities and disclosure, affordability and creditworthiness assessments, the handling of vulnerable customers, communications with customers, arrears, default and recovery of debt, debt advice and statute barred debt.
By virtue of doing business with financial institutions and other FCA regulated companies in the United Kingdom, subsidiaries of the Group are typically contractually obligated to comply with certain other requirements, such as the U.K. Lending Standards Boards Standards of Lending Practice (which financial institutions usually comply with on a voluntary basis), the Finance and Leasing Associations Lending Code and the Credit Services Associations Code of Practice.
The FCA has applied its rules to consumer credit firms in a number of areas, including its high level principles and conduct of business standards. The FCA has substantially greater powers than the OFT and given the FCA has only been responsible for regulating consumer credit since April 2014, it is likely that the regulatory requirements applicable to our industry will continue to increase, as the FCA deepens its understanding of the industry through the authorization process. In addition, it is likely that the compliance framework that will be needed to continue to satisfy the FCA requirements will demand incremental investment and resources in our compliance governance framework. For example, it is currently expected that as of 2018, the U.K. Senior Managers and Certification Regime, or SMCR, will be extended to all sectors of the financial services industry (including consumer credit firms, such as SRC Transatlantic Limited and Wage Day Advance Limited), at which point the majority of the senior management team below the executive committee is expected to become certified persons. One result of this may be that we incur additional costs from putting in place systems to ensure all employees are appropriately notified of, and receive suitable training in, the rules of conduct which will apply to them. We have commenced planning for this, with the details to be finalized once the FCA issues its final rules, expected to be published during the second half of 2017. There is also a risk that we could become subject to additional or new regulatory obligations (such as FCA approval of senior managers and anti-money laundering and fraud prevention), or that those requirements to which we are currently subject could become more stringent.
Pursuant to statutory requirements, all authorized entities must be able to demonstrate that they meet the threshold conditions for authorization and comply on an ongoing basis with the FCAs high level standards for authorized firms, such as its Principles for Business (including the requirements to treat customers fairly); Threshold Conditions; Senior Management Arrangements, Systems and Controls; Statements of Principle and
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Code of Practice for Approved Persons; and Training and Competence and General Provisions, as well as CONC. In addition, certain individuals within an FCA authorized firm who exercise a significant influence over the business of the firm must be approved by the FCA and these individuals have to demonstrate that they are fit and proper and competent to hold the position of an approved person.
The FCA regards lending and collections of loans as a high risk activity and therefore dedicates special resources to more intensive monitoring of businesses in this sector. CONC provides that firms that undertake consumer credit regulated activities should, for example, be required to treat a customer in default or arrears difficulties with forbearance and consideration and may consider suspending, reducing or waiving any further interest payments or charges from that customer or accepting token payments from the customer for a reasonable period. Regarding statute barred debt, a firm which undertakes consumer credit regulated activities must not mislead a customer by suggesting that said customer could be subject to court action for the sum of the statute barred debt, when that firm knows, or reasonably ought to know, that the relevant limitation period has expired.
The Money Laundering Regulations 2017 implement the European Union 4th Money Laundering Directive (2015/849/EU) and apply to lenders and specify that all lenders must be supervised for money laundering compliance. Both our U.K. lending businesses are currently supervised by the FCA for these purposes.
In the United Kingdom, a bank that clears a fraudulent check must refund the drawer. For this reason, banks have invoked more stringent credit inspection and indemnity criteria for businesses such as ours.
In 2009, the European Union Payment Services Directive, or the PSD1, was implemented in the United Kingdom, requiring money transfer and foreign currency exchange providers (among others) to be authorized by or registered with the FCA; SRC Transatlantic Limited duly registered with effect from December 8, 2010. PSD1 will be replaced by Directive 2015/2366/EU, or PSD2, beginning in January 2018. PSD2 will be implemented via the U.K. Payment Services Regulations 2017. Under the new regime, SRC Transatlantic Limited will be required to re-register with the FCA in order to continue providing payment services.
In June 2013, the U.K. Competition & Markets Authority (CMA) commenced a market investigation into payday lending to investigate whether certain features of the industry prevented, restricted or distorted competition and if so to recommend suitable remedies.
The Equality Act 2010 protects nine characteristics from direct or indirect discrimination and harassment of applicants and customers when conducting lending services. These characteristics are age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex and sexual orientation.
We are required to self-report suspicious activities and to appoint a designated anti-money laundering officer with the overall responsibility for the compliance of the business and employees under the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2017.
The CMA published its final report in February 2015; its recommendations were implemented under the Payday Lending Market Investigation Order 2015, under which:
| online lenders must provide details of their products on at least one FCA authorized price comparison website, or PCW, and include a hyperlink from their website to the relevant PCW; and |
| payday lenders must provide existing customers with a summary of their cost of borrowing. |
These changes, which are reflected in FCA rules, came into effect on December 1, 2016.
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Failure to comply with any rules or guidance issued by the FCA is likely to have serious consequences; for example:
| The FCA may take enforcement action against a firm which could result in fines and/or remediation action for consumers. Any such enforcement action would be publicly known and would involve severe reputational damage, with vendors of debt portfolios and creditors outsourcing collection activity likely to remove their business from a debt collector that is the subject of such enforcement action. |
| Firms can be subject to a section 166 notice by the FCA, which may ensue where the FCA has identified issues within the firm regarding compliance with the FCA rules and guidance and commissions a skilled persons report. A skilled persons report is performed by an independent firm, usually one of the five large accountancy firms or a law firm that is deemed by the FCA to have the necessary skills and expertise to review the areas of concern. The report is shared with the firm being reviewed and the FCA. Remedial action highlighted is tracked by the FCA through close liaison with the firm. Failure to remedy points raised and/or do so in sufficient time can lead to further enforcement action, including fines. The cost of such a review is borne by the firm. Any enforcement proceeding that might follow from the issue of a section 166 notice may become public at the stage of issuance of a final notice. If our U.K. operations become subject to such a notice, originators that currently do business with us may cease to do so, and our ability to conduct our U.K. operations, along with our reputation, and consequently, our ability to win future business may be adversely affected. We might also have to introduce changes to our business practices in the United Kingdom in response to enforcement action taken against certain of our competitors. |
The FCA is undertaking various reviews relevant to consumer credit businesses, which may affect us. For example, in December 2016, the FCA published a report on its thematic review on arrears management in unsecured lending which assessed the manner in which consumer credit financial institutions collect and recover debt and how customers were being treated by such firms. The review focused on whether firms have due regard to the interests of their customers and exercise appropriate forbearance in compliance with the existing FCA rules, including the Principles for Businesses. We were not directly involved with the review; however, we reviewed the report and no major changes to our current policy and processes were required.
Data Protection
As a consumer finance business, we must comply with the requirements established by the Data Protection Act in relation to processing the personal data of our customers. Any business controlling the processing of personal data (that is, determining the purposes of the processing and the manner in which it is carried out), such as consumer credit firms, must in particular maintain a data protection registration with the ICO for each of its companies. The ICO is an independent governmental authority responsible for maintaining, upholding and promoting the best business practices and legislative requirements for processing personal data and safeguarding the information rights of individuals and their rights to access their personal data.
We control the processing of significant amounts of personal data; therefore, we have a data protection registration for each relevant subsidiary which controls the processing of personal data, a data protection policy and have established data protection processes, which are reviewed and updated from time to time for the purposes of compliance with the requirements of the Data Protection Act and the applicable guidance issued from time to time by the ICO, such as the handling of data subject access requests from individuals. The ICO is empowered to impose requirements through enforcement notices (in effect, stop orders), issue monetary fines and prosecute criminal offences under the Data Protection Act. As of the date of this prospectus we have not received any such notices from the ICO.
Furthermore, we receive third-party data from sources governed by the Steering Committee on Reciprocity, or SCOR, such as mainstream credit bureaux, and from private sources such as closed user groups, or CUGs. CUGs operate by a CUG host taking responsibility for housing the underlying data, matching the records and for
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compliance with data protection regulations. If one of the contributors of the CUG were to violate data protection laws or other regulatory requirements, it could harm our business or result in penalties being imposed on us. Our ability to obtain, retain and otherwise manage such data is governed by data protection and privacy requirements and regulatory rules and guidance issued by, among others, the ICO and influenced by SCOR.
The EU Data Protection Regulation came into effect in May 2016 and is directly applicable in Member States (including the United Kingdom). It will apply to all affected businesses, which are required to be compliant by May 25, 2018, when enforcement of that regulation begins. The EU Data Protection Regulation introduces substantial changes to the EU data protection regime and will impose a substantially higher compliance burden on us, may increase our data protection costs and may restrict our ability to use data. Examples of this higher burden include expanding the requirement for informed opt in consent by customers to processing of personal data, where we rely on customer consent to process personal data, and granting customers a right to be forgotten, restrictions on the use of personal data for profiling purposesdisclosure requirements of data sources to customers, the possibility of having to deal with a higher number of subject access requests, among other requirements. The EU Data Protection Regulation also increases the maximum level of fine for the most serious compliance failures in the case of a business to the greater of four per cent of annual worldwide turnover or 20,000,000. As the EU Data Protection Regulation is directly applicable, and directly effective, the United Kingdom does not have control over its manner of implementation (except to the extent that the EU Data Protection Regulation expressly grants such control to EU Member States). The ICO is currently consulting on its draft written guidance on consent under the EU Data Protection Regulation. There is a memorandum of understanding in place between the ICO and the FCA which (among other things) provides for information-sharing between the two bodies.
The U.K. government has also published the Data Protection Bill 2017, which it is anticipated will become law in 2018. This will substantially replace the Data Protection Act and address further detail and increase the regulation which will be brought in by the EU Data Protection Regulation. The current published version of the Data Protection Rule does not increase the regulatory penalties regime which will become effective under the EU Data Protection Regulation.
In addition, the Privacy and Electronic Communications (EC Directive) Regulations 2003 originating as the implementation of European Directive 2002/58/EC, also known as the E-Privacy Directive, impose obligations on U.K. businesses in respect of electronic marketing by email and marketing by telephone. It is anticipated that a new wider scope EU regulation will come into force in 2018.
It remains to be seen what impact the recent vote by the United Kingdom in favor of leaving the EU will have on the regulatory environment in the EU and the United Kingdom and on the applicability of EU law in the United Kingdom.
We continue to monitor the evolving regulatory activity in the United Kingdom. We cannot provide any assurances that additional statutes or regulations will not be enacted in the future in the United Kingdom. Additionally, we cannot provide any assurances that any future changes to statutes or regulations will not have a material adverse effect on our results of operations and financial condition.
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Executive Officers and Directors
The following table sets forth the names, ages and positions of our executive officers and directors as of the date of this prospectus:
Name |
Age |
Position |
||||
Doug Rippel |
51 | Executive Chairman of Board of Directors | ||||
Don Gayhardt |
53 | President, Chief Executive Officer and Director | ||||
William Baker |
37 | Executive Vice President and Chief Operating Officer | ||||
Roger Dean |
55 | Treasurer, Executive Vice President and Chief Financial Officer | ||||
Terry Pittman |
60 | Executive Vice President and Chief Information Officer | ||||
Vin Thomas |
41 | Secretary and Chief Legal Officer | ||||
Chad Faulkner |
50 | Director | ||||
Mike McKnight |
51 | Director | ||||
Chris Masto |
50 | Director | ||||
Karen Winterhof |
30 | Director | ||||
Andrew Frawley(1) |
55 | Director | ||||
Dale E. Williams(2) |
54 | Director |
(1) | Mr. Frawleys appointment to our Board of Directors will be effective upon the listing of our shares of common stock on the NYSE. |
(2) | Mr. Williams appointment to our Board of Directors will be effective upon the listing of our shares of common stock on the NYSE. |
Executive Officers
Doug Rippel co-founded the Company and has served as our Executive Chairman of the Board of Directors since 2012. Mr. Rippel was our Chairman of the Board of Directors from 2008 to 2012, our Chief Executive Officer from 1997 to January 2012 and our Secretary and Treasurer from 1997 to 2008. As one of our founders, he has led the Company in its entire geographic and product expansion. Mr. Rippel serves as a director of several private companies. Mr. Rippel also serves as a director and officer of each of our wholly owned subsidiaries. Mr. Rippel shares, together with the other Founder Holders, 100% ownership of Ad Astra, which we employ to provide third-party collection activities for our U.S. operations. Mr. Rippel also co-owns with the other Founder Holders certain real estate companies from which we lease some of our corporate stores and offices. For more information, see Certain Relationships and Related-Party TransactionsRelated-Party Transactions. Mr. Rippel has also served as the Chief Executive Officer of American First Finance since 2013. Mr. Rippel holds a Bachelor of Science degree in Electrical Engineering from Kansas State University and a Master of Business Administration from Wichita State University.
Don Gayhardt has served as the Companys Chief Executive Officer since January 2012, as the Companys President since July 2013 and on our Board of Directors since December 2012. Prior to joining the Company, Mr. Gayhardt served in various capacities at Dollar Financial Corp., (now known as DFC Global Corp.,) from 1990 to 2008, including President and a member of the board of directors from 1998 to 2008. During his time with Dollar, the company expanded from 60 stores to over 1,100 and revenue increased from $14 million to over $550 million. Since 2008, Mr. Gayhardt has been an investor and advisor to a number of finance, financial technology and retail businesses, and currently serves on the board of directors of Beneficial Bancorp. Mr. Gayhardt earned his Bachelor of Business Administration degree in Accounting from the University of Notre Dame.
William Baker has served as the Companys Chief Operating Officer since February 2016. Mr. Baker was our Companys Chief Marketing Officer from September 2011 until 2016 and Vice President of Marketing and Business Development from April 2007 until September 2011. Mr. Baker also serves on the Board of Directors for the Companys U.K. subsidiaries SRC Transatlantic LTD and CURO Transatlantic Limited. Mr. Baker earned a Bachelor of Science Degree in Integrated Marketing Communications from Gannon University.
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Roger Dean has served as an Executive Vice President and our Chief Financial Officer since joining CURO in May 2016. Prior to joining the Company, Mr. Dean was Senior Vice PresidentController with Fifth Third Bancorp and Senior Manager with Deloitte. Most recently, Mr. Dean served as Chief Financial Officer for CNG Holdings, Inc. from 2005 to 2016. Mr. Dean earned his Bachelor of Science in Accountancy from Miami University, Oxford, Ohio.
Terry Pittman joined the Company as our Chief Information Officer in 2003, and has been an Executive Vice President since March 2016. Mr. Pittman is responsible for overseeing all aspects of Information Technology for operations, processes, security, application development and infrastructure across the global reach of the Company. Mr. Pittman has over 30 years in technology management and his background includes a wide range of industries including retail, rental and consumer lending companies managing the growth to over thousands of locations. Mr. Pittman holds a Bachelor of Science degree from Wichita State University in Computer Science.
Vin Thomas joined the Company in September 2014 as Chief Legal Officer and has served as our Secretary since 2016. Mr. Thomas also serves on the Board of Directors for the Companys U.K. subsidiaries, SRC Transatlantic LTD and CURO Transatlantic Limited. Prior to joining the Company, Mr. Thomas served as General Counsel and Assistant Secretary at TMX Finance LLC from May 2009 to September 2014. Prior to his tenure with TMX Finance LLC, Mr. Thomas was in the private practice of law. Mr. Thomas holds a Bachelor of Arts, cum laude, from the University of Georgia, and a juris doctor degree from the Mercer University School of Law.
Directors
Chad Faulkner co-founded the Company and has served on our Board of Directors since 1997. Mr. Faulkner served as our President and Chief Operating Officer from 1997 to 2013. As one of our founders, he has led the Company in its entire geographic and product expansion. Mr. Faulkner serves as a director of several private companies. Mr. Faulkner also serves as a director of each of our wholly-owned subsidiaries. Most recently, Mr. Faulkner has served as Chief Executive Officer of Sports Academy since 2015. Mr. Faulkner shares, together with the other Founder Holders, 100% ownership of Ad Astra, which we employ to provide third-party collection activities for our U.S. operations. Mr. Faulkner also co-owns with the other Founder Holders certain real estate companies from which we lease some of our corporate stores and offices. For more information, see Certain Relationships and Related-Party TransactionsRelated-Party Transactions. Mr. Faulkner holds a Bachelor of Science degree from Kansas State University and is a graduate of the Executive Program at the Anderson School of BusinessUniversity of California Los Angeles.
Mike McKnight co-founded the Company and has served on our Board of Directors since 1997. From 1997 to 2008, Mr. McKnight served as Vice President of the Company. He was involved with the Companys strategic direction and governmental affairs. He initially managed loan office operations, and then later directed the real estate, construction, media and marketing arms of the Company, utilizing his prior career as a radio advertising executive to build a successful advertising campaign. Mr. McKnight shares, together with the other Founder Holders, 100% ownership of Ad Astra, which we employ to provide third-party collection activities for our U.S. operations. Mr. McKnight also co-owns with the other Founder Holders certain real estate companies from which we lease some of our corporate stores and offices. For more information, see Certain Relationships and Related-Party TransactionsRelated-Party Transactions. From 2010 until 2014, Mr. McKnight served as the Managing Member of Gusto, LLC, a Dominos Pizza franchisee in Kansas and Western Missouri. Since 2011, Mr. McKnight serves as a director of Gusto, LLC, Decorus Investments, LLC, and CDM Development, LLC, and has been a Partner of Tacoma Capital since 2016. Mr. McKnight earned a Bachelor of Science degree in Journalism from Kansas State University.
Chris Masto has served on our Board of Directors since 2008. Mr. Masto is Co-Founder and Senior Advisor at FFL Partners, a private equity firm, which he co-founded in 1997 and where, until 2017, he served as a Partner, member of the Investment Committee, and member of firm leadership. He transitioned to a Senior Advisor role in 2017. Prior to co-founding FFL Partners, he worked as a management consultant with Bain & Company. Prior to that, Mr. Masto was employed at Morgan Stanley & Co., where he worked as an investment
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banker. Mr. Masto also currently serves on the board of directors of Enjoy Beer LLC. He was previously a director of Tempur Sealy International and Chairman of TriTech Software Systems. Mr. Masto graduated magna cum laude from Brown University with an Sc.B. in Electrical Engineering, and received an Master of Business Administration from Harvard Business School.
Karen Winterhof has served on our Board of Directors since March 2016. Ms. Winterhof currently serves as a Vice President with FFL Partners. Prior to joining FFL Partners in June 2015, Ms. Winterhof was an associate at Highbridge Principal Strategies from August 2013 to February 2015 in the Specialty Loan Fund, where she participated in evaluating and executing senior debt investments and had ongoing responsibilities with portfolio investments across a variety of industries. Prior to that, she was a private equity associate at Clayton, Dubilier & Rice in New York from July 2011 to July 2013. Ms. Winterhof also currently serves on the board of directors of Crisis Prevention Institute and Icynene. Ms. Winterhof received a Bachelor of Science in Engineering in Operations Research and Financial Engineering from Princeton University.
Andrew Frawley will become a member of our Board of Directors upon the listing of our shares of common stock on the NYSE in connection with this offering. Mr. Frawley currently serves as the Chief Executive Officer of AJ Frawley & Associates LLC. Most recently, from December 2014 to September 2016, Mr. Frawley served as Chief Executive Officer of Epsilon, a segment of Alliance Data Systems Corporation. Prior to that, he served as Epsilons President from January 2012 to December 2014 and as its President of Marketing Technology from January 2009 to December 2011. Mr. Frawley also currently serves on the board of directors of the Data & Marketing Association, and has been the Chairman of the board of directors of Cybba Inc. since September 2017. Mr. Frawley earned a Master of Business Administration from Babson College and a Bachelor of Science in Finance from The University of Maine.
Dale E. Williams will become a member of our board of directors upon the listing of our shares of common stock on the NYSE in connection with this offering. From July 2003 to September 2015, Mr. Williams served as Executive Vice President and Chief Financial Officer of Tempur Sealy International. From 2001 through 2002, Mr. Williams served as Vice President and Chief Financial Officer of Honeywell Control Products, a division of Honeywell International, Inc. From 2000 to 2001, Mr. Williams served as Vice President and Chief Financial Officer of Saga Systems, Inc./Software AG, Inc. Prior to that, Mr. Williams spent 15 years in various management positions at General Electric Company. Mr. Williams also currently serves on the board of directors of Intralink-Spine and Xooker, LLC. Mr. Williams received a Bachelor of Science in Finance from Indiana University.
Corporate Governance
Composition of the Board of Directors
In connection with this offering, we will be amending and restating our certificate of incorporation to provide for a classified board of directors of eight directors, which may be increased or decreased in size, with two directors in Class I (expected to be Don Gayhardt and Mike McKnight), three directors in Class II (expected to be Chad Faulkner, Andrew Frawley and Karen Winterhof) and three directors in Class III (expected to be Doug Rippel, Chris Masto and Dale E. Williams). Each director will serve staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each class will consist of one-third of the directors. See Description of Capital StockAnti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and BylawsClassified Board.
Background and Experience of Directors
When considering whether directors and nominees have the experience, qualifications, attributes or skills, taken as a whole, to enable our board of directors to satisfy its oversight responsibilities effectively in light of our
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business and structure, the board of directors focused primarily on each persons background and experience as reflected in the information discussed in each of the directors individual biographies set forth above. We believe our directors provide an appropriate mix of experience and skills relevant to the size and nature of our business.
Director Independence
Our board of directors has evaluated the independence of its members based upon the rules of NYSE and the SEC. Applying these standards, our board of directors has affirmatively determined that Andrew Frawley, Chris Masto, Dale E. Williams and Karen Winterhof are independent directors.
Board Leadership Structure
Our board of directors includes our Chief Executive Officer. Our Executive Chairman is not an officer or employee of the Company. Our board of directors understands that there is no single, generally accepted approach to providing board leadership and that given the dynamic and competitive environment in which we operate, the right board leadership structure may vary as circumstances warrant. The board of directors will discuss and consider the matter from time to time as circumstances change and, subject to our amended and restated bylaws, will have the flexibility to modify our board structure as it deems appropriate.
Board Committees
Upon the completion of this offering, the board of directors will establish an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. Our Chief Executive Officer and other executive officers will regularly report to the non-executive directors and the board committees to ensure effective and efficient oversight of our activities and to assist in proper risk management and the ongoing evaluation of management controls.
Audit Committee
The Audit Committee will be responsible for, among other things, assisting the board of directors in reviewing: our financial reporting and other internal control processes; our financial statements; the independent auditors qualifications, independence and compensation; the performance of our internal audit function and independent auditors; and our compliance with legal and regulatory requirements and our Code of Business Conduct and Ethics.
Upon the completion of this offering, the Audit Committee will consist of Dale E. Williams, Andrew Frawley and Karen Winterhof. Rule 10A-3 under the Exchange Act and the NYSE rules require us to have one independent Audit Committee member upon the listing of our common stock, a majority of independent directors on our Audit Committee within 90 days of the date of this prospectus and an Audit Committee composed entirely of independent directors within one year of the date of this prospectus. Our board of directors has affirmatively determined that each of Dale E. Williams and Andrew Frawley meets the definition of independent director for purposes of serving on an audit committee under Rule 10A-3 under the Exchange Act and the NYSE rules. We intend to comply with the other independence requirements within the time periods specified. We have identified Dale E. Williams as our audit committee financial expert as that term is defined in the rules and regulations of the SEC. The Audit Committee will have adopted a written charter that, among other things, specifies the scope of its rights and responsibilities and satisfies the applicable standards of the SEC and NYSE. Upon the completion of this offering, the charter of the Audit Committee will be available on our website. The information contained in, or that can be accessed through, our website is not incorporated by reference and is not a part of this prospectus. The responsibilities of our Audit Committee will include, among other things:
| appointing, as well as reviewing and approving the compensation, retention and termination of, the independent registered public accounting firm engaged to audit our financial statements; |
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| helping to ensure the independence of and overseeing the performance of the independent registered public accounting firm; |
| reviewing and pre-approving audit and non-audit services and fees; |
| reviewing financial statements and discussing with management and the independent registered public accounting firm our annual audited and quarterly financial statements, the results of the independent audit and the quarterly reviews and the reports and certifications regarding internal controls over financial reporting and disclosure controls; |
| preparing the Audit Committee report that the SEC requires be included in an annual proxy statement; |
| assisting the board of directors in overseeing our internal audit function; |
| reviewing reports and communications from the independent registered public accounting firm; |
| reviewing the adequacy and effectiveness of our internal control over financial reporting (on which our management will be required to provide a report for our second annual report on Form 10-K); |
| reviewing and overseeing related-party transactions; and |
| establishing and maintaining procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls, auditing matters, or federal and state rules and regulations, and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters. |
Compensation Committee
The Compensation Committee will be responsible for, among other things, determining the compensation of our executive officers, reviewing our executive compensation policies and plans, administering and implementing our equity compensation plans, and preparing a report on executive compensation for inclusion in our proxy statement for our annual meeting.
Upon the completion of this offering, the Compensation Committee will consist of Andrew Frawley, Doug Rippel and Chris Masto. Rule 10C-1 under the Exchange Act and the NYSE rules require us to have one independent Compensation Committee member upon the earlier of the closing of this offering or five business days from the date of listing of our common stock, a majority of independent directors on our Compensation Committee within 90 days of the date of listing of our common stock and a Compensation Committee composed entirely of independent directors within one year of the date of listing of our common stock. Our board of directors has affirmatively determined that each of Andrew Frawley and Chris Masto meets the definition of independent director for purposes of serving on a compensation committee under Rule 10C-1 under the Exchange Act and the NYSE rules, is a non-employee director as defined in Rule 16b-3 under the Exchange Act and is an outside director as defined in Section 162(m) of the Internal Revenue Code of 1986. The Compensation Committee will have adopted a written charter that, among other things, specifies the scope of its rights and responsibilities and satisfies the applicable standards of the SEC and NYSE. Upon the completion of this offering, the charter of the Compensation Committee will be available on our website. The information contained in, or that can be accessed through, our website is not incorporated by reference and is not a part of this prospectus. The responsibilities of our Compensation Committee will include, among other things:
| overseeing our overall compensation philosophy, compensation policies, compensation plans and benefit programs; |
| reviewing and approving for our executive officers: the annual base salary, annual incentive compensation (including the specific goals and amounts), equity compensation, employment agreements, severance or termination agreements, change in control arrangements and any other benefits, compensation or arrangements; and |
| reviewing and making recommendations to our Board of Directors with respect to employee compensation and benefit plans. |
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Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee will be responsible for, among other things, reviewing board structure, composition and practices and making recommendations on these matters to our board of directors reviewing, soliciting and making recommendations to our board of directors and stockholders with respect to candidates for election to the board of directors, overseeing our board of directors performance and self-evaluation process, reviewing the compensation payable to board and committee members and providing recommendations to our board of directors in regard thereto, and developing and reviewing a set of corporate governance principles.
Upon the completion of this offering, the Nominating and Corporate Governance Committee will consist of Chris Masto, Dale E. Williams and Chad Faulkner. The NYSE rules require us to have one independent Nominating and Corporate Governance Committee member upon the earlier of the closing of this offering or five business days from the date of listing of our common stock, a majority of independent directors on our Nominating and Corporate Governance Committee within 90 days of the date of listing of our common stock and a Nominating and Corporate Governance Committee composed entirely of independent directors within one year of the date of listing of our common stock. Our board of directors has affirmatively determined that each of Dale E. Williams and Chris Masto meets the definition of independent director for purposes of serving on a nominating and corporate governance committee under the NYSE rules. The Nominating and Corporate Governance Committee will have adopted a written charter that, among other things, specifies the scope of its rights and responsibilities and satisfies the applicable standards of the SEC and NYSE. Upon the completion of this offering, the charter of the Nominating and Corporate Governance Committee will be available on our website. The information contained in, or that can be accessed through, our website is not incorporated by reference and is not a part of this prospectus.
Corporate Governance Guidelines
The board of directors has developed and adopted a set of corporate governance principles to provide the framework for the governance of CURO and to assist our board in the exercise of its responsibilities. These guidelines reflect the boards commitment to monitoring the effectiveness of policy and decision making both at the board and management level, with a view to enhancing stockholder value over the long term. Following the completion of this offering, the corporate governance guidelines will be available on our website. We expect that any amendments to the guidelines, or any waivers of its requirements, will be disclosed on our website. The information contained in, or that can be accessed through, our website is not incorporated by reference and is not a part of this prospectus.
Compensation Committee Interlocks and Insider Participations
None of the members of our Compensation Committee is, or has at any time during the past year been, one of our officers or employees. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving on our board of directors or Compensation Committee.
Code of Business Conduct and Ethics
Upon the completion of this offering, we will 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, controller or principal accounting officer, or other persons performing similar functions, which fulfills applicable guidelines issued by the SEC. Following the completion of this offering, the code of business conduct and ethics will be available on our website. We expect that any amendments to the code, or any waivers of its requirements, will be disclosed on our website within four business days the extent required by the rules and regulations of the SEC. The information contained in, or that can be accessed through, our website is not incorporated by reference and is not a part of this prospectus.
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Director Compensation
We reimburse our directors for their reasonable travel and accommodation expenses incurred in connection with attending board and committee meetings and fulfilling their duties as members of our board of directors. See Executive CompensationCorporate GovernanceDirector Compensation for a discussion of the compensation and reimbursement policies for our directors upon the completion of this offering.
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Compensation of our Named Executive Officers
The following table sets forth information regarding the compensation awarded to, earned by or paid to certain of our executive officers during the fiscal year ended December 31, 2016. As an emerging growth company, we have chosen to comply with the executive compensation disclosure rules applicable to smaller reporting companies as such term is defined in the rules promulgated under the Securities Act, which require compensation disclosure for our principal executive officer and our next two other most highly compensated executive officers. Throughout this prospectus, these three officers are referred to as our named executive officers.
The compensation reported in this Summary Compensation Table below is not necessarily indicative of how we will compensate our named executive officers in the future. We expect that we will continue to review, evaluate and modify our compensation framework as a result of becoming a publicly-traded company and our compensation program following the completion of this offering could vary significantly from our historical practices.
Summary Compensation Table
Year(1) | Salary(2) | Bonus(3) |
Stock
Awards |
Option
Awards(4) |
Non-Equity
Incentive Plan Compensation(5) |
Nonqualified
Deferred Compensation Earnings(6) |
All Other
Compensation(7) |
Total | ||||||||||||||||||||||||||||
Don Gayhardt |
2016 | $ | 726,458 | $ | 461,884 | | $ | 11,452 | $ | 555,788 | | $ | 229,443 | $ | 1,985,025 | |||||||||||||||||||||
President, Chief Executive Officer and Director |
||||||||||||||||||||||||||||||||||||
William Baker |
2016 | $ | 568,750 | $ | 105,850 | | $ | 190,339 | $ | 268,125 | | $ | 117,785 | $ | 1,250,849 | |||||||||||||||||||||
Executive Vice President and Chief Operating Officer |
||||||||||||||||||||||||||||||||||||
Terry Pittman |
2016 | $ | 419,192 | $ | 52,194 | | $ | 61,085 | $ | 205,871 | | $ | 78,734 | $ | 817,076 | |||||||||||||||||||||
Executive Vice President and Chief Information Officer |
(1) | Mr. Baker became our Executive Vice President and Chief Operating Officer and Mr. Pittman became our Executive Vice President and Chief Information Officer on March 5, 2016. Prior to such date, Mr. Baker served as our Chief Marketing Officer and Mr. Pittman served as our Chief Information Officer. |
(2) | The amount reported as earned in this column by Mr. Baker includes a catch-up payment of $83,333 paid in March 2016 for the increase in Mr. Bakers base salary from $400,000 to $500,000 that was approved and made effective in May 1, 2015, but not implemented until March 6, 2016. |
(3) | The amounts reported as earned in this column represent the following bonuses earned with respect to 2016 by each executive officer: |
| Don Gayhardt . The amounts reported represent (i) a $411,884 bonus paid pursuant to a special bonus declared in 2013 further described in 2013 Special Bonus Notices below, the aggregate value of which was initially $2,339,348, paid in installments over a four year period subject to the executives continued employment with the Company through the applicable payment dates, and (ii) a one-time $50,000 discretionary bonus, further described in 2016 Leadership Bonus, below. |
| William Baker. The amounts reported represent (i) a $55,850 bonus paid pursuant to a special bonus declared in 2013 further described in 2013 Special Bonus Notices below, the aggregate value of which was initially $467,825, paid in installments over a four year period subject to the executives continued employment with the Company through the applicable payment dates, and (ii) a one-time $50,000 discretionary bonus, further described in 2016 Leadership Bonus, below. |
|
Terry Pittman. The amounts reported represent (i) a $27,194 bonus paid pursuant to a special bonus declared in 2013 further described in 2013 Special Bonus Notices below, the aggregate value of which was initially $467,825, paid in |
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installments over a four year period subject to the executives continued employment with the Company through the applicable payment dates, and (ii) a one-time $25,000 discretionary bonus, further described in 2016 Leadership Bonus, below. |
For additional information, please see Narrative to Summary Compensation Table below.
(4) | Represents the aggregate grant date fair value of options granted to our named executive officers in 2016, determined under FASB ASC Topic 718. With respect to time-vesting options, the grant date fair value was determined using a Black-Scholes option-pricing model. For additional information with respect to options granted during 2016, including a discussion of the assumptions made in such valuation, see Note 12, Share-Based Compensation of our Notes to Consolidated Financial Statements included elsewhere in this prospectus. The amounts above reflect our aggregate accounting expense for these awards and do not necessarily correspond to the actual value that will be recognized by our named executive officers, which depends on the market value of our common stock on a date in the future. |
(5) | The amounts reported as earned in this column represent the bonuses earned with respect to 2016 by each executive, with respect to Mr. Gayhardt, pursuant to his employment agreement, and with respect to Messrs. Baker and Pittman, pursuant to the 2016 Annual Corporate Incentive Plan. These amounts were paid in December 2016. For additional information, please see Narrative to Summary Compensation Table below. |
(6) | Our named executive officers had no above-market or preferential earnings on deferred compensation during 2016. |
(7) | The amounts reported as earned by each named executive officer in this column include the cost of the following perquisites and other benefits received by our named executive officers: |
| Don Gayhardt. The amount reported represents: (i) employer contributions equal to $185,263 made to our non-qualified deferred compensation plan with respect to 2016; (ii) reimbursement for $25,000 in life insurance premiums; (iii) reimbursements for travel expenses incurred while commuting between the executives primary residence and our corporate office in Wichita, Kansas, equal to $16,600; and (iv) payments by us equal to $1,260 for executive life insurance premiums and $1,320 for executive long term disability benefits. |
| William Baker . The amount reported represents: (i) matching contributions equal to $7,950 made to our tax qualified retirement plan during 2016; (ii) employer contributions equal to $89,375 made to our non-qualified deferred compensation plan with respect to 2016; (iii) reimbursements for travel expenses incurred while commuting between the executives primary residence and our corporate office in Wichita, Kansas, equal to $18,300; and (iv) payments by us equal to $840 for executive life insurance premiums and $1,320 for executive long term disability benefits. |
| Terry Pittman . The amount reported represents (i) matching contributions equal to $7,950 made to our tax qualified retirement plan with respect to 2016; (ii) employer contributions equal to $68,624 made to our non-qualified deferred compensation plan during 2016; and (iii) payments by us equal to $840 for executive life insurance premiums and $1,320 for executive long term disability benefits. |
Narrative to Summary Compensation Table
Executive Employment Agreements
Certain of the compensation paid to our named executive officers reflected in the Summary Compensation Table was provided pursuant to employment agreements, which are summarized below. For a discussion of the severance pay and other benefits to be provided to our named executive officers in connection with a termination of employment and/or a change in control under arrangements with each of our named executive officers, please see Potential Payments Upon Termination or Change in Control below.
Don Gayhardt
New Employment Agreement . We entered into an amended and restated employment agreement with Mr. Gayhardt, effective as of January 1, 2017, pursuant to which he serves as our President and Chief Executive Officer. The agreement provides for an indefinite term, subject to earlier termination upon death, disability, a termination by the Company or Mr. Gayhardts resignation. Pursuant to his employment agreement, Mr. Gayhardt is entitled to a base salary, which was increased, effective as of December 15, 2016, to $760,000 from $725,000. In addition, Mr. Gayhardt is eligible to earn the following bonuses for each calendar year: (i) a bonus equal to 75% of his base salary if our (a) revenue, less provision for loan losses and (b) EBITDA targets for the year are met, and (ii) an additional bonus in an amount equal to 3% of Mr. Gayhardts base salary multiplied by the number of percentage points by which our actual EBITDA for such calendar year exceeds the EBITDA target established by our board of directors in the annual budget for the applicable fiscal year, up to a maximum of 60% of base salary if our base revenue targets are achieved.
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In addition, Mr. Gayhardt is entitled to reimbursements for up to $25,000, per annum, of documented personal life insurance premiums and is eligible to participate in the Companys non-qualified deferred compensation plan on terms consistent with other executives. Mr. Gayhardts agreement also provides that we will split the costs for Mr. Gayhardts documented expenditures for private aircraft charters for flights taken for legitimate business purposes, up to a maximum aggregate reimbursement of $125,000 in each calendar year. For a discussion of Mr. Gayhardts severance entitlements pursuant to his employment agreement, see Potential Payments Upon Termination or Change in Control below.
Prior Employment Agreement . Prior to January 1, 2017, Mr. Gayhardt was subject to an employment agreement entered into in January of 2012, the initial term for which expired in January 2017. Pursuant to Mr. Gayhardts employment agreement, he was eligible to earn a base salary, equal to $725,000 for 2016, which was increased, effective as of December 15, 2016, to $760,000. In addition, Mr. Gayhardt was eligible to earn, for each calendar year: (i) a bonus equal to 75% of his base salary if our revenue and EBITDA targets for the year were met and (ii) an additional bonus in an amount equal to 3% of Mr. Gayhardts base salary multiplied by the number of percentage points by which our actual EBITDA for such calendar year exceeded the EBITDA target established by our board of directors in the annual budget for the applicable fiscal year, up to a maximum of 60% of base salary if our base revenue targets are achieved.
During 2016, our target revenue was $823.4 million and our EBITDA target was $179.9 million. Actual revenue totaled $828.6 million, while actual EBITDA totaled $191.3 million.
William Baker
We have entered into an employment agreement with Mr. Baker, dated March 5, 2016, pursuant to which he serves as our Executive Vice President and Chief Operating Officer. Prior to entering into such agreement, Mr. Baker was not a party to an employment agreement with CURO. The agreement provides for an initial term of three years, with automatic renewals for additional one year terms thereafter, unless terminated by either party upon 45 days advance written notice prior to the expiration of the applicable term. Pursuant to his employment agreement, Mr. Baker is entitled to a base salary, which was increased from $500,000 to $550,000, effective as of December 15, 2016. In addition, Mr. Baker is eligible to earn an annual bonus in an amount equal to 50% of his base salary based on the satisfaction of performance criteria agreed to by Mr. Baker and our Chief Executive Officer at the beginning of each year. For a discussion of Mr. Bakers severance entitlements pursuant to his employment agreement, see Potential Payments Upon Termination or Change in Control below.
Terry Pittman
We have entered into an employment agreement with Mr. Pittman, dated April 10, 2017, pursuant to which he serves as our Executive Vice President and Chief Information Officer. Prior to entering into such agreement, Mr. Pittman was not a party to an employment agreement with CURO. The agreement provides for an initial term of three years, with automatic renewals for additional one year terms thereafter, unless terminated by either party upon 45 days advance written notice prior to the expiration of the applicable term. Pursuant to his employment agreement, Mr. Pittman is entitled to a base salary of $422,300. In addition, Mr. Pittman is eligible to earn an annual bonus in an amount equal to 50% of his base salary for each calendar year if: (i) our EBITDA targets for the applicable calendar year are met and (ii) he achieves specified non-financial performance objectives agreed to by Mr. Pittman and our Chief Executive Officer at the beginning of each year. For a discussion of Mr. Pittmans severance entitlements pursuant to his employment agreement, see Potential Payments Upon Termination or Change in Control below.
2016 Annual Corporate Incentive Plan
Certain executives designated by us were eligible to participate in the 2016 Annual Corporate Incentive Plan for fiscal year 2016, or the 2016 Annual Plan, pursuant to which such executives were eligible to receive a bonus
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with respect to such year. Each employees target bonus was equal to a specified percentage of his base salary, and the actual bonus paid was based on the achievement of certain financial and personal performance objectives for the year. Bonus payments for 2016 were paid in December 2016. Employees were required to be employed at the time of calculation to receive any portion of the bonus.
Our financial performance objective under the 2016 Annual Plan was based on achieving an Adjusted EBITDA goal, which was $180.7 million. Actual Adjusted EBITDA for 2016 was $189.4 million. See Managements Discussion and Analysis of Financial Condition and Results of OperationsSupplemental Non-GAAP Financial Information for more information on how we define and calculate Adjusted EBITDA and for reconciliation of net income, the most comparable GAAP measure, to Adjusted EBITDA. If the target was met, then the maximum amount payable with respect to our financial performance would be paid. Accomplishment of stated individual or departmental goals would determine the percentage of the yearly bonus to be awarded with respect to personal performance objectives for the year. Not all goals and objectives would need to be met to receive a portion of the bonus.
During 2016, each of Messrs. Baker and Pittman were eligible to earn a target bonus under the 2016 Annual Plan equal to 50% of his base compensation. One-half of such bonus was tied to the achievement of the Adjusted EBITDA goal discussed above, and the remaining one-half was tied to the achievement of certain specified personal performance objectives, each of which were subjective in nature.
2017 Annual Corporate Incentive Plan
Certain executives designated by us are eligible to participate in the 2017 Annual Corporate Incentive Plan for fiscal year 2017, or the 2017 Annual Plan, pursuant to which such executives are eligible to receive a bonus with respect to such year. Each employees target bonus is equal to a specified percentage of his base salary, and the actual bonus paid will be based on the achievement of certain financial and personal performance objectives for the year. Employees are required to be employed at the time of calculation to receive any portion of the bonus.
Our financial performance objective under the 2017 Annual Plan will be based on achieving an Adjusted EBITDA goal. If the target is met, then the maximum amount payable with respect to our financial performance will be paid. Accomplishment of stated individual or departmental goals will determine the percentage of the yearly bonus to be awarded with respect to personal performance objectives for the year. Not all goals and objectives will need to be met to receive a portion of the bonus.
During 2017, each of Messrs. Baker and Pittman are eligible to earn a target bonus under the 2017 Annual Plan equal to 50% of his base compensation. One-half of such bonus will be tied to the achievement of CUROs Adjusted EBITDA goal, and the remaining one-half will be tied to the achievement of certain specified personal performance objectives, each of which will be subjective in nature.
2016 Leadership Bonus
During 2016, our board of directors granted a one-time discretionary bonus to certain members of our management team in recognition of their exceptional performance and the Companys positive performance during the first half of the fiscal year, referred to herein as the 2016 Leadership Bonus. Specifically, Messrs. Gayhardt, Baker and Pittman were each paid a bonus equal to $50,000, $50,000 and $25,000, respectively, in September, July and August of 2016, respectively.
2013 Special Bonus Notices
In 2013, in connection with a dividend paid to our stockholders, we granted holders of our stock options a cash bonus, or the 2013 Special Bonuses, payable over four years, in each case, subject to the award holders
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continued employment through such date. The final portion of the 2013 Special Bonuses were paid in 2017. Each of Messrs. Gayhardt, Baker and Pittman was entitled to receive an aggregate 2013 Special Bonus of $2,339,348, $467,825, and $467,825, respectively, of which $411,884, $55,850 and $27,194 was paid during 2016, respectively.
2017 Special Bonus Notices
On May 15, 2017, we granted holders of our stock options a cash bonus, or, the 2017 Special Bonuses, a portion of which was payable immediately and the remainder of which was payable on the last day of each calendar quarter during 2017 through 2022 following the date of grant, in each case, subject to the award holders continued employment through such date. The portion of the 2017 Special Bonus paid in May 2017 was equal to $26.60 times the number of vested stock options held by the bonus recipient as of May 15, 2017, or $562,084.60, $129,196 and $118,317 for each of Messrs. Gayhardt, Baker and Pittman, respectively. In addition, on the last day of each calendar quarter thereafter, the bonus recipient will receive a payment equal to $26.60 times the number of stock options held by the bonus recipient that become vested during the applicable calendar quarter, other than due to a disposition event (as defined in the stock option agreements granted pursuant to the Companys 2010 Equity Incentive Plan). Upon a disposition event, the 2017 Special Bonus recipient will be entitled to a bonus equal to $26.60 times the number of stock options that become vested solely as a result of the disposition event pursuant to the terms of the award holders individual award agreement, provided that the award holder is employed by the Company on the consummation of the disposition event. The recipients of the bonus were provided the opportunity to defer their bonus compensation pursuant to our non-qualified deferred compensation plan. The aggregate 2017 Special Bonus granted to each of Messrs. Gayhardt, Baker and Pittman that will become payable in respect of unvested stock options is equal to $11,704, $70,037, and $26,147, respectively.
On August 10, 2017, we granted holders of our stock options a cash bonus, or, the August 2017 Special Bonuses, a portion of which was payable immediately and the remainder of which is payable on the last day of each calendar quarter during 2017 through 2022 following the date of grant, in each case, subject to the award holders continued employment through such date. The portion of the August 2017 Special Bonus paid in August 2017 was equal to $8.07 times the number of vested stock options held by the bonus recipient as of August 10, 2017, or $170,633, $39,220 and $35,918 for each of Messrs. Gayhardt, Baker and Pittman, respectively. In addition, in each calendar quarter thereafter, the bonus recipient will receive a payment equal to $8.07 times the number of stock options held by the bonus recipient that become vested during the applicable calendar quarter, other than due to a disposition event (as defined in the stock option agreements granted pursuant to the Companys 2010 Equity Incentive Plan). Upon a disposition event, the August 2017 Special Bonus recipient will be entitled to a bonus equal to $8.07 times the number of stock options that become vested solely as a result of the disposition event pursuant to the terms of the award holders individual award agreement, provided that the award holder is employed by the Company on the consummation of the disposition event. The recipients of the bonus may elect to defer their bonus compensation pursuant to our non-qualified deferred compensation plan. The aggregate August 2017 Special Bonus granted to each of Messrs. Gayhardt, Baker and Pittman that will become payable in respect of unvested stock options is equal to $3,550, $21,248, and $7,932, respectively.
On October 16, 2017, we granted holders of our stock options a cash bonus, or, the October 2017 Special Bonuses, a portion of which was payable immediately and the remainder of which is payable on the last day of each calendar quarter during 2017 through 2022 following the date of grant, in each case, subject to the award holders continued employment through such date. The portion of the October 2017 Special Bonus paid in October 2017 was equal to $5.22 times the number of vested stock options held by the bonus recipient as of October 13, 2017, or $110,409, $25,378 and $23,241 for each of Messrs. Gayhardt, Baker and Pittman, respectively. In addition, in each calendar quarter thereafter, the bonus recipient will receive a payment equal to $5.22 times the number of stock options held by the bonus recipient that become vested during the applicable calendar quarter, other than due to a disposition event (as defined in the stock option agreements granted pursuant to the Companys 2010 Equity Incentive Plan). Upon a disposition event, the October 2017 Special
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Bonus recipient will be entitled to a bonus equal to $5.22 times the number of stock options that become vested solely as a result of the disposition event pursuant to the terms of the award holders individual award agreement, provided that the award holder is employed by the Company on the consummation of the disposition event. The recipients of the bonus may elect to defer their bonus compensation pursuant to our non-qualified deferred compensation plan. The aggregate October 2017 Special Bonus granted to each of Messrs. Gayhardt, Baker and Pittman that will become payable in respect of unvested stock options is equal to $2,299, $13,757 and $5,136, respectively.
In connection with our Additional Notes Offering, we granted holders of our stock options a cash bonus, or, the Additional Notes Bonus, a portion of which was payable immediately and the remainder of which is payable on the last day of each calendar quarter during 2017 through 2022 following the date of grant, in each case, subject to the award holders continued employment through such date. The portion of the Additional Notes Bonus paid in November 2017 was equal to $133 times the number of vested stock options held by the bonus recipient as of October 31, 2017, or $2,810,422, $645,981 and $591,584 for each of Messrs. Gayhardt, Baker and Pittman, respectively. In addition, in each calendar quarter thereafter, the bonus recipient will receive a payment equal to $133 times the number of stock options held by the bonus recipient that become vested during the applicable calendar quarter, other than due to a disposition event (as defined in the stock option agreements granted pursuant to the Companys 2010 Equity Incentive Plan). Upon a disposition event, the Additional Notes Bonus recipient will be entitled to a bonus equal to $133 times the number of stock options that become vested solely as a result of the disposition event pursuant to the terms of the award holders individual award agreement, provided that the award holder is employed by the Company on the consummation of the disposition event. The recipients of the bonus may elect to defer their bonus compensation pursuant to our non- qualified deferred compensation plan. The aggregate Additional Notes Bonus granted to each of Messrs. Gayhardt, Baker and Pittman that will become payable in respect of unvested stock options is equal to $58,520, $350,189, and $130,739, respectively.
In connection with this offering, our board of directors will approve the acceleration and payment in full of all remaining amounts payable to each 2017 Special Bonus, August 2017 Special Bonus, October 2017 Special Bonus and Additional Notes Bonus recipient.
Stock Plans, Health and Welfare Plans, and Retirement Plans
Stock Plan
We currently provide grants of equity based awards to eligible service providers under our 2010 Equity Incentive Plan, or the 2010 EIP. In 2016, we granted options to members of our management team, including to each of our named executive officers, under the 2010 EIP. The options granted to our named executive officers are subject to time-based vesting, as described in each individual award agreement. For a summary of the principal features of the 2010 EIP, see Additional Incentive Compensation Plans and AwardsEquity Incentive Plans below and for a summary of the vesting terms of the stock option granted to our named executive offices, see Outstanding Equity Awards at Fiscal Year End below.
Immediately prior to this offering, our board of directors intends to adopt, and we expect our shareholders to approve, the 2017 Incentive Plan, or the 2017 Incentive Plan. For a summary of the 2017 Incentive Plan, see Additional Incentive Compensation Plans and AwardsEquity Incentive Plans below.
Non-Qualified Deferred Compensation Plan
In 2015 we instituted our Nonqualified Deferred Compensation Plan, as amended, that provides certain of our employees with the opportunity to elect to defer his or her base salary and performance-based compensation, which upon such election, will be credited to the applicable participants deferred compensation account. Participant contributions are fully vested at all times. Each deferred compensation account will be notionally
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invested in one or more investment funds made available by us and selected by the participant. We may make discretionary contributions to the individual deferred compensation accounts, which amount, if any, will be determined annually by us. Company contributions generally vest over a term of three years, however, vesting with respect to company contributions made on behalf of each of our named executive officers will be accelerated upon the occurrence of a disposition event. A disposition event for these purposes is defined as: (a)(i) the sale of all or substantially all of the assets of CURO and its subsidiaries in a single transaction or series of related transactions whether by liquidation, dissolution, merger, consolidation or sale or (ii) the sale or other transfer of at least a majority of the outstanding shares of our common stock in a single transaction or a series of related transactions, in either case to any person who is not an affiliate of CURO, or of a stockholder thereof, immediately prior to such transaction or transactions, or (b) the effective time of any merger, share exchange, consolidation or other business combination of CURO if immediately after such transaction persons who hold a majority of the outstanding voting securities entitled to vote generally in the election of directors of the surviving entity (or the entity owning 100% of such surviving entity) are not persons who, immediately prior to such transaction, held the securities of CURO entitled to vote generally in the election of directors; provided, however, that such sale, transfer or other event described in (a) and (b) results in a change in the ownership or effective control, or a change in the ownership of a substantial portion of the assets, of CURO within the meaning of Section 409A of the Code.
Each vested deferred compensation account will be paid out in a lump sum upon a participants separation from service with the Company. Each of our named executive officers contributes to our non-qualified deferred compensation plan. For a discussion of the employer contributions made to our non-qualified deferred compensation plan on behalf of each of our named executive officers with respect to 2016, please see Summary Compensation Table, above.
Health and Welfare Plans
Our named executive officers are generally eligible to participate in our employee benefit plans, including medical, dental, vision, life, disability, health and dependent care flexible spending accounts and accidental death and dismemberment benefit plans, in each case on the same basis as all of our other employees. Executive employees are provided with company paid life insurance equal to two times base pay, up to $750,000, and company paid long term disability benefits equal to 60% of earnings, up to $15,000 per month.
Tax-Qualified Retirement Plan
We sponsor a retirement plan intended to qualify for favorable tax treatment under Section 401(a) of the Internal Revenue Code of 1986, as amended, or the Code, which contains a cash or deferred feature that is intended to meet the requirements of Section 401(k) of the Code. We match the employee contribution at a rate of 50% of the first 6% of compensation contributed to the plan. Employee contributions vest immediately. Employer contributions vest in full after three years of employment. Each of Messrs. Baker and Pittman contributes to our qualified retirement plan.
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Outstanding Equity Awards at Fiscal Year End
The following table sets forth outstanding equity awards to acquire shares of common stock held by each of our named executive officers as of December 31, 2016.
Name |
Grant date | Option awards | Stock awards | |||||||||||||||||||||||||||||||||
Number of
securities underlying unexercised options exercisable (#) |
Number of
securities underlying unexercised options unexercisable (#) |
Equity
incentive plan awards: number of securities underlying unexercised unearned options (#) |
Option
exercise price ($) |
Option
expiration date |
Number
of shares or units of stock that have not vested (#) |
Market
Value of shares or units of stock that have not vested ($) |
Incentive
plan awards: number of unearned shares, units or other rights that have not vested (#) |
Incentive
plan awards: market or payout value of unearned shares, units or other rights that have not vested ($) |
||||||||||||||||||||||||||||
Don Gayhardt |
May 7, 2012(1) | | 758,052 | | 2.68 | January 1, 2022 | | | | | ||||||||||||||||||||||||||
March 28, 2016(2) | | 8,028 | | 3.39 | January 1, 2026 | | | | | |||||||||||||||||||||||||||
William Baker |
December 9, 2010(3) | | 56,844 | | 0.85 | January 1, 2019 | | | | | ||||||||||||||||||||||||||
October 24, 2011(3) | | 94,752 | | 2.68 | September 1, 2021 | | | | | |||||||||||||||||||||||||||
March 28, 2016(2) | | 4,968 | | 3.39 | January 1, 2026 | | | | | |||||||||||||||||||||||||||
June 30, 2016(3) | | 108,000 | | 3.72 | May 1, 2026 | | | | | |||||||||||||||||||||||||||
Terry Pittman |
December 9, 2010(3) | | 151,596 | | 0.85 | January 1, 2019 | | | | | ||||||||||||||||||||||||||
March 28, 2016(2) | | 4,032 | | 3.39 | January 1, 2026 | | | | | |||||||||||||||||||||||||||
June 30, 2016(3) | | 36,000 | | 3.72 | May 1, 2026 | | | | |
(1) | 20% of the options vest on each of the first five anniversaries beginning on January 1, 2012, subject to the option holders continued employment through such date; however, the options are only exercisable upon the first of the following events to occur: (i) upon the first disposition event to occur (as defined in the stock option agreement); (ii) at any time after an initial public offering of our common stock; (iii) following a termination of employment for any reason other than by us for cause; or (iv) on the 30th day prior to the expiration date. Options must be exercised during the 30-day period following an exercise event described in (iii) and (iv). Upon the occurrence of a disposition event prior to a termination of employment, all of the unvested options will become vested. |
(2) | Options vest in three equal installments on December 31 st of each of 2016, 2017 and 2018, subject to the option holders continued employment through such date; however, the options are only exercisable upon the first of the following events to occur: (i) upon the first disposition event to occur (as defined in the stock option agreement); (ii) at any time after an initial public offering of our common stock; (iii) following a termination of employment for any reason other than by us for cause; or (iv) on the 30 th day prior to the expiration date. Options must be exercised during the 30-day period following an exercise event described in (iii) and (iv). Upon the occurrence of a disposition event prior to a termination of employment, all of the unvested options will become vested. |
(3) | 20% of the options vest on each of the first five anniversaries of the applicable vesting commencement date set forth in the option agreement, subject to the option holders continued employment through such date; however, the options are only exercisable upon the first of the following events to occur: (i) upon the first disposition event to occur; (ii) at any time after an initial public offering of our common stock; (iii) following a termination of employment for any reason other than by us for cause; or (iv) on the 30th day prior to the expiration date. Options must be exercised during the 30-day period following an exercise event described in (iii) and (iv). Upon the occurrence of a disposition event prior to a termination of employment, all of the unvested options will become vested. |
Potential Payments Upon Termination or Change in Control
The following summaries describe the potential payments and benefits that we would provide to our named executive officers in connection with a termination of employment and/or a change in control.
Severance Benefits
We have entered into an employment agreement with each of our named executive officers, which provides for certain payments to be made in connection with certain terminations of service. Other than as set forth below, we do not offer or have in place for our named executive officers any formal retirement, severance or similar compensation programs providing for additional benefits or payments in connection with a termination of employment, change in job responsibility or change in control (other than our tax-qualified and non-qualified contributory defined contribution plans).
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Don Gayhardt . Mr. Gayhardts amended and restated employment agreement provides that if his employment is terminated by us without cause or by him for good reason (each as defined in the employment agreement), subject to his timely execution of a release of claims, he would be entitled to severance benefits equal to: (i) continued payment of his base salary for a two-year period; (ii) any bonus earned for a completed calendar year, but not yet paid, payable at such times as bonuses are paid; (iii) a pro-rated bonus for the year of termination (based on actual performance), payable at such times as bonuses are paid; (iv) reimbursement for the cost of maintaining his personal life insurance premiums, up to $25,000 per year, for a period of two years; and (v) continued participation in our benefit plans for a period of two years. Upon a termination due to the executives death or disability, a termination by the Company for cause, or a resignation without good reason, Mr. Gayhardt is entitled to receive his base salary through the date of termination. Mr. Gayhardts agreement subjects him to an indefinite confidentiality provision, an inventions assignment provision, a covenant not to compete with us while employed with us and for a two year period thereafter, and a covenant not to solicit our employees while employed with us and for a two year period thereafter.
William Baker . Mr. Bakers employment agreement provides that if his employment is terminated by us without cause, by him for good reason (each as defined in the employment agreement) or following a non-renewal of his term, subject to his timely execution of a release of claims, Mr. Baker would be entitled to severance equal to continued payment of his base salary for a twelve month period. Mr. Bakers employment agreement subjects him to an indefinite confidentiality provision, an inventions assignment provision, a covenant not to compete with us while employed with us and for an eighteen-month period thereafter, and a covenant not to solicit our employees while employed with us and for an eighteen-month period thereafter.
Terry Pittman . Mr. Pittmans employment agreement provides that if his employment is terminated by us without cause, by him for good reason (each as defined in the employment agreement) or following a non-renewal of his term, subject to his timely execution of a release of claims, Mr. Pittman would be entitled to severance equal to continued payment of his base salary for a twelve month period. Upon a termination due to the executives death or disability, the expiration of the term, a termination by the Company for cause, or a resignation without good reason, Mr. Pittman is entitled to receive his base salary through the date of termination. Mr. Pittmans employment agreement subjects him to an indefinite confidentiality provision, an inventions assignment provision, a covenant not to compete with us while employed with us and for an eighteen-month period thereafter, and a covenant not to solicit our employees while employed with us and for an eighteen-month period thereafter.
Vesting of Outstanding Equity Awards
We maintain the 2010 EIP, further described under Additional Incentive Compensation Plans and Awards below. Upon the occurrence of a disposition event prior to a termination of employment, all of the unvested options granted to our named executive officers will become vested. For purposes of each option agreement, a disposition event is defined as: (a)(i) the sale of all or substantially all of the assets of CURO and its subsidiaries in a single transaction or series of related transactions whether by liquidation, dissolution, merger, consolidation or sale or (ii) the sale or other transfer of at least a majority of the outstanding shares of our common stock in a single transaction or a series of related transactions, in either case to any person who is not an affiliate of CURO, or of a stockholder thereof, immediately prior to such transaction or transactions, or (b) the effective time of any merger, share exchange, consolidation, or other business combination of CURO if immediately after such transaction persons who hold a majority of the outstanding voting securities entitled to vote generally in the election of directors of the surviving entity (or the entity owning 100% of such surviving entity) are not persons who, immediately prior to such transaction, held the securities of CURO entitled to vote generally in the election of directors; provided, however, that such sale, transfer or other event described in (a) and (b) results in a change in the ownership or effective control, or a change in the ownership of a substantial portion of the assets, of CURO within the meaning of Section 409A of the Code.
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Non-Qualified Deferred Compensation Plan
We maintain the Non-Qualified Deferred Compensation Plan, the material terms of which are described under Narrative to Summary Compensation Table, above. Company contributions to the Non-Qualified Deferred Compensation Plan generally vest over a term of three years; however, vesting with respect to Company contributions made on behalf of each of our named executive officers will be accelerated upon the occurrence of a disposition event. A disposition event for these purposes is defined above. Each vested deferred compensation account will be paid out in a lump sum upon a participants separation from service with the Company. Each of our named executive officers contribute to our non-qualified deferred compensation plan.
Equity Incentive Plans
We currently maintain the 2010 EIP, pursuant to which we may grant various forms of equity compensation to our service providers, including our key employees, non-employee directors and consultants. We have historically granted options to service providers under the 2010 EIP. In connection with this offering, our board of directors intends to adopt, and we expect our shareholders to approve, the 2017 Incentive Plan, which will be effective immediately prior to the completion of the offering. The principal features of the 2010 EIP and the 2017 Incentive Plan are summarized below. This summary is qualified in its entirety by reference to the actual text of the 2010 EIP and the 2017 Incentive Plan, which are filed as exhibits to the registration statement of which this prospectus is a part.
2010 EIP
In 2010, our board of directors approved the 2010 EIP. Under the 2010 EIP, we may grant stock options, restricted shares and other stock-based awards to our key employees, directors and consultants.
There are 2,160,000 shares of our common stock reserved for issuance under the 2010 EIP. This number is subject to additional adjustment in the event of a corporate transaction, distribution or similar event, as determined by the compensation committee of the board of directors. As of November 27, 2017, options in respect of 1,977,480 shares of common stock, were outstanding under the 2010 EIP. Our compensation committee has full power and authority to determine the terms of awards granted pursuant to the 2010 EIP, including, without limitation, which key employees, directors and consultants will be granted awards and the number of shares of common stock subject to awards.
Our board of directors may amend or discontinue the 2010 EIP at any time and may amend or cancel any outstanding award. No such amendment may adversely affect the rights under any outstanding award without the holders consent.
2017 Incentive Plan
Introduction
In connection with this offering, we intend to adopt, and we expect our stockholders to approve, the 2017 Incentive Plan. The 2017 Incentive Plan will authorize the grant of stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance awards and other awards that may be settled in or based upon our common stock. The 2017 Incentive Plan will become effective immediately prior to the effective date of the offering and no further grants will be made under the 2010 EIP.
Purpose
The purpose of the 2017 Incentive Plan is to give us the ability to attract, retain, motivate and reward certain officers, employees, directors and consultants and to provide a means whereby officers, employees, directors and/or consultants can acquire and maintain ownership of our common stock or be paid incentive compensation
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measured by reference to the value of our common stock, thereby strengthening their commitment to our welfare and that of our affiliates and promoting an identity of interest between our stockholders and these persons and encouraging such eligible people to expend maximum effort in the creation of stockholder value.
The following summary is not a complete description of all provisions of the 2017 Incentive Plan and is qualified in its entirety by reference to the 2017 Incentive Plan, the final version of which is subject to further internal discussion and review, and possible revision.
Plan Administration
The 2017 Incentive Plan will be administered by our compensation committee. Our compensation committee will have the authority, among other things, to select participants, grant awards, determine types of awards and terms and conditions of awards for participants, prescribe rules and regulations for the administration of the plan and make all decisions and determinations as deemed necessary or advisable for the administration of the 2017 Incentive Plan. Our compensation committee may delegate certain of its authority as it deems appropriate, pursuant to the terms of the 2017 Incentive Plan and to the extent permitted by applicable law, to our officers or employees, although any award granted to any person who is not our employee, who is subject to Section 16 of the Exchange Act, or who is granted an award that is intended to qualify as performance-based compensation under Section 162(m) of the Code must be expressly approved by the compensation committee. Our compensation committees actions will be final, conclusive and binding.
Authorized Stock
A total of 5,000,000 shares of common stock will be reserved and available for issuance under the 2017 Incentive Plan, subject to adjustment in accordance with the terms of the 2017 Incentive Plan. The number of shares of common stock reserved and available for issuance under the 2017 Incentive Plan is subject to adjustment, as described below. The maximum number of shares of common stock that may be issued in respect of incentive stock options will be 5,000,000. Common stock issued under the 2017 Incentive Plan may consist of authorized but unissued stock or previously issued common stock. Common stock underlying awards that are settled in cash, expire or are canceled, forfeited, or otherwise terminated without delivery to a participant, will again be available for issuance under the 2017 Incentive Plan. Common stock withheld or surrendered in connection with the payment of an exercise price of an award or to satisfy tax withholding will again become available for issuance under the 2017 Incentive Plan.
Individual Limits
At all times that we are subject to Section 162(m) of the Code, the maximum number of shares of common stock subject to stock options, stock appreciation rights or performance-based awards intended to qualify as qualified performance-based compensation (within the meaning of Section 162(m) of the Code), in each case, that may be granted to any individual in any one calendar year is 680,000, subject to adjustment, as described below. The maximum value of performance-based awards intended to qualify as qualified performance-based compensation (within the meaning of Section 162(m) of the Code) that is valued in dollars that an individual may receive in respect of any annual performance period is $10,000,000, and for any performance period in excess of one year, such amount multiplied by a fraction, the numerator of which is the number of months in the performance period and denominator of which is 12. The maximum value of any awards granted to any non-employee director in any one calendar year during such calendar year, may not exceed .
Types of Awards
The types of awards that may be available under the 2017 Incentive Plan are described below. All of the awards described below will be subject to the terms and conditions determined by our compensation committee in its sole discretion, subject to certain limitations provided in the 2017 Incentive Plan. Each award granted under the 2017 Incentive Plan will be evidenced by an award agreement, which will govern that awards terms and conditions.
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Non-qualified Stock Options . A non-qualified stock option is an option that is not intended to meet the qualifications of an incentive stock option, as described below. An award of a non-qualified stock option grants a participant the right to purchase a certain number of shares of our common stock during a specified term in the future, or upon the achievement of performance or other conditions, at an exercise price set by our compensation committee on the grant date. The term of a non-qualified stock option will be set by our compensation committee but may not exceed ten years from the grant date. The exercise price may be paid using any of the following payment methods: (i) immediately available funds in U.S. dollars or by certified or bank cashiers check, (ii) by delivery of stock having a value equal to the exercise price, (iii) a broker assisted cashless exercise, or (iv) by any other means approved by our compensation committee. The 2017 Incentive Plan provides that unless otherwise specifically determined by the compensation committee, vesting of non-qualified stock options will be suspended during the period of any approved leave of absence by a participant following which the participant has a right to reinstatement and will resume upon such participants return to employment. The 2017 Incentive Plan also provides that participants terminated for cause (as such term is defined in the 2017 Incentive Plan) will forfeit all of their non-qualified stock options, whether or not vested. Participants terminated for any other reason will forfeit their unvested non-qualified stock options, retain their vested non-qualified stock options, and will have one year (in the case of a termination by reason of death or disability) or 90 days (in all other cases) following their termination date to exercise their vested non-qualified stock options. The 2017 Incentive Plan authorizes our compensation committee to provide for different treatment of non-qualified stock options upon termination than that described above, as determined in its discretion.
Incentive Stock Options . An incentive stock option is a stock option that meets the requirements of Section 422 of the Code. Incentive stock options may be granted only to our employees or employees of certain of our subsidiaries and must have an exercise price of no less than 100% of the fair market value (or 110% with respect to a 10% shareholder) of a share of common stock on the grant date and a term of no more than ten years (or five years with respect to a 10% shareholder). The aggregate fair market value, determined at the time of grant, of our common stock subject to incentive stock options that are exercisable for the first time by a participant during any calendar year may not exceed $100,000. The 2017 Incentive Plan provides that unless otherwise specifically determined by the compensation committee, vesting of incentive stock options will be suspended during the period of any approved leave of absence by a participant following which the participant has a right to reinstatement and will resume upon such participants return to employment. The 2017 Incentive Plan also provides that participants terminated for cause will forfeit all of their incentive stock options, whether or not vested. Participants terminated for any other reason will forfeit their unvested incentive stock options, retain their vested incentive stock options, and will have one year (in the case of a termination by reason of death or disability) or 90 days (in all other cases) following their termination date to exercise their vested incentive stock options, unless such appreciation right expires sooner. The 2017 Incentive Plan authorizes our compensation committee to provide for different treatment of incentive stock options upon termination than that described above, as determined in its discretion.
Stock Appreciation Rights . A stock appreciation right entitles the participant to receive an amount equal to the difference between the fair market value of our common stock on the exercise date and the base price of the stock appreciation right that is set by our compensation committee on the grant date, multiplied by the number of shares of common stock subject to the stock appreciation right. The term of a stock appreciation right will be set by our compensation committee but may not exceed ten years from the grant date. Payment to a participant upon the exercise of a stock appreciation right may be either in cash, stock or property as specified in the award agreement or as determined by our compensation committee. The 2017 Incentive Plan provides that unless otherwise specifically determined by the compensation committee, vesting of stock appreciation rights will be suspended during the period of any approved leave of absence by a participant following which the participant has a right to reinstatement and will resume upon such participants return to employment. The 2017 Incentive Plan provides that participants terminated for cause will forfeit all of their stock appreciation rights, whether or not vested. Participants terminated for any other reason will forfeit their unvested stock appreciation rights, retain their vested stock appreciation rights, and will have one year (in the case of a termination by reason of death or disability) or 90 days (in all other cases) following their termination date to exercise their vested stock
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appreciation rights. The 2017 Incentive Plan authorizes our compensation committee to provide for different treatment of stock appreciation rights upon termination than that described above, as determined in its discretion.
Restricted Stock . A restricted stock award is an award of restricted common stock that does not vest until a specified period of time has elapsed and/or upon the achievement of performance or other conditions determined by our compensation committee, and which will be forfeited if the conditions to vesting are not met. During the period that any restrictions apply, transfer of the restricted common stock is generally prohibited. Unless otherwise specified in their award agreement, participants generally have all of the rights of a stockholder as to the restricted common stock, including the right to vote such common stock. However, any cash or stock dividends with respect to the restricted common stock will be withheld by us and will be subject to forfeiture to the same degree as the restricted common stock to which such dividends relate. The 2017 Incentive Plan provides that unless otherwise specifically determined by the compensation committee, vesting of restricted stock awards will be suspended during the period of any approved leave of absence by a participant following which the participant has a right to reinstatement and will resume upon such participants return to employment. Except as otherwise provided by our compensation committee, in the event a participant is terminated for any reason, the vesting with respect to the participants restricted stock will cease, and as soon as practicable following the termination, we will repurchase all of such participants unvested restricted stock at a purchase price equal to the original purchase price paid for the restricted stock, or if the original purchase price is equal to $0, the unvested restricted stock will be forfeited by the participant to us for no consideration.
Restricted Stock Units . A restricted stock unit is an unfunded and unsecured obligation to issue common stock (or an equivalent cash amount) to the participant in the future. Restricted stock units become payable on terms and conditions determined by our compensation committee and will vest and be settled at such times in cash, common stock, or other specified property, as determined by our compensation committee. Participants have no rights of a stockholder as to the restricted stock units, including no voting rights or rights to dividends, until the underlying common stock is issued or becomes payable to the participant. The 2017 Incentive Plan provides that unless otherwise specifically determined by the compensation committee, vesting of restricted stock units will be suspended during the period of any approved leave of absence by a participant following which the participant has a right to reinstatement and will resume upon such participants return to employment. Except as otherwise provided by our compensation committee, in the event a participant is terminated for any reason, the vesting with respect to the participants restricted stock units will cease, each of the participants outstanding unvested restricted stock units will be forfeited for no consideration as of the date of such termination, and any stock remaining undelivered with respect to the participants vested restricted stock units will be delivered on the delivery date specified in the applicable award agreement.
Performance Awards . Performance awards (which may be classified as performance stock, performance units or cash awards) represent the right to receive certain amounts based on the achievement of pre-determined performance goals during a designated performance period. The terms of each performance award will be set forth in the applicable award agreement. Our compensation committee will be responsible for setting the applicable performance goals, which will be limited to specific levels of or increases in one or more of the following business criteria (alone or in combination with any other criterion, whether gross or net, before or after taxes, and/or before or after other adjustments, as determined by our compensation committee): (i) earnings, including net earnings, total earnings, operating earnings, earnings growth, operating income, earnings before or after taxes, earnings before or after interest, depreciation, amortization, or unusual, non-recurring or special items or book value per share (which may exclude nonrecurring items), tangible book value or growth in tangible book value per share; (ii) pre-tax income or after tax income; (iii) earnings per share (basic or diluted); (iv) operating profit; (v) revenue, revenue growth, or rate of revenue growth; (vi) return on assets (gross or net), return on investment, return on capital, return on equity, financial return ratios, or internal rates of return; (vii) returns on sales or revenues; (viii) operating expenses; (ix) stock price appreciation; (x) cash flow (including, but not limited to, operating cash flow and free cash flow), cash flow return on investment (discounted or otherwise), net cash provided by operations or cash flow in excess of cost of capital, or working capital turnover; (xi) implementation or completion of critical projects or processes; (xii) economic value created; (xiii) balance
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sheet measurements; (xiv) cumulative earnings per share growth; (xv) operating margin, profit margin, or gross margin; (xvi) stock price or total stockholder return; (xvii) cost or expense targets, reductions and savings, productivity and efficiencies; (xviii) sales or sales growth; (xix) strategic business criteria, consisting of one or more objectives based on meeting specified market penetration, market share, geographic business expansion, customer satisfaction, employee satisfaction, human resources management, supervision of litigation, information technology, and goals relating to acquisitions, divestitures, joint ventures, and similar transactions, and budget comparisons; (xx) personal professional objectives, including any of the foregoing performance goals, the implementation of policies and plans, the negotiation of transactions, the development of long term business goals, the formation of joint ventures, and the completion of other corporate transactions; (xxi) billings, billings growth, or rate of billings growth; (xxii) underwriting income or profit; (xxiii) loss ratio or combined ratio; and (xxiv) for any period of time in which Section 162(m) of the Code is not applicable to us, or in the case of persons whose compensation is not subject to Section 162(m) of the Code, such other criteria as may be determined by our compensation committee. The business criteria may be combined with cost of capital, assets, invested capital and stockholder equity to form an appropriate measure of performance and will have any reasonable definitions that our compensation committee may specify.
Performance goals may be established on a company-wide basis, project or geographical basis or, as the context permits, with respect to one or more of our business units, divisions, lines of business or business segments, subsidiaries, products, regions, or other operational units or administrative departments (or in combination thereof) or may be related to the performance of an individual participant and may be expressed in absolute terms, or relative or comparative to (i) current internal targets or budgets, (ii) our past performance (including the performance of one or more of our subsidiaries, divisions, or operating units), (iii) the performance of one or more similarly situated companies, (iv) the performance of an index covering multiple companies, or (v) other external measures of the selected performance criteria. Performance goals may be in either absolute terms or relative to the performance of one or more comparable companies or an index covering multiple companies.
Our compensation committee will make appropriate adjustments in the method of calculating the attainment of applicable performance goals to provide for objectively determinable adjustments, modifications or amendments, as determined in accordance with generally accepted accounting principles, to any of the business criteria described above for one or more of the following items of gain, loss, profit or expense: (i) determined to be items of an unusual nature or of infrequency of occurrence or non-recurring items; (ii) related to changes in accounting principles under generally accepted accounting principles or tax laws; (iii) related to currency fluctuations; (iv) related to financing activities (such as effect on earnings per share of issuing convertible debt securities); (v) related to restructuring, divestitures, productivity initiatives or new business initiatives; (vi) related to discontinued operations that do not qualify as a segment of business under generally accepted accounting principles; (vii) attributable to the business operations of any entity acquired by us during the fiscal year; (viii) non-operating items; and (ix) acquisition or divestiture expenses.
Performance awards which have been earned as a result of the relevant performance goals being achieved may be paid in the form of cash, common stock or other awards under the 2017 Incentive Plan (or some combination thereof). The 2017 Incentive Plan provides that unless otherwise specifically determined by the compensation committee, a participant will only be eligible to earn a performance award while the participant is employed or rendering services, and that vesting of performance awards will be suspended during the period of any approved leave of absence by a participant following which the participant has a right to reinstatement and will resume upon such participants return to employment. Except as otherwise provided by the compensation committee, if a participant is terminated for any reason, the participant will forfeit all performance awards held by such participant.
Other Stock-Based Compensation . Under the 2017 Incentive Plan, our compensation committee may grant other types of equity-based awards subject to such terms and conditions that our compensation committee may determine. Such awards may include the grant of dividend equivalents, which generally entitle the participant to receive amounts equal to the dividends that are paid on the stock underlying the award.
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Adjustments
The aggregate number of shares of common stock reserved and available for issuance under the 2017 Incentive Plan, the individual limitations, the number of shares of common stock covered by each outstanding award and the price per share of common stock underlying each outstanding award will be equitably and proportionally adjusted or substituted, as determined by our compensation committee in its sole discretion, as to the number, price or kind of stock or other consideration subject to such awards in connection with stock dividends, extraordinary cash dividends, stock splits, reverse stock splits, recapitalizations, reorganizations, mergers, amalgamations, consolidations, combinations, exchanges, or other relevant changes in our capitalization affecting our common stock or our capital structure which occurs after the date of grant of any award, in connection with any extraordinary dividend declared and paid in respect of stock or in the event of any change in applicable law or circumstances that results in or could result in, as determined by the compensation committee in its sole discretion, any substantial dilution or enlargement of the rights intended to be granted to, or available for, participants in the 2017 Incentive Plan.
Corporate Events
In the event of a merger, amalgamation or consolidation involving us in which we are not the surviving corporation or in which we are the surviving corporation but the holders of our common stock receive securities of another corporation or other property or cash, a change in control (as defined in the 2017 Incentive Plan) or a reorganization, dissolution or liquidation of us, our compensation committee may, in its discretion, provide for the assumption or substitution of outstanding awards, accelerate the vesting of outstanding awards, cash-out outstanding awards or replace outstanding awards with a cash incentive program that preserves the value of the awards so replaced. With respect to any award that is assumed or substituted in connection with a change in control, the vesting, payment, purchase or distribution of such award will not be accelerated by reason of the change in control for any participant unless the participants employment is involuntarily terminated as a result of the change in control during the two-year period commencing on the change in control.
Transferability
Awards under the 2017 Incentive Plan may not be sold, transferred, pledged, or assigned other than by will or by the applicable laws of descent and distribution, unless (for awards other than incentive stock options) otherwise provided in an award agreement or determined by our compensation committee.
Amendment
Our board of directors or our compensation committee may amend the 2017 Incentive Plan or outstanding awards at any time. Our stockholders must approve any amendment if their approval is required pursuant to applicable law or the applicable rules of each national securities exchange on which our common stock is traded. No amendment to the 2017 EIP or outstanding awards which materially impairs the right of a participant is permitted unless the participant consents in writing.
Termination
The 2017 Incentive Plan will terminate on the day before the tenth anniversary of the date our stockholders approve the 2017 Incentive Plan, although incentive stock options may not be granted following the earlier of the tenth anniversary of (i) the date the 2017 Incentive Plan is adopted by our board of directors and (ii) the date our stockholders approve the 2017 Incentive Plan. In addition, our board of directors or our compensation committee may suspend or terminate the 2017 Incentive Plan at any time. Following any such suspension or termination, the 2017 Incentive Plan will remain in effect to govern any then outstanding awards until such awards are forfeited, terminated or otherwise canceled or earned, exercised, settled or otherwise paid out, in accordance with their terms.
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Clawback; Sub-Plans
All awards under the 2017 Incentive Plan will be subject to any incentive compensation clawback or recoupment policy currently in effect, or as may be adopted by our board of directors (or any committee or subcommittee thereof) and, in each case, as may be amended from time to time. In addition, our compensation committee may adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the 2017 Incentive Plan by individuals who are non-U.S. nationals or are primarily employed or providing services outside the United States, and may modify the terms of any awards granted to such participants in a manner deemed by our compensation committee to be necessary or appropriate in order that such awards conform with the laws of the country or countries where such participants are located.
No-Repricing of Awards
No awards under the 2017 Incentive Plan may be repriced without stockholder approval. For purposes of the 2017 Incentive Plan, repricing means any of the following (or any other action that has the same effect as any of the following): (i) changing the terms of the award to lower its exercise price or base price (other than on account of capital adjustments resulting from stock splits), (ii) any other action that is treated as a repricing under generally accepted accounting principles and (iii) repurchasing for cash or canceling an award in exchange for another award at a time when its exercise price or base price is greater than the fair market value of the underlying stock.
Equity Awards Pursuant to the 2017 Incentive Plan
Our board of directors approved the grant of restricted stock units to certain employees and non-employee directors. The restricted stock units were granted effective and contingent upon the execution and delivery of the underwriting agreement relating to this offering. Restricted stock unit grants to our executive officers and other non-executive officer employees vest ratably over a three year period, subject to the award holders continued service with us through the applicable vesting date.
Our non-employee directors received an initial award of restricted stock units with respect to the number of shares of our common stock determined by dividing $200,000 by the IPO price (rounded down to the nearest whole share), which vest in two equal installments, with one-half vesting upon the occurrence of the our annual meeting of shareholders in 2018 and the remainder vesting upon the occurrence of our annual meeting of shareholders in 2019.
The following table sets forth information concerning these grants of restricted stock units. The number of shares of our common stock subject to such restricted stock unit awards will be determined by dividing the applicable dollar value of such award by the IPO price (rounded down to nearest whole share):
Name |
Dollar Value
of Restricted Stock Units |
|||
Don Gayhardt |
$ | 3,420,000 | ||
William Baker |
$ | 1,650,000 | ||
Terry Pittman |
$ | 1,266,900 | ||
Executive Group(1) |
$ | 2,497,350 | ||
Non-Employee Director Group(2) |
$ | 1,600,000 | ||
Non-Executive Officer Employee Group(3) |
$ | 11,218,858 |
(1) | Consists of grants to our Chief Legal Officer and Chief Financial Officer. |
(2) | Consists of grants to our 8 non-employee directors. |
(3) | Consists of grants to 25 non-executive officer employees. |
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Employee Stock Purchase Plan
In connection with this offering, we intend to adopt, and we expect our stockholders to approve, an Employee Stock Purchase Plan, or the ESPP. We do not expect to grant purchase rights under our ESPP until after the completion of this offering.
Share Reserve
The maximum number of shares of our common stock that will be available for purchase under the ESPP is 2,500,000 shares. Shares subject to purchase rights granted under our ESPP that terminate without having been exercised in full will not reduce the number of shares available for issuance under the ESPP.
Administration
Our compensation committee, or such other duly authorized committee or subcommittee of our board of directors, will administer our ESPP.
Limitations
Our employees, including executive officers, directors and the employees of any of our parent or subsidiary corporations will be eligible to participate in the ESPP, provided that they may have to satisfy one or more of the following service requirements before participating in the ESPP, as determined by the compensation committee: (i) customary employment with us or one of our parents or subsidiaries for more than 20 hours per week and more than five months per calendar year; or (ii) continuous employment with us or one of our subsidiaries for a minimum period of time, not to exceed two years, prior to the first date of an offering. An employee may not be granted rights to purchase stock under the ESPP (x) if such employee immediately after the grant would own stock representing 5% or more of the total combined voting power or value of all classes of our common stock or the common stock of any of our parent or subsidiary corporations or (y) to the extent that such rights would accrue at a rate that exceeds $25,000 worth of our stock for each calendar year that the rights remain outstanding, provided that no such employee may purchase more than 5,000 shares of our common stock in any purchase period in which purchase rights are outstanding.
Our ESPP is intended to qualify as an employee stock purchase plan under Section 423 of the Code. The compensation committee may specify offerings with a duration of not more than 27 months, and may specify one or more shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of our common stock will be purchased for the employees who are participating in the offering. The compensation committee, in its discretion, will determine the terms of offerings under our ESPP.
A participant may not transfer purchase rights under the ESPP other than by will, the laws of descent and distribution or as otherwise provided under the ESPP.
Holding Period
Our ESPP permits our compensation committee to establish a holding period for any shares of our common stock purchased in a particular offering, during which such shares will be subject to a resale restriction barring the holder from selling such shares. The holding period, if any, will commence on the purchase date and will end automatically on the earliest of (i) the termination of the participants employment, (ii) the occurrence of a change in control or (iii) the twelve month anniversary of the purchase date or such earlier date as established by our compensation committee.
Payroll Deductions
Our ESPP permits participants to purchase shares of our common stock through payroll deductions up to 15% of their earnings. Subject to other limitations determined by the compensation committee, the purchase
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price of the shares will be not less than 85% of the fair market value of our common stock on the date of purchase. Participants may end their participation at any time during an offering and will be paid their accrued contributions that have not yet been used to purchase shares. Participation ends automatically upon termination of employment with us.
Corporate Transactions
In the event of a change in control, a successor corporation may assume, continue or substitute each outstanding purchase right. If the successor corporation does not assume, continue or substitute for the outstanding purchase rights, then employees accumulated payroll deductions will be used to purchase shares of our common stock within ten business days prior to any such change in control. The participants purchase rights will be exercised on the new exercise date and such purchase rights will terminate immediately thereafter.
Amendment and Termination
Our board of directors or our compensation committee has the authority to amend, suspend or terminate our ESPP, at any time and for any reason, provided certain types of amendments will require the approval of our stockholders. Our ESPP will remain in effect until terminated by our board of directors or our compensation committee in accordance with the terms of the ESPP.
Director Compensation
Director Compensation Policy
For 2016, members of our board of directors received no cash, equity or other non-equity compensation for services rendered. We currently have no other formal arrangements under which our directors receive compensation for service to the board of directors or its committees. For compensation paid in 2016 to Don Gayhardt, our President, Chief Executive Officer and director, see Summary Compensation Table.
All Other Compensation
We reimburse our directors for reasonable and necessary out-of-pocket expenses incurred in attending board and committee meetings or performing other services for us in their capacities as directors. We do not provide tax gross-up payments to members of our board of directors. Our board of directors approved a new compensation policy that will become effective upon the execution and delivery of the underwriting agreement related to this offering and is applicable to all of our non-employee directors. This compensation policy provides that each such non-employee director will receive the following compensation for service on our board of directors:
| annual cash retainer of $65,000 for each non-employee director; |
| additional annual cash retainer for the Chairman of $40,000 for service as chairperson of the board; |
| additional cash retainer for the Chair of the Audit Committee of $15,000 for service as chairperson of the Audit Committee; |
| additional annual cash retainer for all members of the Audit Committee of $10,000 to compensate for serving on the Audit Committee; |
| additional cash retainer for the Chair of the Compensation Committee of $13,000 for service as chairperson of the Compensation Committee; |
| additional annual cash retainer for all members of the Compensation Committee of $9,000 to compensate for serving on the Compensation Committee; |
| additional cash retainer for the Chair of the Nominating and Corporate Governance Committee of $10,000 for service as chairperson of the Nominating and Corporate Governance Committee; |
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| additional annual cash retainer for all members of the Nominating and Corporate Governance Committee of $7,500 to compensate for serving on the Nominating and Corporate Governance Committee; and |
| commencing with the Companys annual meeting of stockholders in calendar year 2019, an annual award of restricted stock units following election or reelection, as applicable, at the Companys annual meeting of stockholders with a value expected to be approximately $100,000 as of the date of grant, vesting over a one year period corresponding to each year of service as a director. |
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Policies and Procedures for Related-Party Transactions
Upon the completion of this offering, we intend to adopt a policy applicable to our transactions with related parties, which we define to include our executive officers, directors and nominees for director, any immediate family member or affiliated entity of any of our executive officers, directors or nominees for director and any person (and his or her immediate family members and affiliated entities) or entity (including affiliates) that is a beneficial owner of 5% or more of any class of our outstanding voting securities. Pursuant to this policy, an appropriate committee of our board of directors must approve the terms, arrangements and policies of, and provide ongoing oversight over, all transactions with a related party in which the amount involved exceeds $120,000. This committee, which may be our Audit Committee, will consist of directors independent from the related party in question. In conducting its initial and ongoing reviews, the committee will take into account, among other factors it deems appropriate, the terms of the transaction, including whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances, the extent of the related-partys interest in the transaction, the qualifications and performance of the related party and other business considerations that would be applied to similar arrangements with unaffiliated parties. To perform its ongoing review of related party transactions, the committee will meet to discuss and review the relevant transaction at least once every twelve months. All of our directors, executive officers and employees will be required to report to an appropriate committee of our board any such related-party transaction. Under the policy, if we should discover related-party transactions that have not been approved, this committee will determine the appropriate action, including ratification, rescission or amendment of the transaction. Upon completion of this offering, we will make a copy of our related-party transactions policy available on our website.
Related-Party Transactions
Services Provided by Ad Astra
We employ the services of Ad Astra Recovery Services, Inc., or Ad Astra, which is owned by the Founder Holders. Ad Astra is our exclusive provider of third-party collection services for our U.S. operations. Generally, once loans are between 91 and 121 days delinquent we refer them to Ad Astra for collections. See BusinessCollections. Ad Astra earns a commission fee equal to 30% of any amounts they successfully recover (as well as reimbursement for any third party legal work incurred in connection with its collection activities). We net settle payments Ad Astra collects on our behalf and our commissions payable to Ad Astra on a one month lag. The net amounts receivable from Ad Astra at September 30, 2017, December 31, 2016 and December 31, 2015 were $0.8 million, $0.6 million and $0.2 million, respectively. These amounts are included in prepaid expenses and other in our consolidated balance sheets. We paid commission expense to Ad Astra for the nine months ended September 30, 2017 and 2016, and the years ended December 31, 2016, 2015 and 2014 of $9.5 million, $9.6 million, $12.1 million, $10.6 million and $8.9 million, respectively, and these amounts are included in other store operating expenses in our consolidated statements of income. Our relationship with Ad Astra is to be overseen in a manner consistent with our policy regarding related party transactions detailed above. We believe that our relationship with Ad Astra is on terms that are at least as favorable as would be available from unaffiliated parties.
Operating Leases
We have entered into several operating lease agreements for our corporate office, collection office and stores in which we operate, with several real estate entities that are related through common ownership.
We are party to lease agreements and arrangements with Doug Rippel, CDM Development LLC, Dimensions Real Estate Group LLC, Foresome Real Estate LLC and Summit Real Estate LLC pursuant to which we lease corporate offices and stores. The aggregate annual base rent pursuant to the terms of these agreements is
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approximately $3.1 million per year, and the leases have an average term of five years with two renewal options, each for an additional five-year term. Payments made under these leases and the related rent expenses for the nine months ended September 30, 2017 and the years ended December 31, 2016, 2015 and 2014 were $2.4 million, $3.3 million, $3.2 million and $3.2 million, respectively. Mr. Rippel is a co-founder of the Company, serves as our Executive Chairman of the board of directors and holds approximately 18% of the outstanding common stock of the Company. CDM Development LLC, Dimensions Real Estate Group LLC, Foresome Real Estate LLC and Summit Real Estate LLC are each entities owned by one or more of the Founder Holders. Our relationship with Mr. Rippel and these entities is to be overseen in a manner consistent with our policy regarding related-party transactions described above. We believe that the operating lease agreements and arrangements to which we are party are on terms that are at least as favorable as would be available from unaffiliated parties.
12.00% Senior Secured Notes Placement
On February 15, 2017 we issued $470.0 million aggregate principal amount of 12.00% Senior Secured Notes. $6.0 million of these notes were privately placed by us directly with certain members of the board of directors of CURO Financial Technologies Corp., namely Doug Rippel and Mike McKnight. The notes issued to these board members contain the same terms as those issued to other investors in the offering. For more information, see Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesBorrowings.
Amended and Restated Investors Rights Agreement
In connection with the completion of this offering, we will enter into an amended and restated investors rights agreement with certain of our current holders, including the Founder Holders and the FFL Holders, whom we collectively refer to as the principal holders. Pursuant to the amended and restated investors rights agreement, we will agree to register the sale of shares of our common stock held by the principal holders under certain circumstances.
Demand Rights
At any time after the 180-day lock-up restriction described in Underwriting, and subject to certain limitations, including those described below, any principal holder who beneficially owns at least 8% of the Companys then-outstanding common stock may make a written request that we prepare and file a registration statement under the Securities Act registering the offer and sale of shares of its common stock. Once we are eligible to effect a registration on Form S-3, any such demand registration may be for a shelf registration statement. Generally, we are required to file a demand registration statement on Form S-1 within 90 days of a written request and to file a demand registration statement on Form S-3 within 30 days of a written request.
We are not required to effect any demand registration in which the amount of common stock to be registered has an anticipated aggregate public price of less than $10 million (in the case of a registration on Form S-1) or $5 million (in the case of a registration on Form S-3). In addition, the Company is not required to effect a demand registration on Form S-1 if the Company has already effected three registrations in response to a demand by such party or if the Company has effected a registration on Form S-1 in the prior twelve months, or effect a demand registration on Form S-3 if the Company has effected a registration on Form S-3 in response to a demand by such party in the prior six months.
Piggyback Rights
Subject to certain exceptions, any time we propose to register any of our securities for public sale, whether or not for our own account, we must notify each principal holder of such proposal and, if applicable, permit them an opportunity to include shares of their common stock in such registration.
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Expenses
We will pay all reasonable expenses incident to our performance of the registration rights described above, including certain reasonable fees and disbursements (not including underwriting discounts and commissions).
Certain Conditions and Limitations
The registration rights described above are subject to certain conditions and limitations, including the right of the underwriters of an underwritten offering to limit the number of shares to be included in a registration and our right to delay or withdraw a registration statement under certain circumstances.
Indemnification
In certain circumstances we will indemnify, to the extent permitted by law, each principal holder, and each underwriter, if any, and certain other persons against claims arising in connection with any prospectus or other similar or incident document, or any violation or alleged violation of applicable securities laws, rules or regulations by us in an offering that includes common stock being sold by a participating holder. Similarly, each such principal holder will, if common stock held by such principal holder is included in the securities to be registered, indemnify us, each underwriter, if any, each other principal holder and certain other persons, against similar claims arising in connection with and to the extent made in reliance upon and in conformity with written information furnished by such principal holder and stated to be specifically for use in any such prospectus or document.
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The following table sets forth the beneficial ownership of our common stock as of November 27, 2017 for each of our directors, our named executive officers, all directors and named executive officers as a group, each stockholder known by us to be the beneficial owner of more than 5% of our outstanding common stock and each selling shareholder. The table gives effect to the application of a 36-for - 1 split of our common stock and the filing of our amended and restated certificate of incorporation.
To our knowledge, each person named in the table has sole voting and investment power with respect to all of the securities shown as beneficially owned by such person, subject to community property laws and except as otherwise set forth in the notes to the table. The number of securities shown represents the number of securities the person beneficially owns, as determined by the rules of the SEC. The SEC has defined beneficial ownership of a security to mean the possession, directly or indirectly, of voting power and/or investment power. A security holder is also deemed to be, as of any date, the beneficial owner of all securities that such security holder has the right to acquire within 60 days after that date through (i) the exercise of any option, warrant or right or the vesting of restricted stock units, (ii) the conversion of a security, (iii) the power to revoke a trust, discretionary account or similar arrangement or (iv) the automatic termination of a trust, discretionary account or similar arrangement. Shares beneficially owned by a person pursuant to a right to acquire the shares within 60 days are deemed to be outstanding for the purpose of computing the percentage ownership of such person, but are not deemed to be outstanding and to be beneficially owned for the purpose of computing the percentage ownership of any other person.
The percentages reflect beneficial ownership immediately prior to and immediately after the completion of this offering as determined in accordance with Rule 13d-3 under the Exchange Act and are based on the number of shares of our common stock outstanding as of November 27, 2017. Unless otherwise noted below, each stockholders address is c/o CURO Group Holdings Corp., 3527 North Ridge Road, Wichita, Kansas 67205.
Shares
Beneficially Owned Prior to Offering |
Shares Beneficially Owned
After the Offering Assuming the Underwriters Option Is Not Exercised |
Shares Beneficially Owned
After the Offering Assuming the Underwriters Option Is Fully Exercised |
||||||||||||||||||||||
Name and Address |
# of
Shares |
% of
Total Common Stock and Voting Power |
# of
Shares |
% of Total
Common Stock and Voting Power |
# of
Shares |
% of Total
Common Stock and Voting Power |
||||||||||||||||||
5% Stockholders |
||||||||||||||||||||||||
FFL Holders(1) |
13,212,000 | 34.86 | % | 13,212,000 | 28.67 | % | 13,212,000 | 28.06 | % | |||||||||||||||
J.P. Genova Family Trust(2) |
1,894,752 | 5.00 | 1,894,752 | 4.11 | 1,894,752 | 4.02 | ||||||||||||||||||
Directors and Named Executive Officers |
||||||||||||||||||||||||
Chad Faulkner(3) |
6,883,524 | 18.16 | 6,883,524 | 14.94 | 6,883,524 | 14.62 | ||||||||||||||||||
Andrew Frawley(4) |
| * | | * | | * | ||||||||||||||||||
Mike McKnight(5) |
6,883,524 | 18.16 | 6,883,524 | 14.94 | 6,883,524 | 14.62 | ||||||||||||||||||
Doug Rippel(6) |
6,883,524 | 18.16 | 6,883,524 | 14.94 | 6,883,524 | 14.62 | ||||||||||||||||||
Don Gayhardt(7) |
| * | 766,872 | 1.66 | 766,872 | 1.63 | ||||||||||||||||||
William Baker(8) |
| * | 178,200 | * | 178,200 | * | ||||||||||||||||||
Terry Pittman(9) |
| * | 162,756 | * | 162,756 | * | ||||||||||||||||||
Chris Masto(10) |
| * | | * | | * | ||||||||||||||||||
Dale E. Williams(11) |
| * | | * | | * | ||||||||||||||||||
Karen Winterhof(12) |
| * | | * | | * | ||||||||||||||||||
All directors and executive officers as a group (12 persons)(13) |
20,650,572 | 54.49 | % | 21,831,300 | 47.38 | % | 21,831,300 | 46.37 | % |
* | Represents beneficial ownership of less than 1%. |
(1) |
Amounts shown reflect 12,504,060 shares of common stock held by Friedman Fleischer & Lowe Capital Partners II, L.P., 239,904 shares of common stock held by FFL Executive Partners II, L.P. and 468,036 shares of common stock held by FFL Parallel Fund II, L.P. or the FFL |
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Holders. The FFL Holders are controlled by Friedman Fleischer & Lowe GP II, LP, their general partner, which may be deemed a beneficial owner of the shares of common stock, with shared voting and dispositive power over such shares. The address of the FFL Holders is c/o FFL Partners, LLC, One Maritime Plaza, Suite 2200, San Francisco, California 94111. |
(2) | The address of the J.P. Genova Family Trust is 145 Haist Avenue, Unit 8, Vaughan, Ontario Canada L4L 5V1. |
(3) | Amounts shown reflect the aggregate number of shares of common stock held by the Exempt Family Trust c/u Leah M. Faulkner 2017 Dynasty Trust (the Faulkner 2017 Trust I) and the Exempt Family Trust c/u Chadwick H. Faulkner (the Faulkner 2017 Trust II). Mr. Faulkner has sole voting and investment power with respect to the Faulkner 2017 Trust I and Faulkner 2017 Trust II. |
(4) | Mr. Frawley will become a member of our board of directors upon the listing of our common stock in connection with this offering, and thus was not serving as of November 27, 2017. |
(5) | Amounts shown reflect the number of shares of common stock held by McKnight Holdings, LLC of which Mr. McKnight is the sole member. |
(6) | Amounts shown reflect the number of shares of common stock held by Rippel Holdings, LLC of which Mr. Rippel is the sole member. |
(7) | Consists of 766,872 shares of our common stock issuable pursuant to outstanding share options which are expected to become exercisable in connection with this offering. |
(8) | Consists of 178,200 shares of our common stock issuable pursuant to outstanding share options which are expected to become exercisable in connection with this offering. |
(9) | Consists of 162,756 shares of our common stock issuable pursuant to outstanding share options which are expected to become exercisable in connection with this offering. |
(10) | The address of Mr. Masto is c/o FFL Partners, LLC, One Maritime Plaza, Suite 2200, San Francisco, California 94111. |
(11) | Mr. Williams will become a member of our board of directors upon the listing of our common stock in connection with this offering, and thus was not serving as of November 27, 2017. |
(12) | The address of Ms. Winterhof is c/o FFL Partners, LLC, One Maritime Plaza, Suite 2200, San Francisco, California 94111. |
(13) | Includes shares of our common stock owned by all directors, named executive officers and other executive officers. |
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General
The following description summarizes the most important terms of our capital stock, as they will be in effect following the completion of this offering. Because it is only a summary, it does not contain all the information that may be important to you. Immediately prior to the completion of this offering, we will adopt and file an amended and restated certificate of incorporation, adopt amended and restated bylaws and effect a 36-for-1 split of our common stock. This description summarizes provisions that will be included in the amended and restated certificate of incorporation and bylaws. For a complete description, you should refer to our amended and restated certificate of incorporation, amended and restated bylaws and amended and restated investors rights agreement, which are included as exhibits to the registration statement of which this prospectus forms a part, and to the applicable provisions of Delaware law. Upon the completion of this offering, pursuant to the terms of our amended and restated certificate of incorporation, our authorized capital stock will consist of 225,000,000 shares of common stock, $0.001 par value per share, and 25,000,000 shares of blank check preferred stock, $0.001 par value per share.
Upon completion of this offering and the stock split, there will be 44,561,419 shares of our common stock outstanding.
Common Stock
Voting rights
Holders of shares of our common stock will be entitled to one vote for each share of common stock held on all matters submitted to a vote of the stockholders. Generally, holders of shares of our common stock will vote together as a single class on all matters (including the election of directors) submitted to a vote of the stockholders, unless otherwise required by law or with respect to the matters described in the immediately following paragraph. Generally, all matters to be voted on by the stockholders must be approved by a majority (or, in the case of the election of directors, by a plurality) of the votes entitled to be cast by all shares of common stock present in person or represented by proxy, voting together as a single class.
Notwithstanding the foregoing paragraph, amendments to our amended and restated certificate of incorporation, including as a result of a statutory merger, that would alter or change the powers, preferences or rights of the common stock so as to affect them adversely must also be approved by a majority of the votes entitled to be cast by the holders of the shares affected by the amendment, voting as a separate class. Upon the completion of this offering, under our amended and restated certificate of incorporation, we may not increase or decrease the authorized number of shares of common stock without the affirmative vote of the holders of a majority of the voting power of the outstanding shares of our capital stock entitled to vote, voting together as a single class.
Dividend rights
Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of our common stock are entitled to receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that our board of directors may determine. See Dividend Policy for additional information.
No preemptive or similar rights
Our common stock is not entitled to preemptive rights and is not subject to redemption or sinking fund provisions.
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Right to receive liquidation distributions
Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable ratably among the holders of shares of our common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of, and the payment of liquidation preferences on, if any, any outstanding shares of preferred stock.
All of the shares of our common stock to be issued pursuant to this offering will be fully paid and non-assessable.
Preferred Stock
Under the terms of our amended and restated certificate of incorporation, our board of directors will be authorized to issue shares of preferred stock in one or more series without stockholder approval. Our board of directors will have the discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.
The purpose of authorizing our board of directors to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholder vote on specific issuances. The issuance of preferred stock, while providing flexibility in connection with possible future acquisitions and other corporate purposes, will affect, and may adversely affect, the rights of holders of common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders of common stock until the board of directors determines the specific rights attached to that preferred stock. The effects of issuing preferred stock could include one or more of the following:
| restricting dividends on the common stock; |
| diluting the voting power of the common stock; |
| impairing the liquidation rights of the common stock; or |
| delaying or preventing changes in control or management of us. |
We have no preferred stock outstanding and no present plans to issue any shares of preferred stock.
Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and Bylaws
The provisions of Delaware law and the amended and restated certificate of incorporation and amended and restated bylaws that we expect to adopt in connection with the completion of this offering may have the effect of delaying, deferring or discouraging another person from acquiring control of the Company. These provisions, which are summarized below, may have the effect of hampering takeover bids. They 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 with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire us, because negotiation of these proposals could result in an improvement of their terms.
Delaware Anti-Takeover Statute
Section 203 of the General Corporation Law of the State of Delaware prohibits a publicly held Delaware corporation from engaging, under certain circumstances, in a business combination with an interested stockholder for a period of three years following the date the person became an interested stockholder unless:
| prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; |
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| upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, calculated as provided under Section 203; or |
| at or subsequent to the date of the transaction, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of the stockholders, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder. |
Generally, a business combination includes a merger, asset or stock sale or other transaction resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own, 15% or more of a corporations outstanding voting stock.
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.
Classified Board
Our board of directors will be classified into three classes of directors, and directors may be removed from office only for cause. The existence of a classified board of directors could delay a successful tender offeror from obtaining majority control of our board of directors, and the prospect of that delay might deter a potential offeror. See ManagementCorporate GovernanceComposition of the Board of Directors for additional information.
Undesignated Preferred Stock
As discussed above in Preferred Stock, our board of directors will have 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. These and other provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of us.
No Cumulative Voting
Under Delaware law, the right to vote cumulatively does not exist unless the certificate of incorporation specifically authorizes cumulative voting. Our amended and restated certificate of incorporation will not authorize cumulative voting. Therefore, stockholders holding a majority in voting power of the shares of our stock entitled to vote generally in the election of directors will be able to elect all our directors.
Action by Written Consent
Our amended and restated certificate of incorporation will provide that actions by our stockholders may not be taken by written consent. Actions to be taken by our stockholders may be taken only at an annual or special meeting of our stockholders.
Ability of Stockholders to Call a Special Meeting
Our amended and restated bylaws will provide that special meetings of the stockholders may be called only by the chairperson of the board of directors, our Chief Executive Officer or a majority of our board of directors. Stockholders may not otherwise call a special meeting, which may delay the ability of our stockholders to force consideration of a proposal.
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Requirements for Advance Notification of Stockholder Nominations and Proposals
Our amended and restated bylaws will establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of our board of directors or a committee of our board of directors. These provisions 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 us.
Amendment of Charter Provisions
The amendment of the above provisions of our amended and restated certificate of incorporation and amended and restated bylaws will require approval by holders of at least a majority of our outstanding capital stock entitled to vote generally in the election of directors. In addition, amendments to our amended and restated certificate of incorporation, including as a result of a statutory merger, that would alter or change the powers, preferences or rights of the common stock so as to affect them adversely must also be approved by a majority of the votes entitled to be cast by the holders of the shares affected by the amendment, voting as a separate class. Upon the completion of this offering, under our amended and restated certificate of incorporation, we may not increase or decrease the authorized number of shares of common stock without the affirmative vote of the holders of a majority of the voting power of the outstanding shares of our capital stock entitled to vote, voting together as a single class.
Choice of Forum
Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the exclusive forum for: (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a breach of fiduciary duty; (iii) any action asserting a claim against us arising pursuant to the General Corporation Law of the State of Delaware, our certificate of incorporation or bylaws; and (iv) any action asserting a claim against us that is governed by the internal affairs doctrine.
Corporate Opportunity
Our amended and restated certificate of incorporation will provide that we renounce any interest or expectancy in, or in being offered an opportunity to participate in, any business opportunity that may from time to time be presented to the FFL Holders or any of their respective officers, directors, agents, stockholders, members, managers, partners, affiliates and subsidiaries (other than us and our subsidiaries) and that may be a business opportunity for the FFL Holders, even if the opportunity is one that we might reasonably have pursued or had the ability or desire to pursue if granted the opportunity to do so. No such person will be liable to us for breach of any fiduciary or other duty, as a director or officer or otherwise, to the fullest extent permitted by law, by reason of the fact that such person pursues or acquires any such business opportunity, directs any such business opportunity to another person or fails to present any such business opportunity, or information regarding any such business opportunity, to us. Neither the FFL Holders nor any of their respective representatives has any duty to refrain from engaging directly or indirectly in the same or similar business activities or lines of business as us or any of our subsidiaries.
Limitation on Director and Officer Liability and Indemnification
Our amended and restated certificate of incorporation will contain provisions that limit the liability of our directors and officers for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors and officers will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors or officers, except liability for:
| any breach of the duty of loyalty to us or our stockholders; |
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| any act or omission not in good faith or that involves 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 General Corporation Law of the State of Delaware; or |
| any transaction from which an improper personal benefit is derived. |
Our amended and restated certificate of incorporation and amended and restated bylaws will provide that we are required to indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. Our amended and restated bylaws will also provide that we are obligated to advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under the provisions of Delaware law.
We expect to enter into agreements to indemnify our directors, and executive officers. With specified exceptions, these agreements will provide for indemnification for related expenses including, among other things, attorneys fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe these bylaw provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain directors and officers liability insurance.
The limitation of liability and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other stockholders. Further, a stockholders investment may be adversely affected to the extent that we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present, there is no pending litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.
Registration Rights
The Amended and Restated Investor Rights Agreement provides certain holders of our common stock, subject to certain conditions, certain registration rights following this offering and the expiration of any related lock-up period. See Certain Relationships and Related-Party TransactionsRelated-Party TransactionsAmended and Restated Investor Rights Agreement.
Market Listing
Our common stock has been authorized for listing on NYSE under the symbol CURO.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, LLC. The transfer agents address is 6201 15 th Avenue, Brooklyn, New York 11219 and telephone number is (800)-937-5449.
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SHARES ELIGIBLE FOR FUTURE SALE
Immediately prior to this offering, there was no public market for our common stock. Sales of substantial amounts of shares of our common stock in the public market could adversely affect the prevailing market price of our common stock. Certain shares of our common stock will not be eligible for sale for a certain period of time after this offering because they are subject to contractual and legal restrictions on resale, some of which are described below. Sales of substantial amounts of shares of our common stock in the public market after these restrictions lapse, or the perception that these sales could occur, could adversely affect the prevailing market price of our common stock and our ability to raise equity capital in the future.
Sales of Restricted Securities
After this offering, 44,561,419 shares of our common stock will be outstanding (or 45,561,419 shares if the underwriters fully exercise their option to purchase additional shares). Of these shares, all 6,666,667 of the shares of common stock sold in this offering (or 7,666,667 shares if the underwriters fully exercise their option to purchase additional shares) will be freely tradable without restriction under the Securities Act, other than shares purchased by our affiliates, as that term is defined in Rule 144 under the Securities Act. Our remaining 37,894,752 shares outstanding will be restricted securities, which means they may be sold in the public market only if they are registered under the Securities Act or are sold pursuant to an exemption from registration, including, among others, those under Rule 144 or Rule 701 under the Securities Act, which are summarized below. Subject to the lock-up agreements described below, shares held by non-affiliates that are not restricted securities or that have been owned for more than one year may be sold under Rule 144 without restriction.
As a result of lock-up agreements described below, and the provisions of Rule 144 under the Securities Act, the restricted securities will be available for sale in the public market as follows:
Date |
Number of Restricted Securities Eligible for Sale |
|
At the date of this prospectus |
no shares | |
180 days after the date of this prospectus |
37,894,752 shares of which 33,862,572 shares are held by our affiliates and subject to volume, manner of sale and other limitations under Rule 144 |
Lock-up Agreements
We, our executive officers and directors and certain of our significant stockholders, who together hold an aggregate of 100% of our common stock, have agreed with the underwriters not to dispose of or hedge any of the shares of our common stock or securities convertible into or exchangeable for shares of our common stock during the period from the date of this prospectus continuing through the date that is 180 days after the date of this prospectus, except with the prior written consent of Credit Suisse Securities (USA) LLC and Jefferies LLC . These agreements are described below under Underwriting.
Rule 144
Non-Affiliates
Under Rule 144, a person may sell shares of our common stock acquired from us immediately upon the completion of this offering without regard to volume limitations or the availability of public information about us, if:
| the person is not our affiliate and has not been our affiliate at any time during the preceding three months; and |
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| the person has beneficially owned the shares to be sold for at least one year, including the holding period of any prior owner other than one of our affiliates. |
In addition, beginning 90 days after the date of this prospectus, Rule 144 will entitle a person who is not our affiliate and has not been our affiliate at any time during the preceding three months to sell any shares that such person has beneficially owned for at least six months, including the holding period of any prior owner other than one of our affiliates. These non-affiliated holders would be able to make these sales without regard to any volume limitations. Sales of shares of our common stock by any such person would be subject to the availability of current public information about us.
Affiliates
Beginning 90 days after the date of this prospectus, and subject to the lock-up agreements described above, our affiliates who have beneficially owned shares of our common stock for at least six months, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:
| 1% of the number of shares of our common stock then outstanding, which will equal 445,614 shares immediately after this offering (or 455,614 shares if the underwriters fully exercise their option to purchase additional shares); and |
| the average weekly trading volume in our common stock on NYSE during the four full calendar weeks preceding the date of filing of a Notice of Proposed Sale of Securities Pursuant to Rule 144 with respect to the sale. |
Sales under Rule 144 by our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.
Rule 701
Any of our employees, officers or directors who acquired shares under a written compensatory plan or contract may be entitled to sell them in reliance on Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell these shares in reliance on Rule 144 without complying with the holding period, public information, volume limitation or notice provisions of Rule 144. All holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling those shares. However, all shares issued under Rule 701 are subject to lock-up agreements and will only become eligible for sale when the 180-day lock-up agreements expire.
Equity Incentive Plans
We intend to file a registration statement on Form S-8 under the Securities Act to register 9,477,480 shares of our common stock reserved for future issuance under our equity incentive plans. We expect to file this registration statement on, or as soon as practicable after, the effective date of this prospectus. The registration statement on Form S-8 will become effective automatically upon filing. However, the shares registered on Form S-8 will not be eligible for resale until expiration of the lock-up agreements and market standoff provisions to which they are subject, and will be subject to vesting provisions and Rule 144 volume limitations applicable to affiliates.
Registration Rights
The Amended and Restated Investor Rights Agreement provides the principal holders, subject to certain conditions, certain registration rights following this offering and the expiration of any related lock-up period. See Certain Relationships and Related-Party TransactionsRelated-Party TransactionsAmended and Restated Investor Rights Agreement.
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MATERIAL TAX CONSEQUENCES TO NON-U.S. HOLDERS
The following is a discussion of material U.S. federal income tax and estate tax consequences to non-U.S. holders relating to the ownership and disposition of our common stock issued pursuant to this offering, but does not purport to be a complete analysis of all the potential tax considerations relating thereto. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, existing final, temporary and proposed Treasury Regulations promulgated thereunder, administrative rulings and judicial decisions, all as in effect on the date hereof. These authorities may be changed, possibly retroactively, so as to result in U.S. federal income or estate tax consequences different from those set forth below. We have not sought any ruling from the Internal Revenue Service, or the IRS, with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with such statements and conclusions.
This summary also does not address the tax considerations arising under the laws of any non-U.S., state or local jurisdiction, or under U.S. federal gift and estate tax laws, except to the limited extent below. In addition, this discussion does not address tax considerations applicable to a non-U.S. holders particular circumstances or to non-U.S. holders that may be subject to special tax rules, including, without limitation:
| banks, insurance companies and other financial institutions; |
| persons subject to the alternative minimum tax; |
| tax-exempt or governmental organizations, agencies or instrumentalities; |
| controlled foreign corporations, passive foreign investment companies and corporations that accumulate earnings to avoid U.S. federal income tax; |
| partnerships or other entities treated as pass-through entities for U.S. federal income tax purposes; |
| brokers, dealers or traders in securities, commodities or currencies; |
| persons that elect to use a mark-to-market method of accounting for their securities holdings; |
| persons that own, or are deemed to own, more than 5% of our common stock, except to the extent specifically set forth below; |
| real estate investment trusts or regulated investment companies; |
| certain former citizens or long-term residents of the United States; |
| persons who hold our common stock as part of a straddle, hedge, conversion, constructive sale or other integrated security transaction; |
| persons who hold or receive our common stock as compensation; and |
| persons who do not hold our common stock as a capital asset (within the meaning of Section 1221 of the Internal Revenue Code). |
If a partnership, or entity treated as a partnership for U.S. federal income tax purposes, holds our common stock, the tax treatment of a partner generally will depend on the status of the partner and upon the activities of the partnership. Accordingly, partnerships that hold our common stock, and partners in such partnerships, should consult their tax advisors.
You are urged to consult your tax advisor with respect to the application of the U.S. federal income tax laws to your particular situation, as well as any tax consequences of the purchase, ownership and disposition of our common stock arising under the U.S. federal estate or gift tax rules or under the laws of any state, local, non-U.S. or other taxing jurisdiction or under any applicable tax treaty.
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Non-U.S. Holder Defined
For purposes of this discussion, a non-U.S. holder is a beneficial owner of shares of our common stock that is not, for U.S. federal income tax purposes:
| an individual citizen or resident of the United States; |
| a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state or political subdivision thereof or the District of Columbia; |
| a partnership; |
| an estate whose income is subject to U.S. federal income tax regardless of its source; or |
| a trust (x) whose administration is subject to the primary supervision of a U.S. court and which has one or more U.S. persons who have the authority to control all substantial decisions of the trust or (y) which has made a valid election to be treated as a U.S. person. |
Distributions
If we make a distribution of cash or other property (other than certain pro rata distributions of our common stock) in respect of our common stock, the distribution will be treated as a dividend to the extent it is paid from our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). If the amount of a distribution exceeds our current and accumulated earnings and profits, such excess first will be treated as a tax-free return of capital to the extent of the non-U.S. holders adjusted tax basis in our common stock, and thereafter will be treated as capital gain. Distributions treated as dividends on our common stock held by a non-U.S. holder generally will be subject to U.S. federal withholding tax at a rate of 30%, or at a lower rate if provided by an applicable income tax treaty and the non-U.S. holder has provided the documentation required to claim benefits under such treaty. Generally, to claim the benefits of an income tax treaty, a non-U.S. holder will be required to provide a properly executed IRS Form W-8BEN or IRS Form W-8BEN-E (or applicable successor form).
If, however, a dividend is effectively connected with the conduct of a trade or business in the United States by the non-U.S. holder (and, if an applicable tax treaty so provides, is attributable to a permanent establishment or fixed base maintained by the non-U.S. holder in the United States), the dividend will not be subject to the 30% U.S. federal withholding tax (provided the non-U.S. holder has provided the appropriate documentation, generally an IRS Form W-8ECI (or applicable successor form), to the withholding agent), but the non-U.S. holder generally will be subject to U.S. federal income tax in respect of the dividend on a net income basis, and at graduated rates, in substantially the same manner as U.S. persons. Dividends received by a non-U.S. holder that is a corporation for U.S. federal income tax purposes and which are effectively connected with the conduct of a U.S. trade or business may also be subject to a branch profits tax at the rate of 30% (or a lower rate if provided by an applicable tax treaty).
A non-U.S. holder that is eligible for a reduced rate of U.S. federal withholding tax under an income tax treaty may obtain a refund or credit of any excess amounts withheld by timely filing an appropriate claim for a refund, together with the required information, with the IRS.
Gain on Disposition of Common Stock
Subject to the discussion below of the Foreign Account Tax Compliance Act, or FATCA, and backup withholding, a non-U.S. holder generally will not be subject to U.S. federal income or withholding tax on any gain realized on the sale or other disposition of our common stock unless:
| such non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of such sale or disposition, and certain other conditions are met; |
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| such gain is effectively connected with the conduct by the non-U.S. holder of a trade or business in the United States (and, if an applicable tax treaty so provides, is attributable to a permanent establishment or a fixed base maintained by the non-U.S. holder in the United States); or |
| our common stock constitutes a U.S. real property interest by reason of our status as a United States real property holding corporation for U.S. federal income tax purposes, or a USRPHC, at any time within the shorter of the five-year period preceding the disposition or the non-U.S. holders holding period for our common stock. |
A non-U.S. holder who is an individual and that is present in the United States for 183 days or more in the taxable year of such sale or disposition, if certain other conditions are met, will be subject to tax at a rate of 30% on the amount by which such non-U.S. holders taxable capital gains allocable to U.S. sources, including gain from the sale or other disposition of our common stock, exceed capital losses allocable to U.S. sources, except as otherwise provided in an applicable income tax treaty.
Gain realized by a non-U.S. holder that is effectively connected with such non-U.S. holders conduct of a trade or business in the United States generally will be subject to U.S. federal income tax on a net income basis, and at graduated rates, in substantially the same manner as a U.S. person (except as provided by an applicable tax treaty). In addition, if such non-U.S. holder is a corporation for U.S. federal income tax purposes, it may also be subject to a branch profits tax at the rate of 30% (or a lower rate if provided by an applicable tax treaty).
Generally, a corporation is a USRPHC if the fair market value of its U.S. real property interests equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business (all as determined for U.S. federal income tax purposes). We do not expect to be treated as a USRPHC as of the date hereof; however, there can be no assurances that we are not now or will not become in the future a USRPHC. If we were a USRPHC during the applicable testing period, as long as our common stock is regularly traded on an established securities market, our common stock will be treated as a U.S. real property interest only for a non-U.S. holder who actually or constructively holds (at any time within the shorter of the five-year period preceding the disposition or the non-U.S. holders holding period) more than 5% of such regularly traded stock. Please note, though, that we can provide no assurance that our common stock will remain regularly traded.
Federal Estate Tax
Our common stock beneficially owned by an individual who is not a citizen or resident of the United States (as defined for U.S. federal estate tax purposes) at the time of death will generally be includable in the decedents gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.
Withholdable Payments to Foreign Financial Entities and Other Foreign Entities
A 30% withholding tax may be imposed on certain payments to certain foreign financial institutions and other foreign entities, including intermediaries, or FATCA withholding. Such payments will include U.S.-source dividends and, after December 31, 2018, the gross proceeds from the sale or other disposition of property that can produce certain U.S.-source interest or dividends. FATCA withholding may be imposed on such payments to a foreign financial institution unless such foreign financial institution enters into (or is deemed to have entered into) an agreement with the IRS to, among other things, undertake to identify accounts held by certain U.S. persons or U.S.-owned foreign entities, annually report certain information about such accounts and withhold 30% of payments to such account holders whose actions prevent the financial institution from complying with these reporting and other requirements. FATCA withholding is imposed on similar types of payments to a non-financial foreign entity unless the entity certifies that it does not have any substantial U.S. owners or furnishes identifying information regarding each substantial U.S. owner. Certain countries have entered into, and other countries are expected to enter into, agreements with the United States to facilitate the type of information reporting required to avoid FATCA withholding. You should consult your own tax advisors regarding the relevant U.S. law and other official guidance on FATCA withholding.
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Backup Withholding and Information Reporting
Generally, we must report annually to the IRS the amount of dividends paid to a non-U.S. holder, the non-U.S. holders name and address and the amount of tax withheld, if any. A similar report is sent to the non-U.S. holder. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in the non-U.S. holders country of residence.
Payments of dividends or of proceeds on the disposition of stock made to a non-U.S. holder may be subject to information reporting and backup withholding unless the non-U.S. holder establishes an exemption, for example by properly certifying the non-U.S. holders status on an IRS Form W-8BEN, W-8BEN-E or another appropriate version of IRS Form W-8. Notwithstanding the foregoing, backup withholding and information reporting may apply if either we or our paying agent has actual knowledge, or reason to know, that the non-U.S. holder is a U.S. person.
Backup withholding is not an additional tax; rather, the U.S. income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that the required information is furnished to the IRS in a timely manner.
The preceding discussion of U.S. federal income and estate tax considerations is for general information only. It is not tax advice. Each prospective investor should consult its own tax advisor regarding the particular U.S. federal, state and local and non-U.S. tax consequences of purchasing, holding and disposing of our common stock, including the consequences of any proposed change in applicable laws.
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Under the terms and subject to the conditions contained in an underwriting agreement dated , 2017, we have agreed to sell to the underwriters named below, for whom Credit Suisse Securities (USA) LLC, Jefferies LLC and Stephens Inc. are acting as representatives, the following respective numbers of shares of common stock:
Underwriter |
Number
of Shares |
|||
Credit Suisse Securities (USA) LLC |
||||
Jefferies LLC |
||||
Stephens Inc. |
||||
William Blair & Company, L.L.C. |
||||
Janney Montgomery Scott LLC |
||||
|
|
|||
Total |
6,666,667 | |||
|
|
The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in the offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated.
We have agreed to indemnify the underwriters and certain of their controlling persons against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make in respect of those liabilities.
We have granted to the underwriters a 30-day option to purchase on a pro rata basis up to 1,000,000 additional shares from us at the initial public offering price less the underwriting discounts and commissions. The option may be exercised by Credit Suisse Securities (USA) LLC and Jefferies LLC only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a selling concession of up to $ per share. After the initial public offering the representatives may change the public offering price and selling concession.
The following table summarizes the compensation and estimated expenses we will pay:
Per Share | Total | |||||||||||||||
Without
Over-allotment |
With
Over-allotment |
Without
Over-allotment |
With
Over-allotment |
|||||||||||||
Underwriting discounts and commissions paid by us |
$ | $ | $ | $ | ||||||||||||
Expenses payable by us |
$ | $ | $ | $ |
We have also agreed to reimburse the underwriters for their FINRA counsel fee in an amount not to exceed $30,000. In accordance with FINRA Rule 5110, this reimbursed fee is deemed underwriting compensation for this offering.
Solebury Capital, or Solebury, has acted as our financial advisor in connection with this offering. Solebury is not acting as an underwriter in connection with this offering, and accordingly, Solebury is neither purchasing shares of common stock nor offering shares of common stock to the public in connection with this offering.
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We have agreed that we will not, subject to certain exceptions, offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of Credit Suisse Securities (USA) LLC and Jefferies LLC for a period of 180 days after the date of this prospectus.
Our officers, directors and stockholders have agreed that, subject to certain exceptions, they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions are to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Credit Suisse Securities (USA) LLC and Jefferies LLC for a period of 180 days after the date of this prospectus.
The underwriters have reserved for sale at the initial public offering price up to 5% of the shares of the common stock in this offering for employees, directors and other persons associated with us who have expressed an interest in purchasing common stock in the offering. If purchased by these persons, these shares will be subject to a 180-day lock-up restriction. The number of shares available for sale to the general public in the offering will be reduced to the extent these persons purchase the reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares.
Our common stock has been authorized for listing on NYSE under the symbol CURO.
In connection with the listing of the common stock on NYSE, the underwriters will undertake to sell in the United States round lots of 100 shares or more to a minimum of 400 U.S. holders.
Prior to this offering, there has been no public market for our common stock. The initial public offering price was determined by negotiations among us and the representatives and will not necessarily reflect the market price of the common stock following this offering. The principal factors that were considered in determining the initial public offering price included:
| the information presented in this prospectus and otherwise available to the underwriters; |
| the history of, and prospects for, the industry in which we will compete; |
| the ability of our management; |
| the prospects for our future earnings; |
| the present state of our development, results of operations and our current financial condition; |
| the general condition of the securities markets at the time of this offering; |
| the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies; and |
| other factors deemed relevant by the underwriters and us. |
We cannot assure you that the initial public offering price will correspond to the price at which the common stock will trade in the public market subsequent to this offering or that an active trading market for the common stock will develop and continue after this offering.
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In connection with the offering the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate-covering transactions, penalty bids and passive market making in accordance with Regulation M under the Exchange Act.
| Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. |
| Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing shares in the open market. |
| Syndicate-covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option, which is a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. |
| Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate-covering transaction to cover syndicate short positions. |
| In passive market making, market makers in the common stock who are underwriters or prospective underwriters may, subject to limitations, make bids for or purchases of our common stock until the time, if any, at which a stabilizing bid is made. |
These stabilizing transactions, syndicate-covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of the common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on NYSE or otherwise and, if commenced, may be discontinued at any time.
A prospectus in electronic format may be made available on the web sites maintained by one or more of the underwriters, or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The representatives may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on the same basis as other allocations.
Conflicts of Interest
The underwriters and their respective affiliates are full-service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which they received or will receive customary fees and expenses. For example, certain of the representatives acted as book-running managers or initial purchasers for CFTC in its offering of 12.00% Senior Secured Notes in February 2017 and in the Additional Notes Offering in November 2017.
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The representatives have informed us that they do not expect sales to accounts over which the underwriters have discretionary authority to exceed 5.0% of the shares of common stock being offered.
In addition, in the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. These investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Selling Restrictions Outside the United States
This prospectus does not constitute an offer to sell to, or a solicitation of an offer to buy from, anyone in any country or jurisdiction (i) in which such an offer or solicitation is not authorized, (ii) in which any person making such offer or solicitation is not qualified to do so or (iii) in which any such offer or solicitation would otherwise be unlawful. No action has been taken that would, or is intended to, permit a public offer of the shares of common stock or possession or distribution of this prospectus or any other offering or publicity material relating to the shares of common stock in any country or jurisdiction (other than the United States) where any such action for that purpose is required. Accordingly, each underwriter has undertaken that it will not, directly or indirectly, offer or sell any shares of common stock or have in its possession, distribute or publish any prospectus, form of application, advertisement or other document or information in any country or jurisdiction except under circumstances that will, to the best of its knowledge and belief, result in compliance with any applicable laws and regulations and all offers and sales of shares of common stock by it will be made on the same terms.
Notice to Canadian Residents
Resale Restrictions
The distribution of shares of common stock in Canada is being made only in the provinces of Ontario, Quebec, Manitoba, Alberta and British Columbia on a private placement basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in each province where trades of shares of common stock are made. Any resale of the shares of common stock in Canada must be made under applicable securities laws which may vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of shares of common stock.
Representations of Canadian Purchasers
By purchasing shares of common stock in Canada and accepting delivery of a purchase confirmation, a purchaser is representing to us and the dealer from whom the purchase confirmation is received that:
| the purchaser is entitled under applicable provincial securities laws to purchase shares of common stock without the benefit of a prospectus qualified under those securities laws as it is an accredited investor as defined under National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), as applicable, |
| the purchaser is a permitted client as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations , |
| where required by law, the purchaser is purchasing as principal and not as agent, and |
| the purchaser has reviewed the text above under Resale Restrictions. |
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Conflicts of Interest
Canadian purchasers are hereby notified that the Underwriters are relying on the exemption set out in section 3A.3 of National Instrument 33-105 Underwriting Conflicts from having to provide certain conflict of interest disclosure in this document.
Statutory Rights of Action
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if an offering memorandum (including any amendment thereto) such as this prospectus contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchasers province or territory. The purchaser of shares of common stock in Canada should refer to any applicable provisions of the securities legislation of the purchasers province or territory for particulars of these rights or consult with a legal advisor.
Enforcement of Legal Rights
All of our directors and executive officers as well as the experts named herein may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon us or those persons. All or a substantial portion of our assets and the assets of those persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against us or those persons in Canada or to enforce a judgment obtained in Canadian courts against us or those persons outside of Canada.
Taxation and Eligibility for Investment
Canadian purchasers of shares of common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in the shares of common stock in their particular circumstances and about the eligibility of the shares of common stock for investment by the purchaser under relevant Canadian legislation.
European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State) an offer to the public of any common stock which are the subject of the offering contemplated herein may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any common stock may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
| to legal entities which are qualified investors as defined under the Prospectus Directive; |
| by the underwriters to fewer than 100, or, if the Relevant Member State has implemented the relevant provisions of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives of the underwriters for any such offer; or |
| in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of common stock shall result in a requirement for us or any underwriter to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive. |
Each person in a Relevant Member State who receives any communication in respect of, or who acquires any common stock under, the offers contemplated here in this prospectus will be deemed to have represented, warranted and agreed to and with each underwriter and us that:
| it is a qualified investor as defined under the Prospectus Directive; and |
178
| in the case of any common stock acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, (i) the common stock acquired by it in the offering have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than qualified investors, as that term is defined in the Prospectus Directive, or in the circumstances in which the prior consent of the representatives of the underwriters has been given to the offer or resale or (ii) where common stock have been acquired by it on behalf of persons in any Relevant Member State other than qualified investors, the offer of such common stock to it is not treated under the Prospectus Directive as having been made to such persons. |
For the purposes of this representation and the provision above, the expression an offer of common stock to the public in relation to any common stock in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any common stock to be offered so as to enable an investor to decide to purchase or subscribe for the common stock, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State, the expression Prospectus Directive means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in each Relevant Member State and the expression 2010 PD Amending Directive means Directive 2010/73/EU.
United Kingdom
This prospectus has only been communicated or caused to have been communicated and will only be communicated or caused to be communicated as an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the Financial Services and Markets Act of 2000 (the FSMA)) as received in connection with the issue or sale of the common stock in circumstances in which Section 21(1) of the FSMA does not apply to us. All applicable provisions of the FSMA will be complied with in respect to anything done in relation to the common stock in, from or otherwise involving the United Kingdom.
Switzerland
The shares of common stock may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (SIX) or on any other stock exchange or regulated trading facility in Switzerland. This prospectus has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this prospectus nor any other offering or marketing material relating to the shares of common stock or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this prospectus nor any other offering or marketing material relating to the offering, the Company or the shares of common stock have been or will be filed with or approved by any Swiss regulatory authority. In particular, this prospectus will not be filed with, and the offer of the shares of common stock will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, and the offer of the shares of common stock has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (CISA). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of the shares of common stock.
179
The validity of the shares of common stock offered hereby will be passed upon for us by Willkie Farr & Gallagher LLP, New York, New York. Certain legal matters in connection with this offering will be passed upon for the underwriters by White & Case LLP, New York, New York.
The audited consolidated financial statements included in this prospectus and elsewhere in the registration statement have been so included in reliance upon the report of Grant Thornton LLP, independent registered public accountants, upon the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1, including exhibits, schedules and amendments filed with the registration statement, under the Securities Act with respect to the shares of common stock being offered. This prospectus, which constitutes a part of the registration statement, does not contain all of the information described in the registration statement and the related exhibits and schedules, portions of which have been omitted as permitted by the rules and regulations of the SEC. For further information with respect to us and the shares of common stock being offered, reference is made to the registration statement and the related exhibits and schedules. With respect to statements contained in this prospectus regarding the contents of any contract or any other document, reference is made to the copy of the contract or other document filed as an exhibit to the registration statement. Statements concerning the contents of any contract or other document filed as an exhibit are qualified by reference to such filed exhibit.
As a result of this offering, we will become subject to the full informational requirements of the Exchange Act. We will fulfill our obligations with respect to such requirements by filing periodic reports, proxy statements and other information with the SEC. A copy of the registration statement and the related exhibits, schedules and amendments, as well as any documents we file with or furnish to the SEC, may be inspected without charge at the public reference facilities maintained by the SEC in Washington D.C. at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Such documents may be obtained from these offices upon the payment of the fees prescribed by the SEC. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the site is http://www.sec.gov. Document requests may be directed to CURO Group Holdings Corp. at 3527 North Ridge Road, Wichita, Kansas 67205. We also maintain a corporate website at www.curo.com. Any information available on, or accessible through, our website is not incorporated by reference in this prospectus.
180
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Consolidated Financial Statements for the three and nine months ended September 30, 2017 and 2016 |
||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
Consolidated Financial Statements for the years ended December 31, 2016 and 2015 |
||||
F-44 | ||||
F-46 | ||||
F-47 | ||||
F-48 | ||||
F-49 | ||||
F-50 | ||||
F-51 |
F-1
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
INTERIM CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
September 30,
2017 |
December 31,
2016 |
|||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Cash |
$ | 95,545 | $ | 193,525 | ||||
Restricted cash (includes restricted cash of consolidated VIEs of $6,258 and $2,770 as of September 30, 2017 and December 31, 2016, respectively) |
11,474 | 7,828 | ||||||
Gross loans receivable (includes loans of consolidated VIEs of $198,210 and $130,199 as of September 30, 2017 and December 31, 2016, respectively) |
393,423 | 286,196 | ||||||
Less: allowance for loan losses (includes allowance for losses of consolidated VIEs of $43,127 and $22,134 as of September 30, 2017 and December 31, 2016, respectively) |
(71,271 | ) | (39,192 | ) | ||||
|
|
|
|
|||||
Loans receivable, net |
322,152 | 247,004 | ||||||
Deferred income taxes |
14,032 | 12,635 | ||||||
Income taxes receivable |
2,233 | 9,378 | ||||||
Prepaid expenses and other |
40,345 | 39,248 | ||||||
Property and equipment, net |
88,820 | 95,896 | ||||||
Goodwill |
145,677 | 141,554 | ||||||
Other intangibles, net of accumulated amortization of $41,257 and $37,670 |
33,021 | 30,901 | ||||||
Other |
8,840 | 2,829 | ||||||
|
|
|
|
|||||
Total Assets |
$ | 762,139 | $ | 780,798 | ||||
|
|
|
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Accounts payable and accrued liabilities |
$ | 55,479 | $ | 42,663 | ||||
Deferred revenue |
12,509 | 12,342 | ||||||
Income taxes payable |
10,008 | 1,372 | ||||||
Current maturities of long-term debt |
| 147,771 | ||||||
Accrued interest (includes accrued interest of consolidated VIEs of $1,113 and $775 as of September 30, 2017 and December 31, 2016, respectively) |
5,500 | 8,183 | ||||||
Credit services organization guarantee liability |
16,890 | 17,052 | ||||||
Deferred rent |
11,757 | 11,868 | ||||||
Long-term debt (includes long-term debt and issuance costs of consolidated VIEs of $116,590 and $4,455 and $68,311 and $5,257 as of September 30, 2017 and December 31, 2016, respectively) |
561,872 | 477,136 | ||||||
Subordinated shareholder debt |
2,401 | 2,227 | ||||||
Other long-term liabilities |
4,628 | 5,016 | ||||||
Deferred tax liabilities |
15,205 | 14,313 | ||||||
|
|
|
|
|||||
Total Liabilities |
696,249 | 739,943 | ||||||
|
|
|
|
|||||
Commitments and contingencies |
||||||||
Stockholders Equity |
||||||||
Common stock$0.001 par value; 72,000,000 shares authorized; issued and outstanding 37,894,752 shares |
1 | 1 | ||||||
Dividends in excess of paid-in capital |
(35,686 | ) | (35,996 | ) | ||||
Retained earnings |
143,079 | 136,835 | ||||||
Accumulated other comprehensive loss |
(41,504 | ) | (59,985 | ) | ||||
|
|
|
|
|||||
Total Stockholders Equity |
65,890 | 40,855 | ||||||
|
|
|
|
|||||
Total Liabilities and Stockholders Equity |
$ | 762,139 | $ | 780,798 | ||||
|
|
|
|
See accompanying Notes to Interim Consolidated Financial Statements.
F-2
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF INCOMEUNAUDITED
(in thousands)
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue |
$ | 255,119 | $ | 212,924 | $ | 696,643 | $ | 609,692 | ||||||||
Provision for losses |
99,341 | 77,024 | 226,523 | 177,756 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net revenue |
155,778 | 135,900 | 470,120 | 431,936 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cost of providing services |
||||||||||||||||
Salaries and benefits |
26,821 | 26,273 | 79,554 | 79,359 | ||||||||||||
Occupancy |
13,815 | 13,345 | 41,421 | 40,368 | ||||||||||||
Office |
5,715 | 4,816 | 15,519 | 14,294 | ||||||||||||
Other costs of providing services |
12,991 | 12,600 | 40,954 | 39,385 | ||||||||||||
Advertising |
16,270 | 11,831 | 35,599 | 28,925 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total cost of providing services |
75,612 | 68,865 | 213,047 | 202,331 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross margin |
80,166 | 67,035 | 257,073 | 229,605 | ||||||||||||
Operating (income) expense |
||||||||||||||||
Corporate and district |
34,254 | 30,807 | 103,605 | 95,109 | ||||||||||||
Interest expense |
18,844 | 15,987 | 60,694 | 48,179 | ||||||||||||
(Gain) loss on extinguishment of debt |
| (6,991 | ) | 12,458 | (6,991 | ) | ||||||||||
Restructuring costs |
7,393 | 1,486 | 7,393 | 2,967 | ||||||||||||
Other (income)/expense |
(7 | ) | (114 | ) | 192 | (559 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Total operating expense |
60,484 | 41,175 | 184,342 | 138,705 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income before income taxes |
19,682 | 25,860 | 72,731 | 90,900 | ||||||||||||
Provision for income taxes |
9,920 | 10,083 | 29,988 | 35,041 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net income |
$ | 9,762 | $ | 15,777 | $ | 42,743 | $ | 55,859 | ||||||||
|
|
|
|
|
|
|
|
See accompanying Notes to Interim Consolidated Financial Statements.
F-3
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEUNAUDITED
(in thousands)
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income |
$ | 9,762 | $ | 15,777 | $ | 42,743 | $ | 55,859 | ||||||||
Other comprehensive income (loss): |
||||||||||||||||
Cash flow hedges |
| (92 | ) | 333 | (92 | ) | ||||||||||
Foreign currency translation adjustment |
8,397 | (2,628 | ) | 18,148 | 1,181 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Other comprehensive income (loss) |
8,397 | (2,720 | ) | 18,481 | 1,089 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Comprehensive income |
$ | 18,159 | $ | 13,057 | $ | 61,224 | $ | 56,948 | ||||||||
|
|
|
|
|
|
|
|
See accompanying Notes to Interim Consolidated Financial Statements.
F-4
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWSUNAUDITED
(in thousands)
Nine Months Ended
September 30, |
||||||||
2017 | 2016 | |||||||
Cash flows from operating activities |
||||||||
Net income |
$ | 42,743 | $ | 55,859 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
14,120 | 14,244 | ||||||
Provision for loan losses |
226,523 | 177,756 | ||||||
Restructuring costs |
1,495 | 523 | ||||||
Amortization of debt issuance costs |
2,637 | 2,405 | ||||||
Amortization of bond discount/(premium) |
809 | (1,143 | ) | |||||
Deferred income tax benefit |
(811 | ) | (448 | ) | ||||
Loss on disposal of property and equipment |
403 | 39 | ||||||
Loss (gain) on extinguishment of debt |
12,458 | (6,991 | ) | |||||
Increase in cash surrender value of life insurance |
(1,045 | ) | (608 | ) | ||||
Share-based compensation expense |
311 | 837 | ||||||
Changes in operating assets and liabilities: |
||||||||
Loans receivable |
(295,127 | ) | (170,479 | ) | ||||
Prepaid expenses and other assets |
1,466 | (111 | ) | |||||
Accounts payable and accrued liabilities |
11,055 | (2,773 | ) | |||||
Deferred revenue |
(870 | ) | (1,517 | ) | ||||
Income taxes payable |
11,387 | 1,562 | ||||||
Income taxes receivable |
4,590 | 131 | ||||||
Deferred rent |
(250 | ) | 323 | |||||
Other liabilities |
(2,482 | ) | 16,220 | |||||
|
|
|
|
|||||
Net cash provided by operating activities |
29,412 | 85,829 | ||||||
|
|
|
|
|||||
Cash flows from investing activities |
||||||||
Purchase of property, equipment and software |
(7,917 | ) | (9,739 | ) | ||||
Cash paid for Cognical Holdings, Inc. preferred shares |
(4,975 | ) | | |||||
Changes in restricted cash |
(3,360 | ) | 5,928 | |||||
|
|
|
|
|||||
Net cash (used in) investing activities |
(16,252 | ) | (3,811 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities |
||||||||
Proceeds from Non-Recourse U.S. SPV Facility and ABL Facility |
52,130 | | ||||||
Payments on Non-Recourse U.S. SPV Facility and ABL Facility |
(27,258 | ) | | |||||
Proceeds from issuance of 12.00% Senior Secured Notes |
461,329 | | ||||||
Payments on 10.75% Senior Secured Notes |
(426,034 | ) | | |||||
Payments on 12.00% Senior Cash Pay Notes |
(125,000 | ) | | |||||
Debt issuance costs paid |
(14,222 | ) | | |||||
Dividends paid to CURO Group Holdings Corp. |
(166,583 | ) | | |||||
Dividends received from CURO Group Holdings Corp. |
166,583 | | ||||||
Proceeds from credit facilities |
33,028 | 30,000 | ||||||
Payments on credit facilities |
(33,028 | ) | (38,050 | ) | ||||
Dividends paid to stockholders |
(36,500 | ) | | |||||
|
|
|
|
|||||
Net cash (used in) financing activities |
(115,555 | ) | (8,050 | ) | ||||
|
|
|
|
|||||
Effect of exchange rate changes on cash |
4,415 | 889 | ||||||
|
|
|
|
|||||
Net (decrease) increase in cash |
(97,980 | ) | 74,857 | |||||
Cash at beginning of period |
193,525 | 100,561 | ||||||
|
|
|
|
|||||
Cash at end of period |
$ | 95,545 | $ | 175,418 | ||||
|
|
|
|
See accompanying Notes to Interim Consolidated Financial Statements.
F-5
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED
NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
Basis of Presentation
The terms CURO, we, our, us, and the Company, refer to CURO Group Holdings Corp. and its directly and indirectly owned subsidiaries as a combined entity, except where otherwise stated.
We have prepared the accompanying unaudited Interim Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (US GAAP), and with the accounting policies described in our 2016 consolidated financial statements. Certain information and note disclosures normally included in our annual financial statements prepared in accordance with US GAAP have been condensed or omitted, although we believe that the disclosures are adequate to enable a reasonable understanding of the information presented.
The unaudited Interim Consolidated Financial Statements and the accompanying notes (the Interim Statements) reflect all adjustments, which are, in the opinion of management, necessary to present fairly our results of operations, financial position and cash flows for the periods presented. The adjustments consist solely of normal recurring adjustments. The Interim Statements should be read in conjunction with the Consolidated Financial Statements and related Notes included in our 2016 consolidated financial statements. Interim results of operations are not necessarily indicative of results that may be expected for future interim periods or for the entire year ending December 31, 2017.
Principles of Consolidation
The Interim Consolidated Financial Statements include the accounts of CURO and its wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of interim consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the periods reported. Some of the significant estimates that we have made in the accompanying Interim Consolidated Financial Statements include allowances for loan losses, certain assumptions related to goodwill and intangibles, accruals related to self-insurance, Credit Services Organization (CSO) guarantee liability and estimated tax liabilities. Actual results may differ from those estimates.
Nature of Operations
We are a growth-oriented, technology-enabled, highly-diversified consumer finance company serving a wide range of underbanked consumers in the United States, the United Kingdom and Canada.
Revenue Recognition
We offer a broad range of consumer finance products including Unsecured Installment Loans, Secured Installment Loans, Open-End Loans and Single-Pay Loans. Revenue in the consolidated statements of income includes: interest income, finance charges, CSO fees, late fees and non-sufficient funds fees as permitted by
F-6
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
applicable laws and pursuant to the agreement with the customer. Product offerings differ by jurisdiction and are governed by the laws in each separate jurisdiction. Installment Loans include Secured Installment Loans and Unsecured Installment Loans. These loans are fully amortizing, with a fixed payment amount, which includes principal and accrued interest, due each period during the term of the loan. The loan terms for Installment Loans can range up to 48 months depending on state or provincial regulations. We record revenue from Installment Loans on a simple-interest basis. Accrued interest and fees are included in gross loans receivable in the Interim Consolidated Balance Sheets. CSO fees are recognized ratably over the term of the loan.
Open-End Loans function much like a revolving line-of-credit, whereby the periodic payment is a set percentage of the customers outstanding loan balance, and there is no defined loan term. We record revenue from Open-End Loans on a simple interest basis. Accrued interest and fees are included in gross loans receivable in the Interim Consolidated Balance Sheets.
Single-Pay Loans are primarily unsecured, short-term, small denomination loans, with a very small portion being auto title loans, which allow a customer to obtain a loan using their car as collateral. Revenues from Single-Pay Loan products are recognized each period on a constant-yield basis ratably over the term of each loan. We defer recognition of the unearned fees we expect to collect based on the remaining term of the loan at the end of each reporting period.
Check cashing fees, money order fees and other fees from ancillary products and services are generally recognized at the point-of-sale when the transaction is completed. We also earn revenue from the sale of credit protection insurance in the Canadian market. Insurance revenues are recognized ratably over the term of the loan.
Current and Past-Due Loans Receivable
We classify our loans receivable as either current or past-due. Single-Pay and Open-End Loans are considered past-due when a customer misses a scheduled payment and charged-off to the allowance for loan losses. The charge-off of Unsecured Installment and Secured Installment Loans was impacted by a change in accounting estimate in the first quarter of 2017.
Effective January 1, 2017, we modified the timeframe in which Installment Loans are charged-off and made related refinements to our loss provisioning methodology. Prior to January 1, 2017, we deemed all loans uncollectible and charged-off when a customer missed a scheduled payment and the loan was considered past-due. Because of the Companys continuing shift from Single-Pay to Installment Loan products and our analysis of payment patterns on early-stage versus late-stage delinquencies, we have revised our estimates and now consider Installment Loans uncollectible when the loan has been past-due for 90 consecutive days. Consequently, past-due Installment Loans remain in loans receivable, with disclosure of past-due balances, for 90 days before being charged-off against the allowance for loan losses. We evaluate the adequacy of the allowance for loan losses compared to the related gross receivables balances that include accrued interest.
In the income statement, the provision for losses for Installment Loans is based on an assessment of the cumulative net losses inherent in the underlying loan portfolios, by vintage, and several other quantitative and qualitative factors. The resulting loss provision rate is applied to loan originations to determine the provision for losses. In addition to improving estimated collectability and loss recognition for Installment Loans, we also believe these refinements are better aligned with industry comparisons and practices.
The aforementioned change is treated as a change in accounting estimate. In accordance with Accounting Standards Codification 250 which addresses a change in accounting estimate, the change is being applied
F-7
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
prospectively and is effective January 1, 2017. As a result, some credit quality metrics in 2017 may not be comparable to historical periods. Throughout the remainder of this report, the change in estimate is referred to as Q1 Loss Recognition Change.
Installment Loans generally are considered past-due when a customer misses a scheduled payment. Loans zero to 90 days past-due are disclosed and included in gross loans receivable. The Company accrues interest on past-due loans until charged off. The amount of the resulting charge-off includes unpaid principal, accrued interest and any uncollected fees, if applicable. Consequently, net loss rates that include accrued interest will be higher than under the methodology applied prior to January 1, 2017.
The result of this change in estimate resulted in an approximately $56.0 million of Installment Loans at September 30, 2017 that remained on our balance sheet that were between 1 and 90 days delinquent, as compared to none in the prior year period. Additionally, the installment allowance for loan losses as of September 30, 2017 of $71.3 million includes an estimated allowance of $36.4 million for the Installment Loans between 1 and 90 days delinquent, as compared to none in the prior year period.
For Single-Pay and Open-End Loans, past-due loans are charged-off upon payment default and do not return to current for any subsequent payment activity. For Installment Loans, customers with payment delinquency of 90 consecutive days are charged off. Charged-off loans are never returned to current or performing and all subsequent activity is accounted for within recoveries in the Allowance for loan losses. If a past-due Installment Loan customer makes payments sufficient to bring the account current for principal plus all accrued interest or fees pursuant to the original terms of the loan contract before becoming 90 consecutive days past due, the underlying loan balance returns to classification as current. Modifications to the original term of the loan agreement would not result in a loan returning to current classification and only loan customers that are current are eligible for refinancing.
Depending upon underlying state or provincial regulations, a borrower may be eligible for more than one outstanding loan.
Allowance for Loan Losses
The allowance for loan losses is primarily based on back-testing of subsequent collections history by product and cumulative aggregate net losses by product and by vintage. We do not specifically reserve for any individual loan but rather segregate loans into separate pools based upon loan portfolios containing similar risk characteristics. Additional quantitative factors, such as current default trends, past-due account roll rates and changes to underwriting and portfolio mix are also considered in evaluating the adequacy of the allowance and current provision rates. Qualitative factors such as the impact of new loan products, changes to underwriting criteria or lending policies, new store development or entrance into new markets, changes in jurisdictional regulations or laws, recent credit trends and general economic conditions impact managements judgment on the overall adequacy of the allowance for loan losses.
In addition to the effect on Unsecured and Secured Installment provision rates and loan balances, the Q1 Loss Recognition Change affected comparability of activity in the related allowance for loan losses. Specifically, no Unsecured or Secured Installment Loans were charged-off to the allowance for loan losses in the first quarter of 2017 because charge-off effectively occurs on day 91 under the revised methodology and no affected loans originated during the first quarter reached day 91 until April 2017. Actual charge-offs and recoveries on defaulted/charged-off loans from the first quarter of 2017 affected the allowance for loan losses in prospective periods. But, as discussed previously, the related net losses were recognized in the Interim Consolidated Statement of Income during the three and nine months ended September 30, 2017 by applying expected net loss provision rates to the related loan originations.
F-8
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
Credit Services Organization
Through our CSO programs, we act as a credit services organization/credit access business on behalf of customers in accordance with applicable state laws. We currently offer loans through CSO programs in stores and online in the state of Texas and online in the state of Ohio. In Texas we offer Unsecured Installment Loans and Secured Installment Loans with a maximum term of 180 days. In Ohio we offer an Unsecured Installment Loan product with a maximum term of 18 months. As a CSO we earn revenue by charging the customer a fee (the CSO fee) for arranging an unrelated third-party to make a loan to that customer. When a customer executes an agreement with us under our CSO programs, we agree, for a CSO 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 the customer receives from the third-party lender. CSO fees are calculated based on the amount of the customers outstanding loan. For CSO loans, each lender is responsible for providing the criteria by which the customers application is underwritten and, if approved, determining the amount of the customer loan. We in turn are responsible for assessing whether or not we will guarantee the loan. This guarantee represents an obligation to purchase specific loans if they go into default.
As of September 30, 2017, the maximum amount payable under all such guarantees was $59.1 million, compared to $59.6 million at December 31, 2016. Should we be required to pay any portion of the total amount of the loans we have guaranteed, we will attempt to recover the amount we pay from the customers. We hold no collateral in respect of the guarantees.
These guarantees are performance guarantees as defined in ASC Topic 460. Performance guarantees are initially accounted for pursuant to ASC Topic 460 and recognized at fair value, and subsequently pursuant to ASC Topic 450 as contingent liabilities when we incur losses as the guarantor. The initial measurement of the guarantee liability is recorded at fair value and reported in the Credit services organization guarantee liability line in our Consolidated Balance Sheets. The initial fair value of the guarantee is the price we would pay to a third party market participant to assume the guarantee liability. There is no active market for transferring the guarantee liability. Accordingly, we determine the initial fair value of the guarantee by estimating the expected losses on the guaranteed loans. The expected losses on the guaranteed loans are estimated by assessing the nature of the loan products, the credit worthiness of the borrowers in the customer base, our historical loan default history for similar loans, industry loan default history, and historical collection rates on similar products, current default trends, past-due account roll rates, changes to underwriting criteria or lending policies, new store development or entrance into new markets, changes in jurisdictional regulations or laws, recent credit trends and general economic conditions. We review the factors that support estimates of expected losses and the guarantee liability monthly. In addition, because the majority of the underlying loan customers make bi-weekly payments, loan-pool payment performance is evaluated more frequently than monthly.
Our guarantee liability was $16.9 million and $17.1 million at September 30, 2017 and December 31, 2016, respectively. This liability represents the unamortized portion of the guarantee obligation required to be recognized at inception of the performance guarantee in accordance with ASC Topic 460 and a contingent liability for those performance guarantees where it is probable that we will be required to purchase the guaranteed loan from the lender in accordance with ASC Topic 450.
CSO fees are calculated based on the amount of the customers outstanding loan. We comply with the applicable 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. For services we provide under our CSO programs, we receive payments from customers on their scheduled loan repayment due dates. The CSO fee is earned ratably over the term of the loan as the customers make payments. If a loan is paid off early, no additional CSO fees are
F-9
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
due or collected. The maximum CSO loan term is 180 days and 18 months in Texas and Ohio, respectively. During the year ended December 31, 2016 and the nine months ended September 30, 2017, approximately 53.2% and 52.9%, respectively, of Unsecured Installment Loans, and 62.5% and 52.7%, respectively, of Secured Installment Loans originated under CSO programs were paid off prior to the original maturity date.
Since CSO loans are made by a third party lender, we do not include them in our Consolidated Balance Sheets as loans receivable. CSO fees receivable are included in Prepaid expense and other in our Consolidated Balance Sheets. We receive payments from customers for these fees on their scheduled loan repayment due dates.
The impact of the Q1 Loss Recognition Change to the third-party loans we guarantee and the related CSO guarantee liability was approximately $11.1 million of Installment Loans guaranteed by the company at September 30, 2017 between 1 and 90 days delinquent, as compared to none in the prior year period. Additionally, the installment CSO guarantee liability as of September 30, 2017 of $16.9 million includes an estimated liability of $7.8 million for the Installment Loans guaranteed by the company between 1 and 90 days delinquent, as compared to none in the prior year period.
Recently Adopted Accounting Pronouncements
In September 2017, the FASB issued ASU 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments (ASU 2017-13. This ASU amends the early adoption date option for public business entities related to the adoption of ASU No. 2014-09 and ASU No. 2016-02. ASU 2017-13 will be effective for us beginning January 1, 2019. We are currently evaluating the impact this ASU will have on our Consolidated Financial Statements.
In October 2016, the FASB issued Accounting Standards Update ( ASU) 2016-17, Consolidation (Topic 810): Interests Held Through Related Parties that are Under Common Control (ASU 2016-17). The amendments affect the evaluation of whether to consolidate a Variable Interest Entity (VIE) in certain situations involving entities under common control. Specifically, the amendments change the evaluation of whether an entity is the primary beneficiary of a VIE for an entity that is a single decision maker of a variable interest by changing how an entity treats indirect interests in the VIE held through related parties that are under common control with the reporting entity. The guidance in ASU 2016-17 must be applied retrospectively to all relevant periods. ASU 2016-17 was effective for us beginning January 1, 2017. The adoption of this ASU did not have a material effect on our Consolidated Financial Statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). The amendments in ASU 2016-09 simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 was effective for us beginning January 1, 2017. The adoption of this ASU did not have a material effect on our Consolidated Financial Statements.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (ASU 2015-16), which requires an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined and eliminates the requirement to retrospectively account for those adjustments. The new standard became effective for us on January 1, 2017. The adoption of this ASU did not have a material effect on our Consolidated Financial Statements.
F-10
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial StatementsGoing Concern (Subtopic 205-40) (ASU 2014-15), which provides new guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements and is intended to enhance the timeliness, clarity and consistency of disclosure concerning such uncertainties. The new guidance requires management to perform assessments, on an interim and annual basis, of an entitys ability to continue as a going concern within one year of the date of issuance of the entitys interim or annual financial statements, as applicable. In addition, entities must provide certain disclosures if there is substantial doubt about the entitys ability to continue as a going concern. The guidance is effective for periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. The adoption of ASU 2014-15 did not have a material effect on our consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In May 2017, the FASB issued ASU 2017-09, CompensationStock Compensation (Topic 718): Scope of Modification Accounting (ASU 2017-09). Under modification accounting, all entities are required to re-value its equity awards each time there is a modification to the terms of the awards. The provisions in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to account for the effects of a modification unless certain conditions are met. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. We are currently assessing the impact the adoption of ASU 2017-09 will have on our consolidated financial statements and footnote disclosures.
In January 2017, the FASB issued ASU 2017-04, IntangiblesGoodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). The amendments in ASU 2017-04 simplified the goodwill impairment test by eliminating Step 2 of the test which requires an entity to compute the implied fair value of goodwill. Instead, an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value, and is limited to the amount of total goodwill allocated to that reporting unit. Under this ASU, an entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The provisions of ASU 2017-04 are effective for an entitys annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2020. We are currently assessing the impact the adoption of ASU 2017-04 will have on our consolidated financial statements and footnote disclosures.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the definition of a Business (ASU 2017-01). The amendments in ASU 2017-01 narrow the definition of a business and provide a framework that gives an entity a basis for making reasonable judgments about whether a transaction involves an asset or a business and provide a screen to determine when a set (an integrated set of assets and activities) is not a business. The screen requires a determination that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, the amendments in this Update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments provide a framework to assist entities in evaluating whether both an input and a substantive process are present. ASU 2017-01 will be effective for us beginning January 1, 2019, and interim periods within annual periods beginning after January 1, 2020. Early adoption is permitted. We are currently assessing the impact the adoption of ASU 2017-01 will have on our consolidated financial statements and footnote disclosures.
F-11
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) (ASU 2016-15). The amendments in ASU 2016-15 provide guidance on eight specific cash flow issues, including debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, distributions received from equity method investees and beneficial interests in securitization transactions. ASU 2016-15 will be effective for us beginning January 1, 2019. Early adoption is permitted, including adoption in an interim period. We are assessing the potential impact this ASU will have on our statement of cash flows.
In June 2016, the FASB issued ASU 2016-13, Financial InstrumentsCredit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). This ASU modifies the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. ASU 2016-13 will be effective for us beginning January 1, 2021. We are currently evaluating the impact this ASU will have on our Consolidated Financial Statements.
In February 2016, the FASB issued its new lease accounting guidance in ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessees obligation to make lease payment arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessees right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged and lessees will no longer be provided with a source of off-balance sheet financing. This ASU is effective for us beginning on January 1, 2020. Early adoption is permitted. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. We are currently evaluating the impact this ASU will have on our Consolidated Financial Statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial InstrumentsOverall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01) which requires (i) equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, (ii) public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes and (iii) separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables). This amendment eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. This amendment is effective for us beginning on January 1, 2019. We are currently evaluating the impact this ASU will have on our Consolidated Financial Statements.
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU 2015-17). This amendment eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent. The new standard became effective for us on January 1, 2018. We do not expect that the adoption of this amendment will have a material impact on our Consolidated Financial Statements.
In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) (ASU 2015-14), which deferred the effect date of ASU 2014-09, Revenue from Contracts with Customers
F-12
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
(Topic 606) (ASU 2014-09), to annual reporting periods beginning after December 15, 2018 for entities other than public business entities, certain not-for-profit entities, and certain employee benefit plans. In May 2014, the FASB issued ASU 2014-09 which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The guidance is effective for us beginning January 1, 2019. We have not yet determined the potential effects on the Consolidated Financial Statements, if any.
NOTE 2PREPAID EXPENSES AND OTHER
Prepaid expenses and other assets were are follows:
(in thousands) |
September 30,
2017 |
December 31,
2016 |
||||||
Settlements and collateral due from third-party lenders |
$ | 16,097 | $ | 18,576 | ||||
Fees receivable for third-party loans |
12,786 | 9,181 | ||||||
Prepaid expenses |
5,630 | 5,892 | ||||||
Other assets |
5,832 | 5,599 | ||||||
|
|
|
|
|||||
Total |
$ | 40,345 | $ | 39,248 | ||||
|
|
|
|
NOTE 3PROPERTY AND EQUIPMENT
The classification of property and equipment is as follows:
(in thousands) |
September 30,
2017 |
December 31,
2016 |
||||||
Leasehold improvements |
$ | 122,447 | $ | 122,419 | ||||
Furniture, fixtures and equipment |
38,802 | 35,060 | ||||||
|
|
|
|
|||||
Property and equipment, gross |
161,249 | 157,479 | ||||||
Accumulated depreciation |
(72,429 | ) | (61,583 | ) | ||||
|
|
|
|
|||||
Property and equipment, net |
$ | 88,820 | $ | 95,896 | ||||
|
|
|
|
Depreciation expense was $4.2 million and $3.4 million for the three months ended September 30, 2017 and September 30, 2016, respectively. Depreciation expense was $12.3 million and $11.5 million for the nine months ended September 30, 2017 and September 30, 2016, respectively.
NOTE 4GOODWILL AND INTANGIBLES
The change in the carrying amount of goodwill, by operating segment for the first nine months of 2017 was as follows:
(in thousands) |
U.S. | U.K. | Canada | Total | ||||||||||||
Balance as of December 31, 2016 |
$ | 91,131 | $ | 21,882 | $ | 28,541 | $ | 141,554 | ||||||||
Foreign currency translation |
| 1,890 | 2,233 | 4,123 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of September 30, 2017 |
$ | 91,131 | $ | 23,772 | $ | 30,774 | $ | 145,677 | ||||||||
|
|
|
|
|
|
|
|
F-13
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
Identifiable intangible assets consisted of the following:
September 30, 2017 | December 31, 2016 | |||||||||||||||
(in thousands) |
Gross
Carrying Amount |
Accumulated
Amortization |
Gross
Carrying Amount |
Accumulated
Amortization |
||||||||||||
Trade name |
$ | 27,035 | $ | (18 | ) | $ | 25,046 | $ | (12 | ) | ||||||
Customer relationships |
27,840 | (25,875 | ) | 26,411 | (23,603 | ) | ||||||||||
Computer software |
18,663 | (14,622 | ) | 16,429 | (13,370 | ) | ||||||||||
Provincial licenses |
401 | (401 | ) | 372 | (372 | ) | ||||||||||
Franchise agreements |
321 | (321 | ) | 298 | (298 | ) | ||||||||||
Positive leasehold interest |
16 | (17 | ) | 15 | (15 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of year |
$ | 74,276 | $ | (41,254 | ) | $ | 68,571 | $ | (37,670 | ) | ||||||
|
|
|
|
|
|
|
|
Our identifiable intangible assets are amortized using the straight-line method over the estimated remaining useful lives, except for the Wage Day and Cash Money trade name intangible assets, which were determined to have indefinite lives and are not amortized. The estimated useful lives for our other intangible assets range from 1 to 8 years. Aggregate amortization expense related to identifiable intangible assets was $0.6 million and $0.5 million for the three months ended September 30, 2017 and 2016, respectively. Aggregate amortization expense related to identifiable intangible assets was $1.8 million and $2.7 million for the nine months ended September 30, 2017 and 2016, respectively.
The following table outlines the estimated future amortization expense related to intangible assets held at September 30, 2017:
(in thousands) |
Year Ending
December 31, |
|||
2017 (excluding 1st nine months of 2017) |
$ | 620 | ||
2018 |
2,517 | |||
2019 |
1,771 | |||
2020 |
434 | |||
2021 |
109 |
NOTE 5VARIABLE INTEREST ENTITIES
In 2016, we closed a facility whereby certain loan receivables were sold to wholly owned, bankruptcy-remote special purpose subsidiaries (VIEs) and additional debt was incurred through the ABL Facility and the Non-Recourse U.S. SPV Facility (See Note 11 Long-Term Debt for further discussion) that was collaterized by these underlying loan receivables.
We have evaluated the VIEs for consolidation and we determined that we are the primary beneficiary of the VIEs and are required to consolidate them. The assets and liabilities related to the VIEs are included in our consolidated financial statements and are accounted for as secured borrowings. We parenthetically disclose on our consolidated balance sheets the VIEs assets that can only be used to settle the VIEs obligations and the VIEs liabilities if the VIEs creditors have no recourse against our general credit.
F-14
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
The carrying amounts of consolidated VIEs assets and liabilities associated with our special purpose subsidiaries were as follows:
(in thousands) |
September 30,
2017 |
December 31,
2016 |
||||||
Assets |
||||||||
Restricted Cash |
$ | 6,258 | $ | 2,770 | ||||
Loans receivable less allowance for loan losses |
155,083 | 108,065 | ||||||
|
|
|
|
|||||
Total Assets |
$ | 161,341 | $ | 110,835 | ||||
|
|
|
|
|||||
Liabilities |
||||||||
Accounts payable and accrued liabilities |
$ | 16 | $ | | ||||
Accrued interest |
1,113 | 775 | ||||||
Long-term debt |
112,135 | 63,054 | ||||||
|
|
|
|
|||||
Total Liabilities |
$ | 113,264 | $ | 63,829 | ||||
|
|
|
|
NOTE 6RESTRICTED CASH
At September 30, 2017 and December 31, 2016 we had $21.8 million and $23.8 million, respectively, on deposit in collateral accounts with financial institutions and third-party lenders. At September 30, 2017, approximately $5.2 million and $16.6 million were included as a component of Restricted cash and Prepaid expenses and other, respectively, in our Interim Consolidated Balance Sheets. At December 31, 2016, approximately $5.1 million and $18.7 million were included as a component of Restricted cash and Prepaid expenses and other, respectively, in our Consolidated Balance Sheets.
As a result of the loan facilities that commenced in December 2016 and disclosed in Note 5Variable Interest Entities, $6.3 million and $2.8 million were included as Restricted cash of consolidated VIE in our Consolidated Balance Sheets at September 30, 2017 and December 31, 2016, respectively.
NOTE 7LOANS RECEIVABLE AND REVENUE
Unsecured and Secured Installment revenue includes interest income and non-sufficient-funds or returned-items fees on late or defaulted payments on past-due loans (to which we refer collectively in this report as late fees). Late fees comprise less than one-half of one percent of Installment revenues.
Open-End revenues include interest income on outstanding revolving balances and other usage or maintenance fees as permitted by underlying statutes.
Single-Pay revenues represent deferred presentment or other fees as defined by the underlying state, provincial or national regulations.
F-15
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
The following table summarizes revenue by product for the periods indicated:
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
(in thousands) |
2017 | 2016 | 2017 | 2016 | ||||||||||||
Unsecured Installment |
$ | 128,785 | $ | 85,377 | $ | 343,365 | $ | 236,399 | ||||||||
Secured Installment |
26,407 | 19,920 | 73,249 | 60,346 | ||||||||||||
Open-End |
18,630 | 16,652 | 52,342 | 49,865 | ||||||||||||
Single-Pay |
70,895 | 82,020 | 197,926 | 235,643 | ||||||||||||
Ancillary |
10,402 | 8,955 | 29,761 | 27,439 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total revenue |
$ | 255,119 | $ | 212,924 | $ | 696,643 | $ | 609,692 | ||||||||
|
|
|
|
|
|
|
|
Loans receivable consisted of the following:
September 30, 2017 | ||||||||||||||||||||
(in thousands) |
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Open-End | Total | |||||||||||||||
Current loans receivable |
$ | 94,476 | $ | 140,478 | $ | 70,323 | $ | 32,133 | $ | 337,410 | ||||||||||
Delinquent loans receivable |
| 41,353 | 14,660 | | 56,013 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total loans receivable |
94,476 | 181,831 | 84,983 | 32,133 | 393,423 | |||||||||||||||
Less: allowance for losses |
(5,342 | ) | (46,938 | ) | (14,111 | ) | (4,880 | ) | (71,271 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loans receivable, net |
$ | 89,134 | $ | 134,893 | $ | 70,872 | $ | 27,253 | $ | 322,152 | ||||||||||
|
|
|
|
|
|
|
|
|
|
The following table summarizes delinquent loans receivable by product for the periods indicated.
September 30, 2017 | ||||||||||||
(in thousands) |
Installment
Unsecured |
Installment
Secured |
Total | |||||||||
Delinquent loans receivable |
||||||||||||
0-30 days past due |
16,813 | 7,010 | 23,823 | |||||||||
31-60 days past due |
12,804 | 4,029 | 16,833 | |||||||||
61-90 days past due |
11,736 | 3,621 | 15,357 | |||||||||
|
|
|
|
|
|
|||||||
Total delinquent loans receivable |
$ | 41,353 | $ | 14,660 | $ | 56,013 | ||||||
|
|
|
|
|
|
December 31, 2016 | ||||||||||||||||||||
(in thousands) |
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Open-End | Total | |||||||||||||||
Current loans receivable |
$ | 90,487 | $ | 102,090 | $ | 63,157 | $ | 30,462 | $ | 286,196 | ||||||||||
Delinquent loans receivable |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total consumer loans receivable |
90,487 | 102,090 | 63,157 | 30,462 | 286,196 | |||||||||||||||
Less: allowance for losses |
(5,501 | ) | (17,775 | ) | (10,737 | ) | (5,179 | ) | (39,192 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Consumer loans receivable, net |
$ | 84,986 | $ | 84,315 | $ | 52,420 | $ | 25,283 | $ | 247,004 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Prior to January 1, 2017, we deemed all loans uncollectible and charged-off when a customer missed a scheduled payment and the loan was considered past-due. See Note 1 for a discussion of the Q1 Loss Recognition Change. This change in estimate resulted in approximately $56.0 million of Installment Loans at September 30, 2017 that remained on our balance sheet that were between 1 and 90 days delinquent, as compared
F-16
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
to none in the prior year period. Additionally, the installment allowance for loan losses as of September 30, 2017 of $71.3 million includes an estimated allowance of $36.4 million for the Installment Loans between 1 and 90 days delinquent, as compared to none in the prior year period. Using current Unsecured and Secured loss provision rates as a percentage of gross combined loans receivable, this change added approximately $4.8 million to the provision for losses.
Loans guaranteed by us under our CSO programs:
September 30, 2017 | ||||||||||||
(in thousands) |
Installment
Unsecured |
Installment
Secured |
Total | |||||||||
Current loans receivable guaranteed by the Company |
$ | 56,976 | $ | 3,142 | $ | 60,118 | ||||||
Delinquent loans receivable guaranteed by the Company |
10,462 | 605 | 11,067 | |||||||||
|
|
|
|
|
|
|||||||
Total loans receivable guaranteed by the Company |
67,438 | 3,747 | 71,185 | |||||||||
Less: CSO guarantee liability |
(16,056 | ) | (834 | ) | (16,890 | ) | ||||||
|
|
|
|
|
|
|||||||
Loans receivable guaranteed by the Company, net |
$ | 51,382 | $ | 2,913 | $ | 54,295 | ||||||
|
|
|
|
|
|
The following table summarizes delinquent loans receivable by product that are guaranteed by us under our CSO programs for the periods indicated.
September 30, 2017 | ||||||||||||
(in thousands) |
Installment
Unsecured |
Installment
Secured |
Total | |||||||||
Delinquent loans receivable |
||||||||||||
0-30 days past due |
8,921 | 525 | 9,446 | |||||||||
31-60 days past due |
1,157 | 59 | 1,216 | |||||||||
61-90 days past due |
384 | 21 | 405 | |||||||||
|
|
|
|
|
|
|||||||
Total delinquent loans receivable |
$ | 10,462 | $ | 605 | $ | 11,067 | ||||||
|
|
|
|
|
|
December 31, 2016 | ||||||||||||||||
(in thousands) |
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Total | ||||||||||||
Current loans receivable guaranteed by the Company |
$ | 1,092 | $ | 62,360 | $ | 4,581 | $ | 68,033 | ||||||||
Delinquent loans receivable guaranteed by the Company |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total loans receivable guaranteed by the Company |
1,092 | 62,360 | 4,581 | 68,033 | ||||||||||||
Less: CSO guarantee liability |
(274 | ) | (15,630 | ) | (1,148 | ) | (17,052 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Loans receivable guaranteed by the Company, net |
$ | 818 | $ | 46,730 | $ | 3,433 | $ | 50,981 | ||||||||
|
|
|
|
|
|
|
|
F-17
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
Summary of the activity in the allowance for loan losses during the three months ended September 30, 2017:
Three Months Ended September 30, 2017 | ||||||||||||||||||||||||
(in thousands) |
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Open-End | Other | Total | ||||||||||||||||||
Balance, beginning of period |
$ | 5,313 | $ | 41,406 | $ | 19,196 | $ | 4,523 | $ | | $ | 70,438 | ||||||||||||
Charge-offs |
(51,707 | ) | (27,027 | ) | (10,985 | ) | (10,437 | ) | (1,479 | ) | (101,635 | ) | ||||||||||||
Recoveries |
31,194 | 3,169 | 1,911 | 4,446 | 921 | 41,641 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net charge-offs |
(20,513 | ) | (23,858 | ) | (9,074 | ) | (5,991 | ) | (558 | ) | (59,994 | ) | ||||||||||||
Provision for losses |
20,630 | 29,079 | 3,989 | 6,348 | 558 | 60,604 | ||||||||||||||||||
Effect of foreign currency translation |
(88 | ) | 311 | | | | 223 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, end of period |
$ | 5,342 | $ | 46,938 | $ | 14,111 | $ | 4,880 | $ | | $ | 71,271 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Allowance for loan losses as a percentage of gross loan receivables |
5.7 | % | 25.8 | % | 16.6 | % | 15.2 | % | N/A | 18.1 | % | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Summary of activity in the CSO guarantee liability during the three months ended September 30, 2017:
Three Months Ended September 30, 2017 | ||||||||||||||||
(in thousands) |
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Total | ||||||||||||
Balance, beginning of period |
$ | | $ | 14,748 | $ | 834 | $ | 15,582 | ||||||||
Charge-offs |
(235 | ) | (41,230 | ) | (3,381 | ) | (44,846 | ) | ||||||||
Recoveries |
233 | 6,326 | 858 | 7,417 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net charge-offs |
(2 | ) | (34,904 | ) | (2,523 | ) | (37,429 | ) | ||||||||
Provision for losses |
2 | 36,212 | 2,523 | 38,737 | ||||||||||||
Effect of foreign currency translation |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
$ | | $ | 16,056 | $ | 834 | $ | 16,890 | ||||||||
|
|
|
|
|
|
|
|
Summary of activity in the allowance for loan losses and the CSO guarantee liability, in total, during the three months ended September 30, 2017:
Three Months Ended September 30, 2017 | ||||||||||||||||||||||||
(in thousands) |
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Open-End | Other | Total | ||||||||||||||||||
Balance, beginning of period |
$ | 5,313 | $ | 56,154 | $ | 20,030 | $ | 4,523 | $ | | $ | 86,020 | ||||||||||||
Charge-offs |
(51,942 | ) | (68,257 | ) | (14,366 | ) | (10,437 | ) | (1,479 | ) | (146,481 | ) | ||||||||||||
Recoveries |
31,427 | 9,495 | 2,769 | 4,446 | 921 | 49,058 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net charge-offs |
(20,515 | ) | (58,762 | ) | (11,597 | ) | (5,991 | ) | (558 | ) | (97,423 | ) | ||||||||||||
Provision for losses |
20,632 | 65,291 | 6,512 | 6,348 | 558 | 99,341 | ||||||||||||||||||
Effect of foreign currency translation |
(88 | ) | 311 | | | | 223 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, end of period |
$ | 5,342 | $ | 62,994 | $ | 14,945 | $ | 4,880 | $ | | $ | 88,161 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-18
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
Summary of the activity in the allowance for loan losses during the three months ended September 30, 2016:
Three Months Ended September 30, 2016 | ||||||||||||||||||||||||
(in thousands) |
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Open-End | Other | Total | ||||||||||||||||||
Balance, beginning of period |
$ | 6,629 | $ | 10,294 | $ | 8,817 | $ | 4,819 | $ | | $ | 30,559 | ||||||||||||
Charge-offs |
(61,528 | ) | (40,622 | ) | (37,236 | ) | (22,710 | ) | (1,522 | ) | (163,618 | ) | ||||||||||||
Recoveries |
41,102 | 29,881 | 32,429 | 15,577 | 952 | 119,941 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net charge-offs |
(20,426 | ) | (10,741 | ) | (4,807 | ) | (7,133 | ) | (570 | ) | (43,677 | ) | ||||||||||||
Provision for losses |
20,542 | 12,523 | 6,125 | 7,295 | 570 | 47,055 | ||||||||||||||||||
Effect of foreign currency translation |
(681 | ) | 46 | | | | (635 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, end of period |
$ | 6,064 | $ | 12,122 | $ | 10,135 | $ | 4,981 | $ | | $ | 33,302 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Allowance for loan losses as a percentage of gross loan receivables |
6.4 | % | 18.4 | % | 18.0 | % | 18.0 | % | N/A | 13.6 | % | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Summary of activity in the CSO guarantee liability during the three months ended September 30, 2016:
Three Months Ended September 30, 2016 | ||||||||||||||||
(in thousands) |
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Total | ||||||||||||
Balance, beginning of period |
$ | 561 | $ | 12,887 | $ | 1,103 | $ | 14,551 | ||||||||
Charge-offs |
(3,462 | ) | (45,555 | ) | (3,870 | ) | (52,887 | ) | ||||||||
Recoveries |
974 | 20,452 | 3,174 | 24,600 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net charge-offs |
(2,488 | ) | (25,103 | ) | (696 | ) | (28,287 | ) | ||||||||
Provision for losses |
2,571 | 26,626 | 772 | 29,969 | ||||||||||||
Effect of foreign currency translation |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
$ | 644 | $ | 14,410 | $ | 1,179 | $ | 16,233 | ||||||||
|
|
|
|
|
|
|
|
Summary of activity in the allowance for loan losses and the CSO guarantee liability, in total, during the three months ended September 30, 2016:
Three Months Ended September 30, 2016 | ||||||||||||||||||||||||
(in thousands) |
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Open-End | Other | Total | ||||||||||||||||||
Balance, beginning of period |
$ | 7,190 | $ | 23,181 | $ | 9,920 | $ | 4,819 | $ | | $ | 45,110 | ||||||||||||
Charge-offs |
(64,990 | ) | (86,177 | ) | (41,106 | ) | (22,710 | ) | (1,522 | ) | (216,505 | ) | ||||||||||||
Recoveries |
42,076 | 50,333 | 35,603 | 15,577 | 952 | 144,541 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net charge-offs |
(22,914 | ) | (35,844 | ) | (5,503 | ) | (7,133 | ) | (570 | ) | (71,964 | ) | ||||||||||||
Provision for losses |
23,113 | 39,149 | 6,897 | 7,295 | 570 | 77,024 | ||||||||||||||||||
Effect of foreign currency translation |
(681 | ) | 46 | | | | (635 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, end of period |
$ | 6,708 | $ | 26,532 | $ | 11,314 | $ | 4,981 | $ | | $ | 49,535 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-19
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
Summary of the activity in the allowance for loan losses during the nine months ended September 30, 2017:
Nine Months Ended September 30, 2017 | ||||||||||||||||||||||||
(in thousands) |
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Open-End | Other | Total | ||||||||||||||||||
Balance, beginning of period |
$ | 5,501 | $ | 17,775 | $ | 10,737 | $ | 5,179 | $ | | $ | 39,192 | ||||||||||||
Charge-offs |
(140,612 | ) | (51,601 | ) | (17,926 | ) | (28,113 | ) | (3,879 | ) | (242,131 | ) | ||||||||||||
Recoveries |
94,535 | 13,803 | 6,726 | 13,903 | 2,450 | 131,417 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net charge-offs |
(46,077 | ) | (37,798 | ) | (11,200 | ) | (14,210 | ) | (1,429 | ) | (110,714 | ) | ||||||||||||
Provision for losses |
45,808 | 66,233 | 14,574 | 13,911 | 1,429 | 141,955 | ||||||||||||||||||
Effect of foreign currency translation |
110 | 728 | | | | 838 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, end of period |
$ | 5,342 | $ | 46,938 | $ | 14,111 | $ | 4,880 | $ | | $ | 71,271 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Allowance for loan losses as a percentage of gross loan receivables |
5.7 | % | 25.8 | % | 16.6 | % | 15.2 | % | N/A | 18.1 | % | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Summary of activity in the CSO guarantee liability during the nine months ended September 30, 2017:
Nine Months Ended September 30, 2017 | ||||||||||||||||
(in thousands) |
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Total | ||||||||||||
Balance, beginning of period |
$ | 274 | $ | 15,630 | $ | 1,148 | $ | 17,052 | ||||||||
Charge-offs |
(2,121 | ) | (102,352 | ) | (8,684 | ) | (113,157 | ) | ||||||||
Recoveries |
1,335 | 23,051 | 4,041 | 28,427 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net charge-offs |
(786 | ) | (79,301 | ) | (4,643 | ) | (84,730 | ) | ||||||||
Provision for losses |
512 | 79,727 | 4,329 | 84,568 | ||||||||||||
Effect of foreign currency translation |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
$ | | $ | 16,056 | $ | 834 | $ | 16,890 | ||||||||
|
|
|
|
|
|
|
|
Summary of activity in the allowance for loan losses and the CSO guarantee liability, in total, during the nine months ended September 30, 2017:
Nine Months Ended September 30, 2017 | ||||||||||||||||||||||||
(in thousands) |
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Open-End | Other | Total | ||||||||||||||||||
Balance, beginning of period |
$ | 5,775 | $ | 33,405 | $ | 11,885 | $ | 5,179 | $ | | $ | 56,244 | ||||||||||||
Charge-offs |
(142,733 | ) | (153,953 | ) | (26,610 | ) | (28,113 | ) | (3,879 | ) | (355,288 | ) | ||||||||||||
Recoveries |
95,870 | 36,854 | 10,767 | 13,903 | 2,450 | 159,844 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net charge-offs |
(46,863 | ) | (117,099 | ) | (15,843 | ) | (14,210 | ) | (1,429 | ) | (195,444 | ) | ||||||||||||
Provision for losses |
46,320 | 145,960 | 18,903 | 13,911 | 1,429 | 226,523 | ||||||||||||||||||
Effect of foreign currency translation |
110 | 728 | | | | 838 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, end of period |
$ | 5,342 | $ | 62,994 | $ | 14,945 | $ | 4,880 | $ | | $ | 88,161 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
F-20
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
Summary of the activity in the allowance for loan losses during the nine months ended September 30, 2016:
Nine Months Ended September 30, 2016 | ||||||||||||||||||||||||
(in thousands) |
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Open-End | Other | Total | ||||||||||||||||||
Balance, beginning of period |
$ | 8,313 | $ | 10,604 | $ | 9,209 | $ | 4,823 | $ | | $ | 32,949 | ||||||||||||
Charge-offs |
(171,797 | ) | (113,272 | ) | (103,818 | ) | (64,318 | ) | (4,310 | ) | (457,515 | ) | ||||||||||||
Recoveries |
117,471 | 86,711 | 93,098 | 46,676 | 2,710 | 346,666 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net charge-offs |
(54,326 | ) | (26,561 | ) | (10,720 | ) | (17,642 | ) | (1,600 | ) | (110,849 | ) | ||||||||||||
Provision for losses |
52,020 | 28,219 | 11,646 | 17,800 | 1,600 | 111,285 | ||||||||||||||||||
Effect of foreign currency translation |
57 | (140 | ) | | | | (83 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, end of period |
$ | 6,064 | $ | 12,122 | $ | 10,135 | $ | 4,981 | $ | | $ | 33,302 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Allowance for loan losses as a percentage of gross loan receivables |
6.4 | % | 18.4 | % | 18.0 | % | 18.0 | % | N/A | 13.6 | % | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Summary of activity in the CSO guarantee liability during the nine months ended September 30, 2016:
Nine Months Ended September 30, 2016 | ||||||||||||||||
(in thousands) |
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Total | ||||||||||||
Balance, beginning of period |
$ | 334 | $ | 15,910 | $ | 1,507 | $ | 17,751 | ||||||||
Charge-offs |
(7,398 | ) | (124,244 | ) | (11,869 | ) | (143,511 | ) | ||||||||
Recoveries |
1,952 | 63,647 | 9,923 | 75,522 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net charge-offs |
(5,446 | ) | (60,597 | ) | (1,946 | ) | (67,989 | ) | ||||||||
Provision for losses |
5,756 | 59,097 | 1,618 | 66,471 | ||||||||||||
Effect of foreign currency translation |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
$ | 644 | $ | 14,410 | $ | 1,179 | $ | 16,233 | ||||||||
|
|
|
|
|
|
|
|
Summary of activity in the allowance for loan losses and the CSO guarantee liability, in total, during the nine months ended September 30, 2016:
Nine Months Ended September 30, 2016 | ||||||||||||||||||||||||
(in thousands) |
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Open-End | Other | Total | ||||||||||||||||||
Balance, beginning of period |
$ | 8,647 | $ | 26,514 | $ | 10,716 | $ | 4,823 | $ | | $ | 50,700 | ||||||||||||
Charge-offs |
(179,195 | ) | (237,516 | ) | (115,687 | ) | (64,318 | ) | (4,310 | ) | (601,026 | ) | ||||||||||||
Recoveries |
119,423 | 150,358 | 103,021 | 46,676 | 2,710 | 422,188 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net charge-offs |
(59,772 | ) | (87,158 | ) | (12,666 | ) | (17,642 | ) | (1,600 | ) | (178,838 | ) | ||||||||||||
Provision for losses |
57,776 | 87,316 | 13,264 | 17,800 | 1,600 | 177,756 | ||||||||||||||||||
Effect of foreign currency translation |
57 | (140 | ) | | | | (83 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, end of period |
$ | 6,708 | $ | 26,532 | $ | 11,314 | $ | 4,981 | $ | | $ | 49,535 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 8CREDIT SERVICES ORGANIZATION
The CSO fee receivable amounts under our CSO programs were $12.8 million and $9.2 million at September 30, 2017 and December 31, 2016, respectively. As noted, we bear the risk of loss through our
F-21
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
guarantee to purchase any defaulted customer loans from the lenders. The terms of these loans range from six to eighteen months. This guarantee represents an obligation to purchase specific loans that go into default. (See Note 1 for a description of our accounting policies). As of September 30, 2017 and December 31, 2016, the maximum amount payable under all such guarantees was $59.1 million and $59.6 million, respectively. Should we be required to pay any portion of the total amount of the loans we have guaranteed, we will attempt to recover the amount we pay from the customers. We hold no collateral in respect of the guarantees. The initial measurement of this guarantee liability is recorded at fair value and reported in the Credit services organization guarantee liability line in our Consolidated Balance Sheets. The fair value of the guarantee is measured at origination when it is probably and estimable as to what likely collections are to be received over the expected life of the guarantee. The guarantee estimated by assessing the nature of the loan products, the credit worthiness of the borrowers in the customer base, the Companys historical loan default history for similar loans, industry loan default history, historical collection rates on similar products, current default trends, past-due account roll rates, changes to underwriting criteria or lending policies, new store development or entrance into new markets, changes in jurisdictional regulations or laws, recent credit trends and general economic conditions. Our guarantee liability was $16.9 million and $17.1 million at September 30, 2017 and December 31, 2016, respectively.
We have placed $16.6 million and $18.7 million in collateral accounts for the lenders at September 30, 2017 and December 31, 2016, respectively, which is reflected in Prepaid expenses and other in the Interim Consolidated Balance Sheets. The balances required to be maintained in these collateral accounts vary based upon lender, but are typically based on a percentage of the outstanding loan balances held by the lender. The percentage of outstanding loan balances required for collateral is defined within the terms agreed to between us and each such lender.
NOTE 9ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities were are follows:
(dollars in thousands) |
September 30, 2017 | December 31, 2016 | ||||||
Trade accounts payable |
$ | 21,680 | $ | 18,588 | ||||
Money orders payable |
8,182 | 7,356 | ||||||
Accrued taxes, other than income taxes |
407 | 447 | ||||||
Accrued payroll and fringe benefits |
19,694 | 14,621 | ||||||
Reserve for store closure costs |
5,096 | 1,258 | ||||||
Other accrued liabilities |
420 | 393 | ||||||
|
|
|
|
|||||
Total |
$ | 55,479 | $ | 42,663 | ||||
|
|
|
|
NOTE 10RESTRUCTURING COSTS
In the third quarter of 2017, the Boards of Directors of the Company and its U.K. subsidiaries approved a plan to close the remaining 13 Speedy Cash branch locations in the United Kingdom. The affected branches closed during the third quarter and our financial results include $7.4 million of related charges primarily for the remaining net cash obligations for store leases, employee redundancy and severance payments ($5.9 million) and the write-off of fixed assets and leasehold improvements ($1.5 million).
During the first quarter of 2016 we closed six stores in Texas. These stores were all underperforming stores that were acquired as part of the Money Box acquisition. Our results for the nine months ended September 30, 2016 include $1.1 million of charges related to these store closures primarily consisting of certain lease obligations and the write-down and loss on the disposal of fixed assets. We also determined that we were unable to reopen one store in Missouri that was damaged by a fire.
F-22
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
In December 2015, we closed ten branch locations in the United Kingdom as part of an overall plan to reduce operating losses in the wake of ongoing regulatory and market changes in the United Kingdom. We closed the remaining 13 branch locations during the third quarter of 2017. Our results for the nine months ended September 30, 2017 include $7.4 million of charges related to these store closures.
Impairments and store closure costs for the three and nine months ended September 30, 2017 were as follows:
(dollars in thousands) |
Nine Months Ended
September 30, 2017 |
|||
Lease obligations and related costs |
$ | 5,907 | ||
Write-down and loss on disposal of fixed assets |
1,519 | |||
|
|
|||
Total additions and adjustments |
$ | 7,426 | ||
|
|
Activity for the closed store reserve for the nine months ended September 30, 2017 was as follows:
(dollars in thousands) |
Nine Months Ended
September 30, 2017 |
|||
Beginning balanceJanuary 1, 2017 |
$ | 1,258 | ||
Additions and adjustments |
7,426 | |||
Payments and write-downs |
(3,588 | ) | ||
|
|
|||
Ending balanceSeptember 30, 2017 |
$ | 5,096 | ||
|
|
Closed store reserves of $5.1 million are included in the Accounts payable and accrued liabilities line item on the accompanying Interim Consolidated Balance Sheets at September 30, 2017.
NOTE 11LONG-TERM DEBT
Long-term debt consisted of the following:
(in thousands) |
September 30,
2017 |
December 31,
2016 |
||||||
February 2017 senior secured notes (due 2022) |
$ | 449,737 | $ | | ||||
May 2011 senior secured notes (due 2018) |
| 223,164 | ||||||
May 2012 senior secured notes (due 2018) |
| 89,734 | ||||||
February 2013 senior secured notes (due 2018) |
| 101,184 | ||||||
February 2013 cash pay notes (due 2017) |
| 124,365 | ||||||
Non-Recourse U.S. SPV Facility |
112,135 | 63,054 | ||||||
ABL Facility |
| 23,406 | ||||||
Senior Revolver |
| | ||||||
|
|
|
|
|||||
Total long-term debt, including current portion |
561,872 | 624,907 | ||||||
Less: current maturities of long-term debt |
| 147,771 | ||||||
|
|
|
|
|||||
Long-term debt |
$ | 561,872 | $ | 477,136 | ||||
|
|
|
|
Senior Secured Notes
On February 15, 2017 CURO Financial Technologies Corp. (CFTC), a subsidiary of CURO, issued $470.0 million 12.00% Senior Secured Notes due March 1, 2022. Interest on the notes is payable semiannually,
F-23
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
in arrears, on March 1 and September 1 of each year, beginning on September 1, 2017. The proceeds from the Notes were used, together with available cash, to (i) redeem the outstanding 10.75% Senior Secured Notes due 2018 of our wholly-owned subsidiary, CURO Intermediate, (ii) redeem the outstanding 12.00% Senior Cash Pay Notes due 2017, and (iii) pay fees, expenses, premiums and accrued interest in connection with the offering. Consequently, we received a $130.1 million dividend from CFTC in February 2017 to fund the redemption of the 12.00% Senior Cash Pay Notes. The extinguishment of the 10.75% Senior Secured Notes and the 12.00% Senior Cash Pay Notes resulted in a pretax loss of $12.5 million in the nine months ended September 30, 2017.
In connection with this debt issuance we capitalized financing costs of approximately $14.0 million, the balance of which are included in the Interim Consolidated Balance Sheets as a component of Long-term debt, and are being amortized over the term of the Senior Secured Notes and included as a component of interest expense.
Senior Revolver
On September 1, 2017, we entered into a $25.0 million Senior Secured Revolving Loan Facility with BayCoast Bank (the Senior Revolver). The terms of the Senior Revolver generally conform to the related provisions in the Indenture dated February 15, 2017 for our 12.00% Senior Secured Notes due 2022 and complements our other financing sources, while providing seasonal short-term liquidity. Under the Senior Revolver, there is $25.0 million maximum availability, including up to $5.0 million of standby letters of credit, for a one-year term, renewable for successive terms following annual review. The Senior Revolver accrues interest at the one-month LIBOR plus 5.00% (subject to a 5% overall rate minimum) and is repayable on demand. The terms of the Senior Revolver require that the outstanding balance be reduced to $0 for at least 30 consecutive days in each calendar year. The Senior Revolver is guaranteed by all subsidiaries of CURO that guarantee our 12% Senior Secured Notes due 2022 and is secured by a lien on substantially all assets of CURO and the guarantor subsidiaries that is senior to the lien securing our 12% Senior Secured Notes due 2022. The revolver was undrawn at September 30, 2017.
In connection with this facility we capitalized financing costs of approximately $0.1 million, the balance of which are included in the Interim Consolidated Balance Sheets as a component of Other Assets, and are being amortized over the term of the facility and included as a component of interest expense.
Non-Recourse U.S. SPV Facility
On November 17, 2016, CURO Receivables Finance I, LLC, a Delaware limited liability company (the SPV Borrower) and a wholly-owned subsidiary, entered into a five-year revolving credit facility with Victory Park Management, LLC and certain other lenders that provides for an $80.0 million term loan and $45.0 million of initial revolving borrowing capacity, with the ability to expand such revolving borrowing capacity over time and an automatic expansion to $70.0 million on the six month anniversary of the closing date, (our Non-Recourse U.S. SPV Facility). Our Non-Recourse U.S. SPV Facility is secured by a first lien against assets of the SPV Borrower, which is a special purpose vehicle holding certain receivables originated by the operating entities of Intermediate and CURO Receivables Holdings I, LLC, a Delaware limited liability company (Holdings) which is a holding company that owns the equity of the SPV Borrower. The lender advances to the SPV Borrower 80% of the principal balance of the eligible installment loans that we sell to the SPV Borrower, which serve as collateral for the lender. As customer loan payments come into the SPV Borrower, such payments are subjected to a conventional priority-of-payment waterfall provided the loan-to-value doesnt exceed 80%. The loans will bear interest at an annual rate of up to 12.0% plus the greater of (x) 1.0% per annum and (y) the three-month LIBOR. The SPV Borrower also pays a 0.50% per annum commitment fee on the unused portion of the commitments. Revolving commitment terminations and voluntary prepayments of term loans made prior to
F-24
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
the 30th month anniversary of the closing date are subject to a fee equal to 3.0% of the amount of revolving loans commitments terminated or term loans voluntarily prepaid. This facility matures in 2021.
ABL Facility
On November 17, 2016, CURO Intermediate entered into a six-month recourse credit facility with Victory Park Management, LLC and certain other lenders which provides for $25.0 million of borrowing capacity, (our ABL Facility). Our ABL Facility is secured by a first lien against our assets and the assets of CURO Intermediate and its domestic subsidiaries. The lender advances to CURO Intermediate 80% of the principal balance of the eligible installment loans held by CURO Intermediate and its guarantor subsidiaries. As customer loan payments come into CURO Intermediate and its guarantor subsidiaries, such payments are subjected to a conventional priority-of-payment waterfall provided the loan-to-value doesnt exceed 80%. The loans will bear interest at an annual rate of up to 8.0% plus the greater of (x) 1.0% per annum and (y) the three-month LIBOR. The ABL Facility provides that CURO Intermediate pays a 0.50% per annum commitment fee on the unused portion of the commitments and a 4.0% per annum monitoring fee on the loans outstanding. Commitment terminations and voluntary prepayments of loans made prior to the 30th month anniversary of the closing date of the Non-Recourse U.S. SPV Facility are subject to a fee equal to 3.0% of the amount of revolving loan commitments terminated or loans voluntarily prepaid. This facility matured in May 2017 and was fully converted to the Non-Recourse U.S. SPV Facility.
Cash Money Credit Facility
Cash Money entered into a C$7.5 million revolving credit facility (Cash Money Revolving Credit Facility) in November 2011 which is intended to afford us an additional element of liquidity to meet the short-term working capital needs of our Canadian operations. Aggregate draws on the Cash Money Revolving Credit Facility are limited to the lesser of: 1) the borrowing base, which is defined as a percentage of cash, deposits in transit and accounts receivable, and 2) C$7.5 million. Borrowings under the Cash Money Revolving Credit Facility bear interest (per annum) at Royal Bank of Canada Prime (RBC prime) plus 1.95%. In order to determine the amount available for borrowings under the Cash Money Revolving Credit Facility, the balance available is reduced by any amounts outstanding and C$0.3 million in outstanding letters of credit. There were no outstanding borrowings under this credit facility at September 30, 2017 and December 31, 2016.
Subordinated Shareholder Debt
As part of the acquisition of Cash Money in 2011, we issued an Escrow Note to the Seller which provided us indemnification for certain claims. This note bears interest at 10.0% per annum, and quarterly interest payments are due until the note matures in May 2019. The balance of this note at September 30, 2017 and December 31, 2016 was $2.4 million and $2.2 million, respectively.
Ranking and Guarantees
The 12.00% Senior Secured Notes due 2022 rank senior in right of payment to all of our and our guarantor entities existing and future subordinated indebtedness and equal in right of payment with all our and our guarantor entities existing and future senior indebtedness of the Company, including borrowings under our revolving credit facilities. Pursuant to our Intercreditor Agreement, the Notes and the guarantees will be effectively subordinated to our credit facilities and certain other indebtedness to the extent of the value of the assets securing such indebtedness and to liabilities of our subsidiaries that are not guarantors.
The Notes are secured by liens on substantially all of our and the guarantors assets, subject to certain exceptions. On or after March 1, 2019, we may redeem some or all of the Notes at a premium that will decrease
F-25
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
over time, plus accrued and unpaid interest, if any to the applicable date of redemption. Prior to March 1, 2019, we will be able to redeem up to 40% of the Notes at a redemption price of 112.000% of the principal amount of the Notes redeemed, plus accrued and unpaid interest to the redemption date with the net cash proceeds of certain equity offerings. Prior to March 1, 2019, subject to certain terms and conditions, we will also be able to redeem the Notes at a redemption price of 100% of the principal amount of the Notes redeemed, plus the applicable premium and any accrued and unpaid interest to the redemption date.
NOTE 12SHARE-BASED COMPENSATION
Share-based compensation expense for the three months ended September 30, 2017 and 2016 was $0.1 million and $0.3 million, respectively, and for the nine months ended September 30, 2017 and 2016 was $0.3 million and $0.8 million, respectively and is included in the Interim Consolidated Statements of Income as a component of Corporate and district expense.
The 2010 Equity Incentive Plan (the Plan) was originally approved by the Companys shareholders in November 2010, and amended in December 2013. The Plan provides for the issuance of up to 2,160,000 shares, subject to certain adjustment provisions described in the Plan. The Plan provides for the granting of stock options, restricted stock, and stock grants. Awards may be granted to employees, consultants and directors of the Company. The Plan provides that shares of Class B common stock subject to awards granted become available for issuance if such awards expire, terminate, are canceled for any reason, or are forfeited by the recipient. Pursuant to the formation of CURO, all of the rights and obligations under the stock option agreements were transferred from CFTC. Thus, the outstanding and unexercised options now represent an option to purchase the same number of shares of common stock of CURO at the same exercise price and on the same terms and conditions as provided in the original option agreement. No awards may be granted after November 30, 2020.
During the first quarter of 2017, we granted an incremental 54,396 stock options at an exercise price of $8.86 per share. The options vest ratably over a three year period and are subject to limitations on transferability. We also granted an incremental 45,000 stock options at an exercise price of $8.86 per share. The options vest ratably over a five year period and are subject to limitations on transferability. The fair value of the options granted was calculated at each grant date using a Black-Scholes option-pricing model which assumed the following weighted average assumptions: expected volatility of 45.3%, expected term of 6.1 years, risk-free interest rate of 2.2%, and expected dividend yield of 0%.
As of September 30, 2017, there was $0.9 million of unrecognized compensation cost, net of estimated forfeitures, related to share-based awards, which will be recognized over a weighted-average period of 3.2 years.
NOTE 13INCOME TAXES
Our effective tax rate was 50.4% and 39.0% for the three months ended September 30, 2017 and 2016, respectively. Our effective tax rate was 41.2% and 38.5% for the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, the Company had not provided U.S. tax on its cumulative undistributed foreign earnings of $137.2 million. The Company intends to reinvest its foreign earnings indefinitely in its non-U.S. operations. If the earnings were distributed to the United States, the Company would be subject to estimated U.S. taxes of approximately $61.7 million. In the event the earnings were distributed to the United States, the Company would adjust its income tax provision for the period and would determine the amount of credit for foreign tax credit that would be available to reduce the U.S. tax liability.
NOTE 14FINANCIAL INSTRUMENTS AND CONCENTRATIONS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. We are required to use valuation techniques that are consistent
F-26
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
with the market approach, income approach, and/or cost approach. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability based on market data obtained from independent sources, or unobservable, meaning those that reflect our own estimate about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. Accounting standards establish a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The hierarchy requires us to maximize the use of observable inputs and minimize the use of unobservable inputs.
The three levels of inputs used to measure fair value are listed below.
Level 1Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have access to at the measurement date.
Level 2Inputs include quoted market prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3Unobservable inputs reflecting our own judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. We develop these inputs based on the best information available, including our own data.
Financial Assets and Liabilities Not Measured at Fair Value
The table below presents the assets and liabilities that were not measured at fair value at September 30, 2017.
Estimated Fair Value | ||||||||||||||||||||
(dollars in thousands) |
Carrying Value
September 30, 2017 |
Level 1 | Level 2 | Level 3 |
September 30,
2017 |
|||||||||||||||
Financial assets: |
||||||||||||||||||||
Cash |
$ | 95,545 | $ | 95,545 | $ | | $ | | $ | 95,545 | ||||||||||
Restricted cash |
11,474 | 11,474 | | | 11,474 | |||||||||||||||
Loans receivable, net |
322,152 | | | 322,152 | 322,152 | |||||||||||||||
Investment |
4,975 | | | 4,975 | 4,975 | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Credit services organization guarantee liability |
$ | 16,890 | $ | | $ | | $ | 16,890 | $ | 16,890 | ||||||||||
February 2017 senior secured notes |
449,737 | | | 509,950 | 509,950 | |||||||||||||||
Non-Recourse U.S. SPV Facility |
112,135 | | | 116,590 | 116,590 |
F-27
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
The table below presents the assets and liabilities that were not measured at fair value at December 31, 2016.
Estimated Fair Value | ||||||||||||||||||||
(in thousands) |
Carrying Value
December 31, 2016 |
Carrying Value
Level 1 |
Carrying Value
Level 2 |
Carrying Value
Level 3 |
December 31,
2016 |
|||||||||||||||
Financial assets: |
||||||||||||||||||||
Cash |
$ | 193,525 | $ | 193,525 | $ | | $ | | $ | 193,525 | ||||||||||
Restricted cash |
7,828 | 7,828 | | | 7,828 | |||||||||||||||
Loans receivable, net |
247,004 | | | 247,004 | 247,004 | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Credit services organization guarantee liability |
17,052 | 17,052 | 17,052 | |||||||||||||||||
May 2011 senior secured notes |
223,164 | 216,449 | | | 216,449 | |||||||||||||||
May 2012 senior secured notes |
89,734 | 86,625 | | | 86,625 | |||||||||||||||
February 2013 senior secured notes |
101,184 | 96,250 | | | 96,250 | |||||||||||||||
February 2013 cash pay notes |
124,365 | 118,301 | | | 118,301 | |||||||||||||||
Non-Recourse U.S. SPV Facility |
63,054 | | | 68,311 | 68,311 | |||||||||||||||
ABL Facility |
23,406 | | | 23,406 | 23,406 |
Loans receivable are carried on the Interim Consolidated Balance Sheets net of the allowance for estimated loan losses, which is calculated primarily based upon models that backtest subsequent collections history for each type of loan product. The unobservable inputs used to calculate the carrying value include additional quantitative factors, such as current default trends and changes to the portfolio mix are also considered in evaluating the accuracy of the models; as well as additional qualitative factors such as the impact of new loan products, changes to underwriting criteria or lending policies, new store development or entrance into new markets, changes in jurisdictional regulations or laws, recent credit trends and general economic conditions. Loans generally have terms ranging from 1 day to 42 months. The carrying value of loans receivable approximates the fair value.
In connection with our CSO programs, the accounting for which is discussed in detail in Note 1, we guarantee consumer loan payment obligations to unrelated third-party lenders for loans that we arrange for consumers on the third-party lenders behalf. The Company is required to purchase from the lender defaulted loans we have guaranteed. The estimated fair value of the guarantee liability related to CSO loans we have guaranteed was $16.9 million and $17.1 million as of September 30, 2017 and December 31, 2016, respectively. The initial measurement of this guarantee liability is recorded at fair value using Level 3 inputs with subsequent measurement of the liability measured as a contingent loss. The unobservable inputs used to calculate fair value include the nature of the loan products, the creditworthiness of the borrowers in the customer base, the Companys historical loan default history for similar loans, industry loan default history, historical collection rates on similar products, current default trends, past-due account roll rates, changes to underwriting criteria or lending policies, new store development or entrance into new markets, changes in jurisdictional regulations or laws, recent credit trends and general economic conditions.
The fair value of our Senior Secured Notes was based on broker quotations. The fair values of the Non-Recourse U.S. SPV Facility and the ABL Facility were based on the cash needed for final settlement.
F-28
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
Derivative Financial Instrument
We had a cash flow hedge in which the hedging instrument was a forward extra to sell GBP 4,800,000 that expired in May 2017. We performed an assessment that determined that all critical terms of the hedging instrument and the hedged transaction match and as such qualitatively concluded that changes in the hedges intrinsic value would completely offset the change in the expected cash flows based on changes in the spot rate. Since the effectiveness of this hedge was assessed based on changes in the hedges intrinsic value, the change in the time value of the contract would be excluded from the assessment of hedge effectiveness.
Changes in the hedges intrinsic value, to the extent that they were effective as a hedge, were recorded in other comprehensive income. As of September 30, 2017 we have recorded a realized loss of $0.3 million in our consolidated statement of income associated with this hedge.
Concentration Risk
We are subject to regulation by federal, state and provincial governmental authorities that affect the products and services that we provide, particularly Single-Pay Loans. The level and type of regulation for payday advance loans varies greatly by jurisdiction, ranging from jurisdictions with moderate regulations or legislation, to other jurisdictions having very strict guidelines and requirements.
Revenues originated in Texas, Ontario, and California represented approximately 25.8%, 13.1%, and 17.4%, respectively, of our consolidated total revenues for the three months ended September 30, 2017. Revenues originated in Texas, Ontario, and California represented approximately 26.2%, 15.2%, and 14.8%, respectively, of our consolidated total revenues for the three months ended September 30, 2016.
Revenues originated in Texas, Ontario, and California represented approximately 25.7%, 13.1%, and 17.6%, respectively, of our consolidated total revenues for the nine months ended September 30, 2017. Revenues originated in Texas, Ontario, and California represented approximately 25.8%, 15.0%, and 15.0%, respectively, of our consolidated total revenues for the nine months ended September 30, 2016.
To the extent that laws and regulations are passed that affect the manner in which we conduct business in any one of those markets, our financial position, results of operations and cash flows could be adversely affected. Additionally, our ability to meet our financial obligations could be negatively impacted.
We hold cash at major financial institutions that often exceed FDIC insured limits. We manage our concentration risk by placing our cash deposits in high quality financial institutions and by periodically evaluating the credit quality of the financial institutions holding such deposits. Historically, we have not experienced any losses due to such cash concentration.
Financial instruments that potentially subject us to concentrations of credit risk primarily consist of our loans receivable. Concentrations of credit risk with respect to loans receivable are limited due to the large number of customers comprising our customer base.
Purchase of Cognical Holdings Inc. Preferred Shares
On April 20, 2017, we purchased 2,926,715 preferred shares of Cognical Holdings, Inc. (Cognical) for $5.0 million. Cognical operates as a business under an online website, www.zibby.com. Zibby is a leasing platform for online, brick and mortar and omnichannel retailers. Customers can apply in 30 seconds in-store or via the Zibby button on a retailers website and be approved for $300 to $3,500. Zibby increases retailer sales by
F-29
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
providing a fast and easy lease payment option for nonprime customers seeking to acquire furniture, appliances, electronics and other consumer durables. As a result of this transaction, we own 8.9% of the equity of Cognical. Cognical has also awarded the Company warrants to purchase the common stock of Cognical in partial consideration of services provided by Cognical. These warrants are subject to a certain vesting schedule. We have accounted for this investment and its related warrants using the fair value method of accounting.
NOTE 15STOCKHOLDERS EQUITY
In connection with the formation of CURO Group in 2013, the stockholders entered into an Investor Rights Agreement. Under the Investor Rights Agreement, one of CURO Groups investors, Freidman Fleisher & Lowe Capital Partners II, L.P. (and its affiliated funds, the FFL Partners), may request, any time after the sixth anniversary of their initial investment in the Company (which occurred in September 2008), that the Company repurchase their shares on terms to be negotiated by the parties in good faith. If no agreement can be reached on the repurchase terms, the FFL Partners can request that the Company be solicited for sale of all of its capital.
As discussed in Note 11 Long-Term Debt, we received a $130.1 million dividend to from our subsidiary in February 2017 to fund the redemption of the 12.00% Senior Cash Pay Notes. We also paid dividends of $28.0 million and $8.5 million to our stockholders, in May 2017 and August 2017, respectively.
NOTE 16SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is as follows:
Nine Months Ended
September 30, |
||||||||
(dollars in thousands) |
2017 | 2016 | ||||||
Cash paid for: |
||||||||
Interest |
$ | 60,089 | $ | 31,112 | ||||
Income taxes |
16,650 | 34,003 | ||||||
Non-cash investing activities: |
||||||||
Payment for repurchase of May 2011 Senior Secured Notes accrued in accounts payable |
$ | | 18,939 | |||||
Property and equipment accrued in accounts payable |
$ | 208 | $ | 2,147 |
NOTE 17SEGMENT REPORTING
Segment information is prepared on the same basis that our chief operating decision maker reviews financial information for operational decision making purposes. We have three reportable operating segments: the United States, Canada and the United Kingdom.
The segment performance measure below is based on gross margin. In managements evaluation of performance, certain costs, such as corporate expenses, district expenses and interest expense, are not allocated by segment, and accordingly the following reporting segment results do not include such allocated costs. There are no intersegment revenues, and the amounts below were determined in accordance with the same accounting principles used in our consolidated financial statements.
F-30
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
The following table illustrates summarized financial information concerning our reportable segments.
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
(dollars in thousands) |
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues by segment: |
||||||||||||||||
U.S. |
$ | 193,826 | $ | 154,680 | $ | 531,912 | $ | 443,107 | ||||||||
Canada |
50,658 | 49,631 | 135,819 | 140,852 | ||||||||||||
U.K. |
10,635 | 8,613 | 28,912 | 25,733 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consolidated revenue |
$ | 255,119 | $ | 212,924 | $ | 696,643 | $ | 609,692 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross margin by segment: |
||||||||||||||||
U.S. |
$ | 61,103 | $ | 41,291 | $ | 201,354 | $ | 159,602 | ||||||||
Canada |
15,649 | 22,274 | 45,911 | 60,950 | ||||||||||||
U.K. |
3,414 | 3,470 | 9,808 | 9,053 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consolidated gross margin |
$ | 80,166 | $ | 67,035 | $ | 257,073 | $ | 229,605 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Expenditures for long-lived assets by segment: |
||||||||||||||||
U.S. |
$ | 1,535 | $ | 4,163 | $ | 6,183 | $ | 6,068 | ||||||||
Canada |
180 | 710 | 656 | 3,629 | ||||||||||||
U.K. |
250 | | 1,078 | 42 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Consolidated expenditures for long-lived assets |
$ | 1,965 | $ | 4,873 | $ | 7,917 | $ | 9,739 | ||||||||
|
|
|
|
|
|
|
|
The proportion of gross loans receivable by segment is reflected in the table below.
(dollars in thousands) |
September 30,
2017 |
December 31,
2016 |
||||||
U.S. |
$ | 276,027 | $ | 206,215 | ||||
Canada |
99,325 | 66,988 | ||||||
U.K. |
18,071 | 12,993 | ||||||
|
|
|
|
|||||
Total gross loans receivable |
$ | 393,423 | $ | 286,196 | ||||
|
|
|
|
The following table illustrates our net long-lived assets, comprised of property and equipment by geographic region. These amounts are aggregated on a legal entity basis and do not necessarily reflect where the asset is physically located.
(dollars in thousands) |
September 30,
2017 |
December 31,
2016 |
||||||
U.S. |
$ | 53,845 | $ | 58,733 | ||||
Canada |
33,290 | 34,310 | ||||||
U.K. |
1,685 | 2,853 | ||||||
|
|
|
|
|||||
Total |
$ | 88,820 | $ | 95,896 | ||||
|
|
|
|
Our chief operating decision maker does not review assets by segment for purposes of allocating resources or decision-making purposes; therefore, total assets by segment are not disclosed.
F-31
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
NOTE 18LITIGATION
Harrison, et al v. Principal Investments, Inc. et al
During the period relevant to this class action litigation, the Company pursued in excess of 16,000 claims in the limited actions and jurisdiction court in Clark County, Nevada, seeking payment of loans on which customers had defaulted. The Company utilized outside counsel to file these debt collection lawsuits. On Scene Mediations, a process serving company, was employed to serve the summons and petitions in the majority of these cases. In an unrelated matter, the principal of On Scene Mediations was convicted of multiple accounts of perjury and filing false affidavits to obtain judgments on behalf of a Las Vegas collection agency. In September 2010, we were sued by four former customers in a proposed class action suit filed in the District Court in Clark County, Nevada. The plaintiffs in this case claimed that they, and others in the proposed class, were not properly served notice of the debt collection lawsuits by the Company.
On June 7, 2017, the parties reached a settlement in this matter. The Company has accrued approximately $2.0 million as a result of this settlement as of September 30, 2017. At a hearing before the District Court in Clark County, Nevada, on July 24, 2017 the Court granted preliminary approval of the settlement. On October 30, 2017, the court issued final approval of the class settlement.
Other Legal Matters
We are also a defendant in certain routine litigation matters encountered in the ordinary course of our business. Certain of these matters may be covered to an extent by insurance. In the opinion of management, based upon the advice of legal counsel, the likelihood is remote that the impact of any pending legal proceedings and claims, either individually or in the aggregate, would have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
NOTE 19EARNINGS PER SHARE
The following presents the computation of basic earnings per share (in thousands, except per share amounts):
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Basic(1): |
||||||||||||||||
Net income |
$ | 9,762 | $ | 15,777 | 42,743 | 55,859 | ||||||||||
Weight average common shares |
37,908 | 37,908 | 37,908 | 37,908 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Basic earnings per share |
$ | 0.26 | $ | 0.42 | $ | 1.13 | $ | 1.47 | ||||||||
|
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|
|
|
|
|
(1) | The per share information has been adjusted to give effect to the 36-for-1 stock split of the Companys common stock approved by our board of directors on November 8, 2017 that will occur prior to the effectiveness of the Registration Statement. |
F-32
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
The following computation reconciles the differences between the basic and diluted earnings per share presentations (in thousands, except per share amounts):
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Diluted(1): |
||||||||||||||||
Net income |
$ | 9,762 | $ | 15,777 | $ | 42,743 | $ | 55,859 | ||||||||
Weighted average common shares (basic) |
37,908 | 37,908 | 37,908 | 37,908 | ||||||||||||
Dilutive effect of stock options |
1,006 | 792 | 1,051 | 765 | ||||||||||||
Weighted average common sharesdiluted |
38,914 | 38,700 | 38,959 | 38,673 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Diluted earnings per share |
$ | 0.25 | $ | 0.41 | $ | 1.10 | $ | 1.44 | ||||||||
|
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|
|
|
|
|
|
(1) | The per share information has been adjusted to give effect to the 36-for-1 stock split of the Companys common stock approved by our board of directors on November 8, 2017 that will occur prior to the effectiveness of the Registration Statement. |
Potential common shares that would have the effect of increasing diluted earnings per share or decreasing diluted loss per share are considered to be anti-dilutive and as such, these shares are not included in calculating diluted earnings per share. For the three and nine months ended September 30, 2016, there were 166,752 potential common shares not included in the calculation of diluted earnings per share because their effect was anti-dilutive.
NOTE 20CONDENSED CONSOLIDATING FINANCIAL INFORMATION
On February 15, 2017, CFTC issued $470.0 million aggregate principal amount 12.00% senior secured notes due March 1, 2022, the proceeds of which were used together with available cash, to (i) redeem the outstanding 10.75% Senior Secured Notes due 2018 of our wholly owned subsidiary, CURO Intermediate, (ii) redeem the outstanding 12.00% Senior Cash Pay Notes due 2017 of its parent, CURO, and (iii) pay fees, expenses, premiums and accrued interest in connection with the offering. The Senior Secured Notes were sold to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended (the Securities Act); or outside the United States to non-U.S. Persons in compliance with Regulation S of the Securities Act.
The following condensed consolidating financial information, which has been prepared in accordance with the requirements for presentation of Rule 3-10(d) of Regulation S-X promulgated under the Securities Act, presents the condensed consolidating financial information separately for:
(i) | CFTC as the issuer of the 12.00% senior secured notes; |
(ii) | CURO Intermediate as the issuer of the 10.75% senior secured notes that were redeemed in February 2017; |
(iii) | The Companys subsidiary guarantors, which are comprised of our domestic subsidiaries, excluding CFTC and CURO Intermediate (the Subsidiary Guarantors), on a combined basis, which are 100% owned by CURO, and which are guarantors of the 12.00% senior secured notes issued in February 2017 and the 10.75% senior secured notes redeemed in February 2017; |
(iv) | The Companys other subsidiaries on a combined basis, which are not guarantors of the 12.00% senior secured notes or the 10.75% senior secured notes (the Subsidiary Non-Guarantors) |
F-33
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
(v) | Consolidating and eliminating entries representing adjustments to: |
a. | eliminate intercompany transactions between or among the Company, the Subsidiary Guarantors and the Subsidiary Non-Guarantors; and |
b. | eliminate the investments in the Companys subsidiaries; |
(vi) | The Company and its subsidiaries on a consolidated basis. |
F-34
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
Condensed Consolidating Balance Sheets
September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) |
CFTC |
CURO
Intermediate |
Subsidiary
Guarantors |
Subsidiary
Non-Guarantors |
SPV
Subs |
Eliminations | Consolidated | CURO | Eliminations |
CURO
Consolidated |
||||||||||||||||||||||||||||||
Assets: |
||||||||||||||||||||||||||||||||||||||||
Cash |
$ | | $ | | $ | 55,097 | $ | 40,368 | $ | | $ | | $ | 95,465 | $ | 80 | $ | | $ | 95,545 | ||||||||||||||||||||
Restricted cash |
| | 1,675 | 3,541 | 6,258 | | 11,474 | | | $ | 11,474 | |||||||||||||||||||||||||||||
Loans receivable, net |
| | 67,286 | 99,783 | 155,083 | | 322,152 | | | $ | 322,152 | |||||||||||||||||||||||||||||
Deferred income taxes |
2,901 | 9,620 | 1,096 | 3,362 | | (2,916 | ) | 14,063 | (31 | ) | | $ | 14,032 | |||||||||||||||||||||||||||
Income taxes receivable |
67,003 | | | 2,233 | | (67,003 | ) | 2,233 | | | $ | 2,233 | ||||||||||||||||||||||||||||
Prepaid expenses and other |
| | 34,325 | 3,421 | | | 37,746 | 2,599 | | $ | 40,345 | |||||||||||||||||||||||||||||
Property and equipment, net |
| | 53,844 | 34,976 | | | 88,820 | | | $ | 88,820 | |||||||||||||||||||||||||||||
Goodwill |
| | 91,130 | 54,547 | | | 145,677 | | | $ | 145,677 | |||||||||||||||||||||||||||||
Other intangibles, net |
17 | | 5,459 | 27,545 | | | 33,021 | | | $ | 33,021 | |||||||||||||||||||||||||||||
Intercompany receivable |
327,040 | 44,000 | 457,558 | | 58,567 | (887,165 | ) | | | | $ | | ||||||||||||||||||||||||||||
Investment in subsidiaries |
109,497 | 961,743 | | | | (1,071,240 | ) | | 54,869 | (54,869 | ) | $ | | |||||||||||||||||||||||||||
Other |
5,090 | | 2,758 | 992 | | | 8,840 | | | $ | 8,840 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total assets |
$ | 511,548 | $ | 1,015,363 | $ | 770,228 | $ | 270,768 | $ | 219,908 | $ | (2,028,324 | ) | $ | 759,491 | $ | 57,517 | $ | (54,869 | ) | $ | 762,139 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Liabilities and Stockholders equity: |
||||||||||||||||||||||||||||||||||||||||
Accounts payable and accrued liabilities |
$ | 554 | $ | 7 | $ | 35,838 | $ | 16,996 | $ | 16 | $ | | $ | 53,411 | $ | 2,068 | $ | | $ | 55,479 | ||||||||||||||||||||
Deferred revenue |
| | 6,736 | 5,773 | | | 12,509 | | | 12,509 | ||||||||||||||||||||||||||||||
Income taxes payable |
| 74,787 | 4,974 | | | (67,003 | ) | 12,758 | (2,750 | ) | | 10,008 | ||||||||||||||||||||||||||||
Accrued interest |
4,387 | | | | 1,113 | | 5,500 | | | 5,500 | ||||||||||||||||||||||||||||||
Payable to CURO Holdings Corp. |
2,002 | | 5,689 | | | | 7,691 | | (7,691 | ) | | |||||||||||||||||||||||||||||
CSO guarantee liability |
| | 16,890 | | | | 16,890 | | | 16,890 | ||||||||||||||||||||||||||||||
Deferred rent |
| | 9,959 | 1,798 | | | 11,757 | | | 11,757 | ||||||||||||||||||||||||||||||
Long-term debt (excluding current maturities) |
449,737 | | | | 112,135 | | 561,872 | | | 561,872 | ||||||||||||||||||||||||||||||
Subordinated shareholder debt |
| | | 2,401 | | | 2,401 | | | 2,401 | ||||||||||||||||||||||||||||||
Intercompany payable |
| 820,499 | | 66,666 | | (887,165 | ) | | | | | |||||||||||||||||||||||||||||
Other long-term liabilities |
| | 2,701 | 1,927 | | | 4,628 | | | 4,628 | ||||||||||||||||||||||||||||||
Deferred tax liabilities |
| 10,573 | | 7,548 | | (2,916 | ) | 15,205 | | | 15,205 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total liabilities |
456,680 | 905,866 | 82,787 | 103,109 | 113,264 | (957,084 | ) | 704,622 | (682 | ) | (7,691 | ) | 696,249 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Stockholders equity |
54,868 | 109,497 | 687,441 | 167,659 | 106,644 | (1,071,240 | ) | 54,869 | 58,199 | (47,178 | ) | 65,890 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total liabilities and stockholders equity |
$ | 511,548 | $ | 1,015,363 | $ | 770,228 | $ | 270,768 | $ | 219,908 | $ | (2,028,324 | ) | $ | 759,491 | $ | 57,517 | $ | (54,869 | ) | $ | 762,139 | ||||||||||||||||||
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|
|
|
F-35
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
December 31, 2016 | ||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) |
CFTC |
CURO
Intermediate |
Subsidiary
Guarantors |
Subsidiary
Non-Guarantors |
SPV
Subs |
Eliminations | Consolidated | CURO | Eliminations |
CURO
Consolidated |
||||||||||||||||||||||||||||||
Assets: |
||||||||||||||||||||||||||||||||||||||||
Cash |
$ | | $ | 1,954 | $ | 127,712 | $ | 63,779 | $ | | $ | | $ | 193,445 | $ | 80 | $ | | $ | 193,525 | ||||||||||||||||||||
Restricted cash |
| 459 | 1,223 | 3,376 | 2,770 | | 7,828 | | | 7,828 | ||||||||||||||||||||||||||||||
Loans receivable, net |
| | 67,558 | 71,381 | 108,065 | | 247,004 | | | 247,004 | ||||||||||||||||||||||||||||||
Deferred income taxes |
2,833 | 8,802 | 2,925 | 2,768 | | (4,693 | ) | 12,635 | | | 12,635 | |||||||||||||||||||||||||||||
Income taxes receivable |
34,667 | | | 6,151 | | (37,710 | ) | 3,108 | 6,270 | | 9,378 | |||||||||||||||||||||||||||||
Prepaid expenses and other |
| | 32,964 | 4,205 | | | 37,169 | 4,735 | (2,656 | ) | 39,248 | |||||||||||||||||||||||||||||
Property and equipment, net |
| | 58,733 | 37,163 | | | 95,896 | | | 95,896 | ||||||||||||||||||||||||||||||
Goodwill |
| | 91,131 | 50,423 | | | 141,554 | | | 141,554 | ||||||||||||||||||||||||||||||
Other intangibles, net |
19 | | 5,616 | 25,266 | | | 30,901 | | | 30,901 | ||||||||||||||||||||||||||||||
Intercompany receivable |
| 55,444 | 383,887 | | | (439,331 | ) | | | | | |||||||||||||||||||||||||||||
Investment in subsidiaries |
187,473 | 830,443 | | | | (1,017,916 | ) | | 155,964 | (155,964 | ) | | ||||||||||||||||||||||||||||
Other |
| 1,745 | 1,084 | | | 2,829 | | 2,829 | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total assets |
$ | 224,992 | $ | 897,102 | $ | 773,494 | $ | 265,596 | $ | 110,835 | $ | (1,499,650 | ) | $ | 772,369 | $ | 167,049 | $ | (158,620 | ) | $ | 780,798 | ||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Liabilities and Stockholders equity: |
||||||||||||||||||||||||||||||||||||||||
Accounts payable and accrued liabilities |
$ | 253 | $ | 3 | $ | 32,528 | $ | 9,900 | $ | | $ | | $ | 42,684 | $ | (21 | ) | $ | | $ | 42,663 | |||||||||||||||||||
Deferred revenue |
| | 6,520 | 5,822 | | | 12,342 | | 12,342 | |||||||||||||||||||||||||||||||
Income taxes payable |
| 23,087 | 12,952 | 3,043 | | (37,710 | ) | 1,372 | | 1,372 | ||||||||||||||||||||||||||||||
Current maturities of long-term debt |
| 23,406 | | | | | 23,406 | 124,365 | | 147,771 | ||||||||||||||||||||||||||||||
Accrued interest |
| 5,575 | | | 775 | | 6,350 | 1,833 | | 8,183 | ||||||||||||||||||||||||||||||
Payable to CURO Holdings Corp. |
2,656 | | | | | | 2,656 | (2,656 | ) | | ||||||||||||||||||||||||||||||
CSO guarantee liability |
| | 17,052 | | | | 17,052 | | 17,052 | |||||||||||||||||||||||||||||||
Deferred rent |
| | 10,006 | 1,862 | | | 11,868 | | 11,868 | |||||||||||||||||||||||||||||||
Long-term debt (excluding current maturities) |
| 414,082 | | | 63,054 | | 477,136 | | 477,136 | |||||||||||||||||||||||||||||||
Subordinated shareholder debt |
| | | 2,227 | | | 2,227 | | 2,227 | |||||||||||||||||||||||||||||||
Intercompany payable |
65,822 | 233,537 | | 85,346 | 54,626 | (439,331 | ) | | | | ||||||||||||||||||||||||||||||
Other long-term liabilities |
299 | | 1,741 | 2,976 | | | 5,016 | | 5,016 | |||||||||||||||||||||||||||||||
Deferred tax liabilities |
(2 | ) | 9,914 | 2,495 | 6,582 | | (4,693 | ) | 14,296 | 17 | | 14,313 | ||||||||||||||||||||||||||||
|
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|
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|
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|
|
|
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|
|
|
|
|
|
|
|||||||||||||||||||||
Total liabilities |
69,028 | 709,604 | 83,294 | 117,758 | 118,455 | (481,734 | ) | 616,405 | 126,194 | (2,656 | ) | 739,943 | ||||||||||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Stockholders equity |
155,964 | 187,498 | 690,200 | 147,838 | (7,620 | ) | (1,017,916 | ) | 155,964 | 40,855 | (155,964 | ) | 40,855 | |||||||||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total liabilities and stockholders equity |
$ | 224,992 | $ | 897,102 | $ | 773,494 | $ | 265,596 | $ | 110,835 | $ | (1,499,650 | ) | $ | 772,369 | $ | 167,049 | $ | (158,620 | ) | $ | 780,798 | ||||||||||||||||||
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|
F-36
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
Condensed Consolidating Statements of Income
Three Months Ended September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) |
CFTC |
CURO
Intermediate |
Subsidiary
Guarantors |
Subsidiary
Non-Guarantors |
SPV
Subs |
Eliminations | Consolidated | CURO | Eliminations |
CURO
Consolidated |
||||||||||||||||||||||||||||||
Revenue |
$ | | $ | | $ | 123,608 | $ | 61,293 | $ | 70,218 | $ | | $ | 255,119 | $ | | $ | | $ | 255,119 | ||||||||||||||||||||
Provision for losses |
| | 53,906 | 19,835 | 25,600 | | 99,341 | | | 99,341 | ||||||||||||||||||||||||||||||
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|
|
|
|
|
|||||||||||||||||||||
Net revenue |
| | 69,702 | 41,458 | 44,618 | | 155,778 | | | 155,778 | ||||||||||||||||||||||||||||||
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|
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|
|
|||||||||||||||||||||
Cost of providing services: |
| |||||||||||||||||||||||||||||||||||||||
Salaries and benefits |
| | 17,555 | 9,266 | | | 26,821 | | | 26,821 | ||||||||||||||||||||||||||||||
Occupancy |
| | 7,849 | 5,966 | | | 13,815 | | | 13,815 | ||||||||||||||||||||||||||||||
Office |
| | 4,682 | 1,123 | (90 | ) | | 5,715 | | | 5,715 | |||||||||||||||||||||||||||||
Other costs of providing services |
| | 10,990 | 1,773 | 228 | | 12,991 | | | 12,991 | ||||||||||||||||||||||||||||||
Advertising |
| | 12,004 | 4,266 | | | 16,270 | | | 16,270 | ||||||||||||||||||||||||||||||
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|
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|
|
|
|||||||||||||||||||||
Total cost of providing services |
| | 53,080 | 22,394 | 138 | | 75,612 | | | 75,612 | ||||||||||||||||||||||||||||||
|
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|
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|
|||||||||||||||||||||
Gross margin |
| | 16,622 | 19,064 | 44,480 | | 80,166 | | | 80,166 | ||||||||||||||||||||||||||||||
Operating (income) expense: |
| |||||||||||||||||||||||||||||||||||||||
Corporate and district |
327 | 15 | 28,155 | 8,987 | (3,861 | ) | | 33,623 | 631 | | 34,254 | |||||||||||||||||||||||||||||
Intercompany management fee |
| | (10,815 | ) | 4,200 | 6,615 | | | | | | |||||||||||||||||||||||||||||
Interest expense |
15,305 | | (98 | ) | 49 | 3,588 | | 18,844 | | | 18,844 | |||||||||||||||||||||||||||||
Restructuring costs |
| | | 7,393 | | | 7,393 | | | 7,393 | ||||||||||||||||||||||||||||||
Intercompany interest (income) expense |
| (1,054 | ) | (173 | ) | 1,227 | | | | | | | ||||||||||||||||||||||||||||
Other (income)/expense |
| | (13 | ) | 6 | | | (7 | ) | | | (7 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total operating expense |
15,632 | (1,039 | ) | 17,056 | 21,862 | 6,342 | | 59,853 | 631 | | 60,484 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net income (loss) before income taxes |
(15,632 | ) | 1,039 | (434 | ) | (2,798 | ) | 38,138 | | 20,313 | (631 | ) | | 19,682 | ||||||||||||||||||||||||||
Provision for income tax expense (benefit) |
(7,507 | ) | 17,793 | (1,832 | ) | 1,833 | | | 10,287 | (367 | ) | | 9,920 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net income (loss) |
(8,125 | ) | (16,754 | ) | 1,398 | (4,631 | ) | 38,138 | | 10,026 | (264 | ) | | 9,762 | ||||||||||||||||||||||||||
Equity in net income (loss) of subsidiaries: |
| |||||||||||||||||||||||||||||||||||||||
CFTC |
10,026 | (10,026 | ) | | ||||||||||||||||||||||||||||||||||||
CURO Intermediate |
(16,754 | ) | | | | | 16,754 | | | | | |||||||||||||||||||||||||||||
Guarantor Subsidiaries |
1,398 | | | | | (1,398 | ) | | | | | |||||||||||||||||||||||||||||
Non-Guarantor Subsidiaries |
(4,631 | ) | | | | | 4,631 | | | | | |||||||||||||||||||||||||||||
SPV Subs |
38,138 | | | | | (38,138 | ) | | | | | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net income (loss) attributable to CURO |
$ | 10,026 | $ | (16,754 | ) | $ | 1,398 | $ | (4,631 | ) | $ | 38,138 | $ | (18,151 | ) | $ | 10,026 | $ | 9,762 | $ | (10,026 | ) | $ | 9,762 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-37
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
Three Months Ended September 30, 2016 | ||||||||||||||||||||||||||||||||||||
(dollars in thousands) |
CFTC |
CURO
Intermediate |
Subsidiary
Guarantors |
Subsidiary
Non-Guarantors |
Eliminations |
CFTC
Consolidated |
CURO | Eliminations |
CURO
Consolidated |
|||||||||||||||||||||||||||
Revenue |
$ | | $ | | $ | 154,680 | $ | 58,244 | $ | | $ | 212,924 | $ | | $ | | $ | 212,924 | ||||||||||||||||||
Provision for losses |
| | 64,565 | 12,459 | | 77,024 | | | 77,024 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net revenue |
| | 90,115 | 45,785 | | 135,900 | | | 135,900 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Cost of providing services: |
| |||||||||||||||||||||||||||||||||||
Salaries and benefits |
| | 17,425 | 8,848 | | 26,273 | | | 26,273 | |||||||||||||||||||||||||||
Occupancy |
| | 7,520 | 5,825 | | 13,345 | | | 13,345 | |||||||||||||||||||||||||||
Office |
| | 3,966 | 850 | | 4,816 | | | 4,816 | |||||||||||||||||||||||||||
Other store operating expenses |
| | 11,302 | 1,298 | | 12,600 | | | 12,600 | |||||||||||||||||||||||||||
Advertising |
| | 8,611 | 3,220 | | 11,831 | | | 11,831 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total cost of providing services |
| | 48,824 | 20,041 | | 68,865 | | | 68,865 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Gross Margin |
| | 41,291 | 25,744 | | 67,035 | | | 67,035 | |||||||||||||||||||||||||||
Operating (income) expense: |
| |||||||||||||||||||||||||||||||||||
Corporate and district |
555 | 21 | 21,673 | 8,531 | | 30,780 | 27 | | 30,807 | |||||||||||||||||||||||||||
Intercompany management fee |
| | (3,303 | ) | 3,303 | | | | | |||||||||||||||||||||||||||
Interest expense |
| 12,057 | | (1 | ) | | 12,056 | 3,931 | | 15,987 | ||||||||||||||||||||||||||
Intercompany interest (income) expense |
| (1,195 | ) | (71 | ) | 1,266 | | | | | | |||||||||||||||||||||||||
Gain on extinguishment of debt |
| (6,991 | ) | | | (6,991 | ) | | | (6,991 | ) | |||||||||||||||||||||||||
Restructuring costs |
| | 426 | 1,060 | | 1,486 | | | 1,486 | |||||||||||||||||||||||||||
Other (income)/expense |
| | (164 | ) | 50 | | (114 | ) | | | (114 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total operating expense |
555 | 3,892 | 18,561 | 14,209 | | 37,217 | 3,958 | | 41,175 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net (loss) income before income taxes |
(555 | ) | (3,892 | ) | 22,730 | 11,535 | | 29,818 | (3,958 | ) | | 25,860 | ||||||||||||||||||||||||
Provision for income taxes |
(414 | ) | 6,550 | 1,645 | 3,819 | 11,600 | (1,517 | ) | | 10,083 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net income (loss) |
(141 | ) | (10,442 | ) | 21,085 | 7,716 | | 18,218 | (2,441 | ) | | 15,777 | ||||||||||||||||||||||||
Equity in net income (loss) of subsidiaries: |
| |||||||||||||||||||||||||||||||||||
CFTC |
18,218 | (18,218 | ) | | ||||||||||||||||||||||||||||||||
CURO Intermediate |
(10,442 | ) | | | | 10,442 | | | | | ||||||||||||||||||||||||||
Guarantor Subsidiaries |
21,085 | | | | (21,085 | ) | | | | | ||||||||||||||||||||||||||
Non-Guarantor Subsidiaries |
7,716 | | | | (7,716 | ) | | | | | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net income (loss) attributable to CURO |
$ | 18,218 | $ | (10,442 | ) | $ | 21,085 | $ | 7,716 | $ | (18,359 | ) | $ | 18,218 | $ | 15,777 | $ | (18,218 | ) | $ | 15,777 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-38
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
Nine Months Ended September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) |
CFTC |
CURO
Intermediate |
Subsidiary
Guarantors |
Subsidiary
Non-Guarantors |
SPV
Subs |
Eliminations |
CFTC
Consolidated |
CURO | Eliminations |
CURO
Consolidated |
||||||||||||||||||||||||||||||
Revenue |
$ | | $ | | $ | 337,920 | $ | 164,731 | $ | 193,992 | $ | | $ | 696,643 | $ | | $ | | $ | 696,643 | ||||||||||||||||||||
Provision for losses |
| | 118,042 | 45,865 | 62,616 | | 226,523 | | | 226,523 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net revenue |
| | 219,878 | 118,866 | 131,376 | | 470,120 | | | 470,120 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Cost of providing services: |
| |||||||||||||||||||||||||||||||||||||||
Salaries and benefits |
| | 53,144 | 26,410 | | | 79,554 | | | 79,554 | ||||||||||||||||||||||||||||||
Occupancy |
| | 23,785 | 17,636 | | | 41,421 | | | 41,421 | ||||||||||||||||||||||||||||||
Office |
| | 12,168 | 3,441 | (90 | ) | | 15,519 | | | 15,519 | |||||||||||||||||||||||||||||
Other store operating expenses |
| | 36,005 | 4,657 | 292 | | 40,954 | | | 40,954 | ||||||||||||||||||||||||||||||
Advertising |
| | 24,596 | 11,003 | | | 35,599 | | | 35,599 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total cost of providing services |
| | 149,698 | 63,147 | 202 | | 213,047 | | | 213,047 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Gross Margin |
| | 70,180 | 55,719 | 131,174 | | 257,073 | | | 257,073 | ||||||||||||||||||||||||||||||
Operating (income) expense: |
| |||||||||||||||||||||||||||||||||||||||
Corporate and district |
3,304 | (55 | ) | 71,534 | 25,703 | 320 | | 100,806 | 2,799 | | 103,605 | |||||||||||||||||||||||||||||
Intercompany management fee |
| | (17,624 | ) | 11,009 | 6,615 | | | | | | |||||||||||||||||||||||||||||
Interest expense |
37,761 | 9,613 | (97 | ) | 131 | 9,976 | | 57,384 | 3,310 | | 60,694 | |||||||||||||||||||||||||||||
Loss on extinguishment of debt |
| 11,884 | | | | | 11,884 | 574 | | 12,458 | ||||||||||||||||||||||||||||||
Restructuring costs |
| | | 7,393 | | | 7,393 | | | 7,393 | ||||||||||||||||||||||||||||||
Intercompany interest (income) expense |
| (3,244 | ) | (503 | ) | 3,747 | | | | | | | ||||||||||||||||||||||||||||
Other (income)/expense |
| | 395 | (203 | ) | | | 192 | | | 192 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total operating expense |
41,065 | 18,198 | 53,705 | 47,780 | 16,911 | | 177,659 | 6,683 | | 184,342 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net income (loss) before income taxes |
(41,065 | ) | (18,198 | ) | 16,475 | 7,939 | 114,263 | | 79,414 | (6,683 | ) | | 72,731 | |||||||||||||||||||||||||||
Provision for income tax expense (benefit) |
(17,633 | ) | 51,964 | (7,879 | ) | 6,266 | | | 32,718 | (2,730 | ) | | 29,988 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net income (loss) |
(23,432 | ) | (70,162 | ) | 24,354 | 1,673 | 114,263 | | 46,696 | (3,953 | ) | | 42,743 | |||||||||||||||||||||||||||
Equity in net income (loss) of subsidiaries: |
| |||||||||||||||||||||||||||||||||||||||
CFTC |
46,696 | (46,696 | ) | | ||||||||||||||||||||||||||||||||||||
CURO Intermediate |
(70,162 | ) | | | | | 70,162 | | | | | |||||||||||||||||||||||||||||
Guarantor Subsidiaries |
24,354 | | | | | (24,354 | ) | | | | | |||||||||||||||||||||||||||||
Non-Guarantor Subsidiaries |
1,673 | | | | | (1,673 | ) | | | | | |||||||||||||||||||||||||||||
SPV Subs |
114,263 | | | | | (114,263 | ) | | | | | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net income (loss) attributable to CURO |
$ | 46,696 | $ | (70,162 | ) | $ | 24,354 | $ | 1,673 | $ | 114,263 | $ | (70,128 | ) | $ | 46,696 | $ | 42,743 | $ | (46,696 | ) | $ | 42,743 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-39
Nine Months Ended September 30, 2016 | ||||||||||||||||||||||||||||||||||||
(dollars in thousands) |
CFTC |
CURO
Intermediate |
Subsidiary
Guarantors |
Subsidiary
Non-Guarantors |
Eliminations |
CFTC
Consolidated |
CURO | Eliminations |
CURO
Consolidated |
|||||||||||||||||||||||||||
Revenue |
| | 443,107 | 166,585 | | $ | 609,692 | | | $ | 609,692 | |||||||||||||||||||||||||
Provision for losses |
| | 142,598 | 35,158 | | 177,756 | | | 177,756 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net revenue |
| | 300,509 | 131,427 | | 431,936 | | | 431,936 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Cost of providing services: |
| |||||||||||||||||||||||||||||||||||
Salaries and benefits |
| | 52,626 | 26,733 | | 79,359 | | | 79,359 | |||||||||||||||||||||||||||
Occupancy |
| | 23,121 | 17,247 | | 40,368 | | | 40,368 | |||||||||||||||||||||||||||
Office |
| | 11,017 | 3,277 | | 14,294 | | | 14,294 | |||||||||||||||||||||||||||
Other store operating expenses |
| | 35,196 | 4,189 | | 39,385 | | | 39,385 | |||||||||||||||||||||||||||
Advertising |
| | 18,947 | 9,978 | | 28,925 | | | 28,925 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total cost of providing services |
| | 140,907 | 61,424 | | 202,331 | | | 202,331 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Gross Margin |
| | 159,602 | 70,003 | | 229,605 | | | 229,605 | |||||||||||||||||||||||||||
Operating (income) expense: |
| |||||||||||||||||||||||||||||||||||
Corporate and district |
1,432 | 168 | 64,312 | 28,901 | | 94,813 | 296 | | 95,109 | |||||||||||||||||||||||||||
Intercompany management fee |
(9,281 | ) | 9,281 | | | |||||||||||||||||||||||||||||||
Interest expense |
| 36,333 | | 52 | | 36,385 | 11,794 | | 48,179 | |||||||||||||||||||||||||||
Intercompany interest (income) expense |
| (3,659 | ) | (229 | ) | 3,888 | | | | | | |||||||||||||||||||||||||
Gain on extinguishment of debt |
| (6,991 | ) | | | | (6,991 | ) | | | (6,991 | ) | ||||||||||||||||||||||||
Restructuring costs |
| | 1,528 | 1,439 | | 2,967 | | | 2,967 | |||||||||||||||||||||||||||
Other (income)/expense |
| | (677 | ) | 118 | | (559 | ) | | | (559 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total operating expense |
1,432 | 25,851 | 55,653 | 43,679 | | 126,615 | 12,090 | | 138,705 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net income (loss) before income taxes |
(1,432 | ) | (25,851 | ) | 103,949 | 26,324 | | 102,990 | (12,090 | ) | 0 | 90,900 | ||||||||||||||||||||||||
Provision for income tax (benefit) expense |
(672 | ) | 20,083 | 10,595 | 9,791 | | 39,797 | (4,756 | ) | | 35,041 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net income (loss) |
(760 | ) | (45,934 | ) | 93,354 | 16,533 | | 63,193 | (7,334 | ) | 0 | 55,859 | ||||||||||||||||||||||||
Equity in net income (loss) of subsidiaries: |
| |||||||||||||||||||||||||||||||||||
CFTC |
63,193 | (63,193 | ) | | ||||||||||||||||||||||||||||||||
CURO Intermediate |
(45,934 | ) | | | | 45,934 | | | | | ||||||||||||||||||||||||||
Guarantor Subsidiaries |
93,354 | | | | (93,354 | ) | | | | | ||||||||||||||||||||||||||
Non-Guarantor Subsidiaries |
16,533 | | | | (16,533 | ) | | | | | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net income (loss) attributable to CURO |
$ | 63,193 | $ | (45,934 | ) | $ | 93,354 | $ | 16,533 | $ | (63,953 | ) | $ | 63,193 | $ | 55,859 | $ | (63,193 | ) | $ | 55,859 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-40
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
Condensed Consolidating Statements of Cash Flows
Nine Months Ended September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||
(dollars in thousands) |
CFTC |
CURO
Intermediate |
Subsidiary
Guarantors |
Subsidiary
Non-Guarantors |
SPV
Subs |
Eliminations |
CFTC
Consolidated |
CURO | Eliminations |
CURO
Consolidated |
||||||||||||||||||||||||||||||
Cash flows from operating activities |
||||||||||||||||||||||||||||||||||||||||
Net cash provided (used) |
$ | (275,549 | ) | $ | 423,621 | $ | (65,982 | ) | $ | (25,579 | ) | $ | (21,384 | ) | $ | (632 | ) | 34,495 | (5,083 | ) | | 29,412 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Cash flows from investing activities: |
| |||||||||||||||||||||||||||||||||||||||
Purchase of property, equipment and software |
| | (6,183 | ) | (1,734 | ) | | | (7,917 | ) | | | (7,917 | ) | ||||||||||||||||||||||||||
Cash paid for Zibby Investment |
(4,975 | ) | | | | | | (4,975 | ) | | | (4,975 | ) | |||||||||||||||||||||||||||
Change in restricted cash |
| 459 | (3,939 | ) | 120 | | | (3,360 | ) | | | (3,360 | ) | |||||||||||||||||||||||||||
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|
|
|
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|
|
|||||||||||||||||||||
Net cash provided (used) |
(4,975 | ) | 459 | (10,122 | ) | (1,614 | ) | | | (16,252 | ) | | | (16,252 | ) | |||||||||||||||||||||||||
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|||||||||||||||||||||
Cash flows from financing activities: |
| |||||||||||||||||||||||||||||||||||||||
Proceeds from Non-Recourse U.S. SPV Facility and ABL Facility |
| | | | 52,130 | | 52,130 | | | 52,130 | ||||||||||||||||||||||||||||||
Payments on Non-Recourse U.S. SPV Facility and ABL Facility |
| | | | (27,258 | ) | | (27,258 | ) | | | (27,258 | ) | |||||||||||||||||||||||||||
Proceeds from issuance of 12.00% Senior Secured Notes |
461,329 | | | | | | 461,329 | | | 461,329 | ||||||||||||||||||||||||||||||
Proceeds from revolving credit facilities |
25,000 | | | 8,028 | | | 33,028 | | | 33,028 | ||||||||||||||||||||||||||||||
Payments on revolving credit facilities |
(25,000 | ) | | | (8,028 | ) | | | (33,028 | ) | | | (33,028 | ) | ||||||||||||||||||||||||||
Payments on 10.75% Senior Secured Notes |
| (426,034 | ) | | | | | (426,034 | ) | | | (426,034 | ) | |||||||||||||||||||||||||||
Dividends (paid) received to/from CURO Group Holdings Corp. |
(166,583 | ) | | | | | | (166,583 | ) | 166,583 | | | ||||||||||||||||||||||||||||
Payments on Speedy Group Senior Secured Notes |
| | | | | | | (125,000 | ) | | (125,000 | ) | ||||||||||||||||||||||||||||
Dividends paid to stockholders |
| | | | | | | (36,500 | ) | | (36,500 | ) | ||||||||||||||||||||||||||||
Debt issuance costs paid |
(14,222 | ) | | | | | | (14,222 | ) | | | (14,222 | ) | |||||||||||||||||||||||||||
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|
|
|
|
|
|
|||||||||||||||||||||
Net cash provided (used) |
280,524 | (426,034 | ) | | | 24,872 | | (120,638 | ) | 5,083 | | (115,555 | ) | |||||||||||||||||||||||||||
|
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|
|||||||||||||||||||||
Effect of exchange rate changes on cash |
| | | 3,783 | | 632 | 4,415 | | | 4,415 | ||||||||||||||||||||||||||||||
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|
|
|||||||||||||||||||||
Net increase (decrease) in cash |
| (1,954 | ) | (76,104 | ) | (23,410 | ) | 3,488 | | (97,980 | ) | | | (97,980 | ) | |||||||||||||||||||||||||
Cash at beginning of period |
| 1,954 | 124,942 | 63,779 | 2,770 | | 193,445 | 80 | 193,525 | |||||||||||||||||||||||||||||||
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|
|||||||||||||||||||||
Cash at end of period |
$ | | $ | | $ | 48,838 | $ | 40,369 | $ | 6,258 | $ | | $ | 95,465 | $ | 80 | $ | | $ | 95,545 | ||||||||||||||||||||
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F-41
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
Nine Months Ended September 30, 2016 | ||||||||||||||||||||||||||||||||||||
(dollars in thousands) |
CFTC |
CURO
Intermediate |
Subsidiary
Guarantors |
Subsidiary
Non-Guarantors |
Eliminations |
CFTC
Consolidated |
CURO | Eliminations |
CURO
Consolidated |
|||||||||||||||||||||||||||
Cash flows from operating activities |
||||||||||||||||||||||||||||||||||||
Net cash provided (used) |
$ | 19 | $ | 8,509 | $ | 46,344 | $ | 33,231 | $ | (872 | ) | 87,231 | (1,402 | ) | | 85,829 | ||||||||||||||||||||
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|
|||||||||||||||||||
Cash flows from investing activities: |
| |||||||||||||||||||||||||||||||||||
Purchase of property, equipment and software |
(19 | ) | | (6,057 | ) | (3,663 | ) | | (9,739 | ) | | | (9,739 | ) | ||||||||||||||||||||||
Change in restricted cash |
| (459 | ) | 4,477 | 1,910 | | 5,928 | | | 5,928 | ||||||||||||||||||||||||||
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|
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|
|
|||||||||||||||||||
Net cash provided (used) |
(19 | ) | (459 | ) | (1,580 | ) | (1,753 | ) | | (3,811 | ) | | | (3,811 | ) | |||||||||||||||||||||
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Cash flows from financing activities: |
| |||||||||||||||||||||||||||||||||||
Proceeds from credit facility |
| 30,000 | | | | 30,000 | | | 30,000 | |||||||||||||||||||||||||||
Payments on credit facility |
| (38,050 | ) | | | | (38,050 | ) | | | (38,050 | ) | ||||||||||||||||||||||||
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|
|
|
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|
|
|
|
|
|
|
|
|||||||||||||||||||
Net cash provided (used) |
| (8,050 | ) | | | | (8,050 | ) | | | (8,050 | ) | ||||||||||||||||||||||||
|
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Effect of exchange rate changes on cash |
| | | 17 | 872 | 889 | | | 889 | |||||||||||||||||||||||||||
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|||||||||||||||||||
Net increase in cash |
| | 44,764 | 31,495 | | 76,259 | (1,402 | ) | | 74,857 | ||||||||||||||||||||||||||
Cash at beginning of period |
| 2 | 57,149 | 41,928 | | 99,079 | 1,482 | | 100,561 | |||||||||||||||||||||||||||
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Cash at end of period |
$ | | $ | 2 | $ | 101,913 | $ | 73,423 | $ | | $ | 175,338 | $ | 80 | $ | | $ | 175,418 | ||||||||||||||||||
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NOTE 21SUBSEQUENT EVENTS
The Company has determined that a limited universe of borrowers may have incurred bank overdraft or non-sufficient funds fees because of possible confusion about certain electronic payments the Company initiated on their loans. As a result, the Company has decided to reimburse such fees upon demonstration by affected borrowers that the fees were incurred. Based on the terms as currently contemplated, the Company does not expect reimbursements to exceed $4.0 million and expects to recognize related charges in the fourth quarter of 2017.
Private Offering of Additional Notes and Consent Solicitation
On November 2, 2017, CFTC issued $135 million principal amount of additional 12.00% Senior Secured Notes due 2022 in a private offering exempt from the registration requirements of the Securities Act (the Additional Notes Offering). The proceeds from the Additional Notes Offering were used, together with available cash, to (i) pay a cash dividend, in an amount of $140 million, to its sole stockholder and (ii) pay fees, expenses, premiums and accrued interest in connection with the Additional Notes Offering. In addition to the Additional Notes Offering, CFTC received the consent of the holders holding a majority in the outstanding principal amount outstanding of the current 12.00% Senior Secured Notes due 2022 to a one-time waiver with respect to the restrictions contained in Section 5.07(a) of the Indenture governing the Senior Secured Notes to permit the dividend closing.
Legal Proceedings
Harrison, et al v. Principal Investments, Inc. et al
During the period relevant to this matter, the Company pursued in excess of 16,000 claims in the limited actions and jurisdiction court in Clark County, Nevada, seeking repayment of loans on which customers had defaulted. The Company utilized outside counsel to file these debt collection lawsuits. On Scene Mediations, a process serving company, was employed to serve the summons and petitions in the majority of these cases. In an unrelated matter, the principal of On Scene Mediations was convicted of multiple accounts of perjury and filing false affidavits to obtain judgments on behalf of a Las Vegas collection agency. In September 2010, we were sued by four former customers in a proposed class action suit filed in the District Court in Clark County, Nevada. The plaintiffs in this case claimed that they, and others in the proposed class, were not properly served notice of the debt collection lawsuits by the Company.
F-42
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED (continued)
On June 7, 2017, the parties reached a settlement in this matter. The Company accrued approximately $2.0 million as a result of this settlement during the second quarter of 2017. At a hearing before the District Court in Clark County, Nevada, on July 24, 2017 the Court granted preliminary approval of the settlement. On October 30, 2017, the court issued final approval of the class settlement.
City of Austin
We were cited on July 5, 2016 by the City of Austin, Texas for alleged violations of the Austin, Texas ordinance addressing products offered by CSOs. The Texas ordinances regulate aspects of products offered under our CAB programs, including loan sizes and repayment terms. We believe that: (1) the Austin ordinance (like its counterparts elsewhere in the state) conflicts with Texas state law and (2) our product in any event complies with the ordinance, when it is properly construed. An Austin trial court agreed with our position that the ordinance conflicts with Texas law and, accordingly, did not address our second argument. In August 2017, an Austin appellate court reversed a trial courts decision and remanded the case to trial court for further proceedings. We appealed the appellate decision in October 2017, and the appeal is currently pending. We will not have a final determination of the lawfulness of our CAB program under the Austin ordinance (and similar ordinances in other Texas cities) for some time. A final adverse decision could potentially result in material monetary liability in Austin and elsewhere and would force us to restructure the loans we arrange in Texas.
Stock Split
On November 8, 2017, the Board of Directors of the Company approved a 36-for-1 stock split of its common stock that will occur prior to the effectiveness of the Registration Statement. The stock split and related amendment to the certificate of incorporation will result in a thirty-six times increase in the number of authorized and outstanding shares of common stock. In addition, the Company plans to amend its certificate of incorporation prior to the effectiveness of the Registration Statement to increase the number of authorized shares. All share and per share amounts for all periods presented within these consolidated financial statements have been adjusted to reflect the impact of the stock split.
These events were evaluated through the date these financial statements were originally available to be issued, October 24, 2017. In connection with the reissuance of these interim financial statements for the stock split described in this Note 21, the Company has considered whether there are other subsequent events that have occurred since October 24, 2017 through November 27, 2017, the date of reissuance, that require recognition or disclosure in these interim financial statements and believes that there are no other such events.
F-43
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
CURO Group Holdings Corp.
We have audited the accompanying consolidated balance sheets of CURO Group Holdings Corp. and subsidiaries (the Company) as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, changes in stockholders equity, and cash flows for each of the two years in the period ended December 31, 2016. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CURO Group Holdings Corp. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, the Company adopted new accounting guidance in 2016 and 2015, related to the presentation of deferred financing costs.
GRANT THORNTON LLP
Kansas City, Missouri
July 12, 2017 (except for Note 23, as to which the date is )
F-44
The foregoing auditors report is in the form that will be signed upon consummation of the transaction described in Note 23 to the financial statements.
/s/ GRANT THORNTON LLP
Kansas City, Missouri
November 27, 2017
F-45
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
See accompanying Notes to Consolidated Financial Statements.
F-46
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
Year Ended
December 31, |
||||||||
2016 | 2015 | |||||||
REVENUE |
||||||||
Revenues |
$ | 828,596 | $ | 813,131 | ||||
COST OF PROVIDING SERVICES |
||||||||
Provision for losses |
258,289 | 281,210 | ||||||
Salaries and benefits |
104,541 | 107,059 | ||||||
Occupancy |
54,509 | 53,288 | ||||||
Office |
20,463 | 19,929 | ||||||
Other store operating expenses |
53,617 | 47,380 | ||||||
Advertising |
43,921 | 65,664 | ||||||
|
|
|
|
|||||
Total cost of providing services |
535,340 | 574,530 | ||||||
|
|
|
|
|||||
GROSS MARGIN |
293,256 | 238,601 | ||||||
OTHER (INCOME) EXPENSE |
||||||||
Corporate expenses |
114,269 | 117,109 | ||||||
District expenses |
10,850 | 11,937 | ||||||
Interest expense |
64,334 | 65,020 | ||||||
Gain on extinguishment of debt |
(6,991 | ) | | |||||
Goodwill and intangible asset impairment charges |
| 2,882 | ||||||
Restructuring costs |
3,618 | 4,291 | ||||||
Fair value adjustment to contingent consideration |
| | ||||||
Other, net |
(845 | ) | 1,488 | |||||
|
|
|
|
|||||
Total other expense |
185,235 | 202,727 | ||||||
|
|
|
|
|||||
NET INCOME BEFORE INCOME TAXES |
108,021 | 35,874 | ||||||
Provision for income taxes |
42,577 | 18,105 | ||||||
|
|
|
|
|||||
NET INCOME |
$ | 65,444 | $ | 17,769 | ||||
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
F-47
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Year Ended
December 31, |
||||||||
2016 | 2015 | |||||||
NET INCOME |
$ | 65,444 | $ | 17,769 | ||||
Other comprehensive loss: |
||||||||
Cash flow hedges |
(333 | ) | | |||||
Foreign currency translation adjustment |
(6,022 | ) | (30,512 | ) | ||||
|
|
|
|
|||||
Other comprehensive loss |
(6,355 | ) | (30,512 | ) | ||||
|
|
|
|
|||||
COMPREHENSIVE INCOME (LOSS) |
$ | 59,089 | $ | (12,743 | ) | |||
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
F-48
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands, except share data)
Stockholders Equity | ||||||||||||||||||||
Common
Stock |
Dividends in
excess of paid-in capital |
Retained
earnings |
AOCI(1) | Total | ||||||||||||||||
Balance, December 31, 2014 |
$ | 1 | $ | (38,044 | ) | $ | 53,622 | $ | (23,118 | ) | $ | (7,539 | ) | |||||||
Net income |
| | 17,769 | | 17,769 | |||||||||||||||
Foreign currency translation adjustment |
| | | (30,512 | ) | (30,512 | ) | |||||||||||||
Repurchase of equity award |
| (371 | ) | | | (371 | ) | |||||||||||||
Share-based compensation expense |
| 1,271 | | | 1,271 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, December 31, 2015 |
1 | (37,144 | ) | 71,391 | (53,630 | ) | (19,382 | ) | ||||||||||||
|
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|
|
|
|
|
|
|
|||||||||||
Net income |
| | 65,444 | | 65,444 | |||||||||||||||
Foreign currency translation adjustment |
| | | (6,022 | ) | (6,022 | ) | |||||||||||||
Cash flow hedge |
| | | (333 | ) | (333 | ) | |||||||||||||
Share-based compensation expense |
| 1,148 | | | 1,148 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance, December 31, 2016 |
$ | 1 | $ | (35,996 | ) | $ | 136,835 | $ | (59,985 | ) | $ | 40,855 | ||||||||
|
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|
|
(1) | Accumulated other comprehensive loss. |
See accompanying Notes to Consolidated Financial Statements.
F-49
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended
December 31, |
||||||||
2016 | 2015 | |||||||
Cash flows from operating activities |
||||||||
Net income |
$ | 65,444 | $ | 17,769 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
18,905 | 19,112 | ||||||
Provision for loan losses |
258,289 | 281,210 | ||||||
Goodwill and intangible asset impairment charges |
| 2,882 | ||||||
Restructuring costs |
523 | 2,249 | ||||||
Fair value adjustment to contingent consideration |
| | ||||||
Amortization of deferred financing costs |
3,289 | 3,221 | ||||||
Amortization of bond premium |
(1,541 | ) | (1,404 | ) | ||||
Benefit for deferred income taxes |
(680 | ) | (2,190 | ) | ||||
Loss on disposal of property and equipment |
217 | 628 | ||||||
Gain on extinguishment of debt |
(6,991 | ) | | |||||
Increase in cash surrender value of life insurance |
(918 | ) | | |||||
Share-based compensation expense |
1,148 | 1,271 | ||||||
Changes in operating assets and liabilities, net of effects from business acquisition: |
||||||||
Loans receivable |
(287,827 | ) | (301,581 | ) | ||||
Prepaid expenses and other assets |
(5,733 | ) | (3,152 | ) | ||||
Accounts payable and accrued liabilities |
2,010 | (2,168 | ) | |||||
Deferred revenue |
(2,080 | ) | 4,644 | |||||
Income taxes payable |
6,852 | (4,278 | ) | |||||
Income taxes receivable |
(7,154 | ) | (1,713 | ) | ||||
Deferred rent |
290 | 554 | ||||||
Other liabilities |
3,669 | 60 | ||||||
|
|
|
|
|||||
Net cash provided by operating activities |
47,712 | 17,114 | ||||||
|
|
|
|
|||||
Cash flows from investing activities |
||||||||
Purchase of property, equipment and software |
(16,026 | ) | (19,832 | ) | ||||
Changes in restricted cash |
3,104 | (6,423 | ) | |||||
Cash paid for business acquisition, net of cash acquired |
| | ||||||
|
|
|
|
|||||
Net cash used in investing activities |
(12,922 | ) | (26,255 | ) | ||||
|
|
|
|
|||||
Cash flows from financing activities |
||||||||
Proceeds from credit facilities |
30,000 | 57,050 | ||||||
Payments on credit facilities |
(38,050 | ) | (69,000 | ) | ||||
Deferred financing costs incurred |
(5,346 | ) | | |||||
Proceeds from Non-Recourse U.S. SPV facility and ABL facility |
91,717 | | ||||||
Purchase of May 2011 senior secured notes |
(18,939 | ) | | |||||
Payment for cash settlement of equity award |
| (371 | ) | |||||
Payments on contingent consideration |
| | ||||||
|
|
|
|
|||||
Net cash provided by (used in) financing activities |
59,382 | (12,321 | ) | |||||
|
|
|
|
|||||
Effect of exchange rate changes on cash |
(1,208 | ) | (8,064 | ) | ||||
|
|
|
|
|||||
Net increase (decrease) in cash |
92,964 | (29,526 | ) | |||||
Cash at beginning of period |
100,561 | 130,087 | ||||||
|
|
|
|
|||||
Cash at end of period |
$ | 193,525 | $ | 100,561 | ||||
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
F-50
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
On May 11, 2016, we changed the name of Speedy Group Holdings Corp. to CURO Group Holdings Corp. (CURO); the name of Speedy Cash Holdings Corp. to CURO Financial Technologies Corp. (CFTC); and the name of Speedy Cash Intermediate Holdings Corp. to CURO Intermediate Holdings Corp (CURO Intermediate).
The terms we, our, us, and the Company refer to CURO and its directly and indirectly owned subsidiaries as a combined entity, except where otherwise stated.
We have prepared the accompanying audited Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America (US GAAP).
Principles of Consolidation
The Consolidated Financial Statements include the accounts of CURO and its wholly-owned subsidiaries. Intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the periods reported. Some of the significant estimates that we have made in the accompanying consolidated financial statements include allowances for loan losses, certain assumptions related to goodwill and intangibles, contingent consideration, accruals related to self-insurance, Credit Services Organization (CSO) guarantee liability and estimated tax liabilities. Actual results may differ from those estimates.
Cash
We currently maintain cash balances in the United States, Canada and the United Kingdom. At December 31, 2016 we have $129.7 million, $53.1 million and $10.7 million in our cash accounts in the United States, Canada and the United Kingdom, respectively. Of the $129.7 million in the United States, approximately $128.4 million is not insured by the Federal Deposit Insurance Corporation.
Consumer Loans Receivable
Consumer loans receivable are net of the allowance for loan losses and are comprised of single-pay and Unsecured Installment and Secured Installment Loans. Our Single-Pay Loans are primarily comprised of payday loans and auto title loans. A payday loan transaction consists of providing a customer cash in exchange for the customers personal check or Automated Clearing House (ACH) authorization (in the aggregate amount of that cash plus a service fee), with an agreement to defer the presentment or deposit of that check or scheduled ACH withdrawal until the customers next payday, which is typically either two weeks or a month from the loans
F-51
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
origination date. An auto title loan allows a customer to obtain a loan using the customers car as collateral for the loan, with a typical loan term of 30 days. Because of the short-term nature of these receivables, we classify all single-pay payday and single-pay auto title loans as current receivables.
Unsecured Installment, Secured Installment and Open-End Loans require periodic payments of principal and interest. Installment Loans are fully amortized loans with a fixed payment amount due each period during the term of the loan. Open-End Loans function much like a revolving line-of-credit, whereby the periodic payment is a set percentage of the customers outstanding loan balance, and there is no defined loan term. The loan terms for Installment Loans can range from 3 to 42 months, depending on state regulations. Installment Loans with a maturity of twelve months or less are classified as current receivables. For Installment Loans with a maturity of greater than twelve months, payments due within twelve months are classified as current receivables, and the payments that are due past twelve months are classified as noncurrent receivables. Open-End Loans are classified as noncurrent receivables. Installment and Open-End Loans are offered as both Secured auto title loans and as Unsecured Loan products. The product offerings differ by jurisdiction and are governed by the laws in each separate jurisdiction.
Provision for Loan Losses and Allowance for Loan Losses
We maintain an allowance for loan losses at a level estimated to be adequate to absorb credit losses associated with our consumer loans receivable. The allowance is shown as a reduction of the consumer loans receivable balance on the accompanying Consolidated Balance Sheets. The allowance is established by loan type and is based upon an evaluation of our historical collection performance and loan losses for each type of loan product.
The allowance for loan losses is primarily based upon models that backtest subsequent collections history for each type of loan product. We do not specifically reserve for any individual loan but rather segregate loans into separate pools based upon loan portfolios containing similar risk characteristics. Additional quantitative factors, such as current default trends and changes to the portfolio mix are also considered in evaluating the accuracy of the models. Qualitative factors such as the impact of new loan products, changes to underwriting criteria or lending policies, new store development or entrance into new markets, changes in jurisdictional regulations or laws, recent credit trends and general economic conditions impact managements judgment on the overall adequacy of the allowance for loan losses.
Management believes that the allowance for loan losses is adequate. Potential losses associated with returned checks or ACHs for consumer loans receivable are immediately charged to operations in the period such checks are returned or loan nonpayment occurs, since ultimate collection of these items is uncertain. Delinquent loans are removed from the balance sheet and are charged to the provision for losses. Recoveries are credited to the provision for losses in the period in which the recovery is received.
Credit Services Organization
Through our CSO programs, we act as a credit services organization/credit access business on behalf of customers in accordance with applicable state laws. We currently offer loans through CSO programs in stores and online in the state of Texas and online in the state of Ohio. In Texas we offer Unsecured Installment Loans and Secured Installment Loans with a maximum term of 180 days. In Ohio we offer an Unsecured Installment Loan product with a maximum term of 18 months. As a CSO we earn revenue by charging the customer a fee (the CSO fee) for arranging an unrelated third-party to make a loan to that customer. When a customer executes an agreement with us under our CSO programs, we agree, for a CSO 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
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loan the customer receives from the third-party lender. CSO fees are calculated based on the amount of the customers outstanding loan. For CSO loans, each lender is responsible for providing the criteria by which the customers application is underwritten and, if approved, determining the amount of the customer loan. We in turn are responsible for assessing whether or not we will guarantee the loan. This guarantee represents an obligation to purchase specific loans if they go into default.
As of December 31, 2016, the maximum amount payable under all such guarantees was $59.6 million, compared to $52.0 million at December 31, 2015. Should we be required to pay any portion of the total amount of the loans we have guaranteed, we will attempt to recover the amount we pay from the customers. We hold no collateral in respect of the guarantees.
These guarantees are performance guarantees as defined in ASC Topic 460. Performance guarantees are initially accounted for pursuant to ASC Topic 460 and recognized at fair value, and subsequently pursuant to ASC Topic 450 as contingent liabilities when we incur losses as the guarantor. The initial measurement of the guarantee liability is recorded at fair value and reported in the Credit services organization guarantee liability line in our Consolidated Balance Sheets. The initial fair value of the guarantee is the price we would pay to a third party market participant to assume the guarantee liability. There is no active market for transferring the guarantee liability. Accordingly, we determine the initial fair value of the guarantee by estimating the expected losses on the guaranteed loans. The expected losses on the guaranteed loans are estimated by assessing the nature of the loan products, the credit worthiness of the borrowers in the customer base, our historical loan default history for similar loans, industry loan default history, and historical collection rates on similar products, current default trends, past-due account roll rates, changes to underwriting criteria or lending policies, new store development or entrance into new markets, changes in jurisdictional regulations or laws, recent credit trends and general economic conditions. We review the factors that support estimates of expected losses and the guarantee liability monthly. In addition, because the majority of the underlying loan customers make bi-weekly payments, loan-pool payment performance is evaluated more frequently than monthly.
Our guarantee liability was $17.1 million and $17.8 million at December 31, 2016 and December 31, 2015, respectively. This liability represents the unamortized portion of the guarantee obligation required to be recognized at inception of the performance guarantee in accordance with ASC Topic 460 and a contingent liability for those performance guarantees where it is probable that we will be required to purchase the guaranteed loan from the lender in accordance with ASC Topic 450.
CSO fees are calculated based on the amount of the customers outstanding loan. We comply with the applicable 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. For services we provide under our CSO programs, we receive payments from customers on their scheduled loan repayment due dates. The CSO fee is earned ratably over the term of the loan as the customers make payments. If a loan is paid off early, no additional CSO fees are due or collected. The maximum CSO loan term is 180 days and 18 months in Texas and Ohio, respectively. During the years ended December 31, 2016 and 2015, approximately 53.2% and 57.6%, respectively, of Unsecured Installment Loans, and 62.5% and 63.2%, respectively, of Secured Installment Loans originated under CSO programs were paid off prior to the original maturity date.
Since CSO loans are made by a third party lender, we do not include them in our Consolidated Balance Sheets as loans receivable. CSO fees receivable are included in Prepaid expense and other in our Consolidated Balance Sheets. We receive payments from customers for these fees on their scheduled loan repayment due dates.
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Variable Interest Entity
As part of our funding strategy and as part of our efforts to support our liquidity from sources other than our traditional capital market sources, we established a securitization program through a U.S. SPV Facility. We transferred certain consumer loan receivables to a wholly-owned, bankruptcy-remote special purpose subsidiary (VIE), that issues term notes backed by the underlying consumer loan receivables and are serviced by another wholly-owned subsidiary.
We are required to evaluate this VIE for consolidation. We have the ability to direct the activities of the VIE that most significantly impact the economic performance of the entities as the servicer of the securitized loan receivables. Additionally, we have the right to receive residual payments, which expose us to potentially significant losses and returns. Accordingly, we determined that we are the primary beneficiary of the VIE and are required to consolidate them. See Note 10Long-Term Debt for further discussion.
Cash Flow Hedge
As of December 31, 2016 we have an outstanding cash flow hedge in which the hedging instrument is a forward extra to sell GBP 4,800,000 with monthly expiration dates through May 2017. We have performed an assessment that determined that all critical terms of the hedging instrument and the hedged transaction match and as such have qualitatively concluded that changes in the hedges intrinsic value will completely offset the change in the expected cash flows based on changes in the spot rate. In making that determination, the guidance in ASC 815-20-25-84 was used. Future assessment will be performed utilizing the guidance in ASC 815-20-35-9 through 35-13, Relative Ease of Assessing Effectiveness. Additionally, in accordance with ASC 815-20-25-82, since the effectiveness of this hedge is assessed based on changes in the hedges intrinsic value, the change in the time value of the contract would be excluded from the assessment of hedge effectiveness.
We recorded the hedges fair value on the balance sheet in current liabilities. Changes in the hedges intrinsic value, to the extent that they are effective as a hedge, are recorded in other comprehensive income. As of December 31, 2016 we have recorded $0.3 million in other comprehensive income associated with this hedge.
Property and Equipment
Property and equipment is carried at cost less accumulated depreciation and amortization, except for property and equipment accounted for as part of a business combination, which is carried at fair value as of the acquisition date less accumulated depreciation and amortization. Expenditures for major additions and improvements are capitalized. Maintenance repairs and renewals, which neither materially add to the value, nor appreciably prolong its life, are charged to expense as incurred. Gains and losses on dispositions of property and equipment are included in operations.
The estimated useful lives for furniture, fixtures and equipment are seven to ten years. The estimated useful lives for leasehold improvements are the shorter of the estimated useful life of the asset, or the term of the lease, and vary from one year to fifteen years.
Goodwill and Other Intangible Assets
Our impairment testing for goodwill and indefinite-lived intangible assets is performed annually during the fourth quarter. However, we test for impairment between our annual tests if an event occurs or if circumstances change that indicate that the asset would be impaired, or, in the case of goodwill, that the fair value of a reporting unit is below its carrying value. These events or circumstances could include a significant change in the business
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climate, a change in strategic direction, legal factors, operating performance indicators, a change in the competitive environment, the sale or disposition of a significant portion of a reporting unit, or future economic factors.
Goodwill
Goodwill is initially valued based on the excess of the purchase price of a business combination over the fair value of the acquired net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Intangible assets other than goodwill are initially valued at fair value. When appropriate, we utilize independent valuation experts to advise and assist us in determining the fair value of the identified intangible assets acquired in connection with a business acquisition and in determining appropriate amortization methods and periods for those intangible assets. Any contingent consideration included as part of the purchase is recognized at its fair value on the acquisition date.
Our annual impairment review for goodwill consists of performing a qualitative assessment to determine whether it is more likely than not that a reporting units fair value is less than its carrying amount as a basis for determining whether or not further testing is required. We may elect to bypass the qualitative assessment and proceed directly to the two-step process, for any reporting unit, in any period. We can resume the qualitative assessment for any reporting unit in any subsequent period. If we determine, on the basis of qualitative factors, that it is more likely than not that the fair value of the reporting unit is less than the carrying amount, we will then apply a two-step process of determining the fair value of the reporting unit and comparing it to the carrying value of the net assets allocated to the reporting unit. When performing the two-step process, if the fair value of the reporting unit exceeds it carrying value, no further analysis or write-down of goodwill is required. In the event the estimated fair value of a reporting unit is less than the carrying value, additional analysis is required. The additional analysis compares the carrying amount of the reporting units goodwill with the implied fair value of the goodwill. The use of external independent valuation experts may be required to assist management in determining the fair value of the reporting unit. The implied fair value of the goodwill is the excess of the fair value of the reporting unit over the fair value amounts assigned to all of the assets and liabilities of that unit as if the reporting unit was acquired in a business combination and the fair value of the reporting unit represented the purchase price. If the carrying value of goodwill exceeds its implied fair value, an impairment loss equal to such excess is recognized, which could significantly and adversely impact reported results of operations and shareholders equity. During the fourth quarter of 2016, we performed the first step of the two-step process and determined that the implied fair value of our reporting units exceed their carrying values, and therefore, the second step was not performed and no further analysis or write-down of goodwill is required.
During the third quarter of 2015, due to the declines in our overall financial performance in the United Kingdom, we determined that a triggering event had occurred requiring an impairment evaluation of our goodwill and other intangible assets in the United Kingdom. As a result, during the third quarter of 2015, we recorded non-cash impairment charges of $2.9 million which were comprised of a $1.8 million charge related to the Wage Day trade name, a $0.2 million charge related to the customer relationships acquired as part of the Wage Day acquisition, and a $0.9 million non-cash goodwill impairment charge in our U.K. reporting segment.
For the U.K. reporting unit, the estimated fair value as determined by the Discounted Cash Flow (DCF) model was lower than the associated carrying value. As a result, management performed the second step of the impairment analysis in order to determine the implied fair value of the U.K.s goodwill. The results of the second-step analysis indicated that the implied fair value of goodwill was £17.7 million. Therefore, in 2015, we recorded a non-cash goodwill impairment charge of £0.6 million ($0.9 million). The key assumptions used to determine the fair value of the U.K. reporting unit included the following: (a) the discount rate was 11%; (b) terminal period growth rate of 2.0%; and (c) effective combined tax rate of 20%.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During the 2015 annual review of goodwill, we performed the qualitative assessment for our United States and Canada reporting units. Management concluded that it was not more likely than not that the estimated fair values of these two reporting units were less than their carrying values. As such, no further analysis was required for these reporting units. As part of this annual impairment test in the fourth quarter, we reviewed our analysis done in the third quarter for the United Kingdom and updated projections as appropriate. Management concluded as a result of this analysis that it was not more likely than not that the estimated fair values of the reporting units were less than their carrying values.
The impairment of the goodwill on our U.K. reporting unit resulted primarily from changes to the regulatory environment in the United Kingdom that resulted in managements downward revision of its cash flow projections for the U.K. reporting unit. The primary driver of decreased volumes in the United Kingdom was the direct result of regulatory changes, primarily the new Financial Conduct Authority (FCA) rules that took effect on July 1, 2014, which reduced loan refinancing transactions from three to two and reduced the number of continuous payment authority attempts from three to two. Additionally, the FCA implemented a rate cap on high-cost short-term credit products that took effect on January 2, 2015. This price cap includes three components: 1) an initial cap of 0.8% of the outstanding principal per day; 2) a default fee fixed rate of £15; and 3) a total cost of credit cap of 100% of the total amount borrowed applying to all interest, fees and charges. With the imposition of the new rate cap, we ceased offering any new Installment Loan products in the United Kingdom in favor of a new rate capped Single-Pay Loan product. Additionally, the increase in compliance requirements has driven up the administrative costs necessary to operate in the United Kingdom. We modeled the impact of all of these regulatory changes in the projections used in our second-step analysis.
Other Intangible Assets
Our identifiable intangible assets, which resulted from business combinations, consist of trade names, customer relationships, computer software, provincial licenses, franchise agreements and positive leasehold interests.
The Wage Day and Cash Money trade names were determined to be intangible assets with indefinite lives. Intangible assets with indefinite lives are not amortized and are tested annually for impairment and are also reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset might not be recoverable. Impairment of identifiable intangible assets with indefinite lives occurs when the fair value of the asset is less than its carrying amount. If impaired, the assets carrying amount is reduced to its fair value. In the fourth quarter of 2016, we tested these intangible assets with indefinite lives for impairment and concluded that no impairment exists as the fair value of these assets is greater than its carrying amounts.
In our interim analysis during the third quarter of 2015 mentioned above, we estimated the fair value of the Wage Day trade name using the relief-from-royalty method, which utilized several significant assumptions, including management projections of future revenue, a royalty rate, a long-term growth rate, and a discount rate. As these assumptions are largely unobservable, the estimate of fair value is considered to be unobservable within the fair value hierarchy. The significant unobservable inputs included projected revenues with annual growth rates, a royalty rate, a growth rate of 2.0% in the terminal period, and a discount rate of 15%. The carrying value of the Wage Day trade name exceeded its estimated fair value by £1.2 million. Accordingly, we recorded an impairment charge of £1.2 million ($1.8 million) during 2015, which was included in Goodwill and intangible asset impairment charges in our Consolidated Statements of Income.
As part of the annual impairment test in the fourth quarter of 2015, we relied on our analysis done in the third quarter for the Wage Day trade name intangible asset. Management concluded as a result of this analysis that the fair value of the asset was equal to its carrying amount.
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Our finite lived intangible assets are amortized over their estimated economic benefit period, generally from three to seven years. These finite lived intangible assets are reviewed for impairment whenever events or changes in circumstances have indicated that the carrying amount of these assets might not be recoverable. If we were to determine that events and circumstances warrant a change to the estimate of an identifiable intangible assets remaining useful life, then the remaining carrying amount of the identifiable intangible asset would be amortized prospectively over that revised remaining useful life. Additionally, information resulting from our annual assessment, or other events and circumstances, may indicate that the carrying value of one or more identifiable intangible assets is not recoverable which would result in recognition of an impairment charge. There were no changes in events or circumstances that would cause us to review our finite lived intangible assets for impairment in 2016.
Business Combination Accounting
We have acquired businesses in the past, and we may acquire additional businesses in the future. Business combination accounting requires us to determine the fair value of all assets acquired, including identifiable intangible assets, liabilities assumed, and contingent consideration issued in a business combination. The cost of the acquisition is allocated to these assets and liabilities in amounts equal to the estimated fair value of each asset and liability, and any remaining acquisition cost is classified as goodwill. This allocation process requires extensive use of estimates and assumptions, including estimates of future cash flows to be generated by the acquired assets. We engage third-party appraisal firms to assist in fair value determination when appropriate. Our acquisitions may also include contingent consideration, or earn-out provisions, which provide for additional consideration to be paid to the seller if certain future conditions are met. These earn-out provisions are estimated and recognized at fair value at the acquisition date based on projected earnings or other financial metrics over specified periods after the acquisition date. These estimates are reviewed during each reporting period and adjusted based upon actual results. Acquisition-related costs for potential and completed acquisitions are expensed as incurred, and are included in corporate expense in the Consolidated Statements of Income.
Deferred Financing Costs
Deferred financing costs consist of debt issuance costs incurred in obtaining financing. These costs are presented in the balance sheet as a direct reduction from the carrying amount of associated debt, consistent with discounts or premiums. The effective interest rate method is used to amortize the deferred financing costs over the life of the notes and the straight-line method is used to amortize the deferred financing costs of the Non-Recourse U.S. SPV facility.
Financial Instruments
The carrying amounts reflected in the Consolidated Balance Sheets for cash, loans receivable, borrowings under credit facilities and accounts payable approximate fair value due to their short maturities and applicable interest rates. The outstanding borrowings under our credit facilities are variable interest rate debt instruments and their fair value approximates their carrying value due to the borrowing rates currently available to us for debt with similar terms.
Deferred Rent
We have entered into operating lease agreements for store locations and corporate offices, some of which contain provisions for future rent increases or periods in which rent payments are reduced (abated). In accordance with generally accepted accounting principles, we record monthly rent expense equal to the total of
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the payments due over the lease term, divided by the number of months of the lease term. The difference between rent expense recorded and the amount paid is charged to Deferred rent which is reflected as a separate line item in the accompanying Consolidated Balance Sheets.
Advertising Costs
Advertising costs are expensed as incurred.
Revenue Recognition
Revenue in the consolidated statements of income includes: interest income, finance charges, CSO fees, late fees and non-sufficient funds fees as permitted by applicable laws and pursuant to the agreement with the customer. We offer a variety of consumer loan products, including payday loans, title loans and signature loans. These loans can be offered as either Single-Pay Loans or Installment Loans. Installment Loans require periodic payments of principal and interest. Installment Loans are fully amortized loans with a fixed payment amount due each period during the term of the loan. We also offer an Open-End Loan product in certain markets. Open-End Loans function much like a revolving line-of-credit, whereby the periodic payment is a set percentage of the customers outstanding loan balance, and there is no set maturity date. Lending laws in the jurisdictions in which we conduct business determine the repayment terms that can be offered for each of our loan products. Single-Pay Loans require full repayment of principal and interest on the loans due date, which typically ranges from 11 to 40 days from the loans origination date. The due date is set to coincide with the customers pay date.
Installment Loans are payable in periodic payments of principal and accrued interest. Open-End Loans are payable based on a periodic payment that is a set percentage of the customers outstanding loan balance. We record revenue from Installment and Open-End Loans on a simple interest basis. Unpaid and accrued interest and fees are included in Consumer loans receivable, less allowance for loan losses in the Consolidated Balance Sheets.
Revenues from Single-Pay Loan products are recognized each period on a constant yield basis ratably over the term of each loan. We defer recognition of the unearned fees we expect to collect based on the remaining term of the loan at the end of each reporting period.
Check cashing fees, money order fees and other fees from ancillary products and services are generally recognized at the point-of-sale when the transaction is completed.
Share-Based Compensation
We account for share-based compensation expense for awards to our employees and directors at the estimated fair value on the grant date. The fair value of stock option grants is determined using the Black-Scholes option pricing model, which requires us to make several assumptions including, but not limited to, risk-free interest rate, and the expected volatility of publicly traded stocks from our industry section, which we have determined to include the alternative financial sector. Our expected option term is calculated using the average of the vesting period and the original contractual term. The estimated fair value of share-based awards is recognized as compensation expense on a straight-line basis over the vesting period.
Income Taxes
A deferred tax asset or liability is recognized for the anticipated future tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the financial statements and for operating loss and tax credit carryforwards. A valuation allowance is provided when, in the opinion of
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management, it is more likely than not that some portion or all of a deferred tax asset will not be realized. Realization of the deferred tax assets is dependent on our ability to generate sufficient future taxable income and, if necessary, execution of our tax planning strategies. In the event we determine that future taxable income, taking into consideration tax planning strategies, may not generate sufficient taxable income to fully realize net deferred tax assets, we may be required to establish or increase valuation allowances by a charge to income tax expense in the period such a determination is made. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
We follow accounting guidance which prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under this guidance, tax positions are initially recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and all relevant facts. Application of this guidance requires numerous estimates based on available information. We consider many factors when evaluating and estimating our tax positions and tax benefits, and our recognized tax positions and tax benefits may not accurately anticipate actual outcomes. As we obtain additional information, we may need to periodically adjust our recognized tax positions and tax benefits. For additional information related to uncertain tax positions, see Note 13 Income Taxes.
Foreign Currency Translation
The local currencies are considered the functional currencies for our operations in the United Kingdom and Canada. All balance sheet accounts are translated into U.S. dollars at the current exchange rate at each period end. The income statement is translated at the average rates of exchange for the period. We have determined that certain of our intercompany balances are long-term in nature, and therefore, currency translation adjustments related to those accounts are recorded as a component of accumulated other comprehensive income (loss) in the Statements of Stockholders Equity. For intercompany balances that are settled on a regular basis, currency translation adjustments related to those accounts are recorded as a component of Other, net in the Consolidated Statements of Income.
Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss at December 31, 2016 and 2015 were as follows:
(in thousands) |
December 31,
2016 |
December 31,
2015 |
||||||
Foreign currency translation adjustment |
$ | (59,652 | ) | $ | (53,630 | ) | ||
Cash flow hedge |
(333 | ) | | |||||
|
|
|
|
|||||
Total |
$ | (59,985 | ) | $ | (53,630 | ) | ||
|
|
|
|
Recently Adopted Accounting Pronouncements
In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015-03, Simplifying the Presentation of Debt Issuance Costs (ASU 2015-03), which requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of associated
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debt, consistent with discounts or premiums. We adopted the provisions of this ASU in the first quarter of 2016, and reclassified $8.5 million and $5.9 million to Long-term debt as of December 31, 2016 and December 31, 2015, respectively. Debt issuance costs had previously been reported as Deferred financing costs, a component of long-term assets, in our Consolidated Balance Sheets.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial StatementsGoing Concern (Subtopic 205-40) (ASU 2014-15) , which provides new guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements and is intended to enhance the timeliness, clarity and consistency of disclosure concerning such uncertainties. The new guidance requires management to perform assessments, on an interim and annual basis, of an entitys ability to continue as a going concern within one year of the date of issuance of the entitys interim or annual financial statements, as applicable. In addition, entities must provide certain disclosures if there is substantial doubt about the entitys ability to continue as a going concern. The guidance is effective for annual periods ending after December 15, 2016, and interim periods ending thereafter, with early adoption permitted. The adoption of ASU 2014-15 did not have a material effect on our consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In January 2017, the FASB issued ASU 2017-04, IntangiblesGoodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (ASU 2017-04). The amendments in ASU 2017-04 simplified the goodwill impairment test by eliminating Step 2 of the test which requires an entity to compute the implied fair value of goodwill. Instead, an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value, and is limited to the amount of total goodwill allocated to that reporting unit. Under this ASU, an entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The provisions of ASU 2017-04 are effective for an entitys annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2020. We are currently assessing the impact the adoption of ASU 2017-04 will have on our consolidated financial statements and footnote disclosures.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the definition of a Business (ASU 2017-01). The amendments in ASU 2017-01 narrow the definition of a business and provide a framework that gives an entity a basis for making reasonable judgments about whether a transaction involves an asset or a business and provide a screen to determine when a set (an integrated set of assets and activities) is not a business. The screen requires a determination that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. If the screen is not met, the amendments in this Update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments provide a framework to assist entities in evaluating whether both an input and a substantive process are present. We are currently assessing the impact the adoption of ASU 2017-01 will have on our consolidated financial statements and footnote disclosures.
In October 2016, the FASB issued ASU 2016-17, Consolidation (Topic 810): Interests Held Through Related Parties that are Under Common Control (ASU 2016-17). The amendments affect the evaluation of whether to consolidate a VIE in certain situations involving entities under common control. Specifically, the amendments change the evaluation of whether an entity is the primary beneficiary of a VIE for an entity that is a single decision maker of a variable interest by changing how an entity treats indirect interests in the VIE held through related parties that are under common control with the reporting entity. The guidance in ASU 2016-17 must be applied retrospectively to all relevant periods. ASU 2016-17 will be effective for us beginning January 1, 2017. We are currently assessing the impact the adoption of ASU 2016-17 will have on our consolidated financial statements and footnote disclosures.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) (ASU 2016-15). The amendments in ASU 2016-15 provide guidance on eight specific cash flow issues, including debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, distributions received from equity method investees and beneficial interests in securitization transactions. ASU 2016-15 will be effective for us beginning January 1, 2019. Early adoption is permitted, including adoption in an interim period. We are assessing the potential impact this ASU will have on our statement of cash flows.
In June 2016, the FASB issued ASU 2016-13, Financial InstrumentsCredit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). This ASU modifies the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. ASU 2016-13 will be effective for us beginning January 1, 2021. We are currently evaluating the impact this ASU will have on our Consolidated Financial Statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (ASU 2016-09). The amendments in ASU 2016-09 simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for us beginning January 1, 2017, with early adoption permitted. We are currently evaluating the impact this ASU will have on our Consolidated Financial Statements.
In February 2016, the FASB issued its new lease accounting guidance in ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (i) a lease liability, which is a lessees obligation to make lease payment arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessees right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged and lessees will no longer be provided with a source of off-balance sheet financing. This ASU is effective for us beginning on January 1, 2020. Early adoption is permitted. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. We are currently evaluating the impact this ASU will have on our Consolidated Financial Statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01) which requires (i) equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income, (ii) public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes and (iii) separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables). This amendment eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. This amendment is effective for us beginning on January 1, 2019. We are currently evaluating the impact this ASU will have on our Consolidated Financial Statements.
F-61
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (ASU 2015-17). This amendment eliminates the current requirement for organizations to present deferred tax liabilities and assets as current and noncurrent in a classified balance sheet. Instead, organizations will be required to classify all deferred tax assets and liabilities as noncurrent. The new standard becomes effective for us on January 1, 2018. We do not expect that the adoption of this amendment will have a material impact on our Consolidated Financial Statements.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments (ASU 2015-16), which requires an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined and eliminates the requirement to retrospectively account for those adjustments. The new standard becomes effective for us on January 1, 2017. Early adoption is permitted. The amendments in this update should be applied prospectively to adjustments to provisional amounts that occur after the effective date of this update. We do not expect that the adoption of this new guidance will have a material effect on our Consolidated Financial Statements.
In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606) (ASU 2015-14), which deferred the effect date of ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), to annual reporting periods beginning after December 15, 2018 for entities other than public business entities, certain not-for-profit entities, and certain employee benefit plans. In May 2014, the FASB issued ASU 2014-09 which amended the existing accounting standards for revenue recognition. ASU 2014-09 establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. The guidance is effective for us beginning January 1, 2019. We have not yet determined the potential effects on the Consolidated Financial Statements, if any.
NOTE 2PREPAID EXPENSES AND OTHER
Prepaid expenses and other current assets at December 31, 2016 and 2015 were are follows:
(in thousands) |
December 31,
2016 |
December 31,
2015 |
||||||
Settlements due from third-party lenders |
$ | 18,576 | $ | 16,876 | ||||
Fees receivable for third-party loans |
9,181 | 8,914 | ||||||
Prepaid expenses |
5,892 | 5,201 | ||||||
Other current assets |
5,599 | 2,485 | ||||||
|
|
|
|
|||||
Total |
$ | 39,248 | $ | 33,476 | ||||
|
|
|
|
NOTE 3PROPERTY AND EQUIPMENT
The classification of property and equipment is as follows:
(in thousands) |
December 31,
2016 |
December 31,
2015 |
||||||
Leasehold improvements |
$ | 122,419 | $ | 116,703 | ||||
Furniture, fixtures and equipment |
35,060 | 30,345 | ||||||
|
|
|
|
|||||
Property and equipment, gross |
157,479 | 147,048 | ||||||
Less accumulated depreciation |
(61,583 | ) | (47,341 | ) | ||||
|
|
|
|
|||||
Property and equipment, net |
$ | 95,896 | $ | 99,707 | ||||
|
|
|
|
F-62
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Depreciation expense for the years ended December 31, 2016 and 2015 was $15.4 million and $14.5 million, respectively.
NOTE 4GOODWILL AND INTANGIBLES
The change in the carrying amount of goodwill, by operating segment, for 2016 and 2015 was as follows:
(in thousands) |
U.S. | U.K. | Canada | Total | ||||||||||||
Balance as of January 1, 2015 |
$ | 91,131 | $ | 28,577 | $ | 33,102 | $ | 152,810 | ||||||||
Impairment |
| (905 | ) | | (905 | ) | ||||||||||
Foreign currency translation |
| (1,475 | ) | (5,395 | ) | (6,870 | ) | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of December 31, 2015 |
91,131 | 26,197 | 27,707 | 145,035 | ||||||||||||
Foreign currency translation |
| (4,315 | ) | 834 | (3,481 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of December 31, 2016 |
$ | 91,131 | $ | 21,882 | $ | 28,541 | $ | 141,554 | ||||||||
|
|
|
|
|
|
|
|
Identifiable intangible assets as of December 31, 2016 and 2015 consisted of the following:
2016 | 2015 | |||||||||||||||
(in thousands) |
Gross
Carrying Amount |
Accumulated
Amortization |
Gross
Carrying Amount |
Accumulated
Amortization |
||||||||||||
Trade name |
$ | 25,046 | $ | 12 | $ | 25,676 | $ | 634 | ||||||||
Customer relationships |
26,411 | 23,603 | 27,710 | 23,174 | ||||||||||||
Computer software |
16,429 | 13,370 | 15,440 | 12,322 | ||||||||||||
Provincial licenses |
372 | 372 | 361 | 361 | ||||||||||||
Franchise agreements |
298 | 298 | 289 | 289 | ||||||||||||
Positive leasehold interests |
15 | 15 | 11 | 11 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of year |
$ | 68,571 | $ | 37,670 | $ | 69,487 | $ | 36,791 | ||||||||
|
|
|
|
|
|
|
|
As a result of our 2015 analysis of the Wage Day trade name intangible asset, we recorded an impairment charge of £1.2 million ($1.8 million). These amounts are included in Goodwill and intangible asset impairment charges in our Consolidated Statements of Income.
As a result of our 2015 analysis of the customer relationship intangible asset associated with the Wage Day acquisition, we recorded an impairment charge of £0.1 million ($0.2 million). These amounts are included in Goodwill and intangible asset impairment charges in our Consolidated Statements of Income.
Our identifiable intangible assets are amortized using the straight-line method over the estimated remaining useful lives, except for the Wage Day and Cash Money trade name intangible assets, which were determined to have indefinite lives and are not amortized. The estimated useful lives for our other intangible assets range from 1 to 8 years. Aggregate amortization expense related to identifiable intangible assets was $3.5 million and $4.6 million for the years ended December 31, 2016 and 2015, respectively.
F-63
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table outlines the estimated future amortization expense for the next five years related to intangible assets held at December 31, 2016:
(in thousands) |
||||
Year ending December 31, 2017 |
$ | 2,296 | ||
2018 |
1,987 | |||
2019 |
1,389 | |||
2020 |
161 | |||
2021 |
7 |
NOTE 5RESTRICTED CASH
At December 31, 2016 and 2015 we had $23.8 million and $28.3 million, respectively, on deposit in collateral accounts with financial institutions. At December 31, 2016, $5.1 million and $18.7 million were included as a component of Restricted cash and Prepaid expenses and other, respectively, in our Consolidated Balance Sheets. At December 31, 2015, approximately $11.8 million and $16.5 million were included as a component of Restricted cash and Prepaid expenses and other, respectively, in our Consolidated Balance Sheets.
As a result of the securitization program that commenced in 2016 and disclosed in Note 10Long-Term Debt , $2.8 million was included as Restricted cash of consolidated VIE in our Consolidated Balance Sheets at December 31, 2016.
NOTE 6LOANS RECEIVABLE AND REVENUE
Unsecured and Secured Installment revenue includes interest income and non-sufficient-funds or returned-items fees on late or defaulted payments on past-due loans (collectively, late fees). Late fees comprise less than one-half of one percent of Installment revenues.
Open-End revenues include interest income on outstanding revolving balances and other usage or maintenance fees as permitted by underlying statutes.
Single-Pay revenues represent deferred presentment or other fees as defined by the underlying state, provincial or national regulations.
The following table summarizes revenue by product for the periods indicated:
Year Ended
December 31, |
||||||||
(dollars in thousands) |
2016 | 2015 | ||||||
Unsecured Installment |
$ | 330,713 | $ | 314,383 | ||||
Secured Installment |
81,453 | 86,325 | ||||||
Open-End |
66,948 | 51,311 | ||||||
Single-Pay |
313,276 | 321,597 | ||||||
Ancillary |
36,206 | 39,515 | ||||||
|
|
|
|
|||||
Total revenue |
$ | 828,596 | $ | 813,131 | ||||
|
|
|
|
F-64
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Loans receivable consisted of the following:
December 31, 2016 | ||||||||||||||||||||
(dollars in thousands) |
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Open-End | Total | |||||||||||||||
Current loans receivable |
$ | 90,487 | $ | 102,090 | $ | 63,157 | $ | 30,462 | $ | 286,196 | ||||||||||
Delinquent loans receivable |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total loans receivable |
90,487 | 102,090 | 63,157 | 30,462 | 286,196 | |||||||||||||||
Less: allowance for losses |
(5,501 | ) | (17,775 | ) | (10,737 | ) | (5,179 | ) | (39,192 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loans receivable, net |
$ | 84,986 | $ | 84,315 | $ | 52,420 | $ | 25,283 | $ | 247,004 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Loans receivable consisted of the following:
December 31, 2015 | ||||||||||||||||||||
(dollars in thousands) |
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Open-End | Total | |||||||||||||||
Current loans receivable |
$ | 104,258 | $ | 67,647 | $ | 54,361 | $ | 25,914 | $ | 252,180 | ||||||||||
Delinquent loans receivable |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total loans receivable |
104,258 | 67,647 | 54,361 | 25,914 | 252,180 | |||||||||||||||
Less: allowance for losses |
(8,313 | ) | (10,603 | ) | (9,209 | ) | (4,823 | ) | (32,948 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Loans receivable, net |
$ | 95,945 | $ | 57,044 | $ | 45,152 | $ | 21,091 | $ | 219,232 | ||||||||||
|
|
|
|
|
|
|
|
|
|
In order to manage our portfolio of consumer loans effectively, we utilize a variety of proprietary underwriting criteria, monitor the performance of the portfolio, and maintain either an allowance or accrual for losses on consumer loans (including fees and interest) at a level estimated to be adequate to absorb credit losses inherent in the portfolio. We have defined our portfolio segment as consumer loans. We do not specifically reserve for any individual loan but rather segregate loans into separate pools based upon loan portfolios containing similar risk characteristics. The portfolios include balances outstanding from all consumer loans, including short-term single payment loans and installment loans. In addition, we maintain an accrual for losses related to loans guaranteed under our CSO programs. Because our revenue from consumer lending activities is generated through a high volume of small-dollar transactions, our exposure to loss from a single customer transaction is minimal. Increases in our allowance, net of charge-offs and recoveries, are recorded as a Provision for losses in our Consolidated Statements of Income. Recoveries on loans previously charged to the allowance are credited to the allowance when collected.
Our Unsecured Installment, Secured Installment and Open-End Loans are typically for larger amounts than the single pay loans. Unsecured Installment Loans are for a duration of up to 48 months, and Secured Installment Loans for a duration of up to 42 months; and Open-End Loans have an indefinite term. Unsecured Installment and Secured Installment Loans are considered delinquent and charged-off when a payment has not been made on the due date.
Our Single-Pay Loans are typically small dollar loans, and generally are for a term of up to 62 days. The entire amount of principal and interest is due at the end of the loan term. Single-Pay Loans are considered delinquent and charged-off when a payment has not been made on the due date.
When evaluating the adequacy of our allowance for loan losses we consider both quantitative and qualitative factors which include: the review of subsequent receipts; a review of current period charge offs, net of
F-65
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
recoveries, as a percentage of revenues; the impact of new loan products; changes to underwriting criteria or lending policies; new store development or entrance into new markets; changes in regulations or laws; recent credit trends; and general economic conditions. The accuracy of our allowance estimates is dependent upon several factors, including our ability to predict future default rates based on historical trends and expected future events.
Although the balance is not part of our allowance for loan losses, the process for evaluating and estimating credit risk for the loans guaranteed under our CSO programs is similar to that of our consumer loan portfolio because CSO loans are offered as single pay or installment products, and are therefore evaluated in a manner similar to our Single-Pay or Installment Loans. The liability for estimated losses related to loans guaranteed under our CSO programs is initially recorded at fair value and is included in Credit service organization guarantee liability in the consolidated balance sheets.
The following table summarizes the activity in the allowance for loan losses during the year ended December 31, 2016:
Year Ended December 31, 2016 | ||||||||||||||||||||||||
(dollars in thousands) |
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Open-End | Other | Total | ||||||||||||||||||
Balance, beginning of period |
$ | 8,313 | $ | 10,603 | $ | 9,209 | $ | 4,823 | $ | | $ | 32,948 | ||||||||||||
Charge-offs |
(225,066 | ) | (165,843 | ) | (145,160 | ) | (86,586 | ) | (5,786 | ) | (628,441 | ) | ||||||||||||
Recoveries |
157,398 | 120,446 | 128,886 | 62,859 | 3,671 | 473,260 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net charge-offs |
(67,668 | ) | (45,397 | ) | (16,274 | ) | (23,727 | ) | (2,115 | ) | (155,181 | ) | ||||||||||||
Provision for losses |
64,919 | 52,776 | 17,802 | 24,083 | 2,115 | 161,695 | ||||||||||||||||||
Effect of foreign currency translation |
(63 | ) | (207 | ) | | | | (270 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, end of period |
$ | 5,501 | $ | 17,775 | $ | 10,737 | $ | 5,179 | $ | | $ | 39,192 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Allowance for loan losses as a percentage of gross loan receivables |
6.1 | % | 17.4 | % | 17.0 | % | 17.0 | % | N/A | 13.7 | % | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Summary of the activity in the CSO guarantee liability during the year ended December 31, 2016:
Year Ended December 31, 2016 | ||||||||||||||||
(in thousands) |
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Total | ||||||||||||
Balance, beginning of period |
$ | 334 | $ | 15,910 | $ | 1,507 | $ | 17,751 | ||||||||
Charge-offs |
(17,379 | ) | (164,853 | ) | (16,930 | ) | (199,162 | ) | ||||||||
Recoveries |
4,807 | 83,112 | 13,950 | 101,869 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net charge-offs |
(12,572 | ) | (81,741 | ) | (2,980 | ) | (97,293 | ) | ||||||||
Provision for losses |
12,512 | 81,461 | 2,621 | 96,594 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
$ | 274 | $ | 15,630 | $ | 1,148 | $ | 17,052 | ||||||||
|
|
|
|
|
|
|
|
F-66
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the activity in the allowance for loan losses and the CSO guarantee liability, in total, during the year ended December 31, 2016.
Year Ended December 31, 2016 | ||||||||||||||||||||||||
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Open-End | Other | Total | |||||||||||||||||||
Balance, beginning of period |
$ | 8,647 | $ | 26,513 | $ | 10,716 | $ | 4,823 | $ | | $ | 50,699 | ||||||||||||
Charge-offs |
(242,445 | ) | (330,696 | ) | (162,090 | ) | (86,586 | ) | (5,786 | ) | (827,603 | ) | ||||||||||||
Recoveries |
162,205 | 203,558 | 142,836 | 62,859 | 3,671 | 575,129 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net charge-offs |
(80,240 | ) | (127,138 | ) | (19,254 | ) | (23,727 | ) | (2,115 | ) | (252,474 | ) | ||||||||||||
Provision for losses |
77,431 | 134,237 | 20,423 | 24,083 | 2,115 | 258,289 | ||||||||||||||||||
CTA |
(63 | ) | (207 | ) | | | | (270 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, end of period |
$ | 5,775 | $ | 33,405 | $ | 11,885 | $ | 5,179 | $ | | $ | 56,244 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes the activity in the allowance for loan losses during the year ended December 31, 2015:
Year Ended December 31, 2015 | ||||||||||||||||||||||||
(dollars in thousands) |
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Open-End | Other | Total | ||||||||||||||||||
Balance, beginning of period |
$ | 8,312 | $ | 8,680 | $ | 8,726 | $ | 3,969 | $ | | $ | 29,687 | ||||||||||||
Charge-offs |
(277,932 | ) | (119,704 | ) | (134,159 | ) | (57,960 | ) | (6,348 | ) | (596,103 | ) | ||||||||||||
Recoveries |
171,126 | 70,485 | 117,419 | 48,545 | 3,820 | 411,395 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net charge-offs |
(106,806 | ) | (49,219 | ) | (16,740 | ) | (9,415 | ) | (2,528 | ) | (184,708 | ) | ||||||||||||
Provision for losses |
107,458 | 51,170 | 17,223 | 10,269 | 2,528 | 188,648 | ||||||||||||||||||
Effect of foreign currency translation |
(651 | ) | (28 | ) | | | | (679 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, end of period |
$ | 8,313 | $ | 10,603 | $ | 9,209 | $ | 4,823 | $ | | $ | 32,948 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Allowance for loan losses as a percentage of gross loan receivables |
8.0 | % | 15.7 | % | 16.9 | % | 18.6 | % | N/A | 13.1 | % | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Summary of the activity in the CSO guarantee liability during the year ended December 31, 2015.
Year Ended December 31, 2015 | ||||||||||||||||
(in thousands) |
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Total | ||||||||||||
Balance, beginning of period |
$ | | $ | 15,187 | $ | 1,439 | $ | 16,626 | ||||||||
Charge-offs |
(162 | ) | (163,960 | ) | (20,415 | ) | (184,537 | ) | ||||||||
Recoveries |
300 | 75,225 | 17,575 | 93,100 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net charge-offs |
138 | (88,735 | ) | (2,840 | ) | (91,437 | ) | |||||||||
Provision for losses |
196 | 89,458 | 2,908 | 92,562 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance, end of period |
$ | 334 | $ | 15,910 | $ | 1,507 | $ | 17,751 | ||||||||
|
|
|
|
|
|
|
|
F-67
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table summarizes the activity in the allowance for loan losses and the CSO guarantee liability, in total, during the year ended December 31, 2015.
Year Ended December 31, 2015 | ||||||||||||||||||||||||
Single-Pay |
Installment
Unsecured |
Installment
Secured |
Open-End | Other | Total | |||||||||||||||||||
Balance, beginning of period |
$ | 8,312 | $ | 23,867 | $ | 10,165 | $ | 3,969 | $ | | $ | 46,313 | ||||||||||||
Charge-offs |
(278,094 | ) | (283,664 | ) | (154,574 | ) | (57,960 | ) | (6,348 | ) | (780,640 | ) | ||||||||||||
Recoveries |
171,426 | 145,710 | 134,994 | 48,545 | 3,820 | 504,495 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net charge-offs |
(106,668 | ) | (137,954 | ) | (19,580 | ) | (9,415 | ) | (2,528 | ) | (276,145 | ) | ||||||||||||
Provision for losses |
107,654 | 140,628 | 20,131 | 10,269 | 2,528 | 281,210 | ||||||||||||||||||
CTA |
(651 | ) | (28 | ) | | | | (679 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Balance, end of period |
$ | 8,647 | $ | 26,513 | $ | 10,716 | $ | 4,823 | $ | | $ | 50,699 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 7CREDIT SERVICES ORGANIZATION
The CSO fee receivable amounts under our CSO programs were $9.2 million and $8.9 million at December 31, 2016 and 2015, respectively. As noted, we bear the risk of loss through our guarantee to purchase any defaulted customer loans from the lenders. The terms of these loans range from six to eighteen months. This guarantee represents an obligation to purchase specific loans that go into default. (See Note 1 for a description of our accounting policies.) As of December 31, 2016 and 2015, the maximum amount payable under all such guarantees was $59.6 million and $52.0 million, respectively. Should we be required to pay any portion of the total amount of the loans we have guaranteed, we will attempt to recover the amount we pay from the customers. We hold no collateral in respect of the guarantees. The initial measurement of this guarantee liability is recorded at fair value and reported in the Credit services organization guarantee liability line in our Consolidated Balance Sheets. The fair value of the guarantee is measured by assessing the nature of the loan products, the credit worthiness of the borrowers in the customer base, the Companys historical loan default history for similar loans, industry loan default history, and historical collection rates on similar products, current default trends, past-due account roll rates, changes to underwriting criteria or lending policies, new store development or entrance into new markets, changes in jurisdictional regulations or laws, recent credit trends and general economic conditions. Our guarantee liability was $17.1 million and $17.8 million at December 31, 2016 and 2015, respectively.
We have placed $18.7 million and $16.5 million in collateral accounts for the lenders at December 31, 2016 and 2015, respectively, which is reported in Prepaid expenses and other in the Interim Consolidated Balance Sheets. The balances required to be maintained in these collateral accounts vary based upon lender, but are typically based on a percentage of the outstanding loan balances held by the lender. The percentage of outstanding loan balances required for collateral is defined within the terms agreed to between us and each such lender.
F-68
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 8ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 2016 and 2015 were as follows:
(in thousands) |
December 31,
2016 |
December 31,
2015 |
||||||
Trade accounts payable |
$ | 18,588 | $ | 17,107 | ||||
Money orders payable |
7,356 | 7,771 | ||||||
Accrued taxes, other than income taxes |
447 | 406 | ||||||
Accrued payroll and fringe benefits |
14,621 | 15,526 | ||||||
Reserve for store closure costs |
1,258 | 1,972 | ||||||
Other accrued liabilities |
393 | 368 | ||||||
|
|
|
|
|||||
Total |
$ | 42,663 | $ | 43,150 | ||||
|
|
|
|
NOTE 9RESTRUCTURING COSTS
Impairments, store closure and severance costs for the year ended December 31, 2016 were as follows:
(in thousands) |
Year Ended
December 31, 2016 |
Year Ended
December 31, 2015 |
||||||
Lease obligations and related costs |
$ | 1,620 | $ | 1,711 | ||||
Write-down and loss on disposal of fixed assets |
772 | 2,253 | ||||||
Severance costs |
1,226 | 327 | ||||||
|
|
|
|
|||||
Ending balance |
$ | 3,618 | $ | 4,291 | ||||
|
|
|
|
Activity for the closed store reserve for the year ended December 31, 2016 was as follows:
(in thousands) |
Year Ended
December 31, 2016 |
|||
Beginning balance |
$ | 1,972 | ||
Additions and adjustments |
2,812 | |||
Payments and write-downs |
(3,526 | ) | ||
|
|
|||
Ending balance |
$ | 1,258 | ||
|
|
Closed store reserves of $1.3 million are included in the Accounts payable and accrued liabilities line item on the accompanying Consolidated Balance Sheets at December 31, 2016.
In July 2016, we eliminated 35 Corporate positions in our Canadian headquarters. The eliminated positions, primarily Finance and IT, comprised 49% of total Corporate headcount in Canada and represented approximately $2.5 million in annualized salaries and benefits costs. The transition of the related duties to our U.S. headquarters was completed in the third quarter of 2016. Total related severance cost, the majority of which was statutory, was approximately $1.2 million, and is included in Restructuring costs in our Consolidated Statements of Income for the year ended December 31, 2016. At December 31, 2016 we have accrued $0.4 million of expense for estimated severance payments yet to be paid.
F-69
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
During 2016 we closed 7 underperforming acquired Money Box stores in Texas and determined that we were unable to reopen a Missouri store that was damaged by a fire. Our 2016 results include $1.4 million of charges related to these store closures primarily consisting of certain lease obligations and the write-down and loss on the disposal of fixed assets.
In December 2015, we closed ten store locations in the United Kingdom as part of an overall plan to reduce operating losses in the wake of ongoing regulatory and market changes in the United Kingdom. These stores were all closed in December. Our 2015 results include $4.3 million of charges relating to these store closures primarily consisting of certain lease obligations, write-down and loss on disposal of fixed assets, and severance costs associated with these locations. Our 2016 results include $1.0 million of charges related to these store closures primarily consisting of adjustments to lease obligations associated with these locations.
NOTE 10LONG-TERM DEBT
Long-term debt (net of deferred financing costs) consisted of the following:
(in thousands) |
December 31,
2016 |
December 31,
2015 |
||||||
May 2011 10.75% senior secured notes |
$ | 223,164 | $ | 246,692 | ||||
May 2012 10.75% senior secured notes |
89,734 | 89,406 | ||||||
February 2013 10.75% senior secured notes |
101,184 | 101,937 | ||||||
February 2013 cash pay notes |
124,365 | 123,640 | ||||||
Non-Recourse U.S. SPV facility |
63,054 | | ||||||
ABL facility |
23,406 | | ||||||
Revolving credit facility |
| 8,050 | ||||||
|
|
|
|
|||||
Total long-term debt, including current portion |
624,907 | 569,725 | ||||||
Current maturities of long-term debt |
147,771 | 8,050 | ||||||
|
|
|
|
|||||
Long-term debt |
$ | 477,136 | $ | 561,675 | ||||
|
|
|
|
Senior Secured Notes
On May 12, 2011, in connection with the acquisition of Cash Money, CURO Intermediate Holdings Corp. (Intermediate) issued and sold $250.0 million aggregate principal amount 10.75% senior secured notes due May 15, 2018 (the May 2011 Senior Secured Notes). The Senior Secured Notes were issued at par. Interest on the Notes is payable semi-annually, in arrears, on May 15 and November 15 of each year, beginning on November 15, 2011.
In accordance with the terms of the Notes, we used the net proceeds from the $250.0 million offering to finance our acquisition of Cash Money Group, Inc., to refinance our existing indebtedness, to fund the liquidation value of our Series A Participating Preferred Stock, to pay fees and expenses in connection with the transaction, and to fund an incremental $16.2 million to the balance sheet.
In connection with this debt offering and amendments to the Credit Agreement, in 2011 we capitalized financing costs of approximately $9.6 million, the balance of which are included in the Consolidated Balance Sheets as a direct reduction of Long-term debt, and are being amortized over the term of the May 2011 Senior Secured Notes and included as a component of interest expense.
On September 29, 2016, CURO Intermediate Holdings Corp. purchased $25.1 million of outstanding May 2011 10.75% Senior Secured Notes at 71.25% of the principal, plus accrued and unpaid interest of $1.0 million
F-70
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
via an open-market purchase. A gain on extinguishment of $7.0 million related to the discount on repurchase, net of the unamortized deferred financing costs and fees, was recognized in the year ended December 31, 2016.
On May 14, 2012, Intermediate issued and sold $90.0 million aggregate principal amount of 10.75% Senior Secured Notes due 2018 (the May 2012 Senior Secured Notes). The May 2012 Senior Secured Notes were issued under the same indenture, dated May 12, 2011, as the May 2011 Senior Secured Notes.
In accordance with the terms of the Notes, we used the net proceeds from the $90.0 million offering to finance our acquisition of The Money Store, L.P., a Texas limited partnership which operated as The Money Box ® Check Cashing for approximately $26.1 million in August 2012. The remaining cash was used to fund working capital growth and for other general corporate purposes.
The May 2012 Senior Secured Notes were issued at 101.75% of their face value for total proceeds of $91.6 million, with an effective interest rate of 10.35%. The original issue premium (OIP) was $1.6 million, which is the difference between the stated principal amount and the issue price. The OIP is included in the Consolidated Balance Sheets as a component of Long-term debt, and is being amortized over the term of the May 2012 Senior Secured Notes using the effective interest rate method and reported as an offset to non-cash interest expense. Interest on the May 2012 Senior Secured Notes is payable semi-annually, in arrears, on May 15 and November 15 of each year, beginning on November 15, 2012.
In connection with this debt offering and the increase to our U.S. Revolving Credit Facility, in 2012 we incurred $3.5 million of financing costs, the balance of which are included in the Consolidated Balance Sheets as a direct reduction of Long-term debt. The deferred financing costs are being amortized over the term of the May 2012 Senior Secured Notes and included as a component of interest expense.
On February 8, 2013, Intermediate issued and sold $100.0 million aggregate principal amount of 10.75% Senior Secured Notes due 2018 (the February 2013 Senior Secured Notes). The February 2013 Senior Secured Notes were issued under the same indenture, dated May 12, 2011, and the same terms as the May 2011 and May 2012 Senior Secured Notes.
In accordance with the terms of the Notes, we used the net proceeds from the $100.0 million offering to finance our acquisition of Wage Day Advance, Limited for approximately $80.9 million in February 2013. The remaining cash was used for general corporate purposes.
The February 2013 Senior Secured Notes were issued at 106.25% of their face value for total proceeds of $106.2 million, with an effective interest rate of 9.24%. The original issue premium (OIP) was $6.2 million, which is the difference between the stated principal amount and the issue price. The OIP is included in the Consolidated Balance Sheets as a component of Long-term debt, and is being amortized over the term of the February 2013 Senior Secured Notes using the effective interest rate method and reported as an offset to non-cash interest expense. Interest on the February 2013 Senior Secured Notes is payable semi-annually, in arrears, on May 15 and November 15 of each year, beginning on May 15, 2013.
In connection with this incremental borrowing in 2013, we incurred $2.9 million of financing costs, the balance of which are included in the Consolidated Balance Sheets as a direct reduction of Long-term debt. The deferred financing costs are being amortized over the term of the February 2013 Senior Secured Notes and included as a component within interest expense.
Cash Pay Notes
On February 14, 2013, Speedy Group issued $125.0 million 12.00% Senior Cash Pay Notes due November 15, 2017 (February 2013 Cash Pay Notes). The majority of the proceeds from this offering were
F-71
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
used to fund a $116.9 million dividend to the stockholders on February 14, 2013. In connection with this borrowing, we incurred $3.4 million of financing costs, the balance of which are included in the Consolidated Balance Sheets as a direct reduction of Long-term debt. The deferred financing costs are being amortized over the term of the February 2013 Cash Pay notes and included as a component of interest expense.
Ranking and Guarantees
The May 2011 Senior Secured Notes, May 2012 Senior Secured Notes, and the February 2013 Senior Secured Notes (collectively, the Notes) rank senior in right of payment to all of our and our guarantor entities existing and future subordinated indebtedness and equal in right of payment with all our and our guarantor entities existing and future senior indebtedness of the Company, including borrowings under our revolving credit facilities. Pursuant to our Intercreditor Agreement, the Notes and the guarantees will be effectively subordinated to our credit facilities and certain other indebtedness to the extent of the value of the assets securing such indebtedness and to liabilities of our subsidiaries that are not guarantors.
The Notes are secured by liens on substantially all of our and the guarantors assets, subject to certain exceptions. On or after May 15, 2015, we are able to redeem some or all of the Notes at a premium that will decrease over time, plus accrued and unpaid interest, if any to the applicable date of redemption. Prior to May 15, 2015, we were able to redeem the Notes, in whole or in part, by paying a make-whole premium.
The February 2013 Cash Pay Notes are unsecured obligations of Speedy Group. Interest on the Senior Cash Pay Notes is payable semiannually, in arrears, on May 15 and November 15 of each year, beginning on May 15, 2013. Interest payments are funded from dividend payments made to Speedy Group by Speedy Holdings and its subsidiaries. Dividend payments made by Speedy Holdings to Speedy Group are dependent upon Speedy Holdings ability to generate sufficient dividend paying capacity. Under the terms of Speedy Holdings indenture agreement, dividends and other restrictive payments are generally limited to 50% of consolidated net income, as defined in the agreement.
Non-Recourse U.S. SPV Facility
On November 17, 2016, CURO Receivables Finance I, LLC, a Delaware limited liability company (the SPV Borrower) and a wholly-owned subsidiary, entered into a five-year revolving credit facility with Victory Park Management, LLC and certain other lenders that provides for an $80.0 million term loan and $45.0 million of initial revolving borrowing capacity, with the ability to expand such revolving borrowing capacity over time and an automatic expansion to $70.0 million on the six month anniversary of the closing date, (our Non-Recourse U.S. SPV Facility). Our Non-Recourse U.S. SPV Facility is secured by a first lien against assets of the SPV Borrower, which is a special purpose vehicle holding certain receivables originated by the operating entities of Intermediate and CURO Receivables Holdings I, LLC, a Delaware limited liability company (Holdings) which is a holding company that owns the equity of the SPV Borrower. The lender advances to the SPV Borrower 80% of the principal balance of the eligible installment loans that we sell to the SPV Borrower, which serve as collateral for the lender. As customer loan payments come into the SPV Borrower, such payments are subjected to a conventional priority-of-payment waterfall provided the loan-to-value doesnt exceed 80%. The loans will bear interest at an annual rate of up to 12.0% plus the greater of (x) 1.0% per annum and (y) the three-month LIBOR. The SPV Borrower also pays a 0.50% per annum commitment fee on the unused portion of the commitments. Revolving commitment terminations and voluntary prepayments of term loans made prior to the 30th month anniversary of the closing date are subject to a fee equal to 3.0% of the amount of revolving loans commitments terminated or term loans voluntarily prepaid. This facility matures in 2021.
F-72
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
ABL Facility
On November 17, 2016, CURO Intermediate entered into a six-month recourse credit facility with Victory Park Management, LLC and certain other lenders which provides for $25.0 million of borrowing capacity, (our ABL Facility). Our ABL Facility is secured by a first lien against our assets and the assets of CURO Intermediate and its domestic subsidiaries. The lender advances to CURO Intermediate 80% of the principal balance of the eligible installment loans held by CURO Intermediate and its guarantor subsidiaries. As customer loan payments come into CURO Intermediate and its guarantor subsidiaries, such payments are subjected to a conventional priority-of-payment waterfall provided the loan-to-value doesnt exceed 80%. The loans will bear interest at an annual rate of up to 8.0% plus the greater of (x) 1.0% per annum and (y) the three-month LIBOR. The ABL Facility provides that CURO Intermediate pays a 0.50% per annum commitment fee on the unused portion of the commitments and a 4.0% per annum monitoring fee on the loans outstanding. Commitment terminations and voluntary prepayments of loans made prior to the 30th month anniversary of the closing date of the ABL Facility are subject to a fee equal to 3.0% of the amount of revolving loans commitments terminated or loans voluntarily prepaid. The ABL Facility matured and was fully converted to the SPV facility in 2017.
We are required to evaluate the SPV Borrower for consolidation as it is a variable interest entity (VIE). We have the ability to direct the activities of the VIE that most significantly impact the economic performance of the entity as the servicer of the securitized loan receivables. Additionally, we have the right to receive residual payments, which exposes the Company to potentially significant losses and returns. Accordingly, we determined that we are the primary beneficiary of the VIE and are required to consolidate this VIE.
Therefore, the financial results of the SPV Borrower are consolidated in this report and all inter-company transactions have been eliminated. See Note 22Condensed Consolidating Financial Information for detail.
As of December 31, 2016, the outstanding borrowings under the Non-Recourse U.S. SPV Facility were $68.9 million, consisting of $68.3 million of principal and $0.6 million of accrued interest. As of December 31, 2016, the outstanding borrowings under the ABL Facility were $23.6 million, consisting of $23.4 million of principal and $0.2 million of accrued interest. Unamortized issuance costs related to these borrowings at December 31, 2016 were $5.3 million. The total interest expense recognized for the year ended December 31, 2016 was $0.9 million, of which $0.1 million represented the non-cash amortization of the deferred financing costs.
The assets that are used to secure our Non-Recourse U.S. SPV Facility borrowings are classified as part of Consumer loans receivables and Restricted cash as noted in our Consolidated Balance Sheets.
Revolving Credit Facility
On May 10, 2016 we entered into a third amendment to our U.S. Revolving Credit facility. The amendment (a) extended the maturity of our U.S. Revolving Credit Facility to August 31, 2016; (b) reduced the commitment thereunder to $10.0 million; (c) eliminated the requirement that we pay an unused line fee for the unused portion of the commitment; and (d) provided that we would make no further requests for loans or letters of credit thereunder. On August 31, 2016 this facility expired.
The weighted average interest rate on the $8.1 million of variable debt outstanding at December 31, 2015 was approximately 7.0%. There was no variable rate debt outstanding at December 31, 2016.
We also maintain cash collateral of $0.5 million with Jefferies LLC, as issuing bank for our letters of credit, in respect of a letter of credit issued at our request.
F-73
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Cash Money Credit Facility
On November 4, 2011, Cash Money entered into a C$7.5 million revolving credit facility (Cash Money Revolving Credit Facility) which will afford us an additional element of liquidity to meet the short-term working capital needs of our Canadian operations. Aggregate draws on the Cash Money Revolving Credit Facility are limited to the lesser of: 1) the borrowing base, which is defined as a percentage of cash, deposits in transit and accounts receivable, and 2) C$7.5 million.
The Cash Money Revolving Credit Facility is collateralized by substantially all of Cash Moneys assets and contains various covenants that include, among other things, that the aggregate borrowings outstanding under the facility not exceed the borrowing base, restrictions on the encumbrance of assets and the creation of indebtedness. Borrowings under the Cash Money Revolving Credit Facility are subject to compliance with these covenants.
Borrowings under the Cash Money Revolving Credit Facility bear interest (per annum) at Royal Bank of Canada Prime (RBC prime) plus 1.95%. In order to determine the amount available for borrowings under the Cash Money Revolving Credit Facility, the balance available is reduced by any amounts outstanding and C$0.3 million in outstanding letters of credit. At December 31, 2016 and 2015, we had no outstanding borrowings under this facility.
Future Maturities of Long-Term Debt
Our Notes mature in May 2018. We may from time to time explore opportunities to (i) secure additional financing through a revolving credit facility; (ii) secure additional senior secured or other asset-backed financing; and (iii) refinance, redeem, repurchase or restructure outstanding Notes; and (iv) review strategic alternatives.
Annual maturities of outstanding long-term debt (before deferred financing costs and premiums) for each of the five years after December 31, 2016 are as follows:
(in thousands) |
Amount | |||
2017 |
$ | 148,406 | ||
2018 |
414,882 | |||
2019 |
| |||
2020 |
| |||
2021 |
68,311 | |||
|
|
|||
$ | 631,599 | |||
|
|
Subordinated Shareholder Debt
As part of the acquisition of Cash Money in 2011, we issued an Escrow Note to the Seller which provided us indemnification for certain claims. The balance of this note at December 31, 2016 and 2015 was $2.2 million. This note bears interest at 10.0% per annum, and quarterly interest payments are due until the note matures in May 2019.
Debt offeringSubsequent Event
On February 15, 2017, CFTC issued $470.0 million 12.00% Senior Secured Notes due March 1, 2022. Interest on the notes is payable semiannually, in arrears, on March 1 and September 1 of each year, beginning on September 1, 2017. The proceeds from the Notes were used, together with available cash, to (i) redeem the
F-74
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
outstanding 10.75% Senior Secured Notes due 2018 of our wholly-owned subsidiary, CURO Intermediate, (ii) redeem our outstanding 12.00% Senior Cash Pay Notes due 2017, and (iii) pay fees, expenses, premiums and accrued interest in connection with the offering.
NOTE 11STOCKHOLDERS EQUITY
Stockholders Equity
In connection with the formation of CURO in 2013, the stockholders entered into an Investor Rights Agreement. Under the Investor Rights Agreement, one of CURO investors, Freidman Fleisher & Lowe Capital Partners II, L.P. (and its affiliated funds, the FFL Holders), may request, any time after the sixth anniversary of their initial investment in the Company (which occurred in September 2008), that the Company repurchase their shares on terms to be negotiated by the parties in good faith. If no agreement can be reached on the repurchase terms, the FFL Holders can request that the Company be solicited for sale of all of its capital.
Common Stock
We have authorized 72 million shares of common stock. As of December 31, 2016 and 2015, we had issued 37,894,752 shares of common stock.
In connection with the 2011 acquisition of Cash Money, the Company issued 1,894,752 of its common stock to the J.P. Genova Family Trust as partial consideration to the Seller. The shares represented 5% of our outstanding common equity and $13.0 million of the purchase price.
In connection with the adoption of the 2010 Equity Incentive Plan (the Plan), we reserved for issuance under the Plan and for issuance upon exercise of the stock options under the Plan, 1,800,000 shares of common stock. In 2013, the Plan was amended to increase the number of shares available for issuance to 2,160,000 shares.
NOTE 12SHARE-BASED COMPENSATION
The 2010 Equity Incentive Plan (the Plan) was originally approved by the Companys shareholders in November 2010, and amended in December 2013. The Plan provides for the issuance of up to 2,160,000 shares, subject to certain adjustment provisions described in the Plan. The Plan provides for the granting of stock options, restricted stock, and stock grants. Awards may be granted to employees, consultants and directors of the Company. The Plan provides that shares of Class B common stock subject to awards granted become available for issuance if such awards expire, terminate, are canceled for any reason, or are forfeited by the recipient. Pursuant to the formation of CURO, all of the rights and obligations under the stock option agreements were transferred from CFTC. Thus, the outstanding and unexercised options now represent an option to purchase the same number of shares of common stock of CURO at the same exercise price and on the same terms and conditions as provided in the original option agreement. No awards may be granted after November 30, 2020.
Stock options are awards which allow the grantee to purchase shares of our common stock at prices equal to the fair value at the date of grant. The stock options that have been granted under the Plan thus far all vest at a rate of 20% per year over a 5-year period, have a term of 10 years and are subject to limitations on transferability.
We measure the cost of share-based compensation at fair value on the grant date and recognize such cost in the financial statements on a straight-line basis over the requisite service period of the awards. For the year ended December 31, 2016, the fair value of each stock option grant was estimated at the date of the grant using a
F-75
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Black-Scholes option pricing model based on the following assumptions: risk free interest rate of 1.9%, expected term of options of 6.0 years, expected volatility of 44.7% and no expected dividends. There were no awards granted in 2015.
Estimates of fair value are not intended to predict actual future events or the value ultimately realized by individuals who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company. We have estimated the expected term of our stock options using a formula considering the weighted average vesting term and the original contract term. The expected volatility is estimated based upon the historical volatility of publicly traded stocks from our industry sector (the alternative financial services sector). The expected risk-free interest rate is based on an average of various U.S. Treasury rates. The Company estimates forfeitures at the grant date based on its historical forfeiture rates.
Share-based compensation is measured at the grant date, based on the fair value of the award, and is recognized on a straight-line basis over the requisite service period. See Note1 for additional information.
The following table summarizes the Companys stock option activity for the year ended December 31, 2016:
Stock
Options |
Weighted
Average Exercise Price |
|||||||
Outstanding at beginning of year |
53,323 | $ | 84.18 | |||||
Granted |
12,828 | 131.61 | ||||||
Exercised |
| | ||||||
Forfeited |
(13,948 | ) | 75.05 | |||||
|
|
|
|
|||||
Outstanding at end of year |
52,203 | $ | 98.27 | |||||
|
|
|
|
|||||
Options vested at end of year |
34,402 | $ | 81.75 | |||||
|
|
|
|
Share-based compensation expense, which is included in the Consolidated Statements of Income as a component of Corporate expenses, was $1.1 million, ($0.7 million net of related taxes) and $1.3 million, ($0.8 million net of related taxes) for the years ended December 31, 2016 and 2015, respectively. Total unrecognized compensation expense related to stock options at December 31, 2016 was $0.8 million, which will be recognized over a weighted-average period of 3.8 years. At December 31, 2016, the intrinsic value of stock options outstanding was $2.1 million and the intrinsic value of vested stock options was $1.9 million.
F-76
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 13INCOME TAXES
Income tax expense (benefit) is comprised of the following for the years ended December 31, 2016 and 2015 as follows:
(in thousands) |
2016 | 2015 | ||||||
Current tax provision |
||||||||
Federal |
$ | 24,508 | $ | 8,716 | ||||
State |
5,495 | 486 | ||||||
Foreign |
13,254 | 11,146 | ||||||
|
|
|
|
|||||
Total current provision |
43,257 | 20,348 | ||||||
|
|
|
|
|||||
Deferred tax provision (benefit) |
||||||||
Federal |
186 | (1,167 | ) | |||||
State |
(134 | ) | (221 | ) | ||||
Foreign |
(732 | ) | (855 | ) | ||||
|
|
|
|
|||||
Total deferred tax benefit |
(680 | ) | (2,243 | ) | ||||
|
|
|
|
|||||
Total provision for income taxes |
$ | 42,577 | $ | 18,105 | ||||
|
|
|
|
As of December 31, 2016, the Company had not provided U.S. tax on its cumulative undistributed foreign earnings of $112.8 million. The Company intends to reinvest its foreign earnings indefinitely in its non-U.S. operations. If the earnings were distributed to the United States, the Company would be subject to estimated U.S. taxes of approximately $50.8 million. In the event the earnings were distributed to the United States, the Company would adjust its income tax provision for the period and would determine the amount of credit for foreign tax credit that would be available to reduce the U.S. tax liability.
The sources of deferred income tax assets (liabilities) are summarized as follows at December 31, 2016 and 2015:
(in thousands) |
2016 | 2015 | ||||||
Deferred tax assets related to: |
||||||||
Loans receivable |
$ | 8,142 | $ | 7,511 | ||||
Accrued expenses and other reserves |
8,630 | 9,013 | ||||||
Compensation accruals |
4,387 | 3,762 | ||||||
Deferred revenue |
247 | 365 | ||||||
State and provincial net operating loss carryforwards |
516 | 593 | ||||||
Foreign net operating loss and capital loss carryforwards |
12,953 | 12,449 | ||||||
Tax credit carryforwards |
284 | | ||||||
|
|
|
|
|||||
Gross deferred tax assets |
35,159 | 33,693 | ||||||
Less: valuation allowance |
(14,072 | ) | (13,097 | ) | ||||
|
|
|
|
|||||
Net deferred tax assets |
21,087 | 20,596 | ||||||
|
|
|
|
|||||
Deferred tax liabilities related to: |
||||||||
Property and equipment |
(5,564 | ) | (7,153 | ) | ||||
Goodwill and other intangible assets |
(17,015 | ) | (15,549 | ) | ||||
Prepaid expenses and other assets |
(186 | ) | (255 | ) | ||||
|
|
|
|
|||||
Gross deferred tax liabilities |
(22,765 | ) | (22,957 | ) | ||||
|
|
|
|
|||||
Net deferred tax liabilities |
$ | (1,678 | ) | $ | (2,361 | ) | ||
|
|
|
|
F-77
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Deferred tax assets and liabilities are included on the following line items in the Consolidated Balance Sheets at December 31, 2016 and 2015:
(in thousands) |
2016 | 2015 | ||||||
Net current deferred tax assets |
$ | 12,635 | $ | 13,399 | ||||
Net long-term deferred tax liabilities |
(14,313 | ) | (15,760 | ) | ||||
|
|
|
|
|||||
Net deferred tax assets (liabilities) |
$ | (1,678 | ) | $ | (2,361 | ) | ||
|
|
|
|
Differences between our effective tax rate computed on net earnings before income taxes and the statutory federal income tax rate are as follows for the years ended December 31, 2016 and 2015:
(dollars in thousands) |
2016 | 2015 | ||||||
Income tax expense using the statutory federal rate in effect |
$ | 37,807 | $ | 12,556 | ||||
Tax effect of: |
||||||||
State, local, and provincial income taxes, net of federal benefit |
9,045 | 4,373 | ||||||
Tax credits |
(713 | ) | | |||||
Nondeductible expenses |
521 | 263 | ||||||
Impact of goodwill impairment charges |
| 310 | ||||||
Nontaxable income |
| | ||||||
Foreign exchange gain/loss on intercompany loan |
| (1,423 | ) | |||||
Valuation allowance for foreign and state net operating loss and capital loss carryforwards |
3,129 | 5,827 | ||||||
Effects of foreign rates different than U.S. statutory rate |
(7,569 | ) | (3,350 | ) | ||||
Deferred remeasurement |
205 | 62 | ||||||
Other |
152 | (513 | ) | |||||
|
|
|
|
|||||
Total provision for income taxes |
$ | 42,577 | $ | 18,105 | ||||
|
|
|
|
|||||
Effective tax rate |
39.4 | % | 50.5 | % | ||||
|
|
|
|
|||||
Statutory federal tax rate |
35.0 | % | 35.0 | % | ||||
|
|
|
|
At December 31, 2016 and December 31, 2015 we had no reserves related to uncertain tax positions.
The tax years 2013 through 2015 remain open to examination by the taxing authorities in the United States. The tax years 2010 through 2015 remain open to examination by the taxing authorities in the U.K. The tax years 2011 through 2015 remain open to examination by the taxing authorities in Canada. We expect no material change related to our current positions in recorded unrecognized income tax benefit liability in the next twelve months.
We file income tax returns in U.S. federal jurisdictions, the United Kingdom, Canada (including provinces), and various state jurisdictions.
F-78
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
A summary of the valuation allowances for the years ended December 31, 2016 and 2015 are as follows:
(in thousands) |
2016 | 2015 | ||||||
Balance at beginning of year |
$ | 13,097 | $ | 5,447 | ||||
Revaluation of valuation allowance due to change in statutory rates |
(1,234 | ) | | |||||
Increase to balance charged as expense |
3,129 | 5,827 | ||||||
Increase to balance charged to Other Comprehensive Income |
1,627 | 2,099 | ||||||
Effect of foreign currency translation |
(2,547 | ) | (276 | ) | ||||
|
|
|
|
|||||
Balance at end of year |
$ | 14,072 | $ | 13,097 | ||||
|
|
|
|
As of December 31, 2016, we had as filed foreign operating loss carryforwards of $9.5 million and additional accrued foreign operating loss and capital loss carryforwards of $3.8 million. These carryforwards do not expire and can be used at any time. As of December 31, 2016, we have $0.3 million of deferred tax assets on foreign entities with foreign operating loss carryforwards. We are not expecting to have taxable income in the near future in this jurisdiction and have recorded a $13.3 million valuation allowance related to these foreign operating losses and a $0.3 million valuation allowance related to the deferred tax assets. As of December 31, 2016, we had as filed state operating loss carryforwards of $0.4 million and accrued utilization of state operating loss carryforwards and additional state operating losses of (net) $(0.2) million. These carryforwards expire in varying amounts in years 2017 through 2035 and are generated in states in which the Company may have taxable income in the near future. We have recorded a valuation allowance of $0.2 million related to these state operating losses. As of December 31, 2016 we have a state tax credit carryforward of $0.3 million. The utilization of this tax credit carryforward has various training expense requirements which we may or may not meet. Therefore, we have recorded a valuation allowance of $0.3 million related to this state tax credit carryforward. We have classified interest and penalties as a component of income tax expense. However, during 2016 and 2015 we did not record any estimated interest or penalties.
NOTE 14FINANCIAL INSTRUMENTS AND CONCENTRATIONS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. We are required to use valuation techniques that are consistent with the market approach, income approach, and/or cost approach. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability based on market data obtained from independent sources, or unobservable, meaning those that reflect our own estimate about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. Accounting standards establish a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The hierarchy requires us to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are listed below.
Level 1Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that we have access to at the measurement date.
Level 2Inputs include quoted market prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3Unobservable inputs reflecting our own judgments about the assumptions market participants would use in pricing the asset or liability since limited market data exists. We develop these inputs based on the best information available, including our own data.
F-79
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Assets that are Measured at Fair Value on a Non-recurring Basis
The following table summarizes certain information for non-financial assets that were measured at fair value on a nonrecurring basis in periods subsequent to initial recognition into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.
In accordance with ASC 350-10 and ASC 350-20, during the third quarter of 2015, long-lived assets in the United Kingdom with a carrying amount of $6.1 million were written down to their fair value of $4.1 million, resulting in an impairment charge of $2.0 million. This impairment charge was included in earnings for the year ended December 31, 2015.
In accordance with ASC 350-20, during the third quarter of 2015, goodwill associated with our U.K. reporting unit with a carrying amount of $27.7 million was written down to its fair value of $26.8 million, resulting in an impairment charge of $0.9 million. This impairment charge was included in earnings for the year ended December 31, 2015.
Fair Value Measurements at the End
of the Reporting Period |
||||||||||||||||||||
(in thousands) |
December 31,
2015 |
Level 1 | Level 2 | Level 3 |
Total Gains
(Losses) |
|||||||||||||||
Non-recurring fair value measurements |
||||||||||||||||||||
Long-lived assets |
$ | 4,024 | $ | | $ | | $ | 4,024 | $ | (1,977 | ) | |||||||||
Goodwill |
26,197 | | | 26,197 | (905 | ) |
Financial Assets and Liabilities Not Measured at Fair Value
The table below presents the assets and liabilities that were not measured at fair value at December 31, 2016.
Estimated Fair Value | ||||||||||||||||||||
(in thousands) |
Carrying Value
December 31, 2016 |
Level 1 | Level 2 | Level 3 |
December 31,
2016 |
|||||||||||||||
Financial assets: |
||||||||||||||||||||
Cash |
$ | 193,525 | $ | 193,525 | $ | | $ | | $ | 193,525 | ||||||||||
Restricted cash of consolidated VIE |
2,770 | 2,770 | | | 2,770 | |||||||||||||||
Consumer loans receivable, net |
247,004 | | | 247,004 | 247,004 | |||||||||||||||
Restricted cash |
5,058 | 5,058 | | | 5,058 | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
May 2011 senior secured notes |
$ | 223,164 | $ | 216,449 | $ | | $ | | $ | 216,449 | ||||||||||
May 2012 senior secured notes |
89,734 | 86,625 | | | 86,625 | |||||||||||||||
February 2013 senior secured notes |
101,184 | 96,250 | | | 96,250 | |||||||||||||||
February 2013 cash pay notes |
124,365 | 118,301 | | | 118.301 | |||||||||||||||
Non-Recourse U.S. SPV facility |
63,054 | | | 68,311 | 68,311 | |||||||||||||||
ABL facility |
23,406 | | | 23,406 | 23.406 |
F-80
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The table below presents the assets and liabilities that were not measured at fair value at December 31, 2015.
Estimated Fair Value | ||||||||||||||||||||
(in thousands) |
Carrying Value
December 31, 2015 |
Level 1 | Level 2 | Level 3 |
December 31,
2015 |
|||||||||||||||
Financial assets: |
||||||||||||||||||||
Cash |
$ | 100,561 | $ | 100,561 | $ | | $ | | $ | 100,561 | ||||||||||
Consumer loans receivable, net |
219,231 | | | 219,231 | 219,231 | |||||||||||||||
Financial liabilities: |
||||||||||||||||||||
Revolving credit facility |
$ | 8,050 | $ | | $ | 8,050 | $ | | $ | 8,050 | ||||||||||
May 2011 senior secured notes |
250,000 | 142,500 | | | 142,500 | |||||||||||||||
May 2012 senior secured notes |
90,739 | 51,300 | | | 51,300 | |||||||||||||||
February 2013 senior secured notes |
103,206 | 57,000 | | | 57,000 | |||||||||||||||
February 2013 cash pay notes |
125,000 | 61,250 | | | 61,250 |
Consumer loans receivable are carried on the Consolidated Balance Sheets net of the allowance for estimated loan losses, which is calculated primarily based upon models that backtest subsequent collections history for each type of loan product. The unobservable inputs used to calculate the carrying value include additional quantitative factors, such as current default trends and changes to the portfolio mix are also considered in evaluating the accuracy of the models; as well as additional qualitative factors such as the impact of new loan products, changes to underwriting criteria or lending policies, new store development or entrance into new markets, changes in jurisdictional regulations or laws, recent credit trends and general economic conditions. Consumer loans generally have terms ranging from 1 day to 42 months. The carrying value of consumer loans receivable approximates the fair value.
In connection with our CSO programs, the accounting for which is discussed in detail in Note 1, we guarantee consumer loan payment obligations to unrelated third-party lenders for loans that we arrange for consumers on the third-party lenders behalf. The Company is required to purchase from the lender defaulted loans we have guaranteed. The estimated fair value of the guarantee liability related to CSO loans we have guaranteed was $17.1 million and $17.8 million as of December 31, 2016 and 2015, respectively. The initial measurement of this guarantee liability is recorded at fair value using Level 3 inputs with subsequent measurement of the liability measured as a contingent loss. The unobservable inputs used to calculate fair value include the nature of the loan products, the creditworthiness of the borrowers in the customer base, the Companys historical loan default history for similar loans, industry loan default history, historical collection rates on similar products, current default trends, past-due account roll rates, changes to underwriting criteria or lending policies, new store development or entrance into new markets, changes in jurisdictional regulations or laws, recent credit trends and general economic conditions.
The outstanding borrowing under our U.S. Revolving Credit Facility and our Cash Money Revolving Credit Facility are variable interest debt instruments and their fair value approximates their carrying value due to the borrowing rates currently available to us for debt with similar terms.
The fair value of our Senior Secured Notes and Cash Pay Notes was based on broker quotations. The fair values of the Non-Recourse U.S. SPV facility and the ABL facility were based on the cash needed for final settlement.
F-81
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Derivative Financial Instrument
As of December 31, 2016 we have an outstanding cash flow hedge in which the hedging instrument is a forward extra to sell GBP 4,800,000 with monthly expiry dates through May 2017. We have performed an assessment that determined that all critical terms of the hedging instrument and the hedged transaction match and as such have qualitatively concluded that changes in the hedges intrinsic value will completely offset the change in the expected cash flows based on changes in the spot rate. In making that determination, the guidance in ASC 815-20-25-84 was used. Future assessment will be performed utilizing the guidance in ASC 815-20-35-9 through 35-13, Relative Ease of Assessing Effectiveness. Additionally, in accordance with ASC 815-20-25-82, since the effectiveness of this hedge is assessed based on changes in the hedges intrinsic value, the change in the time value of the contract would be excluded from the assessment of hedge effectiveness.
The hedges fair value, which is recorded on a recurring basis based on broker quotations, is classified on the balance sheet in current liabilities. Changes in the hedges intrinsic value, to the extent that they are effective as a hedge, are recorded in other comprehensive income. As of December 31, 2016 we have recorded $0.3 million in other comprehensive income associated with this hedge.
Concentration Risk
We are subject to regulation by federal, state and provincial governmental authorities that affect the products and services that we provide, particularly payday advance loans. The level and type of regulation for payday advance loans varies greatly by jurisdiction, ranging from jurisdictions with moderate regulations or legislation, to other jurisdictions having very strict guidelines and requirements.
Revenues originated in Texas, Ontario, and California represented approximately 26.1%, 14.4%, and 15.1%, respectively, of our consolidated total revenues for the year ended December 31, 2016. Revenues originated in Texas, Ontario and California represented approximately 26.1%, 15.1% and 13.7%, respectively, of our consolidated total revenues for the year ended December 31, 2015.
To the extent that laws and regulations are passed that affect the manner in which we conduct business in any one of those markets, our financial position, results of operations and cash flows could be adversely affected. Additionally, our ability to meet our financial obligations could be negatively impacted.
We hold cash at major financial institutions that often exceed FDIC insured limits. We manage our concentration risk by placing our cash deposits in high quality financial institutions and by periodically evaluating the credit quality of the financial institutions holding such deposits. Historically, we have not experienced any losses due to such cash concentration.
Financial instruments that potentially subject us to concentrations of credit risk primarily consist of our consumer loans receivable. Concentrations of credit risk with respect to consumer loans receivable are limited due to the large number of customers comprising our customer base.
NOTE 15SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is as follows for the years ended December 31, 2016 and 2015:
(in thousands) |
2016 | 2015 | ||||||
Cash paid for: |
||||||||
Interest |
$ | 61,019 | $ | 61,802 | ||||
Income taxes |
43,650 | 26,001 | ||||||
Non-cash investing and financing activities: |
||||||||
Property and equipment accrued in accounts payable |
3,338 | 4,758 |
F-82
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 16LEGAL PROCEEDINGS
On a quarterly basis, we review outstanding legal proceedings and claims to determine if an unfavorable outcome is considered remote, reasonably possible or probable, as defined by U.S. GAAP. If we determine that an unfavorable outcome is not probable or not reasonably estimable, we do not accrue for potential litigation losses. In contrast, if we determine that an unfavorable outcome is both probable and reasonably estimable, we accrue for potential litigation losses. The liability we may ultimately incur for such litigation matters, in the event of a negative outcome, may exceed the amounts for which we accrue.
Harrison, et al v. Principal Investments, Inc. et al
During the relevant period, the Company pursued in excess of 16,000 claims in the limited actions and jurisdiction court in Clark County, Nevada, seeking repayment of loans on which customer defaulted. The Company used outside counsel to file these debt collection lawsuits. On Scene Mediations, a process serving company, was employed to serve the summons and petitions in these cases. In an unrelated matter, the principals of On Scene Mediations were convicted of multiple accounts of perjury and filing false affidavits to obtain judgments on behalf of a Las Vegas collection agency. In September 2010, the Company was sued by four former customers in a proposed class action suit filed in District Court in Clark County, Nevada. The plaintiffs in this case claimed that they, and others in the proposed class, were not properly served notice of the debt collection lawsuits by the Company.
On June 7, 2017, the parties reached a settlement in this matter. At a hearing before the District Court in Clark County, Nevada, on July 10, 2017 the terms of the settlement were outlined before the Court and a fairness hearing was scheduled for July 24, 2017.
Other
We are also a defendant in certain routine litigation matters encountered in the ordinary course of our business. Certain of these matters may be covered to an extent by insurance. In the opinion of management, based upon the advice of legal counsel, the likelihood is remote that the impact of any such pending legal proceedings and claims, either individually or in the aggregate, would have a material adverse effect on our consolidated financial condition, results of operations or cash flows. However, because the ultimate outcome of legal proceedings and claims involves judgments, estimates and inherent uncertainties, actual outcomes of these proceedings and claims may materially differ from our current estimates. It is possible that resolution of one or more of the proceedings currently pending or threatened could result in losses material to our consolidated results of operations, liquidity or financial condition.
NOTE 17SEGMENT REPORTING
Segment information is prepared on the same basis that our chief operating decision maker reviews financial information for operational decision making purposes.
Our operations consist of three reportable segments as follows:
U.S. As of December 31, 2016, we operated a total of 216 U.S. retail locations. Our store count is comprised of stores in Texas (93), California (36), Nevada (18), Arizona (13), Tennessee (11), Kansas (10), Illinois (8), Alabama (7), Missouri (5), Louisiana (5), Colorado (3), Oregon (3), Washington (2) and Mississippi (2). We opened 1 store in the United States during 2016 and we have online presence in 24 states.
We provide Single-Pay Loans, Installment Loans and Open-End Loans, vehicle title loans, check cashing, gold buying, money transfer services, reloadable prepaid debit cards and a number of other ancillary financial products and services to our customers in the United States.
F-83
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Canada We operate under the Cash Money and LendDirect brands in Canada. As of December 31, 2016 we operated a total of 191 stores across seven Canadian provinces and territories, including stores in Ontario (121), Alberta (28), British Columbia (26), Saskatchewan (6), Nova Scotia (5), Manitoba (4) and New Brunswick (1). We opened a total of seven stores in Canada during 2016, and we have online presence in five provinces.
We provide Single-Pay Loans, Installment Loans, check cashing, money transfer services, foreign currency exchange, reloadable prepaid debit cards, and a number of other ancillary financial products and services to our customers in Canada.
U.K. We operate under the Speedy Cash ® and WageDayAdvance brands in the United Kingdom. As of December 31, 2016 we operated a total of 13 retail Speedy Cash locations in the United Kingdom, the majority of which are located in metropolitan London. We also offer loans online to U.K. customers as Wage Day Advance.
We provide Single-Pay Loans, Installment Loans, check cashing, gold buying, reloadable prepaid debit cards, foreign exchange services, and a number of other financial products and services to our customers in the United Kingdom.
The segment performance measure below is based on gross margin. In managements evaluation of performance, certain costs, such as corporate expenses, district expenses and interest expense, are not allocated by segment, and accordingly the following reporting segment results do not include such allocated costs. There are no intersegment revenues, and the amounts below were determined in accordance with the same accounting principles used in our consolidated financial statements.
The following table illustrates summarized financial information concerning our reportable segments.
Year Ended December 31, | ||||||||
(in thousands) |
2016 | 2015 | ||||||
Revenues by segment: |
||||||||
U.S. |
$ | 606,797 | $ | 573,664 | ||||
Canada |
188,079 | 184,859 | ||||||
U.K. |
33,720 | 54,608 | ||||||
|
|
|
|
|||||
Consolidated revenue |
$ | 828,596 | $ | 813,131 | ||||
|
|
|
|
|||||
Gross margin by segment: |
||||||||
U.S. |
$ | 204,328 | $ | 151,628 | ||||
Canada |
78,639 | 77,469 | ||||||
U.K. |
10,289 | 9,504 | ||||||
|
|
|
|
|||||
Consolidated gross margin |
$ | 293,256 | $ | 238,601 | ||||
|
|
|
|
|||||
Expenditures for long-lived assets by segment: |
||||||||
U.S. |
$ | 10,125 | $ | 8,642 | ||||
Canada |
5,872 | 11,062 | ||||||
U.K. |
29 | 128 | ||||||
|
|
|
|
|||||
Consolidated expenditures for long-lived assets |
$ | 16,026 | $ | 19,832 | ||||
|
|
|
|
F-84
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following table illustrates our net long-lived assets, comprised of property and equipment and construction in progress, by geographic region. These amounts are aggregated on a legal entity basis and do not necessarily reflect where the asset is physically located.
(in thousands) |
December 31,
2016 |
December 31,
2015 |
||||||
U.S. |
$ | 58,733 | $ | 62,895 | ||||
Canada |
34,310 | 32,487 | ||||||
U.K. |
2,853 | 4,325 | ||||||
|
|
|
|
|||||
Total |
$ | 95,896 | $ | 99,707 | ||||
|
|
|
|
Our chief operating decision maker does not review assets by segment for purposes of allocating resources or decision-making purposes; therefore, total assets by segment are not disclosed.
NOTE 18OPERATING LEASES
We have entered into operating lease agreements for the buildings in which we operate that expire at various times through 2030. The majority of the leases have an original term of five years with two 5-year renewal options. Most of the leases have escalation clauses and several also require payment of certain period costs including maintenance, insurance and property taxes.
Some of the leases are with related parties and have terms similar to the non-related party leases previously described. Rent expense on unrelated third-party leases for the years ended December 31, 2016 and 2015 was $23.1 million and $23.3 million, respectively; and for related party leases was $3.3 million and $3.2 million, respectively.
Future minimum lease payments that we are contractually obligated to make under operating leases are as follows at December 31, 2016.
(in thousands) |
Third Party | Related Party | Total | |||||||||
2017 |
$ | 22,933 | $ | 3,363 | $ | 26,296 | ||||||
2018 |
20,382 | 1,115 | 21,497 | |||||||||
2019 |
17,030 | 830 | 17,860 | |||||||||
2020 |
13,307 | 725 | 14,032 | |||||||||
2021 |
9,921 | 675 | 10,596 | |||||||||
Thereafter |
24,330 | 1,524 | 25,854 | |||||||||
|
|
|
|
|
|
|||||||
Total |
$ | 107,903 | $ | 8,232 | $ | 116,135 | ||||||
|
|
|
|
|
|
NOTE 19RELATED-PARTY TRANSACTIONS
We employ the services of Ad Astra Recovery Services, Inc. (Ad Astra), which is owned by our shareholders Doug Rippel, Chad Faulkner and Mike McKnight. Ad Astra provides third party collection activities for our U.S. operations. Generally, once loans are between 91 and 121 days delinquent we refer them to Ad Astra for collections. Ad Astra earns a commission fee equal to 30% of any amounts successfully recovered. Payments collected by Ad Astra on our behalf and commissions payable to Ad Astra are net settled on a one month lag. The net amount receivable from Ad Astra at December 31, 2016 and December 31, 2015 was $0.6 million, and $0.2 million, respectively. These amounts are included in Prepaid expenses and other in the Consolidated Balance Sheets. The commission expense paid to Ad Astra for the years ended December 31, 2016
F-85
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
and 2015 was $12.1 million and $10.6 million, respectively, and is included in Other store operating expenses in the Consolidated Statements of Income.
We have entered into several operating lease agreements for our corporate office, collection office, and stores in which we operate, with several real estate entities that are related through common ownership. These operating leases are discussed in Note 18 .
NOTE 20BENEFIT PLANS
In 2010 we instituted a 401(k) retirement savings plan which covers all U.S. employees. Employees may voluntarily contribute up to 90% of their compensation, as defined, to the plan. We match the employee contribution at a rate of 50% of the first 6% of compensation contributed to the plan. Employee contributions vest immediately. Employer contributions vest in full after three years of employment. Company contributions to the plan were $1.1 million and $1.0 million for the years ended December 31, 2016 and 2015, respectively.
In 2013 we instituted a Registered Retirement Savings Plan (RRSP) which covers all Canadian employees. We match the employee contribution at a rate of 50% of the first 6% of compensation contributed to the RRSP. Employee contributions vest immediately. Employer contributions vest 50% after one year and 100% after two years. Company contributions to the RRSP were $0.2 million for each of the two years ended December 31, 2016 and 2015.
In 2014, we instituted a pension plan which covers all U.K. employees. Employees are automatically enrolled at 1% of their compensation, and the Company will match the employees contribution up to 3% of the employees compensation. Company contributions to the plan were $0.2 million and $0.3 million for the years ended December 31, 2016 and 2015, respectively.
In 2015 we instituted a nonqualified deferred compensation plan that provides certain employees of the Company with the opportunity to elect to defer his or her base salary and performance-based compensation, which upon such election, will be credited to the applicable participants deferred compensation account. Participant contributions are fully vested at all times. Each deferred compensation account will be invested in one or more investment funds made available by the Company and selected by the participant. The Company may make discretionary contributions to the individual deferred compensation accounts, which the amount, if any, to be determined annually by the Company. Company contributions vest over a term of three years. Each vested deferred compensation account will be paid out in a lump sum upon a participants separation from service with the Company. The amount deferred under this plan totaled $1.4 million and $0.2 million as of December 31, 2016 and 2015, respectively, and was recorded in long-term liabilities.
The Company owns life insurance policies on plan beneficiaries as an informal funding vehicle to meet future benefit obligations. These policies are recorded at their cash surrender value and are included in other assets. Income generated from policies is recorded as other income.
F-86
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE 21EARNINGS PER SHARE
The following presents the computation of basic earnings per share (in thousands, except per share amounts):
Year Ended December 31, | ||||||||
2016 | 2015 | |||||||
Basic(1): |
||||||||
Net income |
$ | 65,444 | $ | 17,769 | ||||
Weighted average common shares |
37,908 | 37,908 | ||||||
Basic earnings per share |
$ | 1.73 | $ | 0.47 |
(1) | The per share information has been adjusted to give effect to the 36-to-1 stock split of the Companys common stock approved by our board of directors on November 8, 2017 that will occur prior to the effectiveness of the Registration Statement. |
The following computation reconciles the differences between the basic and dilutes earnings per share presentations (in thousands, except per share amounts):
Year Ended December 31, | ||||||||
2016 | 2015 | |||||||
Diluted(1): |
||||||||
Net income |
$ | 65,444 | $ | 17,769 | ||||
Weighted average common shares (basic) |
37,908 | 37,908 | ||||||
Dilutive effect of stock options |
895 | 987 | ||||||
|
|
|
|
|||||
Weighted average common sharesdiluted |
38,803 | 38,895 | ||||||
|
|
|
|
|||||
Diluted earnings per share |
$ | 1.69 | $ | 0.46 |
(1) | The per share information has been adjusted to give effect to the 36-for-1 stock split of the Companys common stock approved by our board of directors on November 8, 2017 that will occur prior to the effectiveness of the Registration Statement. |
Potential common shares that would have the effect of increasing diluted earnings per share or decreasing diluted loss per share are considered to be anti-dilutive and as such, these shares are not included in calculating diluted earnings per share. For the fiscal years ended December 31, 2016 there were 72,000 potential common shares not included in the calculation of diluted earnings per share because their effect was anti-dilutive.
NOTE 22CONDENSED CONSOLIDATING FINANCIAL INFORMATION
On May 12, 2011, in connection with the acquisition of Cash Money, CURO Intermediate issued and sold $250.0 million aggregate principal amount 10.75% senior secured notes due May 15, 2018. The Senior Secured Notes were sold to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended (the Securities Act); or outside the United States to non-U.S. Persons in compliance with Regulation S of the Securities Act. Subsequent offerings of $90.0 million and $100.0 million aggregate principal amounts were sold on May 14, 2012 and February 5, 2013, respectively.
The following condensed consolidating financial information, which has been prepared in accordance with the requirements for presentation of Rule 3-10(d) of Regulation S-X promulgated under the Securities Act, presents the condensed consolidating financial information separately for:
(i) | CURO as the parent company of all entities listed below; |
(ii) | CFTC as the parent company of CURO Intermediate and the subsidiary guarantors and the other subsidiaries of the Company; |
F-87
CURO FINANCIAL TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(iii) | Intermediate as the issuer of the 10.75% senior secured notes; |
(iv) | The Companys subsidiary guarantors, which are comprised of our domestic subsidiaries, excluding: CFTC, CURO Intermediate, the Non-Recourse U.S. SPV Facility and the ABL Facility (the Subsidiary Guarantors), on a combined basis, which are 100% owned by CFTC, and which are guarantors of the 10.75% senior secured notes; |
(v) | The Companys other subsidiaries, which are comprised of our foreign subsidiaries, which are not guarantors of the 10.75% senior secured notes (the Subsidiary Non-Guarantors); |
(vi) | The Non-Recourse U.S. SPV Facility and the ABL Facility (SPV Subs) which are not guarantors of the 10.75% senior secured notes; |
(vii) | Consolidating and eliminating entries representing adjustments to: |
1. | eliminate intercompany transactions between or among the Company, the Subsidiary Guarantors and the Subsidiary Non-Guarantors; and |
2. | eliminate the investments in the Companys subsidiaries; |
(viii) | The Company and its subsidiaries on a consolidated basis. |
F-88
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Condensed Consolidating Balance Sheets
(in thousands) |
December 31, 2016 | |||||||||||||||||||||||||||||||||||||||
CFTC |
CURO
Intermediate |
Subsidiary
Guarantors |
Subsidiary
Non- Guarantors |
SPV
Subs |
Elimination |
CFTC
Consolidated |
CURO | Elimination |
CURO
Consolidated |
|||||||||||||||||||||||||||||||
Assets: |
||||||||||||||||||||||||||||||||||||||||
Cash |
$ | | $ | 1,954 | $ | 127,712 | $ | 63,779 | $ | | $ | | $ | 193,445 | $ | 80 | $ | | $ | 193,525 | ||||||||||||||||||||
Restricted cash of consolidated VIE |
| | | | 2,770 | | 2,770 | | | 2,770 | ||||||||||||||||||||||||||||||
Consumer loans receivable, net |
| | 47,869 | 63,156 | 49,973 | | 160,998 | | | 160,998 | ||||||||||||||||||||||||||||||
Deferred income taxes |
2,833 | 8,802 | 2,925 | 2,768 | | (4,693 | ) | 12,635 | | | 12,635 | |||||||||||||||||||||||||||||
Income taxes receivable |
34,667 | | | 6,151 | | (37,710 | ) | 3,108 | 6,270 | | 9,378 | |||||||||||||||||||||||||||||
Intercompany receivable |
| 444 | 366,314 | | | (366,758 | ) | | | | | |||||||||||||||||||||||||||||
Prepaid expenses and other |
| | 32,964 | 4,205 | | | 37,169 | 4,735 | (2,656 | ) | 39,248 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total current assets |
37,500 | 11,200 | 577,784 | 140,059 | 52,743 | (409,161 | ) | 410,125 | 11,085 | (2,656 | ) | 418,554 | ||||||||||||||||||||||||||||
Property and equipment, net |
| | 58,733 | 37,163 | | | 95,896 | | | 95,896 | ||||||||||||||||||||||||||||||
Goodwill |
| | 91,131 | 50,423 | | | 141,554 | | | 141,554 | ||||||||||||||||||||||||||||||
Other intangibles, net |
19 | | 5,616 | 25,266 | | | 30,901 | | | 30,901 | ||||||||||||||||||||||||||||||
Consumer loans receivable, net |
| | 19,689 | 8,225 | 58,092 | | 86,006 | | | 86,006 | ||||||||||||||||||||||||||||||
Intercompany receivable |
| 55,000 | 17,573 | | | (72,573 | ) | | | | | |||||||||||||||||||||||||||||
Investment in subsidiaries |
187,473 | 830,443 | | | | (1,017,916 | ) | | 155,964 | (155,964 | ) | | ||||||||||||||||||||||||||||
Restricted cash |
| 459 | 1,223 | 3,376 | | | 5,058 | | | 5,058 | ||||||||||||||||||||||||||||||
Other |
| | 1,745 | 1,084 | | | 2,829 | | | 2,829 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total assets |
$ | 224,992 | $ | 897,102 | $ | 773,494 | $ | 265,596 | $ | 110,835 | $ | (1,499,650 | ) | $ | 772,369 | $ | 167,049 | $ | (158,620 | ) | $ | 780,798 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Liabilities and equity: |
||||||||||||||||||||||||||||||||||||||||
Accounts payable and accrued liabilities |
$ | 253 | $ | 3 | $ | 32,528 | $ | 9,900 | $ | | $ | | $ | 42,684 | $ | (21 | ) | $ | | $ | 42,663 | |||||||||||||||||||
Deferred revenue |
| | 6,520 | 5,822 | | | 12,342 | | | 12,342 | ||||||||||||||||||||||||||||||
Income taxes payable |
| 23,087 | 12,952 | 3,043 | | (37,710 | ) | 1,372 | | | 1,372 | |||||||||||||||||||||||||||||
Current maturities of long-term debt |
| 23,406 | | | | | 23,406 | 124,365 | | 147,771 | ||||||||||||||||||||||||||||||
Accrued interest |
| 5,575 | | | 775 | | 6,350 | 1,833 | | 8,183 | ||||||||||||||||||||||||||||||
Payable to CURO Group |
2,656 | | | | | | 2,656 | | (2,656 | ) | | |||||||||||||||||||||||||||||
Intercompany payable |
65,822 | 233,537 | | 12,773 | 54,626 | (366,758 | ) | | | | | |||||||||||||||||||||||||||||
CSO guarantee liability |
| | 17,052 | | | 17,052 | | | 17,052 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total current liabilities |
68,731 | 285,608 | 69,052 | 31,538 | 55,401 | (404,468 | ) | 105,862 | 126,177 | (2,656 | ) | 229,383 | ||||||||||||||||||||||||||||
Deferred rent |
| | 10,006 | 1,862 | | | 11,868 | | | 11,868 | ||||||||||||||||||||||||||||||
Long-term debt (ex. current maturities) |
| 414,082 | | | 63,054 | | 477,136 | | | 477,136 | ||||||||||||||||||||||||||||||
Subordinated shareholder debt |
| | | 2,227 | | | 2,227 | | | 2,227 | ||||||||||||||||||||||||||||||
Intercompany payable |
| | | 72,573 | | (72,573 | ) | | | | | |||||||||||||||||||||||||||||
Other long-term liabilities |
299 | | 1,741 | 2,976 | | | 5,016 | | | 5,016 | ||||||||||||||||||||||||||||||
Deferred tax liabilities |
(2 | ) | 9,914 | 2,495 | 6,582 | | (4,693 | ) | 14,296 | 17 | | 14,313 | ||||||||||||||||||||||||||||
Stockholders equity (deficit) |
155,964 | 187,498 | 690,200 | 147,838 | (7,620 | ) | (1,017,916 | ) | 155,964 | 40,855 | (155,964 | ) | 40,855 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total liabilities and stockholders equity |
$ | 224,992 | $ | 897,102 | $ | 773,494 | $ | 265,596 | $ | 110,835 | $ | (1,499,650 | ) | $ | 772,369 | $ | 167,049 | $ | (158,620 | ) | $ | 780,798 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
F-89
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands) |
December 31, 2015 | |||||||||||||||||||||||||||||||||||
CFTC |
CURO
Intermediate |
Subsidiary
Guarantors |
Subsidiary
Non- Guarantors |
Elimination |
CFTC
Consolidated |
CURO | Elimination |
CURO
Consolidated |
||||||||||||||||||||||||||||
Assets: |
||||||||||||||||||||||||||||||||||||
Cash |
$ | | $ | 2 | $ | 57,149 | $ | 41,928 | $ | | $ | 99,079 | $ | 1,482 | $ | | $ | 100,561 | ||||||||||||||||||
Consumer loans receivable, net |
| | 92,456 | 54,763 | | 147,219 | | | 147,219 | |||||||||||||||||||||||||||
Deferred income taxes |
2,735 | 8,577 | 2,660 | 2,189 | (2,735 | ) | 13,426 | | (27 | ) | 13,399 | |||||||||||||||||||||||||
Income taxes receivable |
15,138 | | | 2,176 | (15,138 | ) | 2,176 | 6,457 | (831 | ) | 7,802 | |||||||||||||||||||||||||
Prepaid expenses and other |
| | 30,616 | 2,572 | 218 | 33,406 | 12,003 | (11,933 | ) | 33,476 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total current assets |
$ | 17,873 | $ | 8,579 | $ | 182,881 | $ | 103,628 | $ | (17,655 | ) | $ | 295,306 | $ | 19,942 | $ | (12,791 | ) | $ | 302,457 | ||||||||||||||||
Property and equipment, net |
| | 62,895 | 36,812 | | 99,707 | | | 99,707 | |||||||||||||||||||||||||||
Goodwill |
| | 91,131 | 53,904 | | 145,035 | | | 145,035 | |||||||||||||||||||||||||||
Other intangibles, net |
| | 6,633 | 26,063 | | 32,696 | | | 32,696 | |||||||||||||||||||||||||||
Consumer loans receivable, net |
| | 71,621 | 392 | | 72,013 | | | 72,013 | |||||||||||||||||||||||||||
Intercompany receivable |
| 39,735 | 215,515 | | (255,250 | ) | | | | | ||||||||||||||||||||||||||
Investment in subsidiaries |
117,585 | 653,985 | | | (771,570 | ) | | 86,149 | (86,149 | ) | | |||||||||||||||||||||||||
Restricted cash |
| | 5,700 | 6,063 | | 11,763 | | | 11,763 | |||||||||||||||||||||||||||
Other |
| 55,000 | 961 | 1,385 | (55,000 | ) | 2,346 | | | 2,346 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total assets |
$ | 135,458 | $ | 757,299 | $ | 637,337 | $ | 228,247 | $ | (1,099,475 | ) | $ | 658,866 | $ | 106,091 | $ | (98,940 | ) | $ | 666,017 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Liabilities and equity: |
||||||||||||||||||||||||||||||||||||
Accounts payable and accrued liabilities |
$ | 50 | $ | 8 | $ | 31,905 | $ | 11,212 | $ | | $ | 43,175 | $ | | $ | (25 | ) | $ | 43,150 | |||||||||||||||||
Deferred revenue |
| | 7,017 | 8,702 | | 15,719 | | | 15,719 | |||||||||||||||||||||||||||
Income taxes payable |
| 10,033 | 5,936 | | (15,138 | ) | 831 | | (831 | ) | | |||||||||||||||||||||||||
Current maturities of long-term debt |
| 8,050 | | | | 8,050 | | | 8,050 | |||||||||||||||||||||||||||
Accrued interest |
| 5,959 | | | | 5,959 | 1,833 | | 7,792 | |||||||||||||||||||||||||||
Payable to CURO Group |
11,935 | | | | | 11,935 | | (11,935 | ) | | ||||||||||||||||||||||||||
Intercompany payable |
37,131 | 167,461 | | 50,440 | (255,032 | ) | | | | | ||||||||||||||||||||||||||
CSO guarantee liability |
| | 17,751 | | | 17,751 | | | 17,751 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total current liabilities |
$ | 49,116 | $ | 191,511 | $ | 62,609 | $ | 70,354 | $ | (270,170 | ) | $ | 103,420 | $ | 1,833 | $ | (12,791 | ) | $ | 92,462 | ||||||||||||||||
Deferred rent |
| | 9,745 | 1,872 | | 11,617 | | | 11,617 | |||||||||||||||||||||||||||
Long-term debt (ex. current maturities) |
| 438,035 | | 55,000 | (55,000 | ) | 438,035 | 123,640 | | 561,675 | ||||||||||||||||||||||||||
Subordinated shareholder debt |
| | | 2,162 | | 2,162 | | | 2,162 | |||||||||||||||||||||||||||
Other long-term liabilities |
193 | | 875 | 655 | | 1,723 | | | 1,723 | |||||||||||||||||||||||||||
Deferred tax liabilities |
| 10,168 | 1,590 | 6,737 | (2,735 | ) | 15,760 | | | 15,760 | ||||||||||||||||||||||||||
Stockholders equity (deficit) |
86,149 | 117,585 | 562,518 | 91,467 | (771,570 | ) | 86,149 | (19,382 | ) | (86,149 | ) | (19,382 | ) | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total Liabilities and Stockholders equity (deficit) |
$ | 135,458 | $ | 757,299 | $ | 637,337 | $ | 228,247 | $ | (1,099,475 | ) | $ | 658,866 | $ | 106,091 | $ | (98,940 | ) | $ | 666,017 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-90
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Condensed Consolidating Statements of Income
(in thousands) |
Year ended December 31, 2016 | |||||||||||||||||||||||||||||||||||||||
CFTC |
CURO
Intermediate |
Subsidiary
Guarantors |
Subsidiary
Non- Guarantors |
SPV
Subs |
Eliminations |
CFTC
Consolidated |
CURO | Eliminations |
CURO
Consolidated |
|||||||||||||||||||||||||||||||
Revenue: |
||||||||||||||||||||||||||||||||||||||||
Total revenues |
$ | | $ | | $ | 581,820 | $ | 221,799 | $ | 24,977 | $ | | $ | 828,596 | $ | | $ | | $ | 828,596 | ||||||||||||||||||||
Cost of providing services: |
||||||||||||||||||||||||||||||||||||||||
Provision for losses |
| | 176,546 | 50,540 | 31,203 | | 258,289 | | | 258,289 | ||||||||||||||||||||||||||||||
Salaries and benefits |
| | 69,549 | 34,992 | | | 104,541 | | | 104,541 | ||||||||||||||||||||||||||||||
Occupancy |
| | 31,451 | 23,058 | | | 54,509 | | | 54,509 | ||||||||||||||||||||||||||||||
Office |
| | 15,883 | 4,580 | | | 20,463 | | | 20,463 | ||||||||||||||||||||||||||||||
Other store operating expenses |
| | 47,491 | 6,120 | 6 | | 53,617 | | | 53,617 | ||||||||||||||||||||||||||||||
Advertising |
| | 30,340 | 13,581 | | | 43,921 | | | 43,921 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total cost of providing services |
| | 371,260 | 132,871 | 31,209 | | 535,340 | | | 535,340 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Gross Margin |
| | 210,560 | 88,928 | (6,232 | ) | | 293,256 | | | 293,256 | |||||||||||||||||||||||||||||
Other (income) expense: |
||||||||||||||||||||||||||||||||||||||||
Corporate expenses |
1,898 | 338 | 78,873 | 32,713 | | | 113,822 | 447 | 114,269 | |||||||||||||||||||||||||||||||
Intercompany management fee (income) expense |
| | (12,632 | ) | 12,632 | | | | | | | |||||||||||||||||||||||||||||
District expenses |
| | 7,563 | 3,287 | | | 10,850 | | | 10,850 | ||||||||||||||||||||||||||||||
Interest expense |
| 47,684 | 2 | 58 | 864 | | 48,608 | 15,726 | | 64,334 | ||||||||||||||||||||||||||||||
Intercompany interest (income) expense |
| (4,961 | ) | (1,319 | ) | 5,741 | 539 | | | | | | ||||||||||||||||||||||||||||
Gain on extinguishment of debt |
| (6,991 | ) | | | | | (6,991 | ) | | | (6,991 | ) | |||||||||||||||||||||||||||
Restructuring costs |
| | 1,726 | 1,892 | | | 3,618 | | | 3,618 | ||||||||||||||||||||||||||||||
Other, net |
| | (984 | ) | 140 | | | (844 | ) | (1 | ) | | (845 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Total other expense |
1,898 | 36,070 | 73,229 | 56,463 | 1,403 | | 169,063 | 16,172 | | 185,235 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net earnings (loss) before income taxes |
(1,898 | ) | (36,070 | ) | 137,331 | 32,465 | (7,635 | ) | | 124,193 | (16,172 | ) | | 108,021 | ||||||||||||||||||||||||||
Provision for income tax expense (benefit) |
(682 | ) | 22,788 | 14,543 | 12,522 | | | 49,171 | (6,594 | ) | | 42,577 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net earnings (loss) |
(1,216 | ) | (58,858 | ) | 122,788 | 19,943 | (7,635 | ) | | 75,022 | (9,578 | ) | | 65,444 | ||||||||||||||||||||||||||
Equity in net income (loss) of subsidiaries: |
||||||||||||||||||||||||||||||||||||||||
CFTC |
| | | | | | | 75,022 | (75,022 | ) | | |||||||||||||||||||||||||||||
Intermediate |
(58,858 | ) | | | | | 58,858 | | | | | |||||||||||||||||||||||||||||
Guarantor Subsidiaries |
122,788 | | | | | (122,788 | ) | | | | | |||||||||||||||||||||||||||||
Non-Guarantor Subsidiaries |
19,943 | | | | | (19,943 | ) | | | | | |||||||||||||||||||||||||||||
SPV Subs |
(7,635 | ) | | | | | 7,635 | | | | | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net earnings (loss) attributable to CURO |
$ | 75,022 | $ | (58,858 | ) | $ | 122,788 | $ | 19,943 | $ | (7,635 | ) | $ | (76,238 | ) | $ | 75,022 | $ | 65,444 | $ | (75,022 | ) | $ | 65,444 | ||||||||||||||||
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
F-91
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands) |
Year ended December 31, 2015 | |||||||||||||||||||||||||||||||||||
CFTC |
CURO
Intermediate |
Subsidiary
Guarantors |
Subsidiary
Non- Guarantors |
Eliminations |
CFTC
Consolidated |
CURO | Eliminations |
CURO
Consolidated |
||||||||||||||||||||||||||||
Revenue: |
||||||||||||||||||||||||||||||||||||
Total revenues |
$ | | $ | | $ | 573,664 | $ | 239,467 | $ | | $ | 813,131 | $ | | $ | | $ | 813,131 | ||||||||||||||||||
Cost of providing services: |
||||||||||||||||||||||||||||||||||||
Provision for losses |
| | 222,868 | 58,342 | | 281,210 | | | 281,210 | |||||||||||||||||||||||||||
Salaries and benefits |
| | 68,928 | 38,131 | | 107,059 | | | 107,059 | |||||||||||||||||||||||||||
Occupancy |
| | 30,504 | 22,784 | | 53,288 | | | 53,288 | |||||||||||||||||||||||||||
Office |
| | 15,089 | 4,840 | | 19,929 | | | 19,929 | |||||||||||||||||||||||||||
Other store operating expenses |
| | 41,661 | 5,719 | | 47,380 | | | 47,380 | |||||||||||||||||||||||||||
Advertising |
| | 42,986 | 22,678 | | 65,664 | | | 65,664 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total cost of providing services |
| | 422,036 | 152,494 | | 574,530 | | | 574,530 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Gross Margin |
| | 151,628 | 86,973 | | 238,601 | | | 238,601 | |||||||||||||||||||||||||||
Other (income) expense: |
||||||||||||||||||||||||||||||||||||
Corporate expenses |
2,035 | 178 | 71,754 | 41,993 | | 115,960 | 1,149 | | 117,109 | |||||||||||||||||||||||||||
Intercompany management fee (income) expense |
| 1 | (13,064 | ) | 13,063 | | | | | | ||||||||||||||||||||||||||
District expenses |
| | 7,412 | 4,525 | | 11,937 | | | 11,937 | |||||||||||||||||||||||||||
Interest expense |
| 49,167 | 17 | 111 | | 49,295 | 15,725 | | 65,020 | |||||||||||||||||||||||||||
Intercompany interest (income) expense |
| (5,583 | ) | (265 | ) | 5,848 | | | | | | |||||||||||||||||||||||||
Goodwill and intangible asset impairment charges |
| | | 2,882 | | 2,882 | | | 2,882 | |||||||||||||||||||||||||||
Fair value adjustment to contingent consideration |
| | | 4,291 | | 4,291 | | | 4,291 | |||||||||||||||||||||||||||
Other, net |
| | (11 | ) | 1,499 | | 1,488 | | | 1,488 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Total other expense |
2,035 | 43,763 | 65,843 | 74,212 | | 185,853 | 16,874 | | 202,727 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net earnings (loss) before income taxes |
(2,035 | ) | (43,763 | ) | 85,785 | 12,761 | | 52,748 | (16,874 | ) | | 35,874 | ||||||||||||||||||||||||
Provision for income tax expense (benefit) |
(673 | ) | 10,704 | 4,164 | 10,291 | | 24,486 | (6,381 | ) | | 18,105 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net earnings (loss) |
(1,362 | ) | (54,467 | ) | 81,621 | 2,470 | | 28,262 | (10,493 | ) | | 17,769 | ||||||||||||||||||||||||
Equity in net income (loss) of subsidiaries: |
||||||||||||||||||||||||||||||||||||
CFTC |
| | | | | | 28,262 | (28,262 | ) | | ||||||||||||||||||||||||||
Intermediate |
(54,467 | ) | | | | 54,467 | | | | | ||||||||||||||||||||||||||
Guarantor Subsidiaries |
81,621 | | | | (81,621 | ) | | | | | ||||||||||||||||||||||||||
Non-Guarantor Subsidiaries |
2,470 | | | | (2,470 | ) | | | | | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||
Net earnings (loss) attributable to CURO |
$ | 28,262 | $ | (54,467 | ) | $ | 81,621 | $ | 2,470 | $ | (29,624 | ) | $ | 28,262 | $ | 17,769 | $ | (28,262 | ) | $ | 17,769 | |||||||||||||||
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|
|
|
|
|
|
|
F-92
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Condensed Consolidating Statements of Cash Flows
(in thousands) |
Year ended December 31, 2016 | |||||||||||||||||||||||||||||||||||||||
CFTC |
CURO
Intermediate |
Subsidiary
Guarantors |
Subsidiary
Non- Guarantors |
SPV
Subs |
Eliminations |
CFTC
Consolidated |
CURO | Eliminations |
CURO
Consolidated |
|||||||||||||||||||||||||||||||
Cash flows from operating activities |
||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net cash provided (used) |
$ | 20 | $ | 29,400 | $ | 76,191 | $ | 27,731 | $ | (83,601 | ) | $ | (627 | ) | $ | 49,114 | $ | (1,402 | ) | $ | | $ | 47,712 | |||||||||||||||||
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|
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Cash flows from investing activities: |
||||||||||||||||||||||||||||||||||||||||
Purchase of property, equipment and software |
(20 | ) | | (10,105 | ) | (5,901 | ) | | | (16,026 | ) | | | (16,026 | ) | |||||||||||||||||||||||||
Change in restricted cash |
| (459 | ) | 4,477 | 1,856 | (2,770 | ) | | 3,104 | | | 3,104 | ||||||||||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net cash used |
(20 | ) | (459 | ) | (5,628 | ) | (4,045 | ) | (2,770 | ) | | (12,922 | ) | | | (12,922 | ) | |||||||||||||||||||||||
|
|
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|
|
|
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|
|
|
|
|||||||||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||||||||||||||||||
Proceeds from credit facility |
| 30,000 | | | | | 30,000 | | | 30,000 | ||||||||||||||||||||||||||||||
Payments on credit facility |
| (38,050 | ) | | | | | (38,050 | ) | | | (38,050 | ) | |||||||||||||||||||||||||||
Deferred financing costs incurred |
| | | | (5,346 | ) | | (5,346 | ) | | | (5,346 | ) | |||||||||||||||||||||||||||
Proceeds from Non-Recourse U.S. SPV facility and ABL facility |
| | | | 91,717 | | 91,717 | | | 91,717 | ||||||||||||||||||||||||||||||
Purchase of May 2011 senior secured notes |
| (18,939 | ) | | | | | (18,939 | ) | | | (18,939 | ) | |||||||||||||||||||||||||||
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Net cash provided (used) |
| (26,989 | ) | | | 86,371 | | 59,382 | | | 59,382 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Effect of exchange rate changes on cash |
| | | (1,835 | ) | | 627 | (1,208 | ) | | | (1,208 | ) | |||||||||||||||||||||||||||
|
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|
|
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|
|
|
|||||||||||||||||||||
Net increase in cash |
| 1,952 | 70,563 | 21,851 | | | 94,366 | (1,402 | ) | | 92,964 | |||||||||||||||||||||||||||||
Cash at beginning of period |
| 2 | 57,149 | 41,928 | | | 99,079 | 1,482 | | 100,561 | ||||||||||||||||||||||||||||||
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|
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|
|
|
|||||||||||||||||||||
Cash at end of period |
$ | | $ | 1,954 | $ | 127,712 | $ | 63,779 | $ | | $ | | $ | 193,445 | $ | 80 | $ | | $ | 193,525 | ||||||||||||||||||||
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|
|
F-93
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(in thousands) |
Year ended December 31, 2015 | |||||||||||||||||||||||||||||||||||
CFTC |
CURO
Intermediate |
Subsidiary
Guarantors |
Subsidiary
Non- Guarantors |
Eliminations |
CFTC
Consolidated |
CURO | Eliminations |
CURO
Consolidated |
||||||||||||||||||||||||||||
Cash flows from operating activities |
||||||||||||||||||||||||||||||||||||
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|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|||||||||||||||||||
Net cash provided (used) |
$ | | $ | 11,950 | $ | 27,698 | $ | (6,345 | ) | $ | 1,048 | $ | 34,351 | $ | (17,237 | ) | $ | | $ | 17,114 | ||||||||||||||||
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|
|
|
|
|
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|
|
|
|
|
|
|||||||||||||||||||
Cash flows from investing activities: |
||||||||||||||||||||||||||||||||||||
Purchase of property, equipment and software |
| | (8,642 | ) | (11,190 | ) | | (19,832 | ) | | | (19,832 | ) | |||||||||||||||||||||||
Intercompany dividends |
18,471 | | (18,471 | ) | | | | | | | ||||||||||||||||||||||||||
Change in restricted cash |
| | (300 | ) | (6,123 | ) | | (6,423 | ) | | | (6,423 | ) | |||||||||||||||||||||||
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|
|
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|
|
|
|
|
|
|||||||||||||||||||
Net cash provided (used) |
18,471 | | (27,413 | ) | (17,313 | ) | | (26,255 | ) | | | (26,255 | ) | |||||||||||||||||||||||
|
|
|
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|
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|
|
|
|
|||||||||||||||||||
Cash flows from financing activities: |
||||||||||||||||||||||||||||||||||||
Proceeds from credit facility |
| 57,050 | | | | 57,050 | | 57,050 | ||||||||||||||||||||||||||||
Payments on credit facility |
| (69,000 | ) | | | | (69,000 | ) | | (69,000 | ) | |||||||||||||||||||||||||
Dividend paid to CURO Group |
(18,100 | ) | | | | | (18,100 | ) | 18,100 | | | |||||||||||||||||||||||||
Payment for cash settlement of equity award |
(371 | ) | | | | | (371 | ) | | (371 | ) | |||||||||||||||||||||||||
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|
|
|
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Net cash used |
(18,471 | ) | (11,950 | ) | | | | (30,421 | ) | 18,100 | | (12,321 | ) | |||||||||||||||||||||||
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|
|||||||||||||||||||
Effect of exchange rate changes on cash |
| | | (7,016 | ) | (1,048 | ) | (8,064 | ) | | | (8,064 | ) | |||||||||||||||||||||||
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|
|
|||||||||||||||||||
Net increase (decrease) in cash |
| | 285 | (30,674 | ) | | (30,389 | ) | 863 | | (29,526 | ) | ||||||||||||||||||||||||
Cash at beginning of period |
| 2 | 56,864 | 72,602 | | 129,468 | 619 | | 130,087 | |||||||||||||||||||||||||||
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|
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Cash at end of period |
$ | | $ | 2 | $ | 57,149 | $ | 41,928 | $ | | $ | 99,079 | $ | 1,482 | $ | | $ | 100,561 | ||||||||||||||||||
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NOTE 23SUBSEQUENT EVENTS
Debt offering
On February 15, 2017 CFTC issued $470.0 million 12.00% Senior Secured Notes due March 1, 2022. Interest on the notes is payable semiannually, in arrears, on March 1 and September 1 of each year, beginning on September 1, 2017. The proceeds from the Notes were used, together with available cash, to (i) redeem the outstanding 10.75% Senior Secured Notes due 2018 of our wholly-owned subsidiary, CURO Intermediate Holdings, (ii) redeem our outstanding 12.00% Senior Cash Pay Notes due 2017 and (iii) pay fees, expenses, premiums and accrued interest in connection with the offering. Consequently, we received a $130.1 million dividend in February 2017 to fund the redemption of the 12.00% Senior Cash Pay Notes.
ABL Facility
On November 17, 2016, CURO Intermediate entered into a six-month recourse credit facility with Victory Park Management, LLC and certain other lenders, or the ABL Facility, which provided for $25.0 million of borrowing capacity. The ABL Facility matured in May 2017 and was fully converted to the SPV facility.
Dividends received
On May 12, 2017, CFTC declared a dividend of $28.0 million to CURO, which was paid to our stockholders on May 15, 2017.
Acquisition of preferred shares
On April 20, 2017, we purchased 2,926,715 preferred shares of Cognical Holdings, Inc. (Cognical) for $5.0 million. Cognical operates as a business under an online website, www.zibby.com. The online business facilitates the purchase of household items and serves the underbanked consumers. As a result of this transaction, we own 8.9% of the equity of Cognical.
F-94
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Legal Proceedings: Harrison, et al v. Principal Investments, Inc. et al
On June 7, 2017, the parties in the Harrison, et al v. Principal Investments, Inc. et al class action lawsuit reached a settlement. At a hearing before the District Court in Clark County, Nevada, on July 10, 2017 the terms of the settlement were outlined before the Court and a fairness hearing was scheduled for July 24, 2017. In the opinion of management, the cost of such settlement should not have a material adverse effect on our financial position, results of operations or liquidity.
The Company evaluated and disclosed subsequent events through July 12, 2017, which represents the date as of which the financial statements were available to be issued.
Stock Split
On November 8, 2017, the Board of Directors of the Company approved a 36-for-1 stock split of its common stock that will occur prior to the effectiveness of the Registration Statement. The stock split and related amendment to the certificate of incorporation will result in a thirty-six times increase in the number of authorized and outstanding shares of common stock. In addition, the Company plans to amend its certificate of incorporation prior to the effectiveness of the Registration Statement to increase the number of authorized shares. All share and per share amounts for all periods presented within these consolidated financial statements have been adjusted to reflect the impact of the stock split.
NOTE 24 SUBSEQUENT EVENTS (UNAUDITED)
As described in Note 23, the Company is reissuing its 2016 financial statements to reflect a stock split approved on November 8, 2017. In connection with the reissuance of these financial statements, the Company has considered whether there are other subsequent events that have occurred since July 12, 2017 and through November 27, 2017 that require recognition or disclosure in the 2016 financial statements and believes that there are no such events.
F-95
PART IIINFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses to be paid by the registrant, other than estimated underwriting discounts and commissions, in connection with our initial public offering. All amounts shown are estimates except for the SEC registration fee, the FINRA filing fee, the NYSE listing fee and the transfer agent and registrar fees and expenses:
(in thousands) |
||||
SEC registration fee |
$ | 15,272 | ||
FINRA filing fee |
$ | 17,750 | ||
NYSE listing fee |
$ | 25,000 | ||
Printing and engraving expenses |
$ | 900,000 | ||
Legal fees and expenses |
$ | 2,500,000 | ||
Accounting fees and expenses |
$ | 915,000 | ||
Transfer agent and registrar fees and expenses |
$ | 5,000 | ||
Miscellaneous |
$ | 100,000 | ||
|
|
|||
Total |
$ | 4,478,022 | ||
|
|
Item 14. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware authorizes a court to award, or a corporations board of directors to grant, indemnity to officers and directors under certain circumstances and subject to certain limitations. The terms of Section 145 of the General Corporation Law of the State of Delaware are sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act of 1933, as amended.
As permitted by Section 102(b)(7) of the General Corporation Law of the State of Delaware, the registrants amended and restated certificate of incorporation, to be in effect upon the completion of this offering, includes provisions that eliminate the personal liability of its directors for monetary damages for any breach of fiduciary duties as a director, except liability for the following:
| any breach of the directors duty of loyalty to the registrant or its stockholders; |
| acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; |
| under Section 174 of the General Corporation Law of the State of Delaware (regarding unlawful dividends and stock purchases); or |
| any transaction from which the director derived an improper personal benefit. |
To the extent Section 102(b)(7) is interpreted, or the General Corporation Law of the State of Delaware is amended, to allow similar protections for officers of a corporation, such provisions of the registrants amended and restated certificate of incorporation shall also extend to those persons.
In addition, as permitted by Section 145 of the General Corporation Law of the State of Delaware, the amended and restated bylaws of the registrant, to be in effect upon the completion of this offering, provide that:
| The registrant shall indemnify its directors and officers for serving the registrant in those capacities or for serving other business enterprises at the registrants request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person 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 registrant and, with respect to any criminal proceeding, had no reasonable cause to believe such persons conduct was unlawful. |
II-1
| The registrant may, in its discretion, indemnify employees and agents as set forth in the General Corporation Law of the State of Delaware. |
| The registrant is required to advance expenses, as incurred, to its directors and officers in connection with defending a proceeding, except that such director or officer shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification. |
| The registrant will not be obligated pursuant to its amended and restated bylaws to indemnify a person with respect to proceedings initiated by that person, except with respect to proceedings authorized by the registrants board of directors or brought to enforce a right to indemnification. |
| The rights conferred in the amended and restated bylaws are not exclusive, and the registrant is authorized to enter into indemnification agreements with its directors, officers, employees and agents and to obtain insurance to indemnify such persons. |
The registrant has entered, and intends to continue to enter, into separate indemnification agreements with each of its directors and officers that provide the maximum indemnity allowed to directors and officers by Section 145 of the General Corporation Law of the State of Delaware and also provide for certain additional procedural protections. The registrant also maintains directors and officers insurance to insure such persons against certain liabilities.
The indemnification provisions in the registrants amended and restated certificate of incorporation, amended and restated bylaws and the indemnification agreements entered into between the registrant and its officers and directors may be sufficiently broad to permit indemnification of the registrants officers and directors for liabilities (including reimbursement of expenses incurred) arising under the Securities Act of 1933.
The underwriting agreement filed as Exhibit 1.1 to this registration statement provides for indemnification in limited circumstances by the underwriters of the registrant and its officers and directors for liabilities, including arising under the Securities Act of 1933 and otherwise.
Item 15. Recent Sales of Unregistered Securities.
| Since January 1, 2014, we granted stock options to employees and directors under our stock option plans covering an aggregate of 17,589 shares, with exercise prices ranging from $122.00 per share to $319.08 per share. |
| On February 15, 2017 CFTC issued $470,000,000 aggregate principal amount of 12.00% Senior Secured Notes due March 1, 2022 at an offering price of 98.155%. The initial purchasers were Jefferies LLC and Stephens Inc., and $6,000,000 of the 12.00% Senior Secured Notes were privately placed by the Company directly with certain members of the Companys board of directors. |
| On November 2, 2017 CFTC issued $135,000,000 aggregate principal amount of additional 12.00% Senior Secured Notes due March 1, 2022 at an offering price of 103.500%. The initial purchasers were Credit Suisse Securities (USA) LLC and Jefferies LLC. Stephens Inc. acted as a co-manager and was not an initial purchaser. |
Unless otherwise stated, the sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act (or Regulation D or Regulation S promulgated thereunder), or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701 under the Securities Act. In connection with the issuance of the 12.00% Senior Secured Notes referenced above, the initial purchasers resold the 12.00% Senior Secured Notes to qualified institutional buyers within the meaning of Rule 144A under the Securities Act, in reliance on the exemption from registration requirements of the Securities Act provided by Rule 144A and outside the United States to non-U.S. persons in reliance on Regulation S under the Securities Act. The indenture governing the Notes permits transfers of such securities to accredited investors (as defined in Regulation D of the Securities Act of 1933), among others, subject to compliance with applicable law.
II-2
Item 16. Exhibits and Financial Statement Schedules.
(a) | Exhibits |
The list of exhibits is set forth under Exhibit Index at the end of this registration statement and is incorporated herein by reference.
(b) | Financial Statement Schedules |
All financial statement schedules have been omitted because the required information is included in the consolidated financial statements and the notes thereto or the information therein is not applicable.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the underwriters, at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-3
EXHIBIT INDEX
Exhibit
|
Description |
|
1.1 | ||
3.1 | ||
3.2 | ||
4.1 | ||
4.2 | ||
5.1 | ||
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5 | ||
10.6 | ||
10.7 | ||
10.8 | ||
10.9 | ||
10.10 | ||
10.11 | ||
10.12 | ||
10.13 | ||
10.14 | ||
10.15 | ||
10.16 | ||
10.17 | ||
10.18 |
II-4
Exhibit
|
Description |
|
10.19 | ||
10.20 | ||
10.21 | ||
10.22 | ||
10.23 | ||
10.24 | ||
10.25 | ||
10.26 | ||
10.27 | ||
10.28 | ||
10.29 | ||
10.30 | ||
10.31 | ||
10.32 | ||
10.33 | ||
10.34 | ||
10.35 | ||
10.36 | ||
10.37 | ||
10.38 |
II-5
Exhibit
|
Description |
|
10.39 | ||
10.40 | ||
10.41 | ||
10.42 | ||
10.43 | ||
10.44 | ||
10.45 | ||
10.46 | ||
10.47 | ||
10.48 | ||
10.49 | ||
10.50 | ||
10.51 | ||
10.52 | ||
10.53 | ||
10.54 | ||
10.55 | ||
10.56 | ||
10.57
|
II-6
Exhibit
|
Description |
|
10.58 | ||
10.59 | ||
10.60 | ||
10.61 | ||
10.62 | ||
21.1 | ||
23.1 | ||
23.2 |
Consent of Willkie Farr & Gallagher LLP (included in Exhibit 5.1 ) |
|
24.1 |
Power of Attorney (included in the signature page to registration statement)# |
|
99.1 | ||
99.2 |
# | Previously filed. |
+ | Indicates management contract or compensatory plan, contract or arrangement. |
¥ | Confidential treatment pursuant to Rule 406 under the Securities Act has been requested as to certain portions of this exhibit, which portions have been omitted and submitted separately to the Securities and Exchange Commission. |
II-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Wichita, State of Kansas, on this 28th day of November, 2017.
CURO GROUP HOLDINGS CORP. |
||
By: |
/s/ Don Gayhardt |
|
Name: Don Gayhardt |
||
Title: President and Chief Executive Officer |
II-8
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature |
Title |
Date |
||
/s/ Don Gayhardt Don Gayhardt |
President, Chief Executive Officer and Director (Principal Executive Officer) | November 28, 2017 | ||
/s/ Roger Dean Roger Dean |
Treasurer, Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
November 28, 2017 | ||
/s/ David Strano David Strano |
Chief Accounting Officer (Principal Accounting Officer) |
November 28, 2017
|
||
* Doug Rippel |
Executive Chairman | November 28, 2017 | ||
* Chad Faulkner |
Director | November 28, 2017 | ||
* Mike McKnight |
Director | November 28, 2017 | ||
* Christopher A. Masto |
Director | November 28, 2017 | ||
* Karen Winterhof |
Director | November 28, 2017 |
* | Pursuant to Power of Attorney. |
By: |
/s/ Roger Dean |
|||||
Roger Dean | ||||||
Attorney-in-Fact |
II-9
Exhibit 1.1
EXECUTION
[ ] Shares
CURO Group Holdings Corp.
Common Stock
UNDERWRITING AGREEMENT
[ ], 2017
C REDIT S UISSE S ECURITIES (USA) LLC
J EFFERIES LLC
S TEPHENS I NC .,
As Representatives of the Several Underwriters,
c/o Credit Suisse Securities (USA) LLC,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory . CURO Group Holdings Corp., a Delaware corporation ( Company ), agrees with the several Underwriters named in Schedule A hereto ( Underwriters ) to issue and sell to the several Underwriters [ ] shares of its common stock (the Securities ), par value $0.001 per share (the Firm Securities ). The Company also agrees to sell to the Underwriters, at the option of Credit Suisse Securities USA (LLC) ( Credit Suisse ) and Jefferies LLC ( Jefferies ), an aggregate of not more than [ ] additional shares of its Securities ( Optional Securities ), as set forth below. The Firm Securities and the Optional Securities are herein collectively called the Offered Securities . The Representatives agree that up to [] shares of the Firm Securities to be purchased by the Underwriters (the Directed Shares ) shall be reserved for sale to the Companys directors, officers, employees and other parties associated with the Company (collectively, the Participants ), as set forth in the Final Prospectus (as defined herein) under the heading Underwriting (the Directed Share Program ). The Directed Share Program shall be administered by Fidelity Capital Markets, a division of National Financial Services LLC ( Fidelity ), and the Directed Shares will be sold by Fidelity, at the direction of the Company, at the public offering price. To the extent that the Directed Shares are not orally confirmed for purchase by the Participants by the end of the first business day after the date of this Agreement, such Directed Shares may be offered to the public by the Underwriters as part of the public offering contemplated hereby.
2. Representations and Warranties of the Company . The Company represents and warrants to, and agrees with, the several Underwriters that:
(i) Filing and Effectiveness of Registration Statement; Certain Defined Terms . The Company has filed with the Commission a registration statement on Form S-1 (No. 333-221081) covering the registration of the Offered Securities under the Act, including a related preliminary prospectus or prospectuses. At any particular time, this initial registration statement, in the form then on file with the Commission, including the preliminary prospectus, any amendments to the initial registration statement and all information contained in the registration statement (if any) pursuant to Rule 462(b) and then deemed to be a part of the initial registration statement, and all 430A Information and 430C Information, that in any case has not then been superseded or modified, shall be referred to as the Initial Registration Statement . The Company may also have filed, or may file with the Commission, a Rule 462(b) registration statement covering the registration of Offered Securities. At any particular time, this Rule 462(b) registration statement, in the form then on file with the Commission, including the contents of the Initial Registration Statement incorporated by reference therein and including all 430A Information and all 430C Information, that in any case has not then been superseded or modified, shall be referred to as the Additional Registration Statement .
As of the time of execution and delivery of this Agreement, the Initial Registration Statement has been declared effective under the Act and is not proposed to be amended. Any Additional Registration Statement has or will become effective upon filing with the Commission pursuant to Rule 462(b) and is not proposed to be amended. The Offered Securities all have been or will be duly registered under the Act pursuant to the Initial Registration Statement and, if applicable, the Additional Registration Statement.
For purposes of this Agreement:
430A Information , with respect to any registration statement, means information included in a prospectus and retroactively deemed to be a part of such registration statement pursuant to Rule 430A(b).
430C Information , with respect to any registration statement, means information included in a prospectus then deemed to be a part of such registration statement pursuant to Rule 430C.
Act means the Securities Act of 1933, as amended.
Applicable Time means :00 [a/p]m (Eastern time) on the date of this Agreement.
Closing Date has the meaning defined in Section 3 hereof.
Code means the Internal Revenue Code of 1986, as amended, and the regulations and published interpretations thereunder.
Commission means the Securities and Exchange Commission.
Effective Time with respect to the Initial Registration Statement or, if filed prior to the execution and delivery of this Agreement, the Additional Registration Statement, means the date and time as of which such Registration Statement was declared effective by the Commission or has become effective upon filing pursuant to Rule 462(c). If an Additional Registration Statement has not been filed prior to the execution and delivery of this Agreement but the Company has advised the Representatives that it proposes to file one, Effective Time with respect to such Additional Registration Statement means the date and time as of which such Registration Statement is filed and becomes effective pursuant to Rule 462(b).
Exchange Act means the Securities Exchange Act of 1934, as amended.
Final Prospectus means the Statutory Prospectus that discloses the public offering price, other 430A Information and other final terms of the Offered Securities and otherwise satisfies Section 10(a) of the Act.
General Use Issuer Free Writing Prospectus means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors, as evidenced by its being so specified in Schedule B to this Agreement.
Issuer Free Writing Prospectus means any issuer free writing prospectus, as defined in Rule 433, relating to the Offered Securities in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Companys records pursuant to Rule 433(g).
Limited Use Issuer Free Writing Prospectus means any Issuer Free Writing Prospectus that is not a General Use Issuer Free Writing Prospectus.
The Initial Registration Statement and the Additional Registration Statement are referred to collectively as the Registration Statements and each is individually referred to as a Registration Statement . A Registration Statement with reference to a particular time means the Initial Registration Statement and any Additional Registration Statement as of such time. A Registration Statement without reference to a time means such Registration Statement as of its Effective Time. For purposes of the foregoing definitions, 430A Information with respect to a Registration Statement shall be considered to be included in such Registration Statement as of the time specified in Rule 430A.
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Rules and Regulations means the rules and regulations of the Commission.
Securities Laws means, collectively, the Sarbanes-Oxley Act of 2002 ( Sarbanes-Oxley ), the Act, the Exchange Act, the Rules and Regulations, the auditing principles, rules, standards and practices applicable to auditors of issuers (as defined in Sarbanes-Oxley) promulgated or approved by the Public Company Accounting Oversight Board and, as applicable, the rules of the New York Stock Exchange ( Exchange Rules ).
Statutory Prospectus with reference to a particular time means the prospectus included in a Registration Statement immediately prior to that time, including any 430A Information or 430C Information with respect to such Registration Statement. For purposes of the foregoing definition, 430A Information shall be considered to be included in the Statutory Prospectus as of the actual time that form of prospectus is filed with the Commission pursuant to Rule 424(b) or Rule 462(c) and not retroactively.
Testing-the-Waters Communication means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of the Act.
Written Testing-the-Waters Communication means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Act.
Unless otherwise specified, a reference to a rule is to the indicated rule under the Act.
(ii) Compliance with Securities Act Requirements . (i) (A) At their respective Effective Times, (B) on the date of this Agreement and (C) on each Closing Date, each of the Initial Registration Statement and the Additional Registration Statement (if any) conformed and, as applicable, will conform in all material respects to the requirements of the Act and the Rules and Regulations, and did not and, as applicable, will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) on its date, at the time of filing of the Final Prospectus pursuant to Rule 424(b) or (if no such filing is required) at the Effective Time of the Additional Registration Statement in which the Final Prospectus is included, and on each Closing Date, the Final Prospectus will conform in all material respects to the requirements of the Act and the Rules and Regulations and will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (iii) on the date of this Agreement, at their respective Effective Times or issue dates and on each Closing Date, each Registration Statement, the Final Prospectus, any Statutory Prospectus, any prospectus wrapper, and any Issuer Free Writing Prospectus complied or comply, and such documents and any further amendments or supplements thereto will comply, with any applicable laws or regulations of foreign jurisdictions in which the Final Prospectus, any Statutory Prospectus, any prospectus wrapper or any Issuer Free Writing Prospectus, as amended or supplemented, if applicable, are distributed in connection with the Directed Share Program. The preceding sentence does not apply to statements in or omissions from any such document based upon written information furnished to the Company by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information is that described as such in Section 8(b) hereof.
(iii) Ineligible Issuer Status. (i) At the time of the initial filing of the Initial Registration Statement and (ii) at the date of this Agreement, the Company was not and is not an ineligible issuer, as defined in Rule 405, including (x) the Company or any subsidiary of the Company in the preceding three years not having been convicted of a felony or misdemeanor or having been made the subject of a judicial or administrative decree or order as described in Rule 405 and (y) the Company in the preceding three years not having been the subject of a bankruptcy petition or insolvency or similar proceeding, not having had a registration statement be the subject of a proceeding under Section 8 of the Act and not being the subject of a proceeding under Section 8A of the Act in connection with the offering of the Offered Securities, all as described in Rule 405.
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(iv) Emerging Growth Company Status . From the time of the initial confidential submission of the Initial Registration Statement to the Commission (or, if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters Communication) through the date hereof, the Company has been and is an emerging growth company, as defined in Section 2(a) of the Act (an Emerging Growth Company ).
(v) General Disclosure Package . As of the Applicable Time, none of (i) the General Use Issuer Free Writing Prospectuses issued at or prior to the Applicable Time, the preliminary prospectus, dated [ ], 2017 (which is the most recent Statutory Prospectus distributed to investors generally) and the other information, if any, stated in Schedule B to this Agreement to be included in the General Disclosure Package, all considered together (collectively, the General Disclosure Package ), (ii) any individual Limited Use Issuer Free Writing Prospectus, when considered together with the General Disclosure Package, or (iii) any individual Written Testing-the-Waters Communication, when considered together with the General Disclosure Package, included any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The preceding sentence does not apply to statements in or omissions from any Statutory Prospectus, any Issuer Free Writing Prospectus, or any Written Testing-the-Waters Communication in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 8(c) hereof.
(vi) Issuer Free Writing Prospectuses . Each Issuer Free Writing Prospectus, as of its issue date and at all subsequent times through the completion of the public offer and sale of the Offered Securities or until any earlier date that the Company notified or notifies Credit Suisse as described in the next sentence, did not, does not and will not include any information that conflicted, conflicts or will conflict with the information then contained in the Registration Statement. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information then contained in the Registration Statement or as a result of which such Issuer Free Writing Prospectus, if republished immediately following such event or development, would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, (i) the Company has promptly notified or will promptly notify Credit Suisse and (ii) the Company has promptly amended or will promptly amend or supplement such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.
(vii) Testing-the-Waters Communication . The Company (a) has not alone engaged in any Testing-the-Waters Communication and (b) has not authorized anyone other than the Representatives to engage in Testing-the-Waters Communications. The Company reconfirms that the Representatives have been authorized to act on the Companys behalf in undertaking Testing-the-Waters Communication. The Company has not distributed any Written Testing-the-Waters Communication.
(viii) Good Standing of the Company. The Company has been duly incorporated and is validly existing and in good standing under the laws of the State of Delaware, with all requisite corporate power and authority to own, lease and operate its properties and assets and conduct its business as described in the General Disclosure Package and the Final Prospectus; and the Company is duly qualified or licensed to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification except where the failure to be so qualified or licensed would not, individually or in the aggregate, result in a material adverse effect on the condition (financial or otherwise), results of operations, business or properties of the Company and its subsidiaries taken as a whole (a Material Adverse Effect ).
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(ix) Subsidiaries. Each subsidiary of the Company has been duly organized or formed, as the case may be, and is validly existing and in good standing under the laws of the jurisdiction of its incorporation, with all requisite organizational power and authority to own, lease and operate its properties and assets and conduct its business as described in the General Disclosure Package and the Final Prospectus; each subsidiary of the Company is duly qualified or licensed to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified or licensed would not, individually or in the aggregate, result in a Material Adverse Effect; all of the issued and outstanding capital stock of each subsidiary of the Company has been duly authorized and validly issued and is fully paid and nonassessable; and the capital stock of each subsidiary owned by the Company, directly or through subsidiaries, is owned free from liens, encumbrances and defects. The Company does not own or control, directly or indirectly, any corporation, association or other entity other than the subsidiaries listed in Exhibit 21.1 to the Registration Statement except for subsidiaries that, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary (as defined in Rule 1-02 of Regulation S-X under the Exchange Act).
(x) Offered Securities . The Offered Securities and all other outstanding shares of capital stock of the Company have been duly authorized; the authorized equity capitalization of the Company is as set forth in the General Disclosure Package; all outstanding shares of capital stock of the Company are, and, when the Offered Securities have been delivered and paid for in accordance with this Agreement on each Closing Date, such Offered Securities will have been, validly issued, fully paid and nonassessable, free and clear of any lien, charge, defect, encumbrance, security interest, restriction on voting or transfer or any other claim of any third party, will conform in all material respects to the information in the General Disclosure Package and to the description of such Offered Securities contained in the Final Prospectus; the stockholders of the Company have no preemptive rights with respect to the Offered Securities that have not been waived or satisfied; none of the outstanding shares of capital stock of the Company have been issued in violation of any preemptive or similar rights of any security holder; and except as described in or expressly contemplated by the General Disclosure Package and the Prospectus, there are no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, any share capital or other equity interest in the Company or any of its subsidiaries, or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any share capital of the Company or any such subsidiary, any such convertible or exchangeable securities or any such rights, warrants or options.
(xi) No Finders Fee. Except as disclosed in the General Disclosure Package and the Final Prospectus, the Company has not engaged any broker, finder, commission agent or other person (other than the Underwriters) in connection with the offering and there are no contracts, agreements or understandings between the Company and any person that would give rise to a valid claim against the Company or any Underwriter for a brokerage commission, finders fee or other like payment in connection with this offering.
(xii) Registration Rights. Except as disclosed in the General Disclosure Package, there are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any Securities of the Company owned or to be owned by such person or to require the Company to include such securities in the Offered Securities registered pursuant to the Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Act (collectively, Registration Rights ), and any person to whom the Company has granted Registration Rights has agreed not to exercise such rights or is contractually prohibited from exercising such rights until after the expiration of the Lock-Up Period referred to in Section 5( l ) hereof.
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(xiii) Listing. The Offered Securities have been approved for listing on the New York Stock Exchange, subject to notice of issuance.
(xiv) Absence of Further Requirements. No consent, approval, authorization, or order of, or filing or registration with, any person (including any governmental agency or body or any court) is required to be obtained or made by the Company for the consummation of the transactions contemplated by this Agreement in connection with the sale of the Offered Securities, except such as have been obtained, or made, and such as may be required under state securities laws.
(xv) Title to Property . None of the Company or its subsidiaries owns real property. Except as disclosed in the General Disclosure Package and the Final Prospectus, the Company and its subsidiaries have good and marketable title to all real properties and all other properties and assets owned by them, in each case free from liens, charges, encumbrances and defects that would have a Material Adverse Effect on the value thereof or the use made or to be made thereof by them and, except as disclosed in the General Disclosure Package and the Final Prospectus, the Company and its subsidiaries hold any leased real or personal property under valid and enforceable leases with no terms or provisions that would have a Material Adverse Effect on the use made or to be made thereof by them.
(xvi) Absence of Defaults and Conflicts Resulting from Transaction. The execution, delivery and performance of this Agreement, and the issuance and sale of the Offered Securities will not result in a breach or violation of any of the terms and provisions of, or constitute a default or a Debt Repayment Triggering Event (as defined below) under, or result in the imposition of any lien, charge or encumbrance upon any property or assets of the Company or any of its subsidiaries pursuant to, the charter or by-laws or similar organizational documents of the Company or any of its subsidiaries, any statute, rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or any of its subsidiaries or any of their properties, or any agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the properties of the Company or any of its subsidiaries is subject; a Debt Repayment Triggering Event means any event or condition that gives, or with the giving of notice or lapse of time would give, the holder of any note, debenture, or other evidence of indebtedness (or any person acting on such holders behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any of its subsidiaries.
(xvii) Absence of Existing Defaults and Conflicts. Neither the Company nor any of its subsidiaries is in violation of its respective charter or by-laws or in default (or with the giving of notice or lapse of time would be in default) under any existing obligation, agreement, covenant or condition contained in any indenture, loan agreement, mortgage, lease or other agreement or instrument to which any of them is a party or by which any of them is bound or to which any of the properties of any of them is subject, except such defaults that would not, individually or in the aggregate, result in a Material Adverse Effect.
(xviii) Authorization of Agreement. The Company has all the necessary corporate power to execute, deliver and perform its respective obligations under this Agreement and to consummate the transactions contemplated by this Agreement in connection with the sale of the Offered Securities, and this Agreement has been duly authorized, executed and delivered by the Company.
(xix) Possession of Licenses and Permits . Each of the Company and its subsidiaries possesses all licenses, permits, certificates, consents, orders, approvals and other authorizations from, and has made all declarations and filings with, all U.S. or non-U.S. federal, state, local or other governmental or regulatory authorities, governmental or regulatory agencies or bodies, courts, arbitrators or self-regulatory organizations, presently required or necessary to own or lease, as the case may be, and to operate its properties and to carry on its businesses as now or proposed to be conducted as described
6
in the General Disclosure Package and the Final Prospectus ( Permits ), except where the failure to possess such Permits would not, individually or in the aggregate, have a Material Adverse Effect. Each of the Company and its subsidiaries has fulfilled and performed its obligations with respect to such Permits, except where the failure to possess such Permits would not, individually or in the aggregate, have a Material Adverse Effect. No event has occurred which allows, or after notice or lapse of time would allow, revocation or termination of any such Permit or has resulted, or after notice or lapse of time would result, in any other material impairment of the rights of the holder of any such Permit, except where such revocation or termination would not, individually or in the aggregate, have a Material Adverse Effect. Without limiting the foregoing and except where the failure to do any of the following would not, individually or in the aggregate, have a Material Adverse Effect, the Company and its subsidiaries validly hold all licenses, permits and authorizations necessary for the Company and its subsidiaries to provide installment, open-end and single-pay loans, vehicle title loans, check cashing, gold buying, money transfer services, retail sales finance and reloadable prepaid debit cards and related services in each state in which the Company and its subsidiaries conduct business (the Licenses ), (ii) the Licenses are in full force and effect and are not subject to any conditions outside the ordinary course, and (iii) there are no pending or threatened complaints, investigations, actions or other proceedings, or orders, decisions or decrees, that could reasonably be expected to adversely affect the validity of the Licenses or the ability of the Company and its subsidiaries to provide installment, open-end and single-pay loans, vehicle title loans, check cashing, gold buying, money transfer services, retail sales finance and reloadable prepaid debit cards and related services pursuant to those Licenses.
(xx) Regulatory Compliance . Except as set forth in the General Disclosure Package and the Final Prospectus, (a) the Company and its subsidiaries are in compliance with all applicable laws, rules, regulations and court decrees of the United States and Canada, the states, provinces and municipalities therein where the Company and its subsidiaries provide services, and the United Kingdom relating to the businesses of check cashing services, short term or medium term consumer loan products (including payday loans, installment loans and title loans), prepaid debit cards and other services currently provided, or contemplated to be provided, by the Company and its subsidiaries (collectively, the Consumer Finance Laws ), in each case that would not, individually or in the aggregate, result in a Material Adverse Effect, and (b) neither the Company nor any of its subsidiaries are subject to any order or action or are a party to any legal or governmental proceeding relating to the Consumer Finance Laws nor have any of them received any notice alleging violation of the Consumer Finance Laws, nor (to the Companys knowledge) is any such order, action, proceeding or notice pending or threatened, in each case that would not, individually or in the aggregate, result in a Material Adverse Effect.
(xxi) Labor Matters. None of the Company or subsidiaries of the Company is a party to or bound by any collective bargaining agreement with any labor organization; (ii) there is no union representation question existing with respect to the employees of the Company or any subsidiaries of the Company, and, to the knowledge of the Company, after due inquiry, no union organizing activities are taking place that would, individually or in the aggregate, have a Material Adverse Effect; (iii) to the knowledge of the Company, after due inquiry, no union organizing or decertification efforts are underway or threatened against the Company or any subsidiary of the Company; (iv) no labor strike, work stoppage, slowdown or other material labor dispute is pending against the Company or any subsidiary of the Company, or, to the knowledge of the Company, after due inquiry, threatened against the Company or any subsidiaries of the Company; (v) there is no workers compensation liability, experience or matter that would be reasonably expected to have a Material Adverse Effect; (vi) to the knowledge of the Company, after due inquiry, there is no threatened or pending liability against the Company or any subsidiary of the Company pursuant to the Worker Adjustment Retraining and Notification Act of 1988, as amended, or any similar state or local law; (vii) there is no employment-related charge, complaint, grievance, investigation, unfair labor practice claim or inquiry of any kind, pending against the Company or any subsidiary of the Company that would, individually or in the aggregate, have a Material Adverse Effect; (viii) to the knowledge of the Company, after due inquiry, no employee or agent has committed any act or omission giving rise to liability for any violation identified in subsection (vi) and (vii) above, other than such acts or omissions that would not, individually or in the aggregate, have a Material Adverse Effect; and (ix) no term or condition of employment exists through arbitration awards, settlement agreements or side agreement that is contrary to any express terms of any applicable collective bargaining agreement.
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(xxii) Possession of Intellectual Property. The Company and its subsidiaries own, possess, license, have the right to use or can acquire on reasonable terms, adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property (collectively, intellectual property rights ) necessary to conduct the business now operated by them, except to the extent not reasonably likely, individually or in the aggregate, to have a Material Adverse Effect. The Company and its subsidiaries have not received any notice of infringement of or, notice questioning the validity of, any intellectual property rights that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect. None of the intellectual property rights used by the Company or any of its subsidiaries has been obtained or is hereby used by the Company or any of its subsidiaries in violation of any contractual obligation binding on the Company or any of its subsidiaries or, to the knowledge of the Company, an officer, director or employee of any of the Company or its subsidiaries or otherwise in violation of the rights of any person, except to the extent not reasonably likely, individually or in the aggregate, to have a Material Adverse Effect.
(xxiii) Environmental Laws. Each of the Company and its subsidiaries is (i) in compliance with any and all applicable U.S. or non-U.S. federal, state, provincial and local laws and regulations relating to health, safety, the pollution or the protection of the environment, hazardous or toxic substances or wastes, pollutants or contaminants ( Environmental Laws ), (ii) has received and is in compliance with all permits, licenses or other approvals required of them under applicable Environmental Laws and (iii) has not received notice of, and is not aware of, any actual or potential liability for damages to natural resources or the investigation or remediation of any disposal, release or existence of hazardous or toxic substances or wastes, pollutants or contaminants, in each case except where such non-compliance with Environmental Laws, failure to receive and comply with required permits, licenses or other approvals, or liability would not, individually or in the aggregate, have a Material Adverse Effect. None of the Company or any of its subsidiaries has been named as a potentially responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or any similar U.S. or non-U.S. state, provincial or local Environmental Law or regulation requiring the Company or any of its subsidiaries to investigate or remediate any pollutants or contaminants, or fund such investigation or remediation, except where such requirements would not, individually or in the aggregate, have a Material Adverse Effect, whether or not arising from transactions in the ordinary course of business.
(xxiv) Accurate Disclosure. The statements in the General Disclosure Package and the Final Prospectus under the headings Business, Regulatory Environment and Compliance, Description of Capital Stock, Risk Factors, Certain Relationships and Related-Party Transactions, and Material U.S. Federal Income Tax and Estate Tax Consequences to Non-U.S. Holders insofar as such statements summarize legal matters, agreements, documents or proceedings discussed therein, are accurate and fair summaries of such legal matters, agreements, documents or proceedings and present, in all material respects, the information required to be shown.
(xxv) Absence of Manipulation . The Company has not and, to the knowledge of the Company, after due inquiry, no one acting on behalf of the Company has, (i) taken, directly or indirectly, any action that is designed to or that has constituted or that would reasonably be expected to cause or result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Offered Securities, (ii) sold, bid for, purchased or paid anyone any compensation for soliciting purchases of, any of the Offered Securities or (iii) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company.
(xxvi) Statistical and Market-Related Data. Any third-party statistical and market-related data included in a Registration Statement, a Statutory Prospectus, the General Disclosure Package or any Written Testing-the-Waters Communication is based on or derived from sources that the Company believes to be reliable and accurate and is presented on a reasonable basis.
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(xxvii) Internal Controls and Compliance with the Sarbanes-Oxley Act. Except as set forth in the General Disclosure Package and the Final Prospectus, the Company, its subsidiaries and the Companys Board of Directors (the Board ) are in compliance with Sarbanes-Oxley and all applicable Exchange Rules applicable to newly public companies. The Company maintains a system of internal controls, including, but not limited to, disclosure controls and procedures, internal controls over accounting matters and financial reporting and legal and regulatory compliance controls (collectively, Internal Controls ) that comply with the U.S. federal securities laws and are sufficient to provide reasonable assurances that (i) transactions are executed in accordance with managements general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with U.S. General Accepted Accounting Principles ( GAAP ) and to maintain accountability for assets, (iii) access to assets is permitted only in accordance with managements general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any material differences. The Internal Controls are, or upon consummation of the offering of the Offered Securities will be, overseen by the Audit Committee (the Audit Committee ) of the Board in accordance with Exchange Rules. Except as disclosed in the General Disclosure Package and the Final Prospectus, the Company has not (A) identified, publicly disclosed or reported to the Audit Committee or the Board and the Company does not reasonably expect to publicly disclose or report to the Audit Committee or the Board, a material weakness (as defined in Rule 12b-2 of the Exchange Act), (B) identified or reported to the Audit Committee or the Board a significant deficiency (as defined in Rule 12b-2 of the Exchange Act) or a change in Internal Controls or fraud involving management or other employees who have a significant role in Internal Controls (each of clause (A) and (B), an Internal Control Event ) or (C) identified or reported to the Audit Committee or the Board any violation of, or failure to comply with, U.S. federal securities laws and the Exchange Rules, or any matter that, if determined adversely, would have a Material Adverse Effect.
(xxviii) Absence of Accounting Issues. A member of the Audit Committee has confirmed to the Chief Financial Officer of the Company that, except as set forth in the General Disclosure Package and the Final Prospectus, the Audit Committee is not reviewing or investigating, and neither the Companys independent auditors nor its internal auditors have recommended that the Audit Committee review or investigate, (i) adding to, deleting, changing the application of, or changing the Companys disclosure with respect to, any of the Companys material accounting policies; (ii) any matter that could result in a restatement of the Companys financial statements for any annual or interim period during the current or prior three fiscal years; or (iii) any Internal Control Event.
(xxix) Litigation . Except as disclosed in the General Disclosure Package and the Final Prospectus, there are no pending actions, suits or proceedings (including any inquiries or investigations by any court or governmental agency or body, domestic or foreign) against or affecting the Company, any of its subsidiaries or any of their respective properties that, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect, or would materially and adversely affect the ability of the Company to perform its obligations under this Agreement, or that are otherwise material in the context of the sale of the Offered Securities; and no such actions, suits or proceedings (including any inquiries or investigations by any court or governmental agency or body, domestic or foreign) are threatened or, to the Companys knowledge, contemplated.
(xxx) Financial Statements. The financial statements included in each Registration Statement and the General Disclosure Package and the Final Prospectus present fairly in all material respects the financial position of the Company and its consolidated subsidiaries as of the dates shown and their results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity in all material respects with GAAP applied on a consistent basis; the schedules included in each Registration Statement present fairly the information required to be stated
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therein. The financial data set forth under the captions Summary Historical Consolidated Financial and Other Data and Selected Consolidated Financial Data in the Registration Statement, the General Disclosure Package and the Final Prospectus have been prepared on a basis consistent with that of the financial statements included in such Registration Statement and present fairly in all material respects the financial position and results of operations of the Company and its consolidated subsidiaries as of the respective dates and for the respective periods indicated.
(xxxi) No Material Adverse Change in Business. Except as disclosed in the General Disclosure Package and the Final Prospectus, since the end of the period covered by the latest audited financial statements included in the General Disclosure Package and the Final Prospectus (i) there has been no change, nor any development or event involving a prospective change, in the condition (financial or otherwise), results of operations, business or properties of the Company and its subsidiaries, taken as a whole, that is material and adverse, (ii) except as disclosed in or contemplated by the General Disclosure Package and the Final Prospectus, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock, and (iii) except as disclosed in or contemplated by the General Disclosure Package and the Final Prospectus, there has been no material adverse change in the capital stock, short-term indebtedness, long-term indebtedness, net current assets or net assets of the Company and its subsidiaries.
(xxxii) Investment Company Act. The Company is not and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the General Disclosure Package and the Final Prospectus, will not be an investment company as defined in the Investment Company Act of 1940, as amended (the Investment Company Act ).
(xxxiii) Ratings. No nationally recognized statistical rating organization as such term is defined in Section (3)(a)(62) of the Exchange Act (i) has imposed (or has informed the Company that it is considering imposing) any condition (financial or otherwise) on the Companys retaining any rating assigned to the Company or any securities of the Company or (ii) has indicated to the Company that it is considering any of the actions described in Section 7(c)(ii) hereof.
(xxxiv) Taxes . All Tax (as hereinafter defined) returns required to be filed by each of the Company and its subsidiaries have been filed and all such returns are true, complete and correct in all material respects. All material Taxes that are due from the Company and subsidiaries of the Company have been paid other than those (i) currently payable without penalty or interest or (ii) being contested in good faith and by appropriate proceedings and for which adequate accruals have been established in accordance with GAAP, applied on a consistent basis throughout the periods involved. To the knowledge of the Company, after due inquiry, there are no actual or proposed Tax assessments against the Company or any of its subsidiaries that would, individually or in the aggregate, have a Material Adverse Effect. The accruals on the books and records of the Company and its subsidiaries in respect of any material Tax liability for any period not finally determined are adequate to meet any assessments of Tax for any such period. For purposes of this Agreement, the term Tax and Taxes shall mean all U.S. and non-U.S. federal, state, local and taxes, and other assessments of a similar nature (whether imposed directly or through withholding), including any interest, additions to tax or penalties applicable thereto.
(xxxv) Insurance . The Company and its subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which they are engaged; all policies of insurance insuring the Company or any of its subsidiaries or their respective businesses, assets, employees, officers and directors are in full force and effect; the Company and its subsidiaries are in compliance with the terms of such policies and instruments in all material respects; and there are no claims by the Company or any of its subsidiaries under any such policy or instrument as to which any insurance company is denying liability or defending under a reservation of rights clause; neither the Company nor any such subsidiary has been refused any insurance coverage sought or applied for; neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar
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coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect, except as set forth in or contemplated in the General Disclosure Package and the Final Prospectus; and the Company will obtain directors and officers insurance in such amounts as is customary for an initial public offering.
(xxxvi) Foreign Corrupt Practices Act . None of the Company, any subsidiary of the Company, or any director, officer, employee or, to the knowledge of the Company or any subsidiary of the Company, any agent or other person acting on behalf of the Company or any subsidiary of the Company has, in the course of its actions for, or on behalf of, the Company or any subsidiary of the Company (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any domestic government official, foreign official (as defined in the U.S. Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (collectively, the FCPA )) or employee or to foreign or domestic political parties or campaigns from corporate funds; (iii) violated or is in violation of any provision of the FCPA, the United Kingdom Bribery Act 2010, the Corruption of Foreign Public Officials Act (Canada) or any other applicable anti-bribery or anti-corruption law, statute or regulation; or (iv) made, offered, or taken any action in furtherance of any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment or benefit; and the Company and the subsidiaries of the Company, and, to the knowledge of Company and the subsidiaries of the Company, its and their other affiliates have conducted their businesses in compliance with the FCPA, the United Kingdom Bribery Act 2010, the Corruption of Foreign Public Officials Act (Canada) and any other applicable anti-bribery or anti-corruption law, statute or regulation, and have instituted and maintain and will continue to maintain policies and procedures designed to ensure, and which are reasonably expected to ensure, continued compliance therewith.
(xxxvii) Anti-Money Laundering . The operations of the Company and its subsidiaries are and have been conducted at all times in compliance 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 Company and its 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 (including without limitation the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), the regulations issued thereunder, and any guidance issued by the Financial Transactions and Analysis Centre of Canada) (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 Company or any of its subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of the Company, threatened.
(xxxviii) Economic Sanctions.
(i) | Neither the Company nor any of its subsidiaries, nor any director, officer, or employee thereof, nor, to the Companys knowledge, any agent, affiliate or representative of the Company or any of its subsidiaries, is an individual or entity ( Person ) that is, or is owned or controlled by a Person that is: |
(A) | the subject of any sanctions administered or enforced by the U.S. government, including those administered by the U.S. Department of Treasurys Office of Foreign Assets Control (OFAC) or the U.S. Department of State, or by the United Nations Security Council (UN), the European Union (EU), Her Majestys Treasury (UK HMT), the Swiss Secretariat of Economic Affairs (SECO), the Hong Kong Monetary Authority (HKMA), the Monetary Authority of Singapore (MAS), the Global Affairs Canada, Public Safety Canada or other relevant sanctions authority (collectively, Sanctions ), nor |
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(B) | located, organized or resident in a country or territory that is the subject of Sanctions (including, without limitation, Crimea, Cuba, Iran, North Korea, Sudan and Syria). |
(ii) | The Company will not, directly or indirectly, use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other Person: |
(A) | to fund or facilitate any activities or business of or with any Person or in any country or territory that, at the time of such funding or facilitation, is the subject of applicable Sanctions; or |
(B) | in any other manner that will result in a violation of Sanctions by any Person (including any Person participating in the offering, whether as underwriter, advisor, investor or otherwise). |
(iii) | For the past five years, the Company and its subsidiaries have not, to the Companys knowledge, engaged in, are not now engaged in, and will not engage in, any dealings or transactions with any Person, or in any country or territory, that at the time of the dealing or transaction is or was the subject of Sanctions. |
(iv) | The Company will maintain in effect and enforce policies and procedures designed to ensure compliance by the Company, its Subsidiaries and their respective directors, officers and employees with applicable Sanctions. |
(xxxix) Absence of Unlawful Influence. The Company has not offered or sold, or caused Fidelity or any Underwriter to offer or sell, any Offered Securities to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customers or suppliers level or type of business with the Company or (ii) a trade journalist or publication to write or publish favorable information about the Company or its products.
(xl) Independent Accountants. Grant Thornton LLP, who have certified and expressed their opinion with respect to the financial statements included in each Registration Statement and the General Disclosure Package and the Final Prospectus, are (i) an independent registered public accounting firm with respect to the Company and subsidiaries of the Company within the applicable rules and regulations adopted by the SEC and as required by the Act, (ii) in compliance with the applicable requirements relating to the qualification of accountants of Regulation S-X and (iii) a registered public accounting firm as defined by the Public Company Accounting Oversight Board (United States) whose registration has not been suspended or revoked and who has not requested such registration to be withdrawn.
(xli) No Restrictions on Payments of Dividends . As of the Closing Date, except as otherwise disclosed in the General Disclosure Package and the Final Prospectus, there will be no encumbrances or restrictions on the ability of any subsidiary of the Company (x) to pay dividends or make other distributions on such subsidiarys capital stock or to pay any indebtedness to the Company or any subsidiary of the Company, (y) to make loans or advances or pay any indebtedness to, or investments in, the Company or any subsidiary of the Company or (z) to transfer any of its property or assets to the Company or any subsidiary of the Company.
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(xlii) ERISA Matters . Each of the Company, the subsidiaries of the Company and each ERISA Affiliate (as hereinafter defined) has fulfilled its obligations, if any, under the minimum funding standards of Section 302 of the United States Employee Retirement Income Security Act of 1974, as amended ( ERISA ) with respect to each pension plan (as defined in Section 3(2) of ERISA), subject to Section 302 of ERISA, which the Company, subsidiaries of the Company or any ERISA Affiliate sponsors or maintains, or with respect to which it has (or within the last three years had) any obligation to make contributions, and each such plan is in compliance in all material respects with the presently applicable provisions of ERISA and the Code. None of the Company, subsidiaries of the Company or any ERISA Affiliate has incurred any unpaid liability to the Pension Benefit Guaranty Corporation (other than for the payment of premiums in the ordinary course) or to any such plan under Title IV of ERISA. ERISA Affiliate means a corporation, trade or business that is, along with the Company or any subsidiary of the Company, a member of a controlled group of corporations or a controlled group of trades or businesses, as described in Section 414 of the Code or Section 4001 of ERISA.
(xliii) Stamp Taxes. There are no stamp or other issuance or transfer taxes or duties or other similar fees or charges required to be paid in connection with the execution and delivery of this Agreement or the issuance or sale of the Offered Securities.
3. Purchase, Sale and Delivery of Offered Securities . On the basis of the representations, warranties and agreements and subject to the terms and conditions set forth herein, the Company agrees to sell to each Underwriter, and each Underwriter agrees, severally and not jointly, to purchase from the Company, at a purchase price of $[ ] per share, the number of Firm Securities set forth below the caption Company and opposite the name of such Underwriter in Schedule A hereto.
The Company will deliver the Firm Securities to or as instructed by the Representatives for the accounts of the several Underwriters in a form reasonably acceptable to the Representatives, against payment of the purchase price by the Underwriters in Federal (same day) funds by wire transfer to an account at a bank acceptable to the Representatives drawn to the order of the Company at the office of White & Case LLP, at [ ] A.M., New York time, on [ ], or at such other time not later than seven full business days thereafter as the Representatives and the Company determine, such time being herein referred to as the First Closing Date . For purposes of Rule 15c6-1 under the Exchange Act, the First Closing Date (if later than the otherwise applicable settlement date) shall be the settlement date for payment of funds and delivery of securities for all the Offered Securities sold pursuant to the offering. The Firm Securities so to be delivered or evidence of their issuance will be made available for checking at the office of White & Case LLP, 1221 Avenue of the Americas, New York, NY 10020, at least 24 hours prior to the First Closing Date.
In addition, upon written notice from Credit Suisse and Jefferies given to the Company from time to time not more than 30 days subsequent to the date of the Final Prospectus, the Underwriters may purchase all or less than all of the Optional Securities at the purchase price per Security to be paid for the Firm Securities. The Company agrees to sell to the Underwriters the number of Optional Securities specified in such notice and the Underwriters agree, severally and not jointly, to purchase such Optional Securities. Such Optional Securities shall be purchased from the Company for the account of each Underwriter in the same proportion as the number of Firm Securities set forth opposite such Underwriters name bears to the total number of Firm Securities (subject to adjustment by Credit Suisse and Jefferies to eliminate fractions) and may be purchased by the Underwriters only for the purpose of covering over-allotments made in connection with the sale of the Firm Securities. No Optional Securities shall be sold or delivered unless the Firm Securities previously have been, or simultaneously are, sold and delivered. The right to purchase the Optional Securities or any portion thereof may be exercised from time to time and to the extent not previously exercised may be surrendered and terminated at any time upon notice by Credit Suisse and Jefferies to the Company.
Each time for the delivery of and payment for the Optional Securities, being herein referred to as an Optional Closing Date , which may be the First Closing Date (the First Closing Date and each Optional Closing Date, if any, being sometimes referred to as a Closing Date ), shall be determined by Credit Suisse and Jefferies but shall be not later than five full business days after written notice of election to purchase Optional Securities is given. The Company will deliver the Optional Securities being purchased on each Optional Closing Date to or as instructed by the Representatives for the accounts of the several Underwriters, in a form reasonably acceptable to the Representatives against payment of the purchase price therefore in
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Federal (same day) funds by wire transfer to an account at a bank acceptable to the Representatives drawn to the order of the Company, at the above office of White & Case LLP. The certificates for the Optional Securities being purchased on each Optional Closing Date or evidence of their issuance will be made available for checking at the above office of White & Case LLP at a reasonable time in advance of such Optional Closing Date.
4. Offering by Underwriters . It is understood that the several Underwriters propose to offer the Offered Securities for sale to the public as set forth in the Final Prospectus.
5. Certain Agreements of the Company . The Company agrees with the several Underwriters that:
(a) Additional Filings. Unless filed pursuant to Rule 462(c) as part of the Additional Registration Statement in accordance with the next sentence, the Company will file the Final Prospectus, in a form approved by the Representatives, with the Commission pursuant to and in accordance with subparagraph (1) (or, if applicable and if consented to by the Representatives, subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the second business day following the execution and delivery of this Agreement or (B) the fifteenth business day after the Effective Time of the Initial Registration Statement. The Company will advise the Representatives promptly of any such filing pursuant to Rule 424(b) and provide satisfactory evidence to the Representatives of such timely filing. If an Additional Registration Statement is necessary to register a portion of the Offered Securities under the Act but the Effective Time thereof has not occurred as of the execution and delivery of this Agreement, the Company will file the additional registration statement or, if filed, will file a post-effective amendment thereto with the Commission pursuant to and in accordance with Rule 462(b) on or prior to 10:00 P.M., New York time, on the date of this Agreement or, if earlier, on or prior to the time the Final Prospectus is finalized and distributed to any Underwriter, or will make such filing at such later date as shall have been consented to by the Representatives.
(b) Filing of Amendments: Response to Commission Requests. The Company will promptly advise the Representatives of any proposal to amend or supplement at any time the Initial Registration Statement, any Additional Registration Statement or any Statutory Prospectus and will not effect such amendment or supplement without the Representatives consent (which consent shall not be unreasonably withheld, conditioned or delayed); and the Company will also advise the Representatives promptly of (i) the effectiveness of any Additional Registration Statement (if its Effective Time is subsequent to the execution and delivery of this Agreement), (ii) any amendment or supplement to a Registration Statement or any Statutory Prospectus, (iii) any request by the Commission or its staff for any amendment to any Registration Statement, for any supplement to any Statutory Prospectus or for any additional information, (iv) the institution by the Commission of any stop order proceedings in respect of a Registration Statement or the threatening of any proceeding for that purpose, and (v) the receipt by the Company of any notification with respect to the suspension of the qualification of the Offered Securities in any jurisdiction or the institution or threatening of any proceedings for such purpose. The Company will use its commercially reasonable efforts to prevent the issuance of any such stop order or the suspension of any such qualification and, if issued, to obtain as soon as possible the withdrawal thereof.
(c) Continued Compliance with Securities Laws. If, at any time when a prospectus relating to the Offered Securities is (or but for the exemption in Rule 172 would be) required to be delivered under the Act by any Underwriter or dealer, any event occurs as a result of which the Final Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Registration Statement or supplement the Final Prospectus to comply with the Act, the Company will promptly notify the Representatives of such event and will promptly prepare and file with the Commission and furnish, at its own expense, to the Underwriters and the dealers and any other dealers upon request of the Representatives, an amendment or supplement which will correct such statement or omission or an amendment which will effect such compliance. Neither the Representatives consent to, nor the Underwriters delivery of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 7 hereof.
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(d) Testing-the-Waters Communication. If at any time following the distribution of any Written Testing-the-Waters Communication there occurred or occurs an event or development as a result of which such Written Testing-the-Waters Communication included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Representatives and will promptly amend or supplement, at its own expense, such Written Testing-the-Waters Communication to eliminate or correct such statement or omission.
(e) Rule 158. As soon as practicable, but not later than the Availability Date (as defined below), the Company will make generally available to its security holders an earning statement covering a period of at least 12 months beginning after the Effective Time of the Initial Registration Statement (or, if later, the Effective Time of the Additional Registration Statement) which will satisfy the provisions of Section 11(a) of the Act and Rule 158 under the Act. For the purpose of the preceding sentence, Availability Date means the day after the end of the fourth fiscal quarter following the fiscal quarter that includes such Effective Time on which the Company is required to file its Form 10-Q for such fiscal quarter except that, if such fourth fiscal quarter is the last quarter of the Companys fiscal year, Availability Date means the day after the end of such fourth fiscal quarter on which the Company is required to file its Form 10-K.
(f) Furnishing of Prospectuses. The Company will furnish to the Representatives copies of each Registration Statement (of which three will be signed and will include all exhibits), each related Statutory Prospectus, and, so long as a prospectus relating to the Offered Securities is (or but for the exemption in Rule 172 would be) required to be delivered under the Act, the Final Prospectus and all amendments and supplements to such documents, in each case in such quantities as the Representatives reasonably request. The Final Prospectus shall be so furnished on or prior to 3:00 P.M., New York time, on the second business day following the execution and delivery of this Agreement. All other such documents shall be so furnished as soon as available. The Company will pay the expenses of printing and distributing to the Underwriters all such documents.
(g) Blue Sky Qualifications. The Company will arrange for the qualification of the Offered Securities for sale under the laws of such jurisdictions as the Representatives designate and will continue such qualifications in effect so long as required for the distribution; provided, however, that, the Company shall not be required to qualify or register as a foreign corporation in any jurisdiction in which it is not so qualified, file a general consent to service of process in any such jurisdiction or take any action that would subject it to taxation in any such jurisdiction where it is not presently subject to taxation.
(h) Reporting Requirements. During the period of two years hereafter, the Company will furnish to the Representatives and, upon request, to each of the other Underwriters, as soon as practicable after the end of each fiscal year, a copy of its annual report to stockholders for such year; and the Company will furnish to the Representatives (i) as soon as available, a copy of each report and any definitive proxy statement of the Company filed with the Commission under the Exchange Act or mailed to stockholders, and (ii) from time to time, such other information concerning the Company as the Representatives may reasonably request. However, so long as the Company is subject to the reporting requirements of either Section 13 or Section 15(d) of the Exchange Act and is timely filing reports with the Commission on its Electronic Data Gathering, Analysis and Retrieval system (or any successor system) ( EDGAR ), it is not required to furnish such reports or statements to the Underwriters.
(i) Payment of Expenses. The Company agrees with the several Underwriters that the Company will pay all expenses incident to the performance of the obligations of the Company under this Agreement, including but not limited to any filing fees and other expenses incurred in connection
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with qualification of the Offered Securities for sale under the laws of such jurisdictions as the Representatives designate (including reasonable and documented fees and disbursements of counsel to the Underwriters related thereto) and the preparation and printing of memoranda relating thereto, costs and expenses related to the review by the Financial Industry Regulatory Authority, Inc. ( FINRA ) of the Offered Securities (including filing fees and the reasonable and documented fees and expenses of counsel for the Underwriters relating to such review, which fees and expenses shall not exceed $30,000), the fees and expenses of the Companys counsel and the Companys independent accountants, costs and expenses relating to investor presentations or any road show in connection with the offering and sale of the Offered Securities including, without limitation, any travel expenses of the Companys officers and employees and any other expenses of the Company (including one-half of the cost of chartering airplanes), fees and expenses incident to listing the Offered Securities on the New York Stock Exchange, fees and expenses in connection with the registration of the Offered Securities under the Exchange Act, any transfer taxes payable in connection with the delivery of the Offered Securities to the Underwriters and expenses incurred in distributing preliminary prospectuses, Issuer Free Writing Prospectuses, the Registration Statement and the Final Prospectus (in each case, including any amendments and supplements thereto) to the Underwriters and for expenses incurred for preparing, printing and distributing any preliminary prospectuses, Issuer Free Writing Prospectuses, the Registration Statement and the Final Prospectus (in each case, including any amendments and supplements thereto) to investors or prospective investors. For the avoidance of doubt, and except as provided in this Section 5(i) and Section 8 and 10 hereof, the Underwriters will pay all of their own costs and expenses, including the fees of their counsel and any road show expenses incurred by them (including the costs of venues and materials related thereto and one-half of the cost of chartering airplanes).
(j) Use of Proceeds. The Company will use the net proceeds received by it in connection with this offering in the manner described in the Use of Proceeds section of the General Disclosure Package and the Final Prospectus, and except as disclosed in the General Disclosure Package and the Final Prospectus, the Company does not intend to use any of the proceeds from the sale of the Offered Securities hereunder to repay any outstanding debt owed to any Underwriter or affiliate of any Underwriter.
(k) Absence of Manipulation. The Company will not take, directly or indirectly, any action designed to or that would constitute or that would reasonably be expected to cause or result in, stabilization or manipulation of the price of any securities of the Company to facilitate the sale or resale of the Offered Securities.
(l) (A) Restriction on Sale of Securities by Company. For the period specified below (the Lock-Up Period ), the Company will not, directly or indirectly, take any of the following actions with respect to its Securities or any securities convertible into or exchangeable or exercisable for any of its Securities ( Lock-Up Securities ): (i) offer, sell, issue, contract to sell, pledge or otherwise dispose of Lock-Up Securities, (ii) offer, sell, issue, contract to sell, contract to purchase or grant any option, right or warrant to purchase Lock-Up Securities, (iii) enter into any swap, hedge or any other agreement that transfers, in whole or in part, the economic consequences of ownership of Lock-Up Securities, (iv) establish or increase a put equivalent position or liquidate or decrease a call equivalent position in Lock-Up Securities within the meaning of Section 16 of the Exchange Act or (v) file with the Commission a registration statement under the Act relating to Lock-Up Securities, or publicly disclose the intention to take any such action, without the prior written consent of Credit Suisse and Jefferies, except (a) issuances of Lock-Up Securities pursuant to the conversion or exchange of convertible or exchangeable securities or the exercise of warrants or options, in each case outstanding on the date hereof, (b) the filing of a registration statement on Form S-8 relating to the General Disclosure Package and the Final Prospectus, and grants of employee stock options or other equity grants pursuant to the terms of a plan in effect on the date hereof, (c) issuances of Lock-Up Securities pursuant to a bona fide merger, consolidation, acquisition of securities, businesses, property or other assets, joint venture, collaboration, licensing or strategic alliances or other similar transactions, providing that the aggregate number of shares of Securities shall not exceed 5% of the total number of Securities issued and outstanding
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immediately following the completion of the transactions contemplated by this Agreement, or (d) issuances of Lock-Up Securities pursuant to the exercise of options or other equity grants described in clause (b) or the exercise of any other employee stock options or other equity grants outstanding on the date hereof. The Lock-Up Period will commence on the date hereof and continue for 180 days after the date hereof or such earlier date that Credit Suisse and Jefferies consent to in writing.
(B) Agreement to Announce Lock-up Waiver. If Credit Suisse and Jefferies, in their sole discretion, agree to release or waive the restrictions set forth in a lock-up letter described in Section 7(h) hereof for an officer or director of the Company and provide the Company with notice of the impending release or waiver at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit B hereto through a major news service at least two business days before the effective date of the release or waiver.
(m) Emerging Growth Company Status . The Company will promptly notify the Representatives if the Company ceases to be an Emerging Growth Company at any time prior to the later of (i) completion of the distribution of the Offered Securities within the meaning of the Act and (ii) completion of the Lock-Up Period.
(n) Investment Company Act . The Company and its subsidiaries will conduct their businesses in a manner so as to not be required to register under the Investment Company Act.
(o) Stamp Taxes . The Company will pay all stamp or other issuance or transfer taxes or duties other similar fees or charges that may be imposed by any governmental or regulatory authority in connection with the execution and delivery of this Agreement or the issuance or sale of the Offered Securities.
(p) Transfer Restrictions. In connection with the Directed Share Program, the Company will ensure that the Directed Shares will be restricted to the extent required by FINRA or the FINRA rules from sale, transfer, assignment, pledge or hypothecation for a period of three months following the date of the effectiveness of the Registration Statement. Fidelity will notify the Company as to which Participants will need to be so restricted. The Company will direct the transfer agent to place stop transfer restrictions upon such securities for such period of time.
(q) Payment of Expenses Related to Directed Share Program. The Company will pay all fees and disbursements of counsel (including non-U.S. counsel) incurred by the Underwriters in connection with the Directed Share Program and stamp duties, similar taxes or duties or other taxes, if any, incurred by the underwriters in connection with the Directed Share Program.
(r) Compliance with Foreign Laws. The Company will comply with all applicable securities and other applicable laws, rules and regulations in each foreign jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program.
6. Free Writing Prospectuses . The Company represents and agrees that, unless it obtains the prior consent of the Representatives, and each Underwriter represents and agrees that, unless it obtains the prior consent of the Company and the Representatives, it has not made and will not make any offer relating to the Offered Securities that would constitute an Issuer Free Writing Prospectus, or that would otherwise constitute a free writing prospectus, as defined in Rule 405, required to be filed with the Commission. Any such free writing prospectus consented to by the Company and the Representatives is hereinafter referred to as a Permitted Free Writing Prospectus . The Company represents that it has treated and agrees that it will treat each Permitted Free Writing Prospectus as an issuer free writing prospectus, as defined in Rule 433, and has complied and will comply with the requirements of Rules 164 and 433 applicable to any Permitted Free Writing Prospectus, including timely Commission filing where required, legending and record keeping. The Company represents that is has satisfied and agrees that it will satisfy the conditions in Rule 433 to avoid a requirement to file with the Commission any electronic road show.
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7. Conditions of the Obligations of the Underwriters . The obligations of the several Underwriters to purchase and pay for the Firm Securities on the First Closing Date and the Optional Securities to be purchased on each Optional Closing Date will be subject to the accuracy of the representations and warranties of the Company herein (as though made on such Closing Date), to the accuracy of the statements of Company officers made pursuant to the provisions hereof, to the performance by the of their obligations hereunder and to the following additional conditions precedent:
(a) Accountants Comfort Letter. The Representatives shall have received letters, dated, respectively, the date hereof and each Closing Date, of Grant Thornton LLP confirming that they are a registered public accounting firm and independent public accountants within the meaning of the Securities Laws and in the form and substance satisfactory to the Representatives (except that, in any letter dated a Closing Date, the specified date referred to in the comfort letters shall be a date no more than three days prior to such Closing Date).
(b) Effectiveness of Registration Statement. If the Effective Time of the Additional Registration Statement (if any) is not prior to the execution and delivery of this Agreement, such Effective Time shall have occurred not later than 10:00 P.M., New York time, on the date of this Agreement or, if earlier, the time the Final Prospectus is finalized and distributed to any Underwriter, or shall have occurred at such later time as shall have been consented to by the Representatives. The Final Prospectus shall have been filed with the Commission in accordance with the Rules and Regulations and Section 5(a) hereof. Prior to such Closing Date, no stop order suspending the effectiveness of a Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or, to the knowledge of the Company or the Representatives, shall be contemplated by the Commission.
(c) No Material Adverse Change. Subsequent to the execution and delivery of this Agreement, there shall not have occurred (i) any change, or any development or event involving a prospective change, in the condition (financial or otherwise), results of operations, business, or properties of the Company and its subsidiaries taken as a whole that, in the judgment of the Representatives, is material and adverse and makes it impractical or inadvisable to market the Offered Securities; (ii) any downgrading in the rating of any debt securities of the Company by any nationally recognized statistical rating organization (as defined in Section 3(a)(62) of the Exchange Act), or any public announcement that any such organization has under surveillance or review its rating of any debt securities or preferred stock of the Company (other than an announcement with positive implications of a possible upgrading, and no implication of a possible downgrading, of such rating); (iii) any change in U.S. or international financial, political or economic conditions or currency exchange rates or exchange controls the effect of which is such as to make it, in the judgment of the Representatives, impractical to market or to enforce contracts for the sale of the Offered Securities, whether in the primary market or in respect of dealings in the secondary market; (iv) any suspension or material limitation of trading in securities generally on the New York Stock Exchange, or any setting of minimum or maximum prices for trading on such exchange; (v) or any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market; (vi) any banking moratorium declared by any U.S. federal, New York, United Kingdom or Canadian authorities; (vii) any major disruption of settlements of securities, payment or clearance services in the United States or any other country where such securities are listed; or (viii) any attack on, outbreak or escalation of hostilities or act of terrorism involving the United States, any declaration of war by Congress or any other national or international calamity or emergency if, in the judgment of the Representatives, the effect of any such attack, outbreak, escalation, act, declaration, calamity or emergency is such as to make it impractical or inadvisable to market the Offered Securities or to enforce contracts for the sale of the Offered Securities.
(d) Opinion and 10b-5 Statement of Counsel for the Company. The Representatives shall have received an opinion and 10b-5 statement, dated such Closing Date, of Willkie Farr & Gallagher LLP, counsel for the Company, in the form attached hereto as Exhibit A-[].
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(e) U.S. Regulatory Counsel Opinion. The Representatives shall have received an opinion from Ballard Spahr LLP, U.S. regulatory counsel to the Company, dated such Closing Date, in the form attached hereto as Exhibit A-[].
(f) Canadian Regulatory Counsel Opinion. The Representatives shall have received an opinion from Blake, Cassels & Graydon, Canadian regulatory counsel to the Company, dated such Closing Date, in the form attached hereto as Exhibit A-[].
(g) U.K. Regulatory Counsel Opinion. The Representatives shall have received an opinion from Shulmans LLP, U.K. regulatory counsel to the Company, dated such Closing Date, in the form attached hereto as Exhibit A-[].
(h) Chief Legal Officer Opinion. The Representatives shall have received an opinion of Vin Thomas, Chief Legal Officer of the Company, dated such Closing Date, in the form attached hereto as Exhibit A-[].
(i) Opinion and 10b-5 Statement of Counsel for Underwriters. The Representatives shall have received from White & Case LLP, counsel for the Underwriters, such opinion or opinions and 10b-5 statement, dated such Closing Date, with respect to such matters as the Representatives may require, and the Company shall have furnished to such counsel such documents as they request for the purpose of enabling them to pass upon such matters.
(j) Officers Certificate. The Representatives shall have received a certificate, dated such Closing Date, of an executive officer of the Company and a principal financial or accounting officer of the Company in which such officers shall state that: the representations and warranties of the Company in this Agreement are true and correct; the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to such Closing Date; no stop order suspending the effectiveness of any Registration Statement has been issued and no proceedings for that purpose have been instituted or, to the best of their knowledge and after reasonable investigation, are contemplated by the Commission; the Additional Registration Statement (if any) satisfying the requirements of subparagraphs (1) and (3) of Rule 462(b) was timely filed pursuant to Rule 462(b), including payment of the applicable filing fee in accordance with Rule 111(a) or (b) of Regulation S-T of the Commission; and, subsequent to the date[s] of the most recent financial statements in the General Disclosure Package and the Final Prospectus, there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or otherwise), results of operations, business, or properties of the Company and its subsidiaries taken as a whole except as set forth in the General Disclosure Package and the Final Prospectus or as described in such certificate.
(k) Lock-Up Agreements. On or prior to the date hereof, the Representatives shall have received lockup agreements in the form set forth on Exhibit C hereto from each executive officer, director, stockholder and other equity holder of the Company specified in Schedule C to this Agreement.
The Company will furnish the Representatives with such conformed copies of such opinions, certificates, letters and documents as the Representatives reasonably request. [ ] may in its sole discretion waive on behalf of the Underwriters compliance with any conditions to the obligations of the Underwriters hereunder, whether in respect of an Optional Closing Date or otherwise.
8. Indemnification and Contribution . (a) Indemnification of Underwriters by the Company. The Company will indemnify and hold harmless each Underwriter, its partners, members, directors, officers, employees, agents, affiliates and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act (each an Indemnified Party ), against any and all losses, claims, damages or liabilities, joint or several, to which such Indemnified Party may become subject, under the Act, the Exchange Act, other Federal or state statutory law or regulation or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any part of any Registration
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Statement at any time, any Statutory Prospectus as of any time, the Final Prospectus, any Issuer Free Writing Prospectus, any Written Testing-the-Waters Communication, or arise out of or are based upon the omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each Indemnified Party for any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending against any loss, claim, damage, liability, action, litigation, investigation or proceeding whatsoever (whether or not such Indemnified Party is a party thereto), whether threatened or commenced, and in connection with the enforcement of this provision with respect to any of the above as such expenses are incurred; provided, however, that the Company will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in subsection (c) below.
The Company agrees to indemnify and hold harmless each Underwriter, its partners, members, directors, officers, employees, agents, affiliates and each person, if any, who controls such Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act (the Designated Entities ), from and against any and all losses, claims, damages and liabilities (including, without limitation, any legal or other expenses reasonably incurred in connection with defending or investigating any such action or claim) (i) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any material prepared by or with the consent of the Company for distribution to Participants in connection with the Directed Share Program or arising out of or based upon any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading; (ii) arising out of or based upon the failure of any Participant to pay for and accept delivery of Directed Shares that the Participant agreed to purchase; or (iii) arising out of, related to, or in connection with the Directed Share Program, other than losses, claims, damages or liabilities (or expenses relating thereto) that are finally judicially determined to have resulted from the willful misconduct or gross negligence of the Designated Entities.
(b) Indemnification of the Company. Each Underwriter will severally and not jointly indemnify and hold harmless the Company, each of its directors and each of its officers who signs a Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act (each, an Underwriter Indemnified Party ) against any losses, claims, damages or liabilities to which such Underwriter Indemnified Party may become subject, under the Act, the Exchange Act, or other Federal or state statutory law or regulation or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement at any time, any Statutory Prospectus as of any time, the Final Prospectus, any Written Testing-the-Waters Communication or any Issuer Free Writing Prospectus or arise out of or are based upon the omission or the alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Underwriter through the Representatives specifically for use therein, and will reimburse any legal or other expenses reasonably incurred by such Underwriter Indemnified Party in connection with investigating or defending against any such loss, claim, damage, liability, action, litigation, investigation or proceeding whatsoever (whether or not such Underwriter Indemnified Party is a party thereto), whether threatened or commenced, based upon any such untrue statement or omission, or any such alleged untrue statement or omission as such expenses are incurred, it being understood and agreed that the only such information furnished by any Underwriter consists of the following information in the Final Prospectus furnished on behalf of each Underwriter: [the concession and reallowance figures appearing in the [fifth] paragraph under the caption Underwriting and the information contained in the [sixteenth] paragraph under the caption Underwriting].
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(c) Actions against Parties; Notification. Promptly after receipt by an indemnified party under this Section of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party under subsection (a), (b) or (c) above, notify the indemnifying party of the commencement thereof; but the failure to notify the indemnifying party shall not relieve it from any liability that it may have under subsection (a), (b) or (c) above except to the extent that it has been actually and materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided further that the failure to notify the indemnifying party shall not relieve it from any liability that it may have to an indemnified party otherwise than under subsection (a), (b) or (c) above. In case any such action is brought against any indemnified party and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not be liable to such indemnified party under this Section for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation. In any such proceeding, any indemnified party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such indemnified party, unless (i) the indemnifying party and the indemnified party shall have mutually agreed to the contrary; (ii) the indemnifying party has failed in a reasonable time to retain counsel reasonably satisfactory to the indemnified party; (iii) the indemnified party shall have reasonably concluded that there may be legal defenses available to it that different from or in addition to those available to the indemnifying party; or (iv) the named parties in any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. Notwithstanding anything contained herein to the contrary, if indemnity may be sought pursuant to the last paragraph in Section 8(a) hereof in respect of such action or proceeding, then in addition to such separate firm for the indemnified parties, the indemnifying party shall be liable for the reasonable fees and expenses of not more than one separate firm (in addition to any local counsel) for the Designated Underwriter for the defense of any losses, claims, damages and liabilities arising out of the Directed Share Program, and all persons, if any, who control the Designated Underwriter within the meaning of either Section 15 of the Act of Section 20 of the Exchange Act. No indemnifying party shall, without the prior written consent of the indemnified party, effect any settlement of any pending or threatened action in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party unless such settlement (i) includes an unconditional release of such indemnified party from all liability on any claims that are the subject matter of such action 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 an indemnified party.
(d) Contribution. If the indemnification provided for in this Section is unavailable or insufficient to hold harmless an indemnified party under subsection (a), (b) or (c) above, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of the losses, claims, damages or liabilities referred to in subsection (a), (b) or (c) above (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Offered Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company bear to the total underwriting discounts and commissions received by the Underwriters. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Underwriters and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The amount paid by an indemnified party as a result of the losses, claims, damages or liabilities referred to in the first sentence of this subsection (e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any action or claim which is the subject of this subsection (e). Notwithstanding the provisions of
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this subsection (e), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Offered Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter 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 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters obligations in this subsection (e) to contribute are several in proportion to their respective underwriting obligations and not joint. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 8(d).
9. Default of Underwriters . If any Underwriter or Underwriters default in their obligations to purchase Offered Securities hereunder on either the First Closing Date or any Optional Closing Date and the aggregate number of shares of Offered Securities that such defaulting Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of the total number of shares of Offered Securities that the Underwriters are obligated to purchase on such Closing Date, each of Credit Suisse and Jefferies, to the extent each is a non-defaulting Underwriter, may make arrangements satisfactory to the Company for the purchase of such Offered Securities by other persons, including any of the Underwriters, but if no such arrangements are made by such Closing Date, the non-defaulting Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Offered Securities that such defaulting Underwriters agreed but failed to purchase on such Closing Date. If any Underwriter or Underwriters so default and the aggregate number of shares of Offered Securities with respect to which such default or defaults occur exceeds 10% of the total number of shares of Offered Securities that the Underwriters are obligated to purchase on such Closing Date and arrangements satisfactory to each of Credit Suisse and Jefferies, to the extent each is a non-defaulting Underwriter and the Company for the purchase of such Offered Securities by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Company, except as provided in Section 10 (provided that if such default occurs with respect to Optional Securities after the First Closing Date, this Agreement will not terminate as to the Firm Securities or any Optional Securities purchased prior to such termination). As used in this Agreement, the term Underwriter includes any person substituted for an Underwriter under this Section. Nothing herein will relieve a defaulting Underwriter from liability for its default.
10. Survival of Certain Representations and Obligations . The respective indemnities, agreements, representations, warranties and other statements of the Company or its officers and of the several Underwriters set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation, or statement as to the results thereof, made by or on behalf of any Underwriter, the Company or any of their respective representatives, officers or directors or any controlling person, and will survive delivery of and payment for the Offered Securities. If the purchase of the Offered Securities by the Underwriters is not consummated for any reason other than because of the termination of this Agreement pursuant to Section 9 hereof or the occurrence of any event specified in clauses (iii), (iv), (vi), (vii) or (viii) of Section 7(c), the Company will reimburse the Underwriters for all documented out-of-pocket expenses (including reasonable and documented fees and disbursements of counsel) reasonably incurred by them in connection with the offering of the Offered Securities, and the respective obligations of the Company and the Underwriters pursuant to Section 8 hereof shall remain in effect. In addition, if any Offered Securities have been purchased hereunder, the representations and warranties in Section 2 and all obligations under Section 5 shall also remain in effect.
11. Notices . All communications hereunder will be in writing and, if sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed to the Representatives, c/o Credit Suisse Securities (USA) LLC, Eleven Madison Avenue, New York, N.Y. 10010-3629, Attention: LCD-IBD, c/o Jefferies LLC, 520 Madison Avenue, New York, NY 10022, Attention: General Counsel and c/o Stephens Inc., 111 Center Street, Little Rock, AR, 72201, Attention: Legal Department; or, if sent to the Company, will be mailed, delivered or
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telegraphed and confirmed to it at CURO Group Holdings Corp., c/o CURO Financial Technologies Corp., 3527 North Ridge Road, Wichita, Kansas 67205, Attention: Chief Financial Officer, provided, however, that any notice to an Underwriter pursuant to Section 8 will be mailed, delivered or telegraphed and confirmed to such Underwriter.
12. Successors . This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective representatives and successors and the officers and directors and controlling persons referred to in Section 7, and no other person will have any right or obligation hereunder.
13. Representation of Underwriters . The Representatives will act for the several Underwriters in connection with the transactions contemplated by this Agreement, and any action under this Agreement taken by the Representatives jointly will be binding upon all the Underwriters.
14. Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement.
15. Absence of Fiduciary Relationship. The Company acknowledges and agrees that:
(a) No Other Relationship. The Representatives have been retained solely to act as underwriters in connection with the sale of the Offered Securities and that no fiduciary, advisory or agency relationship between the Company, on the one hand, and the Representatives, on the other, has been created in respect of any of the transactions contemplated by this Agreement or the Final Prospectus, irrespective of whether the Representatives have advised or are advising the Company on other matters;
(b) Arms Length Negotiations. The price of the Offered Securities set forth in this Agreement was established by Company following discussions and arms-length negotiations with the Representatives and the Company are capable of evaluating and understanding and understand and accept the terms, risks and conditions of the transactions contemplated by this Agreement;
(c) Absence of Obligation to Disclose. The Company has been advised that the Representatives and their affiliates are engaged in a broad range of transactions which may involve interests that differ from those of the Company and that the Representatives have no obligation to disclose such interests and transactions to the Company by virtue of any fiduciary, advisory or agency relationship; and
(d) Waiver. The Company waives, to the fullest extent permitted by law, any claims they may have against the Representatives for breach of fiduciary duty or alleged breach of fiduciary duty and agree that the Representatives shall have no liability (whether direct or indirect) to the Company in respect of such a fiduciary duty claim or to any person asserting a fiduciary duty claim on behalf of or in right of the Company, including stockholders, employees or creditors of the Company.
16. Applicable Law . This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
The Company hereby submits to the non-exclusive jurisdiction of the Federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. The Company irrevocably and unconditionally waives any objection to the laying of venue of any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby in Federal and state courts in the Borough of Manhattan in the City of New York and irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such suit or proceeding in any such court has been brought in an inconvenient forum.
17. Waiver of Jury Trial . The Company hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
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If the foregoing is in accordance with the Representatives understanding of our agreement, kindly sign and return to the Company one of the counterparts hereof, whereupon it will become a binding agreement among the Company and the several Underwriters in accordance with its terms.
Very truly yours,
CURO G ROUP H OLDINGS C ORP . | ||
By: | ||
Name: | ||
Title: |
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written.
Acting on behalf of themselves and as the Representatives of the several Underwriters.
C REDIT S UISSE S ECURITIES (USA) LLC |
||
By: | ||
Name: | ||
Title: | ||
J EFFERIES LLC | ||
By: |
|
|
Name: | ||
Title: | ||
S TEPHENS I NC . | ||
By: |
|
|
Name: | ||
Title: |
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SCHEDULE A
Underwriter |
Number of
Firm Securities to be Purchased |
|||
Credit Suisse Securities (USA) LLC |
||||
Jefferies LLC |
||||
Stephens Inc. |
||||
William Blair & Company, L.L.C. |
||||
Janney Montgomery Scott LLC |
||||
|
|
|||
Total |
||||
|
|
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SCHEDULE B
1. | General Use Free Writing Prospectuses (included in the General Disclosure Package) |
General Use Issuer Free Writing Prospectus includes each of the following documents:
[1. Final term sheet, dated .]
2. | Other Information Included in the General Disclosure Package |
The following information is also included in the General Disclosure Package:
[1. The initial price to the public of the Offered Securities.]
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SCHEDULE C
To be attached.
27
E XHIBIT A- [ ]
Forms of Opinion
To be attached.
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E XHIBIT B
Form of Press Release
CURO Group Holdings Corp. Announces [Waiver][Release] of IPO Lock-up Restriction
[ ], 20[ ]CURO Group Holdings Corp. (the Company) announced today that Credit Suisse and Jefferies, joint book-running managers in the Companys recent initial public offering of shares of common stock, are [waiving] [releasing] a lock-up restriction with respect to [ ] shares of the Companys common stock held by [certain officers or directors] [an officer or director] of the Company [for the specific purpose[s] of [ ]]. The [waiver] [release] will take effect on [ ], 20[ ], and the shares may be sold on or after such date.
This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.
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E XHIBIT C
Form of Lock-up Agreement
[], 2017
CURO Group Holdings Corp.
3527 North Ridge Road
Wichita, Kansas 67205
C REDIT S UISSE S ECURITIES (USA) LLC
J EFFERIES LLC
S TEPHENS I NC .,
As Representatives of the Several Underwriters named in Schedule I of the Underwriting Agreement
(as defined below)
c/o | Credit Suisse Securities (USA) LLC, |
Eleven Madison Avenue, |
New York, N.Y. 10010-3629 |
Ladies and Gentlemen:
As an inducement to the underwriters to execute the Underwriting Agreement (the Underwriting Agreement ), pursuant to which an offering (the Offering ) will be made that is intended to result in the establishment of a public market for shares of the common stock (Common Stock) of CURO Financial Technologies Corp., and any successor (by merger or otherwise) thereto (the Company ), the undersigned hereby agrees that during the period specified in the following paragraph (the Lock-Up Period ), the undersigned will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any Common Stock or securities convertible into or exchangeable or exercisable for any Common Stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of Common Stock, whether any such aforementioned transaction is to be settled by delivery of Common Stock or such other securities, in cash or otherwise, or publicly disclose the intention to make any such offer, sale, pledge or disposition, or to enter into any such transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Credit Suisse Securities (USA) LLC ( Credit Suisse ) and Jefferies LLC ( Jefferies ). In addition, the undersigned agrees that, without the prior written consent of Credit Suisse and Jefferies, it will not make any demand for or exercise any right with respect to, the registration of any Common Stock or any security convertible into or exercisable or exchangeable for Common Stock during the Lock-Up Period.
The Lock-Up Period will commence on the date of this Lock-Up Agreement and continue and include the date that is 180 days after the public offering date set forth on the final prospectus used to sell Common Stock (the Public Offering Date ) pursuant to the Underwriting Agreement.
The undersigned agrees that, prior to engaging in any transaction or taking any other action that is subject to the terms of this Lock-Up Agreement during the period from the date of this Lock-Up Agreement to and including the expiration of the Lock-Up Period, it will give notice thereof to the Company and will not consummate such transaction or take any such action unless it has received written confirmation from the Company that the Lock-Up Period has expired.
Any Common Stock received upon exercise of options granted to the undersigned will also be subject to this Lock-Up Agreement. Any Common Stock acquired by the undersigned in the open market will not be subject to this Lock-Up Agreement. In addition, and notwithstanding the restrictions contained above and subject to the conditions below, the undersigned may transfer Common Stock without the prior written consent of Credit Suisse and Jefferies:
(i) | as a bona fide gift or gifts or for bona fide estate planning purposes; |
(ii) | to any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned (for purposes of this Lock-Up Agreement, immediate family shall mean any relationship by blood, marriage, domestic partnership or adoption, not more remote than first cousin); |
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(iii) | as a distribution to limited partners, members, stockholders or other equityholders or to the estate of any such limited partners, members, stockholders or other equityholders of the undersigned; |
(iv) | to the undersigneds affiliates or to any investment fund or other entity controlled or managed by the undersigned; or |
(v) | by will, other testamentary document or intestate succession to the legal representative, heir, beneficiary or a member of the immediate family of the undersigned; |
provided that, as applicable, (1) Credit Suisse and Jefferies receive a signed lock-up agreement substantially in the form of this Lock-up Agreement, with a term lasting for the balance of the Lock-Up Period, from each donee, trustee, distributee or transferee, as the case may be, (2) any such transfer shall not involve a disposition for value, (3) any such transfer is not required to be reported by any party to the transfer with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended (the Exchange Act ), during the Lock-up Period, (4) no party (donor, distributor, transferor, donee, distributee, transferee or trustee) to any such transfer otherwise voluntarily effects any public filing or report regarding such transfers during the Lock-up Period and (5) the undersigned notifies Credit Suisse and Jefferies of the proposed transfer at least two business days before such proposed transfer.
Furthermore, notwithstanding the restrictions contained above, the undersigned may, without the prior written consent of Credit Suisse and Jefferies:
(i) | exercise an option to purchase shares of Common Stock granted under any stock incentive plan or stock purchase plan of the Company; provided , that any shares of Common Stock received by the undersigned upon such exercise shall be subject to the restrictions on transfer set forth above; provided , further , that in the event of an exercise on a net basis, the Company becomes the owner of shares of Common Stock surrendered in such net exercise; and provided , further , that no filing under the Exchange Act or other public announcement shall be required or voluntarily made by the undersigned or any other person in connection therewith, in each case during the Lock-Up Period; |
(ii) | transfer the undersigneds Common Stock or any security convertible into or exercisable or exchangeable for Common Stock to the Company pursuant to any contractual arrangement in effect on the date hereof that provides for the repurchase of the undersigneds Common Stock or such other securities by the Company or in connection with the termination of the undersigneds employment with the Company, provided that no filing under the Exchange Act or other public announcement shall be required or voluntarily made by the undersigned or any other person in connection therewith, in each case during the Lock-Up Period; |
(iii) | transfer the undersigneds Common Stock or any security convertible into or exercisable or exchangeable for Common Stock or any restricted stock to the Company in connection with a vesting event of the Companys securities or upon the exercise of options to purchase the Companys securities, on a cashless or net exercise basis, solely to cover tax withholding in connection with such vesting or exercise, provided that the underlying shares shall continue to be subject to the restrictions on transfer set forth in this Lock-Up Agreement and provided further that no filing under the Exchange Act or other public announcement shall be required or voluntarily made by the undersigned or any other person in connection therewith, in each case during the Lock-Up Period; |
(iv) | establish a trading plan pursuant to Rule 10b5-1 under the Exchange Act for the transfer of Common Stock; provided , that such plan does not provide for any transfers of Common Stock, and no filing with the Securities and Exchange Commission or other public announcement shall be required or voluntarily made by the undersigned or any other person in connection therewith, in each case, during the Lock-Up Period; and |
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(v) | by operation of law, such as pursuant to a qualified domestic order or in connection with a divorce settlement or any other court order, provided , that , no filing under the Exchange Act or other public announcement shall be required or voluntarily made by the undersigned or any other person in connection therewith, in each case during the Lock-Up Period. |
In addition, the undersigned agrees that, without the prior written consent of Credit Suisse and Jefferies, it will not, during the Lock-up Period, make any demand for or exercise any right with respect to, the registration of any shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock.
The restrictions contained herein shall not apply to any transfers, sales, tenders or other dispositions of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock pursuant to a bona fide third-party tender offer, merger, amalgamation, consolidation or other similar transaction made to or involving holders of the Common Stock or such other securities pursuant to which at least majority voting power of the Company is transferred to such third party (including, without limitation, the entering into any lock-up, voting or similar agreement pursuant to which the undersigned may agree to transfer, sell, tender or otherwise dispose of Common Stock or other such securities in connection with such transaction, or vote any Common Stock or other such securities in favor of any such transaction); provided, that if such bona fide third-party tender offer, merger, amalgamation, consolidation or other similar transaction is not completed, any Common Stock or any security convertible into or exercisable or exchangeable for Common Stock subject to this Lock-Up Agreement shall remain subject to the restrictions contained in this Lock-Up Agreement.
In furtherance of the foregoing, the Company and its transfer agent and registrar are hereby authorized to decline to make any transfer of Common Stock if such transfer would constitute a violation or breach of this Lock-Up Agreement.
If the undersigned is an officer or director of the Company, the undersigned further agrees that the foregoing restrictions in this Lock-Up Agreement shall be equally applicable to any issuer-directed Common Stock that the undersigned may purchase in the above-referenced offering.
If the undersigned is an officer or director of the Company, (i) Credit Suisse and Jefferies agree that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of Common Stock, Credit Suisse and Jefferies will notify the Company of the impending release or waiver, and (ii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver. Any release or waiver granted by Credit Suisse and Jefferies hereunder to any such officer or director shall only be effective two business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this Lock-Up Agreement to the extent and for the duration that such terms remain in effect at the time of the transfer.
This Lock-Up Agreement shall automatically terminate upon (i) Credit Suisse or Jefferies advising the Company in writing that they have determined not to proceed with the Offering, (ii) the Company advising Credit Suisse and Jefferies in writing that it has determined not to proceed with the Offering or (iii) the termination of the Underwriting Agreement (other than the provisions thereof that survive termination) prior to payment for and delivery of Common Stock.
Notwithstanding the foregoing, the undersigned shall be permitted to make required filings on a Schedule 13D, Schedule 13F or Schedule 13G under the Exchange Act, provided that any such filings shall not disclose any transfer, disposition or distribution of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock.
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This Lock-Up Agreement shall be binding on the undersigned and the successors, heirs, personal representatives and assigns of the undersigned. This Lock-Up Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
[ Signature page follows ]
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Very truly yours,
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Exhibit 4.1
CURO CURO Group Holdings Corp. INCORPORATED UNDER THE LAWS OF THE STATE OF SEE REVERSE SIDE FOR CERTAIN DEFINITIONS CUSIP 000000 00 0 THIS CERTIFIES THAT is the owner of FULLY PAID AND NON-ASSESSABLE COMMON SHARES, $0.001 PAR VALUE, OF CURO Group Holdings Corp. transferable on the books of the Corporation by the holder hereof in person or by Attorney upon surrender of this certificate properly endorsed. This certificate is not valid until countersigned and registered by the Transfer Agent and Registrar. IN WITNESS WHEREOF, the said Corporation has caused this certificate to be signed by facsimile signatures of its duly authorized officers. Dated: CHAIRMAN OF THE BOARD, PRESIDENT OR VICE PRESIDENT SECRETARY OR TREASURER COUNTERSIGNED AND REGISTERED: AMERICAN STOCK TRANSFER & TRUST COMPANY (Brooklyn, New York) TRANSFER AGENT AND REGISTRAR BY AUTHORIZED SIGNATURE
THE BOARD OF THIS CORPORATION HAS THE AUTHORITY TO CREATE AND DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF CLASSES OR SERIES OF SHARES OF CAPITAL STOCK OTHER THAN COMMON STOCK. THIS CORPORATION WILL FURNISH TO ANY SHAREHOLDER UPON WRITTEN REQUEST SENT TO ITS PRINCIPAL EXECUTIVE OFFICES, AND WITHOUT CHARGE, A FULL STATEMENT OF THE BOARDS AUTHORITY TO CREATE AND DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF CLASSES OR SERIES OF SHARES OF CAPITAL STOCK AS WELL AS THE DESIGNATIONS, PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OR SERIES THEN OUTSTANDING OR AUTHORIZED TO BE ISSUED. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM as tenants in common UTMA Custodian (Cust) (Minor) TEN ENT as tenants by entireties under Uniform Transfers to Minors JT TEN as joint tenants with right of survivorship Act and not as tenants in common (State) Additional abbreviations may also be used though not in the above list. For value received hereby sell, assign, and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE) Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney to transfer the said stock on the books of the within-named Corporation with full power of substitution in the premises. Dated NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. SIGNATURE GUARANTEED ALL GUARANTEES MUST BE MADE BY A FINANCIAL INSTITUTION (SUCH AS A BANK OR BROKER) WHICH IS A PARTICIPANT IN THE SECURITIES TRANSFER AGENTS MEDALLION PROGRAM (STAMP), THE NEW YORK STOCK EXCHANGE, INC. MEDALLION SIGNATURE PROGRAM (MSP), OR THE STOCK EXCHANGES MEDALLION PROGRAM (SEMP) AND MUST NOT BE DATED. GUARANTEES BY A NOTARY PUBLIC ARE NOT ACCEPTABLE.
Exhibit 4.2
Execution
AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT
This AMENDED AND RESTATED INVESTORS RIGHTS AGREEMENT, dated as of [ ], 2017 (this Agreement ) among (i) CURO Group Holdings Corp. (the Company ), (ii) Freidman Fleischer & Lowe Capital Partners II, L.P., FFL Executive Partners II, L.P. and FFL Parallel Fund II, L.P. (collectively, the FFL Entities ), (iii) Chadwick Faulkner ( Faulkner ) (iv) the Faulkner, Chadwick 2014 GRAT (the Faulkner GRAT ) (v) Exempt Family Trust c/u Chadwick H. Faulkner 2017 Dynasty Trust (the C. Faulkner Trust ) (vi) Exempt Family Trust c/u/ Leah M. Faulkner 2017 Dynast Trust (together with Faulkner, the Faulkner GRAT and the C. Faulkner Trust, the Faulkner Parties ), (vii) Rippel Holdings, LLC ( Rippel ), (v) McKnight Holdings, LLC ( McKnight ), (viii) James Ackerman ( Ackerman ), (ix) Nick Adams ( Adams ), (x) Matt Miller ( Miller ) and (xi) the J.P. Genova Family Trust (the Trust ).
WITNESSETH:
WHEREAS, the Company and certain stockholders of the Company entered into (i) that certain Investors Rights Agreement, dated as of February 11, 2013 (the Investors Rights Agreement ) and (ii) that certain Registration Rights Agreement, dated as of February 11, 2013 (the Registration Rights Agreement and together with the Investor Rights Agreement, the Existing Agreements );
WHEREAS, on the date hereof, the Company has closed its IPO;
WHEREAS, the parties hereto desire to amend the Existing Agreements and enter into this Agreement to govern the rights, duties and obligations of the Holders following the consummation of the IPO; and
NOW, THEREFORE, in consideration of the covenants and agreements contained herein, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01. Defined Terms .
(a) For purposes hereof, the following terms when used herein shall have the respective meanings set forth below:
Adverse Disclosure means public disclosure of material non-public information that, in the good faith judgment of the board of directors of the Company (the Board ), after consultation with independent outside counsel to the Company, would be required to be made in any Registration Statement filed with the SEC by the Company so that such Registration Statement would not be materially misleading and would not be required to be made at such time but for the filing of such Registration Statement, but which information the Company has a bona fide business purpose for not disclosing publicly.
Affiliate means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person; provided that no stockholder of the Company shall be deemed an Affiliate of any other stockholder solely by reason of any investment in the Company. For purposes of this definition, the term 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 and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.
Business Day means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close.
Common Stock means shares of common stock of the Company, par value $0.001 per share, and any stock into which such common stock is hereafter converted or changed.
Company Stock Equivalent means securities exercisable, exchangeable or convertible into shares of Common Stock.
FINRA means the Financial Industry Regulatory Authority.
Form S-1 means a registration statement on Form S-1 under the Securities Act, or any comparable or successor form or forms thereto.
Form S-3 means a registration statement on Form S-3 under the Securities Act, or any comparable or successor form or forms thereto.
Holder means each of (i) the FFL Entities, (ii) the Faulkner Parties, (iii) Rippel, (iv) McKnight, (v) Ackerman, (vi) Adams, (vii) Miller, (viii) the Trust and (ix) each of their respective Permitted Assignees.
IPO means the Companys initial Public Offering pursuant to a prospectus dated as of [ ], 2017.
Issuer Free Writing Prospectus means an issuer free writing prospectus, as defined in Rule 433 under the Securities Act, relating to an offer of Registrable Securities.
Major Holder means (i) any Holder, for so long as such Holder beneficially owns, either individually or together with any Affiliate(s) also holding Common Stock (such Holder together with any such Affiliate(s), a Group Holder ), at least eight percent of the then-outstanding Common Stock. For the avoidance of doubt, each Person comprising any Group Holder shall severally be treated as a Major Holder.
Marketed Underwritten Offering means any Underwritten Offering (including a Marketed Underwritten Shelf Take-Down, but not including any Shelf Take-Down that is not a Marketed Underwritten Shelf Take-Down) that involves a customary road show (including an electronic road show) or other substantial marketing effort by the Company and the underwriters over a period of at least 48 hours.
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Participating Holder means, with respect to any Registration, any Holder of Registrable Securities covered by the applicable Registration Statement.
Person means an individual, corporation, limited liability company, partnership, association, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.
Prospectus means the prospectus included in any Registration Statement, all amendments and supplements to such prospectus, including pre- and post-effective amendments to such Registration Statement, and all other material incorporated by reference in such prospectus.
Public Offering means an underwritten public offering of securities pursuant to an effective registration statement under the Securities Act, other than pursuant to a registration statement on Form S-4 or Form S-8 or any similar or successor forms.
Registrable Securities means (a) all shares of Common Stock now held by or hereafter issued to the parties to this Agreement, and (b) all securities directly or indirectly issued or issuable with respect to the securities referred to in clause (a) above by way of stock dividend or other distribution with respect to, or in exchange for, or in replacement of, the shares of Common Stock referenced in clause (a) above. As to any particular Registrable Securities, such shares of Common Stock shall cease to be Registrable Securities when (i) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (ii) such securities shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act, or (iii) such securities shall have ceased to be outstanding.
Registration means a registration with the SEC of the Companys securities for offer and sale to the public under a Registration Statement. The terms Register and Registering shall have correlative meanings.
Registration Statement means any registration statement of the Company that covers Registrable Securities pursuant to the provisions of this Agreement filed with, or to be filed with, the SEC under the rules and regulations promulgated under the Securities Act, including the related Prospectus, amendments and supplements to such registration statement, including pre- and post-effective amendments, and all exhibits and all material incorporated by reference in such registration statement.
Representatives means, with respect to any Person, any of such Persons officers, directors, employees, agents, attorneys, accountants, actuaries, consultants, equity financing partners or financial advisors or other Person associated with, or acting on behalf of, such Person.
SEC means the Securities and Exchange Commission.
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Securities Act means the Securities Act of 1933, as amended, and any successor thereto, and any rules and regulations promulgated thereunder, all as the same shall be in effect from time to time.
Securities Exchange Act means the Securities Exchange Act of 1934, as amended, and any successor thereto, and any rules and regulations promulgated thereunder, all as the same shall be in effect from time to time.
Selling Expenses means all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities and fees and disbursements of counsel for any Holder (other than the reasonable fees and disbursements of one legal counsel to the Holders included in Registration Expenses).
Shelf Registration means a Registration effected pursuant to Section 2.02.
Shelf Registration Statement means a Registration Statement of the Company filed with the SEC on either (i) Form S-3 or (ii) if the Company is not permitted to file a Registration Statement on Form S-3, an evergreen Registration Statement on Form S-1, in each case for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act (or any successor provision) covering all or any portion of the Registrable Securities, as applicable.
Subsidiary means, with respect to any Person, any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person.
Underwritten Offering means a Registration in which securities of the Company are sold to an underwriter or underwriters on a firm commitment basis for reoffering to the public.
(b) Each of the following terms is defined in the Section set forth opposite such term:
Term |
Section |
Term |
Section |
|||
Ackerman | Preamble | Long-Form Registration | 2.01(a) | |||
Adams | Preamble | Loss | 2.09(a) | |||
Agreement | Preamble | Losses | 2.09(a) | |||
Board | 1.01(a) | Marketed Underwritten Shelf Take-Down | 2.02(a)(iii) | |||
Company | Preamble | Marketed Underwritten Shelf Take-Down Notice | 2.02(a)(iii) | |||
Company Public Sale | 2.03(a) | McKnight | Preamble | |||
Conversion Event | 3.06(b) | Miller | Preamble | |||
Conversion Securities | 3.06(b) | Permitted Assignee | 3.06(a) | |||
Demand Company Notice | 2.01(d) | Permitted Assignees | 3.06(a) | |||
Demand Notice | 2.01(a) | Piggyback Registration | 2.03(a) |
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Demand Party | 2.01(a) | Register | 1.01(a) | |||
Demand Period | 2.01(c) | Registering | 1.01(a) | |||
Demand Registration | 2.01(a) | Registration Expenses | 2.08 | |||
Demand Registration Statement | 2.01(a) | Registration Rights Agreement | Recitals | |||
Demand Suspension | 2.01(e) | Rippel | Preamble | |||
Existing Agreements | Recitals | Shelf Participants | 2.02(a)(iii) | |||
Faulkner Parties | Preamble | Shelf Take-Down | 2.02(a)(i) | |||
FFL Entities | Preamble | Short-Form Registration | 2.01(a) | |||
Initiating Shelf Take-Down Holder | 2.02(a)(i) | Trust | Preamble | |||
Investors Rights Agreement | Recitals | Underwritten Shelf Take-Down Notice | 2.02(a)(ii) |
ARTICLE II.
REGISTRATION RIGHTS
SECTION 2.01. Demand Registration .
(a) Demand Registration . At any time commencing 181 days after the effective date of the IPO, (i) each Major Holder (such Major Holder(s), a Demand Party ) may, subject to Section 2.11, make a written request (a Demand Notice ) to the Company for Registration of all or part of the Registrable Securities held by such Demand Party (i) on Form S-1 (a Long-Form Registration ) or (ii) on Form S-3 (a Short-Form Registration ) if the Company qualifies to use such short form (any such requested Long-Form Registration or Short-Form Registration, a Demand Registration ). Each Demand Notice shall specify the aggregate amount of Registrable Securities of the Demand Party to be registered and the intended methods of disposition thereof. Subject to Section 2.11, after delivery of such Demand Notice, the Company (x) shall file promptly (and, in any event, within (i) 90 days in the case of a request for a Long-Form Registration or (ii) thirty (30) days in the case of a request for a Short-Form Registration, in each case, following delivery of such Demand Notice) with the SEC a Registration Statement relating to such Demand Registration (a Demand Registration Statement ), and (y) shall use its reasonable best efforts to cause such Demand Registration Statement to promptly be declared effective under (A) the Securities Act and (B) the blue sky laws of such jurisdictions as any Participating Holder or any underwriter, if any, reasonably requests.
(b) Demand Withdrawal . A Demand Party may withdraw its Registrable Securities from a Demand Registration at any time prior to the effectiveness of the applicable Demand Registration Statement. Upon delivery of a notice by the Demand Party to such effect, the Company shall cease all efforts to secure effectiveness of the applicable Demand Registration Statement, and such Registration shall not be deemed to be a Demand Registration with respect to such Demand Party for purposes of Section 2.11.
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(c) Effective Registration . The Company shall be deemed to have effected a Demand Registration with respect to the applicable Demand Party for purposes of Section 2.11 if the Demand Registration Statement is declared effective by the SEC and remains effective for not less than 120 days (or such shorter period as shall terminate when all Registrable Securities covered by such Registration Statement have been sold or withdrawn), or if such Registration Statement relates to an Underwritten Offering, such longer period as, in the opinion of counsel for the underwriter or underwriters, a Prospectus is required by law to be delivered in connection with sales of Registrable Securities by an underwriter or dealer (the applicable period, the Demand Period ). No Demand Registration shall be deemed to have been effected for purposes of Section 2.11 if (i) during the Demand Period such Registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court, (ii) the conditions to closing specified in the underwriting agreement, if any, entered into in connection with such Registration are not satisfied other than by reason of a wrongful act, misrepresentation or breach of such applicable underwriting agreement by a Demand Party or (iii) there is a Demand Suspension.
(d) Demand Company Notice . Promptly upon delivery of any Demand Notice (but in no event more than ten Business Days thereafter), the Company shall deliver a written notice (a Demand Company Notice ) of any such Registration request to all Holders (other than the Demand Party), and the Company shall, subject to Section 2.01(g), include in such Demand Registration all such Registrable Securities of such Holders that the Company has received written requests for inclusion therein within ten Business Days after the date that such Demand Company Notice has been delivered. All requests made pursuant to this Section 2.01(d) shall specify the aggregate amount of Registrable Securities of such Holder to be registered.
(e) Delay in Filing; Suspension of Registration . If the Company shall furnish to the Participating Holders a certificate signed by an executive officer of the Company stating that the filing, effectiveness or continued use of a Demand Registration Statement would require the Company to make an Adverse Disclosure, then the Company may delay the filing (but not the preparation of) or initial effectiveness of, or suspend use of, the Demand Registration Statement (a Demand Suspension ); provided, however, that the Company, unless otherwise approved in writing by each of the Holders, shall not be permitted to exercise aggregate Demand Suspensions more than twice, or for more than an aggregate of 120 days, in each case, during any 12-month period; provided, further, that in the event of a Demand Suspension, such Demand Suspension shall terminate at such time as the Company would no longer be required to make any Adverse Disclosure. Each Participating Holder shall keep confidential the fact that a Demand Suspension is in effect, the certificate referred to above and its contents unless and until otherwise notified by the Company, except (A) for disclosure to such Participating Holders employees, agents and professional advisers who reasonably need to know such information and agree to keep it confidential, (B) for disclosures to the extent required in order to comply with reporting obligations to its limited partners or other direct or indirect investors who have agreed to keep such information confidential, (C) if and to the extent such matters are publicly disclosed by the Company or any of its Subsidiaries or any other Person that, to the actual knowledge of such Participating Holder, was not subject to an obligation or duty of confidentiality to the Company and its Subsidiaries and (D) as required by law, rule or regulation. In the case of a Demand Suspension, the Participating Holders agree to suspend use of the applicable Prospectus and any Issuer Free Writing Prospectus in connection with any sale or purchase of, or offer to
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sell or purchase, Registrable Securities, upon delivery of the notice referred to above. The Company shall immediately notify the Participating Holders upon the termination of any Demand Suspension, amend or supplement the Prospectus and any Issuer Free Writing Prospectus, if necessary, so it does not contain any untrue statement or omission and furnish to the Participating Holders such numbers of copies of the Prospectus and any Issuer Free Writing Prospectus as so amended or supplemented as the Participating Holders may reasonably request. The Company agrees, if necessary, to supplement or make amendments to the Demand Registration Statement if required by the registration form used by the Company for the applicable Registration or by the instructions applicable to such registration form or by the Securities Act or the rules or regulations promulgated thereunder, or as may reasonably be requested by any Demand Party.
(f) Underwritten Offering . The Holders of a majority of the Registrable Securities to be included in any Demand Registration shall determine whether or not such Demand Registration shall be in the form of an Underwritten Offering, and the Company shall have the right to select the managing underwriter or underwriters to administer the offering. If the Demand Party intends to sell the Registrable Securities covered by its demand by means of an Underwritten Offering, such Demand Party shall so advise the Company as part of its Demand Notice, and the Company shall include such information in the Demand Company Notice
(g) Priority of Securities Registered Pursuant to Demand Registrations . If the managing underwriter or underwriters of a Demand Registration informs the Company and the Holders that have requested to participate in such Demand Registration in writing that, in its or their opinion, the number of securities requested to be included in such Demand Registration exceeds the number that can be sold in such Underwritten Offering without being likely to have a significant adverse effect on the price, timing or distribution of the securities offered or the market for the securities offered, the securities to be included in such Demand Registration (i) first, shall be allocated pro rata among the Holders on the basis of the number of Registrable Securities requested to be included therein by each such Holder (provided that any securities thereby allocated to a Holder that exceed such Holders request shall be reallocated among the remaining requesting Holders in like manner), (ii) second, and only if all the securities referred to in clause (i) have been included in such Registration, the number of securities that the Company proposes to include in such Registration that, in the opinion of the managing underwriter or underwriters, can be sold without having such adverse effect, and (iii) third, and only if all of the securities referred to in clause (ii) have been included in such Registration, any other securities eligible for inclusion in such Registration that, in the opinion of the managing underwriter or underwriters, can be sold without having such adverse effect.
SECTION 2.02. Shelf Registration.
(a) Shelf Take-Downs .
i. An offering or sale of Registrable Securities pursuant to a Shelf Registration Statement (each, a Shelf Take-Down ) may be initiated by any Major Holder (an Initiating Shelf Take-Down Holder ). Except as set forth in Section 2.02(a)(iii) with respect to Marketed Underwritten Shelf Take-Downs, each such Initiating Shelf Take-Down Holder shall not be required to permit the offer and sale of Registrable Securities by other Holders in connection with any such Shelf Take-Down initiated by such Initiating Shelf Take-Down Holder.
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ii. Subject to Section 2.11, if the Initiating Shelf Take-Down Holder elects by written request to the Company, a Shelf Take-Down shall be in the form of an Underwritten Offering (an Underwritten Shelf Take-Down Notice ) and the Company shall amend or supplement the Shelf Registration Statement for such purpose as soon as practicable. The Company shall have the right to select the managing underwriter or underwriters to administer such offering subject to the consent of such Initiating Shelf Take-Down Holder (not to be unreasonably withheld, delayed or conditioned). The provisions of Section 2.01(g) shall apply to any Underwritten Offering pursuant to this Section 2.02(a), mutatis mutandis .
iii. If the plan of distribution set forth in any Underwritten Shelf Take-Down Notice includes a customary road show (including an electronic road show) or other substantial marketing effort by the Company and the underwriters over a period expected to exceed 48 hours (a Marketed Underwritten Shelf Take-Down ), promptly upon delivery of such Underwritten Shelf Take-Down Notice (but in no event more than three Business Days thereafter), the Company shall promptly deliver a written notice (a Marketed Underwritten Shelf Take-Down Notice ) of such Marketed Underwritten Shelf Take-Down to all Holders participating in such Shelf Take-Down (the Shelf Participants ), other than the Initiating Shelf Take-Down Holder, and the Company shall include in such Marketed Underwritten Shelf Take-Down all such Registrable Securities of such Shelf Participants that are Registered on such Shelf Registration Statement for which the Company has received written requests, which requests must specify the aggregate amount of such Registrable Securities of such Shelf Participant to be offered and sold pursuant to such Marketed Underwritten Shelf Take-Down, for inclusion therein within three (3) Business Days after the date that such Marketed Underwritten Shelf Take-Down Notice has been delivered.
SECTION 2.03. Piggyback Registration.
(a) Participation . If the Company at any time proposes to file a Registration Statement with respect to any offering of its Common Stock for its own account or for the account of any other Persons (other than (i) a Registration under Section 2.01 or 2.02, (ii) a Registration Statement on Form S-4 or S-8 (or such other similar successor forms then in effect under the Securities Act), (iii) a registration of securities solely relating to an offering and sale to employees, directors or consultants of the Company or its Subsidiaries pursuant to any employee stock plan or other employee benefit plan arrangement, (iv) a registration not otherwise covered by clause (ii) above pursuant to which the Company is offering to exchange its own securities for other securities, or (v) a Registration Statement relating solely to dividend reinvestment or similar plans) (a Company Public Sale ), then, (A) as soon as practicable (but in no event less than 30 days prior to the proposed date of filing of such Registration Statement), the Company shall give written notice of such proposed filing to the Holders, and such notice shall offer each Holder the opportunity to Register under such Registration Statement such number of Registrable Securities as such Holder may request in writing delivered to the Company within
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ten Business Days of delivery of such written notice by the Company. Subject to Sections 2.03(b) and (d), the Company shall include in such Registration Statement all such Registrable Securities that are requested by Holders to be included therein in compliance with the immediately foregoing sentence (a Piggyback Registration ); provided that if at any time after giving written notice of its intention to Register any shares of Common Stock and prior to the effective date of the Registration Statement filed in connection with such Piggyback Registration, the Company shall determine for any reason not to Register or to delay Registration of such shares of Common Stock covered by such Piggyback Registration, the Company shall give written notice of such determination to each Holder that had requested to Register its, his or her Registrable Securities in such Registration Statement and, thereupon, (1) in the case of a determination not to Register, shall be relieved of its obligation to Register any Registrable Securities in connection with such Registration (but not from its obligation to pay the Registration Expenses in connection therewith, to the extent payable), and (2) in the case of a determination to delay Registering, shall be permitted to delay Registering any Registrable Securities, for the same period as the delay in Registering the other shares of Common Stock covered by such Piggyback Registration. The Company shall advise the Holders if the offering pursuant to such Registration Statement is to be underwritten is to be on any other basis, as a part of the written notice given pursuant this Section 2.03(a). Each Holder shall be permitted to withdraw all or part of its Registrable Securities from a Piggyback Registration at any time prior to the effectiveness of such Registration Statement.
(b) Priority of Piggyback Registration . If the managing underwriter or underwriters of any proposed Piggyback Registration informs the Company and the Holders that have requested to participate in such Piggyback Registration in writing that, in its or their opinion, the number of securities which such Holders and any other Persons intend to include in such offering exceeds the number which can be sold in such offering without being likely to have a significant adverse effect on the price, timing or distribution of the securities offered or the market for the securities offered, then the securities to be included in such Registration shall be (i) first, 100% of the securities that the Company proposes to sell, and (ii) second, and only if all the securities referred to in clause (i) have been included, the number of Registrable Securities of the Holders that have requested to participate in such Registration that, in the opinion of such managing underwriter or underwriters, can be sold without having such adverse effect in such Registration, which such number shall be allocated pro rata among such Holders based on the relative number of Registrable Securities then held by each such Holder (provided that any securities thereby allocated to a Holder that exceeds such Holders request shall be reallocated among the remaining requesting Holders in like manner).
(c) Selection of Underwriters . In any Piggyback Registration, the Company shall (unless the Company shall otherwise agree) have the right to select the managing underwriter or underwriters to administer the offering.
(d) No Effect on Demand Registrations . No Registration of Registrable Securities effected pursuant to a request under this Section 2.03 shall be deemed to have been effected pursuant to Section 2.01 or 2.02 or shall relieve the Company of its obligations under Section 2.01 or 2.02.
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SECTION 2.04. Lock-Up Periods .
(a) Lock-Up Periods for Holders . In the event of a Company Public Sale of shares of Common Stock in an Underwritten Offering, each of the Holders agrees, if requested by the managing underwriter or underwriters in such Underwritten Offering, to enter into a customary lockup or similar agreement; provided that no Holder shall be subject to any lock-up period of longer duration than that applicable to any director or officer of the Company.
(b) Lock-Up Period for the Company and Others . In the case of an offering of Registrable Securities pursuant to Section 2.01 or 2.02 that is a Marketed Underwritten Offering, the Company and each of the Holders agree, if requested by any Demand Party or Initiating Shelf Take-Down Holder, as applicable, or the managing underwriter or underwriters with respect to such Marketed Underwritten Offering, to enter into a customary lockup or similar agreement; provided that no Holder shall be subject to any such lock-up period of longer duration than that applicable to any Demand Party or Initiating Shelf Take-Down Holder, as applicable. The Company agrees to use its reasonable best efforts to obtain from each of its directors and officers and each other holder of restricted securities of the Company, which securities are the same as or similar to the Registrable Securities being Registered a customary lockup or similar agreement. Without limiting the foregoing (but subject to Section 2.07), if after the date hereof the Company or any of its Subsidiaries grants any Person (other than a Holder) any rights to demand or participate in a Registration, the Company shall, and shall cause its Subsidiaries to, provide that the agreement with respect thereto shall include such Persons agreement to comply with the provisions of this Section as if it were a Holder hereunder.
SECTION 2.05. Registration Procedures .
(a) In connection with the Companys Registration obligations under Sections 2.01, 2.02 and 2.03 and subject to the applicable terms and conditions set forth therein, the Company shall use its reasonable best efforts to effect such Registration to permit the sale of such Registrable Securities in accordance with the intended method or methods of distribution thereof as expeditiously as reasonably practicable, and in connection therewith the Company shall:
i. prepare the required Registration Statement including all exhibits and financial statements required under the Securities Act to be filed therewith, and before filing a Registration Statement, Prospectus or any Issuer Free Writing Prospectus, or any amendments or supplements thereto, (x) furnish to the underwriters, if any, and the Participating Holders , if any, copies of all documents prepared to be filed, which documents shall be subject to the review and comment of such underwriters and the Participating Holders, and their respective counsel and (y) except in the case of a Registration under Section 2.03, not file any Registration Statement or Prospectus or amendments or supplements thereto to which such Participating Holders referenced in clause (x) above, or the underwriters, if any, shall reasonably object;
ii. prepare and file with the SEC such pre- and post-effective amendments to such Registration Statement, supplements to the Prospectus and such amendments or supplements to any Issuer Free Writing Prospectus as may be necessary to comply with the Securities Act or as (x) reasonably requested by any Participating Holders or (y) necessary to keep such Registration effective for the period of time required by this
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Agreement, and comply with provisions of the applicable securities laws with respect to the sale or other disposition of all securities covered by such Registration Statement during such period in accordance with the intended method or methods of disposition by the sellers thereof set forth in such Registration Statement;
iii. promptly notify the Participating Holders and the managing underwriter or underwriters, if any, and provide copies of the relevant documents, as soon as reasonably practicable after notice thereof is received by the Company (A) when the applicable Registration Statement or any amendment thereto has been filed or becomes effective, and when the applicable Prospectus or Issuer Free Writing Prospectus or any amendment or supplement thereto has been filed, (B) of any written comments by the SEC or any request by the SEC or any other federal or state governmental authority for amendments or supplements to such Registration Statement, Prospectus or Issuer Free Writing Prospectus or for additional information, (C) of the issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement or any order by the SEC or any other regulatory authority preventing or suspending the use of any preliminary or final Prospectus or any Issuer Free Writing Prospectus or the initiation or threatening of any proceedings for such purposes, (D) if, at any time, the representations and warranties of the Company in any applicable underwriting agreement cease to be true and correct in all material respects, (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for offering or sale in any jurisdiction and (F) of the receipt by the Company of any notification with respect to the initiation or threatening of any proceeding for the suspension of the qualification of the Registrable Securities for offering or sale in any jurisdiction;
iv. promptly notify the Participating Holders and the managing underwriter or underwriters, if any, when the Company becomes aware of the happening of any event as a result of which the applicable Registration Statement, the Prospectus included in such Registration Statement (as then in effect) or any Issuer Free Writing Prospectus contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein (in the case of such Prospectus, any preliminary Prospectus or any Issuer Free Writing Prospectus, in light of the circumstances under which they were made) not misleading, when any Issuer Free Writing Prospectus includes information that may conflict with the information contained in the Registration Statement, or, if for any other reason it shall be necessary during such time period to amend or supplement such Registration Statement, Prospectus or Issuer Free Writing Prospectus in order to comply with the Securities Act and, in either case as promptly as reasonably practicable thereafter, prepare and file with the SEC, and furnish without charge to the Participating Holders and the managing underwriter or underwriters, if any, an amendment or supplement to such Registration Statement, Prospectus or Issuer Free Writing Prospectus which shall correct such misstatement or omission or effect such compliance;
v. use its reasonable best efforts to prevent, or obtain the withdrawal of, any stop order or other order suspending the use of any preliminary or final Prospectus or any Issuer Free Writing Prospectus;
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vi. promptly incorporate in a Prospectus supplement, Issuer Free Writing Prospectus or post-effective amendment to the applicable Registration Statement such information as the managing underwriter or underwriters and the Participating Holders agree should be included therein relating to the plan of distribution with respect to such Registrable Securities, and make all required filings of such Prospectus supplement, Issuer Free Writing Prospectus or post-effective amendment as soon as reasonably practicable after being notified of the matters to be incorporated in such Prospectus supplement, Issuer Free Writing Prospectus or post-effective amendment;
vii. furnish to each Participating Holder and each underwriter, if any, without charge, as many conformed copies as such Holder or underwriter may reasonably request of the applicable Registration Statement and any amendment or post-effective amendment thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits (including those incorporated by reference);
viii. deliver to each Participating Holder and each underwriter, if any, without charge, as many copies of the applicable Prospectus (including each preliminary Prospectus), any Issuer Free Writing Prospectus and any amendment or supplement thereto as such Holder or underwriter may reasonably request (it being understood that the Company consents to the use of such Prospectus, any Issuer Free Writing Prospectus and any amendment or supplement thereto by such Holder and the underwriters, if any, in connection with the offering and sale of the Registrable Securities thereby) and such other documents as such Holder or underwriter may reasonably request in order to facilitate the disposition of the Registrable Securities by such Holder or underwriter;
ix. on or prior to the date on which the applicable Registration Statement is declared effective, use its reasonable best efforts to register or qualify, and cooperate with the Participating Holders, the managing underwriter or underwriters, if any, and their respective counsel, in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of each state and other jurisdiction of the United States as any Participating Holder or managing underwriter or underwriters, if any, or their respective counsel reasonably request in writing and do any and all other acts or things reasonably necessary or advisable to keep such registration or qualification in effect for such period as required by Section 2.01(c) or 2.02(a), whichever is applicable, provided that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to taxation or general service of process in any such jurisdiction where it is not then so subject;
x. make such representations and warranties to the Participating Holders and the underwriters or agents, if any, in form, substance and scope as are customarily made by issuers in secondary underwritten public offerings;
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xi. enter into such customary agreements (including underwriting and indemnification agreements) and take all such other actions as any Participating Holders or the managing underwriter or underwriters, if any, reasonably request in order to expedite or facilitate the registration and disposition of such Registrable Securities;
xii. obtain for delivery to the Participating Holders and to the underwriter or underwriters, if any, an opinion or opinions from counsel for the Company dated the effective date of the Registration Statement or, in the event of an Underwritten Offering, the date of the closing under the underwriting agreement, in customary form, scope and substance, which opinions shall be reasonably satisfactory to the Participating Holders holding a majority of the Registrable Securities included in the Registration, or underwriters, as the case may be, and their respective counsel;
xiii. in the case of an Underwritten Offering, obtain for delivery to the Company and the managing underwriter or underwriters, with copies to the Participating Holders, a cold comfort letter from the Companys independent certified public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters as the managing underwriter or underwriters reasonably request, dated the date of execution of the underwriting agreement and brought down to the closing under the underwriting agreement;
xiv. use its reasonable best efforts to comply with all applicable securities laws and make available to its stockholders, as soon as reasonably practicable, an earning statement satisfying the provisions of Section 11(a) of the Securities Act and the rules and regulations promulgated thereunder;
xv. provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by the applicable Registration Statement from and after a date not later than the effective date of such Registration Statement;
xvi. use its reasonable best efforts to cause all Registrable Securities covered by the applicable Registration Statement to be listed on such securities exchange on which shares of Common Stock are then listed or quoted and on such inter-dealer quotation system on which shares of Common Stock are then quoted;
xvii. make available upon reasonable notice at reasonable times and for reasonable periods for inspection by any Participating Holder, by any underwriter participating in any disposition to be effected pursuant to such Registration Statement and by any attorney, accountant or other agent retained by such Participating Holder or any such underwriter, all pertinent financial and other records, pertinent corporate documents and properties of the Company, and cause all of the Companys officers, directors and employees, and use reasonable best efforts to cause the independent public accountants who have certified its financial statements, to make themselves available to discuss the business of the Company and to supply all information reasonably requested by any such Person in connection with such Registration Statement as shall be necessary to enable them to exercise their due diligence responsibility; provided that any such Person gaining access to information regarding the Company pursuant to this Section 2.05(a)(xvii) shall agree to hold in strict confidence and shall not make any disclosure or use any information regarding the Company that the Company determines in good faith to be
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confidential, and of which determination such Person is notified, unless (w) the release of such information is requested or required by law or by deposition, interrogatory, requests for information or documents by a governmental entity, subpoena or similar process, (x) such information is or becomes publicly known other than through a breach of this or any other agreement of which such Person has actual knowledge, (y) such information is or becomes available to such Person on a non-confidential basis from a source other than the Company or (z) such information is independently developed by such Person; and
xviii. in the case of an Underwritten Offering, cause the executive officers of the Company to participate in the customary road show presentations that may be reasonably requested by the managing underwriter or underwriters in any such Underwritten Offering and otherwise to facilitate, cooperate with, and participate in each proposed offering contemplated herein and customary selling efforts related thereto.
(b) The Company may require each Participating Holder to furnish to the Company such information regarding the distribution of such securities and such other information relating to such Holder and its ownership of Registrable Securities as the Company may from time to time reasonably request in writing. Each Participating Holder agrees to furnish such information to the Company and to cooperate with the Company as reasonably necessary to enable the Company to comply with the provisions of this Agreement.
(c) Each Participating Holder agrees that, upon delivery of any notice by the Company of the happening of any event of the kind described in Section 2.05(a)(iv)(C), (D), or (E) or Section 2.05(a)(iv), such Holder will forthwith discontinue disposition of Registrable Securities pursuant to such Registration Statement until (i) such Holders receipt of the copies of the supplemented or amended Prospectus or Issuer Free Writing Prospectus contemplated by Section 2.05(a)(iv), (ii) such Holder is advised in writing by the Company that the use of the Prospectus or Issuer Free Writing Prospectus, as the case may be, may be resumed, (iii) such Holder is advised in writing by the Company of the termination, expiration or cessation of such order or suspension referenced in Section 2.05(a)(iii)(C) or (E) or (iv) such Holder is advised in writing by the Company that the representations and warranties of the Company in such applicable underwriting agreement are true and correct in all material respects. If so directed by the Company, such Holder shall deliver to the Company (at the Companys expense) all copies, other than permanent file copies then in such Holders possession, of the Prospectus or any Issuer Free Writing Prospectus covering such Registrable Securities current at the time of delivery of such notice. In the event the Company shall give any such notice, the period during which the applicable Registration Statement is required to be maintained effective shall be extended by the number of days during the period from and including the date of the giving of such notice to and including the date when each seller of Registrable Securities covered by such Registration Statement either receives the copies of the supplemented or amended Prospectus or Issuer Free Writing Prospectus contemplated by Section 2.05(a)(iv) or is advised in writing by the Company that the use of the Prospectus or Issuer Free Writing Prospectus may be resumed.
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SECTION 2.06. Underwritten Offerings .
(a) Demand and Shelf Registrations . If requested by the underwriters for any Underwritten Offering initiated by a Holder or Holders pursuant to Section 2.01(f), the Company shall enter into an underwriting agreement with such underwriters for such offering, such agreement to be reasonably satisfactory in substance and form to (i) the Company, (ii) such Major Holder or Major Holders that initiated such Demand Registration and (iii) the underwriters, and to contain such representations and warranties by the Company and such other terms as are generally prevailing in agreements of that type, including indemnities no less favorable to the recipient thereof than those provided in Section 2.09. Each Participating Holder shall cooperate with the Company in the negotiation of such underwriting agreement and shall give consideration to the reasonable suggestions of the Company regarding the form thereof. Each Participating Holder shall be party to such underwriting agreement, which underwriting agreement shall (i) contain such representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such Participating Holders as are customarily made by issuers to selling stockholders in secondary underwritten public offerings and (ii) provide that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement also shall be conditions precedent to the obligations of such Participating Holders. Any such Participating Holder shall not be required to make any representations or warranties to or agreements with the Company or the underwriters in connection with such underwriting agreement other than representations, warranties or agreements regarding such Participating Holder, such Participating Holders title to the Registrable Securities, such Participating Holders authority to sell the Registrable Securities, such Participating Holders intended method of distribution, absence of liens with respect to the Registrable Securities, enforceability of the applicable underwriting agreement as against such Participating Holder, receipt of all consents and approvals with respect to the entry into such underwriting agreement and the sale of such Registrable Securities and any other representations required to be made by such Participating Holder under applicable law, rule or regulation, and the aggregate amount of the liability of such Participating Holder in connection with such underwriting agreement shall not exceed such Participating Holders net proceeds from such Underwritten Offering.
(b) Piggyback Registrations . If the Company proposes to register any of its securities under the Securities Act as contemplated by Section 2.03 and such securities are to be distributed in an Underwritten Offering through one or more underwriters, the Company shall, if requested by any Holder pursuant to Section 2.03 and subject to the provisions of Sections 2.03(b) and (d), use its reasonable best efforts to arrange for such underwriters to include on the same terms and conditions that apply to the other sellers in such Registration all the Registrable Securities to be offered and sold by such Holder among the securities of the Company to be distributed by such underwriters in such Registration. The Participating Holders shall be parties to the underwriting agreement between the Company and such underwriters, which underwriting agreement shall (i) contain such representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such Participating Holders as are customarily made by issuers to selling stockholders in secondary underwritten public offerings and (ii) provide that any or all of the conditions precedent to the obligations of such underwriters under such underwriting agreement also shall be conditions precedent to the obligations of such Participating Holders. Any such Participating Holder shall not be required to make any representations or warranties to, or agreements with the Company or the underwriters in connection with such underwriting agreement other than representations, warranties or agreements regarding such Participating Holder, such Participating Holders title to the Registrable Securities, such Participating Holders authority to sell the Registrable Securities,
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such Holders intended method of distribution, absence of liens with respect to the Registrable Securities, enforceability of the applicable underwriting agreement as against such Participating Holder, receipt of all consents and approvals with respect to the entry into such underwriting agreement and the sale of such Registrable Securities or any other representations required to be made by such Participating Holder under applicable law, rule or regulation, and the aggregate amount of the liability of such Participating Holder in connection with such underwriting agreement shall not exceed such Participating Holders net proceeds from such Underwritten Offering.
(c) Participation in Underwritten Registrations . Subject to the provisions of Sections 2.06(a) and (b) above, no Person may participate in any Underwritten Offering hereunder unless such Person (i) agrees to sell such Persons securities on the basis provided in any underwriting arrangements approved by the Persons entitled to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements.
(d) Price and Underwriting Discounts . In the case of an Underwritten Offering under Section 2.01 or 2.02, the price, underwriting discount and other financial terms for the Registrable Securities shall be determined by the Participating Holders holding a majority of the Registrable Securities included in the Registration. In the case of an Underwritten Offering under Section 2.03, the price, underwriting discount and other financial terms for the Registrable Securities shall be determined by the Company.
SECTION 2.07. No Inconsistent Agreements; Additional Rights . The Company is not currently a party to, and shall not hereafter enter into without the prior written consent of each Holder, any agreement with respect to its securities that is inconsistent with the rights granted to the Holders by this Agreement, including allowing any other holder or prospective holder of any securities of the Company (a) registration rights in the nature or substantially in the nature of those set forth in Section 2.01, Section 2.02 or Section 2.03 that would have priority over the Registrable Securities with respect to the inclusion of such securities in any Registration (except to the extent such registration rights are solely related to registrations of the type contemplated by Section 2.03(a)(ii) through (iv)) or (b) demand registration rights in the nature or substantially in the nature of those set forth in Section 2.01 or Section 2.02 that are exercisable prior to such time as the Holders can first exercise their rights under Section 2.01 or Section 2.02.
SECTION 2.08. Registration Expenses . All expenses incident to the Companys performance of or compliance with this Agreement shall be paid by the Company, including (i) all registration and filing fees, and any other fees and expenses associated with filings required to be made with the SEC, FINRA and, if applicable, the fees and expenses of any qualified independent underwriter, as such term is defined in Rule 5121 of the FINRA rules (or any successor provision), and of its counsel, (ii) all fees and expenses in connection with compliance with any securities or blue sky laws (including fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities), (iii) all printing, duplicating, word processing, messenger, telephone, facsimile and delivery expenses (including expenses of printing certificates for the Registrable Securities in a form eligible for deposit with The Depository Trust Company and of printing Prospectuses and Issuer Free
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Writing Prospectuses), (iv) all fees and disbursements of counsel for the Company and of all independent certified public accountants of the Company (including the expenses of any special audit and cold comfort letters required by or incident to such performance), (v) Securities Act liability insurance or similar insurance if the Company so desires or the underwriters so require in accordance with then-customary underwriting practice, (vi) all fees and expenses incurred in connection with the listing of Registrable Securities on any securities exchange or quotation of the Registrable Securities on any inter-dealer quotation system, (vii) all applicable rating agency fees with respect to the Registrable Securities, (viii) all reasonable fees and disbursements of one legal counsel and one accounting firm as selected by the holders of a majority of the Registrable Securities included in such Registration, (ix) any reasonable fees and disbursements of underwriters customarily paid by issuers or sellers of securities, (x) all fees and expenses of any special experts or other Persons retained by the Company in connection with any Registration, (xi) all of the Companys internal expenses (including all salaries and expenses of its officers and employees performing legal or accounting duties), (xii) all expenses related to the road-show for any Underwritten Offering, including all travel, meals and lodging and (xiii) any other fees and disbursements customarily paid by the issuers of securities. All such expenses are referred to herein as Registration Expenses . Notwithstanding the foregoing, the Company shall not be required to pay for any expenses of any Registration withdrawn pursuant to Section 2.01(b) (in which case all Participating Holders shall bear such expenses pro rata among each other based on the number of Registrable Securities requested to be so registered); provided, however, in the event that a withdrawal pursuant to Section 2.01(b) is based upon material adverse information relating to the Company that is different from the information known or available (upon request from the Company or otherwise) to the Holders requesting Registration at the time of their request for Registration, the Holders shall not bear the Registration Expenses for such Registration. All Selling Expenses included in a Registration shall be borne pro rata among the Participating Holders on the basis of the number of Registrable Securities included in such Registration.
SECTION 2.09. Indemnification .
(a) Indemnification by the Company . The Company agrees to indemnify and hold harmless, to the full extent permitted by law, each of the Holders, each of their respective direct or indirect partners, members or shareholders and each of such partners, members or shareholders partners, members or shareholders and, with respect to all of the foregoing Persons, each of their respective Affiliates, employees, directors, managers, officers, trustees or agents and each Person who controls (within the meaning of the Securities Act or the Securities Exchange Act) such Persons and each of their respective Representatives from and against any and all losses, penalties, judgments, suits, costs, claims, damages, liabilities and expenses, joint or several (including reasonable costs of investigation and legal expenses) (each, a Loss and, collectively, Losses ) arising out of or based upon (i) any untrue or alleged untrue statement of a material fact contained in any Registration Statement under which such Registrable Securities were Registered under the Securities Act (including any final, preliminary or summary Prospectus contained therein or any amendment or supplement thereto or any documents incorporated by reference therein), any Issuer Free Writing Prospectus or amendment or supplement thereto, or any other disclosure document produced by or on behalf of the Company or any of its Subsidiaries including reports and other documents filed under the Securities Exchange Act, (ii) any omission or alleged omission to state therein a material fact required to be
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stated therein or necessary to make the statements therein (in the case of a Prospectus, preliminary Prospectus or Issuer Free Writing Prospectus, in light of the circumstances under which they were made) not misleading, (iii) any violation or alleged violation by the Company of any federal, state or common law rule or regulation applicable to the Company or any of its Subsidiaries in connection with any such registration, qualification, compliance or sale of Registrable Securities, (iv) any failure to register or qualify Registrable Securities in any state where the Company or its agents have affirmatively undertaken or agreed in writing that the Company (the undertaking of any underwriter being attributed to the Company) will undertake such registration or qualification on behalf of the Holders of such Registrable Securities (provided that in such instance the Company shall not be so liable if it has undertaken its reasonable best efforts to so register or qualify such Registrable Securities) or (v) any actions or inactions or proceedings in respect of the foregoing whether or not such indemnified party is a party thereto, and the Company will reimburse, as incurred, each such Holder and each of their respective direct or indirect partners, members or shareholders and each of such partners, members or shareholders partners, members or shareholders and, with respect to all of the foregoing Persons, each of their respective Affiliates, employees, directors, managers, officers, trustees or agents and controlling Persons and each of their respective Representatives, for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action; provided that the Company shall not be liable to any particular indemnified party to the extent that any such Loss arises out of or is based upon (A) an untrue statement or alleged untrue statement or omission or alleged omission made in any such Registration Statement or other document in reliance upon and in conformity with written information furnished to the Company by such indemnified party expressly for use in the preparation thereof or (B) an untrue statement or omission in a preliminary Prospectus relating to Registrable Securities, if a Prospectus (as then amended or supplemented) that would have cured the defect was furnished to the indemnified party from whom the Person asserting the claim giving rise to such Loss purchased Registrable Securities at least five days prior to the written confirmation of the sale of the Registrable Securities to such Person and a copy of such Prospectus (as amended and supplemented) was not sent or given by or on behalf of such indemnified party to such Person at or prior to the written confirmation of the sale of the Registrable Securities to such Person. This indemnity shall be in addition to any liability the Company may otherwise have. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Holder or any indemnified party and shall survive the transfer of such securities by such Holder. The Company shall also indemnify underwriters, selling brokers, dealer managers and similar securities industry professionals participating in the distribution, their officers and directors and each Person who controls such Persons (within the meaning of the Securities Act and the Securities Exchange Act) to the same extent as provided above with respect to the indemnification of the indemnified parties.
(b) Indemnification by the Participating Holders . Each Participating Holder agrees (severally and not jointly) to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its directors and officers and each Person who controls the Company (within the meaning of the Securities Act or the Securities Exchange Act), and each other Holder, each of such other Holders respective direct or indirect partners, members or shareholders and each of such partners, members or shareholders partners, members or shareholders and, with respect to all of the foregoing Persons, each of their respective Affiliates, employees, directors, managers, officers, trustees or agents and each Person who controls (within
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the meaning of the Securities Act or the Securities Exchange Act) such Persons and each of their respective Representatives from and against any Losses resulting from (i) any untrue statement of a material fact in any Registration Statement under which such Registrable Securities were Registered under the Securities Act (including any final, preliminary or summary Prospectus contained therein or any amendment or supplement thereto or any documents incorporated by reference therein) or any Issuer Free Writing Prospectus or amendment or supplement thereto, or (ii) any omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in the case of a Prospectus, preliminary Prospectus or Issuer Free Writing Prospectus, in light of the circumstances under which they were made) not misleading, in each case to the extent, but only to the extent, that such untrue statement or omission is contained in any information furnished in writing by such Holder to the Company specifically for inclusion in such Registration Statement and has not been corrected in a subsequent writing prior to or concurrently with the sale of the Registrable Securities to the Person asserting the claim, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) was made in such Registration Statement, Prospectus, offering circular, Issuer Free Writing Prospectus or other document, in reliance upon and in conformity with written information furnished to the Company by such Holder expressly for use therein. In no event shall the liability of such Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder under the sale of Registrable Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings . Any Person entitled to indemnification under this Section 2.09 shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that any delay or failure to so notify the indemnifying party shall relieve the indemnifying party of its obligations hereunder only to the extent, if at all, that it is actually and materially prejudiced by reason of such delay or failure) and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided that any Person entitled to indemnification hereunder shall have the right to select and employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such Person unless (A) the indemnifying party has agreed in writing to pay such fees or expenses, (B) the indemnifying party shall have failed to assume the defense of such claim within a reasonable time after delivery of notice of such claim from the Person entitled to indemnification hereunder and employ counsel reasonably satisfactory to such Person, (C) the indemnified party has legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, or (D) an actual conflict of interest exists between such Person and the indemnifying party with respect to such claims (in which case, if the Person notifies the indemnifying party in writing that such Person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such Person). If the indemnifying party assumes the defense, the indemnifying party shall not have the right to settle such action, consent to entry of any judgment or enter into any settlement, in each case without the prior written consent of the indemnified party, unless the entry of such judgment or settlement (i) includes as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of an unconditional release from all liability in respect to such claim or litigation 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 such indemnified party, and provided that any sums payable in
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connection with such settlement are paid in full by the indemnifying party. If such defense is not assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its prior written consent, but such consent may not be unreasonably withheld. It is understood that the indemnifying party or parties shall not, except as specifically set forth in this Section 2.09(c), in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements or other charges of more than one separate firm admitted to practice in such jurisdiction at any one time unless (x) the employment of more than one counsel has been authorized in writing by the indemnifying party or parties, (y) an indemnified party has legal defenses available to it that are different from or in addition to those available to the other indemnified parties, and/or (z) an actual conflict exists between such indemnified party and the other indemnified parties, in each of which cases the indemnifying party shall be obligated to pay the reasonable fees and expenses of such additional counsel or counsels.
(d) Contribution . If for any reason the indemnification provided for in paragraphs (a) and (b) of this Section 2.09 is unavailable to an indemnified party or insufficient in respect of any Losses referred to therein, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such Loss in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party or parties on the other hand in connection with the acts, statements or omissions that resulted in such losses, as well as any other relevant equitable considerations. In connection with any Registration Statement filed with the SEC by the Company, the relative fault of the indemnifying party on the one hand and the 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 the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just or equitable if contribution pursuant to this Section 2.09(d) were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in this Section 2.09(d). 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 amount paid or payable by an indemnified party as a result of the Losses referred to in Sections 2.09(a) and 2.09(b) shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 2.09(d), in connection with any Registration Statement filed by the Company, a Participating Holder shall not be required to contribute any amount in excess of the dollar amount of the net proceeds received by such Holder under the sale of Registrable Securities giving rise to such contribution obligation less any amount paid by such Holders pursuant to Section 2.09(b). If indemnification is available under this Section 2.09, the indemnifying parties shall indemnify each indemnified party to the full extent provided in Sections 2.09(a) and 2.09(b) hereof without regard to the provisions of this Section 2.09(d).
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(e) No Exclusivity . The remedies provided for in this Section 2.09 are not exclusive and shall not limit any rights or remedies which may be available to any indemnified party at law or in equity or pursuant to any other agreement.
(f) Survival . The indemnities provided in this Section 2.09 shall survive the transfer of any Registrable Securities by such Holder.
SECTION 2.10. Rules 144 and 144A and Regulation S . The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Securities Exchange Act and the rules and regulations adopted by the SEC thereunder, and it will take such further action as any Holder may reasonably request, to the extent required from time to time to enable the Holders to sell Registrable Securities without Registration under the Securities Act within the limitation of the exemptions provided by (i) Rules 144, 144A or Regulation S under the Securities Act, as such may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the SEC. Upon the reasonable request of a Holder, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements and, if not, the specifics thereof.
SECTION 2.11. Limitation on Registrations . Notwithstanding the rights and obligations set forth in Sections 2.01 and 2.02:
(a) in no event shall the Company be obligated to take any action to effect (i) any Long-Form Registration or Marketed Underwritten Shelf Take-Down requested by a Demand Party or Initiating Shelf Take-Down Holder, as applicable, after the Company has effected three Long-Form Registrations and/or Marketed Underwritten Shelf Take-Downs at the request of such Demand Party or Initiating Shelf Take-Down Holder, as applicable, or (ii) more than one Long-Form Registration or Marketed Underwritten Shelf Take-Down in any twelve month period.
(b) in no event shall the Company be obligated to take any action to effect more than one Short-Form Registration by each Demand Party in any six month period.
(c) in no event shall the Company be required to effect a Demand Registration: (i) if such registration is within one hundred eighty days of the effective date of the most recent Registration in which Registrable Securities could have been included; or (ii) if, (x) in the case of a Long-Form Registration, the Registrable Securities requested to be included in such Registration do not have an anticipated aggregate public offering price of at least $10,000,000 or (y) in the case of a Short-Form Registration, the Registrable Securities requested to be included in such Registration do not have an anticipated aggregate public offering price of at least $5,000,000.
SECTION 2.12. In-Kind Distributions . If any Holder seeks to effectuate an in-kind distribution of all or part of its shares of Common Stock to its direct or indirect stockholders, the Company will reasonably cooperate with and assist such Holder, such stockholders and the Companys transfer agent to facilitate such in-kind distribution in the manner reasonably requested by such Holder (including the delivery of instruction letters by the Company or its counsel to the Companys transfer agent, the delivery of customary legal opinions by counsel to the Company and the delivery of shares of Common Stock without restrictive legends, to the extent no longer applicable).
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ARTICLE III.
MISCELLANEOUS
SECTION 3.01. Term . This Agreement shall terminate when all of the Registrable Securities held by the Holders have been sold in a Registration pursuant to the Securities Act or pursuant to an exemption therefrom. Notwithstanding the foregoing, the provisions of Sections 2.09, 2.10 and 2.11 and all of this Article III shall survive any such termination.
SECTION 3.02. Injunctive Relief . It is hereby agreed and acknowledged that it will be impossible to measure in money the damage that would be suffered if the parties fail to comply with any of the obligations herein imposed on them and that in the event of any such failure, an aggrieved Person will be irreparably damaged and will not have an adequate remedy at law. Any such Person shall, therefore, be entitled (in addition to any other remedy to which it may be entitled in law or in equity) to injunctive relief, including specific performance, to enforce such obligations, and if any action should be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law.
SECTION 3.03. Attorneys Fees . In any action or proceeding brought to enforce any provision of this Agreement or where any provision hereof is validly asserted as a defense, the successful party shall, to the extent permitted by applicable law, be entitled to recover reasonable attorneys fees in addition to any other available remedy.
SECTION 3.04. Notices . All notices and demands provided for hereunder shall be in writing and shall be given by registered or certified mail, return receipt requested, telecopy, electronic mail, air courier guaranteeing overnight delivery or personal delivery to the following addresses:
(a) if to the Company, at:
CURO Group Holdings Corp
3527 North Ridge Road
Wichita, Kansas 67205
Attention: Vin Thomas, Chief Legal Officer
Email: vinthomas@curo.com
with a copy to (which shall not constitute notice):
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, NY 10019
Attention: Neil W. Townsend, Esq.
Cristopher Greer, Esq.
Facsimile: (212) 728-8111
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Email: ntownsend@willkie.com
cgreer@willkie.com
(b) If to the FFL Holders:
c/o Friedman Fleisher & Lowe LLC
One Maritime Plaza, Suite 2200
San Francisco, CA 94111
Attention: Christopher Masto
Fax: (415) 402-2111
with a copy to (which shall not constitute notice):
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, NY 10019
Attention: Neil W. Townsend, Esq.
Cristopher Greer, Esq.
Facsimile: (212) 728-8111
Email: ntownsend@willkie.com
cgreer@willkie.com
(c) If to any other Holder, at such Holders address on the stock transfer books of the Company or to such other address as the Holder or the Company may designate in writing.
All such notices, demands and other communications shall be deemed to have been duly given when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial courier service; five Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is acknowledged, if telecopied or electronically transmitted. Any party may by notice given in accordance with this Section 3.04 designate another address or Person for receipt of notices hereunder.
SECTION 3.05. Amendment . The terms and provisions of this Agreement may only be amended, modified or waived at any time and from time to time by a writing executed by the Company and the Holder.
SECTION 3.06. Successors, Assigns and Transferees .
(a) The rights and obligations of each party hereto may not be assigned, in whole or in part, without the written consent of the other party; provided, that, notwithstanding the foregoing, the rights and obligations of the Holders set forth herein may be assigned, in whole or in part, by any Holder to any Affiliate of any Holder that otherwise acquires shares of Common Stock or Common Stock Equivalents (each Person to whom the rights and obligations are assigned in compliance with this Section 3.06 is a Permitted Assignee and all such Persons, collectively, are Permitted Assignees ).
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(b) If the Company is a party to any merger, amalgamation, consolidation, exchange or other similar transaction (a Conversion Event ) pursuant to which Registrable Securities are converted into or exchanged for securities or the right to receive shares of Common Stock of any other Person ( Conversion Securities ), the issuer of such Conversion Securities shall assume (in a writing delivered to the Company and the Holders), with respect to such Conversion Securities, all rights and obligations of the Company hereunder (which assumption shall not relieve the Company of its obligations hereunder to the extent that any Registrable Securities issued by the Company continue to be outstanding and held by the Holders following a Conversion Event) and this Agreement shall apply with respect to such Conversion Securities, mutatis mutandis . The Company will not effect any Conversion Event unless the issuer of the Conversion Securities complies with this Section 3.06(b).
SECTION 3.07. Binding Effect . Except as otherwise provided in this Agreement, the terms and provisions of this Agreement shall be binding on and inure to the benefit of each of the parties hereto and their respective successors.
SECTION 3.08. Third Party Beneficiaries . Nothing in this Agreement, express or implied, is intended or shall be construed to confer upon any Person not a party hereto (other than those Persons entitled to indemnity or contribution under Section 2.09, each of whom shall be a third party beneficiary thereof) any right, remedy or claim under or by virtue of this Agreement.
SECTION 3.09. Governing Law; Jurisdiction . THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF. ANY ACTION OR PROCEEDING AGAINST THE PARTIES RELATING IN ANY WAY TO THIS AGREEMENT MAY BE BROUGHT AND ENFORCED EXCLUSIVELY IN THE COURTS OF THE STATE OF DELAWARE OR (TO THE EXTENT SUBJECT MATTER JURISDICTION EXISTS THEREFOR) THE U.S. DISTRICT COURT FOR THE DISTRICT OF DELAWARE, AND THE PARTIES IRREVOCABLY SUBMIT TO THE JURISDICTION OF BOTH SUCH COURTS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING.
SECTION 3.10. Waiver of Jury Trial . EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY DISPUTE OR CONTROVERSY THAT MAY ARISE, WHETHER IN WHOLE OR IN PART, UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.
SECTION 3.11. Severability . If any provision of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
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SECTION 3.12. Counterparts . This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same agreement.
SECTION 3.13. Headings . The heading references herein and in the table of contents hereto are for convenience purposes only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investor Rights Agreement as of the date first written above.
CURO GROUP HOLDINGS CORP. | ||
By: |
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Name: |
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Title: |
[Signature Page to Amended and Restated Investors Rights Agreement]
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investor Rights Agreement as of the date first written above.
MCKNIGHT HOLDINGS, LLC | ||
By: |
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Name: | ||
Title: | ||
FAULKNER, CHADWICK 2014 GRAT | ||
By: |
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Name: | ||
Title: | ||
RIPPEL HOLDINGS, LLC | ||
By: |
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Name: | ||
Title: | ||
J.P. GENOVA FAMILY TRUST | ||
By: | Its Trustee | |
By: |
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Name: | ||
Title: |
[Signature Page to Amended and Restated Investors Rights Agreement]
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investor Rights Agreement as of the date first written above.
James Ackerman |
Matthew Miller |
Nick Adams |
Chadwick Faulkner |
[Signature Page to Amended and Restated Investors Rights Agreement]
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investor Rights Agreement as of the date first written above.
FRIEDMAN, FLEISCHER & LOWE | ||
CAPITAL PARTNERS II, LP | ||
By: | Friedman, Fleischer & Lowe II, LP, | |
its general partner | ||
By: | Friedman, Fleischer & Lowe II, LLC, | |
its general partner | ||
By: |
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Name: | ||
Title: | ||
FFL PARALLEL FUND II, LP | ||
By: | Friedman, Fleischer & Lowe II, LP, | |
its general partner | ||
By: | Friedman, Fleischer & Lowe II, LLC, | |
its general partner | ||
By: |
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Name: | ||
Title: | ||
FFL EXECUTIVE PARTNERS II, LP | ||
By: | Friedman, Fleischer & Lowe II, LP, | |
its general partner | ||
By: | Friedman, Fleischer & Lowe II, LLC, | |
its general partner | ||
By: |
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Name: | ||
Title: |
[Signature Page to Amended and Restated Investors Rights Agreement]
IN WITNESS WHEREOF, the parties have executed this Amended and Restated Investor Rights Agreement as of the date first written above.
EXEMPT FAMILY TRUST C/U CHADWICK H. FAULKNER 2017 DYNASTY |
||
By: |
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Name: | ||
Title: | ||
EXEMPT FAMILY TRUST C/U/ LEAH M. FAULKNER 2017 DYNAST TRUST |
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By: |
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Name: | ||
Title: |
[Signature Page to Amended and Restated Investors Rights Agreement]
Exhibit 5.1
[Willkie Farr & Gallagher LLP Letterhead]
November 28, 2017
CURO Group Holdings Corp.
3527 North Ridge Road
Wichita, Kansas 67205
Ladies and Gentlemen:
We have acted as counsel to CURO Group Holdings Corp., a corporation organized under the laws of the State of Delaware (the Company ), in connection with the preparation of a Registration Statement on Form S-1 (Registration No. 333-221081) (as amended, the Registration Statement ) under the Securities Act of 1933, as amended (the Act ), relating to the offer and sale (the Offering ) by the Company of up to 7,666,667 shares of common stock of the Company, par value $0.001 per share ( Common Stock ), including up to 1,000,000 shares of Common Stock subject to the exercise of the underwriters over-allotment. All shares of Common Stock registered under the Registration Statement are herein called the Shares.
We have examined copies of the form of Amended and Restated Certificate of Incorporation of the Company and the form of Amended and Restated Bylaws of the Company, each to become effective prior to the closing of the Offering, the Registration Statement, the form of the share certificate, all relevant resolutions adopted by the Companys Board of Directors and such other records and documents that we have deemed necessary for the purpose of this opinion. We have also examined and are familiar with originals or copies, certified or otherwise identified to our satisfaction, of such other documents, corporate records, papers, statutes and authorities as we have deemed necessary to form a basis for the opinions hereinafter expressed.
As to questions of fact material to the opinions expressed below, we have relied without independent check or verification upon certificates and comparable documents of public officials and officers and representatives of the Company and statements of fact contained in the documents we have examined. In our examination and in rendering our opinions contained herein, we have assumed (i) the genuineness of all signatures of all parties; (ii) the authenticity of all corporate records, documents, agreements, instruments and certificates submitted to us as originals and the conformity to original documents and agreements of all documents and agreements submitted to us as conformed, certified or photostatic copies; and (iii) the capacity of natural persons.
Based on the foregoing, and subject to the qualifications, assumptions and limitations stated herein, we are of the opinion that the Shares to be issued and sold by the Company have been duly authorized and, when issued, sold and paid for in accordance with the terms set forth in the prospectus contained in the Registration Statement and the form of underwriting agreement most recently filed as an exhibit to the Registration Statement, will be validly issued, fully paid and non-assessable.
This opinion is limited to the laws of the State of New York, the General Corporation Law of the State of Delaware and the federal laws of the United States of America and to the specific legal matters expressly addressed herein, and no opinion is expressed or implied with respect to the laws of any other jurisdiction or any legal matter not expressly addressed herein. The opinions expressed herein are given as of the date hereof, and we assume no obligation to update or supplement such opinions after the date hereof. Insofar as provisions of any of the documents referenced in this opinion letter for indemnification or contribution, the enforcement thereof may be limited by public policy considerations.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us under the heading Legal Matters in the prospectus included as part of the Registration Statement. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act.
Very truly yours,
/s/ Willkie Farr & Gallagher LLP
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Exhibit 10.5
CURO G ROUP H OLDINGS C ORP .
2017 I NCENTIVE P LAN
1. Purpose.
The purpose of the Plan is to assist the Company in attracting, retaining, motivating, and rewarding certain employees, officers, directors, and consultants of the Company and its Affiliates and promoting the creation of long-term value for stockholders of the Company by closely aligning the interests of such individuals with those of such stockholders. The Plan authorizes the award of Stock-based and cash-based incentives to Eligible Persons to encourage such Eligible Persons to expend maximum effort in the creation of stockholder value.
2. Definitions.
For purposes of the Plan, the following terms shall be defined as set forth below:
(a) Affiliate means, with respect to a Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person.
(b) Award means any Option, award of Restricted Stock, Restricted Stock Unit, Stock Appreciation Right, Performance Award, or other Stock-based award granted under the Plan.
(c) Award Agreement means an Option Agreement, a Restricted Stock Agreement, an RSU Agreement, a SAR Agreement, a Performance Award Agreement, or an agreement governing the grant of any other Stock-based Award granted under the Plan.
(d) Board means the Board of Directors of the Company.
(e) Cause means, with respect to a Participant and in the absence of an Award Agreement or Participant Agreement otherwise defining Cause, (1) the Participants plea of nolo contendere to, conviction of or indictment for, any crime (whether or not involving the Company or its Affiliates) (i) constituting a felony or (ii) that has, or could reasonably be expected to result in, an adverse impact on the performance of the Participants duties to the Service Recipient, or otherwise has, or could reasonably be expected to result in, an adverse impact on the business or reputation of the Company or its Affiliates, (2) conduct of the Participant, in connection with his or her employment or service, that has resulted, or could reasonably be expected to result, in material injury to the business or reputation of the Company or its Affiliates, (3) any material violation of the policies of the Service Recipient, including, but not limited to, those relating to sexual harassment or the disclosure or misuse of confidential information, or those set forth in the manuals or statements of policy of the Service Recipient; (4) the Participants act(s) of gross negligence or willful misconduct in the course of his or her employment or service with the Service Recipient; (5) misappropriation by the Participant of any assets or business opportunities of the Company or its Affiliates; (6) embezzlement or fraud committed by the Participant, at the Participants direction, or with the Participants prior actual knowledge; or (7) willful neglect in the performance of the Participants duties for the Service Recipient or willful or repeated failure or refusal to perform such duties. If, subsequent to the
Termination of a Participant for any reason other than by the Service Recipient for Cause, it is discovered that the Participants employment or service could have been terminated for Cause, such Participants employment or service shall, at the discretion of the Committee, be deemed to have been terminated by the Service Recipient for Cause for all purposes under the Plan, and the Participant shall be required to repay to the Company all amounts received by him or her in respect of any Award following such Termination that would have been forfeited under the Plan had such Termination been by the Service Recipient for Cause. In the event that there is an Award Agreement or Participant Agreement defining Cause, Cause shall have the meaning provided in such agreement, and a Termination by the Service Recipient for Cause hereunder shall not be deemed to have occurred unless all applicable notice and cure periods in such Award Agreement or Participant Agreement are complied with.
(f) Change in Control means:
(1) a change in ownership or control of the Company effected through a transaction or series of transactions (other than an offering of Stock to the general public through a registration statement filed with the U.S. Securities and Exchange Commission or similar non-U.S. regulatory agency or pursuant to a Non-Control Transaction) whereby any person (as defined in Section 3(a)(9) of the Exchange Act) or any two or more persons deemed to be one person (as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than the Company or any of its Affiliates, an employee benefit plan sponsored or maintained by the Company or any of its Affiliates (or its related trust), or any underwriter temporarily holding securities pursuant to an offering of such securities, directly or indirectly acquire beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of the Companys securities eligible to vote in the election of the Board (the Company Voting Securities );
(2) the date, within any consecutive twenty-four (24) month period commencing on or after the Effective Date, upon which individuals who constitute the Board as of the Effective Date (the Incumbent Board ) cease for any reason to constitute at least a majority of the Board; provided, however , that any individual who becomes a director subsequent to the Effective Date whose election or nomination for election by the Companys stockholders was approved by a vote of at least a majority of the directors then constituting the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such individual is named as a nominee for director, without objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest (including, but not limited to, a consent solicitation) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board; or
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(3) the consummation of a merger, consolidation, share exchange, or similar form of corporate transaction involving the Company or any of its Affiliates that requires the approval of the Companys stockholders (whether for such transaction, the issuance of securities in the transaction or otherwise) (a Reorganization ), unless immediately following such Reorganization (i) more than fifty percent (50%) of the total voting power of (A) the corporation resulting from such Reorganization (the Surviving Company ) or (B) if applicable, the ultimate parent corporation that has, directly or indirectly, beneficial ownership of one hundred percent (100%) of the voting securities of the Surviving Company (the Parent Company ), is represented by Company Voting Securities that were outstanding immediately prior to such Reorganization (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Reorganization), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among holders thereof immediately prior to such Reorganization, (ii) no person, other than an employee benefit plan sponsored or maintained by the Surviving Company or the Parent Company (or its related trust), is or becomes the beneficial owner, directly or indirectly, of fifty percent (50%) or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Company, or if there is no Parent Company, the Surviving Company, and (iii) at least a majority of the members of the board of directors of the Parent Company, or if there is no Parent Company, the Surviving Company, following the consummation of such Reorganization are members of the Incumbent Board at the time of the Boards approval of the execution of the initial agreement providing for such Reorganization (any Reorganization which satisfies all of the criteria specified in clauses (i), (ii), and (iii) above shall be a Non-Control Transaction ); or
(4) the sale or disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company to any person (as defined in Section 3(a)(9) of the Exchange Act) or to any two or more persons deemed to be one person (as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than the Companys Affiliates.
Notwithstanding the foregoing, (x) a Change in Control shall not be deemed to occur solely because any person acquires beneficial ownership of fifty percent (50%) or more of the Company Voting Securities as a result of an acquisition of Company Voting Securities by the Company that reduces the number of Company Voting Securities outstanding; provided that if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control shall then be deemed to occur, and (y) with respect to the payment of any amount that constitutes a deferral of compensation subject to Section 409A of the Code payable upon a Change in Control, a Change in Control shall not be deemed to have occurred, unless the Change in Control constitutes a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company under Section 409A(a)(2)(A)(v) of the Code.
(g) Code means the U.S. Internal Revenue Code of 1986, as amended from time to time, including the rules and regulations thereunder and any successor provisions, rules and regulations thereto.
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(h) Committee means the Board or such other committee consisting of two or more individuals appointed by the Board to administer the Plan and each other individual or committee of individuals designated to exercise authority under the Plan.
(i) Company means CURO Group Holdings Corp., a Delaware corporation.
(j) Corporate Event has the meaning set forth in Section 11(b) hereof.
(k) Data has the meaning set forth in Section 21(f) hereof.
(l) Disability means, in the absence of an Award Agreement or Participant Agreement otherwise defining Disability, the permanent and total disability of such Participant within the meaning of Section 22(e)(3) of the Code. In the event that there is an Award Agreement or Participant Agreement defining Disability, Disability shall have the meaning provided in such Award Agreement or Participant Agreement.
(m) Disqualifying Disposition means any disposition (including any sale) of Stock acquired upon the exercise of an Incentive Stock Option made within the period that ends either (1) two years after the date on which the Participant was granted the Incentive Stock Option or (2) one year after the date upon which the Participant acquired the Stock.
(n) Effective Date means November 8, 2017, which is the date on which the Plan was approved by the Board.
(o) Eligible Person means (1) each employee and officer of the Company or any of its Affiliates, (2) each non-employee director of the Company or any of its Affiliates; (3) each other natural Person who provides substantial services to the Company or any of its Affiliates as a consultant or advisor (or a wholly owned alter ego entity of the natural Person providing such services of which such Person is an employee, stockholder or partner) and who is designated as eligible by the Committee, and (4) each natural Person who has been offered employment by the Company or any of its Affiliates; provided that such prospective employee may not receive any payment or exercise any right relating to an Award until such Person has commenced employment or service with the Company or its Affiliates; provided further, however , that (i) with respect to any Award that is intended to qualify as a stock right that does not provide for a deferral of compensation within the meaning of Section 409A of the Code, the term Affiliate as used in this Section 2(o) shall include only those corporations or other entities in the unbroken chain of corporations or other entities beginning with the Company where each of the corporations or other entities in the unbroken chain other than the last corporation or other entity owns stock possessing at least fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations or other entities in the chain, and (ii) with respect to any Award that is intended to be an Incentive Stock Option, the term Affiliate as used in this Section 2(o) shall include only those entities that qualify as a subsidiary corporation with respect to the Company within the meaning of Section 424(f) of the Code. An employee on an approved leave of absence may be considered as still in the employ of the Company or any of its Affiliates for purposes of eligibility for participation in the Plan.
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(p) Exchange Act means the U.S. Securities Exchange Act of 1934, as amended from time to time, including the rules and regulations thereunder and any successor provisions, rules and regulations thereto.
(q) Expiration Date means, with respect to an Option or Stock Appreciation Right, the date on which the term of such Option or Stock Appreciation Right expires, as determined under Section 5(b) or 8(b) hereof, as applicable.
(r) Fair Market Value means, as of any date when the Stock is listed on one or more national securities exchanges, the closing price reported on the principal national securities exchange on which such Stock is listed and traded on the date of determination or, if the closing price is not reported on such date of determination, the closing price reported on the most recent date prior to the date of determination. If the Stock is not listed on a national securities exchange, Fair Market Value shall mean the amount determined by the Board in good faith, and in a manner consistent with Section 409A of the Code, to be the fair market value per share of Stock.
(s) GAAP has the meaning set forth in Section 9(f)(3) hereof.
(t) Incentive Stock Option means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.
(u) IPO means an initial underwritten public offering of the Companys equity securities pursuant to an effective Form S-1 or Form F-1 registration statement filed under the Securities Act or similar law or regulation governing the offering and sale of securities in a jurisdiction other than the United States.
(v) IPO Date means the effective date of the registration statement for the IPO.
(w) Nonqualified Stock Option means an Option not intended to be an Incentive Stock Option.
(x) Option means a conditional right, granted to a Participant under Section 5 hereof, to purchase Stock at a specified price during a specified time period.
(y) Option Agreement means a written agreement between the Company and a Participant evidencing the terms and conditions of an individual Option Award.
(z) Participant means an Eligible Person who has been granted an Award under the Plan or, if applicable, such other Person who holds an Award.
(aa) Participant Agreement means an employment or other services agreement between a Participant and the Service Recipient that describes the terms and conditions of such Participants employment or service with the Service Recipient and is effective as of the date of determination.
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(bb) Performance Award means an Award granted to a Participant under Section 9 hereof, which Award is subject to the achievement of Performance Objectives during a Performance Period. A Performance Award shall be designated as a Performance Share, a Performance Unit or a Performance Cash Award at the time of grant.
(cc) Performance Award Agreement means a written agreement between the Company and a Participant evidencing the terms and conditions of an individual Performance Award.
(dd) Performance Cash Award means a Performance Award which is a cash award (for a dollar value not in excess of that set forth in Section 4(c)(1) hereof), the payment of which is subject to the achievement of Performance Objectives during a Performance Period. A Performance Cash Award may also require the completion of a specified period of employment or service.
(ee) Performance Objectives means the performance objectives established pursuant to the Plan for Participants who have received Performance Awards.
(ff) Performance Period means the period of time designated by the Committee over which the achievement of one or more Performance Objectives will be measured for the purpose of determining a Participants right to and the payment of an Award. Performance Periods may be of varying and overlapping duration, at the sole discretion of the Committee.
(gg) Performance Share means a Performance Award denominated in shares of Stock which may be earned in whole or in part based upon the achievement of Performance Objectives during a Performance Period.
(hh) Performance Unit means a Performance Award denominated as a notional unit representing the right to receive one share of Stock (or the cash value of one share of Stock, if so determined by the Committee) which may be earned in whole or in part based upon the achievement of Performance Objectives during a Performance Period.
(ii) Person means any individual, corporation, partnership, firm, joint venture, association, joint-stock company, trust, unincorporated organization, or other entity.
(jj) Plan means this CURO Group Holdings Corp. 2017 Incentive Plan, as amended from time to time.
(kk) Qualified Member means a member of the Committee who is a Non-Employee Director within the meaning of Rule 16b-3 under the Exchange Act, an independent director as defined under, as applicable, the NASDAQ Listing Rules, the NYSE Listed Company Manual or other applicable stock exchange rules and, following the Transition Period, an outside director within the meaning of Treasury Regulation Section 1.162-27(c) under Section 162(m) of the Code.
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(ll) Qualified Performance-Based Award means an Option, Stock Appreciation Right, or Performance Award that is intended to qualify as qualified performance-based compensation within the meaning of Section 162(m) of the Code.
(mm) Qualifying Committee has the meaning set forth in Section 3(b) hereof.
(nn) Restricted Stock means Stock granted to a Participant under Section 6 hereof that is subject to certain restrictions and to a risk of forfeiture.
(oo) Restricted Stock Agreement means a written agreement between the Company and a Participant evidencing the terms and conditions of an individual Restricted Stock Award.
(pp) Restricted Stock Unit means a notional unit representing the right to receive one share of Stock (or the cash value of one share of Stock, if so determined by the Committee) on a specified settlement date.
(qq) RSU Agreement means a written agreement between the Company and a Participant evidencing the terms and conditions of an individual Award of Restricted Stock Units.
(rr) SAR Agreement means a written agreement between the Company and a Participant evidencing the terms and conditions of an individual Award of Stock Appreciation Rights.
(ss) Securities Act means the U.S. Securities Act of 1933, as amended from time to time, including the rules and regulations thereunder and any successor provisions, rules and regulations thereto.
(tt) Service Recipient means, with respect to a Participant holding an Award, either the Company or an Affiliate of the Company by which the original recipient of such Award is, or following a Termination was most recently, principally employed or to which such original recipient provides, or following a Termination was most recently providing, services, as applicable.
(uu) Stock means the common stock, par value $0.001 per share, of the Company, and such other securities as may be substituted for such stock pursuant to Section 11 hereof.
(vv) Stock Appreciation Right means a conditional right to receive an amount equal to the value of the appreciation in the Stock over a specified period. Except in the event of extraordinary circumstances, as determined in the sole discretion of the Committee, or pursuant to Section 11(b) hereof, Stock Appreciation Rights shall be settled in Stock.
(ww) Substitute Award has the meaning set forth in Section 4(a) hereof.
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(xx) Termination means the termination of a Participants employment or service, as applicable, with the Service Recipient; provided, however , that, if so determined by the Committee at the time of any change in status in relation to the Service Recipient (e.g., a Participant ceases to be an employee and begins providing services as a consultant, or vice versa), such change in status will not be deemed a Termination hereunder. Unless otherwise determined by the Committee, in the event that the Service Recipient ceases to be an Affiliate of the Company (by reason of sale, divestiture, spin-off, or other similar transaction), unless a Participants employment or service is transferred to another entity that would constitute the Service Recipient immediately following such transaction, such Participant shall be deemed to have suffered a Termination hereunder as of the date of the consummation of such transaction. Notwithstanding anything herein to the contrary, a Participants change in status in relation to the Service Recipient (for example, a change from employee to consultant) shall not be deemed a Termination hereunder with respect to any Awards constituting nonqualified deferred compensation subject to Section 409A of the Code that are payable upon a Termination unless such change in status constitutes a separation from service within the meaning of Section 409A of the Code. Any payments in respect of an Award constituting nonqualified deferred compensation subject to Section 409A of the Code that are payable upon a Termination shall be delayed for such period as may be necessary to meet the requirements of Section 409A(a)(2)(B)(i) of the Code. On the first business day following the expiration of such period, the Participant shall be paid, in a single lump sum without interest, an amount equal to the aggregate amount of all payments delayed pursuant to the preceding sentence, and any remaining payments not so delayed shall continue to be paid pursuant to the payment schedule applicable to such Award.
(yy) Transition Period means the reliance period under Treasury Regulation Section 1.162-27(f)(2) under Section 162(m) of the Code which ends on the earliest to occur of the following: (i) the date of the first annual meeting of stockholders of the Company at which directors are to be elected that occurs after December 31, 2020 or, if the IPO Date does not occur in 2017, the date of the first annual meeting of stockholders at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which the IPO Date occurs; (ii) the date the Plan is materially amended for purposes of Treasury Regulation Section 1.162-27(h)(1)(iii); or (iii) the date all shares of Stock available for issuance under the Plan have been allocated.
3. Administration.
(a) Authority of the Committee . Except as otherwise provided below, the Plan shall be administered by the Committee. The Committee shall have full and final authority, in each case subject to and consistent with the provisions of the Plan, to (1) select Eligible Persons to become Participants, (2) grant Awards, (3) determine the type, number of shares of Stock subject to, other terms and conditions of, and all other matters relating to, Awards, (4) prescribe Award Agreements (which need not be identical for each Participant) and rules and regulations for the administration of the Plan, (5) construe and interpret the Plan and Award Agreements and correct defects, supply omissions, and reconcile inconsistencies therein, (6) suspend the right to exercise Awards during any period that the Committee deems appropriate to comply with applicable securities laws, and thereafter extend the exercise period of an Award by an equivalent period of time or such shorter period required by, or necessary to comply with, applicable law, and (7) make all other decisions and determinations as the Committee may deem necessary or advisable for the administration of the Plan. Any action of
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the Committee shall be final, conclusive, and binding on all Persons, including, without limitation, the Company, its stockholders and Affiliates, Eligible Persons, Participants, and beneficiaries of Participants. Notwithstanding anything in the Plan to the contrary, the Committee shall have the ability to accelerate the vesting of any outstanding Award at any time and for any reason, including upon a Corporate Event, subject to Section 11(d), or in the event of a Participants Termination by the Service Recipient other than for Cause, or due to the Participants death, Disability or retirement (as such term may be defined in an applicable Award Agreement or Participant Agreement, or, if no such definition exists, in accordance with the Companys then-current employment policies and guidelines). For the avoidance of doubt, the Board shall have the authority to take all actions under the Plan that the Committee is permitted to take.
(b) Manner of Exercise of Committee Authority . At any time that a member of the Committee is not a Qualified Member, any action of the Committee relating to a Qualified Performance-Based Award or relating to an Award granted or to be granted to a Participant who is then subject to Section 16 of the Exchange Act in respect of the Company, must be taken by the remaining members of the Committee or a subcommittee, designated by the Committee or the Board, composed solely of two or more Qualified Members (a Qualifying Committee ). Any action authorized by such a Qualifying Committee shall be deemed the action of the Committee for purposes of the Plan. The express grant of any specific power to a Qualifying Committee, and the taking of any action by such a Qualifying Committee, shall not be construed as limiting any power or authority of the Committee.
(c) Delegation . To the extent permitted by applicable law, the Committee may delegate to officers or employees of the Company or any of its Affiliates, or committees thereof, the authority, subject to such terms as the Committee shall determine, to perform such functions under the Plan, including, but not limited to, administrative functions, as the Committee may determine appropriate. The Committee may appoint agents to assist it in administering the Plan. Any actions taken by an officer or employee delegated authority pursuant to this Section 3(c) within the scope of such delegation shall, for all purposes under the Plan, be deemed to be an action taken by the Committee. Notwithstanding the foregoing or any other provision of the Plan to the contrary, any Award granted under the Plan to any Eligible Person who is not an employee of the Company or any of its Affiliates (including any non-employee director of the Company or any Affiliate) or to any Eligible Person who is subject to Section 16 of the Exchange Act or is to be granted a Qualified Performance-Based Award must be expressly approved by the Committee or Qualifying Committee in accordance with subsection (b) above.
(d) Sections 409A and 457A . The Committee shall take into account compliance with Sections 409A and 457A of the Code in connection with any grant of an Award under the Plan, to the extent applicable. While the Awards granted hereunder are intended to be structured in a manner to avoid the imposition of any penalty taxes under Sections 409A and 457A of the Code, in no event whatsoever shall the Company or any of its Affiliates be liable for any additional tax, interest, or penalties that may be imposed on a Participant as a result of Section 409A or Section 457A of the Code or any damages for failing to comply with Section 409A or Section 457A of the Code or any similar state or local laws (other than for withholding obligations or other obligations applicable to employers, if any, under Section 409A or Section 457A of the Code).
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(e) Section 162(m) . Notwithstanding anything herein to the contrary, with regard to any provision of the Plan or any Award Agreement that is intended to comply with Section 162(m) of the Code following the Transition Period, any action or determination by the Committee shall be permitted only to the extent such action or determination would be permitted under Section 162(m) of the Code. The Plan has been adopted by the Board prior to the IPO Date, is intended to rely on the Transition Period and, following the Transition Period, with respect to Awards intended to be performance-based within the meaning of Section 162(m) of the Code, to comply with the applicable provisions of Section 162(m) of the Code, and the Plan shall be limited, construed and interpreted in a manner so as to comply therewith.
4. Shares Available Under the Plan; Other Limitations.
(a) Number of Shares Available for Delivery . Subject to adjustment as provided in Section 11 hereof, the total number of shares of Stock reserved and available for delivery in connection with Awards under the Plan shall equal to 5,000,000. Shares of Stock delivered under the Plan shall consist of authorized and unissued shares or previously issued shares of Stock reacquired by the Company on the open market or by private purchase. Notwithstanding the foregoing, (i) except as may be required by reason of Section 422 of the Code, the number of shares of Stock available for issuance hereunder shall not be reduced by shares issued pursuant to Awards issued or assumed in connection with a merger or acquisition as contemplated by, as applicable, NYSE Listed Company Manual Section 303A.08, NASDAQ Listing Rule 5635(c) and IM-5635-1, AMEX Company Guide Section 711, or other applicable stock exchange rules, and their respective successor rules and listing exchange promulgations (each such Award, a Substitute Award ); and (ii) shares of Stock shall not be deemed to have been issued pursuant to the Plan with respect to any portion of an Award that is settled in cash.
(b) Share Counting Rules . The Committee may adopt reasonable counting procedures to ensure appropriate counting, avoid double-counting (as, for example, in the case of tandem awards or Substitute Awards) and make adjustments if the number of shares of Stock actually delivered differs from the number of shares previously counted in connection with an Award. Other than with respect to a Substitute Award, to the extent that an Award expires or is canceled, forfeited, settled in cash, or otherwise terminated without delivery to the Participant of the full number of shares of Stock to which the Award related, the undelivered shares of Stock will again be available for grant. Shares of Stock withheld in payment of the exercise price or taxes relating to an Award and shares of Stock equal to the number surrendered in payment of any exercise price or taxes relating to an Award shall not be deemed to constitute shares delivered to the Participant and shall be deemed to again be available for delivery under the Plan.
(c) 162(m) Limitation; Incentive Stock Options .
(1) Notwithstanding anything herein to the contrary, at all times after the end of the Transition Period when the Company is subject to the provisions of Section 162(m) of the Code, (i) the maximum number of shares of Stock with respect to which Options, Stock Appreciation Rights, and Performance Awards, in each case and to
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the extent the Award is intended to be a Qualified Performance-Based Award, may be granted to any individual in any one calendar year shall not exceed 680,000 (subject to adjustment as provided in Section 11 hereof); provided , however , that the foregoing limitation shall not apply to (A) Options or Stock Appreciation Rights and (B) Restricted Stock or other Stock-based awards that constitute restricted property under Section 83 of the Code to the extent granted during the Transition Period, even if such Restricted Stock or other Stock-based awards that constitute restricted property under Section 83 of the Code vest or are settled after the Transition Period; and (ii) the maximum value of the aggregate payment that any individual may receive with respect to a Qualified Performance-Based Award that is valued in dollars in respect of any annual Performance Period is $10,000,000, and for any Performance Period in excess of one (1) year, such amount multiplied by a fraction, the numerator of which is the number of months in the Performance Period and the denominator of which is twelve (12). No Qualified Performance-Based Awards (other than an Option or Stock Appreciation Right) may be granted hereunder based on the Performance Objectives following the first (1 st ) meeting of the Companys stockholders that occurs in the fifth (5 th ) year following the year in which the Companys stockholders most recently approved the Performance Objectives for purposes of satisfying the qualified performance-based compensation exemption under Section 162(m)(4)(C) of the Code unless the Performance Objectives are reapproved (or other designated performance goals are approved) by the stockholders on or before such stockholder meeting.
(2) No more than 5,000,000 shares of Stock (subject to adjustment as provided in Section 11 hereof) reserved for issuance hereunder may be issued or transferred upon exercise or settlement of Incentive Stock Options.
(d) Shares Available Under Acquired Plans . To the extent permitted by NYSE Listed Company Manual Section 303A.08, NASDAQ Listing Rule 5635(c) or other applicable stock exchange rules, subject to applicable law, in the event that a company acquired by the Company or with which the Company combines has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio of formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the number of shares of Stock reserved and available for delivery in connection with Awards under the Plan; provided that Awards using such available shares shall not be made after the date awards could have been made under the terms of such pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not employed by the Company or any subsidiary of the Company immediately prior to such acquisition or combination.
(e) Minimum Vesting Period . No Award (other than any Performance Cash Award) may vest over a period that is less than one (1) year from the date of grant; provided , however , that the foregoing minimum vesting period shall not apply: (i) to a Substitute Award that does not reduce the vesting period of the award being replaced or assumed; or (ii) to Awards involving an aggregate number of shares of Stock not in excess of five percent (5%) of the aggregate number of shares of Stock that may be delivered in connection with Awards (as set forth in Section 4 hereof).
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(f) Limitation on Awards to Non-Employee Directors . Notwithstanding anything herein to the contrary, the maximum value of any Awards granted to a non-employee director of the Company in any one calendar year, shall not exceed $450,000 (calculating the value of any such Awards based on the grant date fair value of such Awards for financial reporting purposes and excluding, for this purpose, the value of any dividend equivalent payments paid pursuant to any Award granted in a previous year).
5. Options.
(a) General . Certain Options granted under the Plan may be intended to be Incentive Stock Options; however, no Incentive Stock Options may be granted hereunder following the tenth (10 th ) anniversary of the earlier of (i) the date the Plan is adopted by the Board and (ii) the date the stockholders of the Company approve the Plan. Options may be granted to Eligible Persons in such form and having such terms and conditions as the Committee shall deem appropriate; provided, however , that Incentive Stock Options may be granted only to Eligible Persons who are employees of the Company or an Affiliate (as such definition is limited pursuant to Section 2(o) hereof) of the Company. The provisions of separate Options shall be set forth in separate Option Agreements, which agreements need not be identical. No dividends or dividend equivalents shall be paid on Options.
(b) Term . The term of each Option shall be set by the Committee at the time of grant; provided , however , that no Option granted hereunder shall be exercisable after, and each Option shall expire, ten (10) years from the date it was granted.
(c) Exercise Price . The exercise price per share of Stock for each Option shall be set by the Committee at the time of grant and shall not be less than the Fair Market Value on the date of grant, subject to Section 5(g) hereof in the case of any Incentive Stock Option. Notwithstanding the foregoing, in the case of an Option that is a Substitute Award, the exercise price per share of Stock for such Option may be less than the Fair Market Value on the date of grant; provided , that such exercise price is determined in a manner consistent with the provisions of Section 409A of the Code and, if applicable, Section 424(a) of the Code.
(d) Payment for Stock . Payment for shares of Stock acquired pursuant to an Option granted hereunder shall be made in full upon exercise of the Option in a manner approved by the Committee, which may include any of the following payment methods: (1) in immediately available funds in U.S. dollars, or by certified or bank cashiers check, (2) by delivery of shares of Stock having a value equal to the exercise price, (3) by a broker-assisted cashless exercise in accordance with procedures approved by the Committee, whereby payment of the Option exercise price or tax withholding obligations may be satisfied, in whole or in part, with shares of Stock subject to the Option by delivery of an irrevocable direction to a securities broker (on a form prescribed by the Committee) to sell shares of Stock and to deliver all or part of the sale proceeds to the Company in payment of the aggregate exercise price and, if applicable, the amount necessary to satisfy the Companys withholding obligations, or (4) by any other means approved by the Committee (including, by delivery of a notice of net exercise to
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the Company, pursuant to which the Participant shall receive the number of shares of Stock underlying the Option so exercised reduced by the number of shares of Stock equal to the aggregate exercise price of the Option divided by the Fair Market Value on the date of exercise). Notwithstanding anything herein to the contrary, if the Committee determines that any form of payment available hereunder would be in violation of Section 402 of the Sarbanes-Oxley Act of 2002, such form of payment shall not be available.
(e) Vesting . Options shall vest and become exercisable in such manner, on such date or dates, or upon the achievement of performance or other conditions, in each case as may be determined by the Committee and set forth in an Option Agreement; provided , however , that, subject to Section 4(e) hereof, notwithstanding any such vesting dates, the Committee may in its sole discretion accelerate the vesting of any Option at any time and for any reason. Unless otherwise specifically determined by the Committee, the vesting of an Option shall occur only while the Participant is employed by or rendering services to the Service Recipient, and all vesting shall cease upon a Participants Termination for any reason. If an Option is exercisable in installments, such installments or portions thereof that become exercisable shall remain exercisable until the Option expires, is canceled or otherwise terminates.
(f) Termination of Employment or Service . Except as provided by the Committee in an Option Agreement, Participant Agreement or otherwise:
(1) In the event of a Participants Termination prior to the applicable Expiration Date for any reason other than (i) by the Service Recipient for Cause, or (ii) by reason of the Participants death or Disability, (A) all vesting with respect to such Participants Options outstanding shall cease, (B) all of such Participants unvested Options outstanding shall terminate and be forfeited for no consideration as of the date of such Termination, and (C) all of such Participants vested Options outstanding shall terminate and be forfeited for no consideration on the earlier of (x) the applicable Expiration Date and (y) the date that is ninety (90) days after the date of such Termination.
(2) In the event of a Participants Termination prior to the applicable Expiration Date by reason of such Participants death or Disability, (i) all vesting with respect to such Participants Options outstanding shall cease, (ii) all of such Participants unvested Options outstanding shall terminate and be forfeited for no consideration as of the date of such Termination, and (iii) all of such Participants vested Options outstanding shall terminate and be forfeited for no consideration on the earlier of (x) the applicable Expiration Date and (y) the date that is twelve (12) months after the date of such Termination. In the event of a Participants death, such Participants Options shall remain exercisable by the Person or Persons to whom such Participants rights under the Options pass by will or by the applicable laws of descent and distribution until the applicable Expiration Date, but only to the extent that the Options were vested at the time of such Termination.
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(3) In the event of a Participants Termination prior to the applicable Expiration Date by the Service Recipient for Cause, all of such Participants Options outstanding (whether or not vested) shall immediately terminate and be forfeited for no consideration as of the date of such Termination.
(g) Special Provisions Applicable to Incentive Stock Options .
(1) No Incentive Stock Option may be granted to any Eligible Person who, at the time the Option is granted, owns directly, or indirectly within the meaning of Section 424(d) of the Code, stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any parent or subsidiary thereof, unless such Incentive Stock Option (i) has an exercise price of at least one hundred ten percent (110%) of the Fair Market Value on the date of the grant of such Option and (ii) cannot be exercised more than five (5) years after the date it is granted.
(2) To the extent that the aggregate Fair Market Value (determined as of the date of grant) of Stock for which Incentive Stock Options are exercisable for the first time by any Participant during any calendar year (under all plans of the Company and its Affiliates) exceeds $100,000, such excess Incentive Stock Options shall be treated as Nonqualified Stock Options.
(3) Each Participant who receives an Incentive Stock Option must agree to notify the Company in writing immediately after the Participant makes a Disqualifying Disposition of any Stock acquired pursuant to the exercise of an Incentive Stock Option.
6. Restricted Stock.
(a) General . Restricted Stock may be granted to Eligible Persons in such form and having such terms and conditions as the Committee shall deem appropriate. The provisions of separate Awards of Restricted Stock shall be set forth in separate Restricted Stock Agreements, which agreements need not be identical. Subject to the restrictions set forth in Section 6(b) hereof, and except as otherwise set forth in the applicable Restricted Stock Agreement, the Participant shall generally have the rights and privileges of a stockholder as to such Restricted Stock, including the right to vote such Restricted Stock. Unless otherwise set forth in a Participants Restricted Stock Agreement, cash dividends and stock dividends, if any, with respect to the Restricted Stock shall be withheld by the Company for the Participants account, and shall be subject to forfeiture to the same degree as the shares of Restricted Stock to which such dividends relate. Except as otherwise determined by the Committee, no interest will accrue or be paid on the amount of any cash dividends withheld.
(b) Vesting and Restrictions on Transfer . Restricted Stock shall vest in such manner, on such date or dates, or upon the achievement of performance or other conditions, in each case as may be determined by the Committee and set forth in a Restricted Stock Agreement; provided, however , that, subject to Section 4(e) hereof, that notwithstanding any such vesting dates, the Committee may in its sole discretion accelerate the vesting of any Award of Restricted Stock at any time and for any reason. Unless otherwise specifically determined by the Committee, the vesting of an Award of Restricted Stock shall occur only while the Participant is employed by or rendering services to the Service Recipient, and all vesting shall cease upon a
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Participants Termination for any reason. In addition to any other restrictions set forth in a Participants Restricted Stock Agreement, the Participant shall not be permitted to sell, transfer, pledge, or otherwise encumber the Restricted Stock prior to the time the Restricted Stock has vested pursuant to the terms of the Restricted Stock Agreement.
(c) Termination of Employment or Service . Except as provided by the Committee in a Restricted Stock Agreement, Participant Agreement or otherwise, in the event of a Participants Termination for any reason prior to the time that such Participants Restricted Stock has vested, (1) all vesting with respect to such Participants Restricted Stock outstanding shall cease, and (2) as soon as practicable following such Termination, the Company shall repurchase from the Participant, and the Participant shall sell, all of such Participants unvested shares of Restricted Stock at a purchase price equal to the original purchase price paid for the Restricted Stock; provided that, if the original purchase price paid for the Restricted Stock is equal to zero dollars ($0), such unvested shares of Restricted Stock shall be forfeited to the Company by the Participant for no consideration as of the date of such Termination.
7. Restricted Stock Units.
(a) General . Restricted Stock Units may be granted to Eligible Persons in such form and having such terms and conditions as the Committee shall deem appropriate. The provisions of separate Restricted Stock Units shall be set forth in separate RSU Agreements, which agreements need not be identical.
(b) Vesting . Restricted Stock Units shall vest in such manner, on such date or dates, or upon the achievement of performance or other conditions, in each case as may be determined by the Committee and set forth in an RSU Agreement; provided , however , that subject to Section 4(e) hereof, notwithstanding any such vesting dates, the Committee may in its sole discretion accelerate the vesting of any Restricted Stock Unit at any time and for any reason. Unless otherwise specifically determined by the Committee, the vesting of a Restricted Stock Unit shall occur only while the Participant is employed by or rendering services to the Service Recipient, and all vesting shall cease upon a Participants Termination for any reason.
(c) Settlement . Restricted Stock Units shall be settled in Stock, cash, or property, as determined by the Committee, in its sole discretion, on the date or dates determined by the Committee and set forth in an RSU Agreement. Unless otherwise set forth in a Participants RSU Agreement, a Participant shall not be entitled to dividends, if any, or dividend equivalents with respect to Restricted Stock Units prior to settlement.
(d) Termination of Employment or Service . Except as provided by the Committee in an RSU Agreement, Participant Agreement or otherwise, in the event of a Participants Termination for any reason prior to the time that such Participants Restricted Stock Units have been settled, (1) all vesting with respect to such Participants Restricted Stock Units outstanding shall cease, (2) all of such Participants unvested Restricted Stock Units outstanding shall be forfeited for no consideration as of the date of such Termination, and (3) any shares remaining undelivered with respect to vested Restricted Stock Units then held by such Participant shall be delivered on the delivery date or dates specified in the RSU Agreement.
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8. Stock Appreciation Rights.
(a) General . Stock Appreciation Rights may be granted to Eligible Persons in such form and having such terms and conditions as the Committee shall deem appropriate. The provisions of separate Stock Appreciation Rights shall be set forth in separate SAR Agreements, which agreements need not be identical. No dividends or dividend equivalents shall be paid on Stock Appreciation Rights.
(b) Term . The term of each Stock Appreciation Right shall be set by the Committee at the time of grant; provided, however , that no Stock Appreciation Right granted hereunder shall be exercisable after, and each Stock Appreciation Right shall expire, ten (10) years from the date it was granted.
(c) Base Price . The base price per share of Stock for each Stock Appreciation Right shall be set by the Committee at the time of grant and shall not be less than the Fair Market Value on the date of grant. Notwithstanding the foregoing, in the case of a Stock Appreciation Right that is a Substitute Award, the base price per share of Stock for such Stock Appreciation Right may be less than the Fair Market Value on the date of grant; provided , that such base price is determined in a manner consistent with the provisions of Section 409A of the Code.
(d) Vesting . Stock Appreciation Rights shall vest and become exercisable in such manner, on such date or dates, or upon the achievement of performance or other conditions, in each case as may be determined by the Committee and set forth in a SAR Agreement; provided , however , that, subject to Section 4(e) hereof, notwithstanding any such vesting dates, the Committee may in its sole discretion accelerate the vesting of any Stock Appreciation Right at any time and for any reason. Unless otherwise specifically determined by the Committee, the vesting of a Stock Appreciation Right shall occur only while the Participant is employed by or rendering services to the Service Recipient, and all vesting shall cease upon a Participants Termination for any reason. If a Stock Appreciation Right is exercisable in installments, such installments or portions thereof that become exercisable shall remain exercisable until the Stock Appreciation Right expires, is canceled or otherwise terminates.
(e) Payment upon Exercise . Payment upon exercise of a Stock Appreciation Right may be made in cash, Stock, or property as specified in the SAR Agreement or determined by the Committee, in each case having a value in respect of each share of Stock underlying the portion of the Stock Appreciation Right so exercised, equal to the difference between the base price of such Stock Appreciation Right and the Fair Market Value of one (1) share of Stock on the exercise date. For purposes of clarity, each share of Stock to be issued in settlement of a Stock Appreciation Right is deemed to have a value equal to the Fair Market Value of one (1) share of Stock on the exercise date. In no event shall fractional shares be issuable upon the exercise of a Stock Appreciation Right, and in the event that fractional shares would otherwise be issuable, the number of shares issuable will be rounded down to the next lower whole number of shares, and the Participant will be entitled to receive a cash payment equal to the value of such fractional share.
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(f) Termination of Employment or Service . Except as provided by the Committee in a SAR Agreement, Participant Agreement or otherwise:
(1) In the event of a Participants Termination prior to the applicable Expiration Date for any reason other than (i) by the Service Recipient for Cause, or (ii) by reason of the Participants death or Disability, (A) all vesting with respect to such Participants Stock Appreciation Rights outstanding shall cease, (B) all of such Participants unvested Stock Appreciation Rights outstanding shall terminate and be forfeited for no consideration as of the date of such Termination, and (C) all of such Participants vested Stock Appreciation Rights outstanding shall terminate and be forfeited for no consideration on the earlier of (x) the applicable Expiration Date and (y) the date that is ninety (90) days after the date of such Termination.
(2) In the event of a Participants Termination prior to the applicable Expiration Date by reason of such Participants death or Disability, (i) all vesting with respect to such Participants Stock Appreciation Rights outstanding shall cease, (ii) all of such Participants unvested Stock Appreciation Rights outstanding shall terminate and be forfeited for no consideration as of the date of such Termination, and (iii) all of such Participants vested Stock Appreciation Rights outstanding shall terminate and be forfeited for no consideration on the earlier of (x) the applicable Expiration Date and (y) the date that is twelve (12) months after the date of such Termination. In the event of a Participants death, such Participants Stock Appreciation Rights shall remain exercisable by the Person or Persons to whom such Participants rights under the Stock Appreciation Rights pass by will or by the applicable laws of descent and distribution until the applicable Expiration Date, but only to the extent that the Stock Appreciation Rights were vested at the time of such Termination.
(3) In the event of a Participants Termination prior to the applicable Expiration Date by the Service Recipient for Cause, all of such Participants Stock Appreciation Rights outstanding (whether or not vested) shall immediately terminate and be forfeited for no consideration as of the date of such Termination.
9. Performance Awards.
(a) General . Performance Awards may be granted to Eligible Persons in such form and having such terms and conditions as the Committee shall deem appropriate. The provisions of separate Performance Awards, including the determination of the Committee with respect to the form of payout of Performance Awards, shall be set forth in separate Performance Award Agreements, which agreements need not be identical. Unless otherwise set forth in an Award Agreement evidencing a Participants Performance Award, (i) cash dividends and stock dividends, if any, with respect to the Performance Shares shall be withheld by the Company for the Participants account, and shall be subject to forfeiture to the same degree as the Performance Shares to which such dividends relate and (ii) a Participant shall not be entitled to dividends, if any, or dividend equivalents with respect to Performance Units that are not earned and vested. Except as otherwise determined by the Committee, no interest will accrue or be paid on the amount of any cash dividends withheld.
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(b) Value of Performance Awards . Each Performance Unit shall have an initial value that is established by the Committee at the time of grant. Each Performance Share shall have an initial value equal to the Fair Market Value of the Stock on the date of grant. Each Performance Award Agreement in respect of any Performance Cash Award shall specify the dollar amount payable under the Performance Cash Award. In addition to any other non-performance terms included in the Performance Award Agreement, the Committee shall set the applicable Performance Objectives in its discretion, which objectives, depending on the extent to which they are met, will determine the value and number of Performance Units or Performance Shares, or the value of a Performance Cash Award, as the case may be, that will be paid out to the Participant.
(c) Earning of Performance Awards . Upon the expiration of the applicable Performance Period or other non-performance-based vesting period, if longer, the holder of a Performance Award shall be entitled to receive the following payouts: (1) if the holder holds Performance Units or Performance Shares, payout on the value and number of the applicable Performance Units or Performance Shares earned by the Participant over the Performance Period, or (2) if the holder holds a Performance Cash Award, payout on the value of the Performance Cash Award earned by the Participant over the Performance Period, in any case, to be determined as a function of the extent to which the corresponding Performance Objectives have been achieved and any other non-performance-based terms met. The Committee may specify a target, threshold or maximum amount payable and may set a formula for determining the amount of Performance Awards earned if performance is at or above the threshold level but falls short of the maximum achievement of the specified Performance Objectives.
(d) Form and Timing of Payment of Performance Awards . Payment of earned Performance Awards shall be as determined by the Committee and as evidenced in the Performance Award Agreement. Subject to the terms of the Plan, the Committee, in its sole discretion, may pay earned Performance Units and Performance Shares in the form of cash, Stock, or other Awards (or in any combination thereof) equal to the value of the earned Performance Units or Performance Shares, as the case may be, at the close of the applicable Performance Period, or as soon as practicable after the end of the Performance Period. Unless otherwise determined by the Committee, earned Performance Cash Awards shall be paid in cash. Any cash, Stock, or other Awards issued in connection with a Performance Award may be issued subject to any restrictions deemed appropriate by the Committee.
(e) Termination of Employment or Service . Except as provided by the Committee in a Performance Award Agreement, Participant Agreement or otherwise, if, prior to the end of an applicable Performance Period, a Participant undergoes a Termination for any reason, all of such Participants Performance Awards shall be forfeited by the Participant to the Company for no consideration.
(f) Performance Objectives .
(1) Each Performance Award shall specify the Performance Objectives that must be achieved before such Performance Award shall become earned. The Company may also specify a minimum acceptable level of achievement below which no payment will be made and may set forth a formula for determining the amount of any payment to be made if performance is at or above such minimum acceptable level but falls short of the maximum achievement of the specified Performance Objectives.
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(2) With respect to Qualified Performance-Based Awards, Performance Objectives shall be limited to specified levels of or increases in one or more of the following business criteria (alone or in combination with any other criterion, whether gross or net, before or after taxes, and/or before or after other adjustments, as determined by the Committee): (i) earnings, including net earnings, total earnings, operating earnings, earnings growth, operating income, earnings before or after taxes, earnings before or after interest, depreciation, amortization, or unusual, non-recurring or special items, book value per share (which may exclude nonrecurring items), tangible book value or growth in tangible book value per share; (ii) pre-tax income or after-tax income; (iii) earnings per share (basic or diluted); (iv) operating profit; (v) revenue, revenue growth, or rate of revenue growth; (vi) return on assets (gross or net), return on investment, return on capital, return on equity, financial return ratios, or internal rates of return; (vii) returns on sales or revenues; (viii) operating expenses; (ix) stock price appreciation; (x) cash flow (including, but not limited to, operating cash flow and free cash flow), cash flow return on investment (discounted or otherwise), net cash provided by operations or cash flow in excess of cost of capital, or working capital turnover; (xi) implementation or completion of critical projects or processes; (xii) economic value created; (xiii) balance sheet measurements; (xiv) cumulative earnings per share growth; (xv) operating margin, profit margin, or gross margin; (xvi) stock price or total stockholder return; (xvii) cost or expense targets, reductions and savings, productivity and efficiencies; (xviii) sales or sales growth; (xix) strategic business criteria, consisting of one or more objectives based on meeting specified market penetration, market share, geographic business expansion, customer satisfaction, employee satisfaction, human resources management, supervision of litigation, information technology, and goals relating to acquisitions, divestitures, joint ventures, and similar transactions, and budget comparisons; (xx) personal professional objectives, including any of the foregoing performance goals, the implementation of policies and plans, the negotiation of transactions, the development of long-term business goals, the formation of joint ventures, and the completion of other corporate transactions; (xxi) billings, billings growth, or rate of billings growth; (xxii) underwriting income or profit; (xxiii) loss ratio or combined ratio; and (xxiv) to the extent that an Award is not intended to be a Qualified Performance-Based Award, other measures of performance selected by the Committee. Performance Objectives may be established on a Company-wide basis, project or geographical basis or, as the context permits, with respect to one or more business units, divisions, lines of business or business segments, subsidiaries, products, or other operational units or administrative departments of the Company (or in combination thereof) or may be related to the performance of an individual Participant and may be expressed in absolute terms, or relative or comparative to (A) current internal targets or budgets, (B) the past performance of the Company (including the performance of one or more subsidiaries, divisions, or operating units), (C) the performance of one or more similarly situated companies, (D) the performance of an index covering multiple companies, or (E) other external measures of the selected performance criteria. Performance Objectives may be in either absolute terms or relative to the performance of one or more comparable companies or an index covering multiple companies.
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(3) The business criteria mentioned above (i) may be combined with cost of capital, assets, invested capital and stockholders equity to form an appropriate measure of performance and (ii) shall have any reasonable definitions that the Committee may specify. Unless specified otherwise by the Committee (i) in the Performance Award Agreement at the time the Performance Award is granted or (ii) in such other document setting forth the Performance Objectives at the time the Performance Objectives are established, the Committee, in its sole discretion, will appropriately make adjustments in the method of calculating the attainment of Performance Objectives for a Performance Period to provide for objectively determinable adjustments, modifications or amendments, as determined in accordance with Generally Accepted Accounting Principles ( GAAP ), to any of the business criteria described above for one or more of the following items of gain, loss, profit or expense: (A) determined to be items of an unusual nature or of infrequency of occurrence or non-recurring in nature; (B) related to changes in accounting principles under GAAP or tax laws (including, without limitation, any adjustments that would result in the Company paying non-deductible compensation to a Participant); (C) related to currency fluctuations; (D) related to financing activities ( e.g. , effect on earnings per share of issuing convertible debt securities); (E) related to restructuring, divestitures, productivity initiatives or new business initiatives; (F) related to discontinued operations that do not qualify as a segment of business under GAAP; (G) attributable to the business operations of any entity acquired by the Company during the fiscal year; (H) non-operating items; and (I) acquisition or divestiture expenses.
(g) Section 162(m) Compliance . Unless otherwise permitted in compliance with the requirements of Section 162(m) of the Code with respect to a Performance Award intended to be a Qualified Performance-Based Award, the Committee will establish the Performance Objectives applicable to, and the formula for calculating the amount payable under, the Performance Award no later than the earlier of (a) the date ninety (90) days after the commencement of the applicable Performance Period, and (b) the date on which twenty-five percent (25%) of the Performance Period has elapsed, and in any event at a time when the achievement of the applicable Performance Objectives remains substantially uncertain. Prior to the payment of any compensation under a Performance Award intended to be a Qualified Performance-Based Award, the Committee will certify the extent to which any Performance Objectives and any other material terms under such Performance Award have been satisfied (other than in cases where such relate solely to the increase in the value of the Stock).
(h) Negative Discretion . Notwithstanding satisfaction of any completion of any Performance Objectives, the number of shares of Stock, cash or other benefits granted, issued, retainable and/or vested under a Performance Award on account of satisfaction of such Performance Objectives may be reduced by the Committee on the basis of such further considerations as the Committee, in its sole discretion, will determine.
10. Other Stock-Based Awards.
The Committee is authorized, subject to limitations under applicable law, to grant to Participants such other Awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based upon or related to Stock, as deemed by the Committee to be consistent with the purposes of the Plan. The Committee may also grant Stock as a bonus
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(whether or not subject to any vesting requirements or other restrictions on transfer), and may grant other Awards in lieu of obligations of the Company or an Affiliate to pay cash or deliver other property under the Plan or under other plans or compensatory arrangements, subject to such terms as shall be determined by the Committee. The terms and conditions applicable to such Awards shall be determined by the Committee and evidenced by Award Agreements, which agreements need not be identical.
11. Adjustment for Recapitalization, Merger, etc.
(a) Capitalization Adjustments . The aggregate number of shares of Stock that may be delivered in connection with Awards (as set forth in Section 4 hereof), the numerical share limits in Section 4 hereof, the number of shares of Stock covered by each outstanding Award, and the price per share of Stock underlying each such Award shall be equitably and proportionally adjusted or substituted, as determined by the Committee, in its sole discretion, as to the number, price, or kind of a share of Stock or other consideration subject to such Awards (1) in the event of changes in the outstanding Stock or in the capital structure of the Company by reason of stock dividends, extraordinary cash dividends, stock splits, reverse stock splits, recapitalizations, reorganizations, mergers, amalgamations, consolidations, combinations, exchanges, or other relevant changes in capitalization occurring after the date of grant of any such Award (including any Corporate Event); (2) in connection with any extraordinary dividend declared and paid in respect of shares of Stock, whether payable in the form of cash, stock, or any other form of consideration; or (3) in the event of any change in applicable laws or circumstances that results in or could result in, in either case, as determined by the Committee in its sole discretion, any substantial dilution or enlargement of the rights intended to be granted to, or available for, Participants in the Plan.
(b) Corporate Events . Notwithstanding the foregoing, except as provided by the Committee in an Award Agreement, Participant Agreement or otherwise, in connection with (i) a merger, amalgamation, or consolidation involving the Company in which the Company is not the surviving corporation, (ii) a merger, amalgamation, or consolidation involving the Company in which the Company is the surviving corporation but the holders of shares of Stock receive securities of another corporation or other property or cash, (iii) a Change in Control, or (iv) the reorganization, dissolution or liquidation of the Company (each, a Corporate Event ), the Committee may provide for any one or more of the following:
(1) The assumption or substitution of any or all Awards in connection with such Corporate Event, in which case the Awards shall be subject to the adjustment set forth in subsection (a) above, and to the extent that such Awards are Performance Awards or other Awards that vest subject to the achievement of Performance Objectives or similar performance criteria, such Performance Objectives or similar performance criteria shall be adjusted appropriately to reflect the Corporate Event;
(2) The acceleration of vesting of any or all Awards not assumed or substituted in connection with such Corporate Event, subject to the consummation of such Corporate Event; provided that any Performance Awards or other Awards that vest subject to the achievement of Performance Objectives or similar performance criteria will be deemed earned (i) based on actual performance through the date of the Corporate
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Event, or (ii) at the target level (or if no target is specified, the maximum level), in the event actual performance cannot be measured through the date of the Corporate Event, in each case, with respect to all unexpired Performance Periods or Performance Periods for which satisfaction of the Performance Objectives or other material terms for the applicable Performance Period has not been certified by the Committee prior to the date of the Corporate Event;
(3) The cancellation of any or all Awards not assumed or substituted in connection with such Corporate Event (whether vested or unvested) as of the consummation of such Corporate Event, together with the payment to the Participants holding vested Awards (including any Awards that would vest upon the Corporate Event but for such cancellation) so canceled of an amount in respect of cancellation equal to the amount payable pursuant to any Cash Award or, with respect to other Awards, an amount based upon the per-share consideration being paid for the Stock in connection with such Corporate Event, less, in the case of Options, Stock Appreciation Rights, and other Awards subject to exercise, the applicable exercise or base price; provided, however , that holders of Options, Stock Appreciation Rights, and other Awards subject to exercise shall be entitled to consideration in respect of cancellation of such Awards only if the per-share consideration less the applicable exercise or base price is greater than zero dollars ($0), and to the extent that the per-share consideration is less than or equal to the applicable exercise or base price, such Awards shall be canceled for no consideration;
(4) The cancellation of any or all Options, Stock Appreciation Rights and other Awards subject to exercise not assumed or substituted in connection with such Corporate Event (whether vested or unvested) as of the consummation of such Corporate Event; provided that all Options, Stock Appreciation Rights and other Awards to be so canceled pursuant to this paragraph (4) shall first become exercisable for a period of at least ten (10) days prior to such Corporate Event, with any exercise during such period of any unvested Options, Stock Appreciation Rights or other Awards to be (A) contingent upon and subject to the occurrence of the Corporate Event, and (B) effectuated by such means as are approved by the Committee; and
(5) The replacement of any or all Awards (other than Awards that are intended to qualify as stock rights that do not provide for a deferral of compensation within the meaning of Section 409A of the Code) with a cash incentive program that preserves the value of the Awards so replaced (determined as of the consummation of the Corporate Event), with subsequent payment of cash incentives subject to the same vesting conditions as applicable to the Awards so replaced and payment to be made within thirty (30) days of the applicable vesting date.
Payments to holders pursuant to paragraph (3) above shall be made in cash or, in the sole discretion of the Committee, and to the extent applicable, in the form of such other consideration necessary for a Participant to receive property, cash, or securities (or a combination thereof) as such Participant would have been entitled to receive upon the occurrence of the transaction if the Participant had been, immediately prior to such transaction, the holder of the number of shares of Stock covered by the Award at such time (less any applicable exercise or base price). In addition, in connection with any Corporate Event, prior to any payment or adjustment
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contemplated under this subsection (b), the Committee may require a Participant to (A) represent and warrant as to the unencumbered title to his or her Awards, (B) bear such Participants pro-rata share of any post-closing indemnity obligations, and be subject to the same post-closing purchase price adjustments, escrow terms, offset rights, holdback terms, and similar conditions as the other holders of Stock, and (C) deliver customary transfer documentation as reasonably determined by the Committee. The Committee need not take the same action or actions with respect to all Awards or portions thereof or with respect to all Participants. The Committee may take different actions with respect to the vested and unvested portions of an Award.
(c) Fractional Shares . Any adjustment provided under this Section 11 may, in the Committees discretion, provide for the elimination of any fractional share that might otherwise become subject to an Award. No cash settlements shall be made with respect to fractional shares so eliminated.
(d) Double-Trigger Vesting . Notwithstanding any other provisions of the Plan, an Award Agreement or Participant Agreement to the contrary, with respect to any Award that is assumed or substituted in connection with a Change in Control, the vesting, payment, purchase or distribution of such Award may not be accelerated by reason of the Change in Control for any Participant unless the Participant experiences an involuntary Termination as a result of the Change in Control. Unless otherwise provided for in an Award Agreement or Participant Agreement, any Award held by a Participant who experiences an involuntary Termination as a result of a Change in Control shall immediately vest as of the date of such Termination. For purposes of this Section 11(d), a Participant will be deemed to experience an involuntary Termination as a result of a Change in Control if the Participant experiences a Termination by the Service Recipient other than for Cause, or otherwise experiences a Termination under circumstances which entitle the Participant to mandatory severance payment(s) pursuant to applicable law or, in the case of a non-employee director of the Company, if the non-employee directors service on the Board terminates in connection with or as a result of a Change in Control, in each case, at any time beginning on the date of the Change in Control up to and including the second (2nd) anniversary of the Change in Control.
12. Use of Proceeds.
The proceeds received from the sale of Stock pursuant to the Plan shall be used for general corporate purposes.
13. Rights and Privileges as a Stockholder.
Except as otherwise specifically provided in the Plan, no Person shall be entitled to the rights and privileges of Stock ownership in respect of shares of Stock that are subject to Awards hereunder until such shares have been issued to that Person.
14. Transferability of Awards.
Awards may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the applicable laws of descent and distribution, and to the extent subject to exercise, Awards may not be exercised during the lifetime of the grantee other than by the grantee. Notwithstanding the foregoing, except with respect to Incentive Stock Options, Awards and a Participants rights under the Plan shall be transferable for no value to the extent provided in an Award Agreement or otherwise determined at any time by the Committee.
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15. Employment or Service Rights.
No individual shall have any claim or right to be granted an Award under the Plan or, having been selected for the grant of an Award, to be selected for the grant of any other Award. Neither the Plan nor any action taken hereunder shall be construed as giving any individual any right to be retained in the employ or service of the Company or an Affiliate of the Company.
16. Compliance with Laws.
The obligation of the Company to deliver Stock upon issuance, vesting, exercise, or settlement of any Award shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required. Notwithstanding any terms or conditions of any Award to the contrary, the Company shall be under no obligation to offer to sell or to sell, and shall be prohibited from offering to sell or selling, any shares of Stock pursuant to an Award unless such shares have been properly registered for sale with the U.S. Securities and Exchange Commission pursuant to the Securities Act (or with a similar non-U.S. regulatory agency pursuant to a similar law or regulation) or unless the Company has received an opinion of counsel, satisfactory to the Company, that such shares may be offered or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such exemption have been fully complied with. The Company shall be under no obligation to register for sale or resale under the Securities Act any of the shares of Stock to be offered or sold under the Plan or any shares of Stock to be issued upon exercise or settlement of Awards. If the shares of Stock offered for sale or sold under the Plan are offered or sold pursuant to an exemption from registration under the Securities Act, the Company may restrict the transfer of such shares and may legend the Stock certificates representing such shares in such manner as it deems advisable to ensure the availability of any such exemption.
17. Withholding Obligations.
As a condition to the issuance, vesting, exercise, or settlement of any Award (or upon the making of an election under Section 83(b) of the Code), the Committee may require that a Participant satisfy, through deduction or withholding from any payment of any kind otherwise due to the Participant, or through such other arrangements as are satisfactory to the Committee, the amount of all federal, state, and local income and other taxes of any kind required or permitted to be withheld in connection with such issuance, vesting, exercise, or settlement (or election). The Committee, in its discretion, may permit shares of Stock to be used to satisfy tax withholding requirements, and such shares shall be valued at their Fair Market Value as of the issuance, vesting, exercise, or settlement date of the Award, as applicable. Depending on the withholding method, the Company may withhold by considering the applicable minimum statutorily required withholding rates or other applicable withholding rates in the applicable Participants jurisdiction, including maximum applicable rates that may be utilized without creating adverse accounting treatment under Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor pronouncement thereto).
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18. Amendment of the Plan or Awards.
(a) Amendment of Plan . The Board or the Committee may amend the Plan at any time and from time to time.
(b) Amendment of Awards . The Board or the Committee may amend the terms of any one or more Awards at any time and from time to time.
(c) Stockholder Approval; No Material Impairment . Notwithstanding anything herein to the contrary, no amendment to the Plan or any Award shall be effective without stockholder approval to the extent that such approval is required pursuant to applicable law or the applicable rules of each national securities exchange on which the Stock is listed. Additionally, no amendment to the Plan or any Award shall materially impair a Participants rights under any Award unless the Participant consents in writing (it being understood that no action taken by the Board or the Committee that is expressly permitted under the Plan, including, without limitation, any actions described in Section 11 hereof, shall constitute an amendment to the Plan or an Award for such purpose). Notwithstanding the foregoing, subject to the limitations of applicable law, if any, and without an affected Participants consent, the Board or the Committee may amend the terms of the Plan or any one or more Awards from time to time as necessary to bring such Awards into compliance with applicable law, including, without limitation, Section 409A of the Code.
(d) No Repricing of Awards Without Stockholder Approval . Notwithstanding subsection (a) or (b) above, or any other provision of the Plan, the repricing of Awards shall not be permitted without stockholder approval. For this purpose, a repricing means any of the following (or any other action that has the same effect as any of the following): (1) changing the terms of an Award to lower its exercise or base price (other than on account of capital adjustments resulting from share splits, etc., as described in Section 11(a) hereof), (2) any other action that is treated as a repricing under GAAP, and (3) repurchasing for cash or canceling an Award in exchange for another Award at a time when its exercise or base price is greater than the Fair Market Value of the underlying Stock, unless the cancellation and exchange occurs in connection with an event set forth in Section 11(b) hereof.
19. Termination or Suspension of the Plan.
The Board or the Committee may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth (10 th ) anniversary of the date the stockholders of the Company approve the Plan. No Awards may be granted under the Plan while the Plan is suspended or after it is terminated; provided, however , that following any suspension or termination of the Plan, the Plan shall remain in effect for the purpose of governing all Awards then outstanding hereunder until such time as all Awards under the Plan have been terminated, forfeited, or otherwise canceled, or earned, exercised, settled, or otherwise paid out, in accordance with their terms.
20. Effective Date of the Plan.
The Plan is effective as of the Effective Date, subject to stockholder approval.
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21. Miscellaneous.
(a) Certificates . Stock acquired pursuant to Awards granted under the Plan may be evidenced in such a manner as the Committee shall determine. If certificates representing Stock are registered in the name of the Participant, the Committee may require that (1) such certificates bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Stock, (2) the Company retain physical possession of the certificates, and (3) the Participant deliver a stock power to the Company, endorsed in blank, relating to the Stock. Notwithstanding the foregoing, the Committee may determine, in its sole discretion, that the Stock shall be held in book-entry form rather than delivered to the Participant pending the release of any applicable restrictions.
(b) Other Benefits . No Award granted or paid out under the Plan shall be deemed compensation for purposes of computing benefits under any retirement plan of the Company or its Affiliates nor affect any benefits under any other benefit plan now or subsequently in effect under which the availability or amount of benefits is related to the level of compensation.
(c) Corporate Action Constituting Grant of Awards . Corporate action constituting a grant by the Company of an Award to any Participant will be deemed completed as of the date of such corporate action, unless otherwise determined by the Committee, regardless of when the instrument, certificate, or letter evidencing the Award is communicated to, or actually received or accepted by, the Participant. In the event that the corporate records ( e . g ., Committee consents, resolutions or minutes) documenting the corporate action constituting the grant contain terms ( e .g., exercise price, vesting schedule or number of shares of Stock) that are inconsistent with those in the Award Agreement as a result of a clerical error in connection with the preparation of the Award Agreement, the corporate records will control and the Participant will have no legally binding right to the incorrect term in the Award Agreement.
(d) Clawback/Recoupment Policy . Notwithstanding anything contained herein to the contrary, all Awards granted under the Plan shall be and remain subject to any incentive compensation clawback or recoupment policy currently in effect or as may be adopted by the Board (or a committee or subcommittee of the Board) and, in each case, as may be amended from time to time. No such policy adoption or amendment shall in any event require the prior consent of any Participant. No recovery of compensation under such a clawback policy will be an event giving rise to a right to resign for good reason or constructive termination (or similar term) under any agreement with the Company or any of its Affiliates. In the event that an Award is subject to more than one such policy, the policy with the most restrictive clawback or recoupment provisions shall govern such Award, subject to applicable law.
(e) Non-Exempt Employees . If an Option is granted to an employee of the Company or any of its Affiliates in the United States who is a non-exempt employee for purposes of the Fair Labor Standards Act of 1938, as amended, the Option will not be first exercisable for any shares of Stock until at least six (6) months following the date of grant of the Option (although the Option may vest prior to such date). Consistent with the provisions of the Worker Economic Opportunity Act, (1) if such employee dies or suffers a Disability, (2) upon a Corporate Event in which such Option is not assumed, continued, or substituted, (3) upon a
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Change in Control, or (4) upon the Participants retirement (as such term may be defined in the applicable Award Agreement or a Participant Agreement, or, if no such definition exists, in accordance with the Companys then current employment policies and guidelines), the vested portion of any Options held by such employee may be exercised earlier than six (6) months following the date of grant. The foregoing provision is intended to operate so that any income derived by a non-exempt employee in connection with the exercise or vesting of an Option will be exempt from his or her regular rate of pay. To the extent permitted and/or required for compliance with the Worker Economic Opportunity Act to ensure that any income derived by a non-exempt employee in connection with the exercise, vesting or issuance of any shares under any other Award will be exempt from such employees regular rate of pay, the provisions of this Section 21(e) will apply to all Awards.
(f) Data Privacy . As a condition of receipt of any Award, each Participant explicitly and unambiguously consents to the collection, use, and transfer, in electronic or other form, of personal data as described in this Section 21(e) by and among, as applicable, the Company and its Affiliates for the exclusive purpose of implementing, administering, and managing the Plan and Awards and the Participants participation in the Plan. In furtherance of such implementation, administration, and management, the Company and its Affiliates may hold certain personal information about a Participant, including, but not limited to, the Participants name, home address, telephone number, date of birth, social security or insurance number or other identification number, salary, nationality, job title(s), information regarding any securities of the Company or any of its Affiliates, and details of all Awards (the Data ). In addition to transferring the Data amongst themselves as necessary for the purpose of implementation, administration, and management of the Plan and Awards and the Participants participation in the Plan, the Company and its Affiliates may each transfer the Data to any third parties assisting the Company in the implementation, administration, and management of the Plan and Awards and the Participants participation in the Plan. Recipients of the Data may be located in the Participants country or elsewhere, and the Participants country and any given recipients country may have different data privacy laws and protections. By accepting an Award, each Participant authorizes such recipients to receive, possess, use, retain, and transfer the Data, in electronic or other form, for the purposes of assisting the Company in the implementation, administration, and management of the Plan and Awards and the Participants participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Company or the Participant may elect to deposit any shares of Stock. The Data related to a Participant will be held only as long as is necessary to implement, administer, and manage the Plan and Awards and the Participants participation in the Plan. A Participant may, at any time, view the Data held by the Company with respect to such Participant, request additional information about the storage and processing of the Data with respect to such Participant, recommend any necessary corrections to the Data with respect to the Participant, or refuse or withdraw the consents herein in writing, in any case without cost, by contacting his or her local human resources representative. The Company may cancel the Participants eligibility to participate in the Plan, and in the Committees discretion, the Participant may forfeit any outstanding Awards if the Participant refuses or withdraws the consents described herein. For more information on the consequences of refusal to consent or withdrawal of consent, Participants may contact their local human resources representative.
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(g) Participants Outside of the United States . The Committee may modify the terms of any Award under the Plan made to or held by a Participant who is then a resident, or is primarily employed or providing services, outside of the United States in any manner deemed by the Committee to be necessary or appropriate in order that such Award shall conform to laws, regulations, and customs of the country in which the Participant is then a resident or primarily employed or providing services, or so that the value and other benefits of the Award to the Participant, as affected by nonU.S. tax laws and other restrictions applicable as a result of the Participants residence, employment, or providing services abroad, shall be comparable to the value of such Award to a Participant who is a resident, or is primarily employed or providing services, in the United States. An Award may be modified under this Section 21(g) in a manner that is inconsistent with the express terms of the Plan, so long as such modifications will not contravene any applicable law or regulation or result in actual liability under Section 16(b) of the Exchange Act for the Participant whose Award is modified. Additionally, the Committee may adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the Plan by Eligible Persons who are nonU.S. nationals or are primarily employed or providing services outside the United States.
(h) Change in Time Commitment . In the event a Participants regular level of time commitment in the performance of his or her services for the Company or any of its Affiliates is reduced (for example, and without limitation, if the Participant is an employee of the Company and the employee has a change in status from a full-time employee to a part-time employee) after the date of grant of any Award to the Participant, the Committee has the right in its sole discretion to (i) make a corresponding reduction in the number of shares of Stock subject to any portion of such Award that is scheduled to vest or become payable after the date of such change in time commitment, and (ii) in lieu of or in combination with such a reduction, extend the vesting or payment schedule applicable to such Award. In the event of any such reduction, the Participant will have no right with respect to any portion of the Award that is so reduced or extended.
(i) No Liability of Committee Members . Neither any member of the Committee nor any of the Committees permitted delegates shall be liable personally by reason of any contract or other instrument executed by such member or on his or her behalf in his or her capacity as a member of the Committee or for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each member of the Committee and each other employee, officer, or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against all costs and expenses (including counsel fees) and liabilities (including sums paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan, unless arising out of such Persons own fraud or willful misconduct; provided, however , that approval of the Board shall be required for the payment of any amount in settlement of a claim against any such Person. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such Persons may be entitled under the Companys certificate or articles of incorporation or by-laws, each as may be amended from time to time, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
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(j) Payments Following Accidents or Illness . If the Committee shall find that any Person to whom any amount is payable under the Plan is unable to care for his or her affairs because of illness or accident, or is a minor, or has died, then any payment due to such Person or his or her estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Company, be paid to his or her spouse, child, relative, an institution maintaining or having custody of such Person, or any other Person deemed by the Committee to be a proper recipient on behalf of such Person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Company therefor.
(k) Governing Law . The Plan shall be governed by and construed in accordance with the internal laws of the State of Delaware without reference to the principles of conflicts of laws thereof.
(l) Electronic Delivery . Any reference herein to a written agreement or document or writing will include any agreement or document delivered electronically or posted on the Companys intranet (or other shared electronic medium controlled or authorized by the Company to which the Participant has access) to the extent permitted by applicable law.
(m) Arbitration . All disputes and claims of any nature that a Participant (or such Participants transferee or estate) may have against the Company arising out of or in any way related to the Plan or any Award Agreement must be submitted solely and exclusively to binding arbitration in accordance with the then-current employment arbitration rules and procedures of the American Arbitration Association (AAA) to be held in Kansas. All information regarding the dispute or claim and arbitration proceedings, including any settlement, shall not be disclosed by the Participant or any arbitrator to any third party without the written consent of the Company, except with respect to judicial enforcement of any arbitration award. Any arbitration claim must be brought solely in the Participants (or such Participants transferees or estates) individual capacity and not as a claimant or class member (or similar capacity) in any purported multiple-claimant, class, collective, representative or similar proceeding, and the arbitrator may not permit joinder of any multiple claimants and their claims without the express written consent of the Company. Any arbitrator selected to adjudicate the claim must be knowledgeable in the industry standards and practices, and, by signing an Award Agreement, each Participant will be deemed to agree that any claims pursuant to the Plan or an Award Agreement is inherently a matter involving interstate commerce and thus, notwithstanding the choice of law provision included herein, the Federal Arbitration Act shall govern the interpretation and enforcement of this arbitration provision. The arbitrator shall not be permitted to award any punitive or similar damages, but may award attorneys fees and expenses to the prevailing party in any arbitration. Any decision by the arbitrator shall be binding on all parties to the arbitration.
(n) Statute of Limitations . A Participant or any other person filing a claim for benefits under the Plan must file the claim within one (1) year of the date the Participant or other person knew or should have known of the facts giving rise to the claim. This one-year statute of limitations will apply in any forum where a Participant or any other person may file a claim and, unless the Company waives the time limits set forth above in its sole discretion, any claim not brought within the time periods specified shall be waived and forever barred.
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(o) Funding . No provision of the Plan shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company be required to maintain separate bank accounts, books, records, or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under the Plan other than as unsecured general creditors of the Company, except that insofar as they may have become entitled to payment of additional compensation by performance of services, they shall have the same rights as other employees and service providers under general law.
(p) Reliance on Reports . Each member of the Committee and each member of the Board shall be fully justified in relying, acting, or failing to act, and shall not be liable for having so relied, acted, or failed to act in good faith, upon any report made by the independent public accountant of the Company and its Affiliates and upon any other information furnished in connection with the Plan by any Person or Persons other than such member.
(q) Titles and Headings . The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control.
* * *
A DOPTED BY THE B OARD OF D IRECTORS : N OVEMBER 8, 2017
A PPROVED BY THE S TOCKHOLDERS : N OVEMBER 8, 2017
T ERMINATION D ATE : N OVEMBER 8, 2027
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Exhibit 10.6
CURO G ROUP H OLDINGS C ORP .
2017 E MPLOYEE S TOCK P URCHASE P LAN
1. G ENERAL ; P URPOSE .
(a) The Plan provides a means by which Eligible Employees of the Company and certain Designated Companies may be given an opportunity to purchase shares of Common Stock. The Plan permits the Company to grant a series of Purchase Rights to Eligible Employees under an Employee Stock Purchase Plan.
(b) The Company, by means of the Plan, seeks to retain the services of its Employees, to secure and retain the services of new Employees and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Related Corporations.
(c) The Company intends (but makes no undertaking or representation to maintain) the Plan to qualify as an Employee Stock Purchase Plan. The provisions of the Plan, accordingly, will be construed in a manner that is consistent with the requirements of Section 423 of the Code. In addition, under the Plan, the Company may make separate Offerings which vary in terms (provided that such terms are not inconsistent with the provisions of the Plan or the requirements of an Employee Stock Purchase Plan), and the Company will designate which Designated Companies will participate in each separate Offering.
2. A DMINISTRATION .
(a) The Committee will administer the Plan.
(b) The Committee will have the power, subject to, and within the limitations of, the express provisions of the Plan:
(i) To determine how and when Purchase Rights will be granted and the terms and conditions of each Offering (which need not be identical);
(ii) To designate from time to time which Related Corporations of the Company will be eligible to participate in the Plan as Designated Companies, which Related Corporations may be excluded from participation in the Plan, and which Designated Companies will participate in each separate Offering (to the extent that the Company makes separate Offerings);
(iii) To construe and interpret the Plan and Purchase Rights, and to establish, amend and revoke rules and regulations for its administration. The Committee, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it deems necessary or expedient to make the Plan fully effective;
(iv) To settle all controversies regarding the Plan and Purchase Rights granted under the Plan.
(v) To suspend or terminate the Plan at any time as provided in Section 11(b) below;
(vi) To amend the Plan at any time as provided in Section 11(a) below;
(vii) Generally, to exercise such powers and to perform such acts as it deems necessary or expedient to promote the best interests of the Company and its Related Corporations and to carry out the intent that the Plan be treated as an Employee Stock Purchase Plan; and
(viii) To adopt such procedures and sub-plans as are necessary or appropriate to permit or facilitate participation in the Plan by Employees who are foreign nationals or employed or located outside the United States.
(c) The Committee may, in its sole discretion, designate Employees and professional advisors to assist it in the administration of the Plan and (to the extent permitted by applicable laws, rules and regulations) may grant authority to Employees to execute agreements or other documents on behalf of the Committee relating to the Plan. The Committee may, in its sole discretion, employ legal counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion received from any such counsel or consultant and any computation received from any such consultant or agent. Expenses incurred in the engagement of any such counsel, consultant or agent will be paid by the Company. Neither the Board, the Committee, any Employee to whom authority has been delegated pursuant to this Section 2(c), nor any current or former Director, will be liable for any action or determination made in good faith with respect to the Plan, and to the maximum extent permitted by applicable laws, rules and regulations, no current or former Director or Employee to whom authority has been delegated pursuant to this Section 2(c) will be liable for any action or determination made in good faith with respect to the Plan.
(d) All determinations, interpretations and constructions made by the Committee in good faith will not be subject to review by any person and will be final, binding and conclusive on all persons.
3. S HARES OF C OMMON S TOCK S UBJECT TO THE P LAN .
(a) Subject to the provisions of Section 10(a) below relating to Changes in Capitalization, the maximum number of shares of Common Stock that may be issued under the Plan will not exceed 2,500,000 shares of Common Stock.
(b) If any Purchase Right granted under the Plan terminates without having been exercised in full, the shares of Common Stock not purchased under such Purchase Right will again become available for issuance under the Plan.
(c) The stock purchasable under the Plan will be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Company on the open market.
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4. G RANT OF P URCHASE R IGHTS ; O FFERING .
(a) The Committee may from time to time grant or provide for the grant of Purchase Rights to Eligible Employees under an Offering (consisting of one or more Purchase Periods) on an Offering Date or Offering Dates selected by the Committee. Each Offering will be in such form and will contain such terms and conditions as the Committee will deem appropriate, and will comply with the requirement of Section 423(b)(5) of the Code that all Employees granted Purchase Rights will have the same rights and privileges. The terms and conditions of an Offering will be incorporated by reference into the Plan and treated as part of the Plan. The terms and conditions of separate Offerings need not be identical, but each Offering will include (through incorporation of the provisions of this Plan by reference in the document comprising the Offering or otherwise) the period during which the Offering will be effective, which period will not exceed 27 months beginning with the Offering Date, and the substance of the provisions contained in Sections 5 through 8, inclusive.
(b) If a Participant has more than one Purchase Right outstanding under the Plan, unless he or she otherwise indicates in forms delivered to the Company: (i) each form will apply to all of his or her Purchase Rights under the Plan, and (ii) a Purchase Right with a lower exercise price (or an earlier-granted Purchase Right, if different Purchase Rights have identical exercise prices) will be exercised to the fullest possible extent before a Purchase Right with a higher exercise price (or a later-granted Purchase Right if different Purchase Rights have identical exercise prices) will be exercised.
5. E LIGIBILITY .
(a) Purchase Rights may be granted only to Employees of the Company or, as the Committee may designate in accordance with Section 2(b), to Employees of a Related Corporation. An Employee will not be eligible to be granted Purchase Rights unless, on the Offering Date, the Employee has been in the employ of the Company or a Related Corporation, as the case may be, for such continuous period preceding such Offering Date as the Committee may require, but in no event will the required period of continuous employment be equal to or greater than two years. In addition, the Committee may provide that no Employee will be eligible to be granted Purchase Rights under the Plan unless, on the Offering Date, such Employees customary employment with the Company or the Related Corporation, as applicable, is more than 20 hours per week and more than five months per calendar year or such other criteria as the Committee may determine consistent with Section 423 of the Code, unless such exclusion from eligibility is prohibited by applicable laws or regulations.
(b) No Employee will be eligible for the grant of any Purchase Rights if, immediately after any such Purchase Rights are granted, such Employee owns stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or of any Related Corporation. For purposes of this Section 5(b), the rules of Section 424(d) of the Code will apply in determining the stock ownership of any Employee, and stock which such Employee may purchase under all outstanding Purchase Rights and options will be treated as stock owned by such Employee.
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(c) As specified by Section 423(b)(8) of the Code, an Eligible Employee may be granted Purchase Rights only if such Purchase Rights, together with any other rights granted under all Employee Stock Purchase Plans of the Company and any Related Corporations, do not permit such Eligible Employees rights to purchase stock of the Company or any Related Corporation to accrue at a rate which exceeds $25,000 of Fair Market Value of such stock (determined at the time such rights are granted, and which, with respect to the Plan, will be determined as of their respective Offering Dates) for each calendar year in which such rights are outstanding at any time. Notwithstanding the foregoing, no individual Eligible Employee may purchase more than 5,000 shares of Common Stock in any Purchase Period in which Purchase Rights are outstanding.
(d) Officers of the Company and any Designated Company, if they are otherwise Eligible Employees, will be eligible to participate in Offerings under the Plan. Notwithstanding the foregoing, the Committee may provide in an Offering that Employees who are highly compensated Employees within the meaning of Section 423(b)(4)(D) of the Code will not be eligible to participate, unless such exclusion from eligibility is prohibited by applicable laws or regulations.
6. P URCHASE R IGHTS ; P URCHASE P RICE .
(a) On each Offering Date, each Eligible Employee, pursuant to an Offering made under the Plan, will be granted a Purchase Right to purchase up to that number of shares of Common Stock purchasable either with a percentage or with a maximum dollar amount, as designated by the Committee, but in either case not exceeding 15%of such Employees earnings (which, except as otherwise defined by the Committee in an Offering, shall mean an Employees base pay) during the period that begins on the Offering Date (or such later date as the Committee determines for a particular Offering) and ends on the date stated in the Offering, which date will be no later than the end of the Offering.
(b) The Committee will establish one or more Purchase Dates during an Offering on which Purchase Rights granted for that Offering will be exercised and shares of Common Stock will be purchased in accordance with such Offering.
(c) In connection with each Offering made under the Plan, the Committee may specify (i) a maximum number of shares of Common Stock that may be purchased by any Participant on any Purchase Date during such Offering, (ii) a maximum aggregate number of shares of Common Stock that may be purchased by all Participants pursuant to such Offering and/or (iii) a maximum aggregate number of shares of Common Stock that may be purchased by all Participants on any Purchase Date under the Offering. If the aggregate purchase of shares of Common Stock issuable upon exercise of Purchase Rights granted under the Offering would exceed any such maximum aggregate number, then, in the absence of any Committee action otherwise, a pro rata (based on each Participants accumulated Contributions) allocation of the shares of Common Stock available will be made in as nearly a uniform manner as will be practicable and equitable.
(d) Subject to such other limitations determined by the Committee, the purchase price of shares of Common Stock acquired pursuant to Purchase Rights will be not less than an amount equal to 85% of the Fair Market Value of the shares of Common Stock on the applicable Purchase Date.
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7. P ARTICIPATION ; W ITHDRAWAL ; T ERMINATION .
(a) An Eligible Employee who chooses to become a Participant must, unless otherwise required under applicable laws or regulations, elect to authorize payroll deductions as the means of making Contributions by completing and delivering to the Company, within the time specified in the Offering, an enrollment form provided by the Company. Except as may otherwise be determined by the Committee, a Participants completion of an enrollment form with respect to any Offering will enroll such Participant in the Plan for each subsequent Offering on the terms contained therein until the Participant either submits a new enrollment form, withdraws from participation under the Plan as provided in Section 7(b) hereof, or otherwise becomes ineligible to participate in the Plan. The enrollment form will specify the amount of Contributions not to exceed the maximum amount specified by the Committee. Each Participants Contributions will be credited to a bookkeeping account for such Participant under the Plan and will be deposited with the general funds of the Company except where applicable laws or regulations require that Contributions be deposited with a third party or otherwise be segregated. If permitted in the Offering, a Participant may begin such Contributions with the first payroll occurring on or after the Offering Date (or, in the case of a payroll date that occurs after the end of the prior Offering but before the Offering Date of the next new Offering, Contributions from such payroll will be included in the new Offering). If permitted in the Offering, a Participant may thereafter reduce (including to zero) his or her Contributions by completing and delivering a new enrollment form to the Company within the time specified in the Offering. If required under applicable laws or regulations, in addition to or instead of making Contributions by payroll deductions, a Participant may make Contributions through a payment by cash, check or wire transfer prior to a Purchase Date, in a manner directed by the Company.
(b) During an Offering, a Participant may cease making Contributions and withdraw from the Offering by delivering to the Company a withdrawal form provided by the Company. The Company may impose a deadline before a Purchase Date for withdrawing. Upon Participants timely withdrawal in accordance with the deadline imposed by the Company, such Participants Purchase Right in that Offering will immediately terminate and the Company will distribute to such Participant all of his or her accumulated but unused Contributions as soon as practicable thereafter. A Participants withdrawal from that Offering will have no effect upon his or her eligibility to participate in any other Offerings under the Plan, but such Participant will be required to deliver a new enrollment form to participate in subsequent Offerings.
(c) Unless otherwise required by applicable laws or regulations, Purchase Rights granted pursuant to any Offering under the Plan will terminate immediately if the Participant either (i) is no longer an Employee for any reason or for no reason (subject to any post-employment participation period required by law) or (ii) is otherwise no longer eligible to participate. The Company will distribute to such individual all of his or her accumulated but unused Contributions as soon as practicable thereafter.
(d) During a Participants lifetime, Purchase Rights will be exercisable only by such Participant. Purchase Rights are not transferable by a Participant, except by will, or by the laws of descent and distribution. If a Participant dies, the Company will deliver any shares of Common Stock and/or Contributions to the executor or administrator of the estate of the Participant.
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(e) Unless otherwise specified in the Offering or required by applicable law, the Company will have no obligation to pay interest on Contributions.
8. E XERCISE OF P URCHASE R IGHTS .
(a) On each Purchase Date, each Participants accumulated Contributions will be applied to the purchase of shares of Common Stock, up to the maximum number of shares of Common Stock permitted by the Plan and the applicable Offering, at the purchase price specified in the Offering. No fractional shares will be issued unless specifically provided for in the Offering.
(b) If any amount of accumulated Contributions remains in a Participants account after the purchase of shares of Common Stock (whether as a result of the application of purchase limits or otherwise) and such remaining amount is less than the amount required to purchase one share of Common Stock on the final Purchase Date of an Offering, then such remaining amount will be held in such Participants account for the purchase of shares of Common Stock under the next Offering under the Plan, unless such Participant withdraws from or is not eligible to participate in such Offering, in which case such amount will be distributed to such Participant after the final Purchase Date, without interest. If the amount of Contributions remaining in a Participants account after the purchase of shares of Common Stock is at least equal to the amount required to purchase one whole share of Common Stock on the final Purchase Date of an Offering, then such remaining amount will not roll over to the next Offering and will instead be distributed in full to such Participant after the final Purchase Date of such Offering without interest (unless otherwise required by applicable law).
(c) No Purchase Rights may be exercised to any extent unless the shares of Common Stock to be issued upon such exercise under the Plan are covered by an effective registration statement pursuant to the Securities Act and the Plan is in material compliance with all applicable U.S. federal and state, foreign and other securities and other laws applicable to the Plan. If on a Purchase Date the shares of Common Stock are not so registered or the Plan is not in such compliance, no Purchase Rights will be exercised on such Purchase Date, and the Purchase Date will be delayed until the shares of Common Stock are subject to such an effective registration statement and the Plan is in material compliance, except that the Purchase Date will in no event be more than 6 months from the Offering Date. If, on the Purchase Date, as delayed to the maximum extent permissible, the shares of Common Stock are not registered and the Plan is not in material compliance with all applicable laws or regulations, as determined by the Company in its sole discretion, no Purchase Rights will be exercised and all accumulated but unused Contributions will be distributed to the Participants without interest, unless otherwise required by applicable laws or regulations.
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(d) The Committee may, in its discretion, establish a holding period for any shares of Common Stock purchased in a particular Offering unless such holding period is prohibited by applicable laws or regulations. The holding period, if any, will commence on the Purchase Date and will not exceed twelve months; provided that the holding period, if any, with respect to any Participant will end automatically if either (i) the Participant is no longer an Employee, or (ii) a Change in Control occurs. During such holding period, the holder of the shares of Common Stock will not be permitted to sell such shares and the shares will be designated with an applicable resale restriction. The applicable holding period will be set forth in the Offering Document for the applicable Offering, and each Participant will be required to agree to such holding period as a condition to participating in the Offering.
9. C OVENANTS OF THE C OMPANY .
The Company will seek to obtain from each U.S. federal or state, foreign or other regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Purchase Rights and issue and sell shares of Common Stock thereunder unless the Company determines in its sole discretion, that doing so would cause the Company to incur costs that are unreasonable. If, after commercially reasonable efforts, the Company is unable to obtain the authority that counsel for the Company deems necessary for the grant of Purchase Rights or the lawful issuance and sale of Common Stock under the Plan, and at a commercially reasonable cost, the Company will be relieved from any liability for failure to grant Purchase Rights and/or to issue and sell Common Stock upon exercise of such Purchase Rights.
10. A DJUSTMENTS U PON C HANGES IN C OMMON S TOCK ; C HANGE IN C ONTROL .
(a) In the event of a Change in Capitalization, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, the Committee will, in such manner as it deems equitable, appropriately and proportionately adjust: (i) the class(es) and maximum number of securities subject to the Plan pursuant to Section 3(a), (ii) the class(es) and number of securities subject to, and the purchase price applicable to, outstanding Offerings and Purchase Rights, and (iii) the class(es) and number of securities that are the subject of the purchase limits under each ongoing Offering. In addition, if any change in the capital structure or business of the Company that is not a Change in Capitalization occurs, then the Committee, in its sole discretion, may make adjustments to the Plan in such manner as it deems appropriate and equitable to prevent substantial dilution or enlargement of the rights granted to, or available for, Participants under the Plan. The Committee will make these adjustments in its discretion, and its determination will be final, binding and conclusive.
(b) Notwithstanding the foregoing, except as provided by the Committee, in the event of a Change in Control, then: (i) any surviving corporation or acquiring corporation (or the surviving or acquiring corporations parent company) may assume or continue outstanding Purchase Rights or may substitute similar rights (including a right to acquire the same consideration paid to the stockholders in the Change in Control) for outstanding Purchase Rights, or (ii) if any surviving or acquiring corporation (or its parent company) does not assume or continue such Purchase Rights or does not substitute similar rights for such Purchase Rights, then the Participants accumulated Contributions will be used to purchase shares of Common Stock within ten business days prior to the Change in Control under the outstanding Purchase Rights, and the Purchase Rights will terminate immediately after such purchase.
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11. A MENDMENT ; T ERMINATION OR S USPENSION OF THE P LAN .
(a) The Board or the Committee may amend the Plan at any time in any respect the Board or the Committee, as applicable, deems necessary or advisable. However, except as provided in Section 10(a) relating to Changes in Capitalization, stockholder approval will be required for any amendment of the Plan for which stockholder approval is required by applicable laws, regulations or listing requirements, including, without limitation, any amendment that either (i) materially increases the number of shares of Common Stock available for issuance under the Plan, (ii) materially expands the class of individuals eligible to become Participants and receive Purchase Rights, (iii) materially increases the benefits accruing to Participants under the Plan or materially reduces the price at which shares of Common Stock may be purchased under the Plan, or (iv) expands the types of awards available for issuance under the Plan, but in each of (i) through (iv) above only to the extent stockholder approval is required by applicable laws, regulations or listing requirements. In addition, no amendment may make any change to any outstanding Purchase Right which materially adversely affects such Purchase Right without the consent of the person to whom such Purchase Right was granted, except (x) as provided in Section 10(a) relating to Changes in Capitalization, (y) to the extent necessary to comply with any laws, listing requirements, or governmental regulations (including, without limitation, the provisions of Section 423 of the Code and the regulations and other interpretive guidance issued thereunder relating to Employee Stock Purchase Plans) including without limitation any such regulations or other guidance that may be issued or amended after the Effective Date, or (z) as necessary to obtain or maintain any special tax, listing, or regulatory treatment.
(b) The Board or the Committee may suspend or terminate the Plan at any time. No Purchase Rights may be granted under the Plan while the Plan is suspended or after it is terminated. In addition, the Board or the Committee may terminate an Offering if the Board or the Committee determines that the termination of the Offering is in the best interests of the Company and its stockholders.
12. E FFECTIVE D ATE OF P LAN .
The Plan will become effective immediately prior to and contingent upon the IPO Date. No Purchase Rights will be exercised unless and until the Plan has been approved by the stockholders of the Company, which approval must be within 12 months before or after the date the Plan is adopted (or if required under Section 11(a) above, materially amended) by the Board.
13. M ISCELLANEOUS P ROVISIONS .
(a) Proceeds from the sale of shares of Common Stock pursuant to Purchase Rights will constitute general funds of the Company.
(b) To the extent required by applicable law, rules or regulations, a Participant will be required to make arrangements satisfactory to the Company for the payment of any withholding or similar tax obligations that arise in connection with the Plan or any Offering.
(c) A Participant will not be deemed to be the holder of, or to have any of the rights of a holder with respect to, shares of Common Stock subject to Purchase Rights unless and until the Participants shares of Common Stock acquired upon exercise of Purchase Rights are recorded in the books of the Company (or its transfer agent).
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(d) Neither the Plan nor any Offering hereunder will give any Participant or other Employee any right with respect to continuance of employment by the Company or any Related Corporation, nor will they be a limitation in any way on the right of the Company or any Related Corporation by which an Employee is employed or retained to terminate his or her employment at any time.
(e) The Plan and actions taken in connection herewith will be governed and construed in accordance with the laws of the State of Delaware (regardless of the law that might otherwise govern under applicable Delaware principles of conflict of laws).
(f) If any provision of the Plan will be held invalid or unenforceable, such invalidity or unenforceability will not affect any other provisions hereof, and the Plan will be construed and enforced as if such provisions had not been included.
(g) All disputes and claims of any nature that a Participant (or such Participants transferee or estate) may have against the Company arising out of or in any way related to the Plan must be submitted solely and exclusively to binding arbitration in accordance with the then-current employment arbitration rules and procedures of the American Arbitration Association (AAA) to be held in Kansas. All information regarding the dispute or claim and arbitration proceedings, including any settlement, shall not be disclosed by the Participant or any arbitrator to any third party without the written consent of the Company, except with respect to judicial enforcement of any arbitration award. Any arbitration claim must be brought solely in the Participants (or such Participants transferees or estates) individual capacity and not as a claimant or class member (or similar capacity) in any purported multiple-claimant, class, collective, representative or similar proceeding, and the arbitrator may not permit joinder of any multiple claimants and their claims without the express written consent of the Company. Any arbitrator selected to adjudicate the claim must be knowledgeable in the industry standards and practices, and each Participant will be deemed to agree that any claims pursuant to the Plan is inherently a matter involving interstate commerce and thus, notwithstanding the choice of law provision included herein, the Federal Arbitration Act shall govern the interpretation and enforcement of this arbitration provision. The arbitrator shall not be permitted to award any punitive or similar damages, but may award attorneys fees and expenses to the prevailing party in any arbitration. Any decision by the arbitrator shall be binding on all parties to the arbitration.
(h) The headings and captions herein are provided for reference and convenience only, will not be considered part of the Plan, and will not be employed in the construction of the Plan.
14. D EFINITIONS .
As used in the Plan, the following definitions will apply to the capitalized terms indicated below:
(a) Board means the Board of Directors of the Company.
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(b) Change in Capitalization means any change in the capital structure of the Company by reason of any stock split, reverse stock split, stock dividend, extraordinary cash dividend, subdivision, combination or reclassification of shares that may be issued under the Plan, any recapitalization, any merger, any consolidation, any spin off, any reorganization or any partial or complete liquidation, or any other corporate transaction or event having an effect similar to the foregoing.
(c) Change in Control will have the meaning ascribed thereto in the Companys 2017 Incentive Plan, as amended or amended and restated from time to time.
(d) Code means the Internal Revenue Code of 1986, as amended, and all rules and regulations promulgated thereunder. Any reference to any section of the Code will also be a reference to any successor provision.
(e) Committee means the Compensation Committee of the Board or such other committee or subcommittee of the Board appointed from time to time by the Board. To the extent that no Committee exists that has the authority to administer the Plan, the functions of the Committee will be exercised by the Board.
(f) Common Stock means the common stock of the Company.
(g) Company means CURO Group Holdings Corp., a Delaware corporation, and its successors by operation of law.
(h) Contributions means the payroll deductions that a Participant contributes to fund the exercise of a Purchase Right. If required by applicable law or regulation and if specifically provided for in the Offering, a Participant may make additional payments into his or her account, and then only if the Participant has not already had the maximum permitted amount withheld during the Offering through payroll deductions.
(i) Designated Company means any Related Corporation selected by the Committee as participating in the Plan.
(j) Director means a member of the Board.
(k) Effective Date means November 8, 2017, which is the date on which the Plan was approved by the Board.
(l) Eligible Employee means an Employee who meets the requirements set forth in the document(s) governing the Offering for eligibility to participate in the Offering, provided that such Employee also meets the requirements for eligibility to participate set forth in the Plan.
(m) Employee means any person, including an Officer or Director, who is treated as an employee in the records of the Company or a Related Corporation. However, service solely as a Director, or payment of a fee for such services, will not cause a Director to be considered an Employee for purposes of the Plan.
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(n) Employee Stock Purchase Plan means a plan that grants Purchase Rights intended to be options issued under an employee stock purchase plan, as that term is defined in Section 423(b) of the Code.
(o) Fair Market Value will have the meaning ascribed thereto in the Companys 2017 Incentive Plan, as amended or amended and restated from time to time.
(p) IPO means an initial underwritten public offering of the Companys equity securities pursuant to an effective Form S-1 or Form F-1 registration statement filed under the Securities Act or similar law or regulation governing the offering and sale of securities in a jurisdiction other than the United States.
(q) IPO Date means the effective date of the registration statement for the IPO.
(r) Offering means the grant to Eligible Employees of Purchase Rights, with the exercise of those Purchase Rights automatically occurring at the end of one or more Purchase Periods. The terms and conditions of an Offering will generally be set forth in the Offering Document approved by the Committee for that Offering.
(s) Offering Date means a date selected by the Committee for an Offering to commence.
(t) Officer means a person who is an officer of the Company or a Related Corporation within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended, and all rules, regulations and successor provisions promulgated thereunder.
(u) Participant means an Eligible Employee who holds an outstanding Purchase Right.
(v) Plan means this CURO Group Holdings Corp. 2017 Employee Stock Purchase Plan, as amended from time to time.
(w) Purchase Date means one or more dates during an Offering selected by the Committee on which Purchase Rights will be exercised and on which purchases of shares of Common Stock will be carried out in accordance with such Offering.
(x) Purchase Period means a period of time specified within an Offering, generally beginning on the Offering Date or on the first Trading Day following a Purchase Date, and ending on a Purchase Date. An Offering may consist of one or more Purchase Periods.
(y) Purchase Right means an option to purchase shares of Common Stock granted pursuant to the Plan.
(z) Related Corporation means any parent corporation or subsidiary corporation of the Company whether now or subsequently established, as those terms are defined in Sections 424(e) and (f), respectively, of the Code.
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(aa) Securities Act means the Securities Act of 1933, as amended, and all rules and regulations promulgated thereunder. Any reference to any section of the Securities Act will also be a reference to any successor provision.
(bb) Trading Day means any day on which the exchange(s) or market(s) on which shares of Common Stock are listed, including but not limited to the NYSE, Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market or any successors thereto, is open for trading.
A DOPTED BY THE B OARD OF D IRECTORS : N OVEMBER 8, 2017
A PPROVED BY THE S TOCKHOLDERS : N OVEMBER 8, 2017
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Exhibit 10.60
AMENDMENT NO. 1
TO
EMPLOYMENT AND NON-COMPETITION AGREEMENT
This Amendment No. 1 (this Amendment ) to the Employment Agreement (as defined below) is entered into as of November 8, 2017, by and between CURO Financial Technologies Corp., (the Employer ) and Donald F. Gayhardt, Jr. (the Employee ).
WHEREAS, the Employer and Employee are parties to that certain Employment and Non-Competition Agreement, dated January 1, 2017 (the Employment Agreement ), which governs the terms of the Employees employment with the Employer; and
WHEREAS, the Employer and Employee now desire to amend the Employment Agreement, effective immediately, in order to provide for a delay period that is compliant with Section 409A of the Internal Revenue Code of 1986.
NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto hereby agree as follows:
1. Capitalized Terms . Capitalized terms that are not defined in this Amendment shall have the meanings ascribed thereto in the Employment Agreement.
2. Amendment to Employment Agreement . Section 10(i) of the Employment Agreement shall be amended to include the following new clause (vi):
(vi) Any payment otherwise required to be made hereunder to Employee at any date as a result of the termination of Employees employment shall be delayed for such period of time as may be necessary to meet the requirements of Section 409A (the Delay Period ). On the first business day following the expiration of the Delay Period, Executive shall be paid, in a single cash lump sum, an amount equal to the aggregate amount of all payments delayed pursuant to the preceding sentence, and any remaining payments not so delayed shall continue to be paid pursuant to the payment schedule set forth herein.
3. Ratification and Confirmation . Except as specifically amended by this Amendment, the Employment Agreement is hereby ratified and confirmed in all respects and remains valid and in full force and effect. Whenever the Employment Agreement is referred to in this Amendment or in any other agreement, document or instrument, such reference shall be deemed to be to the Employment Agreement, as amended by this Amendment, whether or not specific reference is made to this Amendment.
4. Entire Agreement . The Employment Agreement and this Amendment contains the entire understanding and agreement of the parties hereto regarding the employment of Employee and supersede all prior negotiations, discussions, correspondence, communications, understandings and agreements between the parties relating to the subject matter hereof.
5. Governing Law . This Amendment and the performance hereof shall be construed and governed in accordance with the laws of the State of New York.
6. Acknowledgment . Employee acknowledges (i) that Employee has consulted with or has had the opportunity to consult with independent counsel of Employees own choice concerning this Amendment, and has been advised to do so by the Company, and (ii) that Employee has read and understands this Amendment, is fully aware of its legal effect, and has entered into it freely based on Employees own judgment.
7. Counterparts . This Amendment may be executed in multiple counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. The execution of this Amendment may be by actual signature or by signature delivered by facsimile or by e-mail as a portable document format (.pdf) file or image file attachment.
* * *
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IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first set forth above.
CURO FINANCIAL TECHNOLOGIES CORP. | EMPLOYEE | |||||||
/s/ Donald F. Gayhardt, Jr. |
||||||||
By: |
/s/ Vin Thomas |
Donald F. Gayhardt, Jr. |
||||||
Signature | ||||||||
Title: |
Secretary and Chief Legal Officer |
Date: |
11-8-17 |
|||||
Date: |
11-8-17 |
[ Signature Page to Amendment to D. Gayhardts Employment Agreement ]
Exhibit 10.61
November 1, 2017
CURO FINANCIAL TECHNOLOGIES CORP. (the Company)
SPECIAL BONUS NOTICE
On or about November 1, 2017, our parent company CURO Group Holdings Corp. ( Holdings ) paid a dividend in the amount of $133.00 per share to its holders of common stock. While there is no requirement to pay a dividend in respect of the stock options issued to you by Holdings (as the options have not been exercised) and you are not otherwise entitled to receive the bonuses set forth herein pursuant to such stock options, subject to the terms and conditions set forth herein, we have determined to pay to you the bonuses set forth herein as discretionary compensation in recognition of your dedication and commitment to the Company. Capitalized terms used but not otherwise defined herein shall have the meanings ascribed thereto in that certain Stock Option Agreement(s), between you and Holdings, entered into as of the date hereof (the Stock Option Agreement(s) ).
BONUSES
Initial Bonus . Following the date upon which you return an executed copy of this Special Bonus Notice, the Company will pay or cause to be paid to you a bonus (the Initial Bonus ) equal to (a) the number of Vested Optioned Shares under the Stock Option Agreement(s) on the date hereof (as set forth in the chart below) multiplied by (b) $133.00 per share (the Per Share Amount ).
Quarterly Bonuses for 2017-2022 Calendar Years. If you have any Unvested Optioned Shares as of the date hereof and remain employed with the Company or any of its subsidiaries on the last day of each calendar quarter during each of 2017, 2018, 2019, 2020, 2021, and 2022 commencing with the first calendar quarter ending after the date hereof (each, a Quarterly Payment Date), the Company will cause its subsidiary to pay to you a bonus for each such calendar quarter (each, a Quarterly Bonus ) equal to the Quarterly Payment Amount. The term Quarterly Payment Amount means, for each applicable calendar quarter, (i) the number of Unvested Optioned Shares under the Stock Option Agreement(s) that become Vested Option Shares pursuant to the Stock Option Agreement(s) during the calendar quarter, in each case, other than due to a Disposition Event, multiplied by (ii) the Per Share Amount (as may be equitably adjusted by the Company for any recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar event affecting the outstanding shares of Common Stock of the Company). Quarterly Bonuses will be paid to you upon or within ten (10) business days following the applicable Quarterly Payment Date.
Disposition Event Bonus. If you have any Unvested Optioned Shares as of the date hereof and remain employed with the Company or any of its subsidiaries on the date on which the first Disposition Event is consummated after the date hereof (such date, the Disposition Event Payment Date ), the Company will pay or cause to be paid to you a bonus (the DE Bonus ) equal to the DE Payment Amount. The term DE Payment Amount means (i) the number of Unvested Optioned Shares under the Stock Option Agreement(s) which become Vested Option Shares solely as a result of the Disposition Event multiplied by (ii) the Per Share Amount (as may be equitably adjusted by the Company for any recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar event affecting the outstanding shares of Common Stock of the Company). Subject to the terms hereof, the DE Bonus will be paid to you upon or within ten (10) business days following the Disposition Event whereupon the Companys undertakings hereunder shall be terminated and discharged in full.
OTHER TERMS
In all cases, each bonus shall be subject to reduction for applicable federal, state and local tax or other withholdings made by the Company or its subsidiary in the ordinary course. As a condition to the payment of any DE Bonus in connection with a Disposition Event, the Company or its subsidiary may require you to provide reasonable cooperation and assistance in connection with a Disposition Event and/or to satisfy other reasonable requirements in respect of the payment of the DE Bonus (including, without limitation, the execution and delivery by you (prior to a specified date) of a release of claims against the Company and its affiliates in a form to be determined by the Company).
Notwithstanding the payment dates specified above for the bonuses payable pursuant to this Special Bonus Notice in respect of the 2017 calendar year, such bonuses shall be deferred pursuant to the Companys Nonqualified Deferred Compensation Plan if and to the extent you have validly elected to defer your Bonus Compensation in respect of the 2017 calendar year thereunder.
All determinations related to the calculation of, conditions to the payment of, and your eligibility to receive any bonus in accordance herewith, or any adjustments contemplated hereby, will be made by the Company in its discretion, in good faith, and all such determinations shall be final, binding and conclusive. The terms of this notice shall not be deemed to amend, supplement or modify in any way the terms and conditions of your Stock Option Agreement(s) with the Company. The Companys undertakings hereunder shall terminate in full upon any termination of your employment for any reason. This Special Bonus Notice embodies the complete agreement and understanding among you, the Company with respect to the subject matter hereof and supersedes any prior understandings, agreements, communications or representations by or among the parties, written or oral, relating in any way to the subject matter hereof.
[Remainder of page intentionally left blank.]
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Please acknowledge your agreement to the terms and conditions set forth in this Special Bonus Notice by returning a copy executed by you where indicated below to Vin Thomas NO LATER THAN 5:00 p.m. CST ON November 3, 2017 . The Company and its subsidiaries shall have no obligations to pay bonuses hereunder if you have not returned your executed copy of this notice prior to such time.
Name:
Date:
NAME |
VESTED
OPTIONED SHARES AS OF DATE HEREOF |
UNVESTED
OPTIONED SHARES AS OF DATE HEREOF |
INITIAL
BONUS |
|||
[ ] |
[ ] | [ ] | $[ ] |
3
Exhibit 10.62
SPECIAL LIMITED AGENCY AGREEMENT
THIS SPECIAL LIMITED AGENCY AGREEMENT (as amended, modified or restated from time to time, this Agreement ) dated as of November 13, 2017 (the Effective Date ), is made by and between TXCSO, Inc. , a Texas corporation ( Lender ) doing business as Barr Funding Company , and Avio Credit , Inc., a Delaware Corporation (referred to herein as CSO ).
RECITALS
WHEREAS, pursuant to Section 303.001(b) and Section 342.004(b) of the Texas Finance Code, Lender intends to make Loans (as defined below) in the State of Texas to Borrowers (as defined below) charging annual interest rates not greater than TEN PERCENT (10.00% APR), secured by (1) CSOs Credit Enhancement (as defined below) on behalf of a Borrower, (2) Borrowers personal checks, remotely created checks, automated clearing house debit authorizations, or other electronic debit authorizations
(a Debit Authorization ), and/or automobile titles (when applicable).
WHEREAS, CSO is a (1) credit services organization registered under Section 393, et seq., of the Texas Finance Code, and (2) credit access business, registered under Section 393, et seq. of the Texas Finance Code, CSO intends to provide, in consideration of the payment of certain fees and other charges by a Borrower, assistance or other services relating to obtaining an extension of consumer credit from Lender.
WHEREAS, Lender desires to appoint CSO as its non-exclusive, special, limited agent with authority to advertise, accept loan applications, prepare loan documentation, to collect payments, and to do and perform such other services as may be mutually agreed between Lender and CSO in furtherance of the transactions contemplated by this Agreement.
WHEREAS, the parties desire to enter into this Agreement for the purpose of setting forth the terms and conditions which will govern certain services to be provided by CSO to Lender in connection with the Loans.
NOW, THEREFORE, in consideration of the mutual promises set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lender and CSO agree as follows:
1. Definitions . Except as may be explicitly stated otherwise herein, the following terms shall have the following meanings ascribed to them below:
Advertising Materials means all materials and methods used by CSO in the performance of CSOs marketing and promotion of the Loans, including, without limitation, brochures, letters, print advertisements, internet advertisements, television and radio communications and other advertising, promotional and similar materials.
Applicant means an individual who requests or applies for a Loan under the Loan Program through CSO.
Special Limited Agency Agreement | Page 1 of 30 |
Borrower means an individual obligor with respect to one or more Loans who is a resident of the State of Texas at the time such obligor signs the Loan Documents (as defined below). Borrowers means all such obligors.
Credit Enhancement means the guaranty, letter of credit or other credit enhancement issued by CSO or Principal Guarantor for each Loan in favor of Lender for the Borrower thereunder and, which provides for the unconditional and absolute guarantee of the payment in full of each such Loan of the Guarantied Obligations.
CSO Program means the program of CSO for providing credit services to Borrowers, including issuing CSOs Credit Enhancement on behalf of a Borrower to enhance their credit and the arrangement of Loans between Lender and Borrowers pursuant to this Agreement and the Program Guidelines (as defined below).
Loans means any extension of credit to Borrowers for personal, family, or household purposes with an interest rate not to exceed TEN PERCENT per annum (10.00% APR) made by Lender, with the assistance of CSO, under the Loan Program.
Loan Program means the lending program of Lender for originating and consummating Loans pursuant to this Agreement and the Program Guidelines.
Principal Guarantor means Curo Intermediate Holding Corporation which directly or indirectly owns ONE HUNDRED PERCENT (100.00%) of CSO.
Program means collectively the Loan Program and the CSO Program.
Program Guidelines means those guidelines established from time to time for the administration of the CSO Program and the Loan Program.
Program Materials means all promissory notes, security agreements, documents, agreements, instruments or other writings, as well as materials and methods used in connection with the performance of the parties obligations under this Agreement, including without limitation applications, disclosures and agreements required by the Rules, privacy policies, collection materials, red flag rules and the like, but excluding Advertising Materials.
Regulatory Authority means any local, state, or federal regulatory authority having valid jurisdiction or exercising regulatory or similar oversight with respect to Lender, CSO, or Third Party Service Providers.
Rules means all local, state, and federal statutes, regulations, or ordinances applicable to the acts of Lender, CSO, or a Third Party Service Provider as they relate to the CSO Program and/ or the Loan Program; any order, decision, injunction, or similar pronouncement of any court, tribunal, or arbitration panel issued with respect to Lender, CSO, or a Third Party Service Provider in connection with this Agreement or the Program; and any regulations, policy statements, and any similar pronouncement of a Regulatory Authority applicable to the acts of Lender, CSO, or a Third Party Service Provider as they relate to this Agreement or the Program.
Special Limited Agency Agreement | Page 2 of 30 |
Senior Debt means all debt and obligations of Lender to Senior Lender under the Senior Loan Documents.
Senior Lender means Lenders senior secured lender(s) or an agent designated by such senior secured lender(s).
Senior Loan Documents means all agreements, instruments and documents evidencing, securing, governing, guaranteeing or pertaining to the Senior Debt, certain indebtedness and obligations of Lender to Senior Lender.
Third Party Service Provider means any contractor or service provider directly or indirectly retained by Lender or CSO, who provides or renders services in connection with the CSO Program or the Loan Program.
Other terms defined herein have the meanings so given to them. Each reference in this Agreement to a definition is a reference to a definition contained in this Agreement, unless the context expressly provides otherwise. Whenever the context requires, references in this Agreement to the singular number shall include the plural, and the plural number shall include the singular. Words denoting gender shall include the masculine, feminine and neuter.
2. General Description of the Loan Program and the CSO Program .
a. Independence of CSO and Lender . CSO and Lender intend to comply with any applicable Rules and to operate independently of each other in their respective capacities as a credit service organization and/or a credit access business in the case of CSO and third-party lender in the case of Lender. CSO and Lender contemplate that CSO will provide credit services related to the Loans.
b. Loan Program . The parties agree that the Loan Program shall consist of the origination, funding, and collection of Loans to Borrowers in accordance with the Rules and Program Guidelines. The parties agree that Lender shall have sole responsibility for establishing credit and underwriting criteria for the Loans, making the decisions as to whether or not to make Loans to an Applicant, funding the Loans, and, subject to the timely performance of CSOs obligations hereunder, managing the Loan Program in accordance with the express obligations under this Agreement and the Program Guidelines. Except as expressly provided herein, (i) nothing herein shall be deemed to commit Lender to originate or fund any particular level or number of Loans, and (ii) Lender makes no representation, warranty or covenant as to the amount of funding it will be able to provide for the Loans. Except as expressly provided with respect to the rights and interest of CSO in this Agreement as to the CSO Fees, Lender or its assigns shall be the sole owner of all Loans made pursuant to this Agreement and CSO shall have no right, title or interest in such Loans.
Special Limited Agency Agreement | Page 3 of 30 |
c. CSO Program . The parties agree that CSOs responsibility under the Program shall be to act as a credit services organization and/or a credit access business on behalf of Borrowers in accordance with the Rules and Program Guidelines and as such CSO shall have the right to charge each Borrower a fee (a CSO Fee) for providing credit services to each such Borrower (including issuing the Credit Enhancement for such Borrower) and arranging for a Loan on behalf of such Borrower. CSO shall not share with Lender, and Lender shall not accept as compensation, any portion of any CSO Fee obtained from a Borrower. If required by applicable Rules, CSO also shall act as a third party debt collector (as defined under Chapter 392 of the Texas Finance Code) on behalf of Lender with respect to the Loans in accordance with the Program Guidelines. The services CSO provides to each Borrower shall be governed by a Credit Services Disclosures, Terms and Conditions (each CSO Disclosure Statement) and a Credit Services Agreement between CSO and each Borrower (each a CSO Contract). CSO, in CSOs sole discretion, shall be solely responsible for determining the amount of the CSO Fee, the disclosures set forth in the CSO Disclosure Statement and the terms and conditions of each CSO Contract. CSO shall determine, in its sole discretion, whether or not it is appropriate to offer a Credit Enhancement in connection with an Applicant. Nothing herein shall be deemed to commit CSO to broker any particular level or number of Applicants for Loans, and CSO makes no representation, warranty or covenant as to the number of Loan applications CSO will submit to Lender on behalf of Applicants. Unless otherwise required by the Rules, nothing herein shall be deemed to require CSO to submit to Lender the application of any prospective Borrower to whom CSO has determined not to provide credit services or for whom CSO has determined not to issue a Credit Enhancement.
d. Commencement Date . The parties shall endeavor to begin the Program and commence providing credit services and making Loans hereunder as of the Effective Date or such other date as mutually agreed upon by the parties.
3. Duties and Responsibilities of Lender . Lender shall perform and discharge the following duties and responsibilities.
a. Develop (and from time to time as it determines appropriate, modify) and deliver to CSO or a Third-Party Service Provider credit and underwriting criteria determined by Lender, in Lenders sole discretion, to be appropriate, reasonable and prudent for the Loan Program and the Loans.
b. Make a determination, in Lenders sole discretion, as to whether or not to extend a Loan to each Applicant which determination shall be made on a case by case basis, pursuant to scoring systems or other criteria or models, established by Lender and in the manner set forth in the Program Guidelines.
c. Extend credit in the form of Loans to Applicants it deems eligible to be Borrowers and fund the Loans in amounts as it determines appropriate to extend credit thereto.
Special Limited Agency Agreement | Page 4 of 30 |
d. Disburse or cause the disbursement of the proceeds of Loans to Borrowers in the manner set out in the Program Guidelines.
e. Manage the Loan Program in accordance with Lenders express obligations under this Agreement and under the Program Guidelines and manage the portfolio of Loans using commercially reasonable standards of care, skill and attention, in each case subject to the timely performance by CSO of CSOs obligations under this Agreement and the Program Guidelines.
f. Promptly deliver to CSO all communications received from Borrowers or Applicants (including, without limitation, information requests and bankruptcy filings).
g. Generate or cause the generation of adverse action notices and other communications that may be required under the Rules for Applicants who apply for but are denied a Loan, subject to CSOs responsibility as Lenders special limited agent to deliver and manage such adverse action notices as described in the Program Guidelines.
4. Duties and Responsibilities of CSO . CSO shall perform and discharge the following duties and responsibilities:
a. Develop (and from time to time as it determines appropriate, modify) its credit and underwriting criteria for CSOs credit services and CSO fees in CSOs sole discretion to be appropriate, reasonable and prudent for the CSO Program and for the issuance of CSOs Credit Enhancement on behalf of a Borrower in favor of Lender.
b. Maintain all licenses and bonds required under applicable Rules during the term of this Agreement.
c. Make a determination, in CSOs sole discretion, as to whether or not to extend credit services and specifically issue a Credit Enhancement on behalf of a prospective Borrower (which determination shall be made on a case by case basis, pursuant to scoring systems or other criteria or models established or utilized by CSO).
d. Do and perform all other activities assigned to or expected of it as set forth herein or in the Program Guidelines relating to the CSO Program, which are incorporated herein by reference.
5. Appointment of CSO as Special Limited Agent . Lender hereby appoints CSO as its special limited agent to perform certain administrative and servicing functions in connection with this Agreement under the Program and retains CSO as its servicer for the Loans, as provided in this Agreement and in the Program Guidelines. CSO hereby accepts the appointment as Lenders special limited agent and agrees to perform and discharge the following duties and responsibilities at its own cost and expense.
a. Market and promote the Program and the Loans and solicit potential Applicants in the manner set forth herein.
Special Limited Agency Agreement | Page 5 of 30 |
b. Provide certain disclosures and agreements to each Borrower, including a CSO Disclosure Statement and a CSO Contract, and such other disclosures and agreement as may be required by the Rules in the manner described in the Program Guidelines or in the Rules.
c. Administer the application process for Loans, solicit applications, and assist potential Borrowers in completing applications in accordance with the Rules.
d. If required, maintain a contract with a Third Party Service Provider or, alternatively, coordinate with or utilize another underwriting system approved by Lender that will receive Loan applications and evaluate such applications and any collateral using Lenders underwriting criteria.
e. To the extent required by the Program Guidelines, transmit Loan applications to Lender and/or a Third Party Service Provider in accordance with the Program Guidelines.
f. Receive evaluations of Loan applications and the resulting Loan approval or denial decisions from Lender and/or Third Party Service Provider and forward such decisions to the applicable Applicants.
g. Prepare and ensure the proper completion and delivery of Loan Documents in accordance with all applicable Rules to Lender, a Third Party Service Provider (if instructed by Lender) and Borrowers.
h. Prepare security documents to permit the perfection of liens on any collateral securing the Loans and file such security documents with the appropriate authority.
i. Receive for Lender from Borrowers payments due to Lender, other than dedicated CSO fees, under the Loans and forward any to Lender, in the manner specified in this Section 5(i) , any such payments delivered to CSO by Borrowers. The funds from these payments shall belong to Lender (or the recipient designated by Lender), shall be held in trust by CSO for Lender, and shall be remitted to Lender within ONE (1) business day of receipt by CSO to the bank account designated and controlled by Lender. Any payment on a Loan received by CSO, other than the CSO fee, shall be binding upon Lender with respect to the applicable Borrower. In accordance with this Agreement, CSO, as Lenders special limited agent, shall continue to accept payments and otherwise collect on the Loans as long as any Guarantied Obligations shall be outstanding.
j . Reflect all Loan transactions and track Loan balances on a loan management system and accounting system to be maintained by CSO pursuant to the requirements of this Agreement.
k. Comply with all registration, bonding and other requirements of the Texas Finance Code and other applicable Rules and any regulations promulgated thereunder, and with the Rules, including federal laws and regulations applicable to CSOs credit services, collection and servicing activities with respect to the Loans, to the extent that any such Rules including without limitation, federal statutes or regulations, are applicable to CSOs credit services, collection and servicing activities.
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I. Maintain and retain the original of all Program Materials with respect to each Loan (either in paper or electronic format), except that CSO may retain copies of Program Materials (other than any original promissory note which shall be retained by CSO or a person designated by Lender) in connection with a Loan in lieu of the original if Borrower is required to receive the original under applicable Rules or with Lenders prior written consent, for the period required by applicable Rules; provided, however, that in the event that CSO shall no longer be conducting business as a credit services organization and/or a credit access business in Texas, CSO shall deliver to Lender all Program Materials relating to all Loans then owned by Lender. CSO shall provide Lender access to such Program Materials no later than FIVE (5) business days after written request. The records and documentation maintained by CSO pursuant to this Agreement shall be maintained in a secure environment at all times and in compliance with applicable Rules.
6. Defaulted Loans and Credit Enhancement . A Loan shall default upon the occurrence of any of the following: (a) Borrower fails to make any payment when due, (b) Borrower makes any statement or representation in connection with obtaining a Loan which is materially false or misleading when made, (c) Borrower fails to keep any promise or agreement it made to Lender in any promissory note or other document evidencing or relating to a Loan, or (d) the CSO Contract related to such Loan is cancelled for any reason prior to Lender receiving payment in full on such Loan. Pursuant to each CSO Contract, and regardless of whether the CSO Contract is cancelled, CSO agrees to issue on behalf of each CSO approved Borrower, and for the benefit of Lender, a Credit Enhancement for the prompt payment of the amounts due to Lender under each Loan made by Lender under the Loan Program, as described in this paragraph; provided that such Credit Enhancement shall be in a form and substance satisfactory to Lender. A Credit Enhancement issued in respect of a Loan shall provide for the unconditional, irrevocable and absolute guarantee of the related loan in an amount equal to the sum of (or such lesser amount as may be agreed in writing from time to time by Lender and CSO): (a) the principal amount of the Loan and accrued and unpaid interest thereon, plus (b) to the extent that the same shall be due and owing in connection with a Loan, an NSF fee for items returned by a depository institution equal to the lesser of NINE AND NO/100 DOLLARS ($9.00) or the amount permitted by applicable law, plus (c) to the extent that the same shall be charged, due and owing in connection with a Loan, a late fee equal to the greater of SEVEN AND 50/100 DOLLARS ($7.50) or FIVE PERCENT (5.00%) of the delinquent payment for any payment past due for more than the period required by applicable law or for such longer period as may be set forth in the Program Guidelines (Guaranteed Obligations). Upon receipt of a Lender demand, CSO shall promptly pay Lender in full the respective Guarantied Obligations for the defaulted Loan under the Credit Enhancement. The parties agree that CSO may issue a Credit Enhancement covering more than one Loan, in which case Lender shall have all the rights and CSO shall have all the obligations with respect to such Credit Enhancement as the Parties would have if individual guaranties were issued for each Loan. If Lender draws on a Credit Enhancement and is paid in full for all amounts owing on a Loan attributable to the respective Guarantied Obligations, Lenders interest in the related Loan shall be assigned automatically to CSO, without any representation or warranty. With respect to each Borrower to which CSO elects to extend credit services and which becomes a Borrower of a Loan under the Loan Program, CSO shall create and maintain books and records reflecting that the respective Guarantied Obligations of such Borrower
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under such Loan are guaranteed by CSO under the Credit Enhancement, including, if applicable, appropriate documentation to substantiate and confirm that multiple Loans are being guaranteed under such Credit Enhancement, which documentation shall be in a form and substance satisfactory to Lender.
7. Settlement . Subject to the terms and conditions of this Agreement, including but not limited to the offset and set-off rights in Section ll(d) below, the parties agree to settle all amounts due from one party to the other pursuant to this Agreement and the Program Guidelines on a daily basis or at such other times as the parties may agree (the date of any such settlement, being the Transaction Date ). Any payment due from one party to the other under this Agreement and the Program Guidelines shall be made by an automated clearing house transfer with next day settlement on the business day immediately succeeding the Transaction Date. Within TWENTY (20) days after the end of each calendar month, the parties shall prepare a recap and reconciliation of all the settlements made during that month, and if the reconciliation reveals that one party owes the other an amount necessary to correct an inaccuracy in the previous settlement process, that amount shall be paid within TWO (2) business days. The settlement obligations of the parties under this Agreement and the Program Guidelines shall survive the termination of this Agreement and will remain in effect as long as any Loans remain unpaid or any party owes any amount to the other party under this Section 7 . Pursuant to the requirements of this Agreement, CSO shall capture and record all relevant data concerning any Loan transaction and prepare appropriate reports and summaries as may be necessary to effect settlement hereunder, facilitate the review and analysis of all Loan activity, and permit Lender to reflect such Loan transactions on its books and records.
8. Program Guidelines . Lender and CSO will mutually agree upon the Program Guidelines in writing and will comply with such Program Guidelines, as the same may be amended from time to time by written agreement of the parties or as may be modified to insure compliance with the Rules. The parties may modify the then current Program Guidelines only in accordance with this Agreement. Both parties agree to act in good faith and in a commercially reasonable manner in connection with the establishment and modification, if any, of the Program Guidelines. The parties agree to perform their duties and responsibilities under this Agreement in accordance with the provisions of the Program Guidelines as applicable to it, as they may be modified from time to time.
9. Program Materials; Advertising Materials; Trade Names and Trademarks . The parties shall each be responsible for preparing their own respective Program Materials; provided, however, prior to the use of any Program Materials prepared by one party, the other party shall be entitled to review and approve such Program Materials in the manner described below. Each party agrees that it will not use any Program Materials unless such Program Materials have been approved in advance by the other party hereto (which approval shall not be unreasonably withheld, conditioned, or delayed). CSO shall be responsible for the development of proposed Advertising Materials concerning advertising and marketing of Loans and solicitation of potential Borrowers. The form and content of all Advertising Materials shall be subject to the prior review and approval of Lender in the manner described herein. The nature of the Advertising Materials, the scope of their dissemination, and the total expenditures to be made on Advertising Materials for the CSO Program and the Program shall be determined by CSO in its reasonable discretion, and CSO shall pay all expenses concerning the production, use, and dissemination of Advertising Materials. Notwithstanding anything herein to the contrary, each party agrees that it will respond in writing to any request from the other party for an approval of any Advertising Materials or Program
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Materials within FIVE (5) business days following such other partys receipt of such materials and any such materials shall be deemed approved by such other party upon the earlier to occur of (a) the actual approval of such materials, or (b) upon the expiration of the above-described FIVE (5) business day period if the party whose approval is being sought fails to timely approve or disapprove such materials within such FIVE (5) business day period. If a party disapproves any proposed Program Materials or Advertising Materials within the required time frame, such party will detail its reasons for such disapproval in such partys written disapproval notice to the other party. A party hereto may at any time retract or modify any approval previously given by it with respect to any Program Materials or Advertising Materials if such action is necessary in order to remain in compliance with the Rules; provided, however, no party shall retract or modify a previously granted approval if there has been no intervening change in the Rules which would require such retraction or modification. CSO shall ensure that all Advertising Materials and the Program Materials shall comply with all applicable Rules. Each of Lender and CSO acknowledges that approved Program Materials and/or Advertising Materials may contain trade names, trademarks, or service marks of CSO and Lender, and Lender or CSO, as the case may be, shall have no authority to use any such names or marks of the other party separate and apart from their use in the Program Materials or Advertising Materials. The parties shall use Program Materials and Advertising Materials only for the purpose of implementing the provisions of this Agreement and shall not use Program Materials or Advertising Materials in any manner that would violate the Rules or any provision of the Program Guidelines.
10. Loan Terms and Charges; CSO Terms and Fees . All underwriting criteria, Loan terms and all interest, fees, and other charges associated with the Loans, exclusive of any CSO Fees, shall be established by Lender and shall be reflected in the Program Guidelines. Notwithstanding the foregoing, however, Lender shall have the right to modify any underwriting criteria, Loan terms, interest rates, fees, or other charges (exclusive of any CSO Fees), from time to time, at its discretion (the Changed Terms). Unless otherwise required by applicable Rules, Lender shall provide CSO with not less than THIRTY (30) days prior written notice of the Changed Terms. The terms and conditions of the CSO Disclosure Statements, CSO Contracts and the amount of any CSO Fees shall be established by CSO, shall comply with the Rules and shall be reflected in the Program Guidelines. Notwithstanding the foregoing, however, CSO shall have the right to modify any CSO Disclosure Statements, CSO Contracts and the amount of any CSO Fees, from time to time, at its discretion. In the event that either party hereto becomes aware that any aspect of the Loan Program or CSO Program, including but not limited to underwriting criteria, Loan terms, interest, fees or other charges associated with any Loan, any term or condition of any CSO Disclosure Statement or CSO Contract or the amount of any CSO Fee, or any activity of CSO as a third-party debt collector, is not in compliance with the Rules, the party becoming aware of the same shall notify the other party of such non-compliance and each party hereto agrees to cooperate in good faith with each other, and to diligently take commercially reasonable steps, as may be necessary in order to promptly correct and cure any such non-compliance.
11. Nature of Certain Credit Enhancements .
a. Guaranty by CSO . CSO hereby unconditionally, irrevocably and absolutely guarantees (i) the due and punctual payment and performance of the Guarantied Obligations, and (ii) agrees that this guaranty shall be a continuing guaranty, shall be binding upon CSO, and upon its
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successors and assigns, and shall remain in full force and effect, and shall not be discharged, impaired or affected by the following, without limitation (1) the existence or continuance of any of the Guarantied Obligations (other than the payment or performance of the Guarantied Obligations in accordance with their terms); (2) the validity or invalidity of any document or agreement evidencing the Guarantied Obligations or any of them; (3) the existence or continuance of any Borrowers obligations with respect to the Guarantied Obligations; (4) any waiver, indulgence, alteration, substitution, exchange, change in, modification or other disposition of any of the Guarantied Obligations, all of which Lender is hereby expressly authorized to make from time to time without notice to CSO; (5) the acceptance by Lender of any security for, or other guarantors upon, all or any part of the Guarantied Obligations; or (6) any defense (other than the payment or performance of the Guarantied Obligations). CSO will pay and reimburse Lender in full for the amount of any and all Guaranteed Obligations due hereunder pursuant to the terms of this Agreement. Upon final satisfaction of the Guarantied Obligations, Lender shall promptly (and in any event within FIVE (5) business days of such satisfaction) return to CSO any sums held as collateral for the Guarantied Obligations.
b. Principal Guaranty . As a material inducement to enter into this Agreement, Principal Guarantor:
i. Unconditionally, irrevocably and absolutely guarantees (1) the due and punctual payment of all amounts due and payable from CSO to Lender under this Agreement, including but not limited to, all Guarantied Obligations; and (2) the due and punctual performance and observance by CSO of all other obligations, warranties, covenants and duties of CSO set forth in this Agreement (all of which amounts payable and the terms, warranties, agreements, covenants and conditions being herein called the Principals Obligations ).
ii. Agrees that the guaranty set forth in this Section 11(b) shall be a continuing guaranty, shall be binding upon Principal Guarantor, and upon its successors and assigns, and shall remain in full force and effect, and shall not be discharged, impaired or affected by the following without limitation (1) the existence or continuance of any of the Principals Obligations (other than the payment or performance of the Principals Obligations in accordance with their terms); (2) the validity or invalidity of any document or agreement evidencing the Principals Obligations or any of them; (3) the existence or continuance of CSO as a legal entity; (4) any waiver, indulgence, alteration, substitution, exchange, change in, modification or other disposition of any of the Principals Obligations, all of which Lender or CSO is hereby expressly authorized to make from time to time without notice to Principal Guarantor; (5) the acceptance by Lender of any security for, or other guarantors upon, all or any part of the Principals Obligations; or (6) any defense (other than the payment or performance of the Principals Obligations in accordance with their terms) that Principal Guarantor may or might have to its undertakings, liabilities and obligations hereunder, each and every such defense being hereby waived by Principal Guarantor.
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iii. Agrees that Principal Guarantor shall be held liable hereunder and Lender shall have the right to enforce this guaranty against Principal Guarantor for and to the full amount of the Principals Obligations, with or without enforcing or attempting to enforce this guaranty against any other guarantor, without any obligation on the part of Lender, or anyone, at any time, to resort to any collateral, security, property, liens or other rights or remedies whatsoever, and whether or not other proceedings or steps are pending or have been taken or have been concluded to enforce or otherwise realize upon the obligations, properties, estates or security of CSO or any other guarantor; and the payment of any amount or amounts by Principal Guarantor, pursuant to its obligations hereunder, shall not entitle Principal Guarantor, either at law or otherwise, to any right, title or interest (whether by way of subrogation or otherwise) in and to any of the Principals Obligations, unless and until the full amount of the Principals Obligations has been fully paid, all other Principals Obligations have been fully performed and observed in accordance with their terms and the Agreement has been terminated; nor will Principal Guarantor have any other rights, title, or interest pursuant to this Agreement unless specifically designated in this Agreement.
iv. Agrees and acknowledges that the direct or indirect value of the consideration received and to be received by Principal Guarantor in connection herewith is reasonably worth at least as much as the liability and obligations of Principal Guarantor hereunder, and the incurrence of such liability and obligations in return for such consideration may reasonably be expected to benefit Principal Guarantor, directly or indirectly.
c. Pledge of Credit Support for Credit Enhancement . CSO shall pledge and does hereby pledge to Lender that amount of cash having a value equal to a percentage mutually agreed upon in writing between CSO and Lender of the total amount of principal of all Loans outstanding from time to time (such percentage to be modified only upon the mutual agreement of both parties) as collateral for CSOs obligations under its Credit Enhancement. Such pledge shall be in form and substance reasonably acceptable to Lender. On a weekly basis, CSO and Lender shall determine whether the amounts pledged to or held by Lender pursuant to this Section 11(c) shall equal the amount referenced above. In the event of any shortfall, CSO shall promptly pledge to Lender additional cash in an aggregate amount equal to such shortfall. In the event of any excess and provided that CSO is not in default under any Credit Enhancement or in default under Section 18 hereof, Lender shall promptly release cash in an aggregate amount equal to such excess. In order for Lender to have and maintain a first priority perfected security interest in the cash pledged to Lender pursuant to this section but only to the extent of actual sums due and owing, from time to time to Lender, CSO hereby authorizes Lender to file UCC financing statements and amendments with such governmental offices and in such jurisdictions as Lender may deem appropriate from time to time to perfect and maintain its security interests herein granted in such pledged cash. Stated otherwise for further clarification, CSO shall be entitled to full refund of the pledged cash upon settlement and payment in full of all outstanding Loans, irrespective of Senior Lenders security interest in such pledged cash, if any. Under no circumstances may a Senior Lender receive more than the Lender would have received, absent some default by Lender or other occurrence, which results in Senior Lender acceding to Lenders position. CSO hereby
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further agrees to undertake reasonable actions as requested by Lender from time to time in order to perfect, protect or otherwise preserve the security interest herein granted to Lender in such pledged cash. To the extent that CSO pledges to Lender any cash pursuant to this section, then in connection with the pledge of such cash, CSO shall deposit such cash into a bank account as Lender may direct CSO in writing, which account shall be owned and subject to the exclusive control by Lender. In lieu of the pledge required hereby, CSO may provide Lender with a letter of credit issued by a third party or other security having a value equal to the amount of cash that would otherwise be pledged and reasonably acceptable to Lender. At the termination of this Agreement or CSO Program, the sums of the pledged cash, subject to the settlement and payment in full of the amounts due the parties, shall be returned to CSO
d. Offset and Set-off Rights . In the event that (i) CSO is in default under any Credit Enhancement issued in respect of any Loan or (ii) in default under Section 18 hereof, then, without any prior notice to CSO, any such notice being expressly waived by CSO to the extent permitted by applicable law, Lender shall have the right to set-off, offset and apply against any Guarantied Obligations owed by CSO and/or Principal Guarantor to lender, until paid In full, any and all pledged cash and any other credits, indebtedness or obligations, in each case whether direct or Indirect, absolute or contingent, matured or unmatured, owed by lender to or for the credit or the account of CSO under this Agreement or any other agreement between CSO and Lender; provided that the foregoing set-off, offset and application rights of Lender shall not limit in any manner, and shall be in addition to, any other rights and remedies of Lender provided by this Agreement and by Jaw. Lender agrees promptly to notify CSO after any such set-off, offset and application made by Lender pursuant to the preceding sentence; provided that any failure to give such notice shall not affect the validity of such set-off, offset, appropriation and application.
12. Third Party Service Providers . No party hereto, whether directly or indirectly, shall retain any Third Party Service Provider to assist it in performing its duties hereunder or to otherwise participate in the Loan Program or the CSO Program except with the prior written consent of the other party hereto, which consent shall not be unreasonably withheld. In seeking the approval to retain a Third Party Service Provider, the party requesting such approval shall provide to the other party such information concerning the proposed Third Party Service Provider as such other party may reasonably request. A party may condition its willingness to approve a proposed Third Party Service Provider upon obtaining a written commitment from such Third Party Service Provider to comply with the terms of this Agreement and the Program Guidelines, to submit to audits and inspections by either party hereto, and to indemnify the parties hereto upon such terms and conditions as the parties hereto may reasonably require. CSO shall be responsible for supervising any Third Party Service Providers retained by CSO. Lender shall be responsible for supervising any Third Party Service Providers retained by Lender.
13. Servicing and Accounting System . CSO agrees to develop and maintain, at its sole cost and expense, a comprehensive computerized servicing and accounting system (i) that will accurately and promptly reflect all Loan transactions and track all Loan balances and the related pledged cash, Credit Enhancements and Guarantied Obligations for all Loans on an individual and aggregate basis, (ii) that will satisfy the Information requirements of CSO, Lender, Third Party Service Provider and Regulatory Authorities having jurisdiction over the loan Program and/or the CSO Program, if any, and (iii) that will
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provide a mutually agreed web link by which Lender can access such system. CSO shall provide Lender on a daily basis (on each business day) with an electronic file with data concerning all Loans originated hereunder and the related Guaranties to assist Lender in incorporating such information into its internal accounting, record keeping, and audit systems, in form and substance as may be mutually agreed to by parties from time to time. Upon the termination of this Agreement, for any reason, CSO shall continue to provide the accounting and servicing functions described herein for the Loans for the benefit of Lender and maintain the servicing and accounting system described herein for the Loans for the benefit of Lender and maintain the servicing and accounting system described herein for such purpose for TWO (2) years following the later of (a) the date on which this Agreement is terminated, and (b) the date on which the final outstanding Loan has been paid in full by the applicable Borrower or by CSO pursuant to a Credit Enhancement issued by CSO in accordance with the Program Guidelines and Section 6 hereof.
14. CSOs Representations, Warranties and Covenants . CSO makes the following warranties, representations and covenants to Lender which will survive the expiration or termination of this Agreement for any reason:
a. This Agreement is valid, binding and enforceable against CSO in accordance with its terms, and CSO has received all necessary organization approvals to enter into this Agreement and to perform its obligations hereunder.
b. CSO is a Delaware Corporation, duly formed, validly existing, and is in good standing under the laws of the State of Delaware and its authorized, registered, and licensed to do business in Texas and in each state in which the nature of its activities makes such authorization, registration, or licensing necessary or required. CSO is registered as required for credit services organizations or a credit access business (as the case may be) under Chapter 393 of the Texas Finance Code and will remain so registered throughout the term of this Agreement. CSO has obtained any third party debt collector surety bond required by Chapter 392 of the Texas Finance Code and, if required by Chapter 392, will retain such bond throughout the term of this Agreement.
c. CSO has the full organizational power and authority to execute and deliver this Agreement and perform all of its obligations hereunder.
d. The provisions of this Agreement and the performance of each of CSOs obligations hereunder do not conflict with CSOs articles of organization, by-laws, or any agreement, contract, lease, or obligation to which CSO is a party or by which CSO is bound.
e. The governing authority of CSO has approved the terms and conditions of this Agreement and has determined that entering into this Agreement is in the best interests of CSO.
f. This Agreement, the Program Guidelines and the provisions of each of them comply with and are enforceable under the Rules, and the operation of each of the Loan Program and the CSO Program in accordance with this Agreement and the Program Guidelines will not violate any of the Rules.
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g. Neither CSO nor any principal thereof has been or is the subject of any of the following:
i. Criminal conviction (other than misdemeanor traffic offenses);
ii. IRS lien;
iii. Enforcement agreement, memorandum of understanding, cease and desist order, administrative penalty, or similar agreement concerning lending matters that has the effect of permanently precluding CSO or its principals from engaging in consumer financial services;
iv. Administrative or enforcement proceeding or material investigation commenced by the Securities Exchange Commission, state securities regulatory authority, Federal Trade Commission or any other state or federal Regulatory Authority (excluding routine examinations conducted by a Regulatory Authority and excluding communications received in the ordinary course of business from any Regulatory Authority such as communications concerning consumer complaints or communications related to immaterial issues); or
v. Restraining order, decree, injunction or judgment in any proceeding or lawsuit alleging fraud or deceptive practices or illegal activity on the part of CSO or any principal thereof.
For purposes of this Section 14(g) , the word principal of CSO shall include (i) any person directly or indirectly owning a TEN PERCENT (10.00%) or more equity interest of CSO, (ii) any officer or director of CSO, and (iii) any other person having the power or authority to control CSOs business.
h. CSO shall furnish Lender within THIRTY (30) days following the end of each calendar quarter, a compliance certificate affirming its current compliance and earlier compliance with each of the following covenants during the previous quarter:
i. CSO is now and was at all relevant times a duly licensed credit services organization registered under Section 393, et seq., of the Texas Finance Code (CSO has not originated any loans under the tribal model and/or any offshore or commerce model);
ii. CSO is now and was at all relevant times and in all material respects in compliance with the Loan Program, all applicable Rules and the Program Guidelines;
iii. CSO is not now originating or providing credit services in the origination of, nor has it ever originated or provided credit services in the origination of, any loan at an interest rate greater than TEN PERCENT (10.00%) annual percentage rate as a credit service organization or as the agent of Lender;
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iv. At all relevant times, all advertising and promotional materials for the Loans (1) have and continue to prominently identify Lender as the maker of the Loans, (2) have been and continue to be accurate, (3) have not been and are not now misleading, (4) have and continue to be in compliance with all applicable Rules, and (5) have been and continue to be submitted to Lender for prior approval;
v. CSO has not engaged and is not now engaged in any discriminatory practice in violation of the Rules, including without limitation any discriminatory practice for the purpose of discouraging any Applicant in any aspect of the credit process or any purpose prohibited by law;
vi. CSO has used and continues to use only commercially reasonable efforts to collect payments on the Loans at and after maturity thereof on behalf of Lender, and has complied and continues to comply with the federal Fair Debt Collection Practices Act, to the extent applicable, and any other applicable Rules, in the collection process;
vii. CSO has not made and will not make, explicitly or implicitly, any threats of criminal prosecution in connection with debt collection, and CSO has not engaged in, nor will it engage in, any practices that violates any applicable Rules;
viii. CSO has not imposed, nor will it impose, a charge for cashing a check or draft related or conditioned on its CSO services, but may charge a fee for cashing a check or draft as an ancillary financial service. CSO has been and will remain in compliance in all respects with the Gramm Leach-Bliley Act (GLBA) and Federal Trade Commission regulations implementing the GLBA, other applicable federal and state privacy rules, and this Agreement, as it pertains to Applicant and Borrower Information (as later defined);
ix. CSO has not violated and will not violate any term of this Agreement pertaining to the use and/or protection of Lenders Confidential Business Information;
x. CSO shall provide (in reasonable detail) the calculations and supporting documentation as Lender may require to demonstrate compliance with the financial covenants referred to in Section 27 of this Agreement;
xi. CSO has and will continue to timely furnish all information required herein, which Information has and will be in all material respects, truthful, accurate and complete.
xii. In the event that CSO commences filing public reports with the SEC, CSO shall permit Lender to participate in any periodic conference calls regularly available to market analysts or investors.
xiii. CSO shall comply with all applicable federal, state and local statutes, regulations and ordinances in its performance of this Agreement, the performance of the credit services, and its operation of the Program.
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xiv. CSO shall implement, and shall take measures to maintain, reasonable and appropriate administrative, technical, and physical security safeguards to (1) insure the security and confidentiality of non-public personal information relating to any consumer; (2) protect against anticipated threats or hazards to the security or integrity of non-public personal information; and (3) protect against unauthorized access or use of non-public personal information that could result in substantial harm or inconvenience to any consumer.
Any failure or inability to timely or truthfully issue such compliance certificate shall be a default under this Agreement and shall give rise to Lenders rights and remedies under Section 18 .
15. Lenders Representations and Warranties . Lender makes the following warranties and representations to CSO, all of which shall survive the execution and termination of this Agreement for any reason:
a. This Agreement is valid, binding and enforceable against Lender in accordance with its terms, and Lender has received all necessary approvals to enter into this Agreement and to perform its obligations hereunder.
b. Lender is a Texas corporation duly formed, validly existing, and in good standing under the laws of the State of Texas and is authorized to do business in the State of Texas and in each state in which the Loans are being offered and in each state in which the nature of its activities makes such authorization, registration, or licensing necessary or required. Lender is not affiliated with CSO or any affiliate of CSO.
c. Lender has the full organizational power and authority to execute and deliver this Agreement and perform all of its obligations hereunder.
d. The provisions of this Agreement and the performance of each of Lenders obligations hereunder do not conflict with Lenders organizational documents or any agreement, contract, lease, or obligation to which Lender is a party or by which Lender is bound.
e. The governing authority of Lender has approved the terms and conditions of this Agreement and has determined that the entering of this Agreement by Lender is in the best interests of Lender.
f. Neither Lender nor any principal thereof has been or is the subject of any of the following:
i. Criminal conviction (other than misdemeanor traffic offenses);
ii. IRS lien;
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iii. Enforcement agreement, memorandum of understanding, cease and desist order, administrative penalty, or similar agreement concerning lending matters that has not been resolved;
iv. Administrative or enforcement proceeding or investigation commenced by the Securities Exchange Commission, state securities regulatory authority, Federal Trade Commission, or any other state or federal Regulatory Authority (excluding routine examinations conducted by a Regulatory Authority and excluding communications received in the ordinary course of business from any Regulatory Authority such as communications concerning consumer complaints or communications related to immaterial issues) that has not been resolved; or
v. Restraining order, decree, injunction, or judgment in any proceeding or lawsuit alleging fraud or deceptive practices or illegal activity on the part of Lender or any principal thereof.
For purposes of this Section 15(f) the word principal of Lender shall include (i) any person directly or indirectly owning a TEN PERCENT (10.00%) or more equity interest of Lender, (ii) any officer or director of Lender, and (iii) any other person having the power or authority to control Lenders business.
16. Ownership of Borrower Information . Each party shall take all steps necessary and appropriate to maintain the confidentiality of any Applicant and Borrower names, addresses, and telephone numbers and all account and other information, including payment information, regarding Borrowers and Applicants who have been declined, and all records, data, and information pertaining to the foregoing (collectively, Borrower lnformation). Lender and CSO jointly and severally shall own all Borrower Information; provided, however, that neither party will use any of such Borrower Information except to the extent permitted by the Program Guidelines and the privacy policies of each of CSO and Lender set forth in the documents described in the Program Guidelines. Notwithstanding the foregoing, without the need for obtaining Lenders consent, CSO may use Borrower Information for purposes of marketing, offering, selling, brokering, underwriting and providing other products and services, including, without limitation, other loan products and services that may be offered to Borrowers by CSO, any Third Party Service Provider of CSO or any other lenders through the distribution channels of CSO and any Third Party Service Provider of CSO, provided that, in all cases, however, any use by CSO of any such Borrower Information shall comply with (a) all applicable Rules, (b) the requirements of the Program Guidelines, and (c) the above-described privacy policies of both CSO and Lender and in the event any such Borrower Information is used in connection with marketing, offering, selling, brokering, underwriting or providing loans made by any party other than CSO, Lender agrees that such other lender may jointly own such Borrower Information with CSO and Lender, so long as such other lender has a privacy policy no less restrictive than Lenders privacy policy described in the Program Guidelines and agrees in writing to comply with such privacy policy and the privacy policies of CSO and Lender. In addition, notwithstanding that Lender has an ownership interest in Borrower Information, Lender agrees that it will not use Borrower Information to market any other products or services to Borrowers or to Applicants without the prior written consent of CSO. Without limiting the foregoing, each of CSO and Lender shall adopt and maintain reasonable procedures relating to administrative, technical, and physical safeguards to: (a)
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ensure the security and confidentiality of any Borrower Information that such party receives; (b) protect against any anticipated threats or hazards to the security or integrity of any Borrower Information that such party receives; (c) protect against the unauthorized access to or use of any Borrower Information that such party has in its possession which could result in substantial harm or inconvenience to any Borrower or Applicant; and (d) ensure the proper disposal of any Borrower Information that such party has in its possession. Notwithstanding anything herein to the contrary, CSO shall be the sole owner of all CSO Disclosure Statements and all CSO Contracts and any information contained therein. The rights and obligations of the parties under this Section 16 shall survive the termination of this Agreement for a period of TWO (2) years. ·
17. Insurance . CSO shall procure and maintain such insurance as described on Exhibit A. Although CSO is not required to assure that such liability policies of insurance, including umbrella policies, name Lender and its successors and assigns as additional insureds under such policies of insurance, CSO agrees to maintain all such coverage throughout the term of this Agreement.
18. Term . The term of this Agreement shall be for a period of TWO (2) years commencing as of the Effective Date; provided, however, that either party may terminate this Agreement prior to the expiration of its term pursuant to the provisions of this Section 18 and Section 19 below. This Agreement shall be renewed automatically for successive one-year terms unless the party not wishing to renew provides the other party with at least NINETY (90) days advance written notice of non-renewal. Each party hereto shall have the right to terminate this Agreement immediately upon written notice to the other party hereto, if (a) the terminating party determines in its reasonable discretion that the activities of the parties under this Agreement, the Loan Program or the CSO Program are illegal under, prohibited by or not permitted under any of the Rules; (b) any Regulatory Authority having jurisdiction over the Program, CSO or Lender requires the terminating party to terminate this Agreement; (c) the terminating party determines in its reasonable discretion that continued operation of the Loan Program or the CSO Program may materially adversely affect the ongoing operations of the terminating party or those of the terminating partys affiliates; and in the event of a termination of this Agreement pursuant to this clause (c), the terminating party shall provide the other party with a written explanation of the basis for such termination, or (d) the terminating party determines in its reasonable discretion that continued operation of the Loan Program or the CSO Program may materially adversely affect the relationship between the terminating party or any of its affiliates and any Regulatory Authority having jurisdiction over any of them. In addition, if Lender modifies any Loan term, interest rate, fee, or other charge pursuant to Section 10 above, or if Lender materially modifies any underwriting criteria for the Loans pursuant to Section 10 above, CSO may terminate this Agreement upon THIRTY (30) days prior written notice to Lender if CSO determines in its reasonable discretion that such modification by Lender would render it economically infeasible for CSO to continue to perform its duties and responsibilities hereunder or that such modification would cause any aspect of the Loan Program or the CSO Program to be in violation of any Rules. Notwithstanding any termination of this Agreement, each partys respective obligations and covenants hereunder with respect to outstanding Loans and the related pledged cash, Credit Enhancements and Guarantied Obligations shall remain in effect for so long as such Loans remain outstanding.
19. Termination Upon Default .
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a. Either party hereto shall have the right to terminate this Agreement upon occurrence of one or more of the following events:
i. Failure by the other party to observe or perform that partys obligations to the other hereunder or to comply with any provision of this Agreement, so long as the failure or nonperformance is not due to the actions of the terminating party;
ii. In the event any Financial Information (as defined below) representation, warranty, statement or certificate furnished to either party by the other in connection with this Agreement, or any separate material statement or document delivered or to be delivered hereunder by either party hereto to the other party, is materially false, misleading, or inaccurate as of the date made or delivered; and
iii. In the event a party hereto (or an affiliate of such party) defaults under any other agreement executed between the parties hereto (and/or any of their respective affiliates) and such default continues beyond any applicable notice and cure period provided for such default under such other agreement.
b. The Agreement may be terminated pursuant to Section 19(a)(i) above only if the default continues for a period of THIRTY (30) days after the defaulting party receives written notice from the other party specifying the default in the case of a non-monetary default, or TEN (10) days after the default in the case of a failure to pay any amount when due hereunder.
c. In addition to any other right to terminate this Agreement, a party may terminate this Agreement if the other party hereto, or such other partys principals is the subject of any of the following or if any of the following occurs with respect to such other party or such other partys principals: insolvency, inability to pay its debts as they become due, the filing of a voluntary bankruptcy petition, the filing .of an involuntary bankruptcy petition which is not dismissed within THIRTY (30) days after filing thereof, dissolution or termination of its existence as a going concern, or the appointment of a receiver for any part of its property.
d. In order to preserve the goodwill of each Party with its customers, the Parties shall act in good faith and cooperate in order to ensure a smooth and orderly termination of their relationship and the termination of the Loan origination and marketing program contemplated hereunder. Unless prohibited by applicable Rules, or as otherwise provided in this Agreement, upon Lenders written request CSO shall continue to service outstanding Loans following termination or expiration of this Agreement until all Loans are repaid or charged off in accordance with lenders collection policies and procedures. Except as otherwise set forth in Section 13 herein, upon the termination or expiration of this Agreement, all rights and benefits herein granted to CSO (but none of the obligations of CSO hereunder) shall revert to Lender, and CSO shall immediately cease using Lender Loan Program and any Lenders properties or materials.
20. Indemnification .
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a. Indemnification Obligations . To the furthest extent allowable by law, CSO shall indemnify, defend and hold Lender and its partners and affiliates and their respective directors, officers, employees, shareholders, lenders, partners and agents (herein, the Lender Indemnified Parties ) harmless from and against any and all claims, causes of action, demands, liabilities, losses, penalties, fines, judgments, damages or expenses (including, without limitation, legal fees, fines, court costs, accounting fees and class action costs) (collectively Damages) whether based on contract, tort, common law, equity, or statute (each, a Claim), asserted by or on behalf of any Applicant, Borrower, Regulatory Authority, or other person or entity relating to, arising or alleged to have arisen in whole or in part out of or in consequence of all of the following: (i) any breach by CSO of its obligations under this Agreement or the inaccuracy of any warranty or representation of CSO set forth in this Agreement; (ii) any act or omission (whether one or more) of any Third Party Service Provider retained by CSO, the inaccuracy of any warranty or representation made for the benefit of Lender by any Third Party Service Provider retained by CSO, or the breach of any obligation owed to Lender by any Third Party Service Provider retained by CSO; (iii) any claim or determination that the Loans or the activities of the parties hereunder are illegal under or prohibited by any of the Rules and any other claim asserted by or on behalf of any Applicants, Borrowers or Regulatory Authority with respect to the Loans; (iv) any examination, investigation or audit conducted by a Regulatory Authority; (v) any actual or alleged injury to any Applicant, Borrower and/or actual or prospective customer of CSO or to any employee of CSO actually caused or alleged to have been caused in whole or in part by CSO or any of its employees, agents or representatives; (vi) any transaction (whether one or more) arising out of, relating to, and/or pursuant to this Agreement; (vii) any claim by a Borrower relating to the documentation of a Loan by CSO or Lender and/or (viii) any act or omission (whether one or more) of CSO, and/or its employees, agents, representatives and/or third party service providers in connection with their performance or lack of performance of any duty or activity contemplated by this Agreement. The obligation under this Section 20(a) shall include but not be limited to payment of all reasonable and necessary counsel fees and expert fees THE OBLIGATIONS OF CSO TO INDEMNIFY AND DEFEND INDEMNIFIED PARTIES UNDER THIS SECTION 19(a) SHALL EXTEND WITHOUT LIMITATION TO CLAIMS THAT ALLEGE THE OMISSIONS, NEGLIGENCE, GROSS NEGLIGENCE, AND/OR INTENTIONAL ACTS OF LENDER, EXCEPT THAT CSO SHALL HAVE NO INDEMNIFICATION OBLIGATION CAUSED BY LENDERS GROSS NEGLIGENCE AND/OR INTENTIONAL TORTS, EXCEPT TO THE EXTENT SUCH GROSS NEGLIGENCE OR INTENTIONAL TORT ARISES FROM ACTIONS REASONABLY REQUIRED TO PERFORM LENDER OBLIGATIONS UNDER THIS AGREEMENT.
Additionally, CSOs indemnification obligations under this Section 20(a) shall include the payment of all costs of defense, if any, including without limitation, all reasonable and necessary attorneys fees, court costs, accounting fees, class action costs and expert fees, subject to CSOs reimbursement rights under Section 20(c) below. Except as otherwise provided in this Section 20(a) , the obligations of CSO to defend, indemnify and hold Lender Indemnified Parties harmless under this Section 20(a) shall extend without limitation to the actual or alleged omissions, negligence, gross negligence, and intentional acts of Lender, including Lenders sole or concurrent negligence.
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NOTHING CONTAINED HEREIN SHALL REQUIRE CSO TO DEFEND, INDEMNIFY OR HOLD LENDER INDEMNIFIED PARTIES HARMLESS FROM LENDERS BREACH OF THIS AGREEMENT.
b. Indemnification Procedures . Lender shall promptly notify CSO of any suit or threat of suit of which Lender becomes aware which may give rise to a right to indemnification under this Agreement but in any event within THIRTY (30) days of the discovery of such claim; provided, however, that the failure of Lender alleging a right of indemnity hereunder to provide prompt notice to CSO shall relieve CSO of its obligations hereunder only to the extent that CSO can prove that such failure to provide prompt notice actually and materially prejudiced the rights of CSO. CSO shall promptly reimburse Lender for all Damages incurred by Lender (including Damages incurred in advance of the final disposition of the underlying claim), shall bear all expenses in defending any such claim or matter, and shall be entitled to participate in the settlement or defense of any matter for which Lender seeks indemnity hereunder and, if CSO elects, to take over and control the defense and settlement thereof utilizing counsel of its choice in consultation with Lender (in which case Lender shall have the right to employ separate counsel of its choice, but the fees and expenses of such counsel shall be at the expense of CSO). CSO may not enter into a final settlement of any claim or matter without the prior consent of Lender, which consent shall not be unreasonably withheld or delayed; provided that Lenders withholding of or delaying consent shall not be deemed unreasonable if the proposed settlement arrangement allocates liability or financial obligations directly to Lender. In all cases, Lender and CSO shall cooperate and assist each other in all reasonable respects in the defense and settlement of any such action.
c. Obligation to Refund Advanced Damages . In the event that CSO reimburses Lender for Damages pursuant to the indemnification provisions of this Section 20 , in advance of the final disposition of the underlying claim, and if it is ultimately determined by settlement or pursuant to the dispute resolution provisions hereof that such Damages directly arose out of an occurrence that did not require such indemnification under Section 20(a) , then Lender agrees to repay to the other party any such Damages for which it received advanced reimbursement to which it was not entitled hereunder. All Damages required to be repaid under this Section 20(c) shall be repaid within FIVE (5) business days following the above described ultimate determination.
d. Survival . This Section 20 shall survive any termination or expiration of this Agreement. Each party expressly agrees, warrants and represents that it has read the terms of this Section 20 , understands the same and that the terms of this Section 20 are clear, conspicuous and unequivocal.
21. Expenses . Except as expressly provided to the contrary in this Agreement, each party shall be responsible for all expenses incurred by it in the performance of its obligations under this Agreement, including any expenses incurred by it in performing its respective duties set forth in this Agreement.
22. Scope of Relationship . The parties agree that the relationship established by this Agreement is non-exclusive. Without limiting the foregoing and subject to the provisions of this Agreement, each party
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hereto is expressly permitted, without the need for obtaining any further consent or approval from the other party hereto, to market, offer, sell, broker, underwrite and/or provide other products and services, including without limitation, any other loan products and services and specifically including, without limitation, any loan products and services similar in scope and nature to the Loans and the related services contemplated by the Program Guidelines, through any of their respective distribution channels and the distribution channels of their respective Third Party Service Providers, including, without limitation, any of such distribution channels through which Loans are offered pursuant to this Agreement.
23. Confidential Information . In performing their obligations pursuant to this Agreement, each party may have access to and receive disclosure of certain confidential information about the other party or parties, including, without limitation, the names and addresses of a partys Borrowers or members, marketing plans and objectives, research and test results, and other information which is confidential and the property of the party disclosing the information (Confidential Information). The parties agree that the term Confidential Information shall include this Agreement, the Program Guidelines, and the Program Materials, as the same may be amended and modified from time to time. Confidential Information shall not include information in the public domain, which is independently developed by any party hereto, or as defined under Section 16 as Borrower Information which may be used only as indicated therein, to the extent that it may conflict with the provisions contained in this Section 22 . Lender and CSO agree that Confidential Information shall be used by each party solely In the performance of its obligations under this Agreement or in connection with activities related to such performance (including, without limitation, activities involving the financing of the Loans by Lender). Each party shall receive Confidential Information in confidence and shall not disclose Confidential Information to any third party, except as may be permitted hereunder or under the Program Documents, or as may be necessary to perform its obligations hereunder, or as may be otherwise agreed in writing by the party furnishing the information, or as required by the Rules or any Regulatory Authority. In the event that either party (the Restricted Party) is requested or required (by oral questions, interrogatories, requests for information or documents, subpoena, civil investigative demand or similar process) to disclose any Confidential Information, such party will provide the other party with prompt notice of such request(s) so that the other party may seek an appropriate protective order or other appropriate remedy and/or waive the Restricted Partys compliance with the provisions of this Agreement. In the event that the other party does not seek such a protective order or other remedy, or such protective order or other remedy is not obtained, or the other party grants a waiver hereunder, the Restricted Party may furnish that portion (and only that portion) of the Confidential Information which the Restricted Party is legally compelled to disclose and will exercise such efforts to obtain reasonable assurance that confidential treatment will be accorded any Confidential Information so furnished as a Restricted Party would reasonably exercise in assuring the confidentiality of any of its own confidential information. Notwithstanding anything herein to the contrary, nothing herein shall prohibit either party hereto from entering into agreements with any other party that include program guidelines and program materials that may or may not be the same as, or substantially similar to, the Program Guidelines and Program Materials. Upon request or upon any expiration or termination of this Agreement, each party shall return to the other party or destroy (as the latter may instruct) all of the latters Confidential Information in the formers possession which is in any written or other recorded form, including data stored in any computer medium; provided, however, that a party hereto may retain the Confidential Information of the other party (but subject to the requirements of this Section 22 ) to the extent that such party needs access to such information to continue to perform any of its obligations hereunder or to broker or service Loans or otherwise perform obligations owed by such party to the other party.
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24. Regulatory Examinations and Financial Information . Each party agrees to submit to any examination which may be required by any Regulatory Authority with audit and examination authority over the other party, to the fullest extent that such Regulatory Authority may require and to the fullest extent provided by law. Lender (either directly or by the use of accountants or other agents or representatives) may audit, inspect, and review CSOs files, records, and books with respect to the Loans and compliance with the Loan Program and the CSO Program. CSO also agrees to provide Lender with copies of any government or regulator audits of CSO as it relates to those stores and/or loans which Lender funds, during the term of this Agreement. Upon seven (7) days advance written notice, CSO (either directly or by the use of accountants or other agents or representatives) may audit, inspect, and review Lenders files records, and books with respect to the Loans and compliance with the Loan Program and the CSO Program. CSO will pay any and all costs of auditing Lender. CSO agrees to prepare quarterly balance sheets and quarterly statements of income, retained earnings and cash flows for the last TWELVE (12) months together with complete and accurate books, records, and accounts prepared and maintained on a consistent basis and in accordance with generally accepted accounting principles (collectively, the Financial Information). Upon the request by Lender, CSO hereto agrees to deliver to Lender, within THIRTY (30) days of receiving such request, the Financial Information, certified as true and correct by an officer or principal of CSO (such request not to be made more often than one time every calendar quarter). CSO agrees to submit to operational audits and audits of CSOs electronic data processing functions, as the other party may reasonably request from time to time. The auditing party will promptly submit the results of such audits to the audited party. Any such audit shall be performed at CSOs sole cost and expense. Additionally, CSO shall provide to Lender, as soon as available and in any event (i) within NINETY (90) days after the end of each fiscal year, financial statements of CSO (on a consolidated and consolidating basis) to include a balance sheet, income statement, cash flow statement, and Managements Discussion and Analysis of Financial Condition and Results of Operations that describes the financial condition and results of operations of the CSO and its consolidated subsidiaries (showing in reasonable detail, 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, the financial condition and results of operations of the CSO and its subsidiaries), as of the end of such fiscal year, audited by independent certified public accountants of recognized standing satisfactory to Lender, and (ii) promptly from time to time following the occurrence of an event required to be reported on Form 8-K pursuant to 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 and 5.03 thereof, the information that would be required to be filed with the SEC on Form 8-K if the CSO were required to file such reports with respect to any of such items.
25. Relationship of Parties; No Authority to Bind . Lender and CSO agree that (a) Lender and CSO are independent contractors to each other in performing their respective obligations hereunder, (b) Lender shall not hold any ownership in CSO or possess a leasehold interest in CSOs offices or any personal property located therein, except that Lender shall be the exclusive owner of all Loans and Loan Documents, (c) no Lender employees shall work in the CSO offices (except for Lender auditors who may examine CSOs practices from time to time for compliance with the Program Guidelines), and (d) other than as may be necessary to generally effectuate CSOs performance of its duties under this Agreement,
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Lender shall exercise no authority or control over CSOs employees or methods of operation. Nothing in this Agreement or in the working relationship established and developed hereunder shall be deemed or is intended to be deemed, nor shall it cause, Lender and CSO to be treated as partners, joint venturers, joint associates for profit or otherwise be deemed to create a relationship of agent and principal. Neither party shall have any authority to bind the other party to any agreement except to the extent expressly permitted herein. Except as expressly set forth in this Agreement to the contrary, no actions or failure to act by one party on the part of the other party hereto shall be construed to imply the existence of any authority not expressly granted herein. Except as expressly provided herein or in the Program Guidelines, CSO is not authorized to, and shall not (i) make or amend any contract incur any debt or liability, or extend any credit or enter into any obligation on behalf of Lender, other than as specified by this Agreement in its role as CSO with Lender; (ii) modify or amend any document, instrument, promissory note, or security agreement evidencing or relating to a Loan or the related Credit Enhancement (individually, a Loan Document and collectively, the Loan Documents), or extend the time for making any payment which may become due under any Loan; or (iii) waive any of Lenders rights or privileges under any Loan, Loan Document or other agreement made by Lender. CSO understands and agrees the that CSOs name shall not appear on any Loan Document as the maker of a Loan and that CSO shall not have any participation in the credit decision to make or provide a Loan, a Loan renewal or a Loan refinance or any participation in any act pertaining to the funding of a Loan, a Loan renewal or a Loan refinance. CSO shall refer to Lender any inquiries concerning the accuracy, interpretation, or legal effect of any Loan Document. CSO shall not negotiate the terms of any Loan Document on behalf of Lender. Lender shall be deemed to have received and reviewed the Loan Documents and supporting materials only after the Loan Documents and materials have been previously received at Lenders offices or if designated by Lender, by a Third Party Service Provider. CSO shall not represent to anyone that CSO has the authority or power to do any of the foregoing and shall make no representations concerning Lenders transaction except as expressly authorized in writing. Lender shall not have any authority or control over any of the property interests or employees of CSO, nor shall Lender have any authority or control over any of the property interests or employees of those affiliates of CSO that own and operate stores at which Applicants or other potential Borrowers are offered the opportunity to complete and submit applications for Loans. As used herein, the term Loan Document shall not include any agreements that CSO or any affiliate of CSO may enter into directly with any party that governs the agreement of CSO or an affiliate of CSO to attempt to broker a Loan on behalf of any Borrower or any party who applies for, but is denied, a Loan. In each and every instance, the acts that this Agreement authorizes CSO to perform for or on Lenders behalf shall solely constitute CSO a special, limited agent of Lender to perform the duties and services set forth herein. In no event may CSO act as Lenders general agent or represent to others that it may act as Lenders general agent. In the event that either party reasonably determines that any provision of this Agreement requires an act that applicable Rules disallow in order for CSO and Lender to operate lawfully as an independent credit services organization and lender, respectively, or otherwise causes a material risk of violating applicable Rules, then the parties shall promptly and in good faith attempt to agree to a modification so as to reduce or eliminate such risk of not conforming to applicable Rules.
26. Governing Law; Arbitration; Consent to Jurisdiction . This Agreement shall be construed and performed in accordance with the laws of the State of Texas, without reference to Texas choice of law or conflicts rules. At the request of either party, any dispute between the parties relating to this Agreement shall be submitted to binding arbitration under the Commercial Arbitration Rules of the American
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Arbitration Association, provided, however, that a party seeking specific performance hereunder pursuant to Section 33 below may pursue such remedy in court. Unless otherwise agreed to by both parties, the location for any arbitration proceedings concerning this Agreement shall be in Dallas County, Texas. In the event that a party hereto initiates a lawsuit in court concerning an arbitrable claim, controversy or dispute, such party shall pay the other party for the costs, including attorneys fees that the other party incurs to obtain an order from the court to stay or dismiss the lawsuit or otherwise compel arbitration. The arbitrator shall be authorized to award such relief as is allowed by law. Except as provided below, each party shall be responsible for its own attorneys fees incurred during the course of the arbitration, as well as the costs of any witnesses or other evidence such party produces or causes to be produced. The award of the arbitrator shall include findings of fact and conclusions of law. Except as required by law, such award shall be kept confidential, and shall be final, binding, and conclusive on the parties. Judgment on the award may be entered by any court of competent jurisdiction. The prevailing party in the resolution of any dispute ( Dispute Resolution ) concerning this Agreement, any provision hereof or any actual or alleged breach shall be entitled to its reasonable attorneys fees, including investigation and costs of discovery, and other costs connected with such Dispute Resolution, in addition to all other recovery or relief. The prevailing party shall be that party receiving substantially the relief sought or successfully defending substantially the position maintained in the Dispute Resolution, whether or not brought to final award or judgment. The parties agree that in the event of any litigation hereunder, the exclusive venue and place of jurisdiction for such litigation shall be in the state courts or the federal district courts situated in Dallas County, Texas, and each party hereto specifically consents and submits to the personal jurisdiction of such courts.
27. Financial Covenants . CSO and Principal Guarantor shall comply with all financial covenants contained in any senior debt obligation of such person and shall promptly provide Lender with any notice received from or provided to the holder of such senior debt obligation relating non-compliance with or violation of such covenants.
28. Severability . If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision never comprised a part hereof; and 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 therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically 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 and enforceable.
29. Force Majeure . In the event of an act of God or other natural disaster which makes the carrying out of this Agreement impossible, or if a partys performance hereunder is rendered illegal or materially adversely affected by reason of changes in applicable Rules, or if a Lender or CSO is advised in writing by any Regulatory Authority having or asserting jurisdiction over Lender, CSO or the Loans, respectively, that the performance of its obligations under this Agreement is or may be unlawful, then the party unable to perform, or whose performance has been rendered illegal or who has been so advised by a Regulatory Authority, may terminate this Agreement by giving written notice at least ONE HUNDRED EIGHTY (180) days in advance of termination to the other party, unless such changes in the Rules or communication from such Regulatory Authority require earlier termination, in which case termination shall be effective upon such earlier required date.
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30. Successors and Third Parties . This Agreement and the rights and obligations hereunder shall bind and inure to the benefit of the parties hereto and their successors and assigns. Except as expressly provided herein with respect to Third Party Service Providers, the obligations, rights and benefits hereunder are specific to the parties hereto and shall not be delegated or assigned without the prior written consent of the other party, which shall not be unreasonably withheld. As a condition to an assignment of any obligations, rights or benefits hereunder, the assignee of such rights and benefits must agree to be bound by the terms of this Agreement pursuant to an assignment document executed by such assignee, in form and substance reasonably satisfactory to both Lender and CSO. Nothing in this Agreement is intended to create or grant any right, privilege, or other benefit to or for any person or entity other than the parties hereto. Notwithstanding anything in this Agreement to the contrary, the parties acknowledge that Lender can freely assign its rights with respect to the Loans and the Loan Documents (including, without limitation, its rights under Section 6 and 11 hereof and its rights to grant a first right and security interest to Senior Lenders under Section 36 , subject to CSOs rights and reservations in those sections in which case, Senior Lender will also include the assignees secured lenders) without CSOs prior written consent.
31. Notices . All notices, requests, and approvals required or permitted by this Agreement shall be in writing and addressed/directed to the other party at the address below or at such other address of which the notifying party hereafter receives notice in conformity with this Section 31 . All such notices, requests, and approvals shall be deemed given upon actual receipt thereof:
To Lender: | TXCSO, Inc. | |
8 South Michigan Avenue, Suite 1803 | ||
Chicago, IL 60603 | ||
Attention: Ira Felner, President | ||
Email: ifelner@barrfunding.com | ||
With copy to: | Arnstein & Lehr, LLP | |
161 North Clark St., Suite 4200 | ||
Chicago, IL 60601 | ||
Attention: Bruce H. Balonick | ||
Email: BBalonick@arnstein.com | ||
To CSO: | Avio Credit, Inc. | |
3527 North Ridge Road | ||
Wichita, Kansas 67205 | ||
Attention: Roger Dean, EVP & CFO | ||
Email: rogerdean@curo.com | ||
With a Copy to: | Avio Credit, Inc. | |
3527 North Ridge Road | ||
Wichita, Kansas 67205 | ||
Attention: Vin Thomas, Chief Legal Officer | ||
Email: vinthomas@curo.com |
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32. Waiver . Neither party hereto shall be deemed to have waived any of its rights, powers or remedies hereunder except In an express writing signed by an authorized agent or representative of the party to be charged with such waiver.
33. Counterparts . This Agreement may be executed and delivered by the parties hereto in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument. In proving this Agreement in any judicial proceedings, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom such enforcement is sought. Delivery of a signature hereto by an email transmission of an Adobe portable digital file (PDF) shall be as effective as delivery of a manually executed counterpart hereof, and any such PDF signature shall be treated as an original signature hereto.
34. Specific Performance . Certain rights which are subject to this Agreement are unique and are of such a nature as to be inherently difficult or impossible to value monetarily. In the event of a breach of this Agreement by either party hereto, an action at law for damages or other remedies at law would be inadequate to protect the unique rights and interests of the parties. Accordingly, the terms of this Agreement shall be enforceable in a court of equity by a decree of specific performance or injunction. Such remedies shall, however, be cumulative and not be exclusive and shall be in addition to any other remedy which the parties may have.
35. Further Assurances . From time to time, the parties will execute and deliver to the other such additional documents and will provide such additional information as either may reasonably require to carry out the terms of this Agreement.
36. Lien of Senior Lender . Subject to the rights of the CSO contained herein and specifically to the return of the pledged cash upon the discharge of its obligations, CSO acknowledges and agrees that Lender has granted or may hereafter grant a first priority lien and security interest to Senior Lender as security for the Senior Debt in all right, title and interest of Lender in and to (a) the Loans, (b) all documents and instruments executed by a Borrower or CSO in connection with the Loans (including, but not limited to all Credit Enhancements, this Agreement, and all Loan Documents), (c) all collateral securing the Loans (whether granted by a Borrower or CSO); including, without limitation and (d) all proceeds arising therefrom. CSO further acknowledges and agrees that Senior Lender shall be entitled to exercise all rights of Lender under this Agreement and any Program Documents with respect to the Loans, the Loan Documents and any Credit Enhancements upon notification by Senior Lender in accordance with the exercise of any rights or remedies of the Senior Lender under the Senior Loan Documents which shall terminate immediately upon payment of the Loans or Guarantied Obligations, as such monies are owed Lender. CSO agrees that all liens and whatever other right, title or interest (if any) which CSO may have at any time in any collateral, including but not limited to motor vehicles, as security for the obligations of a Borrower to CSO shall, at all times and in all respects, be subject, junior and subordinate as to priority and in all other respects to all liens and any other right, title or interest of Lender to any such collateral as
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security for the Loan or Loans to such Borrower, irrespective of the time or order of the creation or perfection of any such lien, right, title or interest and irrespective of any failure by Lender to create or perfect any such lien, right, title or interest. CSO agrees that it will not foreclose or exercise any right or remedy it may have at any time in or with respect to the collateral until such time as the Loan or Loans to a Borrower secured by such collateral have been indefeasibly paid.
NOTICE OF FINAL AGREEMENT
THIS AGREEMENT, AND THE DOCUMENTS EXECUTED AND DELIVERED PURSUANT HERETO, CONSTITUTE THE ENTIRE AGREEMENT BETWEEN THE PARTIES, AND MAY BE AMENDED OR MODIFIED ONLY BY A WRITING SIGNED BY DULY AUTHORIZED REPRESENTATIVES OF EACH PARTY AND DATED SUBSEQUENT TO THE DATE HEREOF. THIS AGREEMENT SHALL SUPERSEDE AND MERGE All PRIOR COMMUNICATIONS, REPRESENTATIONS, OR AGREEMENTS, EITHER ORAL OR WRITTEN, BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT MATTER HEREOF, EXCEPT WHERE SURVIVAL OF PRIOR WRITTEN AGREEMENTS IS EXPRESSLY PROVIDED FOR HEREIN. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES
NOTICE RELATING TO DEFAULTED LOANS
CSO HEREBY EXPRESSLY ACKNOWLEDGES AND CONSENTS TO THE PROVISION OF SECTION 6 ABOVE, WHICH, IN CERTAIN CIRCUMSTANCES, COULD RESULT IN CSO MAKING PAYMENT TO LENDER IN CONNECTION WITH A LOAN.
EXHIBIT A IS ATTACHED HERETO AND MADE A PART HEREOF.
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
Special Limited Agency Agreement | Page 28 of 30 |
IN WITNESS WHEREOF , this Agreement is executed by the authorized officers and representatives and of the parties shall be effective as of the Effective Date.
Lender: TXCSO, INC.
By: |
/s/ Ira Felner |
|
Name: Ira Felner | ||
Title: CEO and President |
CSO: Avio Credit, Inc.
By: |
/s/ Roger Dean |
|
Name: Roger Dean | ||
Title: EVP and CFO and |
JOINDER OF PRINCIPAL GUARANTOR
AGREED AND CONSENTED to as of the Effective Date.
PRINCIPAL GUARANTOR: CURO Intermediate Holding Corp.
CURO Intermediate Holding Corp.
By: |
/s/ Roger Dean |
|
Name: Roger Dean | ||
Title: EVP and CFO |
Special Limited Agency Agreement | Page 29 of 30 |
EXHIBIT A
1. | CSO shall procure and maintain the following insurance coverage from insurance companies: |
a. | General Liability Insurance Coverage: |
| Occurrence form including bodily injury, property damage, advertising injury and personal injury; forms acceptable to LENDER. |
| Limits of Liability: $1,000,000 aggregate |
b. | Excess I Umbrella Insurance Coverage: |
| Occurrence Form; Coverage and Forms acceptable to LENDER. |
| Limits of Liability: $1,000,000 |
| Retained Limit: $10,000 |
c. | Privacy/Cyber Liability Insurance Coverage: |
| Coverage to include: breach remediation, notification expenses, and ongoing credit monitoring. |
| Limits of Liability: $1,000,000 |
2. | All policies may list LENDER as an additional insured, on an endorsement form. All policies may provide for at least thirty (30) days notice to LENDER of either cancellation or non-renewal. CSO shall be responsible for the payment of all deductibles or retained limits. CSO shall provide LENDER with confirmation that all policies have been obtained upon LENDERS request. |
Special Limited Agency Agreement | Page 30 of 30 |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We have issued our report dated July 12, 2017 (except for Note 23 as to which the date is ), with respect to the consolidated financial statements of Curo Group Holdings Corp and Subsidiaries contained in the Registration Statement and Prospectus, which will be signed upon consummation of the transaction described in Note 23 to the financial statements. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption Experts.
/s/ GRANT THORNTON LLP
Kansas City, Missouri
November 27, 2017