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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| | | | | |
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2021
OR
| | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-38315
CURO GROUP HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
| Delaware | | 90-0934597 |
(State or other jurisdiction
of incorporation or organization) | | (I.R.S. Employer
Identification No.) |
| | |
3615 North Ridge Road, Wichita, KS | | 67205 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (316) 722-3801
Securities Registered Pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
| Title of Each Class | | Trading Symbol(s) | | Name of Each Exchange on Which Registered |
| Common Stock, $0.001 par value per share | | CURO | | New York Stock Exchange |
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.
| | | | | | | | | | | | | | |
| Large accelerated filer | ☐ | | Accelerated filer | ☒ |
| Non-accelerated filer | ☐ | | Emerging growth company | ☐ |
| Smaller reporting company | ☒ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of 23,296,369 shares of the registrant’s common stock, par value $0.001 per share, held by non-affiliates on June 30, 2021 was approximately $396,038,273.
At March 3, 2022 there were 40,242,120 shares of the registrant’s common stock, $0.001 par value per share, outstanding.
Documents incorporated by reference:
Portions of the definitive proxy statement for the registrant's Annual Meeting of Stockholders expected to be held on June 15, 2022 are incorporated by reference into Part III of this report.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
YEAR ENDED December 31, 2021
TABLE OF CONTENTS
| | | | | | | | |
PART I | | |
| | |
Item 1. | | |
Item 1A. | | |
Item 1B. | | |
Item 2. | | |
Item 3. | | |
Item 4. | | |
PART II | | |
Item 5. | | |
Item 6. | | |
Item 7. | | |
Item 7A. | | |
Item 8. | | |
Item 9. | | |
| Item 9A. | | |
| Item 9B. | | |
| Item 9C. | | |
PART III | | |
Item 10. | | |
Item 11. | | |
Item 12. | | |
Item 13. | | |
Item 14. | | |
PART IV | | |
Item 15. | | |
Item 16. | | |
| | |
GLOSSARY
Terms and abbreviations used throughout this report are defined below.
| | | | | | | | |
| Term or abbreviation | | Definition |
| | |
| | |
| 2017 Final CFPB Rule | | The final rule issued by the CFPB in 2017 regarding Payday, Vehicle Title and Certain high Cost Installment loans. |
| 2017 Tax Act | | Tax Cuts and Jobs Act of 2017 |
| 2019 Proposed Rule | | The proposed rule issued by the CFPB in 2019 which would rescind the mandatory underwriting provisions of the 2017 Final CFPB Rule. |
| 2020 Final CFPB Rule | | The final rule issued by the CFPB in 2020 which rescinded part of the 2017 Final CFPB Payday Rule |
| 2020 Form 10-K | | Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 5,2021 |
| 2021 Form 10-K | | Annual Report on Form 10-K for the year ended December 31, 2021 |
| 7.50% Senior Secured Notes | | 7.50% Senior Secured Notes, issued in July 2021 for $750.0 million and subsequently increased to $1.0 billion in December 2021, and mature in August 2028 |
| 8.25% Senior Secured Notes | | 8.25% Senior Secured Notes, issued in August 2018 for $690.0 million, which were repaid in full in the third quarter of 2021 |
| AB 539 | | California Assembly Bill 539, which imposes an annual interest rate cap of 36% plus Federal Funds Rate on all consumer loans in California between $2,500 and $10,000 |
| Ad Astra | | Ad Astra Recovery Services, Inc., our former exclusive provider of third-party collection services for the U.S. business that we acquired in January 2020 |
| Adjusted EBITDA | | EBITDA plus or minus certain non-cash and other adjusting items; Refer to "Supplemental Non-GAAP Financial Information" for additional details |
| ALL | | Allowance for loan losses |
| | |
| Allowance coverage | | Allowance for loan losses as a percentage of gross loans receivable |
| AOCI | | Accumulated Other Comprehensive Income (Loss) |
| ASC | | Accounting Standards Codification |
| ASU | | Accounting Standards Update |
| Average gross loans receivable | | Utilized to calculate product yield and NCO rates; calculated as average of beginning of quarter and end of quarter gross loans receivable |
| BNPL | | Buy-Now-Pay-Later |
| bps | | Basis points |
| C$ | | Canadian dollar |
| CAB | | Credit Access Business |
| Canada SPV | | A four-year, non-recourse revolving credit facility with Waterfall Asset Management, LLC with capacity up to C$250.0 million |
| CARES Act | | Coronavirus Aid, Relief, and Economic Security Act |
| CURO Canada | | CURO Canada Corp, a wholly-owned Canadian subsidiary of the Company, formerly known as Cash Money Cheque Cashing Inc. |
| Cash Money Revolving Credit Facility | | C$10.0 million revolving credit facility with Royal Bank of Canada |
| CDOR | | Canadian Dollar Offered Rate |
| | |
| CFPB | | Consumer Financial Protection Bureau |
| CFSA | | Community Financial Services Association |
| | |
| | |
| CODM | | Chief Operating Decision Maker |
| COVID-19 Impacts | | Factors that impacted year-over-year comparisons caused by the COVID-19 pandemic, including lower consumer demand, increased or accelerated repayments and favorable payment trends as customers benefited from government stimulus programs |
| CSO | | Credit services organization |
| CSO fee | | A fee charged to customers for loans Guaranteed by the Company |
| | |
| CURO Canada Receivables Limited Partnership | | A Canadian bankruptcy remote special purpose vehicle and an indirect wholly-owned subsidiary of the Company |
| CURO Receivables Finance II, LLC | | A U.S. bankruptcy remote special purpose vehicle and an indirect wholly-owned subsidiary of the Company |
| EBITDA | | Earnings Before Interest, Taxes, Depreciation and Amortization |
| Exchange Act | | Securities Exchange Act of 1934, as amended |
| FASB | | Financial Accounting Standards Board |
| FFL | | Friedman Fleischer & Lowe Capital Partners II, L.P. and its affiliated investment funds |
| | | | | | | | |
| Term or abbreviation | | Definition |
| FinServ | | FinServ Acquisition Corp. a publicly traded special purpose acquisition company (trading symbol FSRV) |
| FinTech | | Financial Technology; the term used to describe any technology that delivers financial services through software, such as online banking, mobile payment apps or cryptocurrency |
| Flexiti | | Flexiti Financial Inc., a wholly-owned Canadian subsidiary of the Company, which we acquired on March 10, 2021 |
| Flexiti Securitization | | A non-recourse revolving credit facility, entered into on December 9, 2021, with capacity up to C$526.5 million |
| Flexiti SPE | | A non-recourse revolving credit facility, entered into concurrent with the acquisition of Flexiti, with capacity up to C$500.0 million |
| | |
| Gross Combined Loans Receivable | | Gross loans receivable plus loans originated by third-party lenders which are Guaranteed by the Company |
| GST | | Goods and Services Tax |
| Guaranteed by the Company | | Loans originated by third-party lenders through CSO program that we guarantee but do not include in the Consolidated Financial Statements |
| Heights | | SouthernCo, Inc., a Delaware corporation d/b/a Heights Finance, a wholly-owned U.S. subsidiary of the Company, which we acquired on December 27, 2021 |
| Heights SPV | | A non-recourse revolving credit facility, entered into concurrent with the acquisition of Heights, with capacity up to $350.0 million |
| Katapult | | Katapult Holdings, Inc., a lease-to-own platform for online, brick and mortar and omni-channel retailers |
| ICFR | | Internal control over financial reporting |
| LFL | | LFL Group, Canada's largest home furnishings retailer |
| LIBOR | | London Inter-Bank Offered Rate |
| MDR | | Merchant discount revenue |
| NASDAQ | | National Association of Securities Dealer Automated Quotation |
| NCO | | Net charge-off; total charge-offs less total recoveries |
| NOL | | Net operating loss |
| | |
| NYSE | | New York Stock Exchange |
| POS | | Point-of-sale |
| ROU | | Right of use |
| RSU | | Restricted Stock Unit |
| SEC | | Securities and Exchange Commission |
| Senior Revolver | | Senior Secured Revolving Loan Facility with borrowing capacity of $50.0 million |
| Sequential | | The change from one calendar quarter to the next calendar quarter |
| | |
| | |
| SOFR | | Secured Overnight Financing Rate |
| SPAC | | Special Purpose Acquisition Company |
| SPE | | Special Purpose Entity |
| SPV | | Special Purpose Vehicle |
| SRC | | Smaller Reporting Company as defined by the SEC |
| | |
| TDR | | Troubled Debt Restructuring. Debt restructuring in which a concession is granted to the borrower as a result of economic or legal reasons related to the borrower's financial difficulties |
| U.K. Subsidiaries | | Collectively, Curo Transatlantic Limited and SRC Transatlantic Limited |
| U.S. | | United States of America |
| U.S. GAAP | | Generally Accepted Accounting Principles in the U.S. |
| U.S. SPV | | A four-year, asset-backed, non-recourse revolving credit facility with Atalaya Capital Management with capacity up to $200.0 million if certain conditions are met |
| Verge Credit loans | | Loans originated and funded by a third-party bank |
| VIE | | Variable Interest Entity; our wholly-owned, bankruptcy-remote special purpose subsidiaries |
FORWARD LOOKING STATEMENTS]
This report contains forward-looking statements. Such statements may be identified by words such as believe, expect, anticipate, intend, plan, estimate, may increase, may fluctuate and similar expressions or future or conditional verbs such as will, should, would and could. The matters discussed in these forward-looking statements are subject to risk, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Except as required by applicable law and regulations, 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. Please see the section titled “Risk Factors” below for a discussion of the uncertainties, risks and assumptions associated with our business.
PART I
The terms "CURO," "we," "our," "us" and "Company" include CURO Group Holdings Corp. and all of its direct and indirect subsidiaries as a combined entity, except where otherwise stated.
This report references third-party reports and studies solely for informational purposes only. Investors and market participants should not place undue reliance on such references, and the underlying reports and studies are not part of this report.
ITEM 1. BUSINESS
Company Overview
We are a tech-enabled, omni-channel consumer finance company serving non-prime and prime consumers in the U.S. and Canada. CURO was founded in 1997 to meet the growing consumer need for short-term loans. With more than 20 years of experience, we offer a variety of convenient, accessible financial and loan services across all of our markets.
We operate in the U.S. under several principal brands, including “Speedy Cash,” “Rapid Cash” and “Avio Credit” and, subsequent to our acquisition of Heights, "Covington Credit," "Heights Finance," "Quick Credit" and "Southern Finance." We also offer demand deposit accounts in the U.S. under Revolve Finance, and credit card programs under First Phase, which we launched in the fourth quarter of 2021. As of December 31, 2021, our store network consisted of 550 locations across 20 U.S. states and we offered our online services in 27 U.S. states.
In Canada, we operate under “CURO Canada” and “LendDirect” direct lending brands and the "Flexiti" point-of-sale brand. As of December 31, 2021, we operated our direct lending in eight Canadian provinces and offered our online services in eight Canadian provinces and one Canadian territory. Our point-of-sale operations are available at nearly 7,500 retail locations and over 3,100 merchant partners across 10 provinces and two territories.
In recent years, we have diversified our product offerings and regulatory profile through our investment in Katapult and our acquisitions of Flexiti in March 2021 and Heights in December 2021. As of December 31, 2021, on a fully diluted basis, assuming full pay-out of earn-out shares, we held an approximately 25.2% ownership stake in Katapult, an e-commerce focused, FinTech company offering an innovative lease financing solution to consumers and enabling essential transactions at the merchant POS. See "—Katapult Investment" below for additional details. On March 10, 2021, we acquired Flexiti, an emerging growth Canadian POS/BNPL provider, which provided us instant capability and scale opportunity in Canada's credit card and POS financing markets. On December 27, 2021, we acquired Heights, a consumer finance company that provides Installment loans and offers customary opt-in insurance and other financial products in the U.S. The acquisition of Heights accelerated our strategic transition in the U.S. toward longer term, higher balance and lower credit risk products, and provided us with access to a larger addressable market while mitigating regulatory risk. See "—Flexiti Acquisition" and "—Heights Acquisition" below and Note 15, "Acquisitions" of Item 8, "Financial Statements and Supplementary Data" for additional details. These acquisitions have enabled us to offer products to a full spectrum of customers ranging from nonprime, generally served by our legacy brands, to near prime and prime as a result of our acquisitions of Heights and Flexiti, respectively. Collectively, these strategic investments and partnerships help serve our current core customers, allow us to access new markets and customers, and reduce our regulatory and credit risk.
Our direct lending operations include a broad range of direct-to-consumer finance products focusing on Revolving LOC and Installment loans. Through our investment in Katapult and acquisition of Flexiti, we offer POS financing options for consumers. We also provide a number of ancillary financial products such as optional credit protection insurance, demand deposit accounts, proprietary general-purpose credit cards, check cashing, retail installment sales and money transfer services.
We believe that our core products allow us to serve a broader group of consumers than our competitors. Our ability to tailor our core products to fit consumer needs coupled with the flexibility of our products, particularly our Revolving LOC and Installment 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 core products across all contact points – we refer to it as “Call, Click or Come In.” We believe these complementary channels drive brand awareness, increase approval rates, lower customer acquisition costs and improve customer satisfaction levels and customer retention.
2021 Recent Developments
On December 27, 2021, we completed the acquisition of Heights for $360.0 million, consisting of $335.0 million in cash and $25.0 million of our common stock in accordance with the formula set forth in the Purchase Agreement. Heights is a consumer finance company that provides Installment loans and offers customary opt-in insurance and other financial products across 390 branches and 11 U.S. states. Heights provides Secured and Unsecured Installment loans to near-prime and non-prime consumers.
In connection with its lending operations, Heights offers optional insurance products, including credit life, credit accident and health, credit property insurance and credit involuntary unemployment insurance. These policies are written by unaffiliated third-party insurance companies. The type and terms of our optional insurance products vary from state to state based on applicable laws and regulations. Insurance premiums are remitted to unaffiliated insurance companies that issue the policies to the customer.
The acquisition of Heights accelerates our strategic migration into longer term, higher balance and lower credit risk products, allows us to expand our addressable market while mitigating regulatory risk, and diversifies our revenue, product and geography mix. Below are other key benefits of the Heights acquisition:
–Accelerates our post-pandemic U.S. earnings growth while enhancing cross-sell opportunities for non-prime credit card and other products.
–Provides us an up-market product that allows us to serve the full spectrum of near-prime and non-prime consumers.
–Adds over 3.4 million customers to our database.
–Diversifies products, revenue, customers and geographic mix in the U.S. and enables further geographic expansion.
–Strong synergy potential, including leveraging our existing omni-channel and digital capabilities across the Heights footprint.
The acquisition brought with it a leadership team that possesses deep industry experience and a strong performance track record. We believe there is strong synergy potential through combined branch optimization and cost efficiencies as well as cross-selling opportunities. As of December 31, 2021, Heights accounted for approximately $472 million of Gross loans receivable on the Consolidated Balance Sheet and is included within the U.S. segment operations.
In connection with the Heights acquisition, we also completed the issuance of $250.0 million in aggregate principal amount of 7.50% Senior Secured Notes, as described further below. The additional issuance was used to fund the Heights acquisition, together with cash on hand and shares of our common stock.
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Flexiti Acquisition and Growth | |
On March 10, 2021, we completed the acquisition of Flexiti in a transaction that included cash at closing of $86.5 million and contingent cash consideration of up to $32.8 million based on the achievement of revenue less NCOs and loan origination targets on the acquisition's first and second anniversaries. The Flexiti acquisition provides us capability and scale opportunity in Canada’s credit card and POS financing markets. It enhances our long-term growth and financial and risk profiles, and allows us to access the full spectrum of Canadian consumers by adding an established private label credit card platform and POS financing capabilities. We now reach consumers in Canada through all the ways they generally access credit, directly both in-store and online, via credit cards or at the POS.
Flexiti is one of Canada's fastest-growing POS lenders, offering the customers of its retail partners a variety of promotional financing offers which feature 0% interest financing during the promotional period on big-ticket purchases such as furniture, appliances, jewelry and electronics. Flexiti generates revenue through a merchant discount fee charged to its merchant partners
at the time of loan originations, interest charged on loans after the completion of the promotional financing period, various fees and through the sale of creditor insurance. Through its award-winning BNPL platform, customers can be approved instantly to shop with their FlexitiCard®, which they can use online or in-store to make multiple purchases, within their credit limit, without needing to reapply. Accepted at nearly 7,500 locations and ecommerce sites across Canada including The Brick, Leon's, Staples, Sleep Country, Wayfair, Birks and Peoples Jewelers, Flexiti is The Flexible Way to Pay™ aiming to bring flexible payment solutions to all.
The acquisition of Flexiti provides us a high-growth engine and diversifies our revenue and channel mix by product and geography. CURO's resulting platform accesses the full spectrum of Canadian consumers by adding an established omni-channel private label credit card platform and POS financing capabilities to our existing direct-to-consumer loan offerings. Flexiti primarily serves prime consumers; thus the combination presents significant revenue and earnings growth opportunities by using our expertise to expand Flexiti’s non-prime product offerings. The acquisition also provides the opportunity to leverage our loan servicing experience to improve Flexiti’s profit margins. In connection with the acquisition, Flexiti refinanced and expanded its non-recourse asset-backed warehouse financing facility from C$380 million to C$500 million.
Subsequent to the acquisition, Flexiti continued its rapid growth and gained new merchant partners throughout 2021, the most notable being LFL, Canada's largest home furnishings retailer. Effective July 1, 2021, Flexiti commenced a 10-year agreement to become LFL's exclusive POS financing partner. LFL operates over 300 stores in Canada under multiple banners, including Leon's and The Brick. Flexiti estimates that the LFL POS relationship will generate over C$800 million in annualized loan originations beginning mid-2022, when fully onboarded. Given the signing and onboarding of LFL, as well as other top-tier Canadian merchants, year over year, Flexiti's 2021 originations increased 143.2%, or C$418.6 million, to C$710.9 million.
In 2017, we made our first investment in Katapult, an e-commerce focused FinTech company offering an innovative lease financing solution to consumers and enabling essential transactions at the merchant POS. Katapult provides the retailers' customers with payment options in store or via the Katapult link on a retailer's website. In June 2021, Katapult merged with FinServ, resulting in a new publicly traded company (NASDAQ: KPLT). As a result, in June 2021 we received cash of $146.9 million and 18.9 million shares of common stock of Katapult. Additionally, we received 3.0 million of earn-out warrants, which will vest if certain share price levels are met and expire six years from the closing of the merger. In the fourth quarter of 2021, we acquired an additional 2.6 million shares of common stock of Katapult for an aggregate purchase price of $10.0 million. Our fully diluted ownership of Katapult as of December 31, 2021 was 25.2%, which assumes full pay-out of earn-out shares.
7.50% Senior Secured Notes
On July 30, 2021, we issued $750.0 million of 7.50% Senior Secured Notes, due 2028. Interest on the notes is payable semiannually, in arrears, on February 1 and August 1, beginning February 1, 2022. The net proceeds from the sale of the notes were used (i) to redeem our outstanding $690.0 million, 8.25% Senior Secured Notes due 2025, (ii) to pay fees, expenses, premiums and accrued interest in connection therewith and (iii) for general corporate purposes. On December 3, 2021, we issued an additional $250.0 million of 7.50% Senior Secured Notes to, in part, fund the acquisition of Heights on December 27, 2021.
Store Closures
On July 13, 2021, we announced the closure of 49 U.S. stores in response to evolving customer channel preferences that were accelerated by the impacts of COVID-19. The store closures, which occurred during the second and third quarters of 2021, represented nearly 25% of our U.S. stores at that time and, other than Illinois, represented strategic consolidation of locations in dense local markets. The impacted locations generated 8% of our U.S. store revenue in 2020. Our omni-channel platform allows customers to seamlessly transition online, to an adjacent store, or to contact centers, helping to increase the likelihood of retaining a large percentage of customers that had utilized the impacted stores.
The 49 U.S. stores were in Illinois (8), Oregon (2), Colorado (2), Washington (1) Texas (31), California (2), Louisiana (1), Nevada (1) and Tennessee (1). We exited Illinois entirely during the second and third quarters of 2021 given that state's legislative changes that effectively eliminated our product offerings; however, subsequent to the Heights acquisition on December 27, 2021, we retain 26 stores in Illinois under the Heights brand. The store closure decisions in other states were made after extensive analysis and in response to ongoing migration of customer transactions toward the online channel and the impact of COVID-19 on store traffic and profitability. Of the 49 stores affected, 19 and 30 were closed in the second and third quarter of 2021, respectively.
The store closure decisions followed an extensive evaluation that considered (i) comprehensive store-level score cards, (ii) market-level store density and the related addressable local market, (iii) the lingering and potential future COVID-19 impacts on
store volume, traffic and profitability and (iv) continued migration of customer transactions toward the online channel. Of the 31 stores closed in Texas, 25 were from The Money Box acquisition in 2012. While historically successful, these stores did not have the high-profile, high-traffic advantages of our Speedy/Rapid Cash stores, thus their profitability declined more during COVID-19. As of December 31, 2021, we operated 550 stores in the U.S., including 390 acquired with Heights, and 201 stores in Canada.
COVID-19 Update
The outbreak of COVID-19 in the first quarter of 2020 contributed to significant volatility and uncertainty in markets and the global economy. From the second quarter of 2020 through the first half of 2021, relative to pre-pandemic norms, our U.S. and Canada Direct Lending segments experienced lower customer demand, better credit performance, increased or accelerated repayments and favorable payment trends as customers were aided by government stimulus programs while periodically enduring pandemic lockdowns. In the third and fourth quarters of 2021, despite the rise of the COVID-19 Delta and Omicron variants, our markets were less affected by COVID-19 Impacts, resulting in positive growth trends in revenue and receivables. Refer to Note 2, "Loans Receivable and Revenue" for a description of the general impact on our customers, our accounting related to loans impacted by COVID-19, the U.S. and Canadian government responses to the COVID-19 pandemic and the impact on our Consolidated Financial Statements.
Although most of the initial governmental restrictions imposed at the onset of the pandemic in the U.S. and Canada had been relaxed or lifted as a result of the distribution of vaccines, due to recent surges in COVID-19 cases related to the Delta and Omicron variants, some jurisdictions have reinstituted measures and restrictions to slow the transmission and mitigate public health risks.
Throughout the COVID-19 pandemic, we have remained focused on protecting the health and well-being of our employees, customers, and the communities in which we operate, while assuring the continuity of our business operations. We are considered an essential financial service and our stores have remained open to facilitate the needs of our customers during local government lock down orders. While resurgences of the pandemic have occurred and could continue to occur in both the U.S. and Canadian jurisdictions, with local governmental bodies issuing guidelines on reopening procedures depending on the severity and/or duration of resurgences, we have established processes and procedures during the crisis to help ensure that we can continue to operate safely for both our employees and customers.
To better serve our customers as they faced unprecedented economic challenges and uncertainties during the COVID-19 pandemic, we established an enhanced Customer Care Program in 2020. The program enables our team members to provide relief to customers in various ways, ranging from due date extensions, interest or fee forgiveness, payment waivers or extended payment plans, depending on a customer’s individual circumstances. As of December 31, 2021, we had granted concessions on more than 82,000 loans, or 15% of our active loans, and waived over $5.8 million in payments and fees. While relief under this program continued to be available to customers through December 2021, utilization of these benefits had slowed to insignificant levels.
Despite the prolonged uncertainty and volatility attributed to COVID-19, we have proactively taken steps to sustain and grow our business. In 2021, this included making strategic acquisitions of companies to diversify our product and geographic mix (Heights and Flexiti), making similar prudent investments in Katapult, in which we own a 25.2% share, and maintaining a low cost of debt capital (7.50% Senior Secured Notes), all discussed in more detail above.
Regulatory Developments
See "—Regulatory Environment and Compliance" for a description of the regulatory environment in which we operate in the U.S. and Canada and related 2021 developments.
Our Products and Services
We operate our business under three segments: US, Canada Direct Lending and Canada POS Lending. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information on our operating segments.
Overview of Loan Product Revenue
The following charts depict the revenue contribution, including CSO fees, of the products and services that we currently offer:
Our direct lending operations include a broad range of direct-to-consumer finance products focusing on Revolving LOC, Installment loans and Ancillary products. The December 2021 acquisition of Heights enables us to expand the geographic reach of our Installment products in the U.S. Through our continued investment in Katapult and the acquisition of Flexiti in March 2021, we have diversified our products, now allowing us to offer POS financing options for consumers in the U.S. and Canada. We also provide a number of ancillary financial products such as optional credit protection, demand deposit accounts, proprietary general-purpose credit cards, check cashing and money transfer services. We have tailored our products to fit our customers’ particular needs as they access and build credit. Our products are licensed and governed by enabling federal and state legislation in the U.S. and federal and provincial regulations in Canada. For additional details and information regarding recent regulatory developments, see "—Regulatory Environment and Compliance" below.
Revolving LOC Loans
Revolving LOC loans, which are lines of credit without a specified maturity date, include our POS financing subsequent to our acquisition of Flexiti, which is included in our Canada POS Lending segment and allows us to offer BNPL products as well as Flexiti branded credit cards at merchant locations. Customers in good standing may draw against their line of credit, repay with minimum, partial or full payment and redraw as needed. We earn interest on the outstanding loan balances. Customers may prepay without penalty or fees. Typically, customers do not initially draw the full amount of their credit limits. In late 2017, we began to expand the Revolving LOC product in both the U.S. and Canada. Then in 2018, following regulatory changes impacting certain Installment products, we significantly expanded the product in Canada and continued to do so through 2021. Canada Direct Lending Revolving LOC loans comprised 94.2%, 91.8%, and 83.4% of our total Canada Direct Lending loans as of December 31, 2021, 2020 and 2019, respectively. In terms of consolidated revenue, Revolving LOC loans comprised 36.0%, 29.4% and 21.5% of our consolidated revenue during the years ended December 31, 2021, 2020 and 2019, respectively. Subsequent to the acquisition of Flexiti on March 10, 2021, Canada POS Lending gross loans receivables increased $263.0 million, or 134.1% in 2021. For direct comparisons, originations at Flexiti for the three months ended December 31, 2021 were C$322.1 million, an increase of C$200.8 million, or 165.6%, from the prior-year period of C$121.3 million. Sequentially, Canada POS Revolving LOC gross loans receivable increased $156.8 million, or 51.9%.
Installment Loans
Installment loan products range from unsecured, short-term loans whereby a customer receives cash in exchange for a post-dated personal check or a pre-authorized debit from the customer’s bank account, to fixed-term, fully amortizing loans with a fixed payment amount due each period during the term of the loan. Certain Installment loans are secured by a clear vehicle title or security interest in the vehicle. The customer receives the benefit of immediate cash and retains possession of the vehicle while the loan is outstanding. Payments are due bi-weekly or monthly to match the customer's payroll cycle. Customers may prepay Installment loans without penalty or fees. Loans acquired in connection with the Heights acquisition in December 2021 are considered Installment loans, which are similar to those offered by our legacy U.S. segment, and can be unsecured or
secured. Installment loans comprised 54.9%, 63.6% and 72.9% of our consolidated revenue during the years ended December 31, 2021, 2020 and 2019, respectively.
Ancillary Products
We offer consumers a number of ancillary financial products, including check cashing, demand deposit accounts (Revolve Finance), credit protection insurance and money transfer services.
•Insurance Revenue: We earn revenue from the sale of optional credit protection insurance, which is recognized ratably over the term of the loan. Credit protection insurance is available to consumers on certain Revolving LOC and Installment products. For the years ended December 31, 2021, 2020 and 2019, insurance revenues were $48.9 million, $35.6 million and $34.6 million, respectively. We expect our insurance revenue to grow in the future as a result of our acquisition of Heights in December 2021, which also offers insurance products in connection with its lending operations. These optional products include credit life, credit accident and health, credit property insurance and credit involuntary unemployment insurance with the policies written by unaffiliated third-party insurance companies.
•Revolve Finance: Revolve Finance launched during the first quarter of 2019 and provides customers with a checking account solution that combines a Visa-branded debit card, a number of technology-enabled tools and optional overdraft protection. For the year ended December 31, 2021, our customers loaded $119.8 million on over 30,000 Revolve Finance cards.
•First Phase: In late December, 2021, we launched First Phase, a new credit card program, which we have begun rolling out across the U.S. in 2022. First Phase provides non-prime customers a Visa-branded credit card and a number of technology-enabled tools.
Ancillary products comprised 9.1%, 7.0% and 5.6% of our consolidated revenue during the years ended December 31, 2021, 2020 and 2019, respectively.
CSO Programs
Through our CSO programs, we act as a CSO/CAB on behalf of customers in accordance with applicable state laws. We currently offer Installment loans with a maximum term of 180 days through CSO programs in stores and online in the state of Texas. As a CSO, we earn revenue by charging the customer a CSO fee for arranging an unrelated third party to make a loan to that customer.
We currently have relationships with two unaffiliated third-party lenders for our CSO programs. We periodically evaluate the competitive terms of these lender contracts, which could result in the transfer of volume and loan balances between lenders.
Under our CSO programs, we provide certain services to a customer in exchange for a CSO fee payable to us by the customer. One of the services is to guarantee the customer’s obligation to repay the loan. For CSO loans, each lender is responsible for providing the criteria by which the customer’s 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 and is included in "Liability for losses on CSO lender-owned consumer loans" in our Consolidated Balance Sheets.
CSO fees are calculated based on the amount of the customer’s outstanding loan in compliance with applicable statute. We earn CSO fees ratably over the term of the loan as the customer makes payments. If a loan is paid off early, no additional CSO fees are due or collected. During the years ended December 31, 2021 and 2020, 58.3% and 66.5%, respectively, of loans originated under CSO programs were paid off prior to the original maturity date.
CSO loans are made by a third-party lender, and thus we do not include them in our Consolidated Balance Sheets as loans receivable; instead, we include fees receivable in “Prepaid expenses and other” in our Consolidated Balance Sheets.
Geography and Channel Mix
For the years ended December 31, 2021, 2020 and 2019, approximately 64.3%, 75.4% and 80.0%, respectively, of our consolidated revenues were generated from services provided within the U.S. and approximately 35.7%, 24.6% and 20.0%, respectively, were generated from services provided within Canada. For each of the years ended December 31, 2021 and 2020, approximately 59.9% and 60.7%, respectively, of our long-lived assets were located within the U.S., and approximately 40.1% and 39.3%, respectively, were located within Canada. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information on our geographic segments.
Stores: As of December 31, 2021, we had 751 stores across 20 U.S. states and eight provinces in Canada, which included 390 stores acquired with the acquisition of Heights in December 2021. The geographic breakdown is as follows:
•550 U.S. locations: Texas (140), Tennessee (74), South Carolina (58), Alabama (54), California (35), Illinois (26), Missouri (24), Wisconsin (20), Georgia (18), Kentucky (18), Nevada (18), Oklahoma (18), Indiana (16), Arizona (12), Kansas (10), Louisiana (4), Mississippi (2), Colorado (1), Oregon (1), and Washington (1), and;
•201 Canadian locations: Ontario (134), Alberta (27), British Columbia (23), Saskatchewan (6), Nova Scotia (5), Manitoba (4), Newfoundland and Labrador (1), and New Brunswick (1).
Online: We lend online in 27 states in the U.S. and eight provinces and one territory in Canada. For the years ended December 31, 2021, 2020 and 2019, revenue generated through our online channel represented 48%, 49% and 46%, respectively, of consolidated revenue.
Retail: We offer POS Lending in Canada at nearly 7,500 retail locations and over 3,100 merchant partners across 10 provinces and two territories.
Industry Overview
Through December 31, 2021, we operated in a segment of the financial services industry that provides lending products to non-prime and near-prime consumers in need of convenient and flexible access to credit and other financial products. In the U.S. alone, according to a 2021 study by the Financial Health Network, despite the increase in programs designed to waive certain fees and interest to those impacted by COVID-19, underserved consumers in our target market spent an estimated $255 billion in fees and interest in 2020 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 and episodic cash shortfalls. In 2020, as the COVID-19 pandemic began to impact much of the global economy, lower-income consumers in the U.S. continued to increase their spending despite being impacted the most of any income group by job losses. According to an October 2020 JPMorgan Chase Institute study, spending by the unemployed increased by 22% upon receipt of unemployment, which included additional stimulus payments by the U.S. government, and then declined 14% after the expiration of the stimulus.
During times of economic volatility, our target consumers periodically exhibit higher income volatility and require access to additional financing products. A study published in 2021 by JPMorgan Chase estimated that households with lower incomes needed approximately seven weeks of take-home income to cover a simultaneous income dip and expense spike, which translates to a $2,500 cash buffer. However, most of the households in the study had approximately $600, prior to the pandemic. We believe we can meet the needs of consumers, including during periods of economic volatility, through the thoughtful and responsible use of our proprietary credit decisioning model.
In catering to these customers, we compete against a large number and wide variety of consumer finance providers, including online and branch-based consumer lenders, credit card companies, pawn shops, rent-to-own and other financial institutions that offer similar financial products or services. The Financial Health Network noted in its 2021 study that the short-term credit, compound annual growth rate from 2015 to 2018 in the U.S. for installment loans and loans originated by non-bank lenders, primarily through online channels, was 13.8% and 27.3%, respectively.
As discussed further in "—Regulatory Environment and Compliance," our industry is highly regulated at the federal, state and local levels in the U.S. and at the federal and provincial levels in Canada. In general, these regulations are designed to protect our consumers and the public, in addition to regulating our business operations. We believe our (i) experienced management team, (ii) proprietary industry technology, (iii) ability to successfully navigate previous regulatory changes, and (iv) flexibility to tailor our products or create new products to meet existing or new regulation will allow us to successfully manage future challenges and obstacles.
In addition to the broad trends impacting the consumer finance landscape, we believe we are well positioned to grow our market share as a result of several changes related to consumer preferences within our industry. Enhanced by the impacts of COVID-19 during 2020 and 2021, we believe that evolving consumer preferences, including increased use of mobile devices and overall adoption rates for technology are driving significant change in our industry that benefits CURO.
•Increasing adoption of online channels—Our experience, particularly in 2020 and 2021 as COVID-19 forced a shift in consumer behavior to transact from home, is that customers prefer service across multiple channels or touch points. For the year ended December 31, 2021, our revenue generated through online channels in the U.S. and Canada Direct Lending represented 50.3% of our total U.S. and Canada Direct Lending revenues compared to 48.5% for the year ended December 31, 2020. Canada Direct Lending online revenue as a percentage of total Canada Direct Lending revenue increased 24.6% year over year.
•Increasing adoption of mobile devices—With the proliferation of improved smartphone service plans, many of our non-prime customers have moved to mobile devices for loan origination and servicing. According to a 2021 study by the Pew Research Center covering the U.S., smartphone penetration among adults was 85%, up from 81% two years
earlier. In Canada, the penetration rate for smartphones was 66% in 2019, the last time Pew Research Center did the study there. Additionally, according to Statista, the smartphone penetration rate in the U.S., when compared to the total population, increased from 20.2% in 2010 to 72.2% in 2020, while in Canada, they project an increase in smartphone users of over 3 million people, or 10%, between 2018 and 2024. In 2012, less than 44% of our U.S. customers communicated with us via a mobile device, whereas in the fourth quarter of 2021, that percentage had grown to nearly 78%. The December 2021 acquisition of Heights provides us the opportunity to expand our online channel to a historically in-store based business model. Flexiti, with its retail merchant partnership, predominantly originates loans at merchants physical locations.
•Shifting preference toward longer term, higher balance loans—Given our experience since 2008 in offering short- and longer-term loan products, we believe that short term, small balance loans, which we refer to as Single-Pay loans and which are included in our Installment portfolio, are becoming less popular or less suitable for a growing portion of our customers. Our customers generally have shown a preference for our Unsecured and Secured Installment loan products and Revolving LOC loan products, which typically have longer terms, lower periodic payments and a lower relative cost than Single-Pay products. Offering more flexible terms and lower payment amounts also significantly expands our addressable market by broadening our products’ appeal to a larger proportion of consumers. For example, our Single-Pay loans for U.S., excluding Heights, and Canada Direct Lending represented 27.4% and 97.2%, respectively, of total Company Owned gross loans receivable at the beginning of 2015, compared to 12.4% and 4.4%, respectively, at December 31, 2021.
Our Strengths
We believe the following foundational competitive strengths differentiate us from our competitors:
•Differentiated, omni-channel platform—We believe we have the only fully-integrated store, online, mobile and contact center platform to support omni-channel customer engagement for non-prime and near-prime customers in the U.S. and Canada. 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, whether in store, online or over the phone. We believe the strength of our online platform during the COVID-19 pandemic in 2020 and 2021 was advantageous as customers could easily utilize the channel during periods of peak pandemic outbreaks or resurgences. Our online customer transactions increased significantly relative to all types of transactions, which resulted in a similar increase in revenue from online transactions, relative to total revenue. Our customers can utilize any of our three channels at any time and in any combination to obtain a loan, make a loan payment or manage their accounts. In addition, we have our “Site-to-Store” capability, for which customers that do not qualify for a loan online are directed to a store to complete a loan transaction. Our "Site-to-Store" program resulted in approximately 120,000 loans in the year ended December 31, 2021. These aspects of our platform enable us to source a larger number of customers, serve a broad range of customers and continue serving these customers for long periods of time.
•Recession-resilient business—In addition to channel diversification, we believe our business is adaptable to various economic cycles. 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, which are not generally available to them. Changes to our products or processes are at times needed to suit the specifics of a particular economic downturn, such as the Customer Care Program we instituted in 2020 in response to the impact COVID-19 had on our customers. Our customers have historically shown a greater ability to manage credit throughout economic downturns compared to prime customers, as measured by the relative change in their delinquency and charge-off data during economic downturns. During 2020, as a result of various COVID-19 impacts such as cautious customer behavior, government stimulus programs, and our tightening of credit, demand for our products decreased relative to pre-COVID-19 levels while credit losses and delinquencies remained well below historical levels. Sequential growth in the last two quarters of 2020 outpaced the comparable quarters in 2019 as the outsized impacts of stimulus programs in the U.S. and Canada phased out.
•Compelling new products expand growth opportunities—We continue to maintain our current customer relationships and attract new customers through our consistently innovative approach to new products. In February 2019, we launched Revolve Finance, a checking account solution, with FDIC-insured deposits, that combines a Visa-branded debit card, a number of technology-enabled tools and optional overdraft protection. Meanwhile in December 2021, we launched First Phase, a new credit card program, which we will begin rolling out across the U.S. in 2022. First Phase will provide our non-prime customers with a Visa-branded credit card and a number of technology-enabled tools.
As we look to enhance our product portfolio, we acquired two strategically important companies in 2021: Flexiti in March 2021 and Heights in December 2021. Flexiti's POS and BNPL products are new offerings in our portfolio within a rapid-growth segment of the Canadian market. Heights is a provider of lower cost credit to near-prime consumers that both expands our offerings and allows us cross-sell opportunities between CURO's legacy U.S. customers and Heights' consumers.
•Experienced management and flexible platform—We believe our management team is among the most experienced in the industry, with over a century of collective experience. Importantly, our management team has experience through various economic cycles, which we have leveraged during the COVID-19 pandemic. We also have deep personnel strength across key functional areas including compliance, IT, credit decisioning, marketing, legal and finance. Our leadership experience has allowed us the ability to transition quickly to changes in regulatory environment, economic cycles and customer preferences, as we did with our (i) successful transition to lower cost revolving LOC products in Canada starting in 2018 and (ii) our ability to deploy capital efficiently as we did in relation to our investment in Katapult, allowing us to benefit with a significant return in 2021, and our acquisition of Flexiti and Heights. The acquisition of both companies brought on board their own sets of experienced management leadership, as evidenced, for example, by Flexiti's loan growth since its acquisition.
•Proprietary credit decisioning model—Curo is our legacy leading analytics and information technology tool, which drives strong credit risk management. Curo is a bespoke, proprietary IT platform that seamlessly integrates activities related to customer acquisition, underwriting, scoring, servicing, collections, compliance and reporting. Our analytics team utilizes Curo to gather data and performance records for research and development purposes to assist in our continued development of new models. Curo is underpinned with 20 years of continually updated customer data proven profitable across credit cycles and comprising over 100 million loan records (as of December 31, 2021) used to formulate our robust, proprietary underwriting algorithms. This platform then automatically applies multi-algorithmic analysis to a customer’s loan application to produce a “Curo Score” which drives our underwriting decision. This fully integrated IT platform enables us to make real-time, data-driven changes to our customer acquisition and risk models, which yield significant benefits in terms of customer acquisition costs and credit performance. The acquisition in March 2021 of Flexiti provided us access to an award-winning BNPL platform and proprietary technology to add to Curo. Flexiti's technology platform is recognized as market leading, winning ACT (Advanced Card Technologies) Canada's 2015 Technology Innovation Award for Payments Benefiting Merchants
•Sophisticated customer analytics—Our analytic tools and multi-faceted marketing strategy drive 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 Marketing, Risk and Credit Analytics team uses Curo to cross reference marketing spend, new customer account data and granular credit metrics to optimize our marketing budget across these channels in real time and to produce higher quality new loans. In addition to these diversified marketing programs, our stores play a critical role in creating brand awareness and driving new customer acquisition.
•Attractive and stable markets—We have increased our diversification by product (such as Canada POS Lending) and geography (such as Revolving LOC at Canada Direct Lending), 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 by enabling us to appeal to a wider array of borrowers. In addition to product and geographic diversification, we acquired Ad Astra in January 2020, which was previously our exclusive provider of third-party collection services for the U.S. business. The acquisition brought all U.S. servicing and recovery in-house, drives operational and financial synergies to ensure all aspects of the recovery portfolio are coordinated, reduces operational redundancy and increases peak volume management, improves compliance synergies, and facilitates integrated and personalized credit risk management strategies and campaign management across the servicing and recovery lifecycle.
In addition to the strengths above, we believe the following core competencies are essential to succeed in this industry:
•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. We invest considerable time and resources on web design and mobile optimization to ensure our websites are quick and responsive, and support the mobile phone brands and sizes that our customers use. Our stores are branded with distinct and recognizable signage, are conveniently located and typically are open seven days a week. At Flexiti, we offer flexible financing solutions for retailers in-store and on-line, allowing customers to immediately finance their purchases with various promotional financing offers with 0% interest within their credit limit. Furthermore, our U.S. and Canada Direct Lending business employs highly experienced store managers, which we believe are critical elements of driving customer retention while lowering acquisition costs and maximizing store-level margins. As of December 31, 2021, the average tenure of our U.S. and Canada Direct Lending store managers, district managers and regional directors was approximately 10 years, 14 years and 16 years, respectively.
•Strong compliance culture with centralized collection operations—We 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 systems, which are integrated into Curo. In addition to conducting semi-annual compliance audits, 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 $3.9 billion of debt financing across 15 separate offerings and various credit facilities since 2010, most recently in December 2021. This aggregate amount includes $1.0 billion of 7.50% Senior Secured Notes, three separate Canada revolving facilities to support the growth of Revolving LOC products in Canada Direct Lending and Canada POS Lending, and a $200 million U.S. revolving facility. We acquired a $350.0 million revolving facility concurrent with the acquisition of Heights on December 27, 2021. We also have U.S. and Canadian bank revolving credit facilities to supplement intra-period liquidity. We believe our access to the capital markets and diversified funding sources is an important significant differentiator, as certain competitors may have trouble accessing capital to fund their business models if credit markets tighten. For more information, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
•History of growth and profitability—Throughout our operating history we have had strong profitability and growth. Between 2010 and 2021 we grew revenue, Adjusted EBITDA and Adjusted Net Income at a compound annual growth rate of 13.5%, 11.9% and 5.8%, respectively. For more information on non-GAAP measures, see Item 7. "Managements Discussion and Analysis of Financial Condition and Results of Operations—Supplemental Non-GAAP Financial Information." At the same time, we have significantly expanded our product offerings to better serve our growing and expanding customer base.
•Continuation of return of stockholders' capital—From 2019 through 2021, we initiated share repurchase programs and cash dividends to provide our stockholders with a return of capital. In 2019 and leading up to the onset of COVID-19 in early 2020, we maintained share repurchase programs resulting in over $50 million of shares bought back and held in treasury. We re-initiated a share repurchase program in 2021, resulting in over $37.4 million of shares bought back and held in treasury. In 2020, we instituted an annual $0.22 per share dividend, paid quarterly, which we renewed in 2021 and increased to $0.44 per share annually beginning in the second quarter of 2021.
Growth Strategy
We believe our diversification through brands, products and geography positions us well for long-term growth. Our recent investments in Canada, Heights, Katapult and card products allows us to be a full-spectrum lender to meet our target customers' evolving credit demands.
•Full Spectrum Lending—In addition to growing our existing suite of loan products, we are focused on expanding the total number of customers that we serve through product, geographic and channel expansion. These efforts include expansion of our online channel, which proved helpful to our customers during the COVID-19 pandemic in 2020 and 2021. However, we continue to invest in and introduce additional products to address our customers’ preference for longer-term products that allow for greater flexibility in managing their monthly payments.
Canada POS Lending card products offers compelling new growth opportunities
In March 2021, we acquired Flexiti, an emerging growth Canadian POS / BNPL provider. Flexiti is a growing FinTech company that provides POS financing and BNPL capabilities through an omni-channel platform to Canadian retailers. This acquisition positions us as a full-credit-spectrum lender in Canada and enhances our long-term growth trajectory, diversifies our revenue mix by product and geography and helps to mitigate regulatory risk given Canada's historically stable regulatory environment. We now reach consumers in Canada through all the ways in which they access credit directly both in-store and online by credit cards or at the POS. The addition of Flexiti is an important milestone for our continued value creation and positions CURO as a top three non-bank lender in Canada.
Canada Direct Lending contributing to future growth
Our investment in our Revolving LOC product in Canada has been successful and provides an avenue for long-term growth. We expanded Revolving LOC loan products under our LendDirect brand to include additional provinces and increased customer acquisition efforts in existing markets. We also accelerated our offering of Revolving LOC products under our Canadian CashMoney brand. In late 2017 and 2018, we launched Revolving LOC loans in Alberta and Ontario, respectively, with a significant increase in mid-2018 following regulatory changes impacting other products. In
2019, we began offering Revolving LOC loans in British Columbia. Although our revenue in Canada was negatively impacted by COVID-19 in 2020, our Revolving LOC product there continued to generate strong revenue and loan growth through 2021. Canada Direct Lending Revolving LOC loans grew 32.7% year over year. Based on market trends, we estimate that the consumer credit opportunity for installment balances is approximately C$175 billion. We also believe these customers comprised a highly fragmented market with low penetration by our industry and thus represents a growth opportunity for us.
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| We believe the historic stability in Canada's regulatory environment, historical performance by Canadian customers, and the continued demand by customers for a long-term and flexible product provide a growth opportunity over a longer horizon while diversifying (i) geographically, (ii) through product expansion, and (iii) through customer risk profiles, as well as helping to mitigate regulatory risk. | |
Heights acquisition
The December 2021 acquisition of Heights enables us to offer new near-prime credit offerings in states that we historically have not had a presence. The acquisition will allow us to expand our already robust omni-channel offerings, expand digital marketing, enhance credit decisioning, and diversify the payment options we can offer to our customers. Importantly, we have the ability to offer our non-prime credit cards to eligible customers initial pursuing a product through Heights. The aggregate purchase price for Heights was $360 million, comprised of $335 million in cash and $25 million in common stock.
Katapult Investment
In addition to our core direct-to-customer products, we made our first investment in Katapult in 2017. At the time of our initial investment, we identified multiple catalysts for Katapult's future success–an innovative e-commerce POS business model, a focus on the vast and under-penetrated non-prime financing market, and a clear and compelling value proposition for merchants and consumers. We believe Katapult's total estimated addressable market in the U.S. is between $40-$50 billion, of which Katapult currently holds less than one percent. We believe Katapult is poised to cater to this near-term demand growth. Katapult’s sophisticated end-to-end technology platform provides consumers a seamless integration with online, brick and mortar and omni-channel merchants, giving the consumer an exceptional purchasing experience. Based on a June 2021 Experian report, nearly a third of U.S. consumers are considered non-prime. In June 2021, we received cash of $146.9 million and additional stock as a result of a merger between Katapult and FinServ. To date, our cumulative cash investment in Katapult is $37.5 million and, with the latest investment made in December 2021 of $10.0 million. We own approximately 25.2% of Katapult on a fully diluted basis assuming full pay-out of earn-out shares.
Investments in our processes and technology
•Continue to improve the customer journey and experience—We continuously seek to enhance our “Call, Click or Come In” customer experience and execution, with projects ranging from continuous upgrades of our web and mobile app interfaces to enhanced service features to payment optimization.
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| Increased focus on online channels—As COVID-19 has demonstrated, our investments in online channels have proven to be a significant revenue driver. The pandemic enhanced customer transaction volume shift online, accelerating trends we previously observed. While customers may return to stores as the pandemic eases, we expect online channel usage will expand over time. |
•Continue to focus on our core capabilities—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:
•Loan Underwriting: Installment and Revolving LOC products are more affordable and useable for customers but require increasingly sophisticated underwriting and decisioning to optimize customer acquisition cost while balancing credit risk with approval rates. Our analytics platform combines data from over 100 million records (as of December 31, 2021), supplemented with predictive data from third-party reporting agencies.
•Collections and Customer Service: Installment and Revolving LOC products have longer terms than Single-Pay loans. Longer duration drives the need for a more comprehensive collection and a credit-default servicing strategy that emphasizes curing a default and returning the customer to good standing. We utilize a centralized collection model that eliminates the need for our store personnel to contact customers to resolve a delinquency. We have also invested in building new contact centers in the U.S. and Canada, each of which utilizes sophisticated dialer technologies to help us contact our customers in a scalable, efficient manner. To streamline our collection solutions, in January 2020 we purchased Ad Astra, which was previously our exclusive provider of third-party collection services for owned and managed loans in the U.S that are in later-stage delinquency. The acquisition provided significant operational, financial and compliance synergies.
•Funding: The shift to larger balance loans with extended 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 transitions.
•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. Regularly updating our credit underwriting algorithms enables us to enhance the value of each customer relationship through improved credit performance. We believe that combining these underwriting improvements with data-driven marketing spend will produce margin expansion and earnings growth.
•Monitor and appropriately increase approval rates to our applicants—Growth and optimization of customer acquisition spending depends on maintaining high approval rates balanced with credit risk management. We continually improve our scoring models to optimize a profitable balance of application approval rates and portfolio performance. We balance growth with our credit risk management in all economic cycles and are mindful as to when and how to tighten our credit approval process, such as our tightening during the COVID-19 pandemic.
•Expand credit for our borrowers—Through extensive testing and proprietary underwriting, we have successfully increased credit limits for customers, enabling us to offer “the right loan to the right customer.” The favorable customer acceptance rates and credit performance have improved overall loan-vintage and portfolio performance.
•Marketing Expansion—We reach our customers using a multi-channel approach, including addressable TV, text to apply and enhanced digital ads utilizing our site-to-store concept to stay ahead of the continually developing landscape of our customers' behavior and needs. These approaches are incorporated into our core marketing and sponsorships through certain major events, such as NASCAR auto racing, to expand our brand awareness.
Customers
Our U.S. and Canada Direct Lending customers require essential financial services and value timely, transparent, affordable and convenient alternatives to banks, credit card companies and other traditional financial services companies, which are not generally available to them. In the U.S., prior to our acquisition of Heights, our customers generally earned between $15,000 and $85,000 annually. Heights' customers typically earn an average of $10,000 to $12,000 per year more than the average CURO customer. Our Canada Direct Lending customers generally earn between C$15,000 and C$75,000 annually while the average annual earnings of Canada Point of Sale customers is approximately C$100,000. Based on our experience, our target consumer utilizes the products 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 insufficient 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; or
•eschew complicated fee structures in some bank products (e.g., credit cards and overdrafts).
At Canada POS Lending, our consumers are looking for flexible payment solutions at the time of purchase, primarily at retail locations. The Flexiti card offers deferred payment solutions, for up to 24 months at 0% interest during the promotional period, monthly installment payment solutions of up to 72 months also at 0% interest during the promotional period provided that scheduled payments are made, or a revolving credit experience like a typical credit card. The fully automated application process typically results in a credit decision within three minutes with Flexiti branded credit cards available to use at nearly 7,500 partner retail locations.
Marketing
Our legacy U.S. and Canada Direct Lending businesses use a multi-channel approach to attract new customers, with a variety of targeted and direct response strategies to build brand awareness and drive customer traffic in stores, online and to our contact centers. These strategies include direct-response spot television, radio campaigns, point-of-purchase materials, 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 multi-channel approach to drive customers applying online to our store locations–a program we call “Site-to-Store.” We use similar multi-channel strategies at our Canada POS Lending segment to build awareness and drive repeat spend through marketing touchpoints. These touchpoints include media, digital advertising, POS / in-store materials, emails, direct mail and other merchant owned channels to drive overall results. Heights marketing primarily consists of direct mailings.
Information Systems
Curo is our proprietary IT platform for our U.S. and Canada Direct Lending segments and is a unified, centralized platform that seamlessly integrates activities related to customer acquisition, underwriting, scoring, servicing, collections, compliance and reporting. Curo is scalable and has been successfully implemented in the U.S. and Canada and is designed to support and monitor compliance with regulatory and other legal requirements. 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, all in a single data base. In addition, our stores perform automated daily cash reconciliation at each store and every bank account in the system. Curo enables us to make real-time, data-driven changes to our acquisition and risk models, which yields significant benefits in terms of customer acquisition costs and credit performance. Each of our stores and all of our customer service collections representatives have secure, real-time access to it.
Curo 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 channel. 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, which are continuously reviewed and refreshed, are focused on a number of factors related to the loan applicant's disposable income, expense trends or cash flows, among other factors. The predictability of our scoring models is driven by the combination of application data, purchased third-party data and our robust internal database of over 100 million records as of December 31, 2021 associated with loan information. These variables are then analyzed using a series of algorithms to produce a "Curo Score" that allows us to optimize lending decisions in a scalable manner. From 2010 to 2021, we extended over $21.1 billion in total credit across approximately 52.5 million total loans.
For Canada POS Lending, our decision management platform and information technology tools drive strong credit risk management. Our analytics team utilizes data from customer acquisition, underwriting, servicing and collections for research
and development purposes to assist in our continued development of new models. Flexiti’s proprietary Credit Risk Rating model is applied in real-time to every customer’s application and drives our underwriting decision. Our credit risk models combined with our scalable omnichannel instant apply-and-buy POS financing solution yield significant benefits in terms of customer acquisition costs and credit performance.
Our proprietary IT platform and Canada POS powers the entire lifecycle of customer and merchant transactions. It seamlessly integrates activities related to merchant configuration, customer acquisition, account management, collections, and reporting. Our platform allows for our suite of BNPL plans to be customized for each of our retail partners. The platform captures transactional data by retailer, store and customer. Data related to loan originations, servicing activities, collection activities, payments and defaults are also captured. The platform allows Canada POS to make data-driven decisions that optimizes performance across all aspects of the POS business.
The customer application and underwriting process can differ by province, retailer, acquisition channel and customer. Customer presented photo-identification, third-party data vendors and tech-enabled bank account verification are available for deployment in customer verification. Our underwriting models are powered by the combination of application data, purchased third-party data and our internal database of loan information.
Cybersecurity Management
We rely on information technology systems and networks in connection with many of our business activities. Many of these systems and networks are managed directly by us, while some are managed by third-party service providers and are not under our day-to-day control. However, we do have oversight of the services provided by third-party service providers. We frequently evaluate ourselves for appropriate business continuity and disaster recovery planning through the use of test scenarios and simulations. Our networks and systems are tested multiple times throughout the year by third-party security firms through penetration and vulnerability testing and our networks and systems are monitored by intrusion detection services as well as state-of-the-art network behavior analysis hardware and software. All systems have vulnerabilities mitigated through a robust patch management program that is reviewed annually. We employ a skilled IT workforce to implement our cybersecurity programs and to perform all security and compliance-related responsibilities in a timely manner. For risks associated with cybersecurity, see “Item 1A – Risk Factors.”
Collections
We operate centralized collection facilities in the U.S. and Canada in order to enable store employees to focus primarily on customer service and to improve effectiveness and compliance management. Our collections personnel contact customers after a missed payment, primarily via phone calls, letters, text, push notifications and emails, and help the customer understand available payment arrangements or alternatives to resolve the deficiency. We use a variety of collection 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 employ varying methodologies by product type.
We assign delinquent loan accounts in the U.S., excluding Heights, to Ad Astra typically after 91 days without a scheduled payment. We acquired Ad Astra in January 2020, and its results are included in our Consolidated Financial Statements. Under our policy, the precise number of days past-due to trigger a collection-agency referral varies by state and product, and requires, among other things, that proper notice be delivered to the customer prior to assignment. Once a loan meets the criteria set forth in the policy, it is automatically referred to Ad Astra for collection. We make changes to our policy periodically in response to various factors, including regulatory developments and market conditions. As delinquent accounts are paid, Curo updates these accounts in real time. This ensures that collection activity will cease the moment a customer’s account is brought current or paid in full and considered in “good standing.” See Note 16, “Related Party Transactions" of the Notes to Consolidated Financial Statements for a description of our relationship with Ad Astra.
At Canada POS Lending, we utilize a combination of internal and external collection agencies to collect on past due and charged off accounts. Prior to an account charging off, accounts are addressed by either our internal collection call center or external agencies. Collection agents are trained to provide exceptional customer service with the objective of getting the customer to clear any past due amounts and emphasizing the importance of making future payments on time. After an account charges off, third party collection agencies call on our behalf to arrange repayment of debt. Attempts to collect are primarily made via phone calls, but email, text messages, and letters may be used.
Competition
We believe that the primary factors upon which we compete are:
•range of services and products;
•flexibility of product offering;
•convenience;
•reliability;
•fees;
•experienced management; and
•speed.
Our customers value service that is quick and convenient, lenders that can provide the most appropriate structure, loan terms that are fair 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.
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| For Canada POS Lending specifically, with the exit of Desjardins, we have partnered with merchants representing 77% of the retail market Desjardins served previously. In 2021 alone, we gained several new merchant partners, most notable of which was the LFL Group, one of Canada's largest retailer holding companies. We believe we have limited omnichannel competition, with new BNPL entrants focused primarily on small-ticket e-commerce transactions that do not require a credit card. We expect that our Canada POS business will become Canada's largest POS financing provider now that LFL has been onboarded. With our omni-channel financing solution, we expect continued market share gains for Canada POS Lending. |
Seasonality
Our direct lending businesses in the U.S. and Canada typically experience the greatest demand during the third and fourth calendar quarters. In the U.S., this demand generally declines in the first calendar quarter as a result of federal income tax refunds and credits. Typically, our cost of revenue for loan products, which represents our provision for losses, is lowest as a percentage of revenue in the first quarter of each year due to our customers’ receipt of income tax refunds, and increases as a percentage of revenue for the remainder of the year. As a result, we experience seasonal fluctuations in our U.S. operating results and cash needs. Our lending business in Canada is less subject to seasonality than our U.S. lending business.
Our Canada POS Lending sales are largely driven by the typical seasonality experienced in the Canadian retail markets, with an average of 45% of sales historically falling in the last quarter of the year. Modest fluctuations are seen in February driven by Valentine’s Day in the jewelry category with furniture driving the majority of the seasonal impacts, driven by The Brick / Leon’s Furniture. Black Friday, in particular, has been a large driver of originations. In 2021, weekly originations in the second half of the year were nearly five times the amount experienced in the first half of the year.
Human Capital Resources
As of December 31, 2021, we had approximately 5,200 employees, approximately 3,600 of whom work in our stores. In addition to our corporate headquarters in Wichita, Kansas, we have a FinTech office in Chicago, Illinois, which allows us to attract and retain talented IT development and data science professionals. We also have offices in Toronto, Ontario and Greenville, South Carolina servicing our Canadian segments and Heights Finance, respectively. None of our employees are unionized or covered by a collective bargaining agreement and we consider our employee relations to be good.
We believe that customer service is critical to our continued success and growth. As such, we have staffed our legacy U.S. stores, (i.e., those stores not part of the acquisition of Heights) with a full-time Store Manager, Branch Manager or Manager, who runs the day-to-day operations of the store. The Manager is typically supported by two to three Senior Assistant Managers and/or Assistant Managers and three to eight full-time Customer Advocates. Customer Advocates conduct the POS 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 for these positions are equal to or better than our major competitors and we regularly evaluate our benefit plans to maintain their competitiveness.
We are committed to the health and safety of every person who comes into our stores. During 2020 and 2021, as a result of COVID-19, we implemented additional safety protocols to protect our frontline store employees, customers and communities, including enhanced protocols regarding social distancing and routine store cleaning. We temporarily closed a number of stores for a limited amount of time for suspected or confirmed infections, which affected our total store volume. In 2021, with the onset of new variants, we continued to maintain robust safety protocols to ensure the safety of our customers and employees. For most of our contact center and corporate support employees, a remote-work policy has been instituted and we are evaluating best practices for a hybrid home/office environment. Our experienced teams have adapted quickly to the changes and have managed our business successfully during this challenging time.
Regulatory Environment and Compliance
The financial services industry is regulated at the federal, state and local levels in the U.S. and at the federal and provincial levels in Canada. Laws and regulations governing our loan products typically impose restrictions and requirements, such as those on:
•interest rates and fees;
•maximum loan amounts;
•income requirements;
•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;
•disclosures;
•security for loans and payment mechanisms;
•licensing; and
•database reporting, eligibility, and loan utilization information.
We are also subject to laws and regulations relating to our other financial products, including those governing recording and reporting certain financial transactions, identifying and reporting suspicious activities and safeguarding the privacy of customers’ personal information. For more information regarding the regulations applicable to our business and the risks to which they subject us, see the section entitled “Item 1A—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 or reinterpreted. We work with regulatory 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 we believe are equitable to businesses and consumers alike, that facilitate competition thus lowering costs associated with financial products and services, and enable consumers to access myriad responsible credit products that meet their needs.
Due to the evolving nature of laws and regulations, new or revised laws or regulations, or repealed laws or regulations, could adversely impact our current product offerings or alter the economic viability of our existing products and services. For example, the 2017 Final CFPB Rule will likely increase costs, created additional complication and confusion to consumers attempting to repay their loans and lessen the effectiveness of our loan servicing and collections. In addition, in December of 2020, the CFPB issued its debt collection rule – Regulation F - which applies to the third-party collection activities of Ad Astra. The new rule imposes, among other things, strict consumer contact requirements, additional information disclosures to the consumer when attempting to collect the debt and otherwise prescribes prescriptive disclosure contents.
It is possible that future changes to statutes or regulations will have a material adverse effect on our results of operations or financial condition.
U.S. Regulations
U.S. Federal Regulations
The U.S. federal government and its agencies possess significant regulatory authority over consumer financial services, and these laws and regulations have a significant impact on our operations.
Dodd-Frank. In 2010, the U.S. Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank"). Title X of this legislation created the CFPB, and provides the CFPB with broad rule-making, supervisory and enforcement powers with regard to consumer financial services. Title X of Dodd-Frank also contains “UDAAP” provisions, which declare unlawful “unfair,” “deceptive” and “abusive” acts and practices in connection with the delivery of consumer financial services and gives the CFPB the power to enforce UDAAP prohibitions and to adopt UDAAP rules defining unlawful acts and practices. Additionally, the Federal Trade Commission Act, Section 5, prohibits “unfair” and “deceptive” acts and practices in connection with a trade or business and gives the Federal Trade Commission enforcement authority to prevent and redress violations of this prohibition.
2017 and 2020 Final CFPB Rules. Pursuant to its authority to adopt UDAAP rules, the CFPB issued the 2017 Final CFPB Rule, which contained both “mandatory underwriting” or “ability-to-repay” (“ATR”) provisions and payment restrictions. The mandatory underwriting provisions applied to short-term consumer loans (with terms of 45 days or less) and longer-term balloon payment loans (i.e., any payments more than twice the size of other payments). These provisions imposed rigid ATR requirements and verification requirements on the industry, subject to a limited exception for certain loans in a sequence starting with a loan limited to $500 and declining for each new loan in the sequence.
The repayment provisions apply to the foregoing loans and to longer-term loans with (i) annual percentage rates exceeding 36% and (ii) lender access to the consumer’s account, whether by ACH, card payment, check or otherwise (i.e., “leveraged payment mechanism”). The payment provisions generally prohibit lenders from seeking payment, without explicit reauthorization, when two consecutive payments have failed due to insufficient funds. The provisions also require a series of prescribed notices for initial payments, “unusual” payments (by amount, payment date or payment modality) and a consumer rights notice after two consecutive payment attempts have failed due to insufficient funds.
The 2017 Final CFPB Rule was originally scheduled to go into effect, in its entirety, in August 2019. However, before that time, the CFPB announced it would reconsider the mandatory underwriting provisions of the 2017 Final CFPB Rule and delay its effective date. Additionally, the Community Financial Services Association (the “CFSA”) and the Consumer Service Alliance of Texas, two industry trade groups, brought a lawsuit (the “Texas Lawsuit”) against the CFPB in a Texas federal district court. The Texas Lawsuit challenged the entire 2017 Final CFPB Rule and resulted in a court-ordered stay of the Rule. In July 2020, the CFPB adopted a new rule (the “2020 Final CFPB Rule”) that rescinded the mandatory underwriting provisions of the 2017 Final CFPB Rule, but left the payment provisions fully intact.
Following adoption of the 2020 Final CFPB Rule, the plaintiffs in the Texas Lawsuit filed an amended complaint and a motion for a preliminary injunction against the remaining payment provisions of the 2017 Final CFPB Rule, arguing that the 2017 Final CFPB Rule is arbitrary and capricious; specifically, insofar as it fails to distinguish in its treatment between declined payment card transactions, which generally do not give rise to bank charges, and dishonored ACH payments and checks, which do. It was further argued to be invalid because it was adopted by a single Director, who, at the time the Rule was enacted, was only dischargeable for cause. The Supreme Court later found this structure unconstitutional and required the Director to be dischargeable without cause under the Dodd-Frank Act. On August 31, 2021, the U.S. District Court granted the CFPB’s motion for summary judgment and denied the plaintiffs’ motion for summary judgment, and ordered compliance with the CFPB Rules by June 13, 2022. Following the Court’s August 31, 2021 Order, plaintiffs filed a Notice of Appeal with the Fifth Circuit and a Motion for Stay Pending Appeal, asking to stay the compliance date until after their appeal is fully and finally resolved. On October 14, 2021, in its unanimous decision, the Fifth Circuit granted the motion by plaintiffs to extend the compliance date until 286 days after resolution of their appeal. Briefing was completed as of January 19, 2022 and oral argument is currently scheduled for the week of May 9, 2022.
Meanwhile, in October 2020, a community group, The National Association for Latino Community Asset Builders ("NALCAB"), filed a lawsuit against the CFPB in the federal district court for the District of Columbia (the “DC Lawsuit”). The DC Lawsuit sought to overturn the 2020 Final CFPB Rule and reinstate the mandatory underwriting provisions of the 2017 Final CFPB Rule on the basis that the rule is arbitrary and capricious. The CFSA has intervened as a defendant in the case and the CFPB has filed a motion to dismiss the complaint for lack of standing, supported by the CFSA. The US District Court granted CFSA’s and the CFPB’s motion to dismiss. NALCAB has until mid-March 2022 to appeal.
We believe that complying with the mandatory underwriting provisions of the 2017 Final CFPB Rule would have been costly and would have had a material adverse effect on our business and results of operations, and would have significantly reduced the
permitted borrowings by individual consumers. We cannot provide assurance that the CFPB and CFSA will prevail on appeal nor that Congress will not pass legislation and the CFPB will not adopt a rule that could have a material adverse effect on our product offerings, business operations, results of operation or financial condition.
Likewise, we cannot provide assurance that the CFSA will prevail in the Texas Lawsuit. If it does not prevail in the district court or any ensuing appeal, either in whole or at least with respect to debit card transactions, the payment provisions as currently formulated would require significant modifications to our payment, customer notification and compliance systems, as well as create delays in initiating automated collection attempts when payments we initiate are unsuccessful. These modifications would increase our costs and reduce our revenues, albeit to a far lesser extent than the mandatory underwriting provisions. Accordingly, unless the payment provisions are declared invalid in the Texas Lawsuit, they may have a material adverse effect on our results of operations or financial condition.
For additional discussion of the potential impact of the 2017 Final CFPB Rule and 2020 Final CFPB Rule, see “Risk Factors—Risks Relating to Our Industry."
CFPB Debt Collection Rule. In May 2019, the CFPB published in the Federal Register a proposed debt collection rule to amend Regulation F which would apply to debt collectors that are subject to the Fair Debt Collection Practices Act ("FDCPA”), such as our Ad Astra subsidiary. The proposed rule addressed a variety of topics, including third-party debt collector communications, collection practices and collection disclosures. Among other things, the proposed rule announced new restrictions on collection-related communications with consumers, such as imposing a specific limit on the number of times a debt collector can place telephone calls to consumers each week, as well as a mandatory waiting period following a successful telephone communication with the consumer. The proposed rule also offered a series of new collection disclosures. In February 2020, the CFPB supplemented the proposed debt collection rule to amend Regulation F to prescribe federal rules governing disclosures when collecting time-barred debts and debts on behalf of deceased consumers.
On October 30, 2020, the CFPB issued the first part of its Final Debt Collection Practices (Regulation F) Rule (the “Debt Collection Rule”), which, among other things, addressed the use of various communication modalities to collect debts, impose new collection requirements and limitations and clarified existing prohibitions on harassment or abuse, false or misleading representations and unfair debt collection practices under the FDCPA. On December 18, 2020, the CFPB issued the second part of its Final Debt Collection Practices (Regulation F) Rule, which addressed disclosures for consumers when attempting to collect a debt by a collector (e.g., the validation notice), and imposed requirements for furnishing information about a debt to consumer reporting agencies. The CFPB ultimately decided not to mandate any uniform time-barred debt disclosure as initially suggested in the May 2019 proposal, but did set forth in the commentary to the Debt Collection Rule that disclosing the time-barred status of an account when collecting may be required to avoid a UDAAP violation. The full Debt Collection (Regulation F) Rule was effective November 30, 2021. Adoption of the Debt Collection Rule required significant changes in Ad Astra’s collection practices to ensure compliance. While the Debt Collection Rule impacts the way we collect debts in order to comply with Regulation F, we do not believe it will have a material impact on our results of operations.
CFPB Enforcement. In addition to Dodd-Frank's grant of rule-making authority to the CFPB, which resulted in the 2017 Final CFPB Rule and the CFPB Debt Collection Rule, Dodd-Frank gives the CFPB authority to pursue administrative proceedings or litigation for violations of federal consumer financial laws (including Dodd-Frank’s UDAAP provisions and the CFPB’s own rules). In these proceedings, the CFPB can obtain cease and desist orders (which can include orders for restitution or rescission of contracts, as well as other kinds of affirmative relief) and monetary penalties ranging from approximately $6,323 per day for ordinary violations of federal consumer financial laws to approximately $31,616 per day for reckless violations and $1,264,622 per day for knowing violations. Also, if a company has violated Title X of Dodd-Frank or CFPB regulations promulgated thereunder, Dodd-Frank empowers state attorneys general and state regulators to bring civil actions for the kind of cease and desist orders available to the CFPB (but not for civil penalties). Potentially, if the CFPB, the FTC or one or more state officials believe we have violated the law, 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 payday lenders, and has released its Supervision and Examination Manual, which includes a section on Short-Term, Small-Dollar Lending Procedures. In the past, the CFPB has conducted supervisory and/or limited scope examinations of our business. Neither these prior examinations nor any Examination Reports had a material effect on our results of operations or financial condition.
In July 2020, we received a Prioritized Assessment Information Request of Short-Term, Small Dollar Loans for the purpose of determining what changes we made in response to COVID-19 challenges, as well as any associated risks to consumers. The scope of the higher-level inquiry covered the period March 1, 2020 through June 30, 2020. In January 2021, we received a closing letter from the CFPB concerning the Prioritized Assessment Information Request Letter stating that the CFPB does not need to receive any additional information or reporting. Similarly, in June 2020, Ad Astra received a Prioritized Assessment Information Request of Debt Collection for the purpose of determining what changes Ad Astra made in response to COVID-19 challenges, as well as any associated risks to consumers. The scope of this inquiry covered the period January 1, 2020 through
May 31, 2020. In September 2020, Ad Astra received a closing letter from the CFPB concerning the Prioritized Assessment Information Request Letter stating that the CFPB does not need to receive any additional information or reporting.
The CFPB commenced its first examination of Ad Astra in October 2020, which covered the period from September 1, 2019 through August 31, 2020. The examination is ongoing and its purpose is to assess Ad Astra’s compliance management system and debt collection practices. While we do not expect that matters arising from this examination will have a material impact, Ad Astra has made, and is continuing to make, certain enhancements to its compliance procedures and debt collection practices.
For information on the civil investigative demand related to Heights' business, please see "Risk Factors--Risks Relating to our Business--CFPB investigation into certain of Heights' business practices is uncertain and may materially and adversely affect Heights' business and, ultimately, the combined business."
We cannot predict how current or future examinations or Examination Reports will impact us.
Possible Changes in Practices. While we do not expect that matters arising from our past CFPB examinations will have a material impact on us, we have made, and are continuing to make, at least in part to meet the CFPB's expectations, certain enhancements to our compliance procedures and consumer disclosures. For example, even if the payment provisions of the Final 2017 CFPB Rule do not become effective, we are likely to make changes to our payment practices in a manner that will likely increase our costs and/or reduce our consolidated revenues.
Anti-Arbitration Rule. Under its authority to regulate pre-dispute arbitration provisions pursuant to Section 1028 of Dodd-Frank, in July 2017 the CFPB issued a final rule prohibiting the use of mandatory arbitration clauses with class-action waivers in agreements for certain consumer financial products and services, including those applicable to us. Subsequently, Congress overturned this anti-arbitration rule. As a result, the rule will not become effective, and, pursuant to the Congressional Review Act, substantially similar rules may only be reissued with specific legislative authorization. However, Congress could potentially enact a law having a similar effect.
MLA. The Military Lending Act (the "MLA"), enacted in 2006, amended on July 22, 2015, and implemented by the Department of Defense (the "DoD"), imposes a 36% cap on the “all-in” annual percentage rates charged on loans to active-duty members of the U.S. military, Reserves and National Guard and their dependents. Accordingly, we do not meet all the requirements of the law in order to make loans to borrowers protected by the MLA.
Enumerated Consumer Financial Services Laws, Telephone Consumer Protection Act ("TCPA") and CAN-SPAM. The Truth in Lending Act ("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 billing statements and change-in-terms notices. For closed-end loans, the lender must disclose the annual percentage rate, finance charge, amount financed, total of payments, payment schedule, late fees and any security interest. 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 any security interest.
Under the Equal Credit Opportunity Act ("ECOA") and Regulation B, we may not discriminate on various prohibited bases, including race, color, religion, national origin, sex, marital status or age (provided that the applicant has the capacity to enter into a binding contract), the fact that all or part of the applicant’s income is due to receipt of government benefits, or retirement or part-time income, or the fact that the applicant has in good faith exercised any right under the Consumer Credit Protection Act. We must also deliver notices specifying the basis for credit denials, as well as certain other notices.
The Fair Credit Reporting Act ("FCRA") regulates the use of consumer reports and reporting of information to credit reporting agencies. The FCRA limits the permissible uses of credit reports and requires 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 ("ESIGN") and requirements with respect to electronic payments under the Electronic Funds Transfer Act ("EFTA)" and Regulation E. The EFTA and Regulation E protect consumers engaging in electronic fund transfers and contain restrictions, required disclosures and provide consumers certain rights relating to electronic fund transfers. Among other limitations, they prohibit creditors from conditioning the extension of credit on the consumer's repayment through electronic fund transfers authorized in advance to recur at substantially equal intervals.
Additionally, we are subject to the TCPA, CAN-SPAM Act and regulations of the Federal Communications Commission, which include limitations on telemarketing calls, auto-dialed calls, pre-recorded calls, text messages and unsolicited faxes. While we believe that our practices comply with the TCPA, the TCPA has nonetheless given rise to a spate of litigation nationwide.
We apply the FDCPA as a guide in conducting our first-party collection activities for delinquent loan accounts, and we are also subject to applicable state collections laws. Ad Astra must comply with the FDCPA and applicable state collections laws related to collection activities.
Bank Secrecy Act and Anti-Money Laundering Laws. Under regulations issued by the U.S. Department of the Treasury (the "Treasury Department") adopted under the Bank Secrecy Act of 1970 ("BSA"), we must report currency transactions in an amount greater than $10,000 by filing a Currency Transaction Report ("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 are required to file a CTR for any transaction which appears to be structured to avoid the required filing where 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 ("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. 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-money-laundering program. Such a program must include: (i) internal policies, procedures and controls designed to identify and report money laundering; (ii) a designated compliance officer; (iii) an ongoing employee-training program; and (iv) an independent audit function to test the program. 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, (i) involve funds derived from illegal activity or are intended to hide or disguise such funds, (ii) are designed to evade the requirements of the BSA, (iii) appear to serve no business or lawful purpose, or (iv) involve the use of the money service business to facilitate criminal activity.
The Office of Foreign Assets Control ("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, as updated by the FTC’s final Safeguards Rule and its implementing federal regulations, requires us 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 at least annually thereafter. The FTC’s final Safeguards Rule includes, among other things, (i) detailed requirements for an information security program; (ii) new requirements for accountability, e.g., designation of a Qualified Individual; (iii) an expansion of the definition of a financial institution; and (iv) new definitions and examples. Under the final Safeguards Rule, safeguards must address access controls, data inventory and classification, encryption, secure development of application practices, authentication, information disposal procedures, change management, testing and incident response. Our Board of Directors has appointed a Qualified Individual and adopted a Safeguards Rule Policy.
U.S. State and Local Regulations
Currently, we make loans in approximately 27 states in the U.S. pursuant to enabling legislation that specifically allows direct loans of the type that we make. In one state, we make open-end loans pursuant to a contractual choice of Kansas law. In Texas, we operate under a CSO model, where we are paid by borrowers to facilitate loans from lenders unaffiliated with us.
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.
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 or reformation 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 or financial condition. For more information regarding the regulations applicable to our business and the risks to which they subject us, see the section entitled “Item 1A—Risk Factors.”
Recent and Potential Future Changes in the Law: 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.
In California, Assembly Bill 539 became effective on January 1, 2020. AB 539 imposes an annual interest rate cap of 36% plus the Federal Funds Rate (0.25% as of December 31, 2020) on all consumer loans between $2,500 and $10,000. Our California Installment loans, impacted by AB 539, produced 2.9% of our total consolidated revenue from continuing operations for the year ended December 31, 2021. Gross loans receivable on California Installment loans impacted by AB 539 amounted to $11.3 million as of December 31, 2021. We continue to evaluate alternatives available to service customers in the California market. There can be no assurance that we will be able to implement a strategy to replace our California Installment loans at rates above 36%, or if we do, that we will be able to avoid or prevail in any legal attacks on any such strategy. We have launched a test California installment loan at rates in compliance with the new restrictions. At this point, it is too early to determine if these new lower-rate installment loans will be sustainable or profitable. Refer to “Item 1A—Risk Factors” for additional information regarding the impact of this law to our business.
We, along with others in the short-term consumer loan industry, intend to continue to inform and educate legislators and regulators and to oppose legislative or regulatory action that would unduly prohibit or severely restrict short-term consumer loans as compared with those currently allowed. 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 further material adverse effect on our loan-related activities and revenues.
Texas CSO Lending: The CSO model is expressly authorized under Section 393 of the Texas Finance Code. As a CSO, we serve as a servicer 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, for our online services and services in some storefronts, also licensed as a CAB. Texas law subjects us to audit by the state’s Office of Consumer Credit Commissioner and requires us to provide expanded disclosures to customers regarding credit service products.
Nearly 50 Texas cities, including Austin, Dallas, San Antonio and Houston, have passed substantially similar local ordinances addressing products offered by 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 December 31, 2021, we operated 54 stores in Texas cities with local ordinances. We were cited by the City of Austin in July 2016 for alleged violations of an Austin ordinance addressing products offered by CSOs. We believe that: (i) the ordinance conflicts with Texas state law, and (ii) our product in any event complies with the ordinance, when the ordinance is properly construed. The Austin Municipal Court agreed with our position that the ordinance conflicts with Texas law and, accordingly, did not address our second argument. However, in September 2017, the Travis County Court reversed this decision and remanded the case to the Municipal Court for further proceedings consistent with its opinion (including, presumably, a decision on our second argument). To date, a hearing and trial on the merits have not been scheduled.
In May 2020, the City of Austin proposed a second ordinance that became effective June 1, 202 and implemented restrictions on CSO transactions and revised certain definitions included in the original Austin ordinance. These revisions potentially affect the foundation upon which our previous arguments in municipal court were based. In June 2021, we launched a new product in the City of Austin to adhere to the updated ordinance. The City commenced audits of the new product in January 2022. The City advised that additional audits will be performed in the coming months to ensure full compliance, which would ultimately result in a resolution of all outstanding matters.
California Privacy Rights Act: The California Consumer Privacy Act (“CCPA”) became effective January 1, 2020. CCPA broadens consumer rights with respect to personal information, imposing expanded obligations to disclose the categories and uses of personal information a business collects, providing consumers a right to access that information, a right to opt out of the sale of personal information, and a right to request that a business delete personal information about the consumer subject to certain exemptions. CCPA provides for civil penalties for violations, as well as a private right of action for data breaches, which may increase the costs of data breach litigation. A ballot initiative passed November 2020 entitled California Privacy Rights Act (“CPRA”) mirrors many concepts from the European General Data Protection Regulation, which becomes effective January 1, 2023 but contains a look back provision to January 1, 2022. This initiative expands consumer rights such as a right to correct inaccurate information, restricts ability to share information, establishes an independent agency, the California Privacy Protection Agency (“CPPA”) with enforcement and rule making authority, and requires data minimization and publication requirements related thereto. The CPRA extends the exemption of the original CCPA legislation to employee and business-to-business data, except as to notice requirements, until the effective date. The CPPA is instructed to provide substantial regulations by July 1, 2022. We anticipate this having a further impact on our business leading up to the effective date of January 1, 2023 as we work to become compliant with the new provisions while awaiting the regulations. We anticipate that other states and possibly the federal government will adopt laws similar to the CPRA in the future. While it is too early to know the full impact, these developments could increase costs or otherwise adversely affect our business.
Interest Rate "Unconscionability" in California: In the 2017 case of De La Torre v. CashCall, Inc., the Ninth Circuit U.S. Court of Appeals certified the following question to the California Supreme Court: “Can a 96% interest rate on consumer loans of $2500 or more governed by California Finance Code § 22303, render the loans unconscionable under California Finance Code § 22302?” In August 2018, the California Supreme Court decided that the interest rate on a consumer loan of $2,500 or more can render the loans unconscionable under Cal. Fin. Code § 22303. However, the Court did not address whether the loans in question were in fact unconscionable. The Court stressed that in order to find that an interest rate is unconscionable, courts must conduct an individual analysis of whether "under the circumstances of the case, taking into account the bargaining process
and prevailing market conditions" a "particular rate was 'overly harsh,' 'unduly oppressive,' or 'so one-sided as to shock the conscience.'" This analysis is "highly dependent on context" and "flexible," according to the Court. The Court warned that lower courts should be wary of and must avoid remedies that amount to an "across-the-board imposition of a cap on interest rates."
Subsequent to the California Supreme Court’s decision in De La Torre, two class action lawsuits were filed against Speedy Cash, a Company subsidiary, in the Southern District of California. See "--Note 8. Commitments and Contingencies." Both cases have been dismissed and settled for immaterial amounts.
A California statute took effect as of January 1, 2020 that prohibits finance lenders from issuing loans between $2,500 and $10,000 with charges over 36% calculated as an annual simple interest rate (plus the prior month’s Federal Funds Rate).
Canada Regulations
Unsecured Installment Loans, Revolving LOC Loans and POS/BNPL Products
Unsecured Installment loans, Revolving LOC loans and POS/BNPL products are regulated at both the federal and provincial level in Canada. At the federal level, such lending products are subject to 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. These provisions have been in place, unchanged, since 1980, although they have been subject to periodic review and consultation.
Providers of these types of loans are also subject to provincial legislation that requires lenders to provide cost of credit disclosures and extend consumer protection rights to borrowers, such as prepayment rights, and prohibits the charging of certain default fees. Such laws are relatively harmonized in most Canadian jurisdictions, with some exceptions, notably Quebec. At this time, the only loan product we offer in Quebec is the FlexitiCard, which is a credit card product that runs on Flexiti's private network.
In addition, Alberta, Manitoba and Quebec have enacted legislation that specifically regulates high-cost credit grantors. These laws define a high-cost credit product and require licensing and additional consumer protection oversight. Manitoba was the first province to enact such legislation in 2016, followed by Alberta and Quebec in 2019.
High-cost credit laws will become effective in British Columbia on May 1, 2022. Regulations, among other things, prescribe the rate and criteria for the purposes of the definition of “high-cost credit product,” establish a licensing and oversight regime, provide for additional cancellation right provisions and prohibit concurrent lending between loan products. It is too early to predict the impact of such laws and potential regulations on our results of operations.
As of December 31, 2021, we operated 23 of our 201 Canada Direct Lending stores and conducted online lending in British Columbia. Revenues in British Columbia were approximately 11.3% of our Canada Direct Lending revenues and 3.5% of total consolidated revenues for the year ended December 31, 2021.
In Ontario, Bill 59 titled “Putting Consumers First Act (the “PCF Act”), which proposed additional consumer protection measures, received Royal Assent in April 2017. The PCF Act provides the Ontario Ministry with the authority to impose additional restrictions on lenders which 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. In July 2017, the Ministry of Government and Consumer Services in Ontario issued a consultation document requesting feedback on questions regarding a new regime for high-cost credit and limits on optional services, such as optional credit protection 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 in the fall of 2017 on those matters and that the Ministry expected that regulations would be published in early 2019.
In January 2021, the Ontario government launched a subsequent consultation on the regulation of high-cost credit. The consultation proposals include defining high-cost credit to include loans with an annual interest rate that exceeds the Bank of Canada Bank Rate plus 25%, and additional licensing, borrower protections and fees that could be charged in connection with any loan that would fall under the definition of high-cost credit. The consultation closed in March 2021.
On March 16, 2021, Ontario held a roundtable to solicit industry feedback on a government proposal for regulation of alternative financial services other than Single-Pay loans. The consensus among stakeholders was that regulations should not be overly prescriptive (i.e., use existing Consumer Protection and Collection Practices Act for the regulatory framework), and to harmonize with provinces that are already regulating so-called high-cost credit products. There have been no further developments. It is too early to predict the outcome of this consultation process and its impact on our results operations.
As of December 31, 2021, we operated 134 of our 201 Canada Direct Lending stores and conducted online lending in Ontario. Canada Direct Lending revenues in Ontario were approximately 64.2% of our Canada Direct Lending revenues and 20.2% of total consolidated revenues for the year ended December 31, 2021.
Single Pay
In May 2007, Canadian federal legislation was enacted that exempts from the criminal rate of interest provisions of the Criminal Code cash advance loans of $1,500 or less if the term of the loan is 62 days or less (“payday loans”) and the lender 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, New Brunswick, Newfoundland, Nova Scotia, Prince Edward Island and Saskatchewan have provincial enabling legislation allowing for payday loans and have also been designated under the Criminal Code. 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. At this time, we offer our Single Pay loans in British Columbia, Manitoba, Newfoundland, Nova Scotia, Ontario and Saskatchewan.
Canadian provinces periodically review the regulations for payday loan products. Some provinces specify a time period within the applicable law while other provinces are silent or simply note that reviews will be periodic. In British Columbia, the last review of the payday loan rate resulted in a decrease of the total cost of borrowing to C$15 per C$100 lent effective September 1, 2018. In Manitoba, the last review was in 2016 and the rate of C$17 per C$100 lent was kept unchanged. In Nova Scotia, the last review was in 2018 and the rate was lowered to $19 per $100. Nova Scotia has scheduled their next review for March 2022. Payday loan legislation came into force in Newfoundland in April 2019, with a maximum rate set at C$21 per $100 lent; such rate remains unchanged. In Nova Scotia, the last review was conducted in 2018 and the maximum cost of borrowing was reduced to C$19 per C$100, effective February 1, 2019. Effective February 2018, Saskatchewan amended its payday loan legislation to provide that the maximum rate that may be charged to a borrower be reduced to C$17 per C$100 lent, and the maximum fee for a dishonored check was set at C$25.
Check Cashing
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% annual interest rate 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; and Manitoba, British Columbia and Ontario, where the province imposes a maximum fee to be charged to cash a government check. The province of Saskatchewan also regulates the check cashing business but only in respect of provincially regulated loan, trust and financing corporations. We do not offer check cashing in the province of Quebec.
Available Information
Information about us, including our Code of Business Conduct and Ethics, Corporate Governance Guidelines and charters of our standing committee is available at our website at www.curo.com. Printed copies of the documents listed above are available upon request, without charge, by writing to us at 3615 North Ridge Road, Wichita, Kansas 67205, Attention: Investor Relations.
We also make available through our website at www.ir.curo.com, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports (along with certain other Company filings with the SEC) as soon as reasonably practicable after we electronically file those reports with or furnish them to the SEC. These materials are also accessible on the SEC's website at www.sec.gov.
ITEM 1A. RISK FACTORS
Our operations and financial results are subject to many risks and uncertainties that could adversely affect our business, results of operations, financial condition or share price. While we believe the discussion below addresses the key risk factors affecting our business, there may be additional risks and uncertainties not currently known or that we currently deem to be immaterial that may become material in the future or that could adversely affect our business, results of operations, financial condition or share price. You should carefully consider the risk factors.
Risks Relating to Our Business
If our allowance for loan losses is not adequate to absorb our actual losses, this could have a material adverse effect on our results of operations or financial condition.
Our customers may 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 the Notes to Consolidated Financial Statements for factors we consider when estimating the allowance for loan losses. We also maintain a liability for estimated incurred losses on loans funded by third-party lenders under our CSO programs, which we guarantee. As of December 31, 2021, our aggregate allowance for loan losses and liability for losses associated with the guaranty for loans not in default (including loans funded by third-party lenders under our CSO programs) was $94.5 million. This reserve is an estimate. Actual losses are difficult to forecast, especially if losses stem from factors that we have not experienced historically, and unlike traditional banks, we are not subject to periodic review by bank regulatory agencies of our allowance for loan losses. In addition, Flexiti offers loans to consumers with a variety of no interest and/or no payment promotional offers. While many of Flexiti’s customers have prime credit scores, these promotional offers can make credit losses less predictable. As a result, our allowance for loan losses may not be sufficient to cover incurred losses or comparable to that of traditional banks subject to regulatory oversight. If actual losses are greater than our reserve and allowance, this could have a material adverse effect on our results of operations or financial condition.
Because of the non-prime nature of our customers, we have experienced a high rate of NCOs as a percentage of revenues and it is essential that we price loans appropriately. We rely on our proprietary credit and fraud scoring models to forecast loss rates. If we are unable to effectively forecast loss rates, it will negatively and materially impact our operating results.
Because of the non-prime nature of our customers, we have experienced a high rate of NCOs as a percentage of revenues and it is essential that we price loans appropriately. We rely on our proprietary credit and fraud scoring models to forecast loss rates. If we are unable to effectively forecast loss rates, it will negatively and materially impact our operating results.
Because of the non-prime nature of our customers, we have much higher charge-off rates than traditional lenders. Accordingly, it is essential that we price our products appropriately to account for these credit risks. In deciding whether to extend credit, and the terms on which we or the originating lenders are willing to provide credit, including the price, we and the originating lenders rely heavily on our proprietary credit and fraud scoring models, which are an empirically derived suite of statistical models built using third-party data, customer data and our historical credit experience. If we do not regularly enhance our scoring models to ensure optimal performance, our models may become less effective. If we are unable to rebuild our scoring models or if they do not perform as expected, our products could experience increasing defaults, higher customer acquisition costs, or both.
If our scoring models fail to adequately predict the creditworthiness of customers, or if they fail to assess prospective customers’ ability to repay loans, or other components of our credit decision process fails, higher than forecasted losses may result. Similarly, if our scoring models overprice our products, we could lose customers. Among other things, factors such as COVID-19 impact our customers' ability to repay loans, and government programs focused on the pandemic, such as stimulus programs, or the cessation of such programs, or an inflationary environment , can further add volatility to loan balances, repayments and profitability. Furthermore, if we are unable to access third-party data, or access to such data is limited or cost prohibitive, our ability to accurately evaluate potential customers will be compromised. As a result, we may be unable to effectively predict probable credit losses inherent in the resulting loan portfolio, and we, and the originating lender (where applicable), may experience higher defaults or customer acquisition costs, which could have a material adverse effect on our business, prospects, results of operations or financial condition.
Additionally, if any of the models or tools used to underwrite loans contain errors in development or validation, such loans may result in higher delinquencies and losses. Moreover, if future performance of customer loans differs from past experience, delinquency rates and losses could increase, all which could have a material adverse effect on our business, prospects, results of operations or financial condition. An inability to effectively forecast loss rates could also inhibit our ability to borrow from our debt facilities, which could further hinder our growth and have a material adverse effect on our business, prospects, results of operations or financial condition.
Changes in the demand for our products and specialty financial services or our failure to adapt to such changes could have a material adverse effect on our business, prospects, results of operations or financial condition.
The demand for a product or service may change due to many factors such as regulatory restrictions that reduce customer access to products, the availability of competing products, reduction in our marketing spend, macroeconomic changes or changes in customers’ financial conditions among others. If we do not adapt to a significant change in customers’ demand for, or access to, our products or services, our revenue could decrease significantly. Even if we make adaptations or introduce new products or services, customer demand could decrease if the adaptations make them less attractive or less available, all of which could have a material adverse effect on our business, prospects, results of operations or financial condition.
If we are unable to manage growth effectively, our results of operations or financial condition may be materially adversely affected.
We may not be able to successfully grow our business. Failure to grow the business and generate sufficient levels of cash flow could inhibit our ability to service our debt obligations. Our expansion strategy, which contemplates disciplined growth in Canada and the U.S., 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 operations and any future growth depends upon many factors, including our ability to appropriately price our products, manage credit risk, respond to regulatory and legislative changes, obtain and maintain financing, hire, train and retain qualified employees, obtain and maintain required permits and licenses and other factors, some of which are beyond our control, such as changes in regulation and legislation. As a result, our profitability and cash flows could suffer if we do not successfully implement our growth strategy.
We may not achieve the expected benefits of businesses we acquire, including Flexiti and Heights, and any acquisition could disrupt our business plans or operations.
From time-to-time, we may acquire other businesses 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 any acquisition depends upon our ability to effectively integrate the management, operations and technology of the acquired business 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 or financial condition. The integration process could involve loss of key employees, disruption of ongoing businesses and/or loss of customers, incurrence of tax costs or inefficiencies or inconsistencies in standards, controls, information technology systems, procedures and policies. As a result, our ability to maintain relationships with customers, employees or other third-parties or our ability to achieve the anticipated benefits of acquisitions could be adversely affected and harm our financial performance.
The process of integrating formerly separately operated businesses may prove disruptive to both businesses, may take longer than we anticipate and may cause an interruption of and have a material adverse effect on our combined businesses. In that regard, we may not be able to successfully integrate Flexiti or Heights or otherwise realize the expected benefits of these acquisitions, including anticipated annual revenue and profits, operating costs and capital synergies, and the combined businesses could underperform relative to our expectations.
Even if we are able to successfully integrate the Heights business into our operations, we may not realize the anticipated cost saving synergies of the acquisition on the time table currently contemplated, or at all.
We acquired Heights based, in part, on the expectation that the acquisition would result in various cost saving synergies. Even if we can successfully integrate the Heights business into our operations, there can be no assurance that we will realize the expected cost saving synergies on the timetable currently contemplated, or at all. We expect to incur significant restructuring charges (including severance) and transition expenses in connection with these cost saving synergies. Achieving the expected cost saving synergies, as well as the costs of achieving them, is subject to a number of uncertainties and other factors. If these factors limit our ability to achieve the expected cost saving synergies of the acquisition or if the related costs exceed our estimates, our expectations of future results of operations, including the cost saving synergies expected to result from the acquisition, may not be met. Additionally, the actions we take to achieve cost saving synergies could have unintended consequences that adversely affect our business. If we encounter difficulties in achieving the expected cost saving synergies or do not achieve such cost saving synergies, we incur significantly greater costs related to such cost saving synergies than we anticipate or our activities related to such cost saving synergies have unintended consequences, our business, financial condition and results of operations could be adversely affected.
The outcome of a CFPB investigation into certain of Heights’ business practices is uncertain and may materially and adversely affect Heights’ business and, ultimately, the combined business.
In April 2020, Heights (then Southern Management Corporation) received a civil investigative demand (“CID”) from the CFPB. We have received and responded to additional CIDs and are fully cooperating with the investigation.
The CFPB has not yet made any allegations in the investigation, and we are currently unable to predict the eventual scope, ultimate timing or outcome of the CFPB investigation. While we are indemnified under the acquisition document for certain losses that arise with respect to the CFPB investigation, there can be no assurance that such indemnification will be sufficient to address all covered losses or that the CFPB’s ongoing investigation or future exercise of its enforcement, regulatory, discretionary or other powers will not result in findings or alleged violations of consumer financial protection laws that could lead to enforcement actions, proceedings or litigation, whether by the CFPB, other state or federal agencies, or other parties, and the imposition of damages, fines, penalties, restitution, other monetary liabilities, sanctions, settlements or changes to Heights’s business practices or operations that could materially and adversely affect Heights’ or the combined business’, financial condition, results of operations or reputation.
Our substantial indebtedness could materially impact our business, results of operations or financial condition.
We have significant debt. The amount of our indebtedness could have significant effects on our business, including:
•making it more difficult to satisfy our financial obligations;
•inhibiting our ability to obtain additional financing for operational and strategic purposes;
•requiring the use of a substantial portion of our cash flow from operations to pay interest on our debt, which reduces funds available for other operational and strategic purposes;
•putting us at a competitive disadvantage compared to our competitors that may have proportionately less debt;
•restricting our ability to pay dividends; and
•limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate.
For instance, our ability to offer our current products or services or the financial performance of these products and services could be negatively impacted by regulatory changes, which could inhibit our ability to comply with the terms of our debt.
If our cash flows and capital resources are insufficient to fund our debt obligations, or if we confront regulatory uncertainty 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 could also require us to comply with more onerous covenants 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 debt obligations depends on our future performance, which will be affected by financial, business, economic, regulatory and other factors, many of which we cannot control or predict. Our business may not generate sufficient cash flow from operations and we may not realize our anticipated growth in revenue and cash flow, either of which could result in being unable to repay indebtedness, or to fund other liquidity needs. If we do not have enough capital resources, we may need to refinance all or part of our debt, sell assets or borrow more funds, which we may not be able to do 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.
In preparing our financial statements, including implementing accounting principles, financial reporting requirements or tax rules or tax positions, we use our judgment and that judgment encompasses many risks.
We prepare our financial statements in accordance with U.S. GAAP and its interpretations are subject to change. If new rules or interpretations of existing rules require us to change our accounting, financial reporting or tax positions, our results of operations or financial condition could be materially adversely affected, and we could be required to restate financial statements. Preparing financial statements requires management to make estimates and assumptions, including those impacting allowances for loan losses, goodwill and intangibles and accruals related to self-insurance and CSO guarantee liability. These affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as well as the reported amounts of revenue and expenses. In addition, management’s judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against deferred tax assets. As a result, our assumptions and provisions may not be sufficient to cover actual losses. If actual losses are greater than our assumptions and provisions, our results of operations or financial condition could be adversely affected.
Further, FASB issued new guidance that will require us to adopt the current expected credit loss (“CECL”) model to evaluate impairment of loans. The CECL approach, effective for us by January 1, 2023, requires evaluation of credit impairment based on an estimate of life of loan losses as opposed to credit impairment based on incurred losses. If we misinterpret or make inaccurate assumptions under the new guidance, our results of operations or financial condition could be adversely affected.
Changes in our financial condition or a potential disruption in the capital markets could reduce available capital.
If we do not have sufficient funds from our operations, excess cash or debt agreements, we will be required to rely on banking and credit markets to meet our financial commitments and short-term liquidity needs. We also expect to periodically access debt capital markets to finance the growth of our consumer loans receivable portfolio. Efficient access to such markets, which could be critical for us, may be restricted due to many factors, including deterioration of our earnings, cash flows or balance sheet quality, overall business or industry prospects, adverse regulatory changes, disruption to or deterioration in capital markets, a rising interest rate environment or a negative bias toward our industry by consumers. Disruptions and volatility in capital markets may cause banks and other credit providers to restrict availability of new credit. We may also have more limited access to commercial bank lending than other businesses due to the negative bias toward our industry. If adequate funds are not available, or are not available at favorable terms, we may not have sufficient liquidity to fund our operations, make future investments, take advantage of strategic opportunities or respond to competitive challenges, all of which could negatively impact our ability to achieve our strategic plans. Additionally, if the capital and credit markets experience volatility, and the availability of funds is limited, third parties with whom we do business may incur increased costs or business disruption and this could have a material adverse effect on our business relationships with such third parties.
Adverse economic conditions, including those resulting from weather-related events or other natural disasters, man-made events or health emergencies, could have an adverse impact on our business or the economy and 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, which could adversely affect our results of operations or financial condition.
Adverse economic conditions, including those resulting from weather-related events or other natural disasters, man-made events or health emergencies, could have an adverse impact on our business or the economy and 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, which could adversely affect our results of operations or financial condition.
We operate stores across the U.S. and Canada and derive the majority of our revenue from consumer lending. Macroeconomic conditions, such as levels of employment, personal income and consumer sentiment, may influence demand for our products. Additionally, weather-related events, power losses, telecommunication failures, terrorist attacks, acts of war, widespread health emergencies and similar events, may significantly impact our customers’ ability to repay their loans and cause other negative impacts on our business. These conditions may result in us changing the way we operate our business, including tightening credit, waiving certain fees and granting concessions to customers.
Our underwriting standards require our customers to have a steady source of income. Therefore, if unemployment increases among our customer base, the number of loans we originate may decline and defaults could increase. If consumers become more pessimistic regarding the economic outlook and spend less and save more, demand for consumer loans may decline. Accordingly, poor economic conditions could have a material adverse effect on our results of operations or financial condition.
In addition, a widespread health emergency, such as COVID-19, and perceptions regarding its impact, may continue to negatively affect the North American and global economy, travel, employment levels, employee productivity, demand for and repayment of our loan products and other macroeconomic activities, which could adversely affect our business, results of operations or financial condition. Given the dynamic nature of the COVID-19 pandemic, however, the extent to which it may impact our results of operations or financial condition will depend on future developments, which are highly uncertain and cannot be predicted.
Failure to comply with debt collection regulations, or failure of our third-party collection agency to comply with debt collection regulations, could subject us to fines and other liabilities, which could harm our reputation and business.
In 2020, we acquired Ad Astra, our exclusive provider of third-party collection services for U.S. operations. Both federal and state law regulate debt collection communication and activities. Regulations governing debt collection are subject to changing interpretations that differ from jurisdiction to jurisdiction. Regulatory changes could make it more difficult for us and any collections agencies we may use to effectively collect on the loans we originate.
In 2016, the CFPB issued the 2016 CFPB Outline intended to increase consumer protection pertaining to third-party debt collectors and others covered by the FDCPA. The 2016 CFPB Outline would apply to the attempts of our third-party collection agency to collect debt originated by other lenders, including under our CSO programs. The proposals would not apply to our attempts to collect debt that we originate; however, the CFPB has announced that it plans to address consumer protection issues involving first-party debt collectors and creditors separately. In October 2020, the CFPB issued the first part of its Final Debt Collection Practices (Regulation F) Rule which addressed, among other things, communications in connection with debt collection and prohibitions on harassment or abuse, false or misleading representations and unfair debt collection practices. See "Regulatory Environment and Compliance—U.S. Regulations—U.S. Federal Regulations—CFPB Debt Collection Rule." Adoption of the Regulation F Rule will require significant changes in Ad Astra’s collection and we are not able to give any assurance that the effect of these new rules will not have a material impact on our results of operations or financial condition.
We may be limited in our ability to collect on our loan portfolio, and the security interests securing a significant portion of our loan portfolio are not perfected, which may increase our credit losses.
Legal and practical limitations may limit our ability to collect on our loan portfolio, resulting in increased credit losses, decreased revenues and decreased earnings. State and federal laws and regulations restrict our collection efforts and the amounts that we are able to recover from the repossession and sale of collateral in the event of a customer’s default typically do not fully cover the outstanding loan balance and costs of recovery. A significant portion of our secured loans have not been and will not be perfected, which means that we cannot be certain that such security interests will be given first priority over other creditors. The lack of perfected security interests is one of several factors that may make it more difficult for us to collect on our loan portfolio. Additionally, for those of our loans that are unsecured, borrowers may choose to repay obligations under other indebtedness before repaying loans to us because such borrowers may feel that they have no collateral at risk. In addition, given the relatively small size of our loans, the costs of collecting loans may be high relative to the amount of the loan. As a result, many collection practices that are legally available, such as litigation, may be financially impracticable. These factors may increase our credit losses, which would have a material adverse effect on our results of operations and financial condition.
Goodwill comprises a significant portion of our assets. We assess goodwill for impairment at least annually. If we recognize an impairment, it could have a material adverse effect on our results of operations or financial condition.
We assess goodwill for impairment on an annual basis at the reporting unit level. We assess goodwill 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.
Our impairment reviews require extensive use of accounting judgment and financial estimates. Application of alternative assumptions and definitions could produce significantly different results. We may be required to recognize impairment of goodwill based on future events or circumstances. A material impairment of goodwill could adversely affect our results of operations or financial condition. Due to the current economic environment and the uncertainties that future economic consequences will have on our reporting units, we cannot be sure that our estimates and assumptions made for purposes of our annual goodwill impairment test will be accurate predictions of the future. If our assumptions regarding forecasted revenues or margins for our reporting units are not achieved, we may be required to record goodwill impairment losses in the future. We cannot 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 could have a material adverse effect on our ability to service our debt obligations.
Our U.S. business typically experiences reduced demand in the first quarter because of customers’ receipt of tax refund checks. Demand for our U.S. lending services is generally greatest during the third and fourth quarters. This seasonality requires us to manage our cash flows during the year. If a governmental authority pursued economic stimulus actions or issued 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 or financial condition during those periods. If our revenues fall substantially below expectations during certain periods, our annual results and our ability to service our debt obligations could be materially adversely affected.
Our debt agreements contain covenants which may restrict our flexibility to operate our business. If we do not comply with these covenants, our failure could have a material adverse effect on our results of operations or financial condition.
Our debt agreements contain customary covenants, including limitations on indebtedness, liens, investments, subsidiary investments and asset dispositions, and require us to maintain certain leverage and interest coverage ratios. Failure to comply with these covenants could result in an event of default that, if not cured or waived, could reduce our liquidity and have a material adverse effect on our operating results and financial condition. In addition, an event of default under one of our debt agreements may result in all of our outstanding debt to become immediately due and payable.
In addition, our SPV facilities contain certain performance covenants on the receivables pledged to each respective facility. If we violate these covenants, our ability to draw under these facilities could be impacted. Further, we may be required to redirect all excess cash to the lenders.
Failure to comply with debt covenants could have a material adverse effect on our liquidity, results of operation or financial condition if we are unable to access capital when we need it or if we are required to reduce our outstanding indebtedness
Because we depend on third-party lenders to provide cash needed to fund our loans, an inability to affordably access third-party financing could have a material adverse effect on our business.
Our principal sources of liquidity to fund our customer loans are cash provided by operations, funds from third-party lenders under CSO programs and our SPV facilities. We may not be able to secure additional operating capital from third-party lenders or refinance our existing credit facilities on reasonable terms or at all. As the volume of loans that we make to customers increases, we may have to expand our borrowing capacity on our existing SPV facilities or add new sources of capital. If the underlying collateral does not perform as expected, our access to the SPV facilities could be reduced or eliminated. The availability of these financing sources depends on many factors, some of which we cannot control. In the event of a sudden 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 methods of financing on favorable terms, we may have to curtail our origination of loans, which could have a material adverse effect on our results of operations or financial condition.
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 Curo, our IT platform, which we use for pricing and underwriting loans. We seek to protect our intellectual property with nondisclosure agreements 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. We do not have agreements with all of our employees requiring them to assign to us proprietary rights to technology developed in the scope of employment. Additionally, while we have registered trademarks and pending applications for trademark registration(s), we do not own any patents or copyrights with respect to our intellectual property.
If a competitor learns our trade secrets (especially with regard to our marketing and risk management capabilities), if a third-party reverse engineers or otherwise uses our proprietary technology, or if an employee makes commercial use of the technology he or she develops for us, our business will be harmed. Pursuing a claim against a third-party or employee for infringement would be costly and our efforts may not be successful. If we are unable to protect our intellectual property, our competitors would have an advantage over us.
Our risk management efforts may not be effective.
We could incur substantial losses and our business operations could be disrupted if we are unable to effectively identify, manage, monitor and mitigate financial risks, such as credit risk, interest rate risk, prepayment risk, liquidity risk and other market-related risks, as well as well as regulatory and operational risks related to our business, assets and liabilities. Our risk management policies, procedures and techniques may not be sufficient to identify all of the risks we are exposed to, mitigate the risks we have identified or identify concentrations of risk or additional risks to which we may become subject in the future.
If a third party cannot provide us products, services or support, it could disrupt our operations or reduce our revenue.
Some of our lending activity depends on support we receive from third parties, including lenders who make loans to our customers under CSO programs and other third parties that provide services to facilitate lending, loan underwriting and payment processing. We also use third parties to support and maintain certain of our communication and information systems. If our relationship with any of these third parties end and we are unable to replace them or if they do not maintain quality and consistency in their services, we could lose customers which would substantially decrease our revenue and earnings.
In Texas, we rely on third-party lenders to conduct business. Regulatory actions can materially and adversely affect our third-party product offerings.
In Texas, we currently operate as a CSO or a CAB, arranging for unrelated third-parties to make loans to our customers. 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 to make consumer loans. If they lose their ability to make loans or become unwilling to make loans to us and we cannot find another lender, we would be unable to continue offering loans in Texas as a CSO or CAB, which would adversely affect our results of operations or financial condition.
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 (“ACH”) system would materially impact our business.
We maintain relationships with commercial banks and third-party payment processors who provide a variety of treasury management services including 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 accounts and to electronically withdraw authorized payments from those accounts. It has been reported that U.S. 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. Additionally, legislation called the "Fair Access to Financial Services Act of 2020" has not yet been enacted and implemented. 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 threat to our ability to maintain relationships with commercial banks and third-party payment processors. The failure or inability of retail banks and/or payment providers to continue to provide services to us could adversely affect our operations.
Improper disclosure of customer personal data could result in liability and harm our reputation. Our costs could increase as we seek to minimize or respond to cybersecurity risks and security breaches.
We store and process large amounts of personally identifiable information, including sensitive customer information. While we believe that we maintain adequate policies and procedures, including antivirus and malware software and access controls, and use appropriate safeguards to protect against attacks, it is possible that our security controls over personal data and our employee training may not prevent 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.
We are subject to cybersecurity risks and security breaches which could result in the unauthorized disclosure or appropriation of customer data. We may not be able to anticipate or implement effective preventive measures against these types of 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 increase our expenses, including costs to deploy additional personnel and protection technologies, train employees and engage third-party experts and consultants. Our protective measures also could fail to prevent a cyber-attack and the resulting disclosure or appropriation of customer data. A significant data breach could harm our reputation, diminish customer confidence and subject us to significant legal claims, any of which may have a material adverse effect on us.
A successful penetration of our systems could cause serious negative consequences, including significant disruption of our operations, misappropriation of our confidential information or that of our customers or damage to our computers or systems or those of our customers and counterparties, and could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures, customer dissatisfaction, significant litigation exposure and harm to our reputation, all of which could have a material adverse effect on us. In addition, our applicants provide personal information, including bank account information when applying for loans. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication to effectively secure transmission of confidential information. The technology we use to protect transaction data may be compromised due to advances in computer capabilities, new discoveries in cryptography or other developments. Data breaches can also occur because of non-technical issues.
Our servers are also vulnerable to computer viruses, physical or electronic break-ins and similar disruptions, including “denial-of-service” type attacks. We may need to expend significant resources to protect against security breaches or to address problems caused by breaches. Security breaches, including any breach of our systems or unauthorized release of consumers’ personal information, could damage our reputation and expose us to litigation and possible liability.
As part of our business, and subject to applicable privacy laws, we may share confidential customer information and proprietary information with vendors, service providers and business partners who provide products, services or support to us. The information systems of these third parties may also be vulnerable to any of the above cyber risks or security breaches, and we may not be able to ensure that these third parties have adequate security controls in place to protect the information that we share with them. If our proprietary or confidential customer information is intercepted, stolen, misused or mishandled while in possession of a third party, it could result in reputational harm to us, loss of customers and suppliers, additional regulatory scrutiny and it could expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our business, financial condition and liquidity. Although we maintain insurance that is intended to cover certain losses from such events, there can be no assurance that such insurance will be adequate or available.
In addition, federal and some state regulators have implemented, or are considering implementing, 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. These mandatory disclosures 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.
If the information provided by customers to us is inaccurate, we may misjudge a customer’s qualification to receive a loan, which may adversely affect our results of operations.
A significant portion of our underwriting activities and our credit extension decisions are made online. We rely on certain third-party vendors in connection with verifying application data related to loans originated online. Any error or failure by a third-party vendor in verifying the information may cause us to originate loans to borrowers that do not meet our underwriting standards. From time to time in the past, these checks have failed and there is a risk that these checks could also fail in the future. We cannot be certain that every loan is made in accordance with our underwriting standards. Variances in underwriting standards could expose us to greater delinquencies and credit losses than we have historically experienced.
In addition, in deciding whether to extend credit or enter into other transactions with customers, we rely heavily on information provided by customers, counterparties and other third parties, including credit bureaus and data aggregators, and we further rely on representations of customers and counterparties as to the accuracy and completeness of that information. If a significant percentage of our customers were to intentionally or negligently misrepresent any of this information, or provide incomplete information, and our internal processes were to fail to detect such misrepresentations in a timely manner, we could end up approving a loan that, based on our underwriting criteria, we would not have otherwise made. As a result, our earnings and our financial condition could be negatively impacted.
Employee misconduct could harm us by subjecting us to monetary loss, legal liability, regulatory scrutiny and reputational harm.
Our reputation is crucial to maintaining and developing relationships with existing and potential customers and third parties with whom we do business. There is a risk that our employees could engage in misconduct that adversely affects our business. For example, if an employee were to engage—or be accused of engaging—in illegal or suspicious activities, including fraud or theft, we could be subject to regulatory sanctions and suffer significant harm to our reputation, financial condition, customer relationships and ability to attract future customers or employees. Employee misconduct could prompt regulators to allege or to determine, based upon such misconduct, that we have not established adequate supervisory systems and procedures to inform
employees of applicable rules or to detect and deter violations of such rules. It is not always possible to deter employee misconduct, and the precautions we take to detect and prevent misconduct may not be effective in all cases. Misconduct by our employees, or even unsubstantiated allegations, could result in a material adverse effect on our reputation and our business.
Risks Relating to Our Industry
The CFPB authority over U.S. consumer lending could have a significant impact on our U.S. business.
The CFPB regulates U.S. consumer financial products and services, including consumer loans offered by us. The CFPB has regulatory, supervisory and enforcement powers over providers of consumer financial products and services.
The CFPB has examined our lending products, services and practices, and we expect the CFPB will continue to examine us. CFPB examiners have the authority to require quarterly monitoring, inspect our books and records and probe our business practices, and its examination includes review of marketing activities; loan application and origination activities; payment processing activities and sustained use by consumers; collections, accounts in default and consumer reporting activities as well as third-party relationships. As a result of these examinations of us or other parties, we could be required to change our products, services or practices, or we could be subject to monetary penalties, which could materially adversely affect us. Beginning in the fourth quarter of 2021, we are required to submit certain information regarding our business to the CFPB on a quarterly basis.
The CFPB also has broad authority to prohibit unfair, deceptive or abusive acts or practices and to investigate and penalize financial institutions. In addition to assessing financial penalties, the CFPB can require remediation of practices, pursue administrative proceedings or litigation and obtain cease and desist orders (which can include orders for restitution or rescission or reformation of contracts). Also, if a company has violated Title X of the Dodd-Frank Act or related CFPB regulations, the Dodd-Frank Act empowers state attorneys general and state regulators to bring civil actions to remedy violations. If the CFPB or state attorneys general or state regulators believe that we have violated any laws or regulations, they could exercise their enforcement powers which could have a material adverse effect on our business, prospects, results of operations, financial condition or cash flows.
The CFPB's Final Payday Rule, if implemented in its current form, could negatively affect our U.S. consumer lending business.
On July 7, 2020, the CFPB issued the 2020 Final Rule, which rescinded part of the 2017 Final CFPB Payday Rule requiring enhanced underwriting and an "ability-to-repay" analysis; but kept intact the payment provisions around debiting consumer accounts. The 2017 Final CFPB Payday Rule is currently stayed as a result of an industry legal challenge and the effective date of the payment provisions is unknown. In light of this industry challenge, we cannot predict when it will ultimately go into effect or quantify its potential effect on us. If the payment provisions of the 2017 Final CFPB Payday Rule become effective in the current form, we will need to make changes to our payment processes and customer notifications in our U.S. consumer lending business. If we are not able to make all of these changes successfully, the payment provisions of the 2017 Final CFPB Payday Rule could have a material adverse impact on our business, prospects, results of operations, financial condition and cash flows. Refer to Business—Regulatory Environment and Compliance—U.S. Regulations—U.S. Federal Regulations— CFPB Rules."
Following the Seila Law Supreme Court decision, President Biden requested and received the CFPB director's resignation and replaced her with an Acting Director. President Biden's nomination for the CFPB's next director, Rohit Chopra, who was confirmed by the Senate in October of 2021, is expected to enhance the CFPB's supervisory and enforcement regime.
Our industry is highly regulated. Existing and new laws and regulations could have a material adverse effect on our results of operations or financial condition and failure to comply with these laws and regulations could subject us to various fines, civil penalties and other relief.
In the U.S. and Canada, our business is subject to a variety of statutes and regulations enacted at the federal, state, provincial and municipal levels. Accordingly, regulatory requirements, and the actions we must take to comply with regulations, vary considerably by jurisdiction. Managing this complex regulatory environment requires considerable compliance efforts. It is costly to operate in this environment, and it is possible that those costs will increase materially over time. This complexity also increases the risks that we will fail to comply with regulations which could have a material adverse effect on our results of operations or financial condition. These regulations affect our business in many ways, and include regulations relating to:
•the terms of loans (such as interest rates, fees, durations, repayment terms, maximum loan amounts, renewals and extensions and repayment plans), the number and frequency of loans 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 CSOs or CABs;
•licensing, reporting and document retention;
•unfair, deceptive and abusive acts and practices and discrimination;
•disclosures, notices, advertising and marketing;
•loans to members of the military and their dependents;
•insurance products;
•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;
•posting of fees and charges; and
•repossession practices in certain jurisdictions where we operate as a title lender.
These regulations affect the entire life cycle of our customer relationships and compliance with the regulations affects our loan volume, revenues, delinquencies and other aspects of our business, including our results of operations. We expect that regulation of our industry will continue and that 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 or financial condition.
In recent years, California, Ohio and Virginia adopted lending laws that had a significant adverse impact on our business. For a description of these significant impacts, see Item 1, “Business—Regulatory Environment and Compliance—U.S. Regulations—
U.S. State and Local Regulations—Recent and Potential Future Changes in the Law” for additional details. We may not be able to implement a strategy to replace our products in these states, or, if we do, that those replacement products will be free from legal attack. Failing to successfully manage product transitions would have a material adverse effect on our results of operations or financial condition.
Several municipalities have passed laws that regulate aspects of our business, such as zoning and occupancy regulations to limit consumer lending storefronts. Similarly, nearly 50 Texas municipalities have enacted ordinances that regulate products offered under our 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. See Item 1, "Business—Regulatory Environment and Compliance—U.S. Regulations— State" and Note 8, “Commitments and Contingencies." If additional local laws are passed that affect our business, this could materially restrict our business operations, increase our compliance costs or increase the risks associated with our regulatory environment.
There are a range of penalties that governmental entities could impose if we fail to comply with the various laws and regulations that apply to us, including:
•ordering corrective actions, including changes to compliance systems, product terms and other business operations;
•imposing fines or other monetary penalties, which could be substantial;
•ordering restitution, damages or other amounts to customers, including multiples of the amounts charged;
•requiring disgorgement of revenues or profits from certain activities;
•imposing cease and desist orders, including orders requiring affirmative relief, targeting specific business activities;
•subjecting our operations to monitoring or additional regulatory examinations during a remediation period;
•revoking licenses required to operate in particular jurisdictions; and/or
•ordering the closure of one or more stores.
Accordingly, if we fail to comply with applicable laws and regulations, it could have a material adverse effect on our results of operations or financial condition.
Our insurance operations are subject to a number of risks and uncertainties.
Heights’ customers can either purchase optional insurance products, including credit life, credit accident and health, credit property insurance and credit involuntary unemployment insurance, through a third-party independent insurer and finance the premiums with their loan from Heights, or customers may purchase their own insurance naming Heights as a “loss payee” and provide proof of insurance to Heights.
When purchased by a customer, Heights' credit insurance products insure the customer’s payment obligations on the associated loan in the event the customer is unable to make monthly payments due to death, disability, or involuntary unemployment, or in the event of a casualty event associated with the underlying collateral. Although a customer can pay the associated premiums
separately, substantially all customers finance payment of the premium, with the financed premium included in the balance of the loan. A credit insurance product may be cancelled if, for example, (i) we request cancellation due to the customer’s default on obligations under the associated loan, (ii) the customer prepays the principal balance of the associated loan in full, or (iii) the customer elects to terminate the credit insurance prior to the expiration of the term thereof (which the customer may do at any time).
Our insurance operations are subject to a number of risks and uncertainties, including changes in laws and regulations, customer demand for insurance products, claims experience and insurance carrier relationships. Changes to laws or regulations may, for example, negatively impact our ability to offer one or more of our insurance products; the way we are permitted to offer such products; capital and reserve requirements; the frequency and type of regulatory monitoring and reporting to which we are subject; benefits or loss ratio requirements; and insurance producer and agent licensing or appointment requirements. In addition, because our customers are not required to purchase the credit insurance products that we offer, we cannot be certain that customer demand for credit insurance products will not decrease in the future. Our insurance operations are also dependent on our lending operations as the sole source of business and product distribution. If our lending operations discontinue offering insurance products, our insurance operations would have no method of distribution. Insurance claims and policyholder liabilities are also difficult to predict and may exceed the related reserves set aside for claims and associated expenses for claims adjudication.
We are also dependent on the continued willingness of unaffiliated third-party insurance companies to participate in the credit insurance market and we cannot be certain that the credit insurance market will remain viable in the future. Further, if our insurance providers are, for any reason, unable or unwilling to meet claims and premium reimbursement payment obligations or premium ceding obligations, we could be subject to increased net credit losses, regulatory scrutiny, litigation and other losses and expenses.
If any of these events, risks, or uncertainties were to occur or materialize, it could have a material adverse effect on our business, financial condition and results of operations and cash flows.
Our stock price, reputation and financial results could be adversely affected by media and public perception of our credit products.
Consumer advocacy groups and various media outlets continue to criticize alternative financial services providers. These critics often characterize such alternative financial services providers as predatory or abusive toward consumers. If these persons were to criticize the products that we offer, it could negatively impact our relationships with existing borrowers and our ability to attract new borrowers and generate dissatisfaction among our employees.
Litigation, including class actions, and administrative proceedings against us or our industry could have a material adverse effect on our results of operations, cash flows or financial condition.
We have been the subject of administrative proceedings and lawsuits, as well as class actions, in the past, and may be involved in future proceedings, lawsuits or other claims. See Item 1, "Business—Regulatory Environment and Compliance— U.S. Regulations—U.S. and State" and Note 8, “Commitments and Contingencies” for a description of material litigation. Other companies in our industry have also been subject to litigation, class action lawsuits and administrative proceedings regarding the offering of consumer loans and the resolution of those matters could adversely affect our business. We anticipate that lawsuits and enforcement proceedings involving our industry, and potentially involving us, will continue to be brought.
We may incur significant expenses associated with the defense or settlement of lawsuits. The adverse resolution of legal or regulatory proceedings could force us to refund fees and interest collected, refund the principal amount of advances, pay damages or monetary penalties or modify or terminate our operations in particular jurisdictions. The defense of such legal proceedings, even if successful, is expensive and requires significant time and attention from our management. Settlement of proceedings may also result in significant cash payouts, foregoing future revenues and modifications to our operations. Additionally, an adverse judgment or settlement could result in 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 or our ability to service our debt obligations.
Judicial decisions or new legislation could potentially render our arbitration agreements unenforceable.
We include arbitration provisions in our customer loan agreements. Arbitration provisions require that disputes with be resolved through individual arbitration rather than in court. Thus, our arbitration provisions, if enforced, have the effect of shielding us from class action liability. The effectiveness of arbitration provisions depends on whether courts will enforce these provisions. A number of courts, including the California and Nevada Supreme Courts, have concluded that arbitration agreements with class action waivers are unenforceable, particularly where a small dollar amount is in controversy on an individual basis. If our
arbitration provisions are found to be unenforceable, our costs to litigate and settle customer disputes could increase and we could face class action lawsuits, with a potential material adverse effect on our results of operations or financial condition.
The profitability of our bank-originated products could be adversely affected by the originating lenders.
We do not originate nor control the pricing or functionality of Unsecured Installment loans originated by a bank and other bank sponsored products, such as Revolve Finance and First Phase. We have agreements with third party banks that license our technology and underwriting services and that make all key decisions regarding the underwriting, product features and pricing. We generate revenues from these products through marketing, servicing and technology licensing fees, as well as, at times, through our participating interest, depending on the product. If a bank changes its pricing, underwriting or marketing of the product in a way that decreases revenues or increases losses, then the profitability could be reduced, which could have a material adverse effect on our business, prospects, results of operations, financial condition or cash flows. If our relationship with a bank ended, we may not be able to find another suitable replacement bank and new arrangements, if any, may result in significantly increased costs to us. Any inability to find another bank would adversely affect our ability to continue to facilitate the bank-originated products, which in turn could have a material adverse effect on our business, prospects, results of operations, financial condition or cash flows.
Risk Factor Relating to our Investment in Katapult
Our operating results may be adversely affected by our investment in Katapult.
As of December 31, 2021, we owned 25.2% of Katapult on a fully diluted basis assuming full pay-out of earn-out shares. We apply the equity method of accounting to certain shares of common stock and interests that qualify as in-substance common stock. We recognize our share of Katapult's income or losses on a one-quarter lag related to the equity method investment. We made a $10 million investment in December 2021 to increase the investment to 25.2%. We cannot provide assurance that our investment will (i) increase or maintain its value, or (ii) that we will not incur losses from the holding of such investments.
General Risk Factors
We may fail to meet our publicly announced guidance or other expectations about our business and future operating results which would cause our stock price to decline.
We may provide guidance about our business and future operating results. In developing this guidance, we make certain assumptions and judgments about our future performance, which are difficult to predict. Furthermore, analysts and investors may develop and publish their own projections of our business, which may form a consensus about our future performance. The assumptions used or judgments applied to our operations to project future operating and financial results may be inaccurate and could result in a material reduction in the price of our common stock, which we have experienced in the past. Our business results may also vary significantly from our guidance or our analyst’s consensus due to a number of factors which are outside of our control and which could adversely affect our operations and financial results. Furthermore, if we make downward revisions of previously announced guidance, or if our publicly announced guidance of future operating results fails to meet expectations of securities analysts, investors or other interested parties, the price of our common stock could decline.
The market price of our common stock may be volatile.
The stock market is highly volatile. As a result, the market price and trading volume for our stock may also be highly volatile, and investors may experience a decrease in the value of their shares, which may be 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 competitors;
•our quarterly or annual earnings or those of competitors;
•conditions that impact demand for our products and services;
•our ability to accurately forecast our financial results;
•changes in earnings estimates or recommendations by securities or research analysts who track our common stock;
•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 laws and 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 that are publicly traded;
•sales of common stock by us, our investors or members of our management team;
•unfavorable or misleading information published by securities or industry analysts;
•factors affecting the industry in which we operate, including competition, innovation, regulation and the economy; and
•changes in general market, economic and political conditions, including those resulting from natural disasters, health emergencies (such as COVID-19), telecommunications failures, cyber-attacks, civil unrest, 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, stockholders may file securities class action lawsuits. Securities class action lawsuits are costly to defend and divert management’s attention and, if adversely determined, could involve substantial damages that may not be covered by insurance.
Our business could suffer as the result of the loss of the services of our senior executives or if we cannot attract and retain talented employees.
We compete with other companies both within and outside of our industry for talented employees. If we cannot recruit, train, develop, and retain sufficient numbers of talented employees, particularly in light of our growth plans, we could experience increased turnover, decreased customer satisfaction, operational challenges, low morale, inefficiency or internal control failures. Insufficient numbers of talented employees, particularly IT developers, could also limit our ability to grow and expand our businesses. Labor shortages could also result in higher wages that would increase our labor costs, which could reduce our profits. In addition, the efforts and abilities of our senior executives are important elements of maintaining our competitive position and driving future growth, and the loss of the services of one or more of our senior executives could result in challenges executing our business strategies or other adverse effects on our business.
The original founders of the company ("Founders") own a significant percentage of our outstanding common stock and their interests may conflict with ours or yours in the future.
At December 31, 2021, the Founders owned 41.5% of our outstanding common stock and each is a member of our Board of Directors. Accordingly, the Founders collectively can exert control over many aspects of our company, including the election of directors. The Founders interests may not in all cases be aligned with your interests. On January 28, 2022, Doug Rippel, co-founder and Executive Chairman of the Board, tendered his resignation from the Board to be effective immediately following the Company’s annual meeting of shareholders in 2022.
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 your interests. Among other things, these provisions:
•permit our Board of Directors to set the number of directors and fill vacancies and newly-created directorships;
•authorize “blank check” preferred stock that our Board of Directors could use to implement a stockholder rights plan;
•provide that our Board of Directors is 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;
•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.
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. 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.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is 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.
The choice of forum provision in our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for substantially all disputes with stockholders. This choice of forum provision may limit a stockholder’s 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 many types of lawsuits.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of December 31, 2021, we leased 550 stores in the U.S. and 201 stores in Canada. Our U.S. stores include 390 branches from the acquisition of Heights, which we acquired on December 27, 2021. We lease our principal executive offices, which are located in Wichita, Kansas. We also lease administrative offices in Greenville, South Carolina and Toronto, Ontario and a FinTech office in Chicago, Illinois. Our centralized collections facilities are in the U.S. and Canada. See Note 12, "Leases" of the Notes to Consolidated Financial Statements for additional information on our operating leases with real estate entities that are related to us through common ownership.
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The principal market for our common stock is the NYSE and our shares of common stock are listed under the symbol "CURO."
As of March 3, 2022, there were approximately 130 stockholders of record of our common stock. Holders of record do not include an indeterminate number of beneficial holders whose shares are held through brokerage accounts and clearing agencies.
Dividends
Our Board of Directors approved a quarterly dividend program in 2020 for $0.055 per share ($0.22 annualized), which was increased to $0.11 per share in May of 2021 ($0.44 annualized). In February 2022, the Board also approved an $0.11 per share quarterly dividend for the calendar year 2022. Our Board of Directors has discretion to determine whether to pay dividends in the future based on a variety of factors, including our earnings, cash flow generation, financial condition, 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.
Issuer Purchases of Equity Securities
In May 2021, our Board of Directors authorized a share repurchase program (the "2021 Repurchase Program") providing for the repurchase of up to $50.0 million of our common stock.
The following table provides information with respect to purchases we made of our common stock during the quarter ended December 31, 2021.
| | | | | | | | | | | | | | |
| Period | Total Number of Shares Purchased(1)(2) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (3) | Dollar Value of Shares that may yet be Purchased under the Plans or Programs(4) (in millions) |
| October 2021 | 287,398 | | $ | 18.33 | | 286,629 | | $ | 27.1 | |
| November 2021 | 794,943 | | 18.01 | | 294,266 | | 21.8 | |
| December 2021 | 843,567 | | 16.25 | | 568,385 | | 12.6 | |
| Total | 1,925,908 | | $ | 17.28 | | 1,149,280 | | |
(1) Includes shares withheld from employees as tax payments for shares issued under our stock-based compensation plans. See Note 11, "Share-based compensation" of the Notes to the Consolidated Financial Statements for additional details on our stock-based compensation plans. |
(2) Includes shares repurchased in a private transaction. See Note 23, "Share Repurchase Program" of the Notes to the Consolidated Financial Statements for additional details. |
| (3) All shares purchased as part of a publicly announced plan were purchased under the 2021 Repurchase Program, described in this Item 5. |
| (4) As of the end of the period. |
In February 2022, we completed our purchases under the 2021 Repurchase Program. Refer to Note 24, "Subsequent Events" for additional details.
In February 2022, our Board authorized a new share repurchase program for up to $25.0 million of our common stock. Repurchases under this program will commence at our discretion and continue until completed or terminated. We expect the purchases to be made from time-to-time in the open market and/or in privately negotiated transactions at our discretion, subject to market conditions and other factors. Any repurchased shares will be available for use in connection with equity plans and for other corporate purposes.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of financial condition, result of operations, liquidity and capital resources and certain factors that may affect future results, including economic and industry-wide factors, should be read in conjunction with our Consolidated Financial Statements and accompanying notes included herein.
Components of Our Results of Operations
Revenue
The core consumer finance products we offer include Revolving LOC and Installment loans. Revenue in our Consolidated Statements of Operations includes: interest income, MDR, finance charges, CSO fees, insurance revenue, late fees and non-sufficient funds fees. Product offerings differ by jurisdiction and are governed by the laws in each jurisdiction.
Revolving LOC loans are lines of credits without specified maturity dates and include our POS financing products at Flexiti. We record revenue from Revolving LOC loans on a simple-interest basis. Revolving LOC revenues include interest income on outstanding revolving balances and other usage or maintenance fees as permitted by underlying statutes. Accrued interest and fees are included in "Gross loans receivable" in the Consolidated Balance Sheets. Revolving LOC revenues also include MDR, which represents a fee charged to merchant partners to facilitate customer purchases at merchant locations. The fee is recorded as unearned revenue when received and recognized over the expected loan term.
Historically, Installment loans range from unsecured, short-term, small-denomination loans, whereby a customer receives cash in exchange for a post-dated personal check or pre-authorized debit from the customer's bank account, to fixed-term, fully amortizing loans with a fixed payment amount due each period during the term of the loan. With the acquisition of Heights in December 2021, we now offer long-term large loans to customers. For our short-term, small denomination loans, we recognize revenue on a constant-yield basis ratably over the team of each loan. We defer and recognize unearned fees over the remaining term of the loan at the end of each reporting period. Revenues from these short-term loans represent deferred presentment or other fees as defined by the underlying state, provincial, or national regulations. For our fixed-term, fully amortizing loans, we record revenues on a simple-interest basis. Revenue for fixed-term Installment loans includes interest income from Company-Owned loans, CSO fees, and non-sufficient funds or returned-items fees on late or defaulted payments on past-due loans, known as late fees. Late fees comprise less than 1% of Installment revenues. Accrued interest and fees are included in "Gross loans receivable" in the Consolidated Balance Sheets.
We also provide a number of ancillary financial products, including optional credit protection insurance, check cashing, demand deposit accounts, and money transfer services. Heights offers optional insurance products to its customers in connection with its lending operations, including credit life, credit accident and health, credit property insurance and credit involuntary unemployment insurance with the policies written by unaffiliated third-party insurance companies. Insurance commissions, written in connection with certain loans, are credited to unearned insurance commissions and recognized as income over the life of the related insurance contracts, using a method similar to that used for the recognition of interest income.
Provision for Losses
Credit losses are an inherent part of outstanding loans receivable. We maintain an allowance for loan losses for loans and interest receivable at a level estimated to be adequate to absorb such losses based primarily on our analysis of historical loss rates by products containing similar risk characteristics. The allowance for losses on our Company-Owned gross loans receivables reduces the outstanding gross loans receivables balance in the Consolidated Balance Sheets. The liability for estimated incurred losses related to loans originated by third-party lenders through CSO programs, which we guarantee but do not include in the Consolidated Financial Statements (referred to as "Guaranteed by the Company"), is reported in "Liability for losses on CSO lender-owned consumer loans" in the Consolidated Balance Sheets. Increases in either the allowance or the liability, net of charge-offs and recoveries, are recorded as “Provision for losses” in the Consolidated Statements of Operations.
Operating Expense
Our primary categories of operating expense are as follows:
•Salaries and Benefits—includes salaries and personnel-related costs, including benefits, bonuses and share-based compensation expense for both store and corporate costs.
•Occupancy—includes rent expense on our leased facilities and equipment, utilities, insurance and certain maintenance expenses for both store and corporate costs.
•Advertising—costs are expensed as incurred and include costs associated with attracting, retaining and/or reactivating customers as well as creating brand awareness. We have internal creative, web and print design capabilities and if we outsource these services, it 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.
•Direct Operations—includes expenses associated with the direct operations and technology infrastructure related to loan underwriting, collections and processing, and bank service charges and credit scoring charges.
•Depreciation and amortization—includes all store and corporate depreciation and amortization expense.
•Other operating expense—includes expenses such as office expense, security expense, travel and entertainment expenses, certain taxes, legal and professional fees, foreign currency impact to our intercompany balances, gains or losses on foreign currency exchanges, disposals of fixed assets, certain store closure costs, and other miscellaneous income and expense amounts.
Other Expense
Our non-operating expenses include the following:
•Interest Expense—includes interest primarily related to our Senior Secured Notes, our SPV and SPE facilities, and our Senior Revolver.
•Income or loss from equity method investment and Gain from equity method investment - includes our share of Katapult's income or loss and a recognized gain from the merger of Katapult and FinServ. Refer to Item 1, "Business—Company History and Overview" and Note 6, "Fair Value Measurements" of the Notes to the Consolidated Financial Statements for additional details on our equity method investment.
•Loss on extinguishment of debt - includes costs associated with the extinguishment of debt facilities.
Revenue by Product and Segment and Related Loan Portfolio Performance
Consolidated Revenue by Product and Segment
The following table summarizes revenue by product, including CSO fees, for the period indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Year Ended |
| | December 31, 2021 | | December 31, 2020 |
| (in thousands, unaudited) | | U.S. | Canada Direct Lending | Canada POS Lending | Total | % of Total | | U.S. | Canada Direct Lending | Canada POS Lending | Total | % of Total |
| Revolving LOC | | $ 106,302 | | $ 156,000 | | $ 32,289 | | $ 294,591 | | 36.0 | % | | $ 134,449 | | $ 115,053 | | $ — | | $ 249,502 | | 29.4 | % |
| Installment | | 405,409 | | 43,735 | | — | | 449,144 | | 54.9 | % | | 489,057 | | 49,628 | | — | | 538,685 | | 63.6 | % |
| Ancillary | | 14,251 | | 57,304 | | 2,553 | | 74,108 | | 9.1 | % | | 15,018 | | 44,191 | | — | | 59,209 | | 7.0 | % |
| Total revenue | | $ 525,962 | | $ 257,039 | | $ 34,842 | | $ 817,843 | | 100.0 | % | | $ 638,524 | | $ 208,872 | | $ — | | $ 847,396 | | 100.0 | % |
For the year ended December 31, 2021, total revenue declined $29.6 million, or 3.5%, to $817.8 million, compared to the prior year. Excluding Runoff Portfolios, total revenue for the year ended December 31, 2021 increased $33.7 million, or 4.6%, compared to the prior year. Geographically, U.S. revenues declined 17.6% year over year (9.5% excluding Runoff Portfolios) largely due to COVID-19 Impacts, while Canada Direct Lending revenues increased 23.1% due to the continued popularity and growth of Revolving LOC loans. For the year ended December 31, 2021, Canada POS Lending revenue was $34.8 million, inclusive of acquisition-related adjustments which reduced total revenue by $7.5 million.
Canada POS Lending revenue includes MDR, which is recognized over the life of the underlying loan term. On March 10, 2021, we completed the acquisition of Flexiti. For the year ended December 31, 2021, Canada POS Lending results were impacted by adjustments related to that acquisition that reduced revenue by $7.5 million and net revenue by $13.9 million ("acquisition-related adjustments"). The acquisition included a loan portfolio with a fair value of approximately $196.1 million ("Acquired Portfolio"). A fair value discount of $12.5 million was based on estimated future net cash flows and is recognized in net revenue over the expected life of the Acquired Portfolio (approximately 12 months). This amortization resulted in an increase in revenue of $6.6 million and loan loss provision of $6.4 million for the year ended December 31, 2021. The Acquired Portfolio also included $14.1 million of unearned MDR and annual and administrative fees, which are not amortized to revenue for the Acquired Portfolio because they do not represent future cash flows. For the year ended December 31, 2021, Canada POS Lending revenue and net revenue were both lower by $14.1 million compared to what would have been reported if the unearned MDR and fees had been recognized over the expected life of the Acquired Portfolio. The acquisition-related adjustments related to the unearned MDR annual and administrative fees will decline each quarter, until becoming fully amortized by the end of the first quarter of 2022.
The table below presents acquisition-related adjustments to Flexiti's revenue and net revenue for the year ended December 31, 2021:
| | | | | | | | | | | | | | | | | | | | |
| (in thousands, unaudited) | | Canada POS Lending | | Acquisition-related adjustments | | Adjusted Canada POS Lending |
| Interest income | | $ | 22,335 | | | $ | (6,614) | | (1) | $ | 15,721 | |
| Other revenue | | 12,506 | | | 14,074 | | (2) | 26,580 | |
| Total revenue | | $ | 34,841 | | | $ | 7,460 | | | $ | 42,301 | |
| | | | | | |
| Provision for losses | | 24,638 | | | (6,444) | | (1) | 18,194 | |
| Net revenue | | $ | 10,203 | | | $ | 13,904 | | | $ | 24,107 | |
| (1) Acquisition-related adjustments for interest income and provision for losses relate to the amortization of the fair value discount of the Acquired Portfolio. |
| (2) Acquisition-related adjustments for other revenue represents the unearned MDR and annual and administrative fees, which were not included in the opening balance sheet as they did not represent future cash flows as of March 10, 2021, and thus, are not amortized to revenue for the Acquired Portfolio. The acquisition-related adjustments related to the unearned MDR and annual and administrative fees will decline each quarter with the Acquired Portfolio and will be fully amortized by the end of the first quarter of 2022. |
From a product perspective, Revolving LOC revenues increased $45.1 million, or 18.1%, compared to the prior year, primarily due to growth in Canada Direct Lending revenue of $40.9 million, or 35.6%, and Canada POS Lending of $32.3 million, partially offset by declines in U.S. revenue of $28.1 million, or 20.9%. Excluding Runoff Portfolios, U.S. Revolving LOC revenue decreased $1.6 million, or 1.6%, for the year ended December 31, 2021 compared to the prior year.
For the year ended December 31, 2021, Installment revenues decreased $89.5 million, or 16.6%, compared to the prior year. Excluding Runoff Portfolios, Installment revenue decreased $52.9 million, or 11.6%, primarily as a result of COVID-19 related constraints on demand and the continued shift to Revolving LOC loans.
Ancillary revenues increased $14.9 million, or 25.2%, versus the prior year from the sale of insurance products to Revolving LOC and Installment loan customers in Canada.
The following table summarizes revenue by product, including CSO fees, for 2020 and 2019 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended |
| | December 31, 2020 | | December 31, 2019 |
| | U.S. | Canada Direct Lending | | Canada POS Lending | Total | % of Total | | U.S. | Canada Direct Lending | | Canada POS Lending | Total | % of Total |
| Revolving LOC | | $ 134,449 | | $ 115,053 | | | $ — | | $ 249,502 | | 29.4 | % | | $ 147,794 | | $ 97,462 | | | $ — | | $ 245,256 | | 21.5 | % |
| Installment | | 489,057 | | 49,628 | | | — | | 538,685 | | 63.6 | % | | 747,417 | | 85,275 | | | — | | 832,692 | | 72.9 | % |
| Ancillary | | 15,018 | | 44,191 | | | — | | 59,209 | | 7.0 | % | | 18,295 | | 45,554 | | | — | | 63,849 | | 5.6 | % |
| Total revenue | | $ 638,524 | | $ 208,872 | | | $ — | | $ 847,396 | | 100.0 | % | | $ 913,506 | | $ 228,291 | | | $ — | | $ 1,141,797 | | 100.0 | % |
For a comparison of our results of operations for the years ended December 31, 2020 and 2019, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Revenue by Product and Segment and Related Loan Portfolio Performance" in Part II Item 7 of our 2020 Form 10-K.
The following table presents online revenue and online transaction compositions, including CSO fees, of the products and services that we currently offer within the U.S., excluding Heights, and Canada Direct Lending segments:
| | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 |
| Online revenue as a percentage of consolidated revenue | | 50.5 | % | | 48.5 | % |
| Online transactions as a percentage of consolidated transactions | | 60.8 | % | | 54.7 | % |
For the year ended December 31, 2021, online revenue as a percentage of consolidated revenue increased as a result of our store closures during the second and third quarters of 2021, as well as the continued transition of customers to our online channel.
Loan Volume and Portfolio Performance Analysis
The following table reconciles Company Owned gross loans receivable, a GAAP-basis balance sheet measure, to Gross combined loans receivable, a non-GAAP measure(1). Gross combined loans receivables includes loans originated by third-party lenders through CSO programs, which are not included in our Consolidated Financial Statements but from which we earn revenue by providing a guarantee to the unaffiliated lender (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | As of | | | | | | | | | |
| (in thousands, unaudited) | | | December 31,
2021 | | September 30,
2021 | | June 30,
2021 | | March 31,
2021 | | December 31,
2020 | | | | | | | | | | | | | | | | | | | |
| U.S. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revolving LOC | | | $ 52,532 | | | $ 51,196 | | | $ 47,277 | | | $ 43,387 | | | $ 55,561 | | | | | | | | | | | | | | | | | | | | | | | | |
| Installment - Company Owned | | | 609,413 | | | 137,987 | | | 139,234 | | | 142,396 | | | 167,890 | | | | | | | | | | | | | | | | | | | | | | | | |
| Canada Direct Lending | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revolving LOC | | | 402,405 | | | 366,509 | | | 337,700 | | | 319,307 | | | 303,323 | | | | | | | | | | | | | | | | | | | | | | | | |
| Installment | | | 24,792 | | | 24,315 | | | 23,564 | | | 24,385 | | | 26,948 | | | | | | | | | | | | | | | | | | | | | | | | |
| Canada POS Lending | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Revolving LOC | | | 459,176 | | | 302,349 | | | 221,453 | | | 201,539 | | | — | | | | | | | | | | | | | | | | | | | | | | | | |
| Company Owned gross loans receivable | | | $ 1,548,318 | | | $ 882,356 | | | $ 769,228 | | | $ 731,014 | | | $ 553,722 | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross loans receivable Guaranteed by the Company | | | 46,317 | | | 43,422 | | | 37,093 | | | 32,439 | | | 44,105 | | | | | | | | | | | | | | | | | | | | | | | | |
Gross combined loans receivable (1) | | | $ 1,594,635 | | | $ 925,778 | | | $ 806,321 | | | $ 763,453 | | | $ 597,827 | | | | | | | | | | | | | | | | | | | | | | | | |
(1) See a description of non-GAAP Financial Measures in "Supplemental Non-GAAP Financial Information." | | | | | | | | | | | | | | | | | |
Gross combined loans receivable by product at quarter-end are presented below.
Gross combined loans receivable increased $996.8 million, or 166.7%, to $1,594.6 million as of December 31, 2021, from $597.8 million as of December 31, 2020. Gross combined loans receivables as of December 31, 2021 included $196.1 million and approximately $472 million of receivables acquired on the date of acquisition of Flexiti and Heights, respectively. Canada POS Lending has continued to grow rapidly throughout the year, particularly beginning in July 2021 with Flexiti beginning its exclusive POS financing partnership with LFL. In addition, the holiday season drove $114.4 million of Canada POS Lending loan growth in November and December 2021. Excluding loans acquired in connection with the Flexiti acquisition on March 10, 2021 and the Heights acquisition on December 27, 2021, gross combined loans receivables increased $329.0 million, or 41.4%, from December 31, 2020 to December 31, 2021, primarily driven by Canada Direct Lending growth of $96.9 million, or 29.3%. During such period, U.S. gross combined loans receivable, excluding Heights, decreased $30.9 million, or 11.6%, primarily due to (i) COVID-19 Impacts and (ii) the aforementioned Runoff Portfolios. Excluding Runoff Portfolios and gross loans receivables acquired with Heights, U.S. gross combined loans receivable grew $24.3 million, or 12.6%, during such period.
Sequentially, gross combined loans receivable increased $668.9 million, or 72.2%. Geographically, U.S. grew sequentially by $475.7 million, or 204.5%, as a result of our acquisition of Heights, which accounted for approximately $472 million of loans receivable as of December 31, 2021. Canada grew sequentially by $193.2 million, or 27.9%, primarily driven by Canada POS Lending growth of $156.8 million, or 51.9%, and Canada Direct Lending Revolving LOC growth of $35.9 million, or 9.8%. Excluding Heights, gross combined loans receivable increased $197.2 million, or 21.3%, sequentially, as consumer demand increased in the fourth quarter.
Consolidated Results of Operations
Beginning in the year ended December 31, 2021, we changed our presentation of operating expenses on our Statements of Operations. The December 31, 2020 and December 31, 2019 presentations have been revised to conform to the current year presentation. Refer to the comparison of "Comparison of Consolidated Results of Operations for the Years Ended December 31, 2021 and 2020" below for a description of expenses included within each operating expense line item.
The table below presents our consolidated results of operations. A further discussion of the results of our operating segments is provided under "—Segment Analysis" below.
(in thousands)
| | | | | | | | | | | | | | | | | | | | | |
| (in thousands, unaudited) | | | | Year Ended December 31, |
| | | | | | 2021 | 2020 (1) | 2019 (1) | | |
| Revenue | | | | | | | $ 817,843 | | $ 847,396 | | $ 1,141,797 | | | |
| Provision for losses | | | | | | | 245,668 | | 288,811 | | 468,551 | | | |
| Net revenue | | | | | | | 572,175 | | 558,585 | | 673,246 | | | |
| Operating Expenses | | | | | | | | | | | |
| Salaries and benefits | | | | | | | 237,109 | | 196,817 | | 206,193 | | | |
| Occupancy | | | | | | | 55,559 | | 57,271 | | 54,895 | | | |
| Advertising | | | | | | | 38,762 | | 44,552 | | 53,398 | | | |
| Direct operations | | | | | | | 60,056 | | 46,893 | | 73,568 | | | |
| Depreciation and amortization | | | | | | | 26,955 | | 17,498 | | 18,630 | | | |
| Other operating expense | | | | | | | 74,682 | | 47,048 | | 48,049 | | | |
| Total operating expenses | | | | | | | 493,123 | | 410,079 | | 454,733 | | | |
| Other expense (income) | | | | | | | | | | | |
| Interest expense | | | | | | | 97,334 | | 72,709 | | 69,763 | | | |
| | | | | | | | | | | |
| (Income) loss from equity method investment | | | | | | | (3,658) | | (4,546) | | 6,295 | | | |
| Gain from equity method investment | | | | | | | (135,387) | | — | | — | | | |
| Loss on extinguishment of debt | | | | | | | 40,206 | | — | | — | | | |
| Total other (income) expense | | | | | | | (1,505) | | 68,163 | | 76,058 | | | |
| Income from continuing operations before income taxes | | | | | | | 80,557 | | 80,343 | | 142,455 | | | |
| Provision for incomes taxes | | | | | | | 21,223 | | 5,895 | | 38,557 | | | |
| Net income from continuing operations | | | | | | | 59,334 | | 74,448 | | 103,898 | | | |
| Net income from discontinued operations, net of tax | | | | | | | — | | 1,285 | | 7,590 | | | |
| Net income | | | | | | | $ 59,334 | | $ 75,733 | | $ 111,488 | | | |
|
| (1) The December 31, 2020 and 2019 presentation has been revised to conform to the current period presentation. | | |
|
Comparison of Consolidated Results of Operations for the Years Ended December 31, 2021 and 2020
Revenue and Net Revenue
For a discussion of revenue, see "Consolidated Revenue by Product and Segment" above.
Provision for losses decreased by $43.1 million, or 14.9%, for the year ended December 31, 2021 compared to the prior year. The decrease in provision for losses was primarily a result of lower average loan balances in the U.S. and multiple rounds of U.S. government stimulus associated with COVID-19, partially offset by provisioning on Canada Direct Lending growth and upfront loss provisioning on rapid customer receivables growth late in the quarter in Canada POS Lending. Refer to "Loan Volume and Portfolio Performance Analysis" and "Segment Analysis" sections below for additional details.
Operating Expenses
Salaries and benefits were $237.1 million for the year ended December 31, 2021, an increase of $40.3 million, or 20.5%, compared to the prior year. Excluding costs associated with Canada POS Lending, salaries and benefits increased $25.8 million, or 13.1%, primarily due to timing and level of performance-based variable compensation and personnel investments to support Canada Direct Lending growth.
Occupancy costs were $55.6 million for the year ended December 31, 2021, a decrease of $1.7 million, or 3.0%, compared to the prior year. Excluding costs associated with Canada POS Lending, occupancy costs decreased $2.2 million, or 3.9%, primarily due to store closures in the U.S. during the second and third quarters of 2021.
Advertising costs decreased $5.8 million, or 13.0%, year over year, and $7.1 million, or 15.9%, excluding Canada POS Lending. The prior-year period included costs for Verge Installment loans which have since been suspended, as described further in "Segment Analysis" below.
Direct operations were $60.1 million for the year ended December 31, 2021, an increase of $13.2 million, or 28.1%, compared to the prior year. Excluding costs associated with Canada POS Lending, direct operations decreased $1.2 million, or 2.6%, primarily driven by lower collection fees paid in the U.S. due to lower year over year demand and multiple rounds of significant U.S. government stimulus associated with the COVID-19 pandemic.
Depreciation and amortization expense increased $9.5 million, or 54.0%, year over year. Excluding costs associated with Canada POS Lending, depreciation and amortization expense decreased $1.0 million, or 5.6%, primarily driven by our store closures in the U.S. during the second and third quarters of 2021.
Other operating expenses were $74.7 million for the year ended December 31, 2021, an increase of $27.6 million, or 58.7%, compared to the prior year. Excluding costs associated with Canada POS Lending, other operating expenses increased $17.8 million, or 37.9%, primarily due to (i) $13.7 million of transaction costs related to our acquisition of Flexiti in March 2021, our acquisition of Heights in December 2021, and the Katapult and FinServ merger in June 2021, and (ii) $8.8 million of certain restructuring costs related to our second and third quarter 2021 store closures in the U.S.
Other Expense
Interest Expense
Interest expense for the year ended December 31, 2021 increased $24.6 million, or 33.9%, primarily related to (i) interest on debt acquired as part of the acquisition of Flexiti, (ii) higher year-over-year interest on our U.S. SPV, and (iii) interest expense associated with the additional issuance of our 7.50% Senior Secured Notes. An additional $2.1 million of interest was incurred for the year ended December 31, 2021, which represents interest on the 8.25% Senior Secured Notes for the period between July 30, 2021 and August 12, 2021. This is the period during which both the 8.25% Senior Secured Notes and 7.50% Senior Secured Notes were outstanding.
Equity Method Investment
We recognize our share of Katapult’s earnings or loss on a one-quarter lag. Our share of Katapult's earnings was $3.7 million for the year ended December 31, 2021, which included a gain from revaluing Katapult's public and private warrant liability. During the fourth quarter of 2021, we purchased an additional 2.6 million of Katapult's common stock for $10.0 million, which increased our ownership in Katapult from 19.3% to 25.2% on a fully diluted basis assuming full pay-out of the earn-out shares as of December 31, 2021.
On June 9, 2021, Katapult completed its merger with FinServ. As part of the merger, we received cash consideration of $146.9 million and retained ownership through shares after the merger. As of December 31, 2021, our total cash investment in Katapult is $37.6 million.
Loss on Extinguishment of Debt
Loss on extinguishment of debt for the year ended December 31, 2021 of $40.2 million was due to the redemption of the 8.25% Senior Secured Notes.
Provision for Income Taxes
The effective income tax rate for the year ended December 31, 2021 was 26.3%, consistent with the blended federal and state/provincial statutory rate of approximately 26%. The income tax expense includes nondeductible expense items related to the change in fair value of contingent consideration of $1.6 million, and nondeductible transaction costs of $1.2 million, partially offset by proportionally more net income in lower-tax rate jurisdictions, driven by the gain on the Katapult transaction of $146.9 million in the second quarter of 2021 and the loss on extinguishment of debt of $40.2 million in the third quarter of 2021.
Additionally, income tax expense includes the release of a valuation allowance of $0.4 million due to our share of Katapult's income, tax benefits related to share-based compensation of $0.8 million, $0.2 million tax expense of additional Texas accrual for 2020 due to the settlement of 2013 to 2019 Texas returns, and a tax benefit of $0.9 million for the recognition of research and development tax credit.
The effective income tax rate of adjusted tax expense included in Adjusted Net Income for the year ended December 31, 2021 was 23.5%.
Comparison of Consolidated Results of Operations for the Years Ended December 31, 2020 and 2019
For a comparison of our results of operations for the years ended December 31, 2020 and 2019, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Consolidated Results of Operations" in Part II Item 7 of our 2020 Form 10-K.
Segment Analysis
The following is a summary of portfolio performance and results of operations for the segment and period indicated (all periods unaudited except for Q4 2021 and Q4 2020). We report financial results for three reportable segments: US, Canada Direct Lending and Canada POS Lending.
U.S. Portfolio Performance
On December 27, 2021, we acquired Heights which accounted for approximately $472 million of U.S. Installment loans as of December 31, 2021. As the period between December 27, 2021 and December 31, 2021 did not result in material loan performance, we have excluded Heights from the table and related discussion below for the fourth quarter and year ended 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except percentages) | | Q4 2021 | Q3 2021 | Q2 2021 | Q1 2021 | | Q4 2020 | | |
Gross combined loans receivable (1) | | | | | | | | | |
| Revolving LOC | | $ 52,532 | $ 51,196 | $ 47,277 | $ 43,387 | | $ 55,561 | | |
| Installment loans - Company Owned | | 137,782 | 137,987 | 139,234 | 142,396 | | 167,890 | | |
| Total U.S. Company Owned gross loans receivable | | 190,314 | 189,183 | 186,511 | 185,783 | | 223,451 | | |
Installment loans - Guaranteed by the Company (2) | | 46,317 | 43,422 | 37,093 | 32,439 | | 44,105 | | |
Total U.S. gross combined loans receivable (1) | | $ 236,631 | $ 232,605 | $ 223,604 | $ 218,222 | | $ 267,556 | | |
| | | | | | | | | |
| Lending Revenue: | | | | | | | | | |
| Revolving LOC | | $ 27,911 | $ 27,377 | $ 24,091 | $ 26,923 | | $ 31,111 | | |
| Installment loans - Company Owned | | 56,820 | 57,659 | 55,918 | 64,516 | | 68,927 | | |
Installment loans - Guaranteed by the Company (2) | | 47,348 | 43,377 | 34,908 | 41,425 | | 42,972 | | |
| Total U.S. lending revenue | | $ 132,079 | $ 128,413 | $ 114,917 | $ 132,864 | | $ 143,010 | | |
| | | | | | | | | |
| Lending Provision: | | | | | | | | | |
| Revolving LOC | | $ 11,592 | $ 8,140 | $ 6,621 | $ 5,039 | | $ 11,583 | | |
| Installment loans - Company Owned | | 18,618 | 16,792 | 14,048 | 11,159 | | 24,629 | | |
Installment loans - Guaranteed by the Company (2) | | 25,967 | 23,146 | 12,583 | 9,648 | | 22,621 | | |
| Total U.S. lending provision | | $ 56,177 | $ 48,078 | $ 33,252 | $ 25,846 | | $ 58,833 | | |
| | | | | | | | | |
| Lending Net Revenue | | | | | | | | | |
| Revolving LOC | | $ 16,319 | $ 19,237 | $ 17,470 | $ 21,884 | | $ 19,528 | | |
| Installment loans - Company Owned | | 38,202 | 40,867 | 41,870 | 53,357 | | 44,298 | | |
Installment loans - Guaranteed by the Company (2) | | 21,381 | 20,231 | 22,325 | 31,777 | | 20,351 | | |
| Total U.S. lending net revenue | | $ 75,902 | $ 80,335 | $ 81,665 | $ 107,018 | | $ 84,177 | | |
| | | | | | | | | |
| NCOs | | | | | | | | | |
| Revolving LOC | | $ 11,481 | $ 8,329 | $ 7,271 | $ 9,904 | | $ 12,500 | | |
| Installment loans - Company Owned | | 19,664 | 19,548 | 18,617 | 17,313 | | 19,620 | | |
Installment loans - Guaranteed by the Company (2) | | 26,065 | 21,404 | 12,044 | 12,150 | | 21,590 | | |
| Total U.S. NCOs | | $ 57,210 | $ 49,281 | $ 37,932 | $ 39,367 | | $ 53,710 | | |
| | | | | | | | | |
NCO rate (3) | | | | | | | | | |
| Revolving LOC | | 22.1% | 16.9% | 16.0% | 20.0% | | 22.3% | | |
| Installment loans - Company Owned | | 14.3% | 14.1% | 13.2% | 11.2% | | 12.4% | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except percentages) | | Q4 2021 | Q3 2021 | Q2 2021 | Q1 2021 | | Q4 2020 | | |
| Total U.S. Company Owned NCO rate | | 16.4% | 14.8% | 13.9% | 13.3% | | 15.0% | | |
Installment loans - Guaranteed by the Company (2) | | 58.1% | 53.2% | 34.6% | 31.7% | | 51.5% | | |
| Total U.S. NCO rate | | 24.4% | 21.6% | 17.2% | 16.2% | | 21.0% | | |
| | | | | | | | | |
ALL and CSO Liability for Losses (4) | | | | | |
| Revolving LOC | | $ 13,591 | $ 13,480 | $ 13,669 | $ 14,319 | | $ 19,185 | | |
| Installment loans - Company Owned | | 17,445 | 18,491 | 21,246 | 25,815 | | 31,971 | | |
Installment loans - Guaranteed by the Company (2) | | 6,908 | 7,007 | 5,265 | 4,727 | | 7,228 | | |
| Total U.S. ALL and CSO Liability for Losses | | $ 37,944 | $ 38,978 | $ 40,180 | $ 44,861 | | $ 58,384 | | |
| | | | | | | | | |
ALL and CSO Liability for Losses rate (5) | | | | | | | | | |
| Revolving LOC | | 25.9% | 26.3% | 28.9% | 33.0% | | 34.5% | | |
| Installment loans - Company Owned | | 12.7% | 13.4% | 15.3% | 18.1% | | 19.0% | | |
| Total U.S. Company Owned ALL rate | | 16.3% | 16.9% | 18.7% | 21.6% | | 22.9% | | |
Installment loans - Guaranteed by the Company (2) | | 14.9% | 16.1% | 14.2% | 14.6% | | 16.4% | | |
| Total ALL and CSO Liability for Losses rate | | 16.0% | 16.8% | 18.0% | 20.6% | | 21.8% | | |
| | | | | | | | | |
Past-due rate (5) | | | | | | | | | |
| Revolving LOC | | 30.5% | 30.5% | 26.6% | 26.3% | | 30.7% | | |
| Installment loans - Company Owned | | 19.4% | 20.1% | 18.7% | 18.0% | | 19.0% | | |
| Total U.S. Company Owned past-due rate | | 22.5% | 22.9% | 20.7% | 19.9% | | 21.9% | | |
| | | | | | | | | |
Installment loans - Guaranteed by the Company (2) | | 17.7% | 19.8% | 17.4% | 12.8% | | 14.1% | | |
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(1) Non-GAAP measure. For a description of each non-GAAP metric, see "Supplemental Non-GAAP Financial Information." |
| (2) Includes loans originated by third-party lenders through CSO programs. Installment gross loans receivable Guaranteed by the Company are not included in the Consolidated Financial Statements. |
| (3) We calculate NCO rate as total NCOs divided by Average gross loans receivables. |
| (4) We report ALL as a contra-asset reducing gross loans receivable and the CSO Liability for Losses as a liability on the Consolidated Balance Sheets. |
| (5) We calculate (i) ALL and CSO Liability for losses rate and (ii) past-due rate as the respective totals divided by gross loans receivable at each respective quarter end. |
|
U.S. Net Revenue
U.S. revenues, excluding Heights, decreased by $11.3 million, or 7.7%, for the three months ended December 31, 2021 to $135.3 million, compared to the prior-year period, primarily as a result of the COVID-19 Impacts on gross combined loans receivable and Runoff Portfolios due to regulatory changes. See the loan performance discussions below for further details. Excluding Runoff Portfolios, U.S. revenues increased $6.6 million, or 5.4%.
The provision for losses for the three months ended December 31, 2021 decreased $2.2 million, or 3.8%, year over year, primarily as a result of sustained favorable NCO rates and stable past-due rates since the onset of COVID-19. U.S. past-due rates, including for loans Guaranteed by the Company, increased by 90 bps, or 4.5%, year over year, but improved 75 bps, or 3.4%, sequentially. For the three months ended December 31, 2021, the U.S. NCO rate increased 340 bps, or 16.4%, year over year, and increased 280 bps, or 12.9%, sequentially, primarily due to loan growth, and a mix shift in customer and origination channel.
U.S. Revolving LOC loan performance
U.S. Revolving LOC loan balances as of December 31, 2021 decreased $3.0 million, or 5.5%, compared to the prior year, resulting in a related revenue decrease of $3.2 million, or 10.3%, for the three months ended December 31, 2021, primarily due to the runoff of Virginia Revolving LOC loans. Excluding the Runoff Portfolios, U.S. Revolving LOC gross loans receivable increased $3.8 million, or 8.2%, year over year, and related revenue increased $2.0 million, or 8.1%. Sequentially, U.S. Revolving LOC loan balances increased $1.3 million, or 2.6%. The Revolving LOC allowance coverage decreased year over year from 34.5% to 25.9% for the three months ended December 31, 2021. The decrease was due to stable past-due rates, a decline in TDR loans as a percentage of total gross loans receivable and sustained favorable NCO trends during 2021. For the three months ended December 31, 2021, NCO rates improved from 22.3% to 22.1% year over year and past-due rates improved from 30.7% to 30.5%.
U.S. Installment loan performance - Company Owned
U.S. Installment loan balances as of December 31, 2021 decreased $30.1 million, or 17.9%, year over year and revenue decreased $12.1 million, or 17.6%, for the three months ended December 31, 2021, compared to the prior year, primarily due to COVID-19 Impacts and Runoff Portfolios. Excluding the Runoff Portfolios, U.S. Installment loans increased $18.3 million, or 17.9%, year over year, and related revenue increased $0.5 million, or 1.1%. The Installment loans allowance coverage decreased from 19.0% in the prior year to 12.7% as of December 31, 2021, largely due to the aforementioned Runoff Portfolios, stable past-due rates and sustained favorable NCO rates. Sequentially, allowance coverage decreased from 13.4% to 12.7% as a result of lower past-due loans and stable NCOs.
We launched Verge Installment loans originated by Stride Bank in the fourth quarter of 2019 and executed pilot programs in several states. After testing various offers, rates, terms and approval criteria, Stride informed us in the first quarter of 2021 that it planned to focus on near-prime loans as they represented a larger addressable market and offered greater opportunity to scale. As a result, Stride discontinued new Verge Credit loans in April 2021. Verge loan balances totaled $6.2 million as of December 31, 2021. We expect to continue to see an orderly runoff of these balances over approximately the next 15 months.
U.S. Installment loan performance - Guaranteed by the Company
U.S. Installment loans Guaranteed by the Company increased $2.2 million, or 5.0%, year over year and increased $2.9 million, or 6.7%, sequentially. The CSO liability for losses rate decreased from 16.4% to 14.9% year over year due to sustained favorable NCO rates since the onset of COVID-19. Sequentially, the CSO liability for losses coverage decreased from 16.1% to 14.9% for the three months ended December 31, 2021 as a result of lower past-due rates. For the three months ended December 31, 2021, the past-due rate improved sequentially from 19.8% to 17.7%. The NCO rate for U.S. Installment loans Guaranteed by the Company increased 660 bps, or 12.8%, year over year, and increased 490 bps, or 9.3%, sequentially, primarily due to loan growth, and new customer, channel mix and seasonality.
Following is a summary of results of operations for the U.S. segment for the periods indicated.
| | | | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, |
| (dollars in thousands, unaudited) | | | | | | 2021 | 2020 (1) | 2019 (1) | | |
| Revenue | | | | | | $ 525,962 | | $ 638,524 | | $ 913,506 | | | |
| Provision for losses | | | | | | 166,033 | | 230,164 | | 392,105 | | | |
| Net revenue | | | | | | 359,929 | | 408,360 | | 521,401 | | | |
| Operating expenses | | | | | | | | | | |
| Salaries and benefits | | | | | | 170,508 | | 151,344 | | 159,937 | | | |
| Occupancy | | | | | | 32,565 | | 35,814 | | 34,028 | | | |
| Advertising | | | | | | 33,223 | | 40,702 | | 46,735 | | | |
| Direct operations | | | | | | 35,899 | | 39,112 | | 63,933 | | | |
| Depreciation and amortization | | | | | | 12,005 | | 12,992 | | 13,816 | | | |
| Other operating expense | | | | | | 54,508 | | 35,357 | | 38,180 | | | |
| Total operating expenses | | | | | | 338,708 | | 315,321 | | 356,629 | | | |
| Other expense (income) | | | | | | | | | | |
| Interest expense | | | | | | 72,543 | | 63,413 | | 59,325 | | | |
| Income from equity method investment | | | | | | (3,658) | | (4,546) | | 6,295 | | | |
| Gain from equity method investment | | | | | | (135,387) | | — | | — | | | |
| Loss on extinguishment of debt | | | | | | 40,206 | | — | | — | | | |
| Total other expense (income) | | | | | | (26,296) | | 58,867 | | 65,620 | | | |
| Segment operating (loss) income | | | | | | 47,517 | | 34,172 | | 99,152 | | | |
| Interest expense | | | | | | 72,543 | | 63,413 | | 59,325 | | | |
| Depreciation and amortization | | | | | | 12,005 | | 12,992 | | 13,816 | | | |
EBITDA (2) | | | | | | 132,065 | | 110,577 | | 172,293 | | | |
| Restructuring costs | | | | | | 12,717 | | — | | 1,752 | | | |
| Legal and other costs | | | | | | 2,134 | | 2,925 | | 2,566 | | | |
| Income from equity method investment | | | | | | (3,658) | | (4,546) | | 6,295 | | | |
| Gain from equity method investment | | | | | | (135,387) | | — | | — | | | |
| Transaction costs | | | | | | 13,740 | | 2,737 | | 342 | | | |
| Loss on extinguishment of debt | | | | | | 40,206 | | — | | — | | | |
| Share-based compensation | | | | | | 13,611 | | 12,910 | | 10,323 | | | |
| U.K. related costs | | | | | | — | | — | | 8,844 | | | |
| Other adjustments | | | | | | (880) | | (58) | | (184) | | | |
Adjusted EBITDA (2) | | | | | | $ 74,548 | | $ 124,545 | | $ 202,231 | | | |
| |
| (1) The December 31, 2020 and 2019 presentation has been revised to conform to the current period presentation. |
(2) These are non-GAAP metrics. For a description of each non-GAAP metric, see "Supplemental Non-GAAP Financial Information." |
| | | | | | | | | | |
Comparison of U.S. Segment Results of Operations for the Years Ended December 31, 2021 and 2020
U.S. revenues decreased $112.6 million, or 17.6%, compared to the prior-year period for the year ended December 31, 2021, as a result of decreases in combined gross loans receivable from COVID-19 Impacts and the Runoff Portfolios. Excluding the impact of Runoff Portfolios, U.S. revenues decreased $49.3 million, or 9.5%, as a result of lower consumer demand, driven by COVID-19 Impacts.
The provision for losses decreased $64.1 million, or 27.9%, for the year ended December 31, 2021, compared to the prior-year period, primarily as a result of (i) lower year-over-year demand, excluding Heights, (ii), sustained favorable lower NCO rates since the onset of COVID-19 and (iii) continued improved credit quality.
Operating expenses were $338.7 million for the year ended December 31, 2021, an increase of $23.4 million, or 7.4%, compared to $315.3 million for the year ended December 31, 2020, primarily driven by (i) $13.7 million of transaction costs related to our acquisition of Flexiti in March 2021, our acquisition of Heights in December 2021, and the Katapult and FinServ merger in June 2021, (ii) $12.7 million of store closure costs as previously discussed, and (iii) $0.7 million of higher share-based compensation expense compared to the prior year. Excluding these costs, operating expenses for the year ended December 31, 2021 decreased $2.8 million, or 0.9%, compared to the prior year.
U.S. interest expense for the year ended December 31, 2021 increased $9.1 million, or 14.4%, primarily related to interest on the additional 7.50% Senior Secured Notes issued in conjunction with our Heights acquisition and $5.0 million of interest on our U.S. SPV compared to prior year as the facility was entered into in April 2020. An additional $2.1 million of interest was incurred for the year ended December 31, 2021, which represents interest on the 8.25% Senior Secured Notes for the period between July 30, 2021 and August 12, 2021. This is the period during which both the 8.25% Senior Secured Notes and 7.50% Senior Secured Notes were outstanding.
As previously described, we recognize our share of Katapult’s income or loss on a one-quarter lag and recorded income of $3.7 million for the year ended December 31, 2021. As a result of the merger between Katapult and FinServ, which closed during the second quarter of 2021, we recorded an additional gain of $135.4 million during the year ended December 31, 2021, which represents cash we received, net of the basis of our investment in Katapult. During the fourth quarter of 2021, we purchased an additional 2.6 million of Katapult's common stock for $10.0 million, which increased our ownership in Katapult from 19.3% to 25.2% on a fully diluted basis assuming full pay-out of earn-out shares as of December 31, 2021.
Loss on extinguishment of debt of $40.2 million for the year ended December 31, 2021 was due to the redemption of the 8.25% Senior Secured Notes due 2025.
Comparison of U.S. Segment Results of Operations for the Years Ended December 31, 2020 and 2019
For a comparison of our U.S. segment results of operations for the years ended December 31, 2020 and 2019, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Segment Analysis" in Part II Item 7 of our 2020 Form 10-K.
Canada Direct Lending and Canada POS Lending Portfolio Performance
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except percentages) | | Q4 2021 | Q3 2021 | Q2 2021 | Q1 2021 | | Q4 2020 | | |
| Gross loans receivable | | | | | | | | | |
| Canada Direct Lending Revolving LOC | | $ 402,405 | $ 366,509 | $ 337,700 | $ 319,307 | | $ 303,323 | | |
| Canada Direct Lending Installment loans | | 24,792 | 24,315 | 23,564 | 24,385 | | 26,948 | | |
| Total Canada Direct Lending gross loans receivable | | $ 427,197 | $ 390,824 | $ 361,264 | $ 343,692 | | $ 330,271 | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Total Canada POS Lending gross loans receivable | | 459,176 | 302,349 | $ 221,453 | $ 201,539 | | $ — | | |
| | | | | | | | | |
| Lending Revenue: | | | | | | | | | |
| Canada Direct Lending Revolving LOC | | $ 43,943 | $ 40,239 | $ 37,450 | $ 34,368 | | $ 31,962 | | |
| Canada Direct Lending Installment loans | | 11,416 | 11,331 | 10,541 | 10,447 | | 11,106 | | |
| Total Canada Direct Lending - lending revenue | | $ 55,359 | $ 51,570 | $ 47,991 | $ 44,815 | | $ 43,068 | | |
| | | | | | | | | |
| Canada POS Lending - lending revenue | | $ 13,704 | $ 10,646 | $ 6,495 | $ 1,383 | | $ — | | |
| | | | | | | | | |
| Lending Provision: | | | | | | | | | |
| Canada Direct Lending Revolving LOC | | $ 20,080 | $ 11,375 | $ 7,066 | $ 7,909 | | $ 8,679 | | |
| Canada Direct Lending Installment loans | | 2,945 | 2,512 | 1,438 | 1,234 | | 1,972 | | |
| Total Canada Direct Lending - lending provision | | $ 23,025 | $ 13,887 | $ 8,504 | $ 9,143 | | $ 10,651 | | |
| | | | | | | | | |
| Canada POS Lending - lending provision | | $ 12,511 | $ 8,285 | $ 2,986 | $ 855 | | $ — | | |
| | | | | | | | | |
| Lending Net Revenue | | | | | | | | | |
| Canada Direct Lending Revolving LOC | | $ 23,863 | $ 28,864 | $ 30,384 | $ 26,459 | | $ 23,283 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except percentages) | | Q4 2021 | Q3 2021 | Q2 2021 | Q1 2021 | | Q4 2020 | | |
| Canada Direct Lending Installment loans | | 8,471 | 8,819 | 9,103 | 9,213 | | 9,134 | | |
| Total Canada Direct Lending - lending net revenue | | $ 32,334 | $ 37,683 | $ 39,487 | $ 35,672 | | $ 32,417 | | |
| | | | | | | | | |
| Canada POS Lending - lending net revenue | | $ 1,193 | $ 2,361 | $ 3,509 | $ 528 | | $ — | | |
| | | | | | | | | |
| NCOs | | | | | | | | | |
| Canada Direct Lending Revolving LOC | | $ 15,112 | $ 9,887 | $ 10,838 | $ 11,097 | | $ 8,907 | | |
| Canada Direct Lending Installment loans | | 2,758 | 2,444 | 1,513 | 1,669 | | 2,060 | | |
| Total Canada Direct Lending NCOs | | $ 17,870 | $ 12,331 | $ 12,351 | $ 12,766 | | $ 10,967 | | |
| | | | | | | | | |
Canada POS Lending NCOs (1) | | $ 1,731 | $ 1,827 | $ 1,509 | $ 213 | | $ — | | |
| | | | | | | | | |
NCO rate (2) | | | | | | | | | |
| Canada Direct Lending Revolving LOC | | 3.9% | 2.8% | 3.3% | 3.6% | | 3.1% | | |
| Canada Direct Lending Installment loans | | 11.2% | 10.2% | 6.3% | 6.5% | | 7.7% | | |
| Total Canada Direct Lending NCO rate | | 4.4% | 3.3% | 3.5% | 3.8% | | 3.5% | | |
| | | | | | | | | |
| Canada POS Lending NCO rate | | 0.5% | 0.7% | 0.7 | % | NM (3) | | —% | | |
| | | | | | | | | |
ALL (4) | | | | | | | | | |
| Canada Direct Lending Revolving LOC | | $ 32,360 | $ 27,429 | $ 26,602 | $ 29,916 | | $ 32,773 | | |
| Canada Direct Lending Installment loans | | 1,975 | 1,790 | 1,767 | 1,819 | | 2,233 | | |
| Total Canada Direct Lending ALL | | $ 34,335 | $ 29,219 | $ 28,369 | $ 31,735 | | $ 35,006 | | |
| | | | | | | | | |
Canada POS Lending ALL (5) | | $ 22,189 | $ 11,353 | $ 4,577 | $ 519 | | $ — | | |
| | | | | | | | | |
ALL rate (6) | | | | | | | | | |
| Canada Direct Lending Revolving LOC | | 8.0 | % | 7.5 | % | 7.9 | % | 9.4 | % | | 10.8 | % | | |
| Canada Direct Lending Installment loans | | 8.0 | % | 7.4 | % | 7.5 | % | 7.5 | % | | 8.3 | % | | |
| Total Canada Direct Lending ALL rate | | 8.0 | % | 7.5 | % | 7.9 | % | 9.2 | % | | 10.6 | % | | |
| | | | | | | | | |
| Canada POS Lending ALL rate | | 4.8 | % | 3.8 | % | 2.1 | % | 0.3 | % | | — | % | | |
| | | | | | | | | |
Past-due rate (6) | | | | | | | | | |
| Canada Direct Lending Revolving LOC | | 8.9 | % | 6.8 | % | 5.8 | % | 6.4 | % | | 6.8 | % | | |
| Canada Direct Lending Installment loans | | 2.2 | % | 2.0 | % | 2.3 | % | 2.1 | % | | 2.1 | % | | |
| Total Canada Direct Lending past-due rate | | 8.5 | % | 6.5 | % | 5.5 | % | 6.1 | % | | 6.4 | % | | |
| | | | | | | | | |
Canada POS Lending past-due rate (7) | | 4.1 | % | 4.8 | % | 5.4 | % | 5.7 | % | | — | % | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| (1) For the second, third and fourth quarters of 2021, NCOs presented above include $2.4 million, $0.6 million and $0.8 million, respectively, of NCO's related to the fair value discount, which are excluded from provision. |
| (2) We calculate NCO rate as total NCOs divided by Average gross loans receivables. |
| (3) Not material or not meaningful. |
| (4) We report ALL as a contra-asset reducing gross loans receivable on the Consolidated Balance Sheets. |
| (5) Loans originated pre-acquisition have been adjusted to fair value at the acquisition date and included estimates of future losses. The ALL represents estimated incurred losses for loans originated after acquisition plus incurred losses for acquired loans in excess of the remaining fair value discount. |
| (6) We calculate ALL rate and past-due rate as the respective totals divided by gross loans receivable at each respective quarter end. |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except percentages) | | Q4 2021 | Q3 2021 | Q2 2021 | Q1 2021 | | Q4 2020 | | |
| (7) The past-due rate for Canada POS Lending for loans 30+ days past-due were 1.9%, 2.1%, 2.6% and 3.0% for the three months ended December 31, 2021, September 30, 2021, June 30, 2021 and March 31, 2021, respectively. | | |
|
|
Canada Direct Lending Net Revenue
Canada Direct Lending revenue increased year over year by $15.0 million, or 27.1%, ($12.7 million, or 23.0%, on a constant currency basis), for the three months ended December 31, 2021, due to the growth of Revolving LOC loans in Canada. Sequentially, Canada Direct Lending revenue increased $4.3 million, or 6.6%.
The provision for losses increased $12.5 million, or 116.4%, ($11.8 million, or 109.7%, on a constant currency basis), to $23.2 million for the three months ended December 31, 2021, compared to $10.7 million in the prior-year period. The increase in provision for losses was primarily due to higher past-due rates, which increased from 6.4% to 8.5% year over year. NCO rates increased from 3.5% to 4.4% year over year and increased from 3.3% to 4.4% sequentially due to new customer, channel mix and seasonality. Although NCOs increased from December 31, 2020 to December 31, 2021, NCO rates have remained stable since the onset of COVID-19, resulting in an allowance coverage decrease year over year of 250 bps, or 24.2%.
Canada Direct Lending Revolving LOC loan performance
Canada Direct Lending Revolving LOC gross loans receivable increased $99.1 million, or 32.7%, ($99.9 million, or 32.9%, on a constant currency basis) year over year and $35.9 million, or 9.8% ($36.1 million, or 9.9%, on a constant currency basis), sequentially. Revolving LOC revenue increased $12.0 million, or 37.5%, year over year and $3.7 million, or 9.2%, sequentially ($10.5 million, or 33.0%, and $3.7 million, or 9.3%, respectively, on a constant currency basis). The quarterly NCO rate increased by 80 bps, or 25.5%, year-over-year and 110 bps, or 40.0%, sequentially due to new customer, channel mix and seasonality. Although NCOs increased from December 31, 2020 to December 31, 2021, NCO rates have remained stable since the onset of COVID-19, resulting in an allowance coverage decrease year over year from 10.8% to 8.0% as of December 31, 2021.
Canada Direct Lending Installment loan performance
Canada Direct Lending Installment revenue increased $0.3 million, or 2.8%, (a decrease of $0.1 million, or 0.6%, on a constant currency basis) year over year. Installment gross loans receivable decreased $2.2 million, or 8.0% ($2.1 million, or 7.8%, on a constant currency basis) year over year. The year-over-year decrease in Installment loans was due to a continued shift to Revolving LOC loans, as well as COVID-19 related constraints on demand, particularly as related to store-originated Installment loans. The Installment allowance coverage decreased year over year from 8.3% to 8.0% primarily as a result of lower sustained NCOs since the onset of COVID-19 and stable past-due rates. The year-over-year past-due rate for Installment loans improved by 15 bps, or 8.1%. Sequentially, Installment gross loans receivable and related revenue remained consistent.
Canada POS Lending Revolving LOC loan performance
Canada POS Lending Revolving LOC gross loans receivable as of December 31, 2021 was $459.2 million, including a discount of $2.3 million related to purchase accounting adjustments ($461.5 million prior to purchase accounting adjustments). For the three months ended December 31, 2021, Canada POS Lending revenue was $14.8 million, net of a $1.7 million reduction from acquisition-related adjustments for the period. For a full discussion of the purchase accounting and acquisition-related adjustments, refer to "Consolidated Revenue by Product and Segment" above.
For the three months ended December 31, 2021, allowance coverage was 4.8%, up sequentially from 3.8%. Excluding acquisition-related adjustments, allowance coverage was 5.3%, down sequentially from 5.5%, primarily due to sustained favorable NCO trends. Revolving LOC gross loans receivable generally charge-off at 180 days past due. NCOs were $1.7 million for the three months ended December 31, 2021. The Canada POS Lending NCO and past-due rates for the quarter were 0.5% and 4.1%, respectively, down sequentially from 0.7% and 4.8%, respectively.
Originations for the three months ended December 31, 2021 were C$322.1 million, an increase of C$200.8 million, or 165.6%, from the prior-year period of C$121.3 million. Sequentially, Canada POS Revolving LOC gross loans receivable increased $156.8 million, or 51.9%.
Canada Direct Lending Results of Operations
| | | | | | | | | | | | | | | | | | |
| | | For the Year Ended December 31, |
| (dollars in thousands, unaudited) | | | | | | 2021 | 2020 (1) | 2019 (1) | | |
| Revenue | | | | | | $ 257,039 | | $ 208,872 | | $ 228,291 | | | |
| Provision for losses | | | | | | 54,997 | | 58,647 | | 76,446 | | | |
| Net revenue | | | | | | 202,042 | | 150,225 | | 151,845 | | | |
| Operating expenses | | | | | | | | | | |
| Salaries and benefits | | | | | | 52,118 | | 45,473 | | 46,256 | | | |
| Occupancy | | | | | | 22,482 | | 21,457 | | 20,867 | | | |
| Advertising | | | | | | 4,267 | | 3,850 | | 6,663 | | | |
| Direct operations | | | | | | 9,777 | | 7,781 | | 9,635 | | | |
| Depreciation and amortization | | | | | | 4,505 | | 4,506 | | 4,814 | | | |
| Other operating expense | | | | | | 10,364 | | 11,691 | | 9,869 | | | |
| Total operating expenses | | | | | | 103,513 | | 94,758 | | 98,104 | | | |
| Other expense | | | | | | | | | | |
| Interest expense | | | | | | 9,798 | | 9,296 | | 10,438 | | | |
| Total other expense | | | | | | 9,798 | | 9,296 | | 10,438 | | | |
| Segment operating income | | | | | | 88,731 | | 46,171 | | 43,303 | | | |
| Interest expense | | | | | | 9,798 | | 9,296 | | 10,438 | | | |
| Depreciation and amortization | | | | | | 4,505 | | 4,506 | | 4,814 | | | |
EBITDA (2) | | | | | | 103,034 | | 59,973 | | 58,555 | | | |
| Legal and other costs | | | | | | — | | — | | 135 | | | |
| Share-based compensation | | | | | | 365 | | — | | — | | | |
| Canada GST adjustment | | | | | | — | | 2,160 | | — | | | |
| Other adjustments | | | | | | 444 | | 685 | | 211 | | | |
Adjusted EBITDA (2) | | | | | | $ 103,843 | | $ 62,818 | | $ 58,901 | | | |
| | | | | | | | |
| (1) The December 31, 2020 and 2019 presentations have been revised to conform to the current period presentation. |
(2) These are non-GAAP metrics. For a description of each non-GAAP metric, see "Supplemental Non-GAAP Financial Information." |
Comparison of Canada Direct Lending Segment Results of Operations for the Years Ended December 31, 2021 and 2020
Canada Direct Lending revenue increased $48.2 million, or 23.1%, ($31.6 million, or 15.1%, on a constant currency basis), to $257.0 million for the year ended December 31, 2021, from $208.9 million in the prior year, primarily due to higher consumer demand as COVID-19 Impacts lessened. Canada Direct Lending Revolving LOC gross loans receivable grew $99.1 million, or 32.7%, year over year, contributing to related revenue growth of $40.9 million, or 35.6%, for the year ended December 31, 2021 compared to the prior year.
The provision for losses decreased $3.7 million, or 6.2%, ($7.0 million, or 12.0% on a constant currency basis), to $55.0 million for the year ended December 31, 2021, compared to $58.6 million in the prior year. The decrease in provision for losses was the result of sustained lower NCOs since the onset of COVID-19 and the related impact of changes in allowance coverage due to an increase in credit quality for Revolving LOC loans. Refer to "Canada Direct Lending and Canada POS Lending Portfolio Performance" above for additional details on quarterly loss and allowance rates.
Canada Direct Lending operating expenses for the year ended December 31, 2021 were $103.5 million, an increase of $8.8 million, or 9.2%, ($2.1 million, or 2.2%, on a constant currency basis), compared to $94.8 million for the year ended December 31, 2020, primarily related to (i) the timing and level of performance-based variable compensation, (ii) higher store operating costs as the prior year was impacted by COVID-19 store closures, and (iii) higher variable costs, primarily collection and financial service fees, on higher volume year over year.
Canada Direct Lending other expense for the year ended December 31, 2021 was $9.8 million, an increase of $0.5 million, or 5.4%, for the year ended December 31, 2020, primarily due to higher borrowings on the Canada SPV. During the fourth quarter of 2021, we increased the capacity of the Canada SPV from C$175.0 million to C$350.0 million.
Comparison of Canada Segment Results of Operations for the Years Ended December 31, 2020 and 2019
For a comparison of our Canada segment results of operations for the years ended December 31, 2020 and 2019, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Segment Analysis" in Part II Item 7 of our 2020 Form 10-K.
Canada POS Lending Results of Operations
| | | | | | | | | | | | | |
| | | For the Year Ended December 31, |
| (dollars in thousands, unaudited) | | | | | | 2021 | | | |
| Revenue | | | | | | $ 34,842 | | | | |
| Provision for losses | | | | | | 24,638 | | | | |
| Net revenue | | | | | | 10,204 | | | | |
| Operating expenses | | | | | | | | | |
| Salaries and benefits | | | | | | 14,483 | | | | |
| Occupancy | | | | | | 512 | | | | |
| Advertising | | | | | | 1,272 | | | | |
| Direct operations | | | | | | 14,380 | | | | |
| Depreciation and amortization | | | | | | 10,445 | | | | |
| Other operating expense | | | | | | 9,810 | | | | |
| Total operating expenses | | | | | | 50,902 | | | | |
| Other expense | | | | | | | | | |
| Interest expense | | | | | | 14,993 | | | | |
| Total other expense | | | | | | 14,993 | | | | |
| Segment operating loss | | | | | | (55,691) | | | | |
| Interest expense | | | | | | 14,993 | | | | |
| Depreciation and amortization | | | | | | 10,445 | | | | |
EBITDA (1) | | | | | | (30,253) | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Acquisition-related adjustments | | | | | | 13,949 | | | | |
| Change in fair value of contingent consideration | | | | | | 6,209 | | | | |
| Other adjustments | | | | | | (51) | | | | |
Adjusted EBITDA (1) | | | | | | ($ 10,146) | | | | |
(1) These are non-GAAP metrics. For a description of each non-GAAP metric, see "Supplemental Non-GAAP Financial Information." |
Canada POS Lending Segment Results - For the Year Ended December 31, 2021
Canada POS Lending revenue includes revenue from merchant discounts and ancillary products. MDR represents the discount merchant partners provide to help facilitate customer purchases at merchant locations. The fee is recognized over the estimated average loan term of 12 months. Ancillary revenue includes administrative fees, annual fees, insurance product fees and other fees charged to customers.
For the year ended December 31, 2021, Canada POS Lending revenue was $34.8 million, which included a $7.5 million reduction as a result of acquisition-related adjustments. For a full discussion of acquisition-related adjustments, refer to "Consolidated Revenue by Product and Segment" earlier within this 2021 Form 10-K.
Provision for losses for the year ended December 31, 2021 was $24.6 million, which included a $6.4 million increase as a result of acquisition-related adjustments. Refer to "Canada Direct Lending and Canada POS Lending Portfolio Performance," above for additional details on quarterly loss and allowance rates.
Supplemental Non-GAAP Financial Information
Use of Non-GAAP Financial Measures
In addition to the financial information prepared in conformity with U.S. GAAP, we provide certain “non-GAAP financial measures,” including:
•Adjusted Net Income and Adjusted Earnings Per Share (net income from continuing operations plus or minus certain legal and other costs, income or loss from equity method investment, goodwill and intangible asset impairments, transaction-related costs, restructuring costs, loss on extinguishment of debt, adjustments related to acquisition accounting, certain costs related to the disposition of U.K., share-based compensation, intangible asset amortization, certain tax adjustments and impacts from tax law changes and cumulative tax effect of applicable adjustments, on a total and per share basis);
•EBITDA (net income from continuing operations before interest, income taxes, depreciation and amortization);
•Adjusted EBITDA (EBITDA plus or minus certain non-cash and other adjusting items);
•Adjusted effective income tax rate (effective tax rate plus or minus certain non-cash and other adjusting items); and
•Gross Combined Loans Receivable (includes loans originated by third-party lenders through CSO programs which are not included in our Consolidated Financial Statements).
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 offer another way to view aspects of our business that, when viewed with our U.S. 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 Adjusted Net Income, Adjusted Earnings per Share, EBITDA and Adjusted EBITDA, to assess operating performance and that such measures may highlight trends in the business that may not otherwise be apparent when relying on financial measures calculated in accordance with U.S. 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 Adjusted Net Income, Adjusted Earnings per Share, EBITDA and Adjusted EBITDA are frequently used by securities analysts, investors and other interested parties in the evaluation of public companies in our industry, many of which present Adjusted Net Income, Adjusted Earnings per Share, EBITDA and/or Adjusted EBITDA when reporting their results.
We provide non-GAAP financial information for informational purposes and to enhance understanding of the U.S. GAAP Consolidated Financial Statements. Adjusted Net Income, Adjusted Earnings per Share, EBITDA, Adjusted EBITDA and Gross Combined Loans Receivable should not be considered as alternatives to income from continuing operations, segment operating income, 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. Readers should consider the information in addition to, but not instead of or superior to, the financial statements prepared in accordance with U.S. GAAP. In addition, the non-GAAP financial measures presented in this 2021 Form 10-K 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
Adjusted Net Income, Adjusted Earnings per Share, EBITDA and Adjusted EBITDA 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 cash expenditures or future requirements for capital expenditures or contractual commitments;
•they do not include changes in, or cash requirements for, working capital needs;
•they do not include the interest expense, or the cash requirements, necessary to service interest or principal payments on debt;
•depreciation and amortization are non-cash expense items reported in the statements of cash flows; and
•other companies in our industry may calculate these measures differently, limiting their usefulness as comparative measures.
We calculate Adjusted Earnings per Share utilizing diluted shares outstanding at year-end. If we record a loss from continuing operations under U.S. GAAP, shares outstanding utilized to calculate Diluted Earnings per Share from continuing operations are equivalent to basic shares outstanding. Shares outstanding utilized to calculate Adjusted Earnings per Share from continuing operations reflect the number of diluted shares we would have reported if reporting net income from continuing operations under U.S. GAAP.
Gross Combined Loans Receivable includes loans originated by third-party lenders through CSO programs which are not included in the Consolidated Financial Statements but from which we earn revenue and for which we provide a guarantee to the lender. Management believes this analysis provides investors with important information needed to evaluate overall lending performance.
Reconciliation of Net income from continuing operations and Diluted Earnings per Share from continuing operations to Adjusted Net Income and Adjusted Diluted Earnings per Share, non-GAAP measures (in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 | | | | | | |
| Net income from continuing operations | $ 59,334 | | $ 74,448 | | $ 103,898 | | | | | | |
| Adjustments: | | | | | | | | | | | |
Restructuring costs (1) | 12,717 | | 510 | | 1,752 | | | | | | |
Legal and other costs (2) | 2,134 | | 2,415 | | 2,701 | | | | | | |
(Income) loss from equity method investment (3) | (3,658) | | (4,546) | | 6,295 | | | | | | |
Gain from equity method investment (4) | (135,387) | | — | | — | | | | | | |
Transaction costs (5) | 15,406 | | 2,737 | | 342 | | | | | | |
Acquisition-related adjustments (6) | 13,949 | | — | | — | | | | | | |
Change in fair value of contingent consideration (7) | 6,209 | | — | | — | | | | | | |
Loss on extinguishment of debt (8) | 42,262 | | — | | — | | | | | | |
Share-based compensation (9) | 13,976 | | 12,910 | | 10,323 | | | | | | |
U.K. related costs (10) | — | | — | | 8,844 | | | | | | |
Intangible asset amortization (11) | 6,282 | | 2,951 | | 2,884 | | | | | | |
Canada GST adjustment (12) | — | | 2,160 | | — | | | | | | |
Income tax valuations (13) | — | | (3,472) | | — | | | | | | |
Impact of tax law changes (14) | — | | (11,251) | | — | | | | | | |
Cumulative tax effect of adjustments (15) | 8,455 | | (4,534) | | (6,980) | | | | | | |
| Adjusted Net Income | $ 41,679 | | $ 74,328 | | $ 130,059 | | | | | | |
| | | | | | | | | | | |
| Net income from continuing operations | $ 59,334 | | $ 74,448 | | $ 103,898 | | | | | | |
| Diluted Weighted Average Shares Outstanding | 43,143 | | 42,091 | | 45,974 | | | | | | |
Diluted Earnings per Share from continuing operations | $ 1.38 | | $ 1.77 | | $ 2.26 | | | | | | |
Per Share impact of adjustments to Net Income | (0.41) | | — | | 0.57 | | | | | | |
| Adjusted Diluted Earnings per Share | $ 0.97 | | $ 1.77 | | $ 2.83 | | | | | | |
Note: Footnotes follow Reconciliation of Adjusted EBITDA table below. |
Reconciliation of Net income from continuing operations to EBITDA and Adjusted EBITDA, non-GAAP measures (in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 | | | | | | |
| Net income from continuing operations | $ 59,334 | | $ 74,448 | | $ 103,898 | | | | | | |
| Provision for income taxes | 21,223 | | 5,895 | | 38,557 | | | | | | |
| Interest expense | 97,334 | | 72,709 | | 69,763 | | | | | | |
| Depreciation and amortization | 26,955 | | 17,498 | | 18,630 | | | | | | |
| EBITDA | 204,846 | | 170,550 | | 230,848 | | | | | | |
Restructuring costs (1) | 12,717 | | 510 | | 1,752 | | | | | | |
Legal and other costs (2) | 2,134 | | 2,415 | | 2,701 | | | | | | |
(Income) loss from equity method investment (3) | (3,658) | | (4,546) | | 6,295 | | | | | | |
Gain from equity method investment (4) | (135,387) | | — | | — | | | | | | |
Transaction costs (5) | 13,740 | | 2,737 | | 342 | | | | | | |
Acquisition-related adjustments (6) | 13,949 | | — | | — | | | | | | |
Change in fair value of contingent consideration (7) | 6,209 | | — | | — | | | | | | |
Loss on extinguishment of debt (8) | 40,206 | | — | | — | | | | | | |
Share-based compensation (9) | 13,976 | | 12,910 | | 10,323 | | | | | | |
U.K. related costs (10) | — | | — | | 8,844 | | | | | | |
Canada GST (12) | — | | 2,160 | | — | | | | | | |
Other adjustments (16) | (487) | | 627 | | 27 | | | | | | |
| Adjusted EBITDA | $ 168,245 | | $ 187,363 | | $ 261,132 | | | | | | |
| Adjusted EBITDA Margin | 20.6% | | 22.1% | | 22.9% | | | | | | |
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| (1) | Restructuring costs for the year ended December 31, 2021 resulted from U.S. store closures and consisted of (i) severance costs for store employees, (ii) lease termination costs, and (iii) accelerated depreciation, partially offset by the net write-off of ROU assets and lease liabilities.
Restructuring costs for the year ended December 31, 2020 related to severance costs for certain corporate employees of $0.5 million.
Restructuring costs for the year ended December 31, 2019 related to eliminating 121 positions in North America. |
| (2) | Legal and other costs for the year ended December 31, 2021 primarily related to fees incurred in certain legal matters in which CURO was the plaintiff. No further costs are expected for that case.
Legal and other costs for the year ended December 31, 2020 included (i) settlement costs related to certain legal matters (ii) costs for certain securities litigation and related matters and (iii) severance costs for certain corporate employees separate from restructuring costs.
Legal and other costs for the year ended December 31, 2019 included (i) costs related to certain securities litigation and related matters of $2.5 million and (ii) legal and advisory costs of $0.3 million related to the repurchase of shares from FFL. |
| (3) | The amount reported is our share of Katapult's U.S. GAAP net income or loss. Refer to "Consolidated Results of Operations" for additional details. |
| (4) | During the year ended December 31, 2021, we recorded an additional gain on our investment in Katapult of $135.4 million. The gain represents cash we received, net of the basis of our investment in Katapult, upon the completion of the business combination between Katapult and FinServ. |
| (5) | Transaction costs for the year ended December 31, 2021 in determining Adjusted EBITDA and Adjusted Net Income relate to (i) our Heights acquisition in December 2021, (ii) our Flexiti acquisition in March 2021, and (iii) the Katapult and FinServ business combination in June 2021. Transaction costs in determining ANI for the year ended December 31, 2021 also included prepayment fees of $1.7 million for our Flexiti SPE in connection to the signing of the Flexiti Securitization in December 2021.
Transaction costs for the year ended December 30, 2020 relate to the acquisition of Ad Astra and legal and advisory costs related to the Flexiti acquisition.
Transaction costs for the year ended December 30, 2019 relate to the acquisition of Ad Astra. |
| (6) | Acquisition-related costs for the year ended December 31, 2021, relate to the acquired Flexiti loan portfolio as of March 10, 2021. Refer to "Consolidated Revenue by Product and Segment" for additional details. |
| (7) | In connection with our acquisition of Flexiti, we recorded a $6.2 million adjustment related to the fair value of the contingent consideration for the year ended December 31, 2021. |
| (8) | On July 30, 2021, we entered into new 7.50% Senior Secured Notes due 2028, which were used on August 12, 2021 to extinguish the 8.25% Senior Secured Notes due 2025. During the year ended December 31, 2021, $40.2 million from the loss on the extinguishment of debt in determining Adjusted EBITDA was due to the early redemption of the 8.25% Senior Secured Notes due 2025. An additional $2.1 million of interest was incurred for the year ended December 31, 2021 in determining Adjusted Net income, which represents interest on the 8.25% Senior Secured Notes due 2025 for the period between July 30, 2021 and August 12, 2021. This is the period during which the 8.25% Senior Secured Notes and 7.50% Senior Secured Notes were both outstanding. |
| (9) | The estimated fair value of share-based awards was recognized as non-cash compensation expense on a straight-line basis over the vesting period. |
| (10) | U.K. related costs of $8.8 million for the year ended December 31, 2019 relate to placing the U.K. subsidiaries into administration on February 25, 2019, which included $7.6 million to obtain consent from the holders of the 8.25% Senior Secured Notes to deconsolidate the U.K. Segment and $1.2 million for other costs. |
| (11) | The amortization expense on intangible assets is recognized on a straight-line basis over the life of the intangible asset. For the year ended December 31, 2021, intangible asset amortization primarily included amortization of identifiable intangible assets established in connection with the acquisition of Flexiti for the year ended December 31, 2021. . |
| (12) | We received a Notice of Adjustment from Canadian tax authority auditors in the second quarter 2020 related to the treatment of certain expenses in prior years for purposes of calculating the GST due. |
| (13) | During the year ended December 31, 2020, a Texas court ruling related to the apportionment of income to the state for an unrelated company resulted in a change in estimate regarding the realization of a tax benefit previously taken. Accordingly, we recorded a $1.1 million liability for our estimated exposure related to this position, which was settled in April 2021. Also in the year ended December 31, 2020, we released a $4.6 million valuation allowance related to NOLs for certain entities in Canada. |
| (14) | On March 27, 2020, the CARES Act was enacted by the U.S. Federal government in response to the COVID-19 pandemic. The CARES Act, among other things, allows NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. For the year ended December 31, 2020, we recorded an income tax benefit of $11.3 million related to the carryback of NOL from tax years 2018 and 2019. |
| (15) | Cumulative tax effect of adjustments included in Reconciliation of Net income from continuing operations Adjusted Net Income table is calculated using the estimated incremental tax rate by country. |
| (16) | Other adjustments primarily reflect the intercompany foreign-currency exchange impact. |
Currency Information
We operate in the U.S. and Canada and our consolidated results are reported in U.S. dollars.
Changes in our reported revenues and net income include the effect of changes in currency exchange rates. We translate all balance sheet accounts into U.S. dollars at the currency exchange rate in effect at the end of each period. We translate the statement of operations at the average rates of exchange for the period. We record currency translation adjustments as a component of Accumulated Other Comprehensive Income in Stockholders’ Equity.
Constant Currency Analysis
For the years ended December 31, 2021 and 2020, approximately 35.7% and 24.6%, respectively, of our revenues were originated in Canadian Dollars. As a result, changes in our reported results include the impacts of changes in the foreign currency exchange rates for the Canadian Dollar.
Income Statement
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| | | Year Ended December 31, | | Year Ended December 31, |
| | | | | | | 2021 | 2020 | | | % Change | | 2020 | 2019 | | % Change |
| Average Exchange Rates for the Canadian Dollar | | | | | | | $ 0.7979 | | $ 0.7462 | | | | 6.9 | % | | $ 0.7462 | | $ 0.7539 | | | (1.0) | % |
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Balance Sheet - Exchange Rate as of December 31, 2021 and 2020
| | | | | | | | | | | | | | | | | |
| December 31, | | Change |
| 2021 | 2020 | | $ | % |
| Exchange Rate for the Canadian Dollar | $ 0.7846 | | $ 0.7863 | | | ($0.0017) | | (0.2) | % |
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The following constant currency analysis removes the impact of the fluctuation in foreign exchange rates and utilizes constant currency results in our analysis of the Canada Direct Lending segment performance. The fluctuation in foreign exchange rates between March 10, 2021, the date we acquired Flexiti, and December 31, 2021 was minimal and thus the constant currency impact on our Canada POS Lending segment was not material. Our constant currency assessment assumes foreign exchange rates in the current fiscal periods remained the same as in the prior fiscal periods. All conversion rates below are based on the U.S. Dollar equivalent to the Canadian Dollar. We believe that the constant currency assessment below is a useful measure in assessing the comparable growth and profitability of our operations.
For our Canada Direct Lending segment, we calculated the revenues, net revenue and segment operating income below for the year ended December 31, 2021 using the actual average exchange rate for the year ended December 31, 2020 (in thousands).
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| Year Ended December 31, | | Change |
| 2021 | | 2020 | | $ | | % |
| Canada Direct Lending - constant currency basis: | | | | |
| Revenues | $ 240,474 | | | $ 208,872 | | | $ | 31,602 | | | 15.1 | % |
| Net revenue | 188,843 | | | 150,225 | | | 38,618 | | | 25.7 | % |
| Segment operating income | 82,841 | | | 46,171 | | | 36,670 | | | 79.4 | % |
We calculated the revenues and gross margin below for the year ended December 31, 2020 using the actual average exchange rate for the year ended December 31, 2019 (in thousands).
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | Change |
| 2020 | | 2019 | | $ | | % |
| Canada Direct Lending - constant currency basis: | | | | |
| Revenues | $ 210,786 | | | $ 228,291 | | | $ | (17,505) | | | (7.7) | % |
| Net revenue | 151,371 | | | 151,845 | | | (474) | | | (0.3) | % |
| Segment operating income | 46,279 | | | 43,303 | | | 2,976 | | | 6.9 | % |
We calculated gross loans receivable below as of December 31, 2021 using the actual exchange rate as of December 31, 2020 (in thousands).
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| | December 31, | | December 31, | | Change |
| | 2021 | | 2020 | | $ | % |
| Canada Direct Lending – constant currency basis: | | | |
| Gross loans receivable | | $ 428,104 | | | $ 330,271 | | | $ | 97,833 | | 29.6 | % |
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Liquidity and Capital Resources
Our principal sources of liquidity to fund the loans we make to our customers are (i) cash provided by operations, (ii) our revolving credit facilities and our non-recourse funding facilities, as further described in Note 7, "Debt" of the Notes to the Consolidated Financial Statements, and (iii) funds from third-party lenders under our CSO programs. In July 2021, we issued $750.0 million of 7.50% Senior Secured Notes, due 2028. The net proceeds from the sale of the 7.50% Senior Secured Notes were used (i) to redeem our outstanding 8.25% Senior Secured Notes, (ii) to pay fees, expenses, premiums and accrued interest in connection therewith and (iii) for general corporate purposes. In connection with our acquisition of Heights, we issued an additional $250.0 million of our 7.50% Senior Secured Notes. Refer to Note 7, "Debt" of the Notes to the Consolidated Financial Statements for additional details.
As of December 31, 2021, we were in compliance with all financial ratios, covenants and other requirements in our debt agreements. We anticipate that our primary use of cash will be to fund growth in our working capital, finance capital expenditures to further our growth strategy in both the U.S. and Canada and meet our debt obligations. We may also use cash for potential strategic investments in and acquisitions of other companies that help us extend our reach and product portfolio. Additionally, we may use cash to fund a return on capital for our stockholders through share repurchase programs, or in the form of dividends. In May 2021, our Board of Directors increased the quarterly dividend to $0.11 per share, an increase of 100%, which continued into 2022. Additionally, in May 2021 our Board of Directors authorized a $50.0 million share repurchase program which concluded in February 2022. A new $25.0 million share repurchase program was authorized in February 2022, which will commence at our discretion. Refer to Note 23, "Share Repurchase Program" of the Notes to the Consolidated Financial Statements for further details of the program.
Our level of cash flow provided by operating activities typically experiences seasonal fluctuations related to our levels of net income and changes in working capital levels, particularly loans receivable. 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 to the extent we experience any short-term or long-term funding shortfalls, such as tightening our credit approval practices (as we did during the COVID-19 pandemic), which has the effect of reducing cash outflow requirements while increasing cash inflows through loan repayments.
We may also sell or securitize our assets, draw on our available revolving credit facility or line of credit, enter into additional refinancing agreements or reduce our capital spending to generate additional liquidity. The impacts to cash as described in "—Cash Flows" below and other factors resulted in our available cash on hand of $63.2 million and our total liquidity of $214.1 million as of December 31, 2021. We believe our cash on hand and available borrowings provide us with sufficient liquidity for at least the next 12 months.
Our recent acquisitions of Flexiti and Heights have increased our product offerings to include customers in the near-prime and prime space. The acquisition of Flexiti allows us to tailor our current product structure to its POS model, potentially expanding to sub-prime customers. The acquisition of Heights accelerates our strategic transition in the U.S. toward longer term, higher balance and lower rate credit products and provides us with access to a larger addressable market while mitigating regulatory risk. These initiatives to expand our product offerings and grow the U.S. and Canada business can materially impact our future cash flows. For further information regarding the acquisitions, refer to Note 1, "Summary of Significant Accounting Policies and Nature of Operations," Note 5, "Goodwill and Intangibles," and Note 15, "Acquisitions" of the Notes to the Consolidated Financial Statements.
We have no additional material commitments or demands that are likely to affect our liquidity.
Borrowings
Our debt consisted of the following as of December 31, 2021, net of deferred financing costs (in thousands):
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| | Capacity | Interest Rate | Maturity | Counterparties | Balance as of December 31, 2021 (in USD) |
| | | | | | |
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7.50% Senior Secured Notes (due 2028) (2) | | $1.0 billion | 7.50% | August 1, 2028 | | $ 980,721 | |
| Senior Secured Revolving Credit Facility | | $50.0 million | 1-Mo LIBOR + 5.00% | June 30, 2022 | BayCoast Bank; Stride Bank; Hancock-Whitney Bank; Metropolitan Commercial Bank | — | |
| U.S. SPV | | $200.0 million | 1-Mo LIBOR + 6.25% | April 8, 2024 | Atalaya Capital Management, MetaBank | 45,392 | |
| Heights SPV | | $350.0 million | 1-Mo LIBOR + 5.25% | December 31, 2024 | Ares Capital | 350,000 | |
Canada SPV (1) | | C$350.0 million | 3-Mo CDOR + 6.00% | August 2, 2026 | Waterfall Asset Management | 157,813 | |
Flexiti SPE (1) | | C$500.0 million | 3-Mo CDOR + 4.40% | March 10, 2024 | Credit Suisse (Class A); SPF (Class B) | 172,739 | |
Flexiti Securitization (1) | | C$526.5 million | 1-Mo CDOR + 3.59% | December 9, 2025 | National Bank of Canada; an affiliate of the Bank of Montreal; WF Torca, Ltd. | 239,128 | |
Cash Money Revolving Credit Facility (1) | | C$10.0 million | Canada Prime Rate +1.95% | On-demand | Royal Bank of Canada | — | |
| (1) Capacity amounts are denominated in Canadian dollars, while outstanding balances as of December 31, 2021 are denominated in U.S. dollars. |
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(2) On July 30, 2021, we issued our $750 million aggregate principal amount of new 7.50% Senior Secured Notes, which was used to redeem our $690.0 million 8.25% Senior Secured Notes due 2025. During December 2021, we issued an additional $250.0 million of our 7.50% Senior Secured Notes for a total capacity of $1.0 billion. |
Refer to Note 7, "Debt," for details on each of our credit facilities and resources.
Cash Flows
The following highlights our cash flow activity and the sources and uses of funding during the periods indicated:
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| Year Ended December 31, | | |
| (in thousands) | 2021 | 2020 | 2019 | | |
| Net cash provided by continuing operating activities | $ 323,173 | | $ 403,505 | | $ 651,135 | | | |
| Net cash used in continuing investing activities | (923,488) | | (255,056) | | (530,260) | | | |
| Net cash provided by (used in) continuing financing activities | 491,291 | | 7,329 | | (97,968) | | | |
Years Ended December 31, 2021 and 2020
As previously described, year-over-year comparisons were impacted by COVID-19 Impacts and Runoff Portfolios due to regulatory changes. Additionally, the Company acquired Flexiti and Heights during the year ended December 31, 2021.
Continuing Operating Activities
Net cash provided by operating activities from continuing operations for the year ended December 31, 2021 was $323.2 million, primarily attributable to net income from continuing operations of $59.3 million, the effect of non-cash reconciling items of $189.6 million, and changes in our operating assets and liabilities of $74.2 million. Our non-cash reconciling items of $189.6 million included (i) $245.7 million of provision for losses, (ii) $40.2 million loss on the extinguishment of our 8.25% Senior Secured Notes, (iii) $27.0 million of depreciation and amortization, and (iv) $14.0 million of share-based compensation, partially offset by (i) a $135.4 million cash gain on our equity method investment related to the Katapult and FinServ merger and (ii) changes in deferred income tax of $18.3 million. Our changes in operating assets and liabilities of $74.2 million related to (i) $8.8 million increase in accrued interest on our gross loans receivable due to overall volume increases, as previously discussed, (ii) $43.8 million of higher accounts payable and accrued liabilities as a result of the timing and extent of variable compensation, and (iii) $16.6 million of higher deferred revenue, primarily as a result of Canada POS Lending gross loans receivable as of December 31, 2021.
Continuing Investing Activities
Net cash used in investing activities from continuing operations for the year ended December 31, 2021 was $923.5 million, primarily reflecting (i) the acquisition of Heights for $356.5 million, net of cash received (ii) the acquisition of Flexiti for $91.2 million, net of cash received and (iii) net origination of loans of $589.0 million, partially offset by $146.9 million of cash we received as a result of the Katapult and FinServ merger. Additionally, we used cash to purchase (i) $10.0 million of additional shares of Katapult and (ii) $23.6 million of property, equipment and software.
Continuing Financing Activities
Net cash used in financing activities from continuing operations for the year ended December 31, 2021 was $491.3 million. During the third quarter of 2021, we extinguished our $690.0 million 8.25% Senior Secured Notes from the issuance of our 7.50% Senior Secured Notes of $750.0 million. As part of the refinancing, we paid a $31.3 million call premium and debt issuance costs of $16.0 million. In connection with the acquisition of Heights, we issued an additional $250.0 million of 7.50% Senior Secured Notes and paid additional debt issuance costs of $4.5 million. In addition, net cash provided by financing activities included $304.9 million of net proceeds from our funding facilities primarily due to the new Flexiti Securitization facility, entered into during the fourth quarter of 2021 for C$526.5 million, partially offset by common stock repurchases of $45.4 million and cash dividends of $15.9 million. See Note 7, "Debt" of our Notes to Consolidated Financial Statements for additional information related to our funding facilities and corporate debt.
Years Ended December 31, 2020 and 2019
For a comparison of our cash flows for the years ended December 31, 2020 and 2019, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Cash Flows" in Part II Item 7 of our 2020 Form 10-K.
Recently Issued Accounting Pronouncements
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. We consider the following accounting policies to be critical in understanding our historical and future performance and require management's most subjective and complex judgments.
Allowance for Loan Losses
Credit losses are an inherent part of outstanding loans receivable. We maintain an allowance for loan losses for loans and interest receivable at a level we estimate to be adequate to absorb incurred losses based primarily on our analysis of historical loss or charge-off rates by products containing similar risk characteristics. The allowance for loan losses on our Company Owned gross loans receivables reduces the outstanding gross loans receivables balance in the Consolidated Balance Sheets. We report the liability for losses related to loans Guaranteed by the Company under CSO programs in “Liability for losses on CSO lender-owned consumer loans” in the Consolidated Balance Sheets. We record increases in either the allowance or the liability, net of charge-offs and recoveries, as “Provision for losses” in the Consolidated Statements of Operations.
We also consider delinquency trends as well as macro-economic conditions we believe may affect portfolio losses. If a loan is deemed to be uncollectible before it is fully reserved based on information we become aware of (e.g., receipt of customer bankruptcy notice or death), we charge off such loan at that time. 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 management’s judgment on the overall adequacy of the allowance for loan losses. Any recoveries on loans previously charged to the allowance are credited to the allowance when collected.
Business Combinations and Contingent Consideration
We include the results of operations of acquired businesses from the date of acquisition. We determine the fair value of the assets acquired and liabilities assumed based on their estimated fair value as of the date of acquisition. The excess purchase price over the fair values of identifiable assets and liabilities is recorded as goodwill.
Determining the fair value of assets acquired and liabilities assumed requires management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future revenue and cash flows, discount rates, and
selection of comparable companies. Our estimates of fair value are based on assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.
During the measurement period, not to exceed one year from the date of acquisition, we may record adjustments to the assets acquired and liabilities assumed, with a corresponding offset to goodwill. After the conclusion of the measurement period, any subsequent adjustments are reflected in the consolidated statements of operations. When we grant equity to employees of the selling stockholders in connection with an acquisition, we evaluate whether the awards are compensatory. This evaluation includes whether stock award vesting is contingent on the continued employment beyond the acquisition date. If continued employment is required for stock awards to vest, the award is treated as compensation for post-acquisition services and is recognized as compensation expense.
Transaction costs associated with business combinations are expensed as incurred and are included in Corporate, district and other expenses in our unaudited Condensed Consolidated Statements of Operations.
On March 10, 2021, we acquired 100% of the outstanding stock of Flexiti. The fair value of total consideration paid as part of the acquisition was comprised of $86.5 million in cash, $6.3 million in debt costs and $20.6 million in contingent cash consideration subject to future operating metrics, including revenue less NCOs and loan originations. Net assets acquired were $68.5 million, resulting in goodwill of $44.9 million. During the second quarter of 2021, we recorded $5.0 million of additional net assets acquired as of the acquisition date, as a measurement period adjustment, resulting in a $5.0 million decrease in goodwill. During the third quarter of 2021, we recorded a $0.5 million decrease to net assets acquired as of the acquisition date, as a measurement period adjustment, resulting in a $0.5 million increase in goodwill. Changes in the fair value of contingent consideration is recognized each reporting period and included in our Consolidated Statements of Operations. For the year ended December 31, 2021, we recorded a $6.2 million expense related to the increase in fair value of contingent consideration.
On December 27, 2021, we acquired 100% of the outstanding stock of Heights. The fair value of total consideration paid as part of the acquisition was comprised of $335.0 million in cash and $25.0 million of the Company's common stock. Net assets acquired, after giving effect of initial purchase price fair value adjustments, were $562.6 million, resulting in goodwill of $253.9 million.
Goodwill
We exercise judgment in evaluating assets for impairment. Goodwill is tested for impairment annually, or when circumstances arise which could more likely than not reduce the fair value of a reporting unit below its carrying value. These tests require comparing carrying values to estimated fair values of the reporting unit under review.
Following the acquisition of Flexiti during the first quarter of 2021, our reporting units consist of the U.S. (inclusive of Heights, acquired on December 27, 2021), Canada Direct Lending and Canada POS Lending segments, as defined by FASB’s ASC 280, Segment Reporting, for which we assess goodwill for impairment. During the fourth quarter of 2021, we performed a quantitative assessment for the U.S., Canada Direct Lending and Canada POS Lending reporting units as of October 1, 2021. As further described in Note 1, "Summary of Significant Accounting Policies and Nature of Operations, an impairment would occur if the carrying amount of a reporting unit exceeded the fair value of that reporting unit. Events or circumstances that could indicate an impairment 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 economic outlook. Fair value of each reporting unit is sensitive to changes in macroeconomic factors in the U.S. and Canada, including as a result of COVID-19, which could impact all reporting units. Changes in the expected length of the current economic downturn, timing of recovery, or long-term revenue growth or profitability for these reporting units could increase the likelihood of a future goodwill impairment. Additionally, changes in market participant assumptions such as an increased discount rate or further share price reductions could increase the likelihood of a future impairment. These and other macroeconomic factors were considered when performing the annual test as of October 1, 2021.
Based upon the qualitative assessment as of October 1, 2021, management concluded that the reporting units' estimated fair values exceeded their carrying value. As a result, we did not record impairment losses on goodwill for the year ended December 31, 2021.
The following table summarizes the segment allocation of recorded goodwill on our Consolidated Balance Sheets for the periods indicated:
| | | | | | | | | | | | | | | | | |
| December 31, 2021 | Percent of Total | | December 31, 2020 | Percent of Total |
| U.S. | $ 359,779 | | 83.7 | % | | $ 105,922 | | 77.8 | % |
| Canada Direct Lending | 30,105 | | 7.0 | % | | 30,169 | | 22.2 | % |
| Canada POS Lending | 39,908 | | 9.3 | % | | — | | — | % |
| Total Goodwill | $ 429,792 | | | | $ 136,091 | | |
Credit Services Organization
Through our CSO programs, we act as a CSO/CAB 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. See Item 1. “Business—Regulatory Environment and Compliance” for additional details.
As described above in "—Allowance for Loan Losses," we estimate a liability for losses associated with the guaranty provided to the CSO lenders using assumptions and methodologies similar to the allowance for loan losses, which we recognize for our consumer loans. The liability for losses on CSO lender-owned consumer loans was $6.9 million at December 31, 2021 and $7.2 million at December 31, 2020, which we include as "Liability for losses on CSO lender-owned consumer loans" on the Consolidated Balance Sheets.
We calculate CSO fees based on the amount of the customer’s outstanding loan and in accordance with the applicable jurisdiction’s laws. 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 in Texas. During the years ended December 31, 2021 and 2020, approximately 58.3% and 66.5%, respectively, of 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; instead, we include them 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to interest rate risk on our revolving credit facilities and non-recourse funding facilities, as further described in Note 7, "Debt." Our variable interest expense is sensitive to changes in the general level of interest rates. We may enter into interest rate caps, interest rate swaps, collars or similar instruments with the objective of reducing our borrowing cost volatility. We do not use derivative financial instruments for speculative or trading purposes.
Interest expense on such borrowings is sensitive to changes in the market rate of interest. Hypothetically, a 1% increase in the average market rate would result in an increase in our annual interest expense of $5.3 million. This amount is determined by considering the impact of the hypothetical interest rates on our borrowing cost, but does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Due to the uncertainty of the specific changes and their possible effects, the foregoing sensitivity analysis assumes no changes in our financial structure.
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, primarily due to their short duration.
We are required to transition from LIBOR to an alternative benchmark rate as required by ASU 2020-04, Reference Rate Reform (Topic 848). The majority of our exposure to LIBOR relates to our Senior Revolver, U.S. SPV, and our recently acquired Heights SPV. Our agreements governing these debt facilities contain customary provisions to provide for replacement of LIBOR with an alternative benchmark rate when LIBOR ceases to be available. We anticipate to transition our facilities from LIBOR to SOFR and, based on our most current understanding, the transition is not expected to have a material impact on our Consolidated Financial Statements. See Note 1, "Summary of Significant Accounting Policies and Nature of Operations" for additional information on ASU 2020-04.
Foreign Currency Exchange Rate Risk
Foreign currency exchange rate fluctuations impact the translation of the financial results of the Canadian operations from Canadian Dollars to U.S. Dollars. Our operations in Canada represent a significant portion of our total operations, and as a result, material changes in the currency exchange rate between these countries could have a significant impact on our consolidated results of operations, financial condition or cash flows. At December 31, 2021, revenue and net income from continuing operations before income taxes would decrease by approximately $30.5 million and $3.5 million, respectively, if average foreign exchange rates had declined by 10% against the U.S. dollar in 2021. These amounts were determined by considering the adverse impact of a hypothetical foreign exchange rate on the revenue and net loss before income taxes of the Company based on Canadian operations.
We may elect to purchase derivatives as hedges against foreign exchange rate risks with the objective of mitigating the impact of foreign currency fluctuations on our results of operations. We typically hedge existing short-term balance sheet exposures, as well as anticipated cash flows between our foreign subsidiaries and domestic subsidiaries. We do not purchase derivatives for speculative purposes.
We record derivative instruments at fair value on the balance sheet as either an asset or liability. 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of CURO Group Holdings Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CURO Group Holdings Corp. and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 7, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Allowance for Loan Losses — Refer to Notes 1 and 2 to the financial statements
Critical Audit Matter Description
The Company originates various loan products in the United States (“U.S.”) and Canada, including Unsecured Installment, Secured Installment, Revolving Line of Credit, and Single-Pay loans. The Company estimates and records an allowance for loans and interest receivable based on historical loss rates and other factors for loans containing similar risk characteristics. In
addition, management evaluates whether qualitative adjustments to historical loss rates should be made based on relevant factors. The allowance for loan losses at December 31, 2021 was $87.6 million.
There is a significant amount of judgment required by management in evaluating qualitative factors. Auditing the allowance for loan losses, inclusive of assessing the adequacy of qualitative adjustments requires a high degree of auditor judgment and an increased extent of effort, including the need to involve our credit specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the allowance for loan losses included the following, among others:
•We tested the design and operating effectiveness of management’s controls over the allowance for loan losses including controls over identification of qualitative adjustments.
•With the assistance of our credit specialists, we evaluated the reasonableness of the quantitative model and methodology used to determine the allowance.
•We reviewed management’s modeling methodology including underlying assumptions such as the loss development period and lookback period to assess the reasonableness of the methodology and assumptions used by management.
•We reviewed independent economic statistics such as common macroeconomic indicators, as well as industry peers, and we used data analytics to identify any changes in the loan portfolio to assess the completeness of management’s qualitative adjustments on the allowance for loan losses.
•We tested the completeness and accuracy of underlying loan data used in management’s models and we recalculated management’s model to validate its mathematical accuracy.
•We assessed the reasonableness of the model by comparing modeled losses to actual historical losses incurred.
Business Combinations — Refer to Notes 1 and 15 to the financial statements
Critical Audit Matter Description
The Company completed the acquisitions of Flexiti Financial Inc. (“Flexiti”) and Heights Finance (“Heights”) on March 10, 2021 and December 27, 2021, respectively. Total consideration paid for the acquisitions was approximately $113 million and $428 million, respectively. The Company accounted for the acquisitions under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values as of the date of acquisition, including loans receivable of $196 million acquired from Flexiti and loans receivable of $472 million acquired from Heights. The acquisition of Flexiti included contingent consideration recorded at fair value of $20.6 million as of the acquisition date.
Determining the fair value of assets acquired and liabilities and contingent consideration assumed requires management to use significant judgment and estimates including the selection of valuation methodologies, estimates of future cash flows, and discount rates.
Given the fair value determination of loans receivable and contingent consideration requires management to make significant estimates and assumptions regarding projected cash flows and discount rates, performing audit procedures to evaluate the reasonableness of those estimates and assumptions required a high degree of auditor judgment, and an increased extent of effort, including involving fair value specialists.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the fair value of loans receivable from Flexiti and Heights and contingent consideration from Flexiti included the following, among others:
•We tested the effectiveness of controls over the valuation methodology used, including management’s controls over assumptions used to develop estimated future cash flows, and discounts rates used to present value future cash flows.
•We assessed the knowledge, skill, ability and objectivity of management’s valuation specialist and evaluated the work performed.
•We assessed the reasonableness of management’s forecasts and performed sensitivity analyses to evaluate the impact of changes in assumptions to the valuation of the assets acquired.
•With the assistance of fair value specialists, we evaluated:
◦The reasonableness of the valuation methodology, and
◦The reasonableness of the discount rates used to present value the expected cash flows by:
▪Testing the source information underlying the determination of the discount rate and testing mathematical accuracy of the calculation.
▪Developing a range of independent estimates and comparing those to the discount rate selected by management to evaluate the inputs used in the calculation.
•We evaluated whether the estimated cash flows were consistent with evidence obtained in other areas of the audit.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 7, 2022
We have served as the Company's auditor since 2019.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of CURO Group Holdings Corp.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of CURO Group Holdings Corp. and subsidiaries (the “Company”) as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2021, of the Company and our report dated March 7, 2022, expressed an unqualified opinion on those financial statements.
As described in Management’s Annual Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Flexiti Financial, Inc., which was acquired on March 10, 2021, and SouthernCo., Inc. d/b/a Heights Finance which was acquired on December 27, 2021, and whose financial statements constitute 20.6% and 22.4% of total assets, respectively, and 4.3% and 0.5% of revenues, respectively, of the consolidated financial statement amounts as of and for the year ended December 31, 2021. Accordingly, our audit did not include the internal control over financial reporting at Flexiti Financial, Inc. and Heights Finance.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 7, 2022
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| | | | | | | | | | | |
| December 31,
2021 | | December 31,
2020 |
| |
| ASSETS |
| Cash and cash equivalents | $ | 63,179 | | | $ | 213,343 | |
Restricted cash (includes Restricted cash of consolidated VIEs of $57,155 and $31,994 as of December 31, 2021 and 2020, respectively) | 98,896 | | | 54,765 | |
Gross loans receivable (includes Gross loans receivable of consolidated VIEs of $1,294,706 and $360,431 as of December 31, 2021 and 2020, respectively) | 1,548,318 | | | 553,722 | |
Less: allowance for loan losses (includes allowance for losses of consolidated VIEs of $66,618 and $54,129 as of December 31, 2021 and 2020, respectively) | (87,560) | | | (86,162) | |
Loans receivable, net | 1,460,758 | | | 467,560 | |
| Income taxes receivable | 31,774 | | | 32,062 | |
Prepaid expenses and other (includes Prepaid expenses and other of consolidated VIEs of $0 and $388 as of December 31, 2021 and 2020, respectively) | 42,038 | | | 27,994 | |
| Property and equipment, net | 54,635 | | | 59,749 | |
| Investments in Katapult | 27,900 | | | 27,370 | |
| Right of use asset - operating leases | 116,300 | | | 115,032 | |
| Deferred tax assets | 15,639 | | | — | |
| Goodwill | 429,792 | | | 136,091 | |
| Intangibles, net | 109,930 | | | 40,425 | |
| Other assets | 9,755 | | | 8,595 | |
| Total Assets | $ | 2,460,596 | | | $ | 1,182,986 | |
| LIABILITIES AND STOCKHOLDERS' EQUITY |
| Liabilities | | | |
Accounts payable and accrued liabilities (includes Accounts payable and accrued liabilities of consolidated VIEs of $9,886 and $34,055 as of December 31, 2021 and 2020, respectively) | $ | 121,434 | | | $ | 49,624 | |
| Deferred revenue | 21,649 | | | 5,394 | |
| Lease liability - operating leases | 122,431 | | | 122,648 | |
| Contingent consideration related to acquisition | 26,508 | | | — | |
| Income taxes payable | 680 | | | — | |
Accrued interest (includes Accrued interest of consolidated VIEs of $3,279 and $1,147 as of December 31, 2021 and 2020, respectively) | 34,974 | | | 20,123 | |
| Liability for losses on CSO lender-owned consumer loans | 6,908 | | | 7,228 | |
Debt (includes Debt and related issuance costs of consolidated VIEs of $979,500 and $14,428 as of December 31, 2021 and $147,427 and $7,766 as of December 31, 2020, respectively) | 1,945,793 | | | 819,661 | |
| Other long-term liabilities | 13,845 | | | 15,382 | |
| Deferred tax liabilities | 6,044 | | | 11,021 | |
| Total Liabilities | 2,300,266 | | | 1,051,081 | |
| Commitments and contingencies (Note 8) | | | |
| Stockholders' Equity | | | |
Preferred stock - $0.001 par value, 25,000,000 shares authorized; no shares were issued | — | | | — | |
Common stock - $0.001 par value; 225,000,000 shares authorized; 49,684,080 and 47,525,807 shares issued; and 40,810,444 and 41,370,504 shares outstanding at the respective period ends | 23 | | | 9 | |
Treasury stock, at cost - 8,873,636 and 6,155,303 shares at the respective period ends | (124,302) | | | (77,852) | |
| Paid-in capital | 113,520 | | | 79,812 | |
| Retained earnings | 203,467 | | | 160,068 | |
| Accumulated other comprehensive loss | (32,378) | | | (30,132) | |
| Total Stockholders' Equity | 160,330 | | | 131,905 | |
| Total Liabilities and Stockholders' Equity | $ | 2,460,596 | | | $ | 1,182,986 | |
See the accompanying Notes to Consolidated Financial Statements
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 | | |
| Revenue | $ | 817,843 | | | $ | 847,396 | | | $ | 1,141,797 | | | |
| Provision for losses | 245,668 | | | 288,811 | | | 468,551 | | | |
| Net revenue | 572,175 | | | 558,585 | | | 673,246 | | | |
| Operating expenses | | | | | | | |
| Salaries and benefits | 237,109 | | | 196,817 | | | 206,193 | | | |
| Occupancy | 55,559 | | | 57,271 | | | 54,895 | | | |
| Advertising | 38,762 | | | 44,552 | | | 53,398 | | | |
| Direct operations | 60,056 | | | 46,893 | | | 73,568 | | | |
| Depreciation and amortization | 26,955 | | | 17,498 | | | 18,630 | | | |
| Other operating expense | 74,682 | | | 47,048 | | | 48,049 | | | |
| Total operating expenses | 493,123 | | 410,079 | | 454,733 | | |
| Other (income) expense | | | | | | | |
| Interest expense | 97,334 | | | 72,709 | | | 69,763 | | | |
| (Income) loss from equity method investment | (3,658) | | | (4,546) | | | 6,295 | | | |
| Gain from equity method investment | (135,387) | | | — | | | — | | | |
| Loss on extinguishment of debt | 40,206 | | | — | | | — | | | |
| Total other (income) expense | (1,505) | | | 68,163 | | 76,058 | | |
| Income from continuing operations before income taxes | 80,557 | | 80,343 | | | 142,455 | | | |
| Provision for income taxes | 21,223 | | | 5,895 | | | 38,557 | | | |
| Net income from continuing operations | 59,334 | | | 74,448 | | | 103,898 | | | |
| Income (loss) from discontinued operations, before income taxes | — | | | 1,714 | | | (39,048) | | | |
| Income tax expense (benefit) related to disposition | — | | | 429 | | | (46,638) | | | |
| Net income from discontinued operations | — | | | 1,285 | | | 7,590 | | | |
| Net income | $ | 59,334 | | | $ | 75,733 | | | $ | 111,488 | | | |
| | | | | | | |
| Basic earnings per share: | | | | | | | |
| Continuing operations | $ | 1.44 | | | $ | 1.82 | | | $ | 2.33 | | | |
| Discontinued operations | — | | | 0.03 | | | 0.17 | | | |
| Basic earnings per share | $ | 1.44 | | | $ | 1.85 | | | $ | 2.50 | | | |
| | | | | | | |
| Diluted earnings per share: | | | | | | | |
| Continuing operations | $ | 1.38 | | | $ | 1.77 | | | $ | 2.26 | | | |
| Discontinued operations | — | | | 0.03 | | | 0.17 | | | |
| Diluted earnings (loss) per share | $ | 1.38 | | | $ | 1.80 | | | $ | 2.43 | | | |
| | | | | | | |
| Weighted average common shares outstanding: | | | | | | | |
| Basic | 41,155 | | | 40,886 | | | 44,685 | | | |
| Diluted | 43,143 | | | 42,091 | | | 45,974 | | | |
See the accompanying Notes to Consolidated Financial Statements
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 | | |
| Net income | $ | 59,334 | | | $ | 75,733 | | | $ | 111,488 | | | |
| Other comprehensive income (loss): | | | | | | | |
| | | | | | | |
| Foreign currency translation adjustment, net of tax | (2,246) | | | 8,531 | | | 22,397 | | | |
| Other comprehensive (loss) income | (2,246) | | | 8,531 | | | 22,397 | | | |
| Comprehensive income | $ | 57,088 | | | $ | 84,264 | | | $ | 133,885 | | | |
See the accompanying Notes to Consolidated Financial Statements
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands, except share data)
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| Common Stock | | Treasury Stock, at cost | | Paid-in capital | | Retained Earnings (Deficit) | | AOCI (1) | | Total Stockholders' Equity |
| Shares Outstanding | | Par Value | | | | | |
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| Balances at December 31, 2018 | 46,412,231 | | | $ | 9 | | | $ | — | | | $ | 60,015 | | | $ | (18,065) | | | $ | (61,060) | | | $ | (19,101) | |
| Net income | — | | | — | | | — | | | — | | | 111,488 | | | — | | | 111,488 | |
| Foreign currency translation adjustment | — | | | — | | | — | | | — | | | — | | | 22,397 | | | 22,397 | |
| Share-based compensation | — | | | — | | | — | | | 10,323 | | | — | | | — | | | 10,323 | |
| Proceeds from exercise of stock options | 40,014 | | | — | | | — | | | 149 | | | — | | | — | | | 149 | |
Repurchase of common stock (2) | (5,614,541) | | | — | | | (72,343) | | | — | | | — | | | — | | | (72,343) | |
| Net settlement of share-based awards | 318,520 | | | — | | | — | | | (2,400) | | | — | | | — | | | (2,400) | |
| Balances at December 31, 2019 | 41,156,224 | | | $ | 9 | | | $ | (72,343) | | | $ | 68,087 | | | $ | 93,423 | | | $ | (38,663) | | | $ | 50,513 | |
| Net income | — | | | — | | | — | | | — | | | 75,733 | | | — | | | 75,733 | |
| Foreign currency translation adjustment and other | — | | | — | | | — | | | — | | | — | | | 8,531 | | | 8,531 | |
| Dividends | — | | | — | | | — | | | — | | | (9,088) | | | — | | | (9,088) | |
| Share-based compensation | — | | | — | | | — | | | 12,910 | | | — | | | — | | | 12,910 | |
| Proceeds from exercise of stock options | 274,510 | | | — | | | — | | | 765 | | | — | | | — | | | 765 | |
| Repurchase of common stock | (540,762) | | | — | | | (5,509) | | | — | | | — | | | — | | | (5,509) | |
| Net settlement of share-based awards | 480,532 | | | — | | | — | | | (1,950) | | | — | | | — | | | (1,950) | |
| Balances at December 31, 2020 | 41,370,504 | | | $ | 9 | | | $ | (77,852) | | | $ | 79,812 | | | $ | 160,068 | | | $ | (30,132) | | | $ | 131,905 | |
| Net income | — | | | — | | | — | | | — | | | 59,334 | | | — | | | 59,334 | |
| Foreign currency translation adjustment and other | — | | | — | | | — | | | — | | | — | | | (2,246) | | | (2,246) | |
| Dividends | — | | | — | | | — | | | — | | | (15,935) | | | — | | | (15,935) | |
| Common stock issued for acquisition of Heights | 1,446,257 | | | 14 | | | — | | | 24,355 | | | — | | | — | | | 24,369 | |
| Share-based compensation | — | | | — | | | — | | | 13,976 | | | — | | | — | | | 13,976 | |
| Proceeds from exercise of stock options | 66,972 | | | — | | | — | | | 272 | | | — | | | — | | | 272 | |
Repurchase of common stock (3) | (2,718,333) | | | — | | | (46,450) | | | — | | | — | | | — | | | (46,450) | |
| Net settlement of share-based awards | 645,044 | | | — | | | — | | | (4,895) | | | — | | | — | | | (4,895) | |
| Balances at December 31, 2021 | 40,810,444 | | | $ | 23 | | | $ | (124,302) | | | $ | 113,520 | | | $ | 203,467 | | | $ | (32,378) | | | $ | 160,330 | |
(1) Accumulated other comprehensive income (loss) |
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See the accompanying Notes to Consolidated Financial Statements
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| (in thousands) | | 2021 | 2020 | 2019 | | |
| Cash flows from operating activities | | | | | | | | |
| Net income from continuing operations | | $ | 59,334 | | | $ | 74,448 | | | $ | 103,898 | | | |
| | | | | | | | |
Adjustments to reconcile net income to net cash provided by continuing operating activities: | | | | |
| Depreciation and amortization | | 26,955 | | | 17,498 | | | 18,630 | | | |
| Provision for losses | | 245,668 | | | 288,811 | | | 468,551 | | | |
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| | | | | | | | |
| Amortization of debt issuance costs and bond discount | | 6,871 | | | 3,935 | | | 2,971 | | | |
| | | | | | | | |
| Deferred income tax (benefit) expense | | (18,297) | | | 11,691 | | | (6,396) | | | |
| Loss on disposal of property and equipment | | 7,054 | | | 150 | | | 85 | | | |
| Loss on extinguishment of debt | | 40,206 | | | — | | | — | | | |
| (Income) loss from equity method investment | | (3,658) | | | (4,546) | | | 6,295 | | | |
| Gain from equity method investment | | (135,387) | | | — | | | — | | | |
| Change in fair value of contingent consideration | | 6,209 | | | — | | | — | | | |
| Share-based compensation | | 13,976 | | | 12,910 | | | 10,323 | | | |
| | | | | | | | |
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| Changes in operating assets and liabilities: | | | | | | | | |
| Accrued interest on loans receivable | | 8,751 | | | 23,714 | | | (12,844) | | | |
| Prepaid expenses and other assets | | (6,053) | | | 8,058 | | | 10,771 | | | |
| Accounts payable and accrued liabilities | | 43,832 | | | (11,876) | | | 9,798 | | | |
| Deferred revenue | | 16,581 | | | (4,769) | | | 527 | | | |
| Income taxes payable | | 678 | | | — | | | 34,102 | | | |
| Income taxes receivable | | 3,829 | | | (20,603) | | | 9,798 | | | |
| Accrued interest | | 13,069 | | | 264 | | | — | | | |
| Other assets and liabilities | | (6,445) | | | 3,820 | | | (5,374) | | | |
| Net cash provided by continuing operating activities | | 323,173 | | | 403,505 | | | 651,135 | | | |
| Net cash provided by (used in) discontinued operating activities | | — | | | 1,714 | | | (504) | | | |
| Net cash provided by operating activities | | 323,173 | | | 405,219 | | | 650,631 | | | |
| Cash flows from investing activities | | | | | | | | |
| Purchase of property, equipment and software | | (23,648) | | | (10,920) | | | (13,981) | | | |
| Loans receivable originated or acquired | | (1,517,275) | | | (1,296,398) | | | (1,835,301) | | | |
| Loans receivable repaid | | 928,302 | | | 1,079,437 | | | 1,327,190 | | | |
| Proceeds from (Investment in) Katapult | | 136,879 | | | (12,757) | | | (8,168) | | | |
| Acquisition of Ad Astra, net of acquiree's cash received | | — | | | (14,418) | | | — | | | |
| Acquisition of Flexiti, net of acquiree's cash received | | (91,203) | | | — | | | — | | | |
| Acquisition of Heights, net of acquiree's cash received | | (356,543) | | | — | | | — | | | |
| Net cash used in continuing investing activities | | (923,488) | | | (255,056) | | | (530,260) | | | |
| Net cash used in discontinued investing activities | | — | | | — | | | (14,213) | | | |
| Net cash used in investing activities | | (923,488) | | | (255,056) | | | (544,473) | | | |
| Cash flows from financing activities | | | | | | | | |
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| Proceeds from SPV and SPE facilities | | 549,511 | | | 73,037 | | | 23,558 | | | |
| Payments on SPV and SPE facilities | | (244,577) | | | (42,535) | | | (24,877) | | | |
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Payments on 8.25% Senior Secured Notes | | (690,000) | | | — | | | — | | | |
Proceeds from issuance of 7.50% Senior Secured Notes | | 1,000,000 | | | — | | | — | | | |
| Proceeds from credit facilities | | 68,108 | | | 69,947 | | | 210,346 | | | |
| Payments on credit facilities | | (68,108) | | | (69,947) | | | (230,346) | | | |
| Payments on subordinated stockholder debt | | — | | | — | | | (2,256) | | | |
| Debt issuance costs paid | | (26,387) | | | (6,992) | | | (200) | | | |
| Payments of call premiums from early debt extinguishments | | (31,250) | | | — | | | — | | | |
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| Payments to net share settle equity awards | | (4,895) | | | (1,950) | | | (2,400) | | | |
| Proceeds from exercise of stock options | | 272 | | | 765 | | | 149 | | | |
| Repurchase of common stock | | (45,448) | | | (5,908) | | | (71,942) | | | |
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| Dividends paid to stockholders | | (15,935) | | | (9,088) | | | — | | | |
| Net cash provided by (used in) financing activities | | 491,291 | | | 7,329 | | | (97,968) | | | |
| Effect of exchange rate changes on cash and restricted cash | | 2,991 | | | 595 | | | 1,974 | | | |
| Net (decrease) increase in cash and restricted cash | | (106,033) | | | 158,087 | | | 10,164 | | | |
| Cash and restricted cash at beginning of period | | 268,108 | | | 110,021 | | | 99,857 | | | |
| Cash and restricted cash at end of period | | 162,075 | | | 268,108 | | | 110,021 | | | |
| Less: Cash and restricted cash of discontinued operations at end of period | | — | | | — | | | — | | | |
| Cash and restricted cash of continuing operations at end of period | | $ | 162,075 | | | $ | 268,108 | | | $ | 110,021 | | | |
See the accompanying Notes to Consolidated Financial Statements
SUPPLEMENTAL CASH FLOW INFORMATION
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets as of December 31, 2021, 2020 and 2019 to the cash, cash equivalents and restricted cash used in the Statement of Cash Flows:
| | | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 | | 2019 |
| Cash and cash equivalents | | $ | 63,179 | | | $ | 213,343 | | | $ | 75,242 | |
Restricted cash (includes restricted cash of consolidated VIEs of $57,155 and $31,994 as of December 31, 2021 and December 31, 2020, respectively) | | 98,896 | | | 54,765 | | | 34,779 | |
| Total cash, cash equivalents and restricted cash from continuing operations | | 162,075 | | | 268,108 | | | 110,021 | |
| Cash and restricted cash from discontinued operations | | — | | | — | | | — | |
| Total cash, cash equivalents and restricted cash used in the Statements of Cash Flows | | $ | 162,075 | | | $ | 268,108 | | | $ | 110,021 | |
The following table provides supplemental cash flow information for the periods indicated (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Cash paid for: | | | | | |
| Interest | $ | 81,536 | | | $ | 69,212 | | | $ | 69,134 | |
| Income taxes, net of refunds | 34,878 | | | 15,841 | | | 2,355 | |
| Non-cash investing activities: | | | | | |
| | | | | |
| Property and equipment accrued in accounts payable | 883 | | | 861 | | | 631 | |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
Nature of Operations and Basis of Presentation
The terms “CURO" and the “Company” refer to CURO Group Holdings Corp. and its directly and indirectly owned subsidiaries as a combined entity, except where otherwise stated.
The Company is a tech-enabled, omni-channel consumer finance company serving non-prime and near-prime consumers in the U.S. and non-prime and prime consumers in Canada. CURO was founded in 1997 to meet the growing needs of consumers looking for alternative access to credit. With nearly 25 years of experience, the Company offers a variety of convenient, easily accessible financial and loan services in all of its markets.
In the U.S., CURO operates under several principal brands, including “Speedy Cash,” “Rapid Cash” and “Avio Credit”. With its acquisition of Heights on December 27, 2021, the Company added the brands "Covington Credit," "Heights Finance," "Quick Credit" and "Southern Finance" to its U.S. portfolio. The Company also offers demand deposit accounts in the U.S. under Revolve Finance, and credit card programs under First Phase, which was launched in the fourth quarter of 2021. As of December 31, 2021, CURO's store network consisted of 550 locations across 20 U.S. states and offered online services in 27 U.S. states.
In Canada, CURO operates under “CURO Canada” and “LendDirect” direct lending brands. With its acquisition of Flexiti on March 10, 2021, the Company added the "Flexiti" point-of-sale brand to its Canada portfolio. As of December 31, 2021, CURO operated its direct lending in eight Canadian provinces and offered online services in eight Canadian provinces and one Canadian territory. Point-of-sale operations are available at nearly 7,500 retail locations and over 3,100 merchant partners across 10 provinces and two territories.
Following the acquisitions in 2021, the Company reports Flexiti operations as the "Canada POS Lending" segment and Heights operations are included within the U.S. segment throughout this 2021 Form 10-K. Refer to Note 14, "Segment Reporting" for further information.
The Company has prepared the accompanying audited Consolidated Financial Statements in accordance with U.S. GAAP. The Company will continue to take advantage of the scaled disclosure requirements permitted by the SEC for SRCs for the periods presented. SRC status is determined on an annual basis as of the last business day of the most recently completed second fiscal quarter. The Company qualified as an SRC until June 30, 2021, but after that date, the Company no longer qualified as an SRC and thus will begin to report as a non-SRC beginning with the first quarter of 2022.
Revised Operating Expense Presentation
Beginning with the fourth quarter of 2021, the Company revised its presentation of operating expenses on the Statement of Operations. Where applicable, prior period amounts have been reclassified to conform to the current period presentation. These changes had no impact on the Company's previously reported consolidated results of operations or financial position.
U.K. Segment Financial Information Recast for Discontinued Operations
On February 25, 2019, the Company placed its U.K. segment into administration, which resulted in treatment of the U.K. segment as discontinued operations for all periods presented. Throughout this report, financial information for all periods are presented on a continuing operations basis, excluding the results and positions of the U.K. segment. See Note 22, "Discontinued Operations" for additional information.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of CURO and its direct and indirect subsidiaries, including Heights, which was acquired on December 27, 2021, Flexiti, which was acquired on March 10, 2021, and Ad Astra, which was acquired on January 3, 2020. Refer to Note 15, "Acquisitions" for further disclosures related to these acquisitions. Intercompany transactions and balances have been eliminated in consolidation.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Use of Estimates
The preparation of Consolidated Financial Statements in conformity with U.S. 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. Some estimates may also affect the reported amounts of revenues and expenses during the periods reported. Significant estimates that the Company made in the accompanying Consolidated Financial Statements include ALL, certain assumptions related to equity investments, goodwill and intangibles, accruals related to self-insurance, CSO liability for losses, estimated tax liabilities and the accounting for the Heights and Flexiti acquisitions. Actual results may differ from those estimates.
Acquisitions
Heights
On December 27, 2021, CURO closed its acquisition of Heights, a consumer finance company that provides Installment loans and offers customary opt-in insurance and other financial products, in a transaction accounted for as a business combination. Refer to Note 15, "Acquisitions" for further information regarding the acquisition and Note 5, "Goodwill and Intangibles" for the impact to the Company's goodwill balance as a result of the acquisition.
Flexiti
On March 10, 2021, CURO closed its acquisition of Flexiti, a POS and BNPL provider, in a transaction accounted for as a business combination. Flexiti is one of Canada's fastest-growing POS lenders, offering customers flexible payment plans at retailers that sell large-scale goods such as furniture, appliances, jewelry and electronics. Through its BNPL platform, customers can be approved instantly to shop with their FlexitiCard, which they can use online or in-store to make multiple purchases, within their credit limit, without needing to reapply. Refer to Note 15, "Acquisitions" for further information regarding the acquisition and Note 5, "Goodwill and Intangibles" for the impact to the Company's goodwill balance as a result of the acquisition.
Ad Astra
On January 3, 2020, the Company acquired 100% of the outstanding stock of Ad Astra, a related party, for $14.4 million, net of cash received. Prior to the acquisition, Ad Astra was the Company's exclusive provider of third-party collection services for owned and managed loans in the U.S. that are in later-stage delinquency. Ad Astra, now a wholly-owned subsidiary, is included in the Consolidated Financial Statements. See Note 15, "Acquisitions" for further information.
Change in Accounting Principle Related to Equity Method Investment in Katapult
Katapult is an e-commerce focused, FinTech company offering an innovative lease financing solution to consumers and enabling essential transactions at the merchant POS. CURO first invested in Katapult in 2017 as the Company identified multiple catalysts for Katapult's future success. The Company accounts for its investment in Katapult under the equity method of accounting as of December 31, 2021. Refer to Note 6, "Fair Value Measurements" for further disclosures regarding the accounting for the Company's investment in Katapult.
Historically, the Company reported income and loss from its equity method investment in Katapult on a two-month reporting lag. The merger between Katapult and FinServ in June 2021 triggered a change in Katapult's control environment and reporting structure to coincide with SEC reporting requirements. As a result, during the first quarter of 2021 the Company applied a change in accounting principle to reflect the Company's share of Katapult's historical and ongoing results from a two-month reporting lag to a one-quarter reporting lag. The Company believes this change in accounting principle is preferable as it provides the Company with the ability to present the results of its equity method investment after Katapult’s results are publicly available and related internal controls have been completed. The Company has not retrospectively applied the change in accounting principle because the impact on the financial statements was immaterial for all periods presented.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Continuing Impacts of COVID-19
As a result of COVID-19, our customers and their overall credit performance were impacted through the year ended December 31, 2021 and 2020. Throughout much of 2020 and the first half of 2021, the U.S. and Canadian governments instituted several initiatives to ease the personal burden of the pandemic, including various federal and provincial financial aid and economic stimulus programs. During the second half of 2020, consumer demand gradually increased, reflecting both the gradual lifting of certain regions' stay-at-home and self-quarantine orders in response to the pandemic's easing and the expiration of governmental stimulus programs. There was an additional round of stimulus in the U.S. in March 2021 which contributed to the decrease in loan balances and ALL during the first quarter of 2021. With stimulus programs running off in the U.S. and continued demand in Canada for loan products, loan balances generally increased between March 31, 2021 and December 31, 2021. We have maintained our historical allowance approach, but have adjusted estimates for changes in past-due gross loans receivable due to market conditions. The estimates and assumptions used to determine an appropriate ALL and liability for losses on CSO lender-owned consumer loans are those that are available through the filing of this 2021 Form 10-K and are indicative of conditions as of December 31, 2021.
As government stimulus programs have wound down, U.S. Company Owned loan balances, excluding Heights, have stabilized modestly increasing from $185.8 million as of March 31, 2021 to $190.3 million as of December 31, 2021. While the NCO rate has increased sequentially for total U.S. Company Owned gross loans receivable, they remain at low levels relative to pre-COVID-19.
In Canada, despite recent COVID-19 lockdown mandates and resurgences in the first half of 2021, on a sequential basis, Canada Direct Lending gross loans receivable and Canada POS Lending gross loans receivable grew 9.3% and 51.9%, respectively. The NCO rate for Canada POS Lending was 0.5% in the fourth quarter of 2021.
Revenue Recognition
CURO offers a broad range of consumer finance products including Revolving LOC, Unsecured Installment, Secured Installment and Single-Pay loans. Revenue in the Consolidated Statements of Operations includes: interest income, Merchant Discount Revenue ("MDR"), finance charges, CSO fees, late fees, insurance protection fees, non-sufficient funds fees and other ancillary fees. Product offerings differ by jurisdiction and are governed by the laws in each separate jurisdiction.
Revolving LOC revenues include interest income on outstanding revolving balances, MDR related to Canada POS Lending and other usage or maintenance fees as permitted by underlying statutes. Revolving LOC loans have a periodic payment that is a fixed percentage of the customer’s outstanding loan balance, and there is no defined loan term. The Company records revenue from Revolving LOC loans on a simple-interest basis. Accrued interest and fees are included in gross loans receivable in the Consolidated Balance Sheets.
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, known as late fees. Late fees comprise less than 1.0% of Installment revenues. Installment loans are fully amortizing, with a fixed payment amount, which includes principal and accrued interest, due each period during the loan term. The loan terms for Installment loans can range up to 60 months depending on state or provincial regulations. The Company records revenue from Installment loans on a simple-interest basis. Accrued interest and fees are included in gross loans receivable in the Consolidated Balance Sheets as earned. CSO fees are recognized ratably over the term of the loan as earned. Secured Installment loans are similar to Unsecured Installment loans but are secured by a clear vehicle title or security interest in the vehicle.
Single-Pay loans are primarily unsecured, short-term, small denomination loans, with a 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 as earned. The Company defers recognition of the unearned fees the Company expects to collect based on the remaining term of the loan at the end of each reporting period.
Ancillary revenue includes revenue from a number of financial products such as check cashing, demand deposit accounts, optional credit protection insurance, and money transfer services. 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. The sale of credit protection insurance and additional insurance the Company now offers as a result of the acquisition of Heights is recognized ratably over the term of the loan. The Company is required to maintain an actuarial determined reserve for Heights insurance products. As of December 31, 2021, the reserve was $2.8 million and is reported in "Accounts payable and accrued liabilities" in the Condensed Balance Sheet.
Merchant Discount Revenue
Following the acquisition of Flexiti, the Company recognizes merchant discount revenue. Merchant discount revenue represents a fee charged to merchant partners to facilitate customer purchases at merchant locations. The fee is recorded as unearned revenue when received and recognized over the expected loan term. The amount of fees charged, or merchant discount, is
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
generally deducted from the payment to the merchant at the time a customer enters into a POS transaction with the merchant. The merchant discount rate is individually negotiated between the Company and each merchant and is initially recorded as deferred revenue upon the completion of each POS transaction. As a result of purchase accounting resulting from the acquisition of Flexiti, no fair value is assigned to unearned revenue at the time of acquisition. Therefore, the Company only recognizes revenue on merchant discounts received after the acquisition of Flexiti.
Cash and cash equivalents
The Company considers deposits in banks and short-term investments with original maturities of 90 days or less as cash and cash equivalents.
Restricted Cash
The Company's restricted cash includes deposits in collateral accounts with financial institutions, consumer deposits related to prepaid cards and checking account programs and funds related to loan facilities disclosed in Note 4, "Variable Interest Entities." In connection with insurance products offered by Heights, certain of the Company's cash is restricted by agreements with financial institutions to meet certain state licensing requirements as required under various reinsurance agreements. As of December 31, 2021, the restricted cash related to Heights' insurance program was $17.4 million.
Consumer Loans Receivable
Consumer loans receivable are net of the allowance for loan losses and unamortized fair value discount for acquired loans receivable and are comprised of Revolving LOC, Unsecured Installment, Secured Installment and Single-Pay loans.
Revolving LOC loans are lines of credit without a specified maturity date and include POS financing subsequent to the acquisition of Flexiti, which is included in the Canada POS Lending segment. Revolving LOC loans require periodic payments of principal and interest that is a fixed percentage of the customer's outstanding loan balance. Customers in good standing may draw against their line of credit, repay with minimum, partial or full payments and redraws as needed.
Unsecured Installment and Secured Installment loans are fully amortized loans with a fixed payment amount due each period during the term of the loan. The loan terms for Unsecured Installment and Secured Installment loans can range up to 60 months, depending on state regulations. With the acquisition of Heights in December 2021, the Company expanded into longer term, higher balance and lower credit risk products. Heights provides Secured and Unsecured Installment loans to near-prime and non-prime consumers and offers customary opt-in insurance. The Company categorizes both unsecured loans and loans secured by non-essential household goods as Unsecured Installment loans. Secured Installment loans are typically collateralized by titled vehicles. Revolving LOC loans are primarily unsecured. The product offerings differ by jurisdiction and are governed by the laws in each separate jurisdiction.
Single-Pay loans are primarily unsecured, short-term, small denomination loans, with a small portion being auto title loans, which allow a customer to obtain a loan using their car as collateral. A Single-Pay loan transaction consists of providing a customer cash in exchange for the customer’s personal check or 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 customer’s next payday, which is typically either two weeks or a month from the loan’s origination date. An auto title loan allows a customer to obtain a loan using the customer’s car as collateral for the loan, with a typical loan term of 30 days.
Current and Past-Due Loans Receivable
CURO classifies loans receivable as either current or past-due. Single-Pay loans are considered past-due if a customer misses a scheduled payment, at which point the loan is charged-off. If a customer misses a scheduled payment for Revolving LOC, Unsecured Installment and Secured Installment loans, the entire customer balance is classified as past-due. Revolving LOC, Unsecured Installment and Secured Installment loans are charged-off when the loan has been contractually past-due for 90 consecutive days. Canada POS Lending loans are charged-off when the loan has been contractually past due for 180 days or when notice of customer bankruptcy or consumer proposal has been received. Unsecured and Secured Installment loans associated with the Heights acquisition are classified as past-due 31 days after a missed payment and are charged-off at the earlier of the date such loans are deemed to be uncollectible or when the loan becomes more than 180 days past due.
Allowance for Loan Losses
The Company maintains an ALL for loans and interest receivable at a level estimated to be adequate to absorb incurred losses based primarily on the Company's analysis of historical loss or charge-off rates for loans containing similar risk characteristics. The ALL on the Company-Owned gross loans receivables reduces the outstanding gross loans receivables balance in the Consolidated Balance Sheets. The liability for estimated losses related to loans Guaranteed by the Company under CSO programs is reported in “Liability for losses on CSO lender-owned consumer loans” in the Consolidated Balance Sheets.
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Changes in either the ALL or the liability, net of charge-offs and recoveries, are recorded as “Provision for losses” in the Consolidated Statements of Operations.
In addition to an analysis of historical loss and charge-off rates, the Company also considers delinquency trends and any macro-economic conditions that it believes may affect portfolio losses. If a loan is deemed to be uncollectible before it is fully reserved based on received information (e.g., receipt of customer bankruptcy notice or death), the Company charges off such loan at that time. 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 management’s judgment on the overall adequacy of the ALL. Any recoveries on loans previously charged to the ALL are credited to the ALL when collected.
Troubled Debt Restructuring
In certain circumstances, the Company modifies the terms of its loans receivable for borrowers. Under U.S. GAAP, a modification of loans receivable terms is considered a TDR if the borrower is experiencing financial difficulty and the Company grants a concession to the borrower it would not have otherwise granted under the terms of the original agreement. In light of COVID-19, the Company established an enhanced Customer Care Program, which enables its team members to provide relief to customers in various ways, ranging from due date changes, interest or fee forgiveness, payment waivers or extended payment plans, depending on a customer’s individual circumstances. The Company modifies loans only if it believes the customer has the ability to pay under the restructured terms. The Company continues to accrue and collect interest on these loans in accordance with the restructured terms.
The Company records its ALL related to TDRs by discounting the estimated cash flows associated with the respective TDR at the effective interest rate immediately after the loan modification and records any difference between the discounted cash flows and the carrying value as an ALL adjustment. A loan that has been classified as a TDR remains so classified until the loan is paid off or charged-off. A TDR is charged off consistent with the Company's policies for the related loan product.
Loans Receivable on a Non-Accrual Basis
The Company may place loans receivable on non-accrual status due to statutory requirements or, if in management’s judgment, the timely collection of principal and interest becomes uncertain. After a loan is placed on non-accrual status, no further interest is accrued. Loans remain on non-accrual status until payment or charged-off. Payments are applied initially to any outstanding past due loan balances prior to current loan balances. Not all past-due payments will bring a loan off non-accrual status. The Company's policy for determining past due status is consistent with the accounts receivable aging disclosure.
Credit Services Organization
Through the CSO programs, the Company acts as a CSO/CAB on behalf of customers in accordance with applicable state laws. The Company currently offers loans through CSO programs in stores and online in the state of Texas. As a CSO, CURO earns revenue by charging the customer a CSO fee for arranging an unrelated third-party to make a loan to that customer. When a customer executes an agreement with CURO under the CSO programs, the Company agrees, for a CSO fee payable to the Company by the customer, to provide certain services to the customer, one of which is to guarantee the customer’s obligation to repay the loan to the third-party lender. CSO fees are calculated based on the amount of the customer's outstanding loan. For CSO loans, each lender is responsible for providing the criteria by which the customer’s application is underwritten and, if approved, determining the amount of the customer loan. The Company is, in turn, responsible for assessing whether or not to guarantee the loan. This guarantee represents an obligation to purchase loans if they are charged-off.
CURO currently has relationships with two unaffiliated third-party lenders for CSO programs. The Company periodically evaluates the competitive terms of the unaffiliated third-party lender contracts and such evaluation may result in the transfer of volume and loan balances between lenders. The process does not require significant effort or resources outside the normal course of business and the Company believes the incremental cost of changing or acquiring new unaffiliated third-party lender relationships to be immaterial.
CURO estimates a liability for losses associated with the guaranty provided to the CSO lenders using assumptions and methodologies similar to the ALL, which is recognized for the consumer loans and is included as "Liability for losses on CSO lender-owned consumer loans" on the Consolidated Balance Sheets.
CSO fees are calculated based on the amount of the customer’s outstanding loan. The Company complies with the applicable jurisdiction’s Credit Services Organization Act or a similar statue. These laws generally define the services that CURO can provide to consumers and require the Company to provide a contract to the customer outlining its services and related costs. For services provided under the CSO programs, the Company receives 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. During the years ended
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December 31, 2021, 2020 and 2019, approximately 58.3%, 66.5% and 63.8%, respectively, of loans originated under CSO programs were paid off prior to the original maturity date.
Since CSO loans are made by a third-party lender, they are not included in the Company's Consolidated Balance Sheets as loans receivable. CSO fees receivable are included in “Prepaid expenses and other” in the Consolidated Balance Sheets. The Company receives cash from customers for these fees on their scheduled loan repayment due dates.
Variable Interest Entities
As part of the Company's funding strategy and efforts to support the liquidity from sources other than the traditional capital market sources, the Company established a securitization program through the U.S. SPV, Canada SPV, Flexiti SPE, Flexiti Securitization and Heights SPV facilities. In addition, upon closing of the Heights acquisition, the Company assumed the Heights SPV facility. See Note 4, "Variable Interest Entities" and Note 7, "Debt" for further discussion on these facilities. The Company transfers certain consumer loan receivables to the VIEs that issues term notes backed by the underlying consumer loan receivables which are serviced by other wholly-owned subsidiaries.
For each facility, the Company has 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, CURO has the right to receive residual payments, which exposes the Company to the potential for significant losses and returns. Accordingly, the Company determined that they are the primary beneficiary of the VIEs and are required to consolidate them.
Derivatives
As foreign currency exchange rates change, translation of the financial results of the Canadian operations into U.S. Dollars will be impacted. Operations in Canada represent a significant portion of total operations, and as a result, material changes in the currency exchange rates as between these two countries could have a significant impact on the Company's consolidated financial condition, results of operations or cash flows. The Company may elect to purchase derivatives to hedge exposures that would qualify as a cash flow or fair value hedge. The Company records derivative instruments at fair value as either an asset or liability on the Consolidated 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, the 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).
As of December 31, 2021 and 2020, the Company had $157.8 million and $96.1 million, respectively, in variable interest rate debt outstanding related to the Canada SPV. In August 2018, the Company entered into a four-year C$175.0 million interest rate cap agreement with the Royal Bank of Canada that capped the related three-month CDOR rate at 4.50% beginning in September 2018. During the year ended December 31, 2021 and 2020, the three-month CDOR rate did not exceed 4.50% and did not have a material impact on the Company's Statement of Operations.
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 significant additions and improvements are capitalized. Maintenance repairs and renewals, that do not materially add to the fixed asset's value or appreciably prolong its life, are charged to expense as incurred. Gains and losses on dispositions of property and equipment are included in results of operations.
The estimated useful lives for furniture, fixtures and equipment are five years to seven years. The estimated useful lives for leasehold improvements can vary from five years to fifteen years. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the depreciable or amortizable assets.
Business Combination Accounting
Business combination accounting requires that the Company determines 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 as of the acquisition date, 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. The Company engages third-party appraisal firms to assist in fair value determination when appropriate. The acquisitions may also include contingent consideration, or earn-out provisions, which provide for additional consideration to be paid to the seller if certain conditions are met in the future. These earn-out provisions are estimated and recognized at fair value at the acquisition date
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based on projected earnings or other financial metrics over specified future periods. These estimates are reviewed during each subsequent reporting period and adjusted based upon actual results. Acquisition-related costs for potential and completed acquisitions are expensed as incurred and included in "Other operating expense" in the Consolidated Statements of Operations.
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, the Company utilizes independent valuation experts to advise and assist 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.
Goodwill and Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination at the time of acquisition. In accordance with ASC 350, Intangibles - Goodwill and Other ("ASC 350"), the Company performs impairment testing for goodwill and indefinite-lived intangible assets annually, as of October 1st, or whenever indicators of impairment exist. An impairment would occur if the carrying amount of a reporting unit exceeded the fair value of that reporting unit. These events or circumstances 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 economic outlook. The Company did not record any impairment losses on goodwill from continuing operations during the years ended December 31, 2021, 2020 or 2019.
Goodwill
The annual impairment review for goodwill consists of performing a qualitative assessment to determine whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount as a basis for determining whether or not further testing is required. The Company may elect to bypass the qualitative assessment and proceed directly to the two-step process, for any reporting unit, in any period. The Company can resume the qualitative assessment for any reporting unit in any subsequent period. If the Company determines, 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, the Company will then apply a two-step process of (i) determining the fair value of the reporting unit and (ii) 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, the Company would recognize an impairment loss equal to such excess, which could significantly and adversely impact reported results of operations and stockholders’ equity. See Note 5, "Goodwill and Intangibles" for additional information.
Intangible Assets
The Company's identifiable intangible assets, resulting from business combinations and internally developed capitalized software, consist of trade names, developed technology, merchant relationships, customer relationships and computer software. See Note 15, "Acquisitions" for additional information on intangible assets resulting from business combinations.
The Company applied the guidance under ASC 350 to software that is purchased or internally developed. Under ASC 350, eligible internal and external costs incurred for the development of computer software applications, as well as for upgrades and enhancements that result in additional functionality of the applications, are capitalized to "Intangibles, net" in the Consolidated Balance Sheets. Internal and external training and maintenance costs are charged to expense as incurred or over the related service period. When a software application is placed in service, the Company begins amortizing the related capitalized software costs using the straight-line method over its estimated useful life, which ranges from three years to ten years.
The “Cash Money” trade name was determined to be an intangible asset with an indefinite life. Intangible assets with indefinite lives are not amortized, but instead are tested annually for impairment and 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 deemed impaired, the asset’s carrying amount is reduced to its estimated fair value. No indefinite life intangible impairments were recorded during the years ended December 31, 2021, 2020 or 2019. See Note 5, "Goodwill and Intangibles" for further information.
The Company's finite lived intangible assets are amortized over their estimated economic benefit period, generally from three to ten years. The Company reviews the intangible assets for impairment annually in the fourth quarter or whenever events or changes in circumstances have indicated that the carrying amount of these assets might not be recoverable. If the Company were to determine that events and circumstances warrant a change to the estimate of an identifiable intangible asset’s 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 the 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
recognition of an impairment charge. There were no changes in events or circumstances related to the Company's continuing operations that caused the Company to review the finite lived intangible assets for impairment for the years ended December 31, 2021, 2020 or 2019. Additionally, no finite lived impairments were recorded during the years ended December 31, 2021, 2020 or 2019. See Note 5, "Goodwill and Intangibles" for further information.
Deferred Financing Costs
Deferred financing costs consist of debt issuance costs incurred in obtaining financing. These costs are presented in the Consolidated Balance Sheets 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 Senior Secured Notes and the straight-line method is used to amortize the deferred financing costs of the SPV and SPE facilities. See Note 7, "Debt" for additional details on the Company's capital resources.
Fair Value Measurements
The Company determines fair value measurements of financial and non-financial assets and liabilities in accordance with FASB ASC 820, Fair Value Measurements and Disclosures. This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (also referred to as an exit price). This guidance also establishes a framework for measuring fair value and expands disclosures about fair value measurements. The standard applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. See Note 6, “Fair Value Measurements” for additional information.
Concentration Risk
Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of its loans receivable.
Direct Lending operations in the U.S. and Canada are subject to concentration risk at the state and province level. To the extent that laws and regulations are passed that affect the manner in which the Company conducts business in a heavily concentrated market, its financial condition, results of operations and cash flows could be adversely affected. Additionally, the Company's ability to meet its financial obligations could be negatively impacted.
Revenues originated in Texas and Ontario represented approximately 21.0% and 20.2%, respectively, of the Company's consolidated revenues for the year ended December 31, 2021. As a result of regulatory impacts and the related run-off of certain Installment portfolios, California no longer represents a concentration risk as a percentage of consolidated revenues for the year ended December 31, 2021. Revenues originated in Texas, California and Ontario represented approximately 22.6%, 13.6% and 16.6%, respectively, of the Company's consolidated revenues for the year ended December 31, 2020. Revenues originated in Texas, California and Ontario represented approximately 24.6%, 18.4% and 13.6%, respectively, of the Company's consolidated revenues for the year ended December 31, 2019.
The Company operates its Canada POS Lending operations with various merchant partners. To the extent that the Company were to discontinue its relationship with a merchant, the Company believes it could find other merchants to provide its products. From a revenue perspective, there are no material concentrations in the Canada POS Lending operations for the year ended December 31, 2021. However, as originations and gross loans receivables continue to grow as a result of its merchant relationship with LFL, which the Company entered into in the third quarter of 2021, revenue contribution from LFL could become a material component of total revenue for Canada POS Lending.
Following the acquisition of Heights, which accounted for approximately $472 million of gross loans receivable as of December 31, 2021, the Company operates in new U.S. markets, primarily the southern and eastern states. As the revenue contribution was minimal, there were no material concentrations for the year ended December 31, 2021.
The Company holds cash at major financial institutions that often exceed FDIC insured limits. The Company manages its concentration risk by maintaining cash deposits in high quality financial institutions and by periodically evaluating the credit quality of the financial institutions holding such deposits. Historically, the Company has not experienced any losses due to such cash concentration.
Leases
Leases entered into by the Company are primarily for retail stores in certain U.S. states and Canadian provinces. Upon entering into an agreement, the Company determines if an arrangement is a lease.
Typically, a contract constitutes a lease if it conveys the right to control the use of an identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. To determine whether a contract conveys the right to control the use of an identified asset for a period of time, the Company must assess whether, throughout the period of use, the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
customer has both (i) the right to obtain substantially all of the economic benefits from use of the identified asset and (ii) the right to direct the use of the identified asset. If the customer has the right to control the use of an identified asset for only a portion of the term of the contract, the contract contains a lease for that portion of the term.
Leases classified as finance are immaterial to the Company as of December 31, 2021. Operating leases expire at various times through 2033. Operating leases are included in "Right of use asset - operating leases" and "Lease liability - operating leases" on the Consolidated Balance Sheets.
The Company recognizes ROU assets and lease liabilities based on the present value of lease payments over the lease term at commencement date. The rate implicit in the Company's leases typically are not readily determinable. As a result, the Company uses its estimated incremental borrowing rate, as allowed by ASC 842, Leases, in determining the present value of lease payments. The incremental borrowing rate is based on internal and external information available at the lease commencement date and is determined using a portfolio approach (i.e., using the weighted average terms of all leases in the Company's portfolio). This rate is the theoretical rate the Company would pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term as that of the portfolio.
The Company uses quoted interest rates obtained from financial institutions as an input, adjusted for Company-specific factors, to derive the incremental borrowing rate as the discount rate for the leases. As new leases are added each period, the Company evaluates whether the incremental borrowing rate has changed. If the incremental borrowing rate has changed, the Company will apply the rate to new leases if not doing so would result in a material difference to the ROU asset and lease liability presented on the balance sheet.
The majority of the leases have an original term up to five years plus renewal options for additional similar terms. The Consumer Price Index is used in determining future lease payments and for purposes of calculating operating lease liabilities. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Most of the leases have escalation clauses and certain leases also require payment of period costs, including maintenance, insurance and property taxes. The Company has elected to combine lease and non-lease components and to exclude short-term leases, defined as having an initial term of 12 months or less, from the Consolidated Balance Sheets. Some of the leases are with related parties and have terms similar to the non-related party leases. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Operating Expenses
Salaries and Benefits—Salaries and benefits include personnel-related costs, including salaries, benefits, bonuses and share-based compensation and are driven by the number of global employees.
Occupancy—Occupancy includes costs related to the Company's leased facilities, including rent, utilities, maintenance, repairs and insurance expense.
Advertising—Advertising costs are expensed as incurred.
Direct operations—Direct operations include costs related to the Company's Direct Lending and POS operations, including collections and financial services fees.
Depreciation and amortization—includes the depreciation and amortization of property and equipment and intangible assets.
Other operating expense—Other operating expense includes office expense, professional fees, security expense, travel and entertainment, and non-routine costs such as transaction costs and store closure costs.
Other Expense (Income)
Interest Expense—includes interest related to the Company's Senior Secured Notes, SPV, SPE and securitization facilities and Senior Revolvers.
Loss (income) from equity method investment—includes the Company's share of the net income from its equity method investments.
Gain from equity method investment—includes the Company's net gain from its equity method investment.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Share-Based Compensation
CURO accounts for share-based compensation expense for awards to employees and directors at the estimated fair value on the grant date. The Company determines the fair value of stock option grants using the Black-Scholes option pricing model, which requires CURO to make several assumptions including, but not limited to, the risk-free interest rate and the expected volatility of publicly-traded stocks in the financial services industry. The expected option term is calculated using the average of the vesting period and the original contractual term. For RSUs, the value of the award is calculated using the closing market price of the common stock on the grant date for time-based and performance-based RSUs, and using the Monte Carlo simulation pricing model for the market-based RSUs. The Company recognizes the estimated fair value of share-based awards as compensation expense on a straight-line basis over the vesting period. The Company accounts for forfeitures as they occur for all share-based awards.
In accordance with ASC 718, Compensation - Stock Compensation, the Company may choose, upon vesting of employees' RSUs, to return shares of common stock underlying the vested RSUs to the Company in satisfaction of employees' tax withholding obligations (collectively, "net-share settlements") rather than requiring shares of common stock to be sold on the open market to satisfy these tax withholding obligations. The total number of shares of common stock returned to the Company is based on the closing price of the Company's common stock on the applicable vesting date. These net-share settlements reduced the number of shares of common stock that would have otherwise been outstanding on the open market, and the cash CURO paid to satisfy the employee portion of the tax withholding obligations are reflected as a reduction to "Paid-in capital" in the Company's Consolidated Balance Sheets and Consolidated Statements of Changes in Equity.
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 the Company's ability to generate sufficient future taxable income and, if necessary, execution of tax planning strategies. In the event CURO determines that future taxable income, taking into consideration tax planning strategies, may not generate sufficient taxable income to fully realize net deferred tax assets, the Company may be required to establish or increase valuation allowances by a charge to income tax expense in the period such a determination is made, which may have a material impact on the Consolidated Statements of Operations. The Company measures deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which they expect those temporary differences 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 and it may have a material impact on the Consolidated Statements of Operations.
CURO follows accounting guidance which prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements unrecognized tax benefits for 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 that 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. The Company considers many factors when evaluating and estimating tax positions and tax benefits, and the recognized tax positions and tax benefits may not accurately anticipate actual outcomes. As the Company obtains additional information, they may need to adjust the recognized tax positions and tax benefits. For additional information related to unrecognized tax benefits, see Note 9, "Income Taxes."
Foreign Currency Translation
The Canadian dollar is considered the functional currency for operations in Canada. All balance sheet accounts are translated into U.S. dollars at the exchange rate in effect at each Balance Sheet date. The Statements of Operations are translated at the average rates of exchange during each period. The Company has determined that certain 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 operating expense" in the Consolidated Statements of Operations.
Legal and Other Commitments and Contingencies
The Company is subject to litigation in the normal course of its business. The Company applies the provisions as defined in the guidance related to accounting for contingencies in determining the recognition and measurement of expense recognition associated with legal claims against the Company. Management uses guidance from internal and external legal counsel on the potential outcome of litigation in determining the need to record liabilities for potential losses and the disclosure of pending legal claims.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Recently Adopted Accounting Pronouncements
ASU 2020-01
In January 2020, the FASB issued ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (ASU 2020-01). ASU 2020-01 clarifies the interaction of the accounting for equity securities under Topic 321, the accounting for equity method investments in Topic 323 and the accounting for certain forward contracts and purchased options in Topic 815. The Company adopted ASU 2020-01 as of January 1, 2021, which did not have a material impact on the Consolidated Financial Statements.
ASU 2019-12
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (Topic 740). The ASU intends to simplify various aspects related to accounting for income taxes and removes certain exceptions to the general principles in Topic 740. Additionally, the ASU clarifies and amends existing guidance to improve consistent application of its requirements. The Company adopted ASU 2019-12 as of January 1, 2021, which did not have a material impact on the Company's Consolidated Financial Statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
ASU 2016-13 and subsequent amendments
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent amendments to the guidance: ASU 2018-19 in November 2018, ASU 2019-04 in April 2019, ASU 2019-05 in May 2019, ASU 2019-10 and -11 in November 2019 and ASU 2020-02 in February 2020. The amended standard changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard will replace the current “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. The amendment will affect loans, debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures, reinsurance receivables and any other financial assets not excluded from the scope that have the contractual right to receive cash.
ASU 2019-10 amends the mandatory effective date for ASU 2016-13. As a result, ASU 2016-13 and related amendments are effective for fiscal years beginning after December 15, 2022 for entities that qualified as an SRC as of June 30, 2019, such as the Company. ASU 2016-13 and its amendments should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. Early adoption is permitted. The Company is evaluating its alternatives with respect to the available accounting methods under ASU 2016-13, including the fair value option. If the fair value option is not utilized, adoption of ASU 2016-13 will increase the allowance for credit losses, with a resulting negative adjustment to retained earnings on the date of adoption. The Company deferred the adoption of ASU 2016-13 as permitted under ASU 2019-10. The Company is currently assessing the impact that adoption of ASU 2016-13 will have on its Consolidated Financial Statements.
ASU 2020-04 and subsequent amendments
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides temporary optional expedients and exceptions to U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the upcoming market transition from LIBOR and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by this reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities also can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform if certain criteria are met. The guidance is effective upon issuance and generally can be applied through December 31, 2022. The FASB also issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope in January 2021. It clarifies that certain optional expedients and exceptions in Topic 848 apply to derivatives that are affected by the discounting transition. The amendments in this ASU affect the guidance in ASU 2020-04 and are effective in the same timeframe as ASU 2020-04. The Company anticipates to transition applicable debt facilities from LIBOR to SOFR and currently does not expect the adoption of these ASUs to have a material impact on its Consolidated Financial Statements.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
ASU 2021-08
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with ASC 606, Revenue from Contracts with Customers. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022 and early adoption is permitted. While the Company is continuing to assess the timing of adoption and the potential impacts of ASU 2021-08, it does not expect ASU 2021-08 to have a material effect, if any, on its Consolidated Financial Statements.
NOTE 2 – REVENUE AND LOANS RECEIVABLE
Revenue
The following table summarizes revenue by product (in thousands):
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | 2020 | 2019 |
| Revolving LOC | $ | 294,591 | | $ | 249,502 | | $ | 245,256 | |
| | | |
| Unsecured Installment | 290,321 | | 339,116 | | 530,730 | |
| Secured Installment | 56,418 | | 79,136 | | 110,513 | |
| Single-Pay | 102,405 | | 120,433 | | 191,449 | |
| Total Installment | 449,144 | | 538,685 | | 832,692 | |
| | | |
| Ancillary | 74,108 | | 59,209 | | 63,849 | |
Total revenue(1) | $ | 817,843 | | $ | 847,396 | | $ | 1,141,797 | |
(1) Includes revenue from CSO programs of $167.1 million, $185.5 million and $281.6 million for the years ended December 31, 2021, 2020 and 2019, respectively. |
Loans receivable, net of allowance for loan losses
The Company acquired Heights on December 27, 2021, which resulted in approximately $472 million of gross loans receivable as of December 31, 2021. As a result of purchase accounting adjustments and the timing of the acquisition, Heights did not contribute to ALL as of December 31, 2021. For additional information regarding the acquisition and related impacts to the results of operations, see Note 15, "Acquisitions."
The following tables summarize loans receivable by product and the related delinquent loans receivable (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Revolving LOC | | Unsecured Installment | Secured Installment | Single-Pay(1) | Total Installment - Company Owned | | Total |
| Current loans receivable | | $ | 843,379 | | | $ | 359,512 | | $ | 110,232 | | $ | 42,463 | | $ | 512,207 | | | $ | 1,355,586 | |
| Delinquent loans receivable | | 70,734 | | | 98,174 | | 23,824 | | — | | 121,998 | | | 192,732 | |
| Total loans receivable | | 914,113 | | | 457,686 | | 134,056 | | 42,463 | | 634,205 | | | 1,548,318 | |
| Less: allowance for loan losses | | (68,140) | | | (13,387) | | (3,327) | | (2,706) | | (19,420) | | | (87,560) | |
| Loans receivable, net | | $ | 845,973 | | | $ | 444,299 | | $ | 130,729 | | $ | 39,757 | | $ | 614,785 | | | $ | 1,460,758 | |
(1) Of the $42.5 million of Single-Pay receivables, $11.3 million relate to mandated extended payment options for certain Canada Single-Pay loans. |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Revolving LOC | | Unsecured Installment | Secured Installment | Total Installment - Company Owned | | Total |
| Delinquent loans receivable | | | | | | | | |
| 1-30 days past-due | | $ | 35,657 | | | $ | 45,160 | | $ | 13,213 | | $ | 58,373 | | | $ | 94,030 | |
| 31-60 days past-due | | 15,452 | | | 16,646 | | 4,539 | | 21,185 | | | 36,637 | |
| 61-90 days past-due | | 13,397 | | | 13,933 | | 3,213 | | 17,146 | | | 30,543 | |
| 91 + days past-due | | 6,228 | | | 22,435 | | 2,859 | | 25,294 | | | 31,522 | |
| Total delinquent loans receivable | | $ | 70,734 | | | $ | 98,174 | | $ | 23,824 | | $ | 121,998 | | | $ | 192,732 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | Revolving LOC | | Unsecured Installment | Secured Installment | Single-Pay(1) | Total Installment - Company Owned | | Total |
| Current loans receivable | | $ | 321,105 | | | $ | 78,235 | | $ | 40,358 | | $ | 43,780 | | $ | 162,373 | | | $ | 483,478 | |
| Delinquent loans receivable | | 37,779 | | | 24,190 | | 8,275 | | — | | 32,465 | | | 70,244 | |
| Total loans receivable | | 358,884 | | | 102,425 | | 48,633 | | 43,780 | | 194,838 | | | 553,722 | |
| Less: allowance for loan losses | | (51,958) | | | (24,073) | | (7,047) | | (3,084) | | (34,204) | | | (86,162) | |
| Loans receivable, net | | $ | 306,926 | | | $ | 78,352 | | $ | 41,586 | | $ | 40,696 | | $ | 160,634 | | | $ | 467,560 | |
(1) Of the $43.8 million of Single-Pay receivables, $11.2 million relate to mandated extended payment options for certain Canada Single-Pay loans. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 |
| | Revolving LOC | | Unsecured Installment | Secured Installment | Total Installment - Company Owned | | Total |
| Delinquent loans receivable | | | | | | | | |
| 1-30 days past-due | | $ | 17,517 | | | $ | 10,361 | | $ | 3,764 | | $ | 14,125 | | | $ | 31,642 | |
| 31-60 days past-due | | 9,276 | | | 7,124 | | 2,199 | | 9,323 | | | 18,599 | |
| 61-90 days past-due | | 8,597 | | | 6,167 | | 1,971 | | 8,138 | | | 16,735 | |
| 91 + days past due | | 2,389 | | | 538 | | 341 | | 879 | | | 3,268 | |
| Total delinquent loans receivable | | $ | 37,779 | | | $ | 24,190 | | $ | 8,275 | | $ | 32,465 | | | $ | 70,244 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
The following tables summarize loans Guaranteed by the Company under CSO programs and the related delinquent receivables (in thousands):
| | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Unsecured Installment | Secured Installment | Total Installment - Guaranteed by the Company |
| Current loans receivable Guaranteed by the Company | | $ | 37,303 | | $ | 799 | | $ | 38,102 | |
| Delinquent loans receivable Guaranteed by the Company | | 8,011 | | 204 | | 8,215 | |
| Total loans receivable Guaranteed by the Company | | 45,314 | | 1,003 | | 46,317 | |
| Less: Liability for losses on CSO lender-owned consumer loans | | (6,869) | | (39) | | (6,908) | |
| Loans receivable Guaranteed by the Company, net | | $ | 38,445 | | $ | 964 | | $ | 39,409 | |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
| | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Unsecured Installment | Secured Installment | Total Installment - Guaranteed by the Company |
| Delinquent loans receivable | | | | |
| 1-30 days past-due | | $ | 6,633 | | $ | 162 | | $ | 6,795 | |
| 31-60 days past-due | | 1,003 | | 28 | | 1,031 | |
| 61-90 days past-due | | 277 | | 8 | | 285 | |
| 91+ days past-due | | 98 | | 6 | | 104 | |
| Total delinquent loans receivable | | $ | 8,011 | | $ | 204 | | $ | 8,215 | |
| | | | |
| | | | |
| | | | |
| | | | | | | | | | | | | | |
| | December 31, 2020 |
| | Unsecured Installment | Secured Installment | Total Installment - Guaranteed by the Company |
| Current loans receivable guaranteed by the Company | | $ | 37,096 | | $ | 775 | | $ | 37,871 | |
| Delinquent loans receivable guaranteed by the Company | | 6,079 | | 155 | | 6,234 | |
| Total loans receivable guaranteed by the Company | | 43,175 | | 930 | | 44,105 | |
| Less: Liability for losses on CSO lender-owned consumer loans | | (7,160) | | (68) | | (7,228) | |
| Loans receivable guaranteed by the Company, net | | $ | 36,015 | | $ | 862 | | $ | 36,877 | |
| | | | | | | | | | | | | | |
| | December 31, 2020 |
| | Unsecured Installment | Secured Installment | Total Installment - Guaranteed by the Company |
| Delinquent loans receivable | | | | |
| 0-30 days past-due | | $ | 5,435 | | $ | 103 | | $ | 5,538 | |
| 31-60 days past-due | | 490 | | 37 | | 527 | |
| 61-90 days past-due | | 124 | | 9 | | 133 | |
| 91+ days past-due | | 30 | | 6 | | 36 | |
| Total delinquent loans receivable | | $ | 6,079 | | $ | 155 | | $ | 6,234 | |
| | | | |
| | | | |
| | | | |
The following tables summarize activity in the ALL and the liability for losses on CSO lender-owned consumer loans in total (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Revolving LOC | | Unsecured Installment | Secured Installment | Single-Pay | Total Installment | | Other | Total |
| Allowance for loan losses: | | | | | | | | | |
| Balance, beginning of period | $ | 51,958 | | | $ | 24,073 | | $ | 7,047 | | $ | 3,084 | | $ | 34,204 | | | $ | — | | $ | 86,162 | |
| Charge-offs | (114,827) | | | (77,123) | | (20,874) | | (93,737) | | (191,734) | | | (3,911) | | (310,472) | |
| Recoveries | 29,454 | | | 21,815 | | 9,329 | | 76,003 | | 107,147 | | | 1,810 | | 138,411 | |
| Net charge-offs | (85,373) | | | (55,308) | | (11,545) | | (17,734) | | (84,587) | | | (2,101) | | (172,061) | |
| Provision for losses | 102,457 | | | 44,584 | | 7,825 | | 17,357 | | 69,766 | | | 2,101 | | 174,324 | |
| Effect of foreign currency translation | (902) | | | 38 | | — | | (1) | | 37 | | | — | | (865) | |
| Balance, end of period | $ | 68,140 | | | $ | 13,387 | | $ | 3,327 | | $ | 2,706 | | $ | 19,420 | | | $ | — | | $ | 87,560 | |
| Liability for losses on CSO lender-owned consumer loans: | | | | | | | | | |
| Balance, beginning of period | $ | — | | | $ | 7,160 | | $ | 68 | | $ | — | | $ | 7,228 | | | $ | — | | $ | 7,228 | |
| Increase in liability | — | | | (291) | | (29) | | — | | (320) | | | — | | (320) | |
| Balance, end of period | $ | — | | | $ | 6,869 | | $ | 39 | | $ | — | | $ | 6,908 | | | $ | — | | $ | 6,908 | |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| Revolving LOC | | Unsecured Installment | Secured Installment | Single-Pay | Total Installment | | Other | Total |
| Allowance for loan losses: | | | | | | | | | |
| Balance, beginning of period | $ | 55,074 | | | $ | 35,587 | | $ | 10,305 | | $ | 5,869 | | $ | 51,761 | | | $ | — | | $ | 106,835 | |
| Charge-offs | (129,664) | | | (98,870) | | (37,243) | | (106,817) | | (242,930) | | | (3,856) | | (376,450) | |
| Recoveries | 21,312 | | | 22,076 | | 10,239 | | 86,092 | | 118,407 | | | 1,983 | | 141,702 | |
| Net charge-offs | (108,352) | | | (76,794) | | (27,004) | | (20,725) | | (124,523) | | | (1,873) | | (234,748) | |
| Provision for losses | 104,249 | | | 65,272 | | 23,746 | | 18,003 | | 107,021 | | | 1,873 | | 213,143 | |
| Effect of foreign currency translation | 987 | | | 8 | | — | | (63) | | (55) | | | — | | 932 | |
| Balance, end of period | $ | 51,958 | | | $ | 24,073 | | $ | 7,047 | | $ | 3,084 | | $ | 34,204 | | | $ | — | | $ | 86,162 | |
| Liability for losses on CSO lender-owned consumer loans: | | | | | | | | | |
| Balance, beginning of period | $ | — | | | $ | 10,553 | | $ | 70 | | $ | — | | $ | 10,623 | | | $ | — | | $ | 10,623 | |
| Decrease in liability | $ | — | | | (3,393) | | (2) | | $ | — | | (3,395) | | | $ | — | | (3,395) | |
| Balance, end of period | $ | — | | | $ | 7,160 | | $ | 68 | | $ | — | | $ | 7,228 | | | $ | — | | $ | 7,228 | |
As of December 31, 2021, Revolving LOC and Installment loans classified as nonaccrual were $5.9 million and $41.4 million, respectively. As of December 31, 2020, Revolving LOC and Installment loans classified as nonaccrual were $4.4 million and $6.2 million, respectively. The Company considers nonaccrual loans in its estimate of the ALL as delinquencies are a primary input into the Company's allowance model.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
TDR Loans Receivable
In certain circumstances, the Company modifies the terms of its loans receivable for borrowers. Under U.S. GAAP, a modification of loans receivable terms is considered a TDR if the borrower is experiencing financial difficulty and the Company grants a concession to the borrower it would not have otherwise granted under the terms of the original agreement. In response to COVID-19, in 2020 the Company established an enhanced Customer Care Program, which enables its team members to provide relief to customers in various ways, ranging from due date changes, interest or fee forgiveness, payment waivers or extended payment plans, depending on a customer’s individual circumstances. The Company modifies loans only if it believes the customer has the ability to pay under the restructured terms. The Company continues to accrue and collect interest on these loans in accordance with the restructured terms.
The Company records its ALL related to TDRs by discounting the estimated cash flows associated with the respective TDR at the effective interest rate immediately after the loan modification and records any difference between the discounted cash flows and the carrying value as an allowance adjustment. A loan that has been classified as a TDR remains so classified until the loan is paid off or charged off. A TDR is charged off consistent with the Company's policies for the related loan product. For additional information on the Company's loss recognition policy, see Note 1, "Significant Accounting Policies and Nature of Operations".
The table below presents TDRs, which are related to the Customer Care Program the Company implemented in response to COVID-19, included in gross loans receivable and the impairment included in the ALL (in thousands):
| | | | | | | | | | | | | | |
| | As of December 31, 2021 | | As of December 31, 2020 |
| | | | |
| Current TDR gross receivables | | $ | 11,580 | | | $ | 13,563 | |
| Delinquent TDR gross receivables | | 5,066 | | | 6,309 | |
| Total TDR gross receivables | | 16,646 | | | 19,872 | |
| Less: Impairment included in the allowance for loan losses | | (3,632) | | | (3,482) | |
| Less: Additional allowance | | (2,212) | | | (4,497) | |
| Outstanding TDR receivables, net of impairment | | $ | 10,802 | | | $ | 11,893 | |
The tables below reflect new loans modified and classified as TDRs during the periods presented (in thousands):
| | | | | | | | | | | | | | |
| | Year Ended December 31, 2021 | | Year Ended December 31, 2020 |
| | | | |
| Pre-modification TDR loans receivable | | $ | 16,255 | | | $ | 38,930 | |
| Post-modification TDR loans receivable | | 14,538 | | | 34,252 | |
| Total concessions included in gross charge-offs | | $ | 1,717 | | | $ | 4,678 | |
There were $14.0 million and $11.6 million of loans classified as TDRs that were charged off and included as a reduction in the ALL for the years ended December 31, 2021 and 2020, respectively. The Company had commitments to lend additional funds of approximately $2.1 million to customers with available and unfunded Revolving LOC loans classified as TDRs as of December 31, 2021.
The table below presents the Company's average outstanding TDR loans receivable, interest income recognized on TDR loans and number of TDR loans for the years ended December 31, 2021 and 2020 (dollars in thousands):
| | | | | | | | | | | | | | |
| | Year Ended December 31, 2021 | | Year Ended December 31, 2020 |
| | | | |
Average outstanding TDR loans receivable (1) | | $ | 18,259 | | | $ | 20,631 | |
| Interest income recognized | | 18,328 | | | 17,074 | |
Number of TDR loans(2) | | 11,693 | | | 27,082 | |
(1) For the year ended December 31, 2020, the average is calculated based on the amount immediately after the loan was classified as a TDR and the ending TDR balance as of December 31, 2020 as there were no TDRs prior to April 1, 2020. |
| (2) Presented in ones |
There were no loans classified as TDRs during the year ended December 31, 2019.
NOTE 3 – CREDIT SERVICES ORGANIZATION
The CSO fee receivables were $5.2 million and $5.0 million at December 31, 2021 and December 31, 2020, respectively, and are reflected in "Prepaid expenses and other" in the Consolidated Balance Sheets. The Company bears the risk of loss through
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
As of December 31, 2021 and December 31, 2020, the incremental maximum amount payable under all such guarantees was $38.4 million and $36.6 million, respectively. This liability is not included in the Company's Consolidated Balance Sheets. If the Company is required to pay any portion of the total amount of the loans it has guaranteed, it will attempt to recover the entire amount or a portion from the applicable customers. The Company holds no collateral in respect to the guarantees. The Company estimates a liability for losses associated with the guaranty provided to the CSO lenders, which was $6.9 million and $7.2 million at December 31, 2021 and December 31, 2020, respectively. This liability is reflected in "Liability for losses on CSO lender-owned consumer loans" in the Consolidated Balance Sheets.
The Company placed $5.5 million in collateral accounts for the benefit of lenders for both years ended December 31, 2021 and December 31, 2020, which is reflected in "Prepaid expenses and other" in the Consolidated Balance Sheets. The balances required to be maintained in these collateral accounts vary by lender, typically based on a percentage of the outstanding loan balances held by the lender. The percentage of outstanding loan balances required for collateral is negotiated between the Company and each lender.
Deferred revenue associated with the CSO program was immaterial for the years ended December 31, 2021 and 2020, during which there were no costs to obtain or costs to fulfill capitalized loans under the program. See Note 2, "Loans Receivable and Revenue" for additional information related to loan balances and the revenue recognized under the program.
NOTE 4 - VARIABLE INTEREST ENTITIES
As of December 31, 2021, the Company had five credit facilities, compared to two credit facilities as of December 31, 2020, whereby certain loans receivables were sold to wholly-owned VIEs to collateralize debt incurred under each facility. See Note 7, "Debt" for additional details on each facility.
The Company has determined that it is the primary beneficiary of the VIEs and thus is required to consolidate them. The Company includes the assets and liabilities related to the VIEs in the Consolidated Financial Statements.
The carrying amounts of consolidated VIEs' assets and liabilities were as follows (in thousands):
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Assets | | | |
| Restricted cash | $ | 57,155 | | | $ | 31,994 | |
| Loans receivable less allowance for loan losses | 1,228,088 | | | 306,302 | |
Intercompany receivable(1) | 48,333 | | | 15,382 | |
| Prepaid expenses and other | — | | | 388 | |
| Deferred tax assets | — | | | 105 | |
| Total Assets | $ | 1,333,576 | | | $ | 354,171 | |
| Liabilities | | | |
| Accounts payable and accrued liabilities | $ | 9,886 | | | $ | 34,055 | |
| Deferred revenue | 106 | | | 136 | |
| Deferred tax liability | 269 | | | — | |
| | | |
| Accrued interest | 3,279 | | | 1,147 | |
| | | |
| Debt | 965,072 | | | 139,661 | |
| Total Liabilities | $ | 978,612 | | | $ | 174,999 | |
| (1) Intercompany receivable and payable VIE balances eliminate upon consolidation. |
|
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
NOTE 5 – GOODWILL AND INTANGIBLES
Goodwill
The Goodwill balance includes no accumulated impairment. The change in the carrying amount of Goodwill by operating segment, known as reporting unit for goodwill testing purposes, for the years ended December 31, 2021 and 2020, was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. | | Canada Direct Lending | | Canada POS Lending | | Total |
| Goodwill at December 31, 2019 | $ | 91,131 | | | $ | 29,478 | | | $ | — | | | $ | 120,609 | |
| Acquisition (Note 15) | 14,791 | | | — | | | — | | | 14,791 | |
| Foreign currency translation | — | | | 691 | | | — | | | 691 | |
| Goodwill at December 31, 2020 | 105,922 | | | 30,169 | | | — | | | 136,091 | |
| Acquisition (Note 15) | 253,857 | | | — | | | 44,901 | | | 298,758 | |
| Foreign currency translation | — | | | (64) | | | (515) | | | (579) | |
| Measurement period adjustment | — | | | — | | | (4,478) | | | (4,478) | |
| Goodwill at December 31, 2021 | $ | 359,779 | | | $ | 30,105 | | | $ | 39,908 | | | $ | 429,792 | |
The Company tests goodwill at least annually for potential impairment, as of October 1, and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. The indicators include, among others, declines in sales, earning or cash flows or the development of a material adverse change in business climate. The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a reporting unit. See Note 1, "Summary of Significant Accounting Policies and Nature of Operations" for additional information on the Company's policy for assessing goodwill for impairment.
During the fourth quarter of 2021, the Company performed a qualitative assessment for the U.S., Canada Direct Lending and Canada POS Lending reporting units. Management concluded that the estimated fair values of these three reporting units were greater than their respective carrying values. As such, no further analysis was required for these reporting units. The qualitative assessment for the U.S. excluded Heights as it was acquired on December 27, 2021.
During the fourth quarter of 2020, the Company performed a quantitative assessment for the U.S. and Canada Direct Lending reporting units. Management concluded that the estimated fair values of these two reporting units were greater than their respective carrying values. As such, no further analysis was required for these reporting units.
Flexiti Acquisition
The Company completed the acquisition of Flexiti on March 10, 2021, resulting in $39.9 million of goodwill as of December 31, 2021, based on the excess of the purchase price of the business combination over the fair value of the acquired net assets. Goodwill of $39.9 million was net of $4.5 million adjustments upon the conclusion of the measurement period, and $0.5 million of foreign currency translation impact as of December 31, 2021. See Note 15, "Acquisitions" for more information related to the business combination.
Heights Acquisition
The Company completed the acquisition of Heights on December 31, 2021. Provisional goodwill was estimated at $253.9 million, based on the preliminary valuation. See Note 15, "Acquisitions" for more information related to the business combination.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Intangibles
Identifiable intangible assets consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 | | December 31, 2020 |
| Weighted-Average Remaining Life (Years) | | Gross
Carrying
Amount | | Accumulated
Amortization | | Net | | Gross
Carrying
Amount | | Accumulated
Amortization | | Net |
| Assets not subject to amortization | | | | | | | | | | |
| Trade name | — | | $ | 22,832 | | | $ | — | | | $ | 22,832 | | | $ | 22,881 | | | $ | — | | | $ | 22,881 | |
| Assets subject to amortization | | | | | | | | | | |
| Merchant relationships | 4.3 | | 19,459 | | | (3,151) | | | 16,308 | | | — | | | — | | | — | |
| Customer relationships | 2.8 | | 20,285 | | | (10,295) | | | 9,990 | | | 9,782 | | | (9,249) | | | 533 | |
Computer software(1) | 5.2 | | 81,844 | | | (25,453) | | | 56,391 | | | 33,186 | | | (16,386) | | | 16,800 | |
| Trade name | 9.8 | | 4,621 | | | (212) | | | 4,409 | | | 321 | | | (110) | | | 211 | |
| Balance, end of year | | | $ | 149,041 | | | $ | (39,111) | | | $ | 109,930 | | | $ | 66,170 | | | $ | (25,745) | | | $ | 40,425 | |
(1) Includes internally developed software, of $44.7 million and $8.2 million, net, as of December 31, 2021 and 2020, respectfully. |
| | |
The Company's identifiable intangible assets are amortized using the straight-line method over the estimated remaining useful lives, except for the Cash Money trade name intangible asset that has a carrying amount of $22.8 million, which was determined to have an indefinite life and is not amortized. The estimated useful lives for the Company's other intangible assets range from 1 to 10 years. Aggregate amortization expense related to identifiable intangible assets was $13.8 million, $3.0 million and $2.9 million for the years ended December 31, 2021, 2020 and 2019, respectively.
The following table outlines the estimated future amortization expense related to intangible assets held at December 31, 2021 for each of the following five fiscal years (in thousands):
| | | | | |
| Year Ending December 31, |
| 2022 | $ | 19,231 | |
| 2023 | 18,457 | |
| 2024 | 16,396 | |
| 2025 | 12,555 | |
| 2026 | 4,328 | |
|
NOTE 6 – FAIR VALUE MEASUREMENTS
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. The Company is 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 observable market data obtained from independent sources, or unobservable, meaning those that reflect the Company's own judgement about the assumptions market participants would use in pricing the asset or liability based on the best information available for the specific circumstances. Accounting standards establish a three-level fair value hierarchy based upon the assumptions (inputs) used to price assets or liabilities. The hierarchy requires the Company 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 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has access to at the measurement date.
Level 2 – Inputs 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 3 – Unobservable inputs reflecting the Company's own judgments about the assumptions market participants would use in pricing the asset or liability as a result of limited market data. The Company develops these inputs based on the best information available, including its own data.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Financial Assets and Liabilities Carried at Fair Value
The table below presents the assets and liabilities that were carried at fair value on the Consolidated Balance Sheets at December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | |
| | Estimated Fair Value |
| Carrying Value December 31,
2021 | Level 1 | Level 2 | Level 3 | Total |
| Financial assets: | | | | | |
| Cash Surrender Value of Life Insurance | $ | 8,242 | | $ | 8,242 | | $ | — | | $ | — | | $ | 8,242 | |
| Financial liabilities: | | | | | |
| | | | | |
| Non-qualified deferred compensation plan | $ | 5,109 | | $ | 5,109 | | $ | — | | $ | — | | $ | 5,109 | |
| Contingent consideration related to acquisition | $ | 26,508 | | $ | — | | $ | — | | $ | 26,508 | | $ | 26,508 | |
|
Contingent consideration related to acquisition
In connection with the acquisition of Flexiti during the first quarter of 2021, the Company recorded a liability for contingent consideration based on the achievement of revenue less NCOs and loan origination targets over the two years following closing of the acquisition that could result in additional cash consideration up to $32.8 million to Flexiti's former stockholders. The fair value of the liability is estimated using the option-based income approach using a Monte Carlo simulation model discounted back to the reporting date. The significant unobservable inputs (Level 3) used to estimate the fair value included the expected future tax benefits associated with the acquisition, the probability that the risk adjusted-revenue and origination targets will be achieved and discount rates. The contingent consideration measured at fair value using unobservable inputs increased from the initial measurement of $20.6 million as of March 31, 2021 to $26.5 million as of December 31, 2021. For additional information on Flexiti and the related contingent consideration, refer to Note 15, "Acquisitions."
Cash Surrender Value of Life Insurance and Non-qualified deferred compensation plan
The cash surrender value of life insurance is included in “Other assets” in the Company’s Consolidated Balance Sheets. The non-qualified deferred compensation plan liability is included in “Accounts payable and accrued liabilities” in the Company’s Consolidated Balance Sheets.
The table below presents the assets and liabilities that were carried at fair value on the Consolidated Balance Sheets at December 31, 2020 (in thousands):
| | | | | | | | | | | | | | | | | |
| | Estimated Fair Value |
| Carrying Value December 31,
2020 | Level 1 | Level 2 | Level 3 | Total |
| Financial assets: | | | | | |
| Cash Surrender Value of Life Insurance | $ | 7,140 | | $ | 7,140 | | $ | — | | $ | — | | $ | 7,140 | |
| Financial liabilities: | | | | | |
| Non-qualified deferred compensation plan | $ | 4,690 | | $ | 4,690 | | $ | — | | $ | — | | $ | 4,690 | |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Financial Assets and Liabilities Not Carried at Fair Value
The table below presents the assets and liabilities that were not carried at fair value on the Consolidated Balance Sheets at December 31, 2021 (in thousands).
| | | | | | | | | | | | | | | | | |
| | Estimated Fair Value |
| Carrying Value December 31,
2021 | Level 1 | Level 2 | Level 3 | Total |
| Financial assets: | | | | | |
| Cash and cash equivalents | $ | 63,179 | | $ | 63,179 | | $ | — | | $ | — | | $ | 63,179 | |
| Restricted cash | 98,896 | | 98,896 | | — | | — | | 98,896 | |
| Loans receivable, net | 1,460,758 | | — | | — | | 1,460,758 | | 1,460,758 | |
| Financial liabilities: | | | | | |
| Liability for losses on CSO lender-owned consumer loans | $ | 6,908 | | $ | — | | $ | — | | $ | 6,908 | | $ | 6,908 | |
7.50% Senior Secured Notes | 980,721 | | — | | 1,005,700 | | — | | 1,005,700 | |
| | | | | |
| U.S. SPV | 45,392 | | — | | — | | 49,456 | | 49,456 | |
| Canada SPV | 157,813 | | — | | — | | 160,533 | | 160,533 | |
| Flexiti SPE | 172,739 | | — | | — | | 176,625 | | 176,625 | |
| Flexiti Securitization | 239,128 | | — | | — | | 242,886 | | 242,886 | |
| Heights SPV | 350,000 | | — | | — | | 350,000 | | 350,000 | |
| | | | | |
| | | | | |
The table below presents the assets and liabilities that were not carried at fair value on the Consolidated Balance Sheets at December 31, 2020 (in thousands).
| | | | | | | | | | | | | | | | | |
| | Estimated Fair Value |
| Carrying Value December 31,
2020 | Level 1 | Level 2 | Level 3 | Total |
| Financial assets: | | | | | |
| Cash and cash equivalents | $ | 213,343 | | $ | 213,343 | | $ | — | | $ | — | | $ | 213,343 | |
| Restricted cash | 54,765 | | 54,765 | | — | | — | | 54,765 | |
| Loans receivable, net | 467,560 | | — | | — | | 467,560 | | 467,560 | |
| Financial liabilities: | | | | | |
| Liability for losses on CSO lender-owned consumer loans | $ | 7,228 | | $ | — | | $ | — | | $ | 7,228 | | $ | 7,228 | |
8.25% Senior Secured Notes | 680,000 | | — | | 646,000 | | — | | 646,000 | |
| U.S. SPV | 43,586 | | — | | — | | 49,456 | | 49,456 | |
| Canada SPV | 96,075 | | — | | — | | 97,971 | | 97,971 | |
| | | | | |
Loans Receivable, Net
Loans receivable are carried on the Consolidated Balance Sheets net of the ALL. The unobservable inputs used to calculate the carrying values include quantitative factors, such as current default trends. Also considered in evaluating the accuracy of the models are changes to the loan portfolio mix, 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. The carrying value of Loans receivable, net approximates their fair value. Refer to Note 2, "Loans Receivable and Revenue" for additional information. Loans receivable, net of unamortized fair value discount and ALL, associated with the Flexiti and Heights acquisitions represent $437.0 million and approximately $472 million of the $1,460.8 million as of December 31, 2021.
CSO Program
In connection with CSO programs, the Company guarantees consumer loan payment obligations to unrelated third-party lenders for loans that the Company arranges for consumers on the third-party lenders’ behalf. The Company is required to purchase from the lender charged-off loans that it has guaranteed. Refer to Note 2, "Loans Receivable and Revenue" and Note 3, "Credit Services Organization" for additional information.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
7.50% Senior Secured Notes, 8.25% Senior Secured Notes, U.S. SPV, Canada SPV, Flexiti SPE, Flexiti Securitization and Heights SPV
The fair value disclosure for the 7.50% Senior Secured Notes as of December 31, 2021 and 8.25% Senior Secured Notes as of December 31, 2020 were based on observable market trading data. The fair values of the U.S. SPV, Canada SPV, Flexiti SPE, Flexiti Securitization and Heights SPV were based on the cash needed for their respective final settlements.
Investment in Katapult
The table below presents the Company's investment in Katapult (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Equity Method Investment | | Measurement Alternative (1) | | Total Investment in Katapult |
| Balance at December 31, 2019 | | $ | 10,068 | | | $ | — | | | $ | 10,068 | |
| Equity method (loss) - Q1 2020 | | (1,618) | | | — | | | (1,618) | |
| Balance at March 31, 2020 | | 8,450 | | | — | | | 8,450 | |
| Equity method income - Q2 2020 | | 741 | | | — | | | 741 | |
| Balance at June 30, 2020 | | 9,191 | | | — | | | 9,191 | |
| Equity method income - Q3 2020 | | 3,530 | | | — | | | 3,530 | |
| Accounting policy change for certain securities from equity method investment to measurement alternative | | (12,452) | | | 12,452 | | | — | |
| Purchases of common stock warrants and preferred shares | | 4,030 | | | 7,157 | | | 11,187 | |
| Balance at September 30, 2020 | | 4,299 | | | 19,609 | | | 23,908 | |
| Equity method income - Q4 2020 | | 1,893 | | | — | | | 1,893 | |
| Purchases of common stock | | 1,570 | | | — | | | 1,570 | |
| Balance at December 31, 2020 | | 7,762 | | | 19,609 | | | 27,371 | |
| Equity method income - Q1 2021 | | 546 | | | — | | | 546 | |
| Balance at March 31, 2021 | | 8,308 | | | 19,609 | | | 27,917 | |
| Equity method income - Q2 2021 | | 1,712 | | | — | | | 1,712 | |
Conversion of investment(2) | | 6,481 | | | (19,609) | | | (13,128) | |
| Balance at June 30, 2021 | | 16,501 | | | — | | | 16,501 | |
| Equity method loss - Q3 2021 | | (1,582) | | | — | | | (1,582) | |
| Balance at September 30, 2021 | | 14,919 | | | — | | | 14,919 | |
| Equity method income - Q4 2021 | | 2,982 | | | — | | | 2,982 | |
| Purchases of common stock | | 9,999 | | | — | | | 9,999 | |
| Balance at December 31, 2021 | | $ | 27,900 | | | $ | — | | | $ | 27,900 | |
| | | | | | |
| Classification as of December 31, 2020 | | Level 3, not carried at fair value | | Level 3, carried at measurement alternative | | |
| Classification as of December 31, 2021 | | Level 3, not carried at fair value | | N/A | | |
(1) The Company elected to measure this equity security without a readily determinable fair value equal to its cost minus impairment. If the Company identifies an observable price change in orderly transactions for the same or similar investment in Katapult, it will measure the equity security at fair value as of the date that the observable transaction occurred. |
(2) On June 9, 2021, Katapult completed its merger with FinServ. Immediately prior to the merger, the Company first converted all of its preferred stock and exercised all common stock warrants, and then exchanged all shares of Katapult common stock for $146.9 million in cash and 18.9 million shares of common stock in the resulting public company, Katapult (NASDAQ: KPLT). The Company's entire investment in Katapult is now accounted for under the equity method of accounting. The Company recorded a related net gain of $135.4 million on its equity method investment in Katapult, based on the pro rata cost basis of the investment and the discharge of the guarantee provided during the year ended December 31, 2021. |
Prior to September 2020, the Company owned 42.5% of the outstanding shares (excluding unexercised options) of Katapult. These shares were comprised of multiple classes of equity including preferred stock and certain common stock warrants, which met the accounting criteria for in-substance common stock at the time of acquisition. This financial asset was not carried at fair value. The Company accounted for this investment under the equity method and recognized a proportionate share of Katapult’s income or loss on a two-month lag.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
In September 2020, the Company acquired common stock warrants and preferred shares of Katapult from existing shareholders for $11.2 million in cash. This transaction resulted in the reevaluation of the accounting for all of the Company’s holdings in Katapult. The Company determined that its holdings of certain common stock warrants qualified as in-substance common stock and were required to be accounted for using the equity method. The Company’s holdings in preferred stock and certain other common stock warrants did not meet the criteria for in-substance common stock and therefore are carried at cost minus impairment under the measurement alternative. As a result, the Company (i) reclassified $12.5 million from an equity method investment to cost minus impairment under the measurement alternative, (ii) recorded a purchase of common stock warrants for $4.0 million determined to be in-substance common stock within its equity method investment and (iii) recorded a purchase of preferred stock for $7.2 million that was accounted for under the measurement alternative.
In October and November 2020, the Company acquired common stock of Katapult from existing shareholders for an aggregate $1.6 million. The Company recorded this purchase within its equity method investment.
On June 9, 2021, Katapult completed its merger with FinServ. As a result, the Company received $146.9 million in cash and 18.9 million shares of common stock of the resulting public company, Katapult (NASDAQ: KPLT), which were subject to a six-month trading restriction and expired during December 2021. The Company recorded a related net gain of $135.4 million on its equity method investment in Katapult during the year ended December 31, 2021. Additionally, as part of the merger, CURO received 3.0 million earn-out warrants and holds two of the eight board of director seats for Katapult. For further information regarding the merger between Katapult and FinServ and its impact on CURO, refer to the description immediately following the table above.
During the fourth quarter of 2021, the Company purchased an additional 2.6 million shares of common stock of Katapult for an aggregate purchase price of $10.0 million.
Both the equity method investment and the previously recognized investment measured at cost minus impairment are presented within "Investments in Katapult" on the Consolidated Balance Sheets.
The Company's total ownership of Katapult's shares, on a fully diluted basis assuming full pay-out of earn-out shares, was 25.2% as of December 31, 2021.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
NOTE 7 – DEBT
LIBOR is expected to no longer be available after June 30, 2023. Certain of the Company's debt facilities, including the U.S. SPV, Senior Revolver and Heights SPV, contain customary provisions to provide for replacement of LIBOR with an alternative benchmark rate when LIBOR ceases to be available. The Company anticipates converting these facilities from LIBOR to SOFR, and currently does not expect the transition to have a material impact on its Consolidated Financial Statements. Refer to Note 1, "Summary of Significant Accounting Policies and Nature of Operations" for additional details on the transition from LIBOR.
The Company's debt instruments and balances outstanding as of December 31, 2021 and 2020, including maturity date, effective interest rate and borrowing capacity were as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Effective interest rate | | | Outstanding as of |
| Maturity Date | Borrowing Capacity | | December 31, 2021 | | December 31, 2020 |
| Corporate Debt: | | | | | | | |
7.50% Senior Secured Notes | August 1, 2028 | 7.50 | % | | | $ | 1,000,000 | | | $ | — | |
8.25% Senior Secured Notes (2) | September 1, 2025 | 8.25 | % | | | — | | | 690,000 | |
| Total corporate debt | | | | | 1,000,000 | | | 690,000 | |
| Funding Debt: | | | | | | | |
| U.S. SPV | April 8, 2024 | 1-Mo LIBOR + 6.25% | $200.0 million | | $ | 49,456 | | | $ | 49,456 | |
Canada SPV (1) | August 2, 2026 | 3-Mo CDOR + 6.00% | C$350.0 million | | 160,533 | | | 97,971 | |
Cash Money Revolving Credit Facility (1) | On-demand | Canada Prime Rate + 1.95% | C$10.0 million | | — | | | — | |
Flexiti SPE (1) | March 10, 2024 | 3-Mo CDOR + 4.40% | C$500.0 million | | 176,625 | | | — | |
Flexiti Securitization (1) | December 9, 2025 | 1-Mo CDOR + 3.59% | C$526.5 million | | 242,886 | | | — | |
| Heights SPV | December 31, 2024 | 1-Mo LIBOR + 5.25% | $350.0 million | | 350,000 | | | — | |
| Senior Revolver | June 30, 2022 | 1-Mo LIBOR + 5.00% | $50.0 million | | — | | | — | |
| Total funding debt | | | | | $ | 979,500 | | | $ | 147,427 | |
| Less: debt issuance costs | | | | | (33,707) | | | (17,766) | |
| Total Debt | | | | | $ | 1,945,793 | | | $ | 819,661 | |
| (1) Capacity amounts are denominated in Canadian dollars, while outstanding balances as of December 31, 2021 and 2020 are denominated in U.S. dollars. |
(2) The 8.25% Senior Secured Notes were extinguished in July 2021. |
Corporate Debt
7.50% Senior Secured Notes
In July 2021, the Company issued $750.0 million of 7.50% Senior Secured Notes which mature on August 1, 2028. Interest on the notes is payable semiannually, in arrears, on February 1 and August 1. In December, 2021, we issued an additional $250.0 million of 7.50% Senior Secured Notes to fund the acquisition of Heights. Refer to Note 15, "Acquisitions" for additional details. In connection with the 7.50% Senior Secured Notes, financing costs of $19.3 million were capitalized, net of amortization, and included in the Consolidated Balance Sheets as a component of "Debt." These costs are amortized over the term of the 7.50% Senior Secured Notes as a component of interest expense.
8.25% Senior Secured Notes
In August 2018, the Company issued $690.0 million of 8.25% Senior Secured Notes maturing on September 1, 2025. In connection with the 8.25% Senior Secured Notes, the Company capitalized financing costs of $13.9 million, which were being amortized as a component of interest expense over its term.
During the third quarter of 2021, the 8.25% Senior Secured Notes were extinguished using proceeds from the 7.50% Senior Secured Notes described above. The early extinguishment of the 8.25% Senior Secured Notes resulted in related costs of $40.2 million.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Funding Debt
As of December 31, 2021, the Company had five credit facilities whereby certain loans receivables were sold to wholly-owned VIEs to collateralize debt incurred under each facility. These facilities are the (i) U.S. SPV, (ii) Canada SPV, (iii) Flexiti SPE, (iv) Flexiti Securitization and (v) Heights SPV. For further information on these facilities, refer to Note 4, "Variable Interest Entities".
U.S. SPV
In April 2020, CURO Receivables Finance II, LLC, a wholly-owned subsidiary of the Company, entered into the U.S. SPV. As of December 31, 2021, the U.S. SPV provided for $200.0 million of borrowing capacity.
As of December 31, 2021, the effective interest rate on the Company's borrowings was one-month LIBOR plus 6.25%. The borrower pays the lenders a monthly commitment fee at an annual rate of 0.50% on the unused portion of the commitments. The U.S. SPV matures on April 8, 2024.
Canada SPV
In August 2018, CURO Canada Receivables Limited Partnership, a wholly-owned subsidiary of the Company, entered into the Canada SPV. During the fourth quarter of 2021, the Company amended the existing credit facility in order to, among other things, extend the borrowing capacity from C$175.0 million to C$350.0 million, (ii) reduce borrowing costs, and (iii) extend the initial maturity date by three years to August 2026. As of December 31, 2021, the effective interest rate was three-month CDOR plus 6.00%. The borrower also pays a 0.50% per annum commitment fee on the unused portion of the commitments. The Canada SPV matures on August 2, 2026.
Flexiti SPE
In March 2021, concurrent with the acquisition of Flexiti, Flexiti Financing SPE Corp., a wholly-owned Canadian subsidiary of the Company, refinanced and increased its Flexiti SPE to C$500.0 million, with a maturity on March 10, 2024. As of December 31, 2021, the effective interest rate was three-month CDOR plus 4.40%. The borrower also pays a 0.50% to 1.00% per annum commitment fee on the unused portion of the commitments.
Flexiti Securitization
In December 2021, Flexiti Securitization Limited Partnership, a wholly-owned Canadian subsidiary of the Company, entered into the Flexiti Securitization. The facility provides for C$526.5 million of borrowing capacity, with maturity on December 9, 2025. As of December 31, 2021, the effective interest was one-month CDOR plus 3.59%. The borrower also pays a 0.45% per annum commitment fee on the unused portion of the commitments.
Heights SPV
In December 2021, the Company acquired Heights, including the Heights SPV. Heights entered into the Heights SPV in December 2019 with a total revolving commitment of $350.0 million. The interest rate on the facility is one-month LIBOR plus 5.25%.
Senior Revolver
The Company maintains the Senior Revolver that provides $50.0 million of borrowing capacity, including up to $5.0 million of standby letters of credit, for a one-year term, renewable for successive terms following annual review. The current term expires June 30, 2022. The Senior Revolver accrues interest at one-month LIBOR plus 5.00%. The Senior Revolver is syndicated among four banks.
The Senior Revolver is guaranteed by all subsidiaries that guarantee the 7.50% Senior Secured Notes, and is secured by a lien on substantially all assets of CURO and the guarantor subsidiaries that are senior to the lien securing the 7.50% Senior Secured Notes.
The revolver was undrawn at December 31, 2021.
Cash Money Revolving Credit Facility
CURO Canada maintains the Cash Money Revolving Credit Facility, a C$10.0 million revolving credit facility, which provides short-term liquidity for the Company's Canadian direct lending operations. As of December 31, 2021, the borrowing capacity under the Cash Money Revolving Credit Facility, was C$9.9 million, net of C$0.1 million in outstanding stand-by-letters of credit.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The Cash Money Revolving Credit Facility is collateralized by substantially all of CURO Canada’s assets and contains various covenants that require, among other things, that the aggregate borrowings outstanding under the facility not exceed the borrowing base, as well as restrictions on the encumbrance of assets and the creation of indebtedness. 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 December 31, 2021.
Ranking and Guarantees
The 7.50% Senior Secured Notes rank senior in right of payment to all of the Company's and the Company's guarantor entities’ existing and future subordinated indebtedness and equal in right of payment with all of the Company's and the Company's guarantor entities’ existing and future senior indebtedness, including borrowings under revolving credit facilities. Pursuant to the Inter-creditor Agreement, these notes and the guarantees will be effectively subordinated to credit facilities and certain other indebtedness to the extent of the value of the assets securing such indebtedness and to liabilities of subsidiaries that are not guarantors.
The 7.50% Senior Secured Notes are secured by liens on substantially all of the Company's and the guarantors’ assets, subject to certain exceptions. At any time prior to August 1, 2024, the Company may redeem (i) up to 40% of the aggregate principal amount of the notes at a price equal to 107.5% of the principal amount, plus accrued and unpaid interest, if any, to the applicable redemption date with the net proceeds to the Company of certain equity offerings; and (ii) some or all of the notes at a make-whole price. On or after August 1, 2024, the Company 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. The redemption price for the notes if redeemed during the 12 months beginning (i) August 1, 2024 is 103.8%, (ii) August 1, 2025 is 101.9% and (iii) on or after August 1, 2026 is 100.0%.
Future Maturities of Debt
Annual maturities of outstanding debt for each of the five years after December 31, 2021 are as follows (in thousands):
| | | | | |
| Amount |
| 2022 | $ | — | |
| 2023 | 359,280 | |
| 2024 | 237,042 | |
| 2025 | 289,534 | |
| 2026 | 93,644 | |
| Thereafter | 1,000,000 | |
| Debt (before deferred financing costs and discounts) | 1,979,500 | |
| Less: deferred financing costs and discounts | 33,707 | |
| Debt, net | $ | 1,945,793 | |
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Securities Litigation and Enforcement
In 2018, a putative securities fraud class action lawsuit was filed against the Company and certain of its officers and directors and other related parties in the United States District Court for the District of Kansas, captioned Yellowdog Partners, LP v. CURO Group Holdings Corp., Donald F. Gayhardt, William Baker and Roger W. Dean, Civil Action No. 18-2662 (the "Yellowdog Action"). The suit alleged the Company made misleading statements and omitted material information regarding the Company's efforts to transition the Canadian inventory of products from Installment loans to Revolving LOC loans.
In December 2020, the Court granted final approval of the $9.0 million settlement and dismissed the case with prejudice. The Company's directors' and officers' insurance policy required the Company to pay the first $2.5 million in fees and settlement and the insurance carriers paid the remaining amounts. For the year ended December 31, 2021 there was no further expense related to the litigation.
In June and July 2020, three shareholder derivative lawsuits were filed in the United States District Court for the District of Delaware against the Company, certain of its directors and officers, and in two of the three lawsuits, a large stockholder. Plaintiffs generally allege the same underlying facts of the Yellowdog Action. In July 2021, the derivative lawsuits were voluntarily dismissed and Plaintiffs refiled two cases in the United States District Court for the District of Kansas. While the Company is vigorously contesting these derivative lawsuits, it cannot determine the timing or nature of their ultimate resolution. The Company does not expect that these derivative lawsuits will have a material adverse impact on the Company's results of operations or financial condition.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
City of Austin
The Company was cited in July 2016 by the City of Austin, Texas for alleged violations of an Austin ordinance addressing products offered by CSOs, which regulates aspects of products offered under the Company's CAB program. The Company believes that: (i) the Austin ordinance (similar to its counterparts elsewhere in Texas) conflicts with Texas state law and (ii) in any event, the Company's product complies with this ordinance, when the ordinance is properly construed. In 2017, the Austin Municipal Court agreed with the Company's position that this ordinance conflicts with Texas law and, accordingly, did not address the second argument. In September 2017, the Travis County Court reversed the Municipal Court’s decision and remanded the case for further proceedings. To date, a hearing and trial on the merits have not been scheduled.
In May 2020, the City of Austin proposed a second ordinance that became effective June 1, 2020 and implemented restrictions on CSO transactions and revised certain definitions included in the original Austin ordinance. These revisions potentially affect the foundation upon which the Company's previous arguments in municipal court were based.
In June 2021, the Company launched a new product in the City of Austin to adhere to the updated ordinance. The City commenced audits of the new product in January 2022. The City advised that additional audits will be performed in the coming months to ensure full compliance, which would ultimately result in a resolution of all outstanding matters.
On January 27, 2021, the City of Dallas adopted an ordinance identical to the second ordinance in the City of Austin.
Given the change the Company has made in its products in response to these ordinances, the Company does not anticipate that the CAB program’s past operations will result in material monetary liability in Austin or elsewhere in Texas at this time.
Delisle and Kato Class Action Lawsuits
In August of 2018, a putative class action lawsuit, Delisle v. Speedy Cash, was filed against Speedy Cash, a wholly-owned subsidiary of the Company, in the Southern District of California. The complaint alleged that Speedy Cash charged unconscionable interest rates on loans of $2,500 or above, in violation of consumer protection statutes, and sought restitution and public injunctive relief. On July 2, 2021, the California District Court granted the parties’ Stipulation of Dismissal and Joint Motion to dismiss the Delisle matter, with prejudice as to plaintiffs’ individual claims and without prejudice as to the claims of the putative class members.
On September 3, 2021, a putative class action lawsuit, Kato v. Speedy Cash, was filed against Speedy Cash in the Superior Court of Los Angeles County, alleging similar facts as in Delisle, which were removed to the United States District Court for the Central District of California on October 14, 2021. On December 2, 2021, the California District Court granted the parties’ Stipulation of Dismissal and Joint Motion to dismiss the Kato matter, with prejudice as to plaintiffs’ individual claims and without prejudice as to the claims of the putative class members.
Both matters were settled for an immaterial amount.
Other Legal Matters
The Company is a defendant in certain other litigation matters encountered from time-to-time in the ordinary course of business, some of which may be covered to an extent by insurance. While it is difficult to predict the outcome of any particular proceeding, the Company does not believe the result of any of these matters will have a material adverse effect on the Company's business, results of operations or financial condition.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
NOTE 9 – INCOME TAXES
Income before taxes and income tax expense (benefit) was comprised of the following (in thousands):
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | 2020 | 2019 |
| Income before taxes: | | | |
| U.S. | $ | 86,106 | | $ | 59,741 | | $ | 119,241 | |
| Non-U.S. | (5,549) | | 20,602 | | 23,214 | |
| Total income before taxes | $ | 80,557 | | $ | 80,343 | | $ | 142,455 | |
| Current tax provision (benefit) | | | |
| Federal | $ | 21,549 | | $ | (14,585) | | $ | 3,160 | |
| State | 4,553 | | 5,959 | | 395 | |
| Foreign | 13,639 | | 3,925 | | 930 | |
| Total current provision (benefit) | $ | 39,741 | | $ | (4,701) | | $ | 4,485 | |
| Deferred tax provision (benefit) | | | |
| Federal | $ | (5,022) | | $ | 14,949 | | $ | 22,978 | |
| State | 154 | | (1,247) | | 5,145 | |
| Foreign | (13,650) | | (3,106) | | 5,949 | |
| Total deferred tax provision (benefit) | $ | (18,518) | | $ | 10,596 | | $ | 34,072 | |
| Total provision for income taxes | $ | 21,223 | | $ | 5,895 | | $ | 38,557 | |
Differences between the Company's effective income tax rate computed on net earnings or loss before income taxes and the statutory federal income tax rate were as follows (dollars in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Income tax expense using the statutory federal rate in effect | $ | 16,917 | | | $ | 16,872 | | | $ | 29,916 | |
| Tax effect of: | | | | | |
| Effects of foreign rates different than U.S. statutory rate | 518 | | | (1,236) | | | (1,393) | |
| State, local and provincial income taxes, net of federal benefit | 3,359 | | | 6,619 | | | 8,959 | |
| Tax credits | (802) | | | (3,188) | | | (138) | |
| Nondeductible expenses | 1,090 | | | 564 | | | 33 | |
| | | | | |
| | | | | |
| | | | | |
| Valuation allowance | (275) | | | (2,686) | | | 1,609 | |
| | | | | |
| | | | | |
| | | | | |
| Share-based compensation | (705) | | | 1,119 | | | 150 | |
| | | | | |
| Federal NOL carryback | — | | | (11,251) | | | — | |
| Prior year basis adjustment | — | | | (659) | | | — | |
| Change in fair value of contingent consideration | 944 | | | — | | | — | |
| Other | 177 | | | (259) | | | (579) | |
| Total provision for income taxes | $ | 21,223 | | | $ | 5,895 | | | $ | 38,557 | |
| Effective income tax rate | 26.3 | % | | 7.3 | % | | 27.1 | % |
| Statutory federal income tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
On March 27, 2020, the CARES Act was enacted in response to the COVID-19 pandemic, which, among other things, allowed U.S. federal NOLs incurred in 2018, 2019 and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. In 2020, the Company recorded an income tax benefit of $11.3 million due to the differential in income tax rates related to the carryback of NOLs from tax years 2018 and 2019 to pre- 2017 Tax Act years.
The Company's major tax jurisdictions are U.S. federal jurisdiction, various state jurisdictions and Canada (including provinces). In the U.S., the tax years 2018 through 2020 remain open to examination by the taxing authorities as well as tax years 2013 through 2017 to the extent of refund claims resulting from 2018 and 2019 NOL carrybacks. The tax years 2016 through 2020 remain open to examination by the taxing authorities in Canada. As of December 31, 2021, the Company is under income tax examinations in the U.S. by the Internal Revenue Service of tax years 2018 and 2019, and in Canada by the Canadian Revenue Agency of tax years June 30, 2017 and 2018.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The total amount of gross unrecognized tax benefits was $0.3 million and $1.1 million at December 31, 2021 and 2020, respectively. The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $0.3 million at December 31, 2021. The Company expects no material change related to its current positions in recorded unrecognized income tax benefit liability in the next 12 months.
The Company classifies interest and penalties related to income taxes as other expenses. The Company did not record any interest or penalties related to unrecognized tax benefits during each of the years ended December 31, 2021 and 2020.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows (in thousands):
| | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | |
| Balance at the beginning of year | $ | 1,100 | | | $ | — | | | |
| Additions for tax positions related to prior years | 125 | | | 960 | | | |
| Additions for tax positions related to the current year | 125 | | | 140 | | | |
| Settlements with taxing authorities | (1,100) | | | — | | | |
| Balance at end of year | $ | 250 | | | $ | 1,100 | | | |
The sources of deferred income tax assets (liabilities) are summarized as follows (in thousands):
| | | | | | | | |
| Year Ended December 31, |
| 2021 | 2020 |
| Deferred tax assets related to: | | |
| | |
| Accrued expenses and other reserves | 2,960 | | 1,264 | |
| Lease liability | 26,777 | | 31,025 | |
| Compensation accruals | 5,845 | | 5,828 | |
| Deferred revenue | 204 | | 303 | |
| | |
| State and provincial NOL carryforwards | 15,547 | | 4,653 | |
| Foreign NOL and capital loss carryforwards | 17,090 | | 4,047 | |
| Tax credit carryforwards | 3,905 | | 3,183 | |
| Gross deferred tax assets | 72,328 | | 50,303 | |
| Less: Valuation allowance | (7,732) | | (5,695) | |
| Net deferred tax assets | $ | 64,596 | | $ | 44,608 | |
| Deferred tax liabilities related to: | | |
| Property and equipment | $ | (14,950) | | $ | (11,601) | |
| Right of use asset | (25,304) | | (29,134) | |
| Goodwill and other intangible assets | (9,914) | | (6,824) | |
| Prepaid expenses and other assets | (466) | | (1,054) | |
| Loans receivable | (4,367) | | (7,016) | |
| Gross deferred tax liabilities | (55,001) | | (55,629) | |
| Net deferred tax assets (liabilities) | $ | 9,595 | | $ | (11,021) | |
Deferred tax assets and liabilities are included in the following line items in the Consolidated Balance Sheets (in thousands):
| | | | | | | | |
| Year Ended December 31, |
| 2021 | 2020 |
| Deferred tax assets | $ | 15,639 | | $ | — | |
| Deferred tax liabilities | (6,044) | | (11,021) | |
| Net deferred tax assets (liabilities) | $ | 9,595 | | $ | (11,021) | |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
For the year ended December 31, 2020, the Company recorded a deferred tax asset of $3.0 million related to Foreign Tax Credit ("FTC") carryovers from prior years with a corresponding full valuation allowance, as the Company determined the FTC carryover will expire prior to utilization.
As of December 31, 2021, the Company had undistributed earnings of certain foreign subsidiaries of $230.7 million. The Company intends to reinvest its foreign earnings indefinitely in the non-U.S. operations and therefore have not provided for any non-U.S. withholding tax that would be assessed on dividend distributions. If the earnings of $230.7 million were distributed to the U.S., the Company would be subject to estimated Canadian withholding taxes of approximately $11.5 million. The determination of the U.S. state income taxes upon a potential foreign earnings distribution is impractical. In the event the earnings were distributed to the U.S., the Company would adjust its income tax provision for the period and would determine the amount of foreign tax credit that would be available.
A summary of the valuation allowance was as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Balance at the beginning of year | $ | 5,695 | | | $ | 8,328 | | | $ | 6,996 | |
| | | | | |
| (Decrease) increase to balance charged as expense | (275) | | | (2,686) | | | 1,609 | |
| Increase to balance charged to opening balance sheet of the acquisition | 1,873 | | | — | | | — | |
| Increase (decrease) to balance charged to Other Comprehensive Income | 392 | | | (378) | | | — | |
| Effect of foreign currency translation | 47 | | | 431 | | | (277) | |
| Balance at end of year | $ | 7,732 | | | $ | 5,695 | | | $ | 8,328 | |
As of December 31, 2021, the Company's deferred tax assets from Canadian federal and provincial NOL carryforwards were approximately $26.9 million. The Canadian NOL carryforwards expire in varying amounts between 2034 and 2041. During the tax year ended December 31, 2020, the Company concluded that a planning strategy is prudent and feasible and that it will be implemented if needed to prevent Canadian NOLs from expiring. As such, the Company released a $4.6 million valuation allowance related to these NOLs and had no valuation allowance related to these NOLs as of December 31, 2020. Relying on this tax strategy for most of its Canadian NOLs, as of December 31, 2021, the Company had a small valuation allowance of $1.3 million for NOLs without a feasible tax planning strategy. As of December 31, 2021, the Company's deferred tax assets from Canadian capital losses were $1.9 million. These losses can be carried forward indefinitely, however, the Company does not have material sources of generating capital gains, therefore, a full valuation allowance has been recorded against these losses. As of December 31, 2021, the Company had state NOL carryforward deferred tax assets of $3.8 million. These carryforwards expire in varying amounts between 2022 and 2041. The Company has recorded a valuation allowance of $1.2 million related to the NOLs generated in states in which the Company may not have taxable income in the near future.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
NOTE 10 – EARNINGS PER SHARE
The following table presents the computation of basic and diluted earnings per share (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | |
| 2021 | | 2020 | | 2019 | | | | |
| Net income from continuing operations | $ | 59,334 | | | $ | 74,448 | | | $ | 103,898 | | | | | |
| Income from discontinued operations, net of tax | — | | | 1,285 | | | 7,590 | | | | | |
| Net income | $ | 59,334 | | | $ | 75,733 | | | $ | 111,488 | | | | | |
| | | | | | | | | |
| Weighted average common shares - basic | 41,155 | | | 40,886 | | | 44,685 | | | | | |
| Dilutive effect of stock options and restricted stock units | 1,988 | | | 1,205 | | | 1,289 | | | | | |
| Weighted average common shares - diluted | 43,143 | | | 42,091 | | | 45,974 | | | | | |
| | | | | | | | | |
| Basic earnings per share: | | | | | | | | | |
| Continuing operations | $ | 1.44 | | | $ | 1.82 | | | $ | 2.33 | | | | | |
| Discontinued operations | — | | | 0.03 | | | 0.17 | | | | | |
| Basic earnings per share | $ | 1.44 | | | $ | 1.85 | | | $ | 2.50 | | | | | |
| | | | | | | | | |
| Diluted earnings per share: | | | | | | | | | |
| Continuing operations | $ | 1.38 | | | $ | 1.77 | | | $ | 2.26 | | | | | |
| Discontinued operations | — | | | 0.03 | | | 0.17 | | | | | |
| Diluted earnings per share | $ | 1.38 | | | $ | 1.80 | | | $ | 2.43 | | | | | |
| | | |
Potential shares of common stock 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 years ended December 31, 2021, 2020 and 2019, there were 0.2 million, 0.8 million and 0.4 million of potential shares of common stock excluded from the calculation of Diluted earnings per share because their effect was anti-dilutive.
The Company utilizes the "control number" concept in the computation of diluted earnings per share to determine whether potential common stock instruments are dilutive. The control number used is income from continuing operations. The control number concept requires that the same number of potentially dilutive securities applied in computing diluted earnings per share from continuing operations be applied to all other categories of income or loss, regardless of their anti-dilutive effect on such categories.
NOTE 11 – SHARE-BASED COMPENSATION
The Company's 2017 Incentive Plan provides for the issuance of up to 5.0 million shares, subject to certain adjustments, which may be issued in the form of stock options, restricted stock awards, RSUs, stock appreciation rights, performance awards or other awards. Grants issued to date under the plan may be settled in or based on common stock. Awards may be granted to officers, employees, consultants and directors. The 2017 Incentive Plan provides that shares of common stock subject to awards granted become available for re-issuance if such awards expire, or are canceled, forfeited, settled in cash or otherwise terminated.
Stock Options
Stock options are awards which allow the grantee to purchase shares of common stock at prices equal to the fair value at the date of grant. Stock options typically 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. The Company did not grant stock option awards under the 2017 Incentive Plan in 2021, 2020 or 2019.
At the time of grant, the Company uses the Black-Scholes option pricing model to determine the fair value of stock options. 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 Company's original estimates of fair value. The Company has estimated the expected term of 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
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
from the Company's industry sector (the alternative financial services sector). The expected risk-free interest rate is based on an average of various U.S. Treasury rates based on the expected term of the awards.
The following table summarizes the Company's stock option activity for the years ended December 31, 2021, 2020 and 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock Options | | Weighted Average Exercise Price | | Weighted Average Grant Date Fair Value | | Weighted Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value (in millions) |
| Outstanding at January 1, 2019 | 1,445,332 | | | $ | 3.56 | | | | | 3.7 | | $ | 8.6 | |
| Granted | — | | | $ | — | | | $ — | | | | | |
| Exercised | (40,014) | | | $ | 3.71 | | | | | | | $ | 0.3 | |
| Forfeited | (696) | | | $ | 8.86 | | | $ 4.07 | | | | | |
| Outstanding at December 31, 2019 | 1,404,622 | | | $ | 3.56 | | | | | 2.6 | | $ | 12.1 | |
| Granted | — | | | $ | — | | | $ — | | | | | |
| Exercised | (274,510) | | | $ | 2.79 | | | | | | | $ | 3.2 | |
| Forfeited | — | | | $ | — | | | $ — | | | | | |
| Outstanding at December 31, 2020 | 1,130,112 | | | $ | 3.74 | | | | | 2.6 | | $ | 12.0 | |
| Granted | — | | | $ | — | | | $ — | | | | | |
| Exercised | (615,024) | | | $ | 2.83 | | | | | | | $ | 8.1 | |
| Forfeited | — | | | $ | — | | | $ — | | | | | |
| Outstanding at December 31, 2021 | 515,088 | | | $ | 4.83 | | | | | 4.2 | | $ | 5.8 | |
| | | | | | | | | |
| Options exercisable at December 31, 2021 | 506,088 | | | $ | 4.76 | | | | | 4.2 | | $ | 5.7 | |
RSUs
As of December 31, 2021, the Company has granted three types of RSUs: time-based, market-based and, in connection with the Flexiti acquisition, performance-based.
Grants of time-based RSUs are valued at the date of grant based on the closing market price of the Company's common stock and are expensed using the straight-line method over the service period. Time-based RSUs typically vest over a three-year period.
Grants of market-based RSUs are valued using the Monte Carlo simulation pricing model. The market-based RSUs granted to date vest after three years if the Company's total stockholder return over the three-year performance period meets a specified target relative to other companies in its selected peer group. Expense recognition for the market-based RSUs occurs over the service period using the straight-line method.
Upon closing of the Flexiti acquisition in March 2021, the Company granted performance-based RSUs to certain Flexiti employees. Grants of performance-based RSUs are valued at the grant date based on the closing market price of the Company's common stock. The performance-based RSUs vest over two years if Flexiti achieves specified internal targets, including revenue less NCOs and loan originations metrics. Expense recognition for performance-based RSUs occurs ratably over the service period if it is probable that the targets will be achieved as of each period end. If such results are not probable, no share-based compensation expense is recognized and any previously recognized share-based compensation expense is reversed.
Unvested shares of RSUs generally are forfeited upon termination of employment, or failure to achieve the required performance condition, if applicable.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
A summary of the activity of time-based, market-based, and performance-based unvested RSUs for the years ended December 31, 2021, 2020 and 2019 are presented in the following table:
| | | | | | | | | | | | | | | | | |
| Number of RSUs | | Weighted Average
Grant Date Fair Value per Share |
| Time-Based | Market-Based | Performance-Based | |
| January 1, 2019 | 1,060,350 | | — | | — | | | $ | 14.29 | |
| Granted | 598,114 | | 397,752 | | — | | | $ | 10.08 | |
| Vested | (514,552) | | — | | — | | | $ | 14.21 | |
| Forfeited | (82,159) | | (2,891) | | — | | | $ | 13.71 | |
| December 31, 2019 | 1,061,753 | | 394,861 | | — | | | $ | 11.47 | |
| Granted | 694,213 | | 368,539 | | — | | | $ | 10.40 | |
| Vested | (716,268) | | — | | — | | | $ | 12.86 | |
| Forfeited | (26,906) | | (4,687) | | — | | | $ | 11.89 | |
| December 31, 2020 | 1,012,792 | | 758,713 | | — | | | $ | 10.26 | |
| Granted | 1,238,564 | | 299,053 | | 253,310 | | | $ | 15.51 | |
| Vested | (494,790) | | — | | — | | | $ | 11.04 | |
| Forfeited | (80,638) | | (51,032) | | — | | | $ | 11.46 | |
| December 31, 2021 | 1,675,928 | | 1,006,734 | | 253,310 | | | $ | 13.27 | |
Share-based compensation expense, which includes compensation costs from stock options and RSUs, included in the Consolidated Statements of Operations as a component of "Salaries and benefits" is summarized in the following table (in thousands):
| | | | | | | | | | | | | | | | | |
| For the year ended, |
| 2021 | | 2020 | | 2019 |
| Pre-tax share-based compensation expense | $ | 13,976 | | | $ | 12,910 | | | $ | 10,323 | |
| Income tax benefit | (4,475) | | | (1,164) | | | (2,632) | |
| Total share-based compensation expense, net of tax | $ | 9,501 | | | $ | 11,746 | | | $ | 7,691 | |
As of December 31, 2021, there was $23.2 million of unrecognized compensation cost related to stock options and RSUs. Total unrecognized compensation costs will be recognized over a weighted-average period of 1.9 years.
NOTE 12 – LEASES
The Company has operating leases for its corporate offices and its retail stores in certain U.S. states and Canadian provinces.
The following table summarizes the operating lease costs and other information for the years ended December 31, 2021, 2020 and 2019 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | | |
| | | | 2021 | | 2020 | | 2019 | | |
| Operating lease costs: | | | | | | | | | | |
Third-Party | | | | $ | 31,197 | | | $ | 30,828 | | | $ | 30,479 | | | |
Related-Party | | | | 3,394 | | | 3,386 | | | 3,464 | | | |
Total operating lease costs(1) | | | | $ | 34,591 | | | $ | 34,214 | | | $ | 33,943 | | | |
| | | | | | | | | | |
| Cash paid for amounts included in the measurement of operating lease liabilities | | | | $ | 36,235 | | | $ | 34,651 | | | $ | 34,864 | | | |
| ROU assets obtained | | | | $ | 9,682 | | | $ | 18,847 | | | $ | 15,804 | | | |
| Weighted average remaining lease term - Operating leases | | 4.9 years | | 5.7 years | | 6.1 years | | |
| Weighted average discount rate - Operating leases | | | 8.3 | % | | 9.9 | % | | 10.3 | % | | |
(1)Includes immaterial variable lease costs. | | |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The following table summarizes the aggregate operating lease payments that the Company is contractually obligated to make under operating leases as of December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Third-Party | | Related-Party | | Total |
| 2022 | | $ | 37,996 | | | $ | 3,578 | | | $ | 41,574 | |
| 2023 | | 31,604 | | | 1,332 | | | 32,936 | |
| 2024 | | 24,002 | | | 972 | | | 24,974 | |
| 2025 | | 16,652 | | | 868 | | | 17,520 | |
| 2026 | | 11,257 | | | 882 | | | 12,139 | |
| Thereafter | | 20,967 | | | 1,791 | | | 22,758 | |
| Total | | 142,478 | | | 9,423 | | | 151,901 | |
| Less: Imputed interest | | (27,458) | | | (2,012) | | | (29,470) | |
| Present value of operating lease liabilities | | $ | 115,020 | | | $ | 7,411 | | | $ | 122,431 | |
|
There are no material leases entered into subsequent to the balance sheet date.
NOTE 13 – STOCKHOLDERS' EQUITY
Dividend Program
In February 2020, the Company initiated a dividend program which provided a quarterly dividend of $0.055 per share ($0.22 per share annualized). In May 2021, the Company increased its quarterly dividend to $0.11 per share.
The tables below summarize the Company's quarterly dividends for the years ended December 31, 2021 and 2020 .
| | | | | | | | | | | | | | | | | |
| | | | | Dividends Paid |
| Date of declaration | Stockholders of record | Date paid | Dividend per share | (in thousands) |
| Q1 2021 | January 29, 2021 | February 16, 2021 | March 2, 2021 | $ | 0.055 | | $ | 2,284 | |
| Q2 2021 | May 3, 2021 | May 14, 2021 | May 27, 2021 | $ | 0.11 | | $ | 4,580 | |
| Q3 2021 | July 28, 2021 | August 9, 2021 | August 19, 2021 | $ | 0.11 | | $ | 4,556 | |
| Q4 2021 | October 27, 2021 | November 12, 2021 | November 22, 2021 | $ | 0.11 | | $ | 4,453 | |
| | | | | | | | | | | | | | | | | |
| | | | | Dividends Paid |
| Date of declaration | Stockholders of record | Date paid | Dividend per share | (in thousands) |
| Q1 2020 | February 5, 2020 | February 18, 2020 | March 2, 2020 | $ | 0.055 | | $ | 2,247 | |
| Q2 2020 | April 30, 2020 | May 13, 2020 | May 27, 2020 | $ | 0.055 | | $ | 2,243 | |
| Q3 2020 | August 3, 2020 | August 13, 2020 | August 24, 2020 | $ | 0.055 | | $ | 2,249 | |
| Q4 2020 | October 29, 2020 | November 9, 2020 | November 19, 2020 | $ | 0.055 | | $ | 2,250 | |
As part of the acquisition of Heights, the Company issued 1,446,257 shares of CURO's common stock in December 2021. Refer to Note 15, "Acquisitions" for further details.
NOTE 14 – SEGMENT REPORTING
Segment information is prepared on the same basis that the Company's CODM reviews financial information for operational decision making purposes, including revenues, net revenue, gross margin, segment operating income and other items.
As described in Note 5, "Goodwill and Intangibles" and Note 15, "Acquisitions." the Company acquired Ad Astra in January 2020, Flexiti in March 2021 and Heights in December 2021. Under ASC 280, Segment Reporting, Flexiti met the definition of a separate reportable segment, whereas Ad Astra and Heights did not. In conjunction with the acquisition of Flexiti, the Company made required disclosures for Flexiti as a separate reportable segment known as "Canada POS Lending," further described below. The Company also renamed the "Canada" reportable segment to the "Canada Direct Lending" reportable segment. The results of Heights and Ad Astra are included within the U.S. reporting segment below.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
U.S. As of December 31, 2021, the Company operated a total of 550 U.S. retail locations and had an online presence in 27 states. Refer to Note 21, "Store Closures" for additional details related to recent store closures. The Company provides Revolving LOC loans and Installment loans, which include Single-Pay loans and vehicle title loans, check cashing, money transfer services, reloadable prepaid debit cards and a number of other ancillary financial products and services to its customers in the U.S.
Canada Direct Lending. As of December 31, 2021, the Company operated a total of 201 stores across eight Canadian provinces and had an online presence in eight provinces and one territory. The Company provides Revolving LOC loans and Installment loans, which includes Single-Pay loans, optional credit protection insurance products to Revolving LOC and Installment loan customers, check cashing, money transfer services, foreign currency exchange, reloadable prepaid debit cards and a number of other ancillary financial products and services to its customers in Canada.
Canada POS Lending. As of December 31, 2021, the Company served Canadian customers through POS financing available at nearly 7,500 retail locations and over 3,100 merchant partners across 10 provinces and two territories. The Company provides Revolving LOC loans and a number of ancillary financial products to its customers in Canada. Results of operations for the year ended December 31, 2021 from Canada POS Lending represent results from the date of Flexiti's acquisition, March 10, 2021, through December 31, 2021.
The following table illustrates summarized financial information concerning reportable segments (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | | | 2021 | | 2020 | | 2019 |
Revenues by segment: (1) | | | | | | | | | |
| U.S. | | | | | $ | 525,962 | | | $ | 638,524 | | | $ | 913,506 | |
| Canada Direct Lending | | | | | 257,039 | | | 208,872 | | | 228,291 | |
| Canada POS Lending | | | | | 34,842 | | | — | | | — | |
| Consolidated revenue | | | | | $ | 817,843 | | | $ | 847,396 | | | $ | 1,141,797 | |
| Net revenues by segment: | | | | | | | | | |
| U.S. | | | | | $ | 359,929 | | | $ | 408,360 | | | $ | 521,401 | |
| Canada Direct Lending | | | | | 202,042 | | | 150,225 | | | 151,845 | |
| Canada POS Lending | | | | | 10,204 | | | — | | | — | |
| Consolidated net revenue | | | | | $ | 572,175 | | | $ | 558,585 | | | $ | 673,246 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Segment operating income: | | | | | | | | | |
| U.S. | | | | | $ | 47,517 | | | $ | 34,172 | | | $ | 99,152 | |
| Canada Direct Lending | | | | | 88,731 | | | 46,171 | | | 43,303 | |
| Canada POS Lending | | | | | (55,691) | | | — | | | — | |
| Consolidated operating income | | | | | $ | 80,557 | | | $ | 80,343 | | | $ | 142,455 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Expenditures for long-lived assets by segment: | | | | | | | | | |
| U.S. | | | | | $ | 13,450 | | | $ | 10,079 | | | $ | 12,733 | |
| Canada Direct Lending | | | | | 2,238 | | | 639 | | | 1,879 | |
| Canada POS Lending | | | | | 7,891 | | | — | | | — | |
| Consolidated expenditures for long-lived assets | | | | | $ | 23,579 | | | $ | 10,718 | | | $ | 14,612 | |
|
The following table provides the proportion of gross loans receivable by segment (in thousands):
| | | | | | | | | | | |
| December 31,
2021 | | December 31,
2020 |
| U.S. | $ | 661,945 | | | $ | 223,451 | |
| Canada Direct Lending | 427,197 | | | 330,271 | |
| Canada POS Lending | 459,176 | | | — | |
| Total gross loans receivable | $ | 1,548,318 | | | $ | 553,722 | |
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The following table represents the Company's net long-lived assets, comprised of property and equipment, by segment. These amounts are aggregated on a legal entity basis and do not necessarily reflect where the asset is physically located (in thousands):
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| U.S. | $ | 32,753 | | | $ | 36,258 | |
| Canada Direct Lending | 21,072 | | | 23,491 | |
| Canada POS Lending | 810 | | | — | |
| Total net long-lived assets | $ | 54,635 | | | $ | 59,749 | |
The Company's CODM does not review assets by segment for purposes of allocating resources or decision-making purposes; therefore, total assets by segment are not disclosed.
NOTE 15 – ACQUISITIONS
Heights
On December 27, 2021, the Company acquired 100% of the outstanding stock of Heights for $360.0 million, consisting of $335.0 million in cash and $25.0 million of our common stock. Heights is a consumer finance company that provides secured and unsecured Installment loans to near-prime and non-prime consumers, and offers customary opt-in insurance and other financial products across 390 branches in 11 U.S. states. The acquisition of Heights accelerates the Company's strategic migration into longer term, higher balance and lower credit risk products, allows the Company to expand its addressable market with relatively less regulatory risk, and diversifies the Company's revenue, product and geography mix.
The Company began consolidating the financial results of Heights in the Consolidated Financial Statements on December 27, 2021 within the U.S. operating segment. Heights contributed $2.7 million of net revenue and $0.2 million of net income, and incurred $1.9 million of operating expenses, during the year ended December 31, 2021.
This transaction has been accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The Company was the acquirer for purposes of accounting for the business combination. The values assigned to the acquired assets and liabilities assumed are provisional based on the preliminary fair value estimates as of the acquisition date. The values assigned to the assets acquired and liabilities assumed are based on preliminary estimates of fair value available as of the date of this 2021 Form 10-K and may be adjusted during the measurement period of up to 12 months from the date of acquisition as further information becomes available. Any changes in the fair values of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. As of December 31, 2021, the primary areas that remain preliminary relate to the valuation of certain loans receivables, intangible assets and certain tax-related balances.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The following table presents the preliminary purchase price allocation recorded in the Company’s Consolidated Balance Sheet as of the date of acquisition (in thousands):
| | | | | | | |
| | | Amounts acquired on December 27, 2021 (as adjusted) |
| Assets | | | |
Cash and cash equivalents | | | $ | 13,564 | |
| Restricted cash | | | 33,630 | |
Gross loans receivable(1) | | | 471,630 | |
| Income tax receivable | | | 3,526 | |
| Prepaid expenses and other | | | 7,410 | |
| Property and equipment | | | 4,748 | |
Right-of-use assets | | | 16,111 | |
| Intangibles, net | | | 11,900 | |
| | | |
| Other assets | | | 98 | |
| Total assets | | | $ | 562,617 | |
| | | |
| Liabilities | | | |
| Accounts payable and accrued liabilities | | | $ | 19,186 | |
| Lease liabilities | | | 16,315 | |
| Deferred tax liability | | | 1,077 | |
| Accrued interest on debt | | | 1,781 | |
| Debt | | | 350,000 | |
| Total liabilities | | | $ | 388,359 | |
| | | |
| Net assets acquired | | | $ | 174,258 | |
| Total consideration paid | | | 428,115 | |
| Goodwill | | | $ | 253,857 | |
(1) The gross contractual loans receivables as of December 27, 2021 were $485.4 million of which the Company estimates $13.7 million will not be collected. |
The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (dollars in thousands):
| | | | | | | | | | | |
| Fair Value | Useful Life | | | |
| Trade name | $ | 4,300 | | 10.0 years | | | |
| Customer relationships | 7,600 | | 3.0 years | | | |
| Total identified intangible assets | $ | 11,900 | | | | | |
Goodwill of $253.9 million represents the excess of the consideration paid over the fair value of the net tangible and intangible assets acquired. The goodwill was primarily attributed to expected synergies created with the Company’s future product offerings and the value of the combined workforce. Goodwill from this transaction is not deductible for income tax purposes because this was a stock acquisition.
The Company incurred costs related to this acquisition of $7.2 million that were recorded in "Other operating expense" in the U.S. segment in the accompanying Consolidated Statement of Operations for the year ended December 31, 2021.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The following supplemental unaudited pro forma financial information reflects the consolidated results of operations of the Company as if the acquisition had occurred on January 1, 2020 (in thousands):
| | | | | | | | | | | |
| Unaudited pro forma results for the Year Ended December 31, |
| 2021 | | 2020 |
| Revenue | $ | 1,065,773 | | | $ | 1,112,467 | |
| Net income | 106,614 | | | 130,942 | |
As part of preparing the pro forma financial information, the Company conducted a review of the accounting policies of Heights and did not note any material differences in accounting policies that would require pro forma adjustments to conform to the Company’s accounting policies for purposes of this presentation.
The accounting policies used in the preparation of the unaudited pro forma financial information are those set out in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2021. The following adjustments were made to give effect to the acquisition as if it had been consummated on January 1, 2020.
•The removal of certain balances excluded per the Stock Purchase Agreement upon close of the acquisition.
•The net adjustment to depreciation and amortization expense as a result of the identified intangible assets acquired.
•The recognition of interest expense related to the $250 million of 7.50% Senior Notes, which were issued on December 3, 2021 to fund the acquisition, and have been adjusted to give effect to pro forma operations as if they were issued on January 1, 2020.
•The adjustment to the provision for income taxes, assuming a combined company, including the tax impact of the aforementioned pro forma adjustments.
The supplemental unaudited pro forma financial information is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations would have been had the acquisition actually occurred on January 1, 2020, nor does it purport to project the future consolidated results of operations.
Flexiti
On March 10, 2021, the Company acquired 100% of the outstanding stock of Flexiti. The fair value of total consideration paid was $86.5 million in cash, $6.3 million in debt costs and $20.6 million in contingent cash consideration subject to future operating metrics, including revenue less NCOs and loan originations. Flexiti provides POS financing solution to retailers across Canada and provides the Company capability and scale opportunity in Canada’s credit card and POS financing markets. It enhances the Company's long-term growth and financial and risk profiles, and allows access to the full spectrum of Canadian consumers by adding an established private label credit card platform and POS financing capabilities. The Company now reaches consumers in Canada through all the ways they access credit, directly both in-store and online, via credit cards or at the POS.
The Company began consolidating the financial results of Flexiti in the Consolidated Financial Statements on March 10, 2021. Flexiti generated $34.8 million of revenue and incurred $50.9 million of operating expenses during the year ended December 31, 2021.
This transaction was accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The Company was the acquirer for purposes of accounting for the business combination. The values assigned to the assets acquired and liabilities assumed were based on their estimates of fair value available. As of December 31, 2021, the Company completed the determination of the fair values of the acquired identifiable assets and liabilities.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The following table presents the preliminary purchase price allocation recorded in the Company’s Condensed Consolidated Balance Sheet as of the date of acquisition (in thousands):
| | | | | | | | | | | |
| Amounts acquired on March 10, 2021 | Measurement period adjustments | Amounts acquired on March 10, 2021 (as adjusted) |
| Assets | | | |
Cash and cash equivalents | $ | 1,267 | | $ | — | | $ | 1,267 | |
| | | |
| | | |
Gross loans receivable(1) | 196,138 | | — | | 196,138 | |
| Prepaid expenses and other | 687 | | — | | 687 | |
| Property and equipment | 460 | | — | | 460 | |
Right-of-use assets | 616 | | — | | 616 | |
Intangibles | 50,876 | | 3,572 | | 54,448 | |
Deferred tax assets | 2,741 | | 908 | | 3,649 | |
| Total assets | $ | 252,785 | | $ | 4,480 | | $ | 257,265 | |
| | | |
| Liabilities | | | |
| Accounts payable and accrued liabilities | $ | 9,356 | | $ | — | | $ | 9,356 | |
| Credit facilities | 174,367 | | — | | 174,367 | |
| Lease liabilities | 616 | | — | | 616 | |
| | | |
| | | |
| Total liabilities | $ | 184,339 | | $ | — | | $ | 184,339 | |
| | | |
| Net assets acquired | $ | 68,446 | | $ | 4,480 | | $ | 72,926 | |
| Total consideration paid | 113,347 | | | 113,347 | |
| Goodwill | $ | 44,901 | | $ | (4,480) | | $ | 40,421 | |
(1) The gross contractual loans receivables as of March 10, 2021 were $208.6 million of which the Company estimates $12.5 million will not be collected. |
During the year ended December 31, 2021, the Company recorded a cumulative net measurement period adjustment that decreased goodwill by $4.5 million. The measurement period adjustment would have resulted in an insignificant increase in amortization expense related to the merchant relationships intangible asset during the first quarter of 2021 when the Company acquired Flexiti. The Company made these measurement period adjustments to reflect facts and circumstances that existed as of the acquisition date and did not result from intervening events subsequent to such date. As of December 31, 2021, the Company completed the determination of the fair values of the acquired identifiable assets and liabilities.
The following table sets forth the components of identifiable intangible assets acquired, as adjusted for measurement period adjustments, and their estimated useful lives as of the date of acquisition (dollars in thousands):
| | | | | | | | | | | |
| Fair Value | Useful Life | | | |
| Developed technology | $ | 31,827 | | 5.0 years | | | |
| Merchant relationships | 19,684 | | 5.0 years | | | |
| Customer relationships | 2,937 | | 3.0 years | | | |
| Total identified intangible assets | $ | 54,448 | | | | | |
Goodwill of $40.4 million represents the excess of the consideration paid over the fair value of the net tangible and intangible assets acquired. The goodwill was primarily attributed to expected synergies created with the Company’s future product offerings and the value of the combined workforce. Goodwill and the intangibles from this transaction are not deductible for Canadian income tax purposes because this was a stock acquisition.
In connection with the acquisition, the Company recognized contingent cash consideration of $20.6 million as of the acquisition date. The contingent consideration is based on Flexiti achieving certain operating metrics from April 1, 2021 through March 31, 2023, including revenue less NCOs and loan originations. Cash consideration can range from zero to $32.8 million over the period. As of December 31, 2021, the estimated value of the contingent cash consideration increased to $26.5 million. Refer to Note 6, "Fair Value Measurements" for additional information regarding fair value inputs related to the contingent cash consideration.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
In connection with the acquisition, the Company also granted RSUs to certain Flexiti employees who joined the Company, with grant-date fair value totaling approximately $8.1 million. Of that total, $4.0 million relates to RSU contingent consideration structured similar to the contingent cash consideration described above. All RSU grants to Flexiti employees will be ratably recognized as stock-based compensation over the requisite service period of two years. Refer to Note 11, "Share-based Compensation" for further information related to these RSUs.
The Company incurred costs related to this acquisition of $3.3 million that were recorded in "Other operating expense" in the U.S. segment in the accompanying Consolidated Statement of Operations for the year ended December 31, 2021.
Ad Astra
On January 3, 2020, the Company acquired 100% of the outstanding stock of Ad Astra, a related party, for $14.4 million, net of cash received. Prior to the acquisition, Ad Astra had been the Company's exclusive provider of third-party collection services for owned and managed loans in the U.S. that are in later-stage delinquency.
The Company began consolidating the financial results of this acquisition in Consolidated Financial Statements on January 3, 2020. Prior to the acquisition, and for the year ended December 31, 2019, Ad Astra incurred $15.5 million of costs that were reflected in "Direct operations," consistent with the presentation of other internal collection costs. Subsequent to the acquisition, Ad Astra incurred $10.0 million and $9.6 million of operating expense during the years ended December 31, 2021 and 2020.
The transaction was accounted for using the acquisition method of accounting, which requires that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The Company was the acquirer for purposes of accounting for the business combination. The values assigned to the assets acquired and liabilities assumed were based on their estimates of fair value available. During March 2020, the Company completed the determination of the fair values of the acquired identifiable assets and liabilities.
The following table summarizes the allocation of the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:
| | | | | |
| (in thousands) | Amounts acquired on January 3, 2020 |
| Assets | |
Cash and cash equivalents | 3,360 | |
Accounts receivable | 465 | |
Property and equipment | 358 | |
Intangible assets | 1,101 | |
Goodwill | 14,791 | |
Operating lease asset | 235 | |
| Total assets | $ | 20,310 | |
| |
| Liabilities | |
Accounts payable and accrued liabilities | 2,264 | |
Operating lease liabilities | 235 | |
| Total liabilities | $ | 2,499 | |
| |
| Total cash consideration transferred | $ | 17,811 | |
Goodwill of $14.8 million represents the excess over the fair value of the net tangible and intangible assets acquired. The goodwill was primarily attributed to expected synergies created through cost and process efficiencies in the collections process. The total estimated tax-deductible Goodwill as a result of this transaction is $15.4 million.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
NOTE 16 – RELATED-PARTY TRANSACTIONS
In November 2021, the Company entered into a Share Repurchase Agreement with a trust advised by a Director and 10% owner of the Company. See Note 23 - "Share Repurchase Program" for further information.
The Company has historically used Ad Astra as its third-party collection service for U.S. operations. The Company acquired Ad Astra from the founders of the Company on January 3, 2020. See Note 15 - "Acquisitions" for further information. Prior to the acquisition, the Company generally referred loans that were between 91 and 121 days delinquent to Ad Astra for collections and Ad Astra earned a commission fee equal to 30% of any amounts successfully recovered. The commission expense paid to Ad Astra for the year ended December 31, 2019 was $15.5 million, and is included in “Direct operations” in the Consolidated Statements of Operations.
The Company has entered into several lease agreements for its corporate office and stores in which the Company operates, with several real estate entities that are owned by one or more of the founders of the Company. These leases are discussed in Note 12 - "Leases."
NOTE 17 – PREPAID EXPENSES AND OTHER
Components of Prepaid expenses and other assets were as follows (in thousands):
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Settlements and collateral due from third-party lenders | $ | 5,465 | | | $ | 5,488 | |
| Fees receivable from customers under CSO programs | 8,412 | | | 7,774 | |
| Prepaid expenses | 16,243 | | | 5,357 | |
| Other assets | 11,918 | | | 9,375 | |
| Total prepaid expenses and other | $ | 42,038 | | | $ | 27,994 | |
NOTE 18 – PROPERTY AND EQUIPMENT
The classification of property and equipment was as follows (in thousands):
| | | | | | | | | | | | | | | | | | |
| | | | | | December 31, 2021 | | December 31, 2020 |
| Leasehold improvements | | | | | | $ | 122,049 | | | $ | 136,015 | |
| Furniture, fixtures and equipment | | | | | | 43,276 | | | 36,705 | |
| Property and equipment, gross | | | | | | 165,325 | | | 172,720 |
| Accumulated depreciation and amortization | | | | | | (110,690) | | | (112,971) | |
| Property and equipment, net | | | | | | $ | 54,635 | | | $ | 59,749 | |
Depreciation expense for continuing operations was $13.2 million, $14.5 million and $15.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.
NOTE 19 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Components of Accounts payable and accrued liabilities were as follows (in thousands):
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Trade accounts payable | $ | 43,094 | | | $ | 28,983 | |
| Money orders payable | 3,460 | | | 4,414 | |
| Accrued taxes, other than income taxes | 1,053 | | | 540 | |
| Accrued payroll and fringe benefits | 41,658 | | | 13,918 | |
| | | |
| Other accrued liabilities | 32,169 | | | 1,769 | |
| Total accounts payable and accrued liabilities | $ | 121,434 | | | $ | 49,624 | |
|
The increase in accounts payable and accrued liabilities from December 31, 2020 to December 31, 2021 was primarily a result of the acquisitions of Flexiti in the first quarter of 2021 and Heights in the fourth quarter of 2021.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
NOTE 20 – BENEFIT PLANS
In 2015, the Company instituted a nonqualified deferred compensation plan that provides certain of its employees with the opportunity to elect to defer base salary and performance-based compensation, which, upon such election, will be credited to the participant’s 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, with the amount, if any, determined annually by us. The Company's contributions vest over three years. Each vested deferred compensation account will be paid out in a lump sum either upon a participant’s separation from service or a future date chosen by the participant at the time of enrollment. The amount deferred under this plan totaled $5.1 million, $4.7 million and $4.7 million as of December 31, 2021, 2020 and 2019, respectively, and was recorded in "Other long-term liabilities" on the Consolidated Statement of Operations.
In 2013, the Company instituted a Registered Retirement Savings Plan (“RRSP”) which covers all Canadian employees. The Company matches 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. The Company's contributions to the RRSP were $0.4 million, $0.3 million and $0.3 million as of December 31, 2021, 2020 and 2019, respectively.
In 2010, the Company 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 401(k) plan. The Company matches 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 one-third for each of the first three years of employment until fully vested after three years of employment. The Company's contributions to the plan were $1.7 million, $1.7 million and $1.5 million for the years ended December 31, 2021, 2020 and 2019, respectively.
The Company also provides a 401(k) plan covering the recently acquired Heights full-time employees, whereby employees can invest their gross pay up to the maximum percentage allowable not, to exceed the limits of the Internal Revenue Code. The Company makes a matching contribution in an amount equal to: (i) 100% of the first 3% of an employee’s gross income contributed to the plan, plus (ii) 50% of the next 2% of an employee’s amount of the employee contributions that exceed 3% of gross pay but that do not exceed 5% of gross pay.
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 in "Salaries and benefits" on the Consolidated Statement of Operations.
NOTE 21 – STORE CLOSURES
The Company closed or did not renew leases for 49 U.S. stores in Illinois (8), Oregon (2), Colorado (2), Washington (1), Texas (31), California (2), Louisiana (1), Nevada (1) and Tennessee (1), of which 19 and 30 closed in the second and third quarters of 2021, respectively. The Company exited Illinois entirely given that state's legislative changes that effectively eliminated the Company's product offerings. The store closure decisions in other states were made after extensive analysis and in response to ongoing migration of customer transactions toward the online channel and the impact of COVID-19 on store traffic and profitability.
The Company incurred $12.7 million of total one-time charges associated with the U.S. store closures during the year ended December 31, 2021, as follows:
| | | | | | |
| (in thousands) | | Year Ended December 31, 2021 (1) |
| Store closure costs | | |
| Severance and employee costs | | $ | 3,943 | |
| Lease termination costs | | 1,710 | |
| Net accelerated depreciation and write-off of ROU assets and lease liabilities | | 7,064 | |
| Total store closure costs | | $ | 12,717 | |
|
(1) During the year ended December 31, 2021, the Statement of Operations included $3.9 million of store closure costs recorded within "Salaries and benefits" and $8.7 million recorded within "Other operating expense." |
NOTE 22 – DISCONTINUED OPERATIONS
On February 25, 2019, in accordance with the provisions of the U.K. Insolvency Act 1986 and as approved by the Boards of Directors of the U.K. Subsidiaries, insolvency practitioners from KPMG were appointed as Administrators for the U.K.
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Subsidiaries. The effect of the U.K. Subsidiaries’ entry into administration was to place their management, affairs, business and property of the U.K. Subsidiaries under the direct control of the Administrators. Accordingly, the Company deconsolidated the U.K. Subsidiaries, which comprised the U.K. reportable operating segment, as of February 25, 2019 and classified them as Discontinued Operations for all periods presented.
The following table presents the results of operations of the U.K. Subsidiaries, which meet the criteria of Discontinued Operations and, therefore, are excluded from the Company's results of continuing operations (in thousands):
| | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2021 | | 2020 | | 2019(1) | | |
| Revenue | $ | — | | | $ | — | | | $ | 6,957 | | | |
| Provision for losses | — | | | — | | | 1,703 | | | |
| Net revenue | — | | | — | | | 5,254 | | | |
| | | | | | | |
| Cost of providing services | | | | | | | |
| | | | | | | |
| | | | | | | |
| Advertising | — | | | — | | | 775 | | | |
| Non-advertising costs of providing services | — | | | — | | | 307 | | | |
| Total cost of providing services | — | | | — | | | 1,082 | | | |
| Gross margin | — | | | — | | | 4,172 | | | |
| | | | | | | |
| Operating expense (income) | | | | | | | |
| Corporate, district and other expenses | — | | | — | | | 3,810 | | | |
| Interest income | — | | | — | | | (4) | | | |
| | | | | | | |
| | | | | | | |
| (Gain) loss on disposition | — | | | (1,714) | | | 39,414 | | | |
| Total operating (income) expense | — | | | (1,714) | | | 43,220 | | | |
| Pre-tax income (loss) from operations of discontinued operations | — | | | 1,714 | | | (39,048) | | | |
| | | | | | | |
| Income tax expense (benefit) related to disposition | — | | | 429 | | | (46,638) | | | |
| Net income (loss) from discontinued operations | $ | — | | | $ | 1,285 | | | $ | 7,590 | | | |
| (1) Includes U.K. Subsidiaries financial results from January 1, 2019 to February 25, 2019. |
| | | | | | | |
| | | | | | | |
The effective tax benefit rate for the year ending December 31, 2019 was 119.4%, and primarily relates to the worthlessness of the U.K. stock resulting in a U.S. tax benefit.
As of December 31, 2021 and 2020, the Consolidated Balance Sheets were not impacted by the U.K. Subsidiaries as all balances were written off when the U.K. segment entered into administration during the first quarter of 2019.
The following table presents cash flows of the U.K. Subsidiaries (in thousands):
| | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019(1) | | |
| Net cash (used in) provided by discontinued operating activities | $ | — | | | $ | 1,714 | | | $ | (504) | | | |
| Net cash used in discontinued investing activities | — | | | — | | | (14,213) | | | |
| Net cash used in discontinued financing activities | — | | | — | | | — | | | |
| (1) Includes U.K. Subsidiaries financial results from January 1, 2019 to February 25, 2019. |
NOTE 23 – SHARE REPURCHASE PROGRAM
In May 2021, the Company's Board of Directors authorized a new share repurchase program for up to $50.0 million of its common stock.
The table below summarizes share repurchase activity during the year ended December 31, 2021 (in thousands, except for per share amounts and number of share amounts):
CURO GROUP HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
| | | | | |
| Year Ended
December 31, 2021 |
| Total number of shares repurchased | 2,218,333 | |
| Average price paid per share | $ | 16.86 | |
| Total value of shares repurchased | $ | 37,400 | |
| |
| Total authorized repurchase amount for the period presented | $ | 50,000 | |
| Total value of shares repurchased | $ | 37,400 | |
| Total remaining authorized repurchase amount | $ | 12,600 | |
In November 2021, the Company entered into a Share Repurchase Agreement with the Leah M. Faulkner 2017 Dynasty Trust ("Seller"), a Trust advised by a Director and 10% owner of the Company. Pursuant to the Share Repurchase Agreement, the Company repurchased 500,000 shares of its common stock, par value $0.001 per share, owned by the Seller, in a private transaction at a purchase price equal to $18.10 per share of common stock. This transaction occurred outside of the share repurchase program authorized in May 2021.
In February 2020, the Company's Board of Directors authorized a share repurchase program for up to $25.0 million of its common stock. Due to uncertainty caused by COVID-19, the Board terminated the program on March 15, 2020. There were no material purchases under the program during the year ended December 31, 2020.
In April 2019, the Board of Directors authorized a share repurchase program providing for the repurchase of up to $50.0 million of its common stock. The repurchase program, which commenced June 2019, was completed in February 2020. Under this program, the Company repurchased 455,255 shares of its common stock at an average price of $10.45 per share for total consideration of $4.8 million during the year ended December 31, 2020.
Separately, in August 2019, the Company entered into a Share Repurchase Agreement with FFL, a related party at the time. Pursuant to the Share Repurchase Agreement, the Company repurchased 2,000,000 shares of its common stock, par value $0.001 per share, owned by FFL, in a private transaction at a purchase price equal to $13.55 per share of common stock. The purchase price was determined by using the Company's closing common stock price on August 29, 2019 of $13.97, less a discount of 3.0%. This transaction occurred outside of the share repurchase program authorized in April 2019.
NOTE 24 - SUBSEQUENT EVENTS
Share Repurchase Program
The Company repurchased 824,477 shares from January 1, 2022 through February 8, 2022 under the share repurchase program initiated in May 2021, as further discussed in Note 23, "Share Repurchase Program." The total value of shares repurchased was $12.6 million at an average price per share of $15.20.
New Share Repurchase Program
On February 4, 2022, the Company's Board of Directors authorized a new share repurchase program for the repurchase of up to $25.0 million of CURO common stock. The repurchase will commence at the Company's discretion and continue until completed or terminated. The Company expects the purchases to be made from time-to-time in the open market and/or in privately-negotiated transactions at the Company's discretion, subject to market conditions and other factors. Any repurchased shares will be available for use in connection with equity plans and for other corporate purposes.
Dividend
On February 4, 2022, the Company's Board of Directors declared a dividend under its previously announced dividend program, of $0.11 per share ($0.44 per share annualized). The dividend was paid on March 1, 2022 to stockholders of record as of the close of business on February 18, 2022.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Prior to the filing of this 2021 Form 10-K and under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the last day of the period covered by this 2021 Form 10-K.
Disclosure controls and procedures are defined by Rules 13a-15(e) and 15d-15(e) of the Exchange Act as controls and other procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
Based upon the evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2021, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported accurately and within the time frames specified in the SEC's rules and forms and accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Inherent Limitations of the Effectiveness of Internal Control
Our ICFR is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our ICFR includes those policies and procedures that:
(i)pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company's assets;
(ii)provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
(iii)provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.
Management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate ICFR. Our internal control system was designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of our published financial statements.
Prior to the filing of this 2021 Form 10-K, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our ICFR, excluding the operations of Flexiti and Heights as noted below, as of the last day of the period covered by the report. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in the Internal Control-Integrated Framework (“2013 Framework”). Based on our Evaluation under the 2013 Framework, our management concluded that our ICFR was effective as of December 31, 2021. Deloitte & Touche LLP has audited the Consolidated Financial Statements included in this 2021 Form 10-K and, as part of its audit, has issued an attestation report, included herein, on the effectiveness of our ICFR.
In conducting the evaluation of effectiveness of its internal control over financial reporting as of December 31, 2021, the Company has excluded the operations of Flexiti and Heights as permitted by the guidance issued by the Office of the Chief Accountant of the SEC (provided that the period of such exclusion does not extend more than one year beyond the date of acquisition or for more than one annual reporting period). In conducting the evaluation of the effectiveness of its disclosure on controls and procedures as of December 31, 2021, the Company has excluded those disclosure controls and procedures of Flexiti and Heights that are subsumed by the Company's internal control over financial reporting. The Flexiti and Heights acquisitions were completed on March 10, 2021 and December 27, 2021. As of and for the year ended December 31, 2021, Flexiti's assets represented approximately 20.6% of the Company's consolidated assets and 4.3% of the Company's consolidated revenues. As of and for the year ended December 31, 2021, Heights' assets represented approximately 22.4% of the Company's consolidated assets and 0.5% of the Company's consolidated revenues. See Note 15, "Acquisitions" for additional information on the Company's acquisition of Flexiti and Heights and the impact on the Company's consolidated financial statements.
Changes in Internal Control over Financial Reporting
The Company is working to integrate Flexiti and Heights into its overall internal control over financial reporting processes. Except for changes made in connection with the integration of Flexiti and Heights, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) during the year ended December 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information called for by this Item 10 is incorporated by reference to the sections entitled "Election of Directors," "Executive Officers," "Corporate Governance," "Certain Relationships and Related Transactions" and "Delinquent Section 16(a) Reports" of our Proxy Statement for the Annual Meeting of Stockholders to be held on June 15, 2022. We intend to file such Proxy Statement with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this 2021 Form 10-K.
We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officers and employees, including our principal executive, principal financial and principal accounting officers, or persons performing similar functions. Our Code of Business Conduct and Ethics is posted on our website located at https://www.ir.curo.com/corporate-governance/governance-documents. We intend to disclose future amendments to certain provisions of the Code of Business Conduct and Ethics, and waivers of the Code of Business Conduct and Ethics granted to executive officers and directors, on the website within four business days following the date of the amendment or waiver.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item 11 is incorporated by reference to the sections entitled "Non-Employee Director Compensation" and "Executive Compensation" of our Proxy Statement referenced above in Item 10.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information called for by this Item 12 is incorporated by reference to the sections entitled "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan for Information" of our Proxy Statement referenced above in Item 10.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information called for by this Item 13 is incorporated by reference to the section entitled "Certain Relationships and Related Transactions" of our Proxy Statement referenced above in Item 10.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Our independent registered public accounting firm is Deloitte & Touche LLP; Chicago, IL; Firm ID: 34
The information called for by this Item 14 is incorporated by reference to the section entitled "Ratification of Appointment of Independent Registered Public Accounting Firm" of our Proxy Statement referenced above in Item 10.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) List of documents filed as part of this report
| | | | | |
| (1) | Consolidated Financial Statements |
| |
| The consolidated financial statements and related notes, together with the report of Deloitte & Touche LLP, appear in Part II, Item 8. "Financial Statements and Supplementary Data" of this Report.
The consolidated financial statements consist of the following: |
| |
| Consolidated Balance Sheets as of December 31, 2021 and 2020 |
| |
| Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019 |
| |
| Consolidated Statements of Comprehensive (Loss) Income for the years ended December 31, 2021, 2020 and 2019 |
| |
| Consolidated Statements of Changes in Equity for the years ended December 31, 2021, 2020 and 2019 |
| |
| Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019 |
| |
| Notes to Consolidated Financial Statements |
| |
| (2) | Consolidated Financial Statement Schedules |
| |
| All schedules have been omitted because they are not applicable, are insignificant or the required information is shown in the consolidated financial statements or notes thereto. |
| |
| (3) | Exhibits |
| |
| The exhibits are listed on the Exhibit Index. |
ITEM 16. FORM 10-K SUMMARY
None.
CURO Group Holdings Corp.
Form 10-K Annual Report
for the Period Ended
December 31, 2021
Exhibit Index
| | | | | | | | | | | | | | | |
| Exhibit | | Description | Filed/Incorporated by Reference from Form | Incorporated by Reference from Exhibit Number | Filing Date |
| 2.1 | | | 10-K | 2.1 | 3/5/21 |
| 2.2 | | | 8-K | 2.1 | 11/19/21 |
| 3.1 | | | 10-Q | 10.1 | 8/5/20 |
| 3.2 | | | 8-K | 3.2 | 12/11/17 |
| 4.1 | | | S-1 | 4.1 | 11/28/17 |
| 4.2 | | | S-1 | 4.2 | 11/28/17 |
| 4.3 | | | S-1 | 4.3 | 5/17/18 |
| 4.4 | | | 8-K | 4.1 | 8/3/21 |
| 4.5 | | | 8-K | 4.1 | 12/3/21 |
| 4.6 | | | 8-K | 4.2 | 12/3/21 |
| 4.7 | | | 8-K | 4.1 | 12/28/21 |
| 4.8 | | | 10-K | 4.4 | 3/9/20 |
| 10.1 | | | 10-Q | 10.1 | 5/4/20 |
| 10.2 | | | 10-Q | 10.2 | 5/4/20 |
| 10.3 | | | 10-Q | 10.3 | 5/4/20 |
| 10.4 | | | 10-Q | 10.4 | 5/4/20 |
| 10.5 | | | 10-Q | 10.5 | 5/4/20 |
| 10.6 | | | Filed herewith | | |
| | | | | | | | | | | | | | | |
| Exhibit | | Description | Filed/Incorporated by Reference from Form | Incorporated by Reference from Exhibit Number | Filing Date |
| 10.7 | | Second Amended and Restated Guaranty dated as of November 12, 2021 among CURO Group Holdings Corp., as guarantor; LendDirect Corp., as seller and servicer; CURO Canada Corp., as seller and servicer; Canada Receivables Limited Partnership, by its general partner, CURO Canada Receivables GP Inc., as borrower; WF Marlie 2018-1, Ltd., as lender; and Waterfall Asset Management , LLC, as administrative agent¥ | Filed herewith | | |
| | | | | |
| | | | | |
| 10.8 | | | 8-K | 10.3 | 8/6/18 |
| 10.9 | | | 8-K | 10.4 | 8/6/18 |
| | | | | |
| 10.10 | | | S-1 | 10.53 | 10/24/17 |
| 10.11 | | | 10-Q | 10.69 | 5/3/18 |
| 10.12 | | | 8-K | 10.4 | 8/27/18 |
| 10.13 | | | 8-K | 10.1 | 11/13/18 |
| 10.14 | | | 10-Q | 10.1 | 5/7/21 |
| 10.15 | | | 10-Q | 10.2 | 5/7/21 |
| 10.16 | | | 8-K | 10.1 | 8/3/21 |
| 10.17 | | | 8-K | 10.2 | 8/3/21 |
| 10.18 | | | 8-K | 10.3 | 8/3/21 |
| | | | | | | | | | | | | | | |
| Exhibit | | Description | Filed/Incorporated by Reference from Form | Incorporated by Reference from Exhibit Number | Filing Date |
| 10.19 | | | Filed herewith | | |
| 10.20 | | | Filed herewith | | |
| 10.21 | | | Filed herewith | | |
| 10.22 | | | Filed herewith | | |
| 10.23 | | | Filed herewith | | |
| 10.24 | | | Filed herewith | | |
| 10.25 | | | S-1 | 10.25 | 10/24/17 |
| 10.26 | | | 10-K | 10.21 | 3/9/20 |
| 10.27 | | | S-1 | 10.26 | 10/24/17 |
| 10.28 | | | Filed herewith | | |
| 10.29 | | | Filed herewith | | |
| 10.30 | | | Filed herewith | | |
| 10.31 | | | Filed herewith | | |
| 10.32 | | | S-1 | 10.54 | 10/24/17 |
| | | | | | | | | | | | | | | |
| Exhibit | | Description | Filed/Incorporated by Reference from Form | Incorporated by Reference from Exhibit Number | Filing Date |
| 10.33 | | | S-1 | 10.55 | 10/24/17 |
| 10.34 | | | S-1 | 10.62 | 11/28/17 |
| 10.35 | | | 10-K | 10.32 | 3/5/21 |
| 10.36 | | | 10-Q | 10.1 | 7/28/21 |
| 10.37 | | | 10-Q | 10.2 | 7/28/21 |
| 10.38 | | | S-1 | 10.31 | 11/1/17 |
| 10.39 | | | S-1 | 10.7 | 10/24/17 |
| 10.40 | | | S-1 | 10.57 | 10/24/17 |
| 10.41 | | | S-1 | 10.6 | 11/28/17 |
| 10.42 | | | S-1 | 10.4 | 11/1/17 |
| 10.43 | | | S-1 | 10.5 | 11/28/17 |
| 10.44 | | | 8-K | 10.2 | 2/8/22 |
| 10.45 | | | 8-K | 10.3 | 2/8/22 |
| 10.46 | | | 10-Q | 10.1 | 11/4/19 |
| 10.47 | | | 10-Q | 10.3 | 11/4/19 |
| 10.48 | | | 8-K | 10.1 | 2/8/22 |
| | | | | |
| 21.1 | | | Filed herewith | | |
| 23.1 | | | Filed herewith | | |
| 24.1 | | | Filed herewith | | |
| 31.1 | | | Filed herewith | | |
| 31.2 | | | Filed herewith | | |
| | | | | | | | | | | | | | | |
| Exhibit | | Description | Filed/Incorporated by Reference from Form | Incorporated by Reference from Exhibit Number | Filing Date |
| 32.1 | | | Filed herewith | | |
| 101 | | The following audited financial information from the Company's Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 7, 2022, formatted in Inline Extensible Business Reporting Language (“XBRL”) includes: (i) Consolidated Balance Sheets at December 31, 2021 and December 31, 2020, (ii) Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019, (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020 and 2019, (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019, and (v) Notes to Consolidated Financial Statements* | Filed herewith | | |
| 104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document) | Fired herewith | | |
* Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally to the SEC a copy of any omitted schedule upon request by the SEC.
¥ Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K because they are not material and would likely cause competitive harm to the Company if publicly disclosed.
+ Management contract or compensatory plan, contract or arrangement.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: March 7, 2022 CURO Group Holdings Corp.
By: /s/ Don Gayhardt___________________________
Don Gayhardt
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | |
| /s/ Don Gayhardt | |
| Don Gayhardt | |
| Chief Executive Officer and a Director | |
| (Principal Executive Officer) | |
| March 7, 2022 | |
| |
| /s/ Roger Dean | |
| Roger Dean | |
| Executive Vice President and Chief Financial Officer | |
| (Principal Financial Officer) | |
| March 7, 2022 | |
| |
| /s/ Tamara Schulz | |
| Tamara Schulz | |
| Chief Accounting Officer | |
| (Principal Accounting Officer) | |
| March 7, 2022 | |
| |
| * | |
| Chris Masto | |
| Chairman of Board of Directors | |
| March 7, 2022 | |
| |
| * | |
| Chad Faulkner | |
| Director | |
| March 7, 2022 | |
| |
| * | |
| Andrew Frawley | |
| Director | |
| March 7, 2022 | |
| |
| * | |
| David M. Kirchheimer | |
| Director | |
| March 7, 2022 | |
| | | | | |
| |
| * | |
| Mike McKnight | |
| Director | |
| March 7, 2022 | |
| |
| * | |
| Doug Rippel | |
| Director | |
| March 7, 2022 | |
| |
| * | |
| Gillian Van Schaick | |
| Director | |
| March 7, 2022 | |
| |
| * | |
| Issac Vaughn | |
| Director | |
| March 7, 2022 | |
| |
| * | |
| Elizabeth Webster | |
| Director | |
| March 7, 2022 | |
| |
| * | |
| Dale E. Williams | |
| Director | |
| March 7, 2022 | |
| |
| * | |
| Karen Winterhof | |
| Director | |
| March 7, 2022 | |
| |
| * /s/ Roger Dean | |
| Roger Dean | |
| Attorney-in-Fact | |
| March 7, 2022 | |
Execution Version
CERTAIN IDENTIFIED INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT BECAUSE IT IS NOT MATERIAL AND IS OF THE TYPE OF INFORMATION THAT THE REGISTRANT BOTH CUSTOMARILY AND ACTUALLY TREATS AS PRIVATE AND CONFIDENTIAL. [***] INDICATES THAT INFORMATION HAS BEEN OMITTED.
Dated as of November 12, 2021 among
CURO CANADA RECEIVABLES LIMITED PARTNERSHIP,
by its general partner,
CURO CANADA RECEIVABLES GP INC.
as Borrower and
WF MARLIE 2018-1, LTD.
as Lender and
The Other Lenders Party Hereto and
WATERFALL ASSET MANAGEMENT, LLC
as Administrative Agent
SECOND AMENDED AND RESTATED ASSET-BACKED REVOLVING CREDIT AGREEMENT
TABLE OF CONTENTS
SECTION PAGE
TABLE OF CONTENTS
SECTION PAGE
TABLE OF CONTENTS
SECTION PAGE
TABLE OF CONTENTS
SECTION PAGE
SCHEDULE 2 BORROWER OWNERSHIP STRUCTURE 100
SCHEDULE 3 SELLER COLLECTIONS ACCOUNTS 1
SCHEDULE 4 FORM OF BORROWING REQUEST 2
EXHIBIT A ASSIGNMENT AND ASSUMPTION 1
EXHIBIT B FORM OF BORROWING BASE CERTIFICATE 1
EXHIBIT C FORM OF REPAYMENT NOTICE 1
EXHIBIT D-1 U.S. TAX COMPLIANCE CERTIFICATE 2
EXHIBIT D-2 U.S. TAX COMPLIANCE CERTIFICATE 1
EXHIBIT D-3 U.S. TAX COMPLIANCE CERTIFICATE 1
EXHIBIT D-4 U.S. TAX COMPLIANCE CERTIFICATE 1
This SECOND AMENDED AND RESTATED CREDIT AGREEMENT is made as of November 12, 2021
(this "Agreement") among CURO Canada Receivables Limited Partnership, as the Borrower, the Lenders party hereto and Waterfall Asset Management, LLC, as the Administrative Agent.
WHEREAS the parties entered into the asset-backed credit agreement dated August 2, 2018, providing for, among other things, Loans to the Borrower by the Lenders party hereto, as amended by a first amendment dated September 20, 2018, a second amendment dated November 2, 2018, a third amendment dated December 20, 2018 and a fourth amendment dated April 26, 2019, and as amended and restated by that certain amended and restated asset-backed revolving credit agreement dated September 26, 2019, as amended by a first amendment dated March 25, 2020 and a second amendment dated April 29, 2020 (the “Original Credit Agreement”);
AND WHEREAS the Borrower, the Lenders party hereto and the Administrative Agent each desire to amend and restate the Original Credit Agreement as provided herein;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and the covenants and agreements of the parties herein contained and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged by each of the parties), the parties hereby covenant and agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 DEFINED TERMS.
As used in this Agreement and the other Transaction Documents, the following terms have the meanings specified below:
"Actual Loss Rate" means, at any time, the Default Ratio at such time, multiplied by 12.
"Administrative Agent" means Waterfall Asset Management, LLC, as investment manager on behalf of one or more investment management clients, in its capacity as administrative agent for the Lenders hereunder, and its successors in such capacity as provided in Article VII.
"Administrative Agent Fee Amount" has the meaning given to such term in the Fee Letter.
"Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Administrative Agent.
"Advance" means each advance of the Loans made to the Borrower pursuant to Section 2.01.
"Advance Amount" means the amount equal to (i) the applicable Advance Rate, multiplied by (ii) the excess of (A) the Aggregate Eligible Pool Balance, over (B) the Aggregate Outstanding Balance of Pending Eligible Receivables.
“Advance Rate” means, with respect to any Receivable, 90%, provided that if a Level 1 Collateral Trigger has occurred, the Advance Rate shall be reduced to 80%.
"Adverse Claim" means a security interest, lien, mortgage, charge, pledge, assignment, title retention, hypothec, encumbrance, ownership interest or other right or claim, including any filing or registration made in respect thereof, of or through any Person (other than the Borrower or the Administrative Agent).
"Affiliate" means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the specified Person.
"Aggregate Availability" means, at any time, an amount equal to (a) the lesser of (i) the aggregate Commitments and (ii) the Borrowing Base, minus (b) the Aggregate Exposure as of such date (calculated, with respect to any Defaulting Lender in cases where the Administrative Agent has made the amount of outstanding Loans available to the Borrower pursuant to Section 2.06(d), as if such Defaulting Lender had funded its Applicable Percentage of all outstanding Loans).
"Aggregate Eligible Pool Balance" means the number equal to (i) the Aggregate Outstanding Balance of all Purchased Receivables owned by the Borrower, less (ii) the Excess Portfolio Amounts.
"Aggregate Exposure" means, at any time, the aggregate Exposure of all the Lenders at such time.
"Aggregate Outstanding Balance" means, as of any date of determination, with respect to all, or such specified portion, of the Receivables (as the context requires), the sum of the aggregate of the Outstanding Balance of all, or such specified portion, of the Receivables as of such date of determination.
"AML Legislation" has the meaning assigned to such term in Section 8.20. "Amortization Date" has the meaning assigned to such term in Section 6.02. "Amortization Event" means the occurrence of any of the following events: (a)at the discretion of the Administrative Agent, an Uncured Level 2 Verification Trigger Event;
(b)a Level 2 Collateral Trigger;
(c)an Event of Default;
(d)any Exposure remains outstanding at the end of the Revolving Period; and
(e)a Level 2 Regulatory Trigger Event,
provided that an Amortization Event in respect of the event in clause (b) above shall be deemed to occur on the Reporting Date in respect of such Collection Period.
"Anti-Corruption Laws" means all laws, rules, and regulations of any jurisdiction applicable to the Borrower from time to time concerning or relating to bribery or corruption.
"Anti-Terrorism Laws" means any applicable laws relating to terrorism or money laundering including Executive Order No. 13224, the USA Patriot Act, the laws comprising or implementing the Bank Secrecy Act, and the laws administered by OFAC and other laws administered by the U.S. Department of the Treasury Financial Crimes Enforcement Network, and the Canadian Anti-Money Laundering & Anti- Terrorism Legislation (as any of the foregoing Laws may from time to time be amended, renewed, extended, or replaced).
"Applicable Law" means all applicable federal, provincial, state, territorial and local laws, statutes, regulations, rules, executive orders, supervisory requirements, directives, guidelines, circulars, opinions, codes of conduct, decisions, rulings, advisories, bulletins, interpretive letters, and other official releases customarily considered to be binding of or by any government, or any authority, department, or agency thereof, as now and hereafter in effect.
"Applicable Percentage" means, with respect to the Lenders, a percentage equal to a fraction the numerator of which is such Lender's Commitment and the denominator of which is the aggregate Commitments provided that, if the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon such Lender's share of the Aggregate Exposure at that time); provided that, in accordance with Section 2.16, so long as the Lenders shall be a Defaulting Lender, such Defaulting Lender's Commitment shall be disregarded in the calculations above.
“Applicable Rate” has the meaning assigned to such term in the Fee Letter.
"Approved Fund" has the meaning assigned to such term in Section 8.04.
"Assignment and Assumption" means an assignment and assumption agreement entered into by the Lenders and an assignee (with the consent of any party whose consent is required by Section 8.04), and accepted by the Administrative Agent, in the form of Exhibit A or any other form approved by the Administrative Agent.
"Availability" means, at any time, an amount equal to (a) the lesser of (i) the aggregate Commitments and
(ii) the Borrowing Base minus (b) the Aggregate Exposure (calculated, with respect to the Defaulting Lender, as if such Defaulting Lender had funded its Applicable Percentage of all outstanding Loans).
"Availability Period" means the period from and including the Effective Date to but excluding the earliest to occur of the Revolving Period End Date, an Amortization Event, a Level 1 Regulatory Trigger Event (provided that if the relevant Regulatory Action is released or terminated in a manner acceptable to the Administrative Agent, acting reasonably, then a Level 1 Regulatory Trigger Event shall no longer be considered to have occurred and the Availability Period shall be reinstated), at the discretion of the Administrative Agent, an Uncured Level 1 Verification Trigger Event, and the Maturity Date.
“Available Amount” has the meaning assigned to such term in Section 2.03.
"Available Commitment" means, at any time, the aggregate Commitments, minus the Aggregate Exposure (calculated, with respect to the Defaulting Lender, as if such Defaulting Lender had funded its Applicable Percentage of all outstanding Loans).
"Back-up Servicer" means SST Office Services Inc.
"Back-up Servicing and Verification Agency Agreement" means the Back-up Servicing and Verification Agency Agreement among the Servicers, the Back-up Servicer, the Administrative Agent and the Borrower.
"Back-up Servicing Fee" means the fees owing to the Back-up Servicer pursuant to the Back-up Servicing and Verification Agency Agreement.
"Bail-In Action" means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
"Bail-In Legislation" means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
"Beneficial Owner" means, with respect to any Canadian federal or provincial (as applicable) withholding Tax, the beneficial owner, for Canadian federal or provincial (as applicable) income tax purposes, to whom such Tax relates.
"Blocked Person" means (i) a Person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order No. 13224; (ii) a Person owned or controlled by, or acting for or on behalf of, any Person that is listed in the annex to, or is otherwise subject to the provisions of, the Executive Order No. 13224; (iii) a Person with which any Lender is prohibited from dealing with or otherwise engaging in any transaction by any Anti-Terrorism Law; (iv) a Person that commits, threatens or conspires to commit or supports "terrorism" as defined in the Executive Order No. 13224; (v) a Person that is named as a "specially designated national" on the most current list published by OFAC at its official website or any replacement website or other replacement official publication of such list; or (vi) a Person who a parent or Subsidiary of a Person listed above.
"Board" means the Board of Governors of the Federal Reserve System of the U.S.
"Borrower" means CURO Canada Receivables Limited Partnership, a limited partnership formed under the laws of Ontario, by its general partner, CURO Canada Receivables GP Inc.
"Borrower Parties" means, collectively, the Credit Parties and the Curo Entities, and "Borrower Party" means any one of them.
"Borrower Party Plan" means each Plan that is established or maintained by any Borrower Party or any ERISA Affiliate thereof, or to which any Borrower Party or ERISA Affiliate thereof contributes, is obligated to contribute, or has any liability.
"Borrowing Base" means, as at any date of determination, the amount equal to (a) the relevant Advance Amount, plus (b) all Collections and other cash proceeds in the Transaction Account at such time, minus
(c)any accrued and unpaid interest and fees with respect to the Loans, and minus (d) any Insurance Costs.
"Borrowing Base Certificate" means a certificate, signed and certified as accurate and complete by a senior officer of the General Partner (in its capacity as general partner of the Borrower), in substantially the form of Exhibit B or another form which is acceptable to the Administrative Agent in its sole discretion.
"Borrowing Base Deficiency" means, as at any determination date, the amount by which the Aggregate Exposure exceeds the lower of (i) the Borrowing Base and (ii) the aggregate Commitments.
"Borrowing Date" means, in respect of each Advance, the date specified as such in the Borrowing Request applicable to such Advance.
"Borrowing Request" means a request by the Borrower for an Advance in accordance with Section 2.01 in the form set out in Schedule 4.
"Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in Toronto, Ontario and New York City, New York are authorized or required by law to remain closed.
"CAD" or "Canadian Dollars" or "Dollars" or "$" means the lawful currency of Canada.
"Canadian Anti-Money Laundering & Anti-Terrorism Legislation" means the Criminal Code, R.S. 1985, C-46, The Proceeds of Crime (Money Laundering) and Terrorist Financing Act, S. 2000, 17 and the United Nations Act, R.S. 1985, U-2 or any similar Canadian legislation, together with all rules, regulations and interpretations thereunder or related thereto including, without limitation, the Regulations Implementing the United Nations Resolutions on the Suppression of Terrorism and the United Nations Al-Qaida and Taliban Regulations promulgated under the United Nations Act.
"Canadian Pension Plan" means any pension plan organized under the laws of Canada or any province thereof.
“CDOR Rate” means [***].
"Change of Control" means the occurrence of any of the following:
(a)the direct or indirect sale, conveyance, transfer, lease or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of CURO Group Holdings Corp. and its Subsidiaries, taken as a whole, to any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) other than the Permitted Holders;
(b)the adoption of a plan relating to the liquidation or dissolution of CURO Group Holdings Corp.;
(c)the consummation of any transaction (including any merger or consolidation) the result of which is that any "person" (as defined above) other than the Permitted Holders, becomes the "beneficial owner" (as such term is defined in Rules 13d-3 and 13d-5 under the Exchange Act), except that for purposes of this clause (3) such person shall be deemed to have "beneficial ownership" of all shares that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the voting stock of CURO Group Holdings Corp.;
(d)the first day on which a majority of the members of the Board of Directors of CURO Group Holdings Corp. and CURO Intermediate Holdings Corp. are not Continuing Directors;
(e)the consummation of the first transaction (including any merger or consolidation), the result of which is that any "person" (as defined above) other than the Permitted Holders becomes the "beneficial owner" (as defined above), directly or indirectly, of more of the voting stock of CURO Group Holdings Corp. than is at that time beneficially owned by the Permitted Holders in the aggregate (except that for purposes of this clause (5) such Permitted Holders shall be deemed to have "beneficial ownership" of all shares of voting stock that such Permitted Holders have the right to acquire, whether such right is exercisable immediately or only after the passage of time); provided, that such transaction shall not constitute a Change of Control unless such "person" then owns, directly or indirectly, in the aggregate, more than 35% of the voting stock of CURO Group Holdings Corp.; or
(f)the first day on which CURO Group Holdings Corp. ceases to "beneficially own" (as defined above) 100% of the outstanding voting stock of any other Borrower Party.
"Change in Law" means the occurrence after the date of this Agreement (or, with respect to any Lender, such later date on which such Lender becomes a party to this Agreement) of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c)
compliance by any Lender (or, for purposes of Section 2.12(b), by any lending office of such Lender or by such Lender's holding company, if any) with any request, guideline, requirement or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement; provided that, notwithstanding anything herein to the contrary, (d) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements or directives thereunder or issued in connection therewith or in the implementation thereof, and (e) all requests, rules, guidelines, requirements or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a "Change in Law", regardless of the date enacted, adopted, issued or implemented.
"Charged-Off Receivable" means any Receivable which remains unpaid for more than ninety (90) days from the original due date for such payment or otherwise has been or should have been charged-off or identified by the Servicers as uncollectable in accordance with the Credit and Collection Policies;
"Chattel Paper" has the meaning assigned to such term in the General Security Agreement. "Code" means the Internal Revenue Code of 1986, as amended from time to time.
"Closing Date" means August 2, 2018.
"Closing Payment" means, with respect to any Purchase, the Closing Payment as set out in the relevant Purchase Notice.
"Collateral" means any and all property owned, leased or operated by a Credit Party and any and all other property of the Borrower, now existing or hereafter acquired, that may at any time be, become or be intended to be, subject to a security interest or Lien in favour of the Administrative Agent, on behalf of itself and the Lenders and other Secured Parties, to secure the Secured Obligations.
"Collateral Trigger Event" means the occurrence of a Level 1 Collateral Trigger, a Level 2 Collateral Trigger or a Level 3 Collateral Trigger.
"Collection Period" means the period from, and including, the first day of any calendar month to, and including, the last day of such calendar month.
"Collections" means, with respect to any Receivable, (a) all cash collections and other cash proceeds of such Receivable and (b) all cash proceeds in the Related Rights for such Receivable, in each case including, but not limited to, principal, interest, fees, liquidation proceeds, payments received in connection with Insurance and proceeds from Insurance.
"Commitment Schedule" means the Schedule attached hereto identified as such.
"Commitment" means, with respect to each Lender, such Lender's commitment to make Loans hereunder, expressed as an amount representing the maximum possible aggregate amount of such Lender’s Exposure hereunder, as such commitment may be reduced from time to time pursuant to (a) Section 2.08 and (b) assignments by or to such Lender pursuant to Section 8.04. The initial amount of each Lender's Commitment is set forth on the Commitment Schedule, or in the Assignment and Assumption pursuant to which such Lender shall have assumed its Commitment, as applicable.
"Confidential Personal Information" means any and all information or data protected by Privacy Laws, including (without limitation) information or data that: (a) is personal information or information about an
identifiable individual (as more particularly defined in the applicable Privacy Laws) that was collected, used, disclosed or accessible to the Sellers or the Servicers; or (b) is information from which an individual or individual's identity can be ascertained either from the information itself or by combining the information with information from other sources available to the parties.
"Connection Income Taxes" means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
"Continuing Director" means, as of any date of determination, any member of the Board of Directors of CURO Group Holdings Corp. and CURO Intermediate Holdings Corp. (as applicable) who (1) was a member of such Board of Directors on the date of this Agreement or (2) was (x) nominated for election or elected to such Board of Directors with the approval, recommendation or endorsement of a majority of the directors who were members of such Board of Directors on the date of this Agreement or whose nomination or election to the Board of Directors was previously so approved or (y) designated or appointed, directly or indirectly, by the Permitted Holders.
"Control" means, other than in the case of Section 3.19, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto.
"Cost of Funds" means, with respect to any Collection Period, a percentage equal to (1) the sum of any interest and fee amounts payable under Section 2.03(b), divided by (2) the average daily balance of the Aggregate Eligible Pool Balance during such Collection Period; and such resulting quotient multiplied by (3) twelve.
“Credit and Collection Policies” means, with respect to the Sellers, the applicable credit and collection and risk underwriting policies for the Receivables as in effect on the Closing Date and approved by the Lenders, namely the documents entitled:
(a)Risk Underwriting Policies Supplement;
(b)Internet Lending Credit Policy – Cash Money;
(c)Brick and Mortar Credit Policy – Cash Money;
(d)Internet Lending Credit Policy – LendDirect;
(e)Brick and Mortar Credit Policy – LendDirect;
(f)Risk and Analytics Approval Procedures, dated October 2017;
(g)Contact Centre P&P – Recovery Department Only, dated June 13, 2018;
(h)Due Date Changes – Line of Credit Loans; and
(i)Due Date Changes – Installment Loans,
as scheduled in Schedule D to the Sale and Servicing Agreement, as amended, replaced or supplemented from time to time to the extent permitted under the Transaction Documents.
"Credit Parties" means, collectively, the General Partner and the Borrower, and "Credit Party" means either of them.
"Curo Entities" means, collectively, CURO Group Holdings Corp., CURO Financial Technologies Corp. CURO Intermediate Holdings Corp., CURO Management LLC (NV) and each Seller, and "Curo Entity" means any one of them.
"CURO Score" means a proprietary credit risk score determined by the Sellers.
"Customer Data" means all data and information supplied or provided or made available directly or indirectly to the Sellers and the Servicers by Obligors, including: (a) Confidential Personal Information; (b) the customer data of the Sellers and the Servicers, (c) the result of the processing of any such data, or data that is generated or derived or collected in any connection with the origination and servicing of the Receivables; and (d) all such data and information of the Sellers' or the Servicers' contractors, agents or other third parties.
"Cut-off Date" means, with respect to any Purchase, the Cut-off Date as set out in the relevant Purchase Notice.
"Data Requirements" means Privacy Laws applicable to the Sellers' and the Servicers' conduct of business, all agreements to which it is bound, and all internal or customer-facing policies of the Sellers and the Servicers, in each case with respect to collection, use, storage, transfer, privacy, protection, or security of information.
"Deemed Collection" has the meaning assigned to such term in Section 5.04 of the Sale and Servicing Agreement.
"Default" means any event or condition which constitutes an Event of Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
"Default Ratio" means, at any time, the ratio (expressed as a percentage) computed by dividing (a) the Aggregate Outstanding Balance as at end of the last day of the immediately preceding Collection Period of all Purchased Receivables that were Defaulted Receivables as at the end of such day (excluding any Receivables that were subject to a First Payment Default as at the end of such day), by (b) the Aggregate Outstanding Balance of all Purchased Receivables as at the end of such day (excluding any Receivables that were subject to a First Payment Default as at the end of such day).
"Defaulted Receivable" means a Receivable: (a) as to which the Obligor thereof is Insolvent, (b) which became or should have become charged-off or identified by the Servicers as uncollectable in accordance with the Credit and Collection Policies, or (c) as to which any payment, or part thereof, remains unpaid for more than sixty (60) days and less than ninety-one (91) days from the original due date for such payment.
"Defaulting Lender" means any Lender that (a) has failed, within two Business Days of the date required to be funded or paid, to (i) fund any portion of its Loans or (ii) pay over to any Finance Party any other amount required to be paid by it hereunder or any other Loan Document, unless, in the case of clause (i) above, such Lender notifies the Administrative Agent in writing that such failure is the result of such Lender's good faith determination that a condition precedent to funding (specifically identified and including the particular Default, if any) has not been satisfied, (b) has notified the Borrower or any Finance Party in writing, or has made a public statement, to the effect that it does not intend or expect to comply with any of its funding obligations under this Agreement or any other Loan Document (unless such writing or public statement indicates that such position is based on such Lender's good faith determination that a condition precedent (specifically identified and including the particular Default, if any) to funding a Loan under this Agreement cannot be satisfied) or generally under other agreements in which it commits to extend credit,
(c) has failed, within three Business Days after request by a Finance Party, acting in good faith, to provide a certification in writing from an authorized officer of such Lender that it will comply with its obligations (and is financially able to meet such obligations) to fund prospective Loans under this Agreement, provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon such Finance Party's
receipt of such certification in form and substance satisfactory to it and the Administrative Agent, or (d) has become Insolvent.
"Delinquency Ratio" means, at any time, the ratio (expressed as a percentage) computed by dividing (a) the Aggregate Outstanding Balance as at end of the last day of the immediately preceding Collection Period of all Purchased Receivables that were Delinquent Receivables but not Defaulted Receivables as at the end of such day (excluding any Receivables that were subject to a First Payment Default as at the end of such day) by (b) the Aggregate Outstanding Balance of all Purchased Receivables as at the end of such day (excluding any Receivables that were subject to a First Payment Default as at the end of such day).
"Delinquent Receivable" means a Receivable as to which any payment, or part thereof, remains unpaid for more than thirty (30) days and less than sixty-one (61) days from the original due date for such payment.
"Discrepancy Ratio" means the ratio computed by dividing (a) the total number of Receivables in a Loan Data Tape reviewed by the Verification Agent in a verification period pursuant to the Back-up Servicing and Verification Agency Agreement containing discrepancies, by (b) the total number of Receivables in a Loan Data Tape reviewed by the Verification Agent in that verification period pursuant to the Back-up Servicing and Verification Agency Agreement, as indicated in any Verification Certificate (as defined in the Back-up Servicing and Verification Agency Agreement).
"EEA Financial Institution" means (a) any institution established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any institution established in an EEA Member Country which is a Subsidiary of an institution described in clauses (a) or
(b) of this definition and is subject to consolidated supervision with its parent.
"EEA Member Country" means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
"EEA Resolution Authority" means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
"Effective Date" means the date on which the conditions specified in Section 4.01 are satisfied (or waived in accordance with Section 8.02).
"Electronic Signature" means an electronic sound, symbol, or process attached to, or associated with, a contract or other record and adopted by a Person with the intent to sign, authenticate or accept such contract or record.
"Electronic System" means any electronic system, including e-mail, e-fax, web portal access for the Borrower, Intralinks®, ClearPar®, Debt Domain, Syndtrak and any other Internet or extranet-based site, whether such electronic system is owned, operated or hosted by the Administrative Agent and any of its Related Parties or any other Person, providing for access to data protected by passcodes or other security system.
“Eligible Receivable” means [***].
"Equity Interests" means shares of capital stock, partnership interests, membership interests in a limited liability company, beneficial interests in a trust or other equity ownership interests in a Person, and any warrants, options or other rights entitling the holder thereof to purchase or acquire any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with a Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan (other than an event for which the 30 day notice period is waived);
(b) the failure to satisfy the "minimum funding standard" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by the Borrower or any ERISA Affiliate of any liability under Title IV of ERISA with respect to the termination of any Plan;
(e) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by the Borrower or any ERISA Affiliate of any liability with respect to the withdrawal or partial withdrawal of the Borrower or any ERISA Affiliate from any Plan or Multiemployer Plan; or (g) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition upon the Borrower or any ERISA Affiliate of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent within the meaning of Section 4245 of ERISA, or is in critical or endangered status within the meaning of Section 432 of the Code.
"EU Bail-In Legislation Schedule" means the "EU Bail-In Legislation Schedule" published by the Loan Market Association (or any successor Person), as in effect from time to time.
"Events of Default" has the meaning assigned to such term in Article VI, and “Event of Default” means any such event.
"Excess Portfolio Amount" means, at any time of determination, the Aggregate Outstanding Balance by which the Purchased Receivables exceed or do not qualify under the relevant Portfolio Limits at such time.
"Excess Spread Percentage" means, at any time in respect of the immediately preceding Collection Period, a percentage equal to the Weighted Average Portfolio Interest Rate less the Actual Loss Rate less the Cost of Funds less Servicing Cost plus the Net Insurance Premium Yield, in each case as at the end of such Collection Period.
"Excluded Taxes" means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient: (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes; (b) Taxes imposed pursuant to the ITA as a result of the Recipient (i) not dealing at arm’s length (within the meaning of the ITA) with the Borrower, or
(ii) being a "specified non-resident shareholder" (within the meaning of subsection 18(5) of the ITA) of a member of the Borrower or not dealing at arm’s length with a "specified shareholder" (within the meaning of subsection 18(5) of the ITA) of a member of the Borrower; (c) in the case of a Lender, U.S. federal and Canadian federal and provincial withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 2.15(b)) or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 2.13, amounts with respect to such Taxes were payable either to such Lender's assignor immediately before such Lender acquired the applicable interest in a Loan or Commitment or to such Lender immediately before it changed its lending office; (d) U.S. federal and Canadian withholding Taxes attributable to such Recipient's failure to comply with Section 2.13(f); and Section 2.13(d) and (e) any U.S. federal withholding Taxes imposed under FATCA.
"Expenses Cap" means, with respect to a period consisting of twelve (12) consecutive Monthly Settlement Dates, $100,000 per annum.
"Exposure" means, with respect to any Lender at any time, the outstanding principal amount of such Lender's Loans at such time.
"FATCA" means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreement entered into pursuant to Section 1471(b)(1) of the Code.
“Fee Letter” means the fee letter dated on or about the date hereof between WF Marlie 2018-1, Ltd. And the Borrower in respect of the determination of the Administrative Agent Fee Amount, the Applicable Rate, the Financing Premium Rate and the Financing Fee Rate, as such fee letter may be amended, restated, supplemented, replaced or otherwise modified from time to time.
"FICO Score" means a credit score determined using analytics developed by the Fair Isaac Corporation and commonly referred to as a FICO Score.
"FFL Group" means (i) Friedman Fleischer & Lowe, LLC and its Affiliates and (ii) any investment vehicle that is managed (whether through ownership of securities having a majority of the voting power or through management
of investments) by any Person listed in clause (i), but excluding any portfolio companies (other than any Curo Entity or any Subsidiary of a Curo Entity) of any such Person.
"Finance Parties" means the Administrative Agent and the Lenders.
“Financial Covenant” means the covenants in Article X(k) in the Parent Guaranty.
“Financing Assignment Designation” means a designation of Purchased Assets as assets to be sold on a specified date by the Borrower in connection with any Securitization Transaction in accordance with Section 5.40.
“Financing Assignment Designation Cut-Off Date” means, in respect of any Financing Assignment Designation, the cut-off date specified as such in the related Financing Transaction Notice.
“Financing Fee Rate” has the meaning given to such term in the Fee Letter.
“Financing Premium Rate” has the meaning given to such term in the Fee Letter.
“Financing Transaction Notice” has the meaning given to such term in Section 5.40.
“Financing Transaction Prepayment Amount” has the meaning given to such term in Section 5.40. “Financing Transaction Release List” has the meaning given to such term in Section 5.40. "First Payment Default" means the failure by an Obligor to make its first scheduled payment under the relevant Underlying Agreement.
"First Payment Default Ratio" means, as of any date of determination, the ratio (expressed as a percentage) computed by dividing (a) the Aggregate Outstanding Balance of the Purchased Receivables which were subject to a First Payment Default during the most recently completed Collection Period, by (b) the Aggregate Outstanding Balance of the Purchased Receivables which were purchased by the Borrower during such Collection Period.
“Flexiti” means Flexiti Financial Inc. and its successors.
“Flexiti Addition Date” means that date on which Flexiti has joined the Sale and Servicing Agreement as a Seller on terms mutually agreeable to the parties thereto and the Administrative Agent, acting reasonably.
“Flexiti Non-Prime Receivables” means those receivables originated by Flexiti, as mutually agreed by the parties hereto.
"Foreign Lender" means (a) if a Borrower is a U.S. Person, a Lender, with respect to the Borrower, that is not a U.S. Person, and (b) if a Borrower is not a U.S. Person, a Lender, with respect to the Borrower, that is resident or organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes.
"Foreign Plan" means any benefit plan that is maintained or is contributed to by any Borrower Party that, under the applicable Law of any jurisdiction other than the United States, is required to be funded through a trust or other funding vehicle other than a trust or funding vehicle maintained exclusively by a Governmental Authority.
“Founders” means each of (i) Doug Rippel, (ii) Chad Faulkner, (iii) Mike McKnight, (iv) Joseph Genova, (v) the J.P. Genova Family Trust and (vi) any (a) spouse or lineal descendent (whether natural or adopted) of any Person listed in clauses (i) through (v) or (b) trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or persons beneficially holding an 80% or more controlling interest of which consist of such Person and/or any of the Persons referred to in the immediately preceding clause (a).
"GAAP" means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.
"General Partner" means CURO Canada Receivables GP Inc. and any successor or permitted assignee thereof.
"General Security Agreement" means that certain security agreement (including any and all supplements thereto), dated as of the Effective Date, among the Borrower and the Administrative Agent, for the benefit of the Administrative Agent and the other Secured Parties, and any other pledge or security agreement governed by the laws of a province or territory of Canada entered into, after the date of this Agreement by the Borrower (as required by this Agreement or any other Loan Document) or any other Person for the benefit of the Administrative Agent and the other Secured Parties, as the same may be amended, restated, supplemented or otherwise modified from time to time.
"Governmental Authority" means the government of the U.S., Canada, any other nation or any political subdivision thereof, whether state, provincial, territorial, or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.
"Guarantee" of or by any Person (the "guarantor") means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or
(d)as an account party in respect of any letter of credit or letter of guarantee issued to support such Indebtedness or obligation; provided, that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business.
“Guarantor” means Curo Group Holdings Corp.
"Indebtedness" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guarantee, (i) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances and (j) obligations in respect of any earn-out obligation for which the payment amount is capable of being determined or for which the obligation is evidenced by a promissory or similar instrument. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.
"Indemnified Taxes" means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by, or on account of any obligation of the Borrower under any Loan Document and (b) to the extent not otherwise described in subsection (a), Other Taxes.
"Industry Regulatory Action" means any inquiry, investigation, legal action or proceeding by any Governmental Authority alleging any noncompliance by any member of the consumer credit industry with such jurisdiction's applicable consumer credit laws or insurance laws as a result of a method, practice, action, inaction, condition, event or circumstance that is consistent in all material respects with the same or any similar method, practice, action, inaction, condition, event or circumstance engaged in by or applicable to any Borrower Party or any third party engaged by any Borrower Party.
"Ineligible Institution" has the meaning assigned to such term in Section 8.04(b). "Information" has the meaning assigned to such term in Section 8.11.
"Initial Servicers" means Curo Canada Corp., LendDirect Corp. (Canada) and, following the Flexiti Addition Date, Flexiti, and "Initial Servicer" means any of them.
"Insolvency Event" means the occurrence of any of the following:
(a)a Credit Party shall:
(i)apply for or consent to the appointment of, or the taking of possession by a receiver, custodian, administrator, trustee, liquidator or other similar official for itself or any other Credit Party or for all or any substantial part of its or any other Credit Party's assets;
(ii)commit an act of bankruptcy;
(iii)make a general assignment for the benefit of creditors, or otherwise commence or consent to the commencement of proceedings under the Bankruptcy and Insolvency Act (Canada) (including proceedings in connection with any proposal or notice of intention to make a proposal thereunder), the Companies’ Creditors Arrangement Act (Canada) or under any other Insolvency Law, or consent to any orders sought in any such proceedings, in each case in respect of any Credit Party or its property;
(iv)take any corporate or partnership action to authorize, or expressly state any intention to take, any of the actions described in (i) through (iii) above; or
(v)(A) be unable to meet its obligations as they generally become due, (B) cease paying its current obligations in the ordinary course of business as they generally become due, (C) cease to have property that, at a fair valuation, is sufficient, or, if disposed of at a fairly conducted sale under legal process, would be sufficient to enable payment of all of its obligations, due and accruing due, or (D) admit in writing that any of (A) through (C) have occurred in respect of any Credit Party;
(b)a receiver, custodian, administrator, trustee, liquidator or other similar official is appointed over a Credit Party or over all or any substantial part of a Credit Party’s assets; or
(c)in respect of any Credit Party, an involuntary proceeding shall be commenced seeking:
(A) to adjudicate any Credit Party a bankrupt or insolvent; (B) relief in respect of any Credit Party or a substantial part of such Credit Party’s assets under the Bankruptcy and Insolvency Act (Canada) (including proceedings in connection with any proposal thereunder), the Companies’ Creditors Arrangement Act (Canada) or any other Insolvency Law; or (C) the appointment of a receiver, trustee, custodian, liquidator or similar official for any Credit Party or any substantial part of such Credit Party’s property.
"Insolvency Law" means the Companies’ Creditors Arrangement Act (Canada), Bankruptcy and Insolvency Act (Canada), Winding-up and Restructuring Act (Canada), the Limited Partnerships Act (Ontario) and all other winding-up, liquidation, dissolution, conservatorship, bankruptcy, moratorium, protection, composition, arrangement, receivership, insolvency, reorganization, or similar laws of Canada or other applicable jurisdictions, including at common law or equity, from time to time in effect and affecting the rights of creditors generally.
"Insolvent" means, in respect of any Person:
(a)such Person:
(i)applies for or consents to the appointment of, or the taking of possession by a receiver, custodian, administrator, trustee, liquidator or other similar official over such Person or all or any substantial part of such Person’s assets;
(ii)commits an act of bankruptcy;
(iii)makes a general assignment for the benefit of creditors, or otherwise commences or consents to the commencement of proceedings under the Bankruptcy and Insolvency Act (Canada) (including proceedings in connection with any proposal or notice of intention to make a proposal thereunder), the Companies’ Creditors Arrangement Act (Canada) or under any other Insolvency Law, or consents to any orders sought in any such proceedings, in each case in respect of such Person or such Person’s property;
(iv)takes any corporate or partnership action to authorize, or expressly states any intention to take, any of the actions described in (i) through (iii) above; or
(v)(A) is unable to meet such Person’s obligations as they generally become due, (B) ceases paying such Person’s current obligations in the ordinary course of business as they generally become due, (C) ceases to have property that, at a fair valuation, is sufficient, or, if disposed of at a fairly conducted sale under legal process, would be sufficient to enable payment of all of such Person’s obligations, due and accruing due, or (D) admits in writing that any of (A) through (C) have occurred in respect of such Person;
(b)a receiver, custodian, administrator, trustee, liquidator or other similar official is appointed over such Person or over all or any substantial part of such Person’s assets;
(c)an involuntary proceeding shall be commenced seeking: (i) to adjudicate such Person a bankrupt or insolvent; (ii) relief in respect of such Person or a substantial part of such Person’s assets under the Bankruptcy and Insolvency Act (Canada) (including proceedings in connection with any proposal thereunder), the Companies’ Creditors Arrangement Act (Canada) or any other Insolvency Law; or (iii) the appointment of a receiver, trustee, custodian, liquidator or similar official for such Person or any substantial part of such Person’s property; or
(d)security enforcement, sale or foreclosure steps shall have been taken against such Person or a substantial part of such Person’s property under the PPSA or similar laws of any other jurisdiction.
"Installment Loan Receivables" means, collectively, the installment loans described in the related Underlying Agreements as personal loan agreements for fixed rate loans, and "Installment Loan Receivable" means any one of them.
"Insurance" means, collectively, the insurance made available to Obligors by Insurers with respect to Receivables under the Master Insurance Contracts.
"Insurance Costs" means, collectively, the amounts paid or required to be paid by the Borrower to any Insurer out of Insurance premiums received from Obligors in accordance with any Master Insurance Contracts entered into by the Sellers, and "Insurance Cost" means any of such amounts.
"Insurers" means Canadian Premier Life Insurance Company and any other insurer that provides Insurance pursuant to the Master Insurance Contracts, to the extent permitted under the Transaction Documents, and “Insurer” means any of them.
"Intercreditor Agreement" means the intercreditor agreement dated September 20, 2018 between the Royal Bank of Canada, the Borrower, Curo Canada Corp. (formerly, Cash Money Cheque Cashing Inc.) and LendDirect Corp.
"Interest Distribution Amount" means, in respect of a Collection Period, (a) the daily weighted average outstanding principal amount of the Loans for such Collection Period, multiplied by (b) the Applicable Rate, divided by (c) 360, and multiplied by (d) the number of days in such Collection Period.
"Insurer Notification Letters" means the notification letter delivered to Canadian Premier Life Insurance Company dated on or about the date hereof.
"Intercompany Debt" means any Indebtedness from time to time owing by any Seller to any Affiliate thereof.
"Interest Rate Caps" means interest rate cap transactions in which the Borrower as buyer receives payments at the end of each period in which the interest rate exceeds the agreed strike rate, and "Interest Rate Cap" means any such transaction.
"Investment Company Act" means the Investment Company Act of 1940, as amended or otherwise modified from time to time.
"IRS" means the United States Internal Revenue Service. "ITA" means the Income Tax Act (Canada).
"Judgment Currency Conversion Date" has the meaning assigned to such term in Section 8.19(a). "Judgment Currency" has the meaning assigned to such term in Section 8.19(a).
"Judgment Threshold" means, with respect to each Borrower Party, $250,000.
"Lender" means the Persons listed on the Commitment Schedule and any other Person that shall have become a Lender hereunder pursuant to Section 8.04 or an Assignment and Assumption, other than any such Person that ceases to be a Lender hereunder pursuant to an Assignment and Assumption.
“Level 1 Collateral Trigger” means [***].
“Level 1 Regulatory Trigger Event” means [***].
“Level 1 Verification Trigger Event” means [***].
“Level 2 Collateral Trigger” means [***].
“Level 2 Regulatory Trigger Event” means [***].
“Level 2 Verification Trigger Event” means [***].
“Level 3 Collateral Trigger” means [***].
“Level 3 Regulatory Trigger Event” means [***].
"Lien" means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothec (whether legal or conventional), hypothecation, encumbrance, charge, option or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.
"Line of Credit Loan Receivables" means, collectively, the line of credit loans described in the related Underlying Agreements as personal loan agreements for lines of credit, and "Line of Credit Loan Receivable" means any one of them.
"Loan Documents" means, collectively, this Agreement, any promissory notes issued pursuant to this Agreement, the General Security Agreement, the Fee Letter, the Parent Guaranty and all other agreements, instruments, documents and certificates identified in Section 4.01 executed and delivered to, or in favour of, the Administrative Agent or any Lender and including intercreditor agreements, subordination agreements and all other pledges, powers of attorney, consents, assignments, contracts, notices, letter of credit agreements and all other written matter whether heretofore, now or hereafter executed by or on behalf of any Borrower Party, or any employee of any Borrower Party, and delivered to the Administrative Agent or any Lender in connection with this Agreement or the transactions contemplated hereby. Any reference in this Agreement or any other Loan Document to a Loan Document shall include all appendices, exhibits or schedules thereto, and all amendments, restatements, supplements or other modifications thereto, and shall refer to this Agreement or such Loan Document as the same may be in effect at any and all times such reference becomes operative.
"Loan Level Data Tape" has the meaning ascribed thereto in the Back-up Servicing and Verification Agency Agreement.
"Loans" means loans and advances made by the Lenders to the Borrower pursuant to this Agreement, together with interest accrued thereon and fees and costs incurred in connection therewith.
“Make Whole Amount” means [***].
"Master Insurance Contracts" means, collectively, the Master Insurance Policies and the Master Insurance Marketing Agreement, and "Master Insurance Contract" means any of them.
"Master Insurance Marketing Agreement" means the lender marketing agreement for group creditor insurance plan between Canadian Premier Life Insurance Company, Premium Services Group Inc., LendDirect Corp. and Curo Canada Corp. (formerly, Cash Money Cheque Cashing Inc.) dated March 8, 2018, as amended, replaced or supplemented, from time to time to the extent permitted under the Transaction Documents.
"Master Insurance Policies" means, collectively, the following master insurance policies:
(a)policy number LOC001-CM01 between Canadian Premier Life Insurance Company and Curo Canada Corp. (formerly, Cash Money Cheque Cashing Inc.);
(b)policy number LOC001-LD01 between Canadian Premier Life Insurance Company and LendDirect Corp.;
(c)policy number ST001-CM01 between Canadian Premier Life Insurance Company and Curo Canada Corp. (formerly, Cash Money Cheque Cashing Inc.);
in each case, as amended, replaced or supplemented, from time to time to the extent permitted under the Transaction Documents, and "Master Insurance Policy" means any of them.
"Material Adverse Effect" means a material adverse effect on (a) the business, assets, operations, prospects or condition, financial or otherwise of any of (i) the Borrower Parties taken as a whole, (ii) any of the Credit Parties, (iii) any of the Sellers, or (iv) any of the Servicers, (b) the ability of any of the Borrower Parties to perform any of its obligations under any of the Loan Documents to which it is a party, (c) a material portion of the Collateral, the Administrative Agent's Liens (on behalf of itself and other Secured Parties) on the Collateral or the priority of such Liens, or (d) the rights of or benefits available to the Administrative Agent or the Lenders under any of the Loan Documents.
"Maturity Date" means August 2, 2026 or any earlier date on which the Commitments are reduced to zero or otherwise terminated pursuant to the terms hereof.
"Maximum Principal Amount" means three hundred fifty million ($350,000,000), provided that that such amount may be increased in an amount as agreed by and in accordance with Section 2.07 up to a maximum of four hundred fifty million dollars ($450,000,000).
"Maximum Rate" has the meaning assigned to such term in Section 8.16.
“Monthly Settlement Date” means the first Weekly Settlement Date of each calendar month. "Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.
"Net Insurance Premium Yield" means, at any time in respect of a Collection Period, the ratio (expressed as a percentage) computed by dividing (i) the amount paid by Obligors in connection with Insurance premiums during such Collection Period, less the Insurance Cost during such Collection Period, by (ii) the Aggregate Outstanding Balance of all Eligible Receivables as of the last day of such Collection Period.
"Obligor" means, with respect to any Receivable, the Person or Persons obliged to make payments in respect thereof.
"OFAC" means the Office of Foreign Assets Control of the United States Department of the Treasury.
"Online Receivables" means all Receivables which were originated (and, for the avoidance of doubt, with respect to Installment Loan Receivables are fully funded) by the Sellers through an online platform in accordance with the applicable Requirements of Law.
"Organizational Documents" of any Person means its memorandum and articles of association, articles or certificate of incorporation or formation and by-laws, limited liability agreement, partnership agreement, declaration of trust or other comparable charter or organizational documents as amended from time to time and shall include with respect to the Borrower, the Partnership Agreement.
"Other Connection Taxes" means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Taxes (other than a connection arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to, or enforced, any Loan Document, or sold or assigned an interest in any Loan or any Loan Document).
"Other Taxes" means all present or future stamp, court or documentary, intangible, value added, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 2.15).
"Outstanding Balance" means, with respect to any Receivable at any time, the outstanding balance, which remains unpaid and owing from the relevant Obligor at such time, excluding any amount payable on account of fees, commissions, finance charges, late payment charges and other similar items.
“Parent Guaranty” means the second amended and restated guaranty provided by CURO Group Holdings Corp. dated on or about the date hereof.
"Partnership Agreement" means the limited partnership agreement in respect of the Borrower dated as of July 30, 2018 between, inter alia, the General Partner as general partner.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
“Pending Eligible Receivables” means [***].
"Permitted Discretion" means a determination made in good faith and in the exercise of reasonable (from the perspective of a secured asset-based lender) business judgment.
"Permitted Encumbrances" means, with respect to any Person or its assets, (a) any inchoate Liens for current taxes, assessments, levies, fees and other government and similar charges not yet due and payable or the amount or validity of which is being contested in good faith by appropriate proceedings and with respect to which adequate reserves have been established in accordance with GAAP, but only so long as foreclosure, execution or garnishment with respect to such Lien is not imminent and the use and value of the property to which the liens attach are not impaired during the pendency of such proceedings, (b) with respect to Curo Canada Corp., any Lien in favor the Royal Bank of Canada in connection with the amended
and restated letter agreement dated as of July 3, 2018 between Curo Canada Corp. (formerly, Cash Money Cheque Cashing Inc.) and the Royal Bank of Canada, as amended, modified, supplemented, restated or replaced from time to time, pursuant to which the Royal Bank of Canada provides certain secured facilities to Curo Canada Corp., provided that such encumbrance has been released by the Royal Bank of Canada in respect of any Purchased Assets sold pursuant to the Sale and Servicing Agreement effective as of the date and time that such Purchased Assets are sold to the Borrower and, for the avoidance of doubt, shall not be considered to be a Permitted Encumbrance in respect of any Purchased Assets upon their Purchase,
(c)any Lien in favor of, or assigned to, the Administrative Agent (for the benefit of the Secured Parties) under the Transaction Documents, and (d) any other Lien which the Administrative Agent has consented to in writing, and, for the avoidance of doubt, Liens arising under ERISA are not Permitted Encumbrances.
"Permitted Holders" means the Founders and the FFL Group.
"Person" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
"PIPEDA" means the Personal Information Protection and Electronic Documents Act, S.C. 2000, c. 5.
"Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
“Portfolio Limits” means [***].
“PPSA” means the Personal Property Security Act (Ontario), including the regulations thereto and related Minister's Orders, provided that if perfection or the effect of perfection or non-perfection or the priority of any Lien created hereunder or under any other Loan Document on the Collateral is governed by the personal property security legislation or other applicable legislation with respect to personal property security in effect in any applicable jurisdiction in Canada, "PPSA" means the Personal Property Security Security Act or such other applicable legislation (including, the Civil Code of Quebec) in effect from time to time in such other jurisdiction in Canada for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.
“Prepayment Fee” means [***].
"Principal Balance" means, with respect to a Receivable, the outstanding principal balance owing on such Receivable.
"Privacy Laws" means PIPEDA and any regulations thereunder, as amended, replaced or supplemented from time to time, and any other similar applicable federal, provincial or territorial legislation now in force or that may in the future come into force in Canada governing the protection of personal information in the private sector.
"Proceeds of Crime Act" means the Proceeds of Crime (Money Laundering) and Terrorist Financing Act
(Canada), as amended from time to time, and including all regulations thereunder. "Projections" has the meaning assigned to such term in Section 5.19(d). "Purchase" means each purchase by the Borrower of Purchased Receivables pursuant to the terms of the Sale and Servicing Agreement and a Purchase Notice.
"Purchase Date" means, in respect of each Purchase, the date specified as such in the Purchase Notice applicable to such Purchase.
"Purchase Notice" means an offer by the Sellers to sell assets to the Borrower in the form attached as Schedule A to the Sale and Servicing Agreement.
"Purchased Assets" means the Receivables purchased by the Borrower under the Sale and Servicing Agreement (other than those repurchased by the Sellers), the Related Rights thereto and the related Collections.
"Purchased Receivables" means Eligible Receivables and Pending Eligible Receivables that are purchased pursuant to the Sale and Servicing Agreement.
"Qualified Lender" means a financial institution that is listed on Schedule I, II, or III of the Bank Act (Canada), has received an approval to have a financial establishment in Canada pursuant to Section 522.21 of the Bank Act (Canada) or is not a foreign bank for purposes of the Bank Act (Canada), and if such financial institution is not deemed to be resident of Canada for purposes of the ITA, that financial institution deals at arm's length with the Borrower for purposes of the ITA.
"Receivables" means (a) the indebtedness and other obligations originally owed to Curo Canada Corp. and LendDirect Corp. (Canada) in connection with any and all liens, installment sale agreements, instruments, consumer finance paper and/or promissory notes securing and evidencing unsecured multi- pay consumer line of credit and installment loans made and/or acquired by Curo Canada Corp. or LendDirect Corp. (Canada), as the case may be, which were originated in accordance with the Credit and Collection Policies or which are otherwise included as Collateral; and (b) with the prior written consent of the Administrative Agent, such consent not to be unreasonably withheld, Flexiti Non-Prime Receivables.
"Receivables Sale Termination Notice" has the meaning given to such term in Section 5.36.
"Recipient" means, as applicable, (a) the Administrative Agent and (b) any Lender, or any combination thereof (as the context requires).
"Records" means, at any time in relation to a Seller and with respect to any Receivable, all contracts and other documents, records and other information (including, without limitation, computer programs, tapes, disks, data processing software and related property and rights) relating to such Receivables, any Related Rights and the related Obligor, in each case, related to such Seller, which are reasonably necessary, in light of the circumstances then subsisting, to service or enforce such Receivable and Related Rights.
"Re-Direction Event" means the occurrence of any of the following events:
(a)a Level 2 Collateral Trigger; and
(b)a Level 2 Regulatory Trigger Event.
"Regulatory Action" means, other than a Routine Inquiry, any inquiry, investigation, legal action or proceeding by any Governmental Authority alleging any noncompliance by any Borrower Party or, to the knowledge of the Borrower or any other Curo Entity, any third party engaged by a Borrower Party with such jurisdiction’s applicable consumer credit laws or insurance laws, which, if adversely determined, could reasonably be expected to have a Material Adverse Effect as determined by the Administrative Agent in its Permitted Discretion.
"Regulatory Trigger Event" means a Level 1 Regulatory Trigger Event, a Level 2 Regulatory Trigger Event or a Level 3 Regulatory Trigger Event.
"Related Parties" means, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, partners, members, trustees, employees, agents, administrators, managers, representatives and advisors of such Person and such Person's Affiliates.
"Related Rights" means, in respect of any Receivable:
(a)all Liens and property securing or attaching to such Receivable from time to time, if any, purporting to secure payment of such Receivable or otherwise, together with any and all security documents describing any assets securing such Receivable;
(b)all deposits, insurance, guarantees, letters of credit, indemnities, warranties and other agreements or arrangements of whatever character from time to time supporting or
securing payment of such Receivable whether pursuant to the Underlying Agreement for such Receivable or otherwise;
(c)all rights to receive and obtain payment under the Underlying Agreement for such Receivable including rights of enforcement under the Underlying Agreement against the relevant Obligor;
(d)all Records related to such Receivable;
(e)all rights to enforce payment under the Underlying Agreement against the relevant Obligor and all rights to demand, sue for, recover, receive and give receipt for all such amounts;
(f)all Collections and any other proceeds (including the proceeds of any sale or disposal) related to such Receivable; and
(g)all proceeds of any of the foregoing.
"Repayment Notice" means a notice in the form set forth in Exhibit C hereto.
"Replacement Servicer Fee" has the meaning assigned to such term in Section 7.03 of the Sale and Servicing Agreement.
"Report" means reports prepared by the Administrative Agent or another Person showing the results of appraisals, field examinations or audits pertaining to the assets of the Borrower from information furnished by or on behalf of the Borrower, after the Administrative Agent has exercised its rights of inspection pursuant to this Agreement, which Reports may be distributed to the Lenders by the Administrative Agent.
"Reporting Date" means the tenth (10th) calendar day of each month (or, if such day is not a Business Day, the first Business Day to occur thereafter).
"Required Lenders" means, at any time, one or more Lenders (other than Defaulting Lender) having Exposures and unused Commitments representing more than 50% of the sum of the Aggregate Exposure and unused Commitments at such time.
"Requirement of Law" means, with respect to any Person, (a) the charter, articles or certificate of organization or incorporation and bylaws or other organizational or governing documents of such Person and (b) any statute, law (including common law), treaty, rule, regulation, code, ordinance, order, decree, writ, judgment, injunction or determination of any arbitrator or court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
"Restricted Payment" means any dividend or other distribution (whether in cash, securities or other property) with respect to any Equity Interests in the Borrower, or any payment (whether in cash, securities or other property),
including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interests in the Borrower or any option, warrant or other right to acquire any such Equity Interests in the Borrower.
"Revolving Period" means the period from the Closing Date until the Revolving Period End Date.
"Revolving Period End Date" means the earliest of (i) August 2, 2025, (ii) the occurrence of an Amortization Event or (iii) the occurrence of an Event of Default.
"Routine Inquiry" includes, without limitation, any inquiry, written or otherwise, made by a Governmental Authority via a form letter or otherwise which does not contain any specific allegations or violations, other than in connection with the routine transmittal of a consumer complaint.
"Sale and Servicing Agreement" means the second amended and restated sale and servicing agreement between the Borrower and the Sellers for the purchase of Eligible Receivables from time to time in accordance with the terms and conditions therein, dated on or about the date hereof.
"Sanctioned Country" means, at any time, a country, region or territory which is itself the subject or target of any Sanctions (at the time of this Agreement, Crimea, Cuba (but not with respect to Canada or to the Borrower), Iran, North Korea, Sudan and Syria).
"Sanctioned Person" means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by OFAC, the U.S. Department of State, the Government of Canada, the Government of any province or territory of Canada or by the United Nations Security Council, the European Union or any EU member state, Her Majesty's Treasury of the United Kingdom or other relevant sanctions authority,
(b)any Person operating, organized or resident in a Sanctioned Country or (c) any Person owned or controlled by any such Person or Persons described in the foregoing clauses (a) or (b).
"Sanctions" means all economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by OFAC or the U.S. Department of State, or (b) the United Nations Security Council, the Government of Canada, the European Union, any EU member state, Her Majesty's Treasury of the United Kingdom or other relevant sanctions authority.
"SEC" means the Securities and Exchange Commission of the U.S. “Second ARCA Closing Date” means November 12, 2021.
"Secured Obligations" means all unpaid principal of and accrued and unpaid interest on the Loans, all accrued and unpaid fees and all expenses, reimbursements, indemnities and other obligations and indebtedness (including interest and fees accruing during the pendency of any bankruptcy, insolvency, receivership or other similar proceeding, regardless of whether allowed or allowable in such proceeding), obligations and liabilities of the Borrower to any of the Lenders, the Administrative Agent or any indemnified party, individually or collectively, existing on the Effective Date or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, arising or incurred under this Agreement or any of the other Loan Documents, in each case in respect of any of the Loans made or reimbursement or other obligations incurred or other instruments at any time evidencing any thereof.
"Secured Parties" means (a) the Administrative Agent, (b) the Lenders, (c) the Back-up Servicer, (d) the Verification Agent, (e) the beneficiaries of each indemnification obligation undertaken by the Borrower under any Transaction Document, and (f) the successors and assigns of each of the foregoing.
“Securitization Transaction” means any term, revolving or other direct placement, private placement, Rule 144A, public or other capital markets transaction pursuant to which the Borrower sells or transfers all or any portion of the Purchased Assets to a special purpose entity which issues asset-backed securities that are broadly marketed and offered to unaffiliated third-party investors through an underwriter, initial purchaser or placement agent pursuant to an offering memorandum, offering circular or term sheet and that are collateralized, in whole or in part, directly or indirectly, by the transferred Purchased Assets.
"Security" means the Liens created by the General Security Agreement.
"Security Interest" has the meaning assigned to such term in the General Security Agreement.
"Seller Collections Account Bank" means the Royal Bank of Canada, 121 King Street West, 7th Floor, Toronto, Ontario, M5H 3T9.
"Seller Collections Accounts" means the accounts of the Sellers into which Collections are received from Obligors or transferred from other Seller accounts, listed in Schedule 3.
"Sellers" means each of Curo Canada Corp., LendDirect Corp. (Canada) and, following the Flexiti Addition Date, Flexiti, and "Seller" means any of them.
"Sellers Secured Obligation" means all obligations and liabilities of the Sellers to the Borrower or any indemnified party, individually or collectively, existing on the Effective Date or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, arising or incurred under the Sale and Servicing Agreement or any of the other Transaction Documents or other instruments at any time evidencing any thereof, including, for the avoidance of doubt, any obligations purchased by the Borrower pursuant to the exercise by the Borrower of the Purchase Right (as defined in the Intercreditor Agreement) pursuant to Section 3.1 of the Intercreditor Agreement.
"Sellers Security Agreement" means that certain second amended and restated sellers security agreement (including any and all supplements thereto), dated as of the Effective Date, among the Sellers and the Borrower, for the benefit of the Borrower, and any other pledge or security agreement governed by the laws of a province or territory of Canada entered into, after the date of this Agreement by the Sellers (as required by this Agreement or any other Transaction Document) or any other Person for the benefit of the Borrower, as the same may be amended, restated, supplemented or otherwise modified from time to time.
"Servicers" means, collectively, (i) as at the Closing Date, the Initial Servicers or (ii) each successor or replacement Servicer as may be appointed pursuant to the Transaction Documents, and "Servicer" means any one of them.
"Servicer Termination Event" has the meaning assigned to such term in the Sale and Servicing Agreement.
"Servicing Cost" means, as of any date of determination, an annualized percentage, calculated with reference to the Aggregate Eligible Pool Balance and the related Collection Period, equal to the monthly ratio of (a) the sum of all Servicing Fees and all collection fees during each such Collection Period divided by (b) the Aggregate Eligible Pool Balance as of the last day of the immediately preceding Collection Period, provided that the Servicing Cost shall not be less than 5%.
"Servicing Fee" means (i) with respect to the Initial Servicers, zero, (ii) with respect to the Back-up Servicer, and with respect to any other replacement or successor Servicer appointed in accordance with the Transaction Documents, an amount agreed with the Back-up Servicer, replacement or successor Servicer, as applicable, in any relevant servicing agreement.
"Servicing Report" means the servicing report prepared by the Servicers in the form attached as Schedule C to the Sale and Servicing Agreement.
"Specified Fields" has the meaning ascribed thereto in the Back-up Servicing and Verification Agency Agreement.
"Subsidiary" means, with respect to any Person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.
"Supermajority Lender" means, at any time, Lenders (other than Defaulting Lender) having Exposures and unused Commitments representing at least 66 2/3% of the sum of the Aggregate Exposure and unused Commitments at such time.
"Swap Agreement" means any agreement with respect to any swap, forward, spot, future, credit default or derivative transaction or option or similar agreement involving, or settled by reference to, one or more rates, currencies, commodities, equity or debt instruments or securities, or economic, financial or pricing indices or measures of economic, financial or pricing risk or value or any similar transaction or any combination of these transactions; provided that no phantom stock or similar plan providing for payments only on account of services
provided by current or former directors, officers, employees or consultants of the Borrower shall be a Swap Agreement.
"Taxes" means any and all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), value added taxes, or any other goods and services, use or sales taxes, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax, fines or penalties applicable thereto.
“Transaction Account” means [***].
“Transaction Account Bank” means [***].
“Transaction Account Blocked Account Agreement” means the blocked account agreement dated August 2, 2018 between the Transaction Account Bank, the Borrower and the Administrative Agent in respect of the Transaction Account.
"Transactions" means the execution, delivery and performance by the Borrower of this Agreement and the other Loan Documents, the borrowing of Loans and other credit extensions, the use of the proceeds thereof.
"Transaction Documents" means each Loan Document, the Interest Rate Cap, the Back-up Servicing and Verification Agency Agreement, the Sellers Security Agreement, the Intercreditor Agreement, the Transaction Account Blocked Account Agreement and the Sale and Servicing Agreement.
“Uncured Level 1 Verification Trigger Event” means [***].
“Uncured Level 2 Verification Trigger Event” means [***].
"Underlying Agreements" means, collectively, any agreements with an Obligor (including any modifying agreements supplemental thereto) from which any Receivable derives and any related documents, and "Underlying Agreement" means any one of them.
"Unliquidated Obligations" means, at any time, any Secured Obligations (or portion thereof) that are contingent in nature or unliquidated at such time, including any Secured Obligation that is: (i) an obligation to reimburse a bank for drawings not yet made under a letter of credit issued by it; (ii) any other obligation (including any guarantee) that is contingent in nature at such time; or (iii) an obligation to provide collateral to secure any of the foregoing types of obligations.
"U.S. Person" means a "United States person" within the meaning of Section 7701(a)(30) of the Code.
"USA PATRIOT Act" means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001.
"Verification Agent" means SST Office Services Inc.
"Verification Agency Fee" means the fees owing to the Verification Agent pursuant to the Back-up Servicing and Verification Agency Agreement.
"Verification Certificate" means the certificate so named, the form of which is set out in Exhibit D to the Back-up Servicing and Verification Agency Agreement.
"Volcker Rule" means Section 13 of the U.S. Bank Holding Company Act of 1956, as amended, and the applicable rules and regulations thereunder.
"Weekly Settlement Date" means every Thursday of each calendar week, provided that if such day is not a Business Day, the Weekly Settlement Date shall be the following Business Day, and each date that is deemed to be a Weekly Settlement Date pursuant to Section 2.08(b)(i).
"Weighted Average Portfolio Interest Rate" means, at any time in respect of a Collection Period, a percentage equal to the quotient of (1) the sum of the product of the (i) the principal balance as at end of such Collection
Period of each Eligible Receivable included in the Aggregate Eligible Pool Balance as at the end of such Collection Period and (ii) the annual interest rate on such Eligible Receivable included in the Aggregate Eligible Pool Balance, divided by (2) the sum of the principal balances as at the end of such Collection Period of all Eligible Receivables included in the Aggregate Eligible Pool Balance.
"Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
"Write-Down and Conversion Powers" means, with respect to any EEA Resolution Authority, the write- down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.
SECTION 1.02 TERMS GENERALLY.
The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "law" shall be construed as referring to all statutes, rules, regulations, codes and other laws (including official rulings and interpretations thereunder having the force of law or with which affected Persons customarily comply) and all judgments, orders and decrees of all Governmental Authorities. The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, restated, supplemented or otherwise modified (subject to any restrictions on such amendments, restatements, supplements or modifications set forth herein), (b) any definition of or reference to any statute, rule or regulation shall be construed as referring thereto as from time to time amended, supplemented or otherwise modified (including by succession of comparable successor laws), (c) any reference herein to any Person shall be construed to include such Person's successors and assigns (subject to any restrictions on assignments set forth herein) and, in the case of any Governmental Authority, any other Governmental Authority that shall have succeeded to any or all functions
thereof, (d) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (e) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, (f) any reference in any definition to the phrase "at any time" or "for any period" shall refer to the same time or period for all calculations or determinations within such definition, (g) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights and (h) unless otherwise provided herein, in the computation of a period of time from a specified date to a later specified date, the word "from" means "from and including" and each of the words "to" and "until" means "to but excluding".
SECTION 1.03 ACCOUNTING TERMS; GAAP.
Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if after the date hereof there occurs any change in GAAP or in the application thereof on the operation of any provision hereof and the Borrower notifies the Administrative Agent that the Borrower requests an amendment to any provision hereof to eliminate the effect of such change in GAAP or in the application thereof (or if the Administrative Agent notifies the Borrower that the Required Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. Notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made, without giving effect to any election under Accounting Standards Codification Section 825-10 (or any other financial accounting standard having a similar result or effect) to value any Indebtedness or other liabilities of the Borrower at "fair value", as defined therein.
SECTION 1.04 CDOR DISCONTINUANCE.
In the event of a permanent discontinuance of the CDOR Rate or market volatility between the CDOR Rate and the equivalent London Interbank Offered Rate, then, notwithstanding the definition of "CDOR Rate" herein, the Borrower and the Lenders shall negotiate in good faith to revise the definition of "CDOR Rate" herein to provide for a substitute reference rate that has been broadly adopted in financial markets as a substitute for the CDOR Rate and which gives effect to the intentions of the parties hereunder. No fees (other than reasonable legal fees incurred by the Lenders to amend any such Loan Document to evidence any such
amendment and fees chargeable on increases to the replacement benchmark rate relative to the discontinued CDOR Rate) premiums, increases in pricing or other costs shall be charged to, or borne by, the Borrower in connection with any such amendment.
SECTION 1.05 LIMITED PARTNERSHIP.
Where any reference is made in this Agreement, any other Loan Document or any other agreement, document or instrument executed pursuant hereto or contemplated hereby to which the Borrower is a party to an act or covenant to be performed by the Borrower, such reference shall be construed and applied for all purposes as if it referred to an act or covenant to be performed by the General Partner acting in its capacity as general partner of the Borrower and for and on behalf of the Borrower.
ARTICLE II
THE CREDITS
SECTION 2.01 THE LOANS.
(a)During the Availability Period, the Borrower may request to Administrative Agent on behalf of the Lenders to make Advances to the Borrower and, subject to the terms and conditions of this Agreement, each Lender severally and not jointly agrees to lend such Lender’s Applicable Percentage of each requested Advance up to such Lender’s Commitment which the Borrower may repay and reborrow from time to time until the occurrence of one of the foregoing events. Requests for Advances shall be made no more than one (1) time per calendar week in accordance with Section 2.06. The aggregate unpaid principal amount at any one time outstanding of all Advances shall not exceed the Maximum Principal Amount, and the aggregate unpaid principal amount at any one time outstanding of all Advances shall not exceed the aggregate Commitments then in effect or the Borrowing Base in effect as of the date of determination.
(b)Absent manifest error, the Administrative Agent’s determinations hereunder with respect to records of the amount of the Borrower’s indebtedness to the Administrative Agent, any holders of Notes and the Lenders from time to time by reason of Advances and other appropriate charges (including, without limitation, interest rate, fees and charges) hereunder shall be considered correct and accepted by the Borrower and conclusively binding upon the Borrower unless the Borrower notifies the Administrative Agent to the contrary within thirty (30) days of Administrative Agent’s providing a statement to the Borrower.
(c)The Loans shall be due and payable on the Maturity Date. Upon the occurrence of an Event of Default, the Administrative Agent shall have rights and remedies available to it under Article VI of this Agreement.
(d)The Verification Agent shall complete the verifications pursuant to the Back-up Servicing and Verification Agency Agreement.
SECTION 2.02 NOTES.
(a) The indebtedness of the Borrower to each Lender or holder of any Note hereunder, if requested by such Lender or holder of any Note, shall be evidenced by separate Notes executed by the Borrower in favour of such Lender or holder of any Note in the principal amounts equal to each such Lender’s Commitment. The aggregate principal amount of the Notes will be the total of the aggregate Commitments; provided, however, that notwithstanding the face amount of the Notes, the Borrower’s liability under the Notes shall be limited at all times to the actual indebtedness (principal, interest and fees) then outstanding and owing by the Borrower to the Administrative Agent, any holders of Notes and the Lenders hereunder.
SECTION 2.03 APPLICATION OF PROCEEDS.
In each Servicing Report, the Borrower or Curo Canada Corp., as Servicer, on its behalf, shall include the proposed amounts and application of payments in accordance with this Section 2.03, for the approval of the Administrative Agent. Notwithstanding any other provisions of this Agreement or any other Loan Document to the contrary, all Collections and any amounts paid by the counterparty under any Interest Rate Cap (for the avoidance of doubt, including any payments upon a termination of any Interest Rate Cap) or proceeds of sale of any Interest Rate Cap on deposit in the Transaction Account and any interest earned thereon as of the last Business Day of the relevant Collection Period (and, following the occurrence of an Event of Default, any proceeds of enforcement of the security interests held by the Administrative Agent pursuant to the Transaction Documents) and any unapplied Financing Transaction Prepayment Amounts (collectively, the “Available Amount”) will be applied, with the prior written approval (including by email) of the Administrative Agent, on the corresponding Weekly Settlement Date or the
Monthly Settlement Date, as the case may be, in accordance with this Section 2.03 (provided that, following the occurrence of an Event of Default, payments may be made on any day) in the following order of priority:
(a)FIRST, to the payment, on each Monthly Settlement Date, on a pari passu basis:
(i)to:
(A)any Servicer other than the Back-up Servicer (including in its capacity as successor Servicer), of any accrued and unpaid Servicing Fees, costs and expenses and indemnities due and payable in accordance with the relevant servicing agreement;
(B)any Insurer, of any Insurance Costs due and payable to such Insurer;
(C)the Transaction Account Bank, of any accrued and unpaid fees, costs and expenses and indemnities due and payable in accordance with the Transaction Documents,
together with, in the case of any of the foregoing fees, any payments or self-assessments of sales Taxes required thereon (which, for greater certainty, are not required in the case of the Initial Servicers), and provided that with respect to any amounts payable to any Servicer other than the Back-up Servicer (including in its capacity as successor Servicer), any Insurer and the Transaction Account Bank under this Section 2.03(a)(i) (other than Insurance Costs, except as set forth below), the amounts paid (other than amounts payable to a tax authority in respect of sales Taxes) will at all times be subject to the Expenses Cap (which, for the avoidance of doubt, shall be calculated by reference to a period of twelve (12) consecutive Monthly Collection Periods); and
(ii)to the Back-up Servicer (including in its capacity as successor Servicer), of any Back-up Servicing Fees, Servicing Fees, costs and expenses and indemnities due and payable, and to the Verification Agent, of any Verification Agency Fees, costs and expenses and indemnities due and payable, each in accordance with the Back-up Servicing and Verification Agency Agreement (or any successor servicing agreement) together with, in the case of any of the foregoing fees, any payments or self-assessments of sales Taxes required thereon, it being understood and agreed that the Expenses Cap shall not apply to the Back-up Servicer (including if it is then acting as successor Servicer or Verification Agent), but:
(A)prior to the occurrence of an Event of Default, the amounts paid (other than amounts payable to a tax authority in respect of sales Taxes) will be subject to the following caps:
(1)indemnities due and payable to the Back-up Servicer and/or the Verification Agent shall be subject to a cap of $50,000 per annum;
(2)indemnities due and payable to any successor Servicer shall be subject to a cap of $100,000 per annum; and
(3)transition expenses with respect to the Back-up Servicer shall be subject to a cap of $50,000 per annum) (which, for the avoidance of doubt, shall be calculated by reference to a period of twelve (12) consecutive Monthly Collection Periods); and
(B)following an Event of Default, the caps set forth in clause (A) above shall not apply at any time with respect to any fees, costs, expenses and indemnities due and payable to the Verification Agent and the Back-up Servicer, including if it is then acting as successor Servicer;
(b)SECOND, to the payment, on each Monthly Settlement Date, on a pari passu basis, of all accrued and unpaid fees, interest, charges, costs and expenses and indemnities payable to the Lenders and the Administrative Agent and any holders of Notes hereunder, including (for the avoidance of doubt) any Financing Premium and Prepayment Fees (if applicable), together with any payments or self-assessments of sales Taxes required thereon;
(c)THIRD, to the payment, on each Weekly Settlement Date, on a pari passu basis, to the Lenders of (i) following an Amortization Event or an Event of Default, the amount required to reduce the Aggregate Exposure to zero, or (ii) during the Revolving Period (for the avoidance of doubt, if no Amortization Event or Event of
Default has occurred), (A) the amount required to cure any Borrowing Base Deficiency; and (B) any prepayment of the outstanding Aggregate Exposure in accordance with Section 2.08(b);
(d)FOURTH, to the payment, on each Monthly Settlement Date and on a pari passu basis, of all other fees, expenses, indemnities or other amounts owed by the Borrower under the Transaction Documents which have not been paid, together with any payments or self-assessments of sales Taxes required thereon (including amounts which would have been payable pursuant to clause "FIRST" but which was not paid due to the Expenses Cap or other cap); and
(e)FIFTH, to the payment, on each Weekly Settlement Date, of the surplus, if any, to the Sellers as deferred purchase price pursuant to the terms of the Sale and Servicing Agreement.
In carrying out the foregoing, (a) amounts received shall be applied in the numerical order provided until exhausted prior to application to the next succeeding category, (b) each of the Lenders and any holders of Notes shall receive an amount equal to its pro rata share (based on the proportion of its then outstanding Loans outstanding of amounts available to be applied above) and (c) on each Weekly Settlement Date that is not a Monthly Settlement Date, the Available Amount for such Weekly Settlement Date shall only be applied to pay (i) amounts due under Section 2.03(c) after reserving for amounts becoming due under Section 2.03(a) and Section 2.03(b) on the next Monthly Settlement Date and (ii) amounts due under Section 2.03(e) after reserving for amounts becoming due under Section 2.03(a) through Section 2.03(d) on the next Monthly Settlement Date, and, for greater certainty, the Available Amount not so applied shall be retained in the Transaction Account for application on the next Weekly Settlement Date in accordance with this Section 2.03.
For the avoidance of doubt, the Borrower shall pay any deferred purchase price to the Sellers in accordance with Section 2.01(b) of the Sale and Servicing Agreement and shall reimburse the Servicer for any servicer advances in accordance with Section 5.06 of the Sale and Servicing Agreement in accordance with this Section 2.03 and only to the extent that surplus funds are available following the payment of items (a) to (d)(inclusive) above, and shall only instruct the Sellers and Servicers to make payments pursuant to the Sale and Servicing Agreement in accordance with the terms hereof or otherwise with the consent of the Administrative Agent.
SECTION 2.04 USE OF PROCEEDS.
(a)Advances shall be used solely to finance the acquisition of Eligible Receivables pursuant to and in accordance with the terms and conditions of the Sale and Servicing Agreement on and after the Closing Date.
(b)Without in any way affecting the obligations of the Borrower, none of the Finance Parties are bound to monitor or verify the application of amounts raised by the Borrower under this Agreement.
SECTION 2.05 INTEREST
(a)Prior to the Maturity Date, the outstanding balance of the Loans will bear interest at an annual rate at all times equal to the Applicable Rate.
(b)Upon receipt of such information from the Servicers pursuant to the Sale and Servicing Agreement, the Borrower will notify the Administrative Agent of its determination of the Applicable Rate in effect for any Collection Period, which will only take effect with the approval of the Administrative Agent of such rate. On the Business Day prior to each Reporting Date, the Administrative Agent shall give notice to the Servicers for inclusion in the Servicing Report of (i) that portion of the Interest Distribution Amount attributable to the Loans held by each Lender for the current Collection Period and any adjustment required to account for any difference between the Interest Distribution Amount for the prior Collection Period and such amounts as shown on the Servicing Report for the prior Collection Period, and (ii) the outstanding principal amount of the Loans held by each Lender.
(c)Interest shall be payable in accordance with Section 2.03 until the Commitments are terminated and the Secured Obligations are paid in full. Interest as provided hereunder will be calculated on the basis of a three hundred sixty (360) day year and the actual number of days elapsed.
(d)From and after the Maturity Date, or such earlier date as the Aggregate Exposure and other Secured Obligations become due and payable by acceleration or otherwise, or at the Administrative Agent’s option upon the occurrence of an Event of Default, the Borrower hereby agrees to pay interest on the Aggregate Exposure
and other Secured Obligations and, to the extent permitted by law, overdue interest with respect thereto, at the rate of the lesser of (i) the Applicable Rate and (ii) the highest lawful rate.
(e)For the purposes of the Interest Act (Canada) and disclosure thereunder, whenever any interest or any fee to be paid hereunder or in connection herewith is to be calculated on the basis of a 360-day or 365-day year, the yearly rate of interest to which the rate used in such calculation is equivalent is the rate so used multiplied by the actual number of days in the calendar year in which the same is to be ascertained and divided by 360 or 365, as applicable. The rates of interest under this Agreement are nominal rates, and not effective rates or yields. The principle of deemed reinvestment of interest does not apply to any interest calculation under this Agreement. The Borrower acknowledges and confirms that: (a) this Agreement, and the constituent definitions herein and under the other documents relating to interest and other amounts payable hereunder and thereunder, satisfies the requirements of section 4 of the Interest Act (Canada) to the extent that section 4 of the Interest Act (Canada) applies to the expression, statement or calculation of any rate of interest or other rate per annum hereunder or under any other document; (b) the Borrower is able to calculate the yearly rate or percentage of interest payable under any document based on the methodology set out herein and under the other documents, and the constituent definitions herein and under the other documents relating to interest and other amounts payable hereunder and thereunder; and (c) it waives its right to object to the payment of interest hereunder on the basis of inadequate disclosure as required under section 4 of the Interest Act (Canada).
(f)If any provision of this Agreement would oblige the Borrowers to make any payment of interest or other amount payable to any Lender in an amount or calculated at a rate which would be prohibited by any Applicable Law or would result in a receipt by that Lender of "interest" at a "criminal rate" (as such terms are construed under the Criminal Code (Canada)), then, notwithstanding such provision, such amount or rate shall be deemed to have been adjusted with retroactive effect to the maximum amount or rate of interest, as the case may be, as would not be so prohibited by Applicable Law or so result in a receipt by that Lender of "interest" at a "criminal rate", such adjustment to be effected, to the extent necessary (but only to the extent necessary), as follows:
(i)first, by reducing the amount or rate of interest required to be paid to the affected Lender; and
(ii)thereafter, by reducing any fees, commissions, costs, expenses, premiums and other amounts required to be paid to the affected Lender which would constitute interest for purposes of section 347 of the Criminal Code (Canada).
SECTION 2.06 ADVANCES.
(a)The Borrower shall notify the Administrative Agent in writing pursuant to a Borrowing Request not later than 3:00 PM (Toronto time) (i) if the amount of the requested advance exceeds
$25,000,000, ten (10) Business Days; or (ii) if the amount of the requested advance is less than or equals
$25,000,000, three (3) Business Days before each requested Advance, specifying the amount of the Advance to be made, provided that the minimum amount the Borrower may specify in such request for an Advance is $250,000. Such Borrowing Request shall be certified by a senior officer of the General Partner (or such other authorized Person as Borrower directs from time to time) of the Borrower.
(b)The Administrative Agent shall give to each applicable Lender prompt notice on the date of the Administrative Agent’s receipt of each Borrowing Request. On the date on which an Advance is requested to be made pursuant to the applicable Borrowing Request, each applicable Lender will make available to the Administrative Agent at the address of the Administrative Agent set forth in Section 8.01, in immediately available funds, its Applicable Percentage of such Advance requested to be made. Unless the Administrative Agent shall have been notified by any Lender prior to the date of Advance that such Lender does not intend to make available to the Administrative Agent its portion of the Advance to be made on such date, the Administrative Agent may assume that such Lender will make such amount available to the Administrative Agent as required above and the Administrative Agent may, in reliance upon such assumption, make available the amount of the Advance to be provided by such Lender. Upon fulfillment of the conditions set forth in Section 2.06(a) and Section 4.02 for such Advance, and as soon as practicable after receipt of funds from the Lenders, will make such funds as have been received from the Lenders available to the Borrower at the account specified by the Borrower in such Borrowing Request. In the event that any additional Lenders become party to this Agreement by way of an Assignment and Assumption, the Parties hereto will negotiate in good faith with a paying agent to become a party to this Agreement and be responsible for payment and remittance functions currently undertaken by the Administrative Agent and to make any necessary amendments as required to this Agreement.
(c)To administer the Loans in an efficient manner and to minimize the transfer of funds between the Administrative Agent and the Lenders, the Lenders hereby instruct the Administrative Agent, and the Administrative Agent may (in its sole discretion, without any obligation) (i) make available, on behalf of the Lenders, the full amount of all Advances requested by the Borrower, without giving each Lender prior notice of the proposed Advance, of such Lender’s Applicable Percentage thereof and the other matters covered by the Borrowing Request and (ii) if the Administrative Agent has made any such amounts available as provided in clause (i), upon repayment of the Loans by the Borrower, first apply such amounts repaid directly to the amounts made available by the Administrative Agent in accordance with clause (i) and not yet settled as described below. If the Administrative Agent makes an Advance on behalf of the Lenders, as provided in the immediately preceding sentence, the amount of outstanding Loans and each Lender’s Applicable Percentage thereof shall be computed weekly rather than daily and shall be adjusted upward or downward on the basis of the amount of outstanding Loans as of 5:00 P.M. (Toronto time) on the Business Day immediately preceding the date of each computation; provided, however, that the Administrative Agent retains the absolute right at any time or from time to time to make the afore-described adjustments at intervals more frequent than weekly. On the Business Day prior to each Reporting Date, the Administrative Agent shall deliver to each Lender and holder of any Note a summary statement of the type and amount of outstanding Loans for such period (such week or lesser period or periods being hereafter referred to as a "Lender Reporting Period"). If the summary statement is sent by the Administrative Agent and received by the Lenders prior to 1:00 P.M. (Toronto time) on any Business Day each Lender shall make the transfers described in the next succeeding sentence no later than 3:00 P.M. (Toronto time) on the day such summary statement was sent; and if such summary statement is sent by the Administrative Agent and received by the Lenders after 1:00 P.M. (Toronto time) on any Business Day, each Lender shall make such transfers no later than 3:00 P.M. (Toronto time) no later than the next succeeding Business Day after such summary statement was sent. If in any Lender Reporting Period, the amount of a Lender’s Applicable Percentage of the Loans is in excess of the amount of Loans actually funded by such Lender, such Lender shall forthwith (but in no event later than the time set forth in the next preceding sentence) transfer to the Administrative Agent by wire transfer in
immediately available funds the amount of such excess; and, on the other hand, if the amount of a Lender’s Applicable Percentage of the Loans in any Lender Reporting Period is less than the amount of Loans actually funded by such Lender, the Administrative Agent shall forthwith transfer to such Lender by wire transfer in immediately available funds the amount of such difference. The obligation of each Lender to transfer such funds shall be irrevocable and unconditional, without recourse to or warranty by the Administrative Agent and made without setoff or deduction of any kind. The Administrative Agent and each of the Lenders agree to mark their respective books and records at the end of each Collection Period to show at all times the dollar amount of their respective Applicable Percentages of the outstanding Loans. Because the Administrative Agent on behalf of the Lenders may be advancing and/or may be repaid Loans prior to the time when the Lenders will actually advance and/or be repaid Loans, interest with respect to Loans shall be allocated by the Administrative Agent to each Lender (including Administrative Agent) in accordance with the type and amount of Loans actually advanced by and repaid to each Lender (including the Administrative Agent) during each Collection Period and shall accrue from and including the date such Advance is made by the Administrative Agent to but excluding the date such Loans are repaid by the Borrower in accordance with Section 2.14 or actually settled by the applicable Lender as described in this Section 2.06(c). All such Advances made by the Administrative Agent on behalf of the Lenders hereunder shall bear interest at the applicable interest rate for such Advances.
(d)If the amounts described in subsection (b) or (c) of this Section 2.06 are not in fact made available to the Administrative Agent by a Lender (such Lender being hereinafter referred to as a "Defaulting Lender") and the Administrative Agent has made such amount available to the Borrower, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Defaulting Lender. If such Defaulting Lender does not pay such corresponding amount forthwith upon the Administrative Agent’s demand therefor, the Administrative Agent shall promptly notify the Borrower and the Borrower shall immediately pay such corresponding amount to the Administrative Agent. The Administrative Agent shall also be entitled to recover from such Defaulting Lender and the Borrower, (i) interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to the Borrower to the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to either (A) if paid by such Defaulting Lender, the overnight federal funds rate or (B) if paid by the Borrower, the Applicable Rate, calculated in accordance with Section 2.05, plus (ii) in each case, an amount equal to any costs (including reasonable legal expenses) and losses incurred as a result of the failure of such Defaulting Lender to provide such amount as provided in this Agreement. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its commitments hereunder or to prejudice any rights which the Borrower may have against any Lender as a result of any default by such Lender hereunder, including, without limitation, the right of the Borrower to seek reimbursement from any Defaulting Lender for any amounts paid by the Borrower under clause (ii) above on account of such Defaulting Lender’s default.
(e)The failure of any Lender to make its portion of the Advance to be made by it as part of any Advance shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Advance. The amounts payable by each Lender shall be a separate and independent obligation.
(f)Each Lender shall be entitled to earn interest at the Applicable Rate, calculated in accordance with Section 2.05, on outstanding Loans which it has funded to the Administrative Agent from the date such Lender funded such Advance to, but excluding, the date on which such Lender is repaid with respect to the Loan.
(g)The Administrative Agent shall not be obligated to transfer to any Defaulting Lender any payments made by the Borrower to the Administrative Agent for the Defaulting Lender’s benefit; nor will a Defaulting Lender be entitled to the sharing of any payments hereunder. Amounts payable to a Defaulting Lender shall instead be paid to or retained by the Administrative Agent. The Administrative Agent may hold and, in its discretion, re-lend to a Borrower the amount of all such payments received or retained by it for the account of such Defaulting Lender. Any amounts so re-lent to the Borrower shall
earn interest at the Applicable Rate hereunder and for all other purposes of this Agreement shall be treated as if they were Advances; provided, however, that for purposes of voting or consenting to matters with respect to the Loan Documents and determining Applicable Percentages, such Defaulting Lender shall be deemed not to be a "Lender", and each of such Defaulting Lender’s Commitment and the unpaid principal balance of the Advances owing to such Defaulting Lender shall be deemed to be zero (-0-). Until a Defaulting Lender cures its failure to fund its pro rata share of any Advance, such Defaulting Lender shall not be entitled to any portion of the Financing Premium payable pursuant to Section 2.09(a). This Section 2.06(g) shall remain effective with respect to such Lender until such time as the Defaulting Lender shall no longer be in default of any of its obligations under this Agreement. The terms of this Section 2.06(g) shall not be construed to increase or otherwise affect the Commitment of any Lender, or relieve or excuse the performance by Borrower of its duties and obligations hereunder or under any of the other Loan Documents. Nothing contained in this Section 2.06 or otherwise in this Agreement shall impair or limit any claim of the Borrower against a Defaulting Lender (including, without limitation, expenses incurred by the Borrower by reason of any such default) who breaches its commitment to fund Advances hereunder.
(h)Each request for an Advance pursuant to this Section 2.06 shall be irrevocable and binding on the Borrower.
SECTION 2.07 INCREASED COMMITMENTS.
(a)The Borrower shall have the right to request an increase to the Commitments by obtaining additional Commitments, from one or more of the Lenders provided that (i) any such request for an increase shall be in a minimum amount of $25,000,000, (ii) after giving effect thereto, the sum of the total of the Commitments does not exceed $450,000,000, and (iii) the procedure described in Section 2.07(b) have been satisfied. Nothing contained in this Section 2.07 shall constitute, or otherwise be deemed to be, a commitment on the part of any Lender to increase its Commitment hereunder at any time. For greater certainty, any such increase request made by the Borrower may be accepted or rejected at the sole discretion of each Lender.
(b)Any amendment hereto for such an increase or addition shall be in form and substance satisfactory to the Administrative Agent and shall require the written signatures of the Administrative Agent, the Borrower and each Lender agreeing to an increase in their Commitment. As a condition precedent to such an increase or addition, the Borrower shall deliver to the Administrative Agent (i) a certificate signed by its authorized officer (A) certifying and attaching the resolutions adopted by it approving or consenting to such increase, and (B) certifying that, before and after giving effect to such increase or addition, (1) the representations and warranties contained in Article III and the other Loan Documents are true and correct, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date, and (2) no Default exists and (ii) legal opinions and documents consistent with those delivered on the Effective Date, to the extent requested by the Administrative Agent.
(c)On the effective date of any such increase or addition, (i) any Lender increasing its Commitment shall make available to the Administrative Agent such amounts in immediately available funds as the Administrative Agent shall determine, for the benefit of the other Lenders, as being required in order to cause, after giving effect to such increase or addition and the use of such amounts to make payments to such other Lenders, each Lender’s portion of the outstanding Loans of all the Lenders to equal its revised Applicable Percentage of such outstanding Loans, and the Administrative Agent shall make such other adjustments among the Lenders with respect to the Loans then outstanding and amounts of principal, interest, commitment fees and other amounts paid or payable with respect thereto as shall be necessary, in the opinion of the Administrative Agent, in order to effect such reallocation and
(ii)the Borrower shall be deemed to have repaid and reborrowed all outstanding Loans as of the date of any increase (or addition) in the Commitments. The deemed payments made pursuant to clause (ii) of the immediately preceding sentence shall be accompanied by payment of all accrued interest on the amount prepaid. Within a reasonable time after the effective date of any increase or addition, the
Administrative Agent shall, and is hereby authorized and directed to, revise the Commitment Schedule to reflect such increase or addition and shall distribute such revised Commitment Schedule to each of the Lenders and the Borrower, whereupon such revised Commitment Schedule shall replace the old Commitment Schedule and become part of this Agreement.
SECTION 2.08 COMMITMENT REDUCTIONS AND PREPAYMENTS.
(a)Voluntary Commitment Reductions. The Borrower may elect to terminate the Commitments in whole (but not in part) so long as (A) the Borrower provides the Administrative Agent with at least sixty (60) days prior written notice which shall be irrevocable (but may be conditioned upon the effectiveness of other credit or debt facilities or other refinancing arrangements or other conditions), and (B) the Borrower promptly (and in any event, within three (3) Business Days) pays to the Administrative Agent the Prepayment Fee and all other Secured Obligations payable on such date.
(b)Voluntary Prepayments.
(i)On any Weekly Settlement Date, the Borrower may voluntarily prepay the outstanding Aggregate Exposure in whole or in part (including in connection with a Securitization Transaction in accordance with the terms of Section 5.40), in accordance with in Section 2.03, by delivering a Repayment Notice to the Finance Parties on the Reporting Date as part of the Servicing Report; on any other Business Day, the Borrower may voluntarily prepay the outstanding Aggregate Exposure in whole or in part in connection with a Securitization Transaction in accordance with the terms of Section 5.40 by delivering a Repayment Notice to the Finance Parties, in which case the Financing Transaction Prepayment Amount and any other Available Amounts shall be applied on such Business Day in accordance with Section 2.03 as if such date was a Weekly Settlement Date (but not a Monthly Settlement Date).
(ii)Any prepayment of Loans shall not reduce a Lenders’ Commitments under this Agreement and may be reborrowed, subject to the terms and conditions hereof for borrowing under the Loan.
(iii)For the avoidance of doubt, any voluntary prepayments under this Section 2.08(b) (A) will be free of any Prepayment Fee, and (B) will be applied at the time and in the manner set forth in Section 2.03.
(c)Mandatory Prepayments. In the event that amounts outstanding hereunder at any time exceed the Borrowing Base (whether established by a Borrowing Request, a Borrowing Base Certificate or otherwise), within three (3) Business Days of the time that a Borrowing Base calculation was delivered or required to be delivered, the Borrower shall pay to the Administrative Agent without demand or notice of any kind required, unless waived in writing by the Administrative Agent, the amount by which the Borrower’s indebtedness hereunder exceeds the Borrowing Base then applicable, together with all accrued interest on the amount so paid and any fees and costs incurred in connection therewith. For the avoidance of doubt, any mandatory prepayment pursuant to this Section 2.08(c) shall not be subject to the Prepayment Fee. Notwithstanding Section 2.03, any such payment shall be applied, to the extent of such payment, to the Loan until its Aggregate Exposure is reduced to zero; provided that any such mandatory prepayment of Loans shall not reduce a Lenders’ Commitments under this Agreement and may be reborrowed, subject to the terms and conditions hereof for borrowing under the Loan.
SECTION 2.09 FEES.
In consideration of each Lender’s Commitments, the Borrower will pay to the Lenders (in accordance with their Applicable Percentage) (other than the fee described in (c) which is solely for the account of the Administrative Agent and shall not be distributed to the Lenders) the fees in the amounts and at the times set forth in this Agreement and the other Loan Documents and in any other agreements between the Borrower and the Lenders from time to time, as applicable, including:
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SECTION 2.10 CONTROLLED ACCOUNTS.
The Borrower shall have caused to be established and maintained, a deposit account with the Transaction Account Bank, in the name of the Borrower, designated as the "Transaction Account", as to which the Administrative Agent has control for the benefit of the Lenders pursuant to the Transaction Account Blocked Account Agreement.
SECTION 2.11 HEDGING COVENANT.
(a)The Borrower shall have entered into an Interest Rate Cap within thirty (30) days following the Closing Date to hedge interest rate risk with respect to the obligations of the Borrower to pay interest on the Loans hereunder, on the following terms:
(i)the notional amount of the Interest Rate Cap shall correspond to the aggregate Commitments as of the Closing Date;
(ii)the strike rate of the Interest Rate Cap shall equal 4.5%;
(iii)the Interest Rate Cap shall be taken out for a period that runs at least until the Maturity Date;
(iv)the Interest Rate Cap shall be subject to commercially reasonable terms and conditions acceptable to each of the Borrower and the Administrative Agent; and
(v)the Borrower shall deliver to the Administrative Agent a copy of all documents related to such Interest Rate Cap and shall obtain the written consent of the relevant counterparty to assign all of the Borrower's rights (but none of its obligations) thereunder to the Administrative Agent,
and at any time that the amount of the aggregate Commitments increase following the Closing Date, within ten (10) Business Days of such increase, the notional amount of the Interest Rate Cap shall be increased, or the Borrower will enter into an additional Interest Rate Cap or additional Interest Rate Caps meeting the criteria above, to correspond to the aggregate Commitments as of the related date of determination.
(b)All amounts paid by the counterparty under any Interest Rate Cap to the Borrower or to the Administrative Agent (for the avoidance of doubt, including any payments upon a termination of any Interest Rate Cap) or any proceeds of sale of any Interest Rate Cap shall be immediately deposited into the Transaction Account for application in accordance with Section 2.03.
SECTION 2.12 INCREASED COSTS.
(a)If any Change in Law shall:
(i)impose, modify or deem applicable any reserve, special deposit, liquidity or similar requirement (including any compulsory loan requirement, insurance charge or other assessment) against assets of, deposits with or for the account of, or credit extended by, any Lender;
(ii)impose on any Lender any other condition, cost or expense (other than Taxes) affecting this Agreement or Loans made by such Lender or participation therein; or
(iii)subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (e) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto,
and the result of any of the foregoing shall be to increase the cost to such Lender or such other Recipient of making, continuing, converting into or maintaining any Loan (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by such Lender or such other Recipient hereunder (whether of principal, interest or otherwise), then the Borrower will pay to such Lender or such other Recipient, as the case may be, such additional amount or amounts as will compensate such Lender or such other Recipient, as the case may be, for such additional costs incurred or reduction suffered.
(b)If any Lender determines that any Change in Law regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement, the Commitments of, or the Loans made by such Lender to a level below that which such Lender or such Lender's holding company could have achieved but for such Change in Law (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy and liquidity), then from time to time the Borrower will pay to such Lender, as the case may be, such additional amount or amounts as will compensate such Lender or such Lender's holding company for any such reduction suffered.
(c)A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrower and shall be conclusive absent manifest error. The Borrower shall pay such Lender, as the case may be, the amount shown as due on any such certificate within ten (10) days after receipt thereof.
(d)Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender's right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section for any increased costs or reductions incurred more than 270 days prior to the date that such Lender, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender's intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof.
SECTION 2.13 WITHHOLDING OF TAXES; GROSS-UP.
(a)Payments Free of Taxes. Any and all payments by or on account of any obligation of the Borrower under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by Applicable Law. If any Applicable Law (as determined in the good faith discretion of an applicable withholding agent) requires the deduction or withholding of any Tax from any such
payment by a withholding agent, then the applicable withholding agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with Applicable Law and, if such Tax is an Indemnified Tax, then the sum payable by the Borrower shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section 2.13) the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made.
(b)Payment of Other Taxes. The Borrower shall timely pay to the relevant Governmental Authority in accordance with Applicable Law, or at the option of the Administrative Agent timely reimburse it for, Other Taxes.
(c)Evidence of Payment. As soon as practicable after any payment of Taxes by the Borrower to a Governmental Authority pursuant to this Section 2.13, the Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(d)Indemnification by the Borrower. The Borrower shall indemnify each Recipient, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
(e)Indemnification by the Lenders. Each Lender shall severally indemnify the Administrative Agent, within ten (10) days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that the Borrower has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Borrower to do so), (ii) any Taxes attributable to such Lender's failure to comply with the provisions of Section 8.04(d) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to such Lender from any other source against any amount due to the Administrative Agent under this paragraph (e).
(f)Status of Lender.
(i)Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by Applicable Law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting
requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 2.13(f)(ii)(A), Section 2.13(f)(ii)(B) and Section 2.13(f)(ii)(D) below) shall not be required if in the Lender's reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.
(ii)Without limiting the generality of the foregoing, in the event that the Borrower is a U.S. Person,
(A)any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), an executed IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;
(B)any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:
(1)in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (i) with respect to payments of interest under any Loan Document, an executed IRS Form W-8BEN or IRS Form W 8BEN E, as applicable, establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the "interest" article of such tax treaty and (ii) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN or IRS Form W 8BEN E, as applicable, establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the "business profits" or "other income" article of such tax treaty;
(2)in the case of a Foreign Lender claiming that its extension of credit will generate U.S. effectively connected income, an executed IRS Form W-8ECI;
(3)in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code,
(i)a certificate substantially in the form of Exhibit D-1 to the effect that such Foreign Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Code, a "10 percent shareholder" of a Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a "controlled foreign corporation" described in Section 881(c)(3)(C) of the Code (a "U.S. Tax Compliance Certificate") and (ii) an executed IRS Form W-8BEN or IRS Form W 8BEN E, as applicable; or
(4)to the extent a Foreign Lender is not the beneficial owner, an executed IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN or IRS Form W 8BEN E, as applicable, a U.S. Tax Compliance Certificate substantially in the form of EXHIBIT
D-2 or EXHIBIT D-3, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a
U.S. Tax Compliance Certificate substantially in the form of EXHIBIT D-4 on behalf of each such direct and indirect partner;
(C)any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of any other form prescribed by Applicable Law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by Applicable Law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and
(D)if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those
contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by Applicable Law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender's obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (D), "FATCA" shall include any amendments made to FATCA after the date of this Agreement.
Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
(g)Treatment of Certain Refunds. If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified pursuant to Section 2.13 (including by the payment of additional amounts pursuant to Section 2.13) it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section 2.13 with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (g) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (g), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (g) the payment of which would place the indemnified party in a less favourable net after- Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving
rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts giving rise to such refund had never been paid. This paragraph (g) shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.
(h)Survival. Each party's obligations under this Section 2.13 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Loan Document.
(i)Defined Terms. For purposes of this Section 2.13, the term "Applicable Law" includes FATCA.
SECTION 2.14 PAYMENTS GENERALLY; ALLOCATION OF PROCEEDS; SHARING OF SET- OFFS.
(a)The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest or fees, or of amounts payable under Section 2.12, Section 2.13 or otherwise) prior to 2:00 p.m., Toronto time, on the date when due in immediately available funds, without set off or counterclaim of any kind. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars. All such payments shall be made to the Administrative Agent at address referred to in Section 8.01, except that payments pursuant to Section 2.12, Section 2.13 and Section 8.03 shall be made directly to the Persons entitled thereto. As soon as practicable after the Administrative Agent receives payment from the Borrower, but in no event later than one (1) Business Day after such payment has been made, subject to Section 2.06, the Administrative Agent will cause to be distributed like funds relating to the payment of principal, interest or fees (other than amounts payable to the Administrative Agent to reimburse the Administrative Agent for fees and expenses payable solely to the Administrative Agent pursuant to the terms of this Agreement) or expenses payable to the Administrative Agent, any holders of Notes and the Lenders in accordance with the terms of this Agreement, in like funds relating to the payment of any such other amounts payable to the Lenders. The Borrower’s obligations to the Lenders and any holders of Notes with respect to such payment shall be discharged by making such payments to the
Administrative Agent pursuant to this Section 2.14 or, if not timely paid or any Event of Default then exists, may be added to the principal amount of the Loans outstanding. For the avoidance of doubt, all Collections shall be transferred to the Transaction Account on a daily basis.
(b)If, except as otherwise expressly provided herein, any Lender shall, by exercising any right of set off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and accrued interest thereon than the proportion received by any other similarly situated Lender, then the Lenders receiving such greater proportion shall purchase (for cash at face value) participations in the Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by all such Lender rateably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrower or Affiliate thereof (as to which the provisions of this paragraph shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so
under Applicable Law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.
(c)Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders, as the case may be, the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
(d)If any Lender shall fail to make any payment required to be made by it hereunder, then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), (i) apply any amounts thereafter received by the Administrative Agent for the account of such Lender to satisfy such Lender's obligations hereunder until all such unsatisfied obligations are fully paid and/or (ii) hold any such amounts in a segregated account as cash collateral for, and application to, any future funding obligations of such Lender hereunder. Application of amounts pursuant to (i) and (ii) above shall be made in any order determined by the Administrative Agent in its discretion.
(e)The Administrative Agent may from time to time provide the Borrower with billing statements or invoices with respect to any of the Secured Obligations (the "Billing Statements"). The Administrative Agent is under no duty or obligation to provide Statements, which, if provided, will be solely for the Borrower’s convenience. Statements may contain estimates of the amounts owed during the relevant billing period, whether of principal, interest, fees or other Secured Obligations. If the Borrower pays the full amount indicated on a Billing Statement on or before the due date indicated on such Billing Statement, the Borrower shall not be in default of payment with respect to the billing period indicated on such Billing Statement; provided, that acceptance by the Administrative Agent, on behalf of the Lenders, of any payment that is less than the payment due at that time shall not constitute a waiver of the Administrative Agent's or the Lenders' right to receive payment in full at another time.
SECTION 2.15 MITIGATION OBLIGATIONS; REPLACEMENT OF LENDER.
(a)If any Lender requests compensation under Section 2.12, or if the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.13, then such Lender shall use reasonable efforts to designate a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 2.12 or Section 2.13, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be
disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
(b)If any Lender requests compensation under Section 2.12, or if the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.13, or if any Lender becomes a Defaulting Lender, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in Section 8.04), all its interests, rights (other than its existing rights to payments pursuant to Section 2.12 or Section 2.13) and obligations under this Agreement and other Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender,
if a Lender accepts such assignment); provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not unreasonably be withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder, from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts) and (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.12 or payments required to be made pursuant to Section 2.13, such assignment will result in a reduction in such compensation or payments. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
SECTION 2.16 DEFAULTING LENDER.
Notwithstanding any provision of this Agreement to the contrary, if any Lender becomes a Defaulting Lender, then the following provisions shall apply for so long as such Lender is a Defaulting Lender:
(a)fees shall cease to accrue on the unfunded portion of the Commitment of such Defaulting Lender pursuant to Section 2.09; and
(b)such Defaulting Lender shall not have the right to vote on any issue on which voting is required (other than to the extent expressly provided in Section 8.02(c)) and the Commitment and Exposure of such Defaulting Lender shall not be included in determining whether the Required Lenders or the Supermajority Lender or the Required Lenders or the Supermajority Lender have taken or may take any action hereunder (including any consent to any amendment, waiver or other modification pursuant to Section 8.02) or under any other Loan Document; provided, that, except as otherwise provided in Section 8.02, this clause (b) shall not apply to the vote of a Defaulting Lender in the case of an amendment, waiver or other modification requiring the consent of such Lender or each Lender directly affected thereby.
SECTION 2.17 RETURNED PAYMENTS.
If after receipt of any payment which is applied to the payment of all or any part of the Secured Obligations (including a payment effected through exercise of a right of setoff), the Administrative Agent or any Lender is for any reason compelled to surrender such payment or proceeds to any Person because such payment or application of proceeds is invalidated, declared fraudulent, set aside, determined to be void or voidable as a preference, impermissible setoff, or a diversion of trust funds, or for any other reason (including pursuant to any intercreditor agreement or subordination agreement or pursuant to any settlement entered into by the Administrative Agent or such Lender in its discretion), then the Secured Obligations or part thereof intended to be satisfied shall be revived and continued and this Agreement shall continue in full force as if such payment or proceeds had not been received by the Administrative Agent or such Lender. The provisions of this Section 2.17 shall be and remain effective notwithstanding any contrary action which may have been taken by the Administrative Agent or any Lender in reliance upon such payment or application of proceeds. The provisions of this Section 2.17 shall survive the termination of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES.
Each Credit Party hereby represents and warrants as of the date hereof, as of each Weekly Settlement Date and as of each date on which an Advance is made, that:
SECTION 3.01 STATUS AND AUTHORITY.
The Borrower has been formed and is existing as a limited partnership under the laws of the Province of Ontario. The General Partner is duly organized and validly existing and in good standing under the laws of the jurisdiction of its incorporation, and has all necessary power, capacity and authority to (i) carry on its business as presently carried on by it, including in its capacity as general partner of the Borrower, (ii) execute and deliver each Transaction Document to which the Borrower is a party and to perform the Borrower’s obligations thereunder, in each case, in its capacity as general partner of the Borrower, and (iii) execute and deliver the Partnership Agreement and each Transaction Document to which it is or will be a party and to perform its obligations thereunder.
SECTION 3.02 LOCATION.
Its principal place of business, chief executive office and registered office are located at the addresses set forth in Section 8.01.
SECTION 3.03 PARTNERSHIP AGREEMENT.
The Partnership Agreement grants to the General Partner all necessary power and authority to, in its capacity as general partner of the Borrower enter into and perform the obligations of the Borrower under this Agreement and each other Transaction Document to which the Borrower is or will be a party or by which it is or will be bound.
SECTION 3.04 NAMES.
It has not used any legal names, trade names or assumed names other than the name in which it has executed this Agreement.
SECTION 3.05 IDENTIFICATION NUMBER.
The Canada Revenue Agency Business Number is 28081 8386 with respect to the Borrower and 74500 3087 with respect to the General Partner.
SECTION 3.06 ORGANIZATION AND POWERS.
(i)It is a limited partnership validly formed and existing under the laws of the Province of Ontario, (ii) it is duly qualified to carry on its business in each jurisdiction in which it carries on business, and (iii) none of its Organizational Documents have been amended or rescinded.
SECTION 3.07 OWNERSHIP STRUCTURE.
As of the date hereof, the ownership structure and equity holdings for the Borrower, the General Partner and any limited partners of the Borrower is set out in Schedule 2.
SECTION 3.08 AUTHORITY; NO CONFLICT OR VIOLATION.
The execution and delivery by it of this Agreement and each other Transaction Document to which it is a party and the performance of its obligations under this Agreement or thereunder:
(a)are within its organizational powers and have been duly authorized by the Organizational Documents;
(b)will not require any authorization, consent, approval, order, filing, registration or qualification by or with any Governmental Authority, except those that have been obtained and are in full force and effect;
(c)do not violate any provision of (i) any Applicable Law or of any order, writ, injunction or decree presently in effect having applicability to it save to the extent that any violation has not had and could not reasonably be expected to have a Material Adverse Effect; or (ii) its Organizational Documents;
(d)will not contravene or constitute a default under any indenture or loan or credit agreement or any other agreement, lease or instrument to which it is a party or by which it may be bound or affected; and
(e)will not result in, or require, the creation or imposition of any Lien or other charge or encumbrance of any nature upon or with respect to any of the assets now owned or hereafter acquired by it, in each case, other than pursuant to the Transaction Documents.
SECTION 3.09 DUE EXECUTION.
This Agreement and each of the other Transaction Documents to which it is a party have been duly authorized, executed and delivered by it.
SECTION 3.10 ENFORCEABILITY.
This Agreement has been duly executed and delivered by the General Partner on behalf of the Borrower, in its capacity as general partner of the Borrower and in its own capacity. Each Transaction Document to which the Borrower is a party constitutes (or will, when executed and delivered constitute) a legal, valid and binding obligation of the Borrower and the General Partner, enforceable against each of them, in accordance with its terms, subject only to the discretion that a court may exercise in granting equitable remedies and any limitation under laws relating to bankruptcy, insolvency, moratorium, fraudulent preference, reorganization or other laws affecting creditors’ rights generally from time to time in effect. Each Transaction Document to which the General Partner is party constitutes (or will, when executed and delivered constitute) a legal, valid and binding obligation of the General Partner, enforceable against it, in accordance with its terms, subject only to the discretion that a court may exercise in granting equitable remedies and any limitation under laws relating to bankruptcy, insolvency, moratorium, fraudulent preference, reorganization or other laws affecting creditors’ rights generally from time to time in effect.
SECTION 3.11 COMPLIANCE WITH LAWS, ETC.
Each Borrower Party has complied with all Applicable Laws except to the extent that non- compliance does not have or could not reasonably be expected to have a Material Adverse Effect.
SECTION 3.12 LITIGATION.
There are no actions, suits, investigations, litigation or proceedings at law or in equity or by or before any Governmental Authority, in arbitration now commenced, or to the best of its knowledge, pending or threatened against or affecting any Borrower Party which has not previously been disclosed by such Person to (and waived in writing by) the Lenders and that:
(a)asserts the invalidity of this Agreement or any other Transaction Document;
(b)seeks to prevent the grant of a security interest in any Collateral by the Borrower to the Administrative Agent, the ownership or acquisition by the Borrower of any Eligible Receivables or other Collateral or the consummation of any of the transactions contemplated by this Agreement or any other Transaction Document; or
(c)could otherwise (individually or in the aggregate) reasonably be expected to have a Material Adverse Effect if determined against such Person.
SECTION 3.13 INSOLVENCY EVENT; SOLVENCY.
(i)No Insolvency Event has occurred in respect of any Credit Party and no step has been taken or is intended to be taken by it or, to the best of its knowledge and belief, by any other Person that would constitute an Insolvency Event in respect of such Person and (ii) giving effect to the transactions contemplated by this Agreement and the other Transaction Documents will not cause an Insolvency Event to occur.
SECTION 3.14 PAYMENTS TO APPLICABLE SELLERS.
With respect to each Receivable sold or contributed to it, the Borrower has given reasonably equivalent value to the applicable Seller in consideration therefor and such transfer was not made for or on account of an antecedent debt.
SECTION 3.15 SALES NOT VOIDABLE.
No transfer by the applicable Seller of any Receivable to the Borrower under the Sale and Servicing Agreement is or may be voidable under any section of any Insolvency Law or otherwise (including, for the avoidance of doubt, under any assignments for the benefit of creditors, preferences and fraudulent
conveyances Laws of Canada or any province therein or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally).
SECTION 3.16 PERFECTION.
Assuming the filing of the financing statements or other similar instruments or documents necessary under the PPSA approved by it on the Closing Date, this Agreement, together with such financing statements or documents, is effective to create in favour of the Administrative Agent, for the benefit of the Secured Parties, a valid and perfected security interest in the Collateral, free and clear of any Lien except for Permitted Encumbrances.
SECTION 3.17 GOOD TITLE.
It is the legal and beneficial owner of each Receivable sold or contributed to it free and clear of any Lien except for Permitted Encumbrances.
SECTION 3.18 BANK ACCOUNTS.
(a)The Transaction Account constitutes an "intangible" within the meaning of the PPSA and the Borrower or the General Partner, as applicable, has good and marketable title to the Transaction Account, free and clear of any Lien.
(b)The Transaction Account is subject to the Transaction Account Blocked Account Agreement.
SECTION 3.19 CONTROL OF TRANSACTION ACCOUNT.
It has not granted any Person (other than the Administrative Agent and the Servicers and their respective assigns) access to or control of the Transaction Account held in its name, or the right to take dominion and control of the Transaction Account at a future time or upon the occurrence of a future event.
SECTION 3.20 NO MATERIAL EVENT.
Save to the extent previously disclosed to the Lenders in writing, no event has occurred and is continuing and no condition exists, that constitutes or may reasonably be expected to constitute a Collateral Trigger Event, a Level 1 Regulatory Trigger Event, an Amortization Event or an Event of Default.
SECTION 3.21 ACCURACY OF INFORMATION.
Any written information furnished by it pursuant to the Transaction Documents, excluding any Projections, but including any information relating to the Receivables and all information set out in each Servicing Report (the "Information") is true and correct in all material respects as of its date and no such Information contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not materially misleading. Any Projections have been made in good faith and are not misleading.
SECTION 3.22 FINANCIAL STATEMENTS.
Without prejudice to the generality of Section 3.21 above, all of its financial information (other than projections) which have been furnished to the Administrative Agent or any of the Lenders and described in Section 5.19 have been prepared in accordance with GAAP and present fairly in all material respects the financial condition and results of operations of the Borrower Parties, as at such dates and for such periods in accordance with GAAP, subject, in the case of unaudited financial statements, to changes resulting from normal year-end audit adjustments and the absence of footnotes.
SECTION 3.23 TAXES.
It is not a non-resident of Canada within the meaning of the ITA and has timely (taking into account any extensions) (i) filed all tax returns (federal, provincial, foreign and local) required to be filed by it and (ii) paid, or caused to be paid, all Taxes, assessments and other governmental charges, if any, other than Taxes, assessments and other governmental charges being contested in good faith by appropriate proceedings and as to which adequate reserves have been provided in accordance with GAAP.
SECTION 3.24 TAX STATUS.
The General Partner is a corporation resident in Canada for the purposes of the ITA. The sole business of the General Partner is to be the general partner of the Borrower and the General Partner holds no assets in its own capacity other than a general partner interest in the borrower.
SECTION 3.25 VOLCKER RULE; INVESTMENT COMPANY ACT.
It (i) is not a "covered fund" under the Volcker Rule and (ii) is not required to register as, an "investment company" within the meaning of the Investment Company Act.
SECTION 3.26 ANTI-MONEY LAUNDERING/INTERNATIONAL TRADE LAW COMPLIANCE.
(a)It (A) is not a Sanctioned Person, (B) has no assets in a Sanctioned Country or in the possession, custody or control of a Sanctioned Person, or (C) does not do business in or with, or derive any of its operating income from investments in or transactions with, any Sanctioned Country or Sanctioned Person in violation of any law or directive enforced by any sanctions authority.
(b)The funds used to repay the Indebtedness and other obligations under this Agreement and the other Transaction Documents are not derived from any unlawful activity.
(c)None of (i) the Borrower Parties, nor any of their directors or officers or (ii) to the knowledge of the Credit Parties, nor any employee, Affiliate or agent of the Borrower Parties is a Sanctioned Person.
SECTION 3.27 ANTI-TERRORISM LAWS.
Each Borrower Party:
(a)is not in violation in any material respect of any Anti-Terrorism Law and does not engage in or conspire to engage in any material respect in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti- Terrorism Law;
(b)is not a Blocked Person; and/or
(c)does not (A) conduct any business or engage in making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person, or (B) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order No. 13224.
SECTION 3.28 POLICIES AND PROCEDURES.
Each Borrower Party has implemented and maintains in effect policies and procedures designed to ensure its compliance and the compliance of its respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions and it and its respective officers and directors and, to its knowledge, its employees and agents, are in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects and are not knowingly engaged in any activity that would reasonably be expected to result in it being designated as a Sanctioned Person.
SECTION 3.29 ERISA COMPLIANCE AND CANADIAN PENSION PLANS.
(a)Except as would not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect, each Plan established or maintained by a Borrower Party or to which a Borrower Party contributes or is obligated to contribute, is in compliance with the applicable provisions of ERISA, the Code and other applicable federal and state law.
(b)Except as would not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect, (i) each Foreign Plan is in compliance in all material respects with all Requirements of Law applicable thereto and the respective requirements of the governing documents for such plan and (ii) with respect to each Foreign Plan, no Borrower Party or any of their respective directors, officers, employees or agents has engaged in a transaction that could subject such Borrower Party directly or indirectly, to any tax or civil penalty.
(c)There are no pending or, to the knowledge of any Borrower Party, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to a Plan established or maintained by a Borrower Party or to
which a Borrower Party contributes or is obligated to contribute, that would be reasonably be expected to have a Material Adverse Effect.
(d)(i) No ERISA Event has occurred and, to the actual knowledge of any Borrower Party or ERISA Affiliate, no such Person is aware of any fact, event or circumstance that would reasonably be expected to constitute or result in an ERISA Event, (ii) as of the most recent valuation date for any Borrower Party Plan, the present value of all accrued benefits under such Plan (based on the actuarial assumptions used to fund such Plan) did not exceed the value of the assets of such Plan allocable to such accrued benefits, (iii) no Borrower Party, nor any ERISA Affiliate has incurred any liability to the PBGC other than for the payment of premiums, and there are no premium payments which have become
due that are unpaid, and (iv) no Borrower Party nor any ERISA Affiliate has engaged in a transaction that could be subject to Sections 4069 or 4212(c) of ERISA.
(e)No Borrower Party maintains or contributes to any Foreign Plan or Canadian Pension Plan.
SECTION 3.30 MATERIAL ADVERSE EFFECT.
To the best of its knowledge, no event has occurred that has had a Material Adverse Effect which has not previously been disclosed by such Person to (and waived in writing by) the Administrative Agent.
SECTION 3.31 GOOD TITLE.
The Borrower or the General Partner, as applicable, is the legal and beneficial owner of its assets, free and clear of any Lien except for Permitted Encumbrances.
SECTION 3.32 EMPLOYEES.
It does not have any employees.
SECTION 3.33 RECEIVABLES.
As to the Receivables generally:
(a)the Borrower or the General Partner, as applicable, had and continues to have full power, authorization, permits, licenses and other authority to hold, enforce, and make the loans (or other extensions of credit) evidenced by the Receivables and all such Receivables and all Records comprising such Receivables are genuine and enforceable;
(b)all Underlying Agreements in respect of Receivables have been duly authorized, executed, delivered by the parties whose names appear thereon and are valid and enforceable in accordance with their terms, except as may be limited by bankruptcy, insolvency, reorganization or similar laws relating to the enforcement of creditors rights’ or by general equitable principles, regardless of whether such enforceability is considered in a proceeding in equity or at law, and consumer protection laws;
(c)the form and content of all Underlying Agreements in respect of Receivables comply in all material respects (and in any event in all material respects necessary to maintain and ensure the validity and enforceability of the Receivables) with any and all Applicable Laws, rules and regulations;
(d)the original amount and unpaid balance of each Receivable on the Borrower’s Records and on any statement or schedule delivered to the Administrative Agent and/or any Lender, including without limitation pursuant to the Sale and Servicing Agreement, is and will be the true and correct amount actually owing to the Borrower as of the date each Receivable is pledged to the Administrative Agent or as of such date specified on such statement of schedule, and is not, to the best of the Borrower’s knowledge, subject to any claim of reduction, counterclaim, set-off, recoupment or any other claim, allowance or adjustment; and the Borrower does not have any knowledge of any fact which would impair the validity or collectability of any Receivable; and
(e)the Borrower or the General Partner, as applicable, has good and valid title to the Purchased Assets, free and clear of all prior assignments, claims, liens, encumbrances and security interests, other than Permitted Encumbrances, and has the right to pledge and grant the Administrative Agent, for the benefit of the Lenders, a first priority security interest in the same, in the manner provided in the Transaction Documents.
SECTION 3.34 DATA PROTECTION.
(a)It is in compliance with all Data Requirements, and, in particular, all consents necessary for either it or the Sellers and the Servicers under Privacy Laws are in place to permit: (i) it to share such personal information with the Servicers, and (ii) it to use and disclose such personal information for the purposes intended hereby and under the Sale and Servicing Agreement.
(b)It has not received from any Person or been required to give to any Person any notice, regarding any offense or alleged offense under Data Requirements, including any incident concerning or affecting Customer Data which gives rise to an obligation under Privacy Laws to notify a regulator.
(c)It has not experienced loss or theft of any Customer Data, or accidental or unauthorised disclosure or access to Customer Data, including any unauthorized intrusions or security breaches of any IT asset which is owned or leased by it, in which Customer Data or other sensitive or confidential information (in each case, in its control or possession) was stolen or improperly accessed, used, or disclosed.
(d)It has not received notice from any of its suppliers of IT assets that are not owned or leased by the it that any Customer Data or other sensitive or confidential information (in each case, in its control or possession) was stolen or improperly accessed, used, or disclosed.
ARTICLE IV
CONDITIONS
SECTION 4.01 CONDITIONS TO EFFECTIVENESS.
(a)Prior to the effectiveness of this Agreement, the Borrower shall have delivered or caused to be delivered to the Administrative Agent (all documents to be in form and substance satisfactory to the Administrative Agent in its Permitted Discretion):
(i)Transaction Documents. This Agreement and all other Transaction Documents, evidenced by physical documents, duly and properly executed by the parties thereto;
(ii)Searches. PPSA, insolvency and judgment searches against the Credit Parties and the Sellers and Initial Servicers in those offices and jurisdictions as the Administrative Agent shall reasonably request which shall show that no financing statement or other filings have been filed or remain in effect and no Liens remain in effect against the Credit Parties or the Sellers and Initial Servicers or any Collateral except for Permitted Encumbrances, financing statements, assignments or other filings, with respect to which the existing secured party has delivered to the Administrative Agent PPSA financing discharge statements or other documentation evidencing the termination of its Liens in the Collateral;
(iii)Organizational Documents. A copy of the Guarantor's and each Credit Party's (i) organization documents, certified as of a recent date by such Person’s secretary (or other appropriate officer), and (ii) bylaws, partnership agreement or operating agreement, as applicable, certified as of a recent date by such Person’s secretary (or other appropriate officer); together with certificates of good standing existence or fact in the Guarantor's or such Credit Party's, as the case may be, jurisdiction of organization and in each jurisdiction in which such Person is qualified to do business, each dated within thirty (30) days from the date of this Agreement;
(iv)Policy Approval. Approval by board of directors of the Guarantor of the "Risks and Analytics Approval Procedures (for Canada)" policy;
(v)Financial Statements. Audited financial statements, financial projections and operational control documentation of each Borrower Party and their satisfactory review by the Administrative Agent;
(vi)Authorization Documents. Certified copies of resolutions of the Credit Parties and the Guarantor authorizing or ratifying, as the case may be, the execution, delivery and performance of any Notes, this Agreement and all other Transaction Documents, the pledge of the Collateral to the Administrative Agent as security for the Secured Obligations including any borrowing evidenced by Notes and designating the appropriate officers to execute and deliver the Transaction Documents;
(vii)Incumbency Certificates. A certificate of a senior officer of each of the Guarantor and the General Partner (or other appropriate officer) as to the incumbency and signatures of officers of the Guarantor and the General Partner (in its own right and in its capacity as general partner of the Borrower), as applicable, signing this Agreement, any Notes and other Transaction Documents to which the Guarantor and/or each Credit Party is a party, as applicable;
(viii)Opinion of Counsel. Written opinions of the Borrower's counsel addressed to the Administrative Agent and the Lenders, in form and substance satisfactory to the Administrative Agent;
(ix) Officer’s Certificate. A certificate, dated the date of this Agreement, signed by a senior officer of each of the Guarantor and the General Partner (in its own right and in its capacity as general partner of the Borrower), to the effect that (i) all representations and warranties of such Person set forth in this Agreement and the other Transaction Documents, as applicable, are true and correct as of the date hereof in all material respects, including financial covenants set forth in Article V hereto and the Guaranty, (ii) in respect of the Borrower, the Borrower is not subject to an Insolvency Event, and in respect of the Guarantor, that the Guarantor is not Insolvent and (iii) no Event of Default hereunder has occurred;
(x)Data Tape. A data tape containing information as to Borrower’s receivables portfolio submitted as of the most recent month end;
(xi)Credit and Collection Policies. A copy of the final and complete Credit and Collection Policies;
(xii)Insurer Notification Letter. A copy of the Insurer Notification Letter, signed by way of acknowledgement by Canadian Premier Life Insurance Company; and
(xiii)Other Documents. Such additional documents as the Administrative Agent reasonably may request.
(b)Prior to the effectiveness of this the Agreement, the Borrower shall have satisfied the following conditions in form and substance satisfactory to the Administrative Agent in its sole and absolute discretion:
(i)Material Adverse Effect. No Material Adverse Effect shall have occurred and be continuing and the Borrower has not been liquidated, dissolved or terminated;
(ii)Regulatory. Absence of a Regulatory Trigger Event;
(iii)Agreed Upon Procedures. The completion of agreed upon procedures by a third-party in relation to the testing and cash flow tracking of the Receivables, and the implementation of any corrective actions identified in the Reports, each to the satisfaction of the Administrative Agent;
(iv)Regulatory/Compliance review. Completion, to the satisfaction of the Administrative Agent, of a regulatory and compliance review with respect to the Borrower, the Receivables, the Transaction Documents and the transactions contemplated therein and of any corrective actions identified in the Reports;
(v)IT Questionnaire. Completion by the Borrower, to the satisfaction of the Administrative Agent, of an information technology questionnaire provided to the Borrower by the Administrative Agent;
(vi)PPSA filings. Delivery to the Administrative Agent of (i) Ontario PPSA filings in respect of the deemed security interest regarding the assignment of the Receivables from the Sellers to the Borrower, and (ii) Ontario PPSA filings in respect of the security interest created by the Borrower under the General Security Agreement;
(vii)Intercompany Debt. Any Intercompany Debt in existence as at the Closing Date has been subordinated in all respects and fully postponed beyond the Maturity Date, to the satisfaction of the Administrative Agent, acting reasonably;
(viii)Financing Fee. Payment of the Financing Fee by the Borrower to the Lenders (in accordance with their Applicable Percentage, and
(ix)Payments. Payment in cash by the Borrower to the Administrative Agent and any other relevant parties of all of the amounts that have become due and owing as of the Closing Date and all costs and expenses to the extent invoiced on or prior to the Closing Date.
SECTION 4.02 CONDITIONS TO ADVANCES.
(a)The obligation of the Lenders to make the initial Advance hereunder pursuant to Section 2.01 was conditioned upon verification by the Verification Agent, to the satisfaction of the Administrative Agent, of seventy-five (75) Receivables from the Loan Level Data Tape for the Receivables proposed by the Borrower for initial funding by the Lender on or shortly after the Closing Date.
(b)The obligation of the Lenders to make each subsequent Advance hereunder pursuant to Section 2.01 is conditioned upon:
(i)Advance Requirements. The Borrower’s satisfaction of each of the conditions specified in Section 2.01 and Section 2.06 as of the date of such Advance;
(ii)Level 1 Regulatory Trigger Event, Amortization Event, Event of Default. The absence of any Level 1 Regulatory Trigger Event, Amortization Event or Event of Default or any event which with the giving of notice or the passage of time, or both, would become a Level 1 Regulatory Trigger Event, Amortization Event or Event of Default;
(iii)Borrowing Base. The Borrower shall have delivered a Borrowing Request and Borrowing Base Certificate demonstrating that the outstanding amount of the Loans does not exceed the Borrowing Base after giving effect to such proposed Advance; and
(iv)Costs and Expenses. The Borrower shall have paid or reimbursed the Administrative Agent and the Lenders for all costs and expenses required to be paid or reimbursed by them on or prior to such Advance date, subject to the limitations set forth in Section 8.03.
ARTICLE V
COVENANTS
Until the Commitments shall have expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full without any pending draw, each Credit Party covenants as follows:
SECTION 5.01 NAME OR STRUCTURAL CHANGES.
It shall not:
(a)change its name, identity or legal structure or change its jurisdiction of organization to any location other than Ontario without the prior written consent of the Administrative Agent (not to be unreasonably withheld, conditioned or delayed);
(b)permit itself to merge, amalgamate or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to, any Person;
(c)change or relocate its chief executive office unless it gives the Administrative Agent written notice of such change not later than ten (10) calendar days thereafter; or
(d)in the case of the General Partner, resign as general partner of the Borrower or permit any other Person to become general partner of the Borrower.
SECTION 5.02 BUSINESS AND ACTIVITIES.
It shall not engage in any business or activities other than those permitted under the Transaction Documents. In particular, the Credit Parties shall not have any employees or establish or contribute to any Canadian Pension Plan.
SECTION 5.03 PARTNERSHIP.
(a)The Credit Parties shall not at any time amend or terminate or agree to amend or terminate the Partnership Agreement without the prior written consent of the Administrative Agent.
(b)The Credit Parties shall not permit any new limited partners to become limited partners in the Borrower nor shall they permit any existing limited partner as at the Closing Date to exit the partnership or otherwise cease to be a party to the Partnership Agreement, in each case without the consent of the Administrative Agent.
SECTION 5.04 SEPARATENESS.
It (i) acknowledges that each of the Lenders is entering into the transactions contemplated by this Agreement in reliance upon its identity as a legal entity that is separate from the other Borrower Parties, (ii) shall take all steps specifically required by this Agreement or reasonably required by the Administrative Agent or any Lender to continue its identity as a separate legal entity and to make it apparent to third Persons that each Credit Party is an entity (or in the case of the Borrower, a partnership) with assets and liabilities distinct from those of the other Borrower Parties, and is not a division of such Persons and
(iii)in furtherance of the foregoing, it shall:
(a)maintain its books and Records and bank accounts separate from those of any other Borrower Party;
(b)at all times hold itself out to the public and all other Persons as a legal entity (or in the case of the Borrower, a partnership) separate from its member (if applicable) and any other Person;
(c)file tax returns, if any, for itself as may be required under Applicable Law, to the extent
(A) not part of a consolidated group filing a consolidated return or returns or (B) not treated as a division for tax purposes of another taxpayer, and pay any taxes so required to be paid under Applicable Law;
(d)except as contemplated herein or in any other Transaction Document:, pay its own liabilities only out of its own funds, not commingle the Borrower’s assets with assets of any other Person;
(e)not hold out its credit or assets as being available to satisfy the obligations of others and not guarantee any obligations of any other Person;
(f)not pledge its assets to secure the obligations of any other Person;
(g)strictly comply with all organizational formalities to maintain its separate existence;
(h)maintain separate financial statements for itself;
(i)not have any employees;
(j)allocate fairly and reasonably with other Persons any of its overheads for shared office space (if any);
(k)correct any known misunderstanding regarding its separate identity;
(l)ensure it does not engage in any business or activity and does not own any assets or property except as set forth in this Agreement and the other Transaction Documents, nor incur any indebtedness or liability other than any incurred pursuant to the Transaction Documents;
(m)in the case of the Borrower, act solely in its own name (including through the General Partner, as applicable), and cause all representatives of General Partner from time to time to act at all times with respect to it consistently and in furtherance of the foregoing and in its best interests;
(n)maintain its assets in a manner that facilitates their identification and segregation from those of the Affiliates of each Credit Party; and
(o)not to have it acquire any securities of any other Person.
SECTION 5.05 COMPLIANCE WITH LAWS.
It shall comply with all Applicable Laws, except to the extent that the failure to comply with such Applicable Laws does not have, or could not reasonably be expected to have, a Material Adverse Effect.
SECTION 5.06 POLICIES AND PROCEDURES.
It shall ensure that the Borrower Parties maintain in effect and enforce policies and procedures designed to ensure compliance by the Borrower Parties and their respective directors, managers, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions.
SECTION 5.07 AUTHORIZATIONS.
It shall promptly obtain, comply with the terms of and do all that is necessary and within its control to maintain in full force and effect all authorizations which are at any time required in or by all Applicable Laws in connection with the performance of its duties and obligations under the Transaction Documents to which it is a party or to ensure the legality, validity, enforceability and admissibility in evidence of the Transaction Documents, except to the extent that a failure to do so has not had or could not reasonably be expected to have a Material Adverse Effect.
SECTION 5.08 RECORDS.
It shall:
(a)keep and maintain all Records at such locations as are listed in Section 8.01 or such other location as it may notify to the Secured Parties from time to time; provided that it shall provide such Persons with written notice of such change not later than ten (10) calendar days thereafter;
(b)maintain adequate back-ups of the Records;
(c)ensure that the Records to the extent that they relate to Receivables are held to the order and on trust for the Administrative Agent and comply with all reasonable instructions of any Finance Party in relation to the Records to the extent that they relate to Receivables;
(d)at its sole expense (subject to the proviso below) permit the Administrative Agent, each Finance Party and/or their respective agents or representatives, upon reasonable prior notice, and subject to the facility’s reasonable security procedures, to visit its office during normal office hours (each such visit, a "Review") (A) to examine or make copies of the Records that are in its possession or under its control and (B) to discuss matters relating to its financial condition or the Receivables or any Person’s performance under any of the Transaction Documents, in each case, with any of its officers or employees having knowledge of such matters; provided that, so long as no Amortization Event has occurred and is continuing and that the prior Review, if any, included no material adverse findings, the Borrower shall only be responsible for the cost of two (2) Reviews in any one (1) calendar year; and
(e)keep and maintain Records adequate to permit, on and following the Effective Date, the daily identification of each Receivable and all Collections of and adjustments to each existing Receivable.
SECTION 5.09 PERFORMANCE AND ENFORCEMENT OF THE SALE AND SERVICING AGREEMENT.
It shall:
(a)perform, and will require each of the Sellers pursuant to the Sale and Servicing Agreement to perform, each of its obligations and undertakings under and pursuant to the Sale and Servicing Agreement;
(b)purchase Receivables under the Sale and Servicing Agreement in strict compliance with the terms thereof and will diligently enforce the rights and remedies accorded to it as the buyer under the Sale and Servicing Agreement; and
(c)take all actions to perfect and enforce its rights and interests (and the rights and interests of the Secured Parties as its assignees) under the Sale and Servicing Agreement to which it is a party as the Administrative Agent may from time to time reasonably request, including, without limitation, making claims to which it may be entitled under any indemnity, reimbursement or similar provision contained in the Sale and Servicing Agreement.
SECTION 5.10 OWNERSHIP.
It shall (or, to the extent required pursuant to the Sale and Servicing Agreement, will require each Seller thereto to) take all necessary action to:
(a)vest legal and equitable title to the Eligible Receivables irrevocably in the Borrower or the General Partner, as applicable, free and clear of any Liens other than Permitted Encumbrances; and
(b)establish and maintain, in favour of the Administrative Agent, for the benefit of the Secured Parties, a valid and perfected first priority Security Interest in the Collateral to the full extent contemplated herein, free and clear of any Liens other than Permitted Encumbrances (including, without limitation, the filing of all financing statements or other similar instruments or documents necessary under the PPSA (or any comparable law) of all appropriate jurisdictions) to perfect the Administrative Agent’s (for the benefit of the Secured Parties) Security Interest in the Collateral and such other action to perfect, protect or more fully evidence the Security Interest of the Administrative Agent for the benefit of the Secured Parties as the Administrative Agent or any Lender may reasonably request.
SECTION 5.11 SALES, LIENS.
Other than the ownership and Security Interests contemplated by the Transaction Documents, it shall not sell, assign (by operation of law or otherwise) or otherwise dispose of, or grant any option with respect to, or create or suffer to exist any Lien upon (including, without limitation, the filing of any financing statement) or with respect to, any Receivables or Collections and it shall defend the right, title and interest of the Secured Parties in, to and under any of the foregoing property, against all claims of third parties claiming through or under it.
SECTION 5.12 TERMINATION OF SALE AND SERVICING AGREEMENT.
It shall not terminate the Sale and Servicing Agreement or send any termination notice to any Seller thereunder in respect thereof, without the prior written consent of each Finance Party.
SECTION 5.13 INDEBTEDNESS.
It shall not incur or permit to exist any Indebtedness or liability on account of deposits except (i) the Secured Obligations (ii) other current accounts payable arising in the ordinary course of business and not overdue, unless such overdue accounts payable are disputed and being contested in good faith.
SECTION 5.14 TAX STATUS.
It shall take such actions as needed to ensure that it will not become subject to taxation in any jurisdiction outside of Canada.
SECTION 5.15 TAXES.
It shall timely (taking into account any extensions) (i) file all tax returns (federal, state, provincial, foreign and local) required to be filed by it and (ii) pay, or cause to be paid, all Taxes, assessments and other governmental charges, if any, other than Taxes, assessments and other governmental charges being contested in good faith by appropriate proceedings and as to which adequate reserves have been provided in accordance with GAAP.
SECTION 5.16 USE OF PROCEEDS.
No proceeds of any Advance shall be used directly or indirectly by it:
(a)to fund any operations in, finance any investments or activities in or make any payments to or for the benefit of, directly or indirectly, a Sanctioned Person or a Sanctioned Country in violation of any applicable Sanctions or in any other manner that will result in a violation by any Person of any applicable Anti-Corruption Laws or Anti-Terrorism Laws; or
(b)for the purpose, whether immediate, incidental or ultimate, of "purchasing or carrying" any margin stock.
SECTION 5.17 ANTI-TERRORISM LAWS:
It shall ensure that neither a Borrower Party nor, to a Borrower Party’s knowledge, any of such Borrower Party’s agents, shall (i) conduct any business or engage in any transaction or dealing with any Blocked Person, including making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person; (ii) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order No. 13224; or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in the Executive Order No. 13224, the USA Patriot Act or any other Anti-Terrorism Law.
SECTION 5.18 FURTHER INFORMATION/ASSURANCES.
It shall:
(a)promptly furnish to the Administrative Agent and each Lender such other information, and in such form, as the Administrative Agent or the Lenders may reasonably request from time to time; and/or
(b)at its own cost and expense, cause to be promptly and duly taken, executed, acknowledged and delivered all such further acts, documents, and assurances as the Administrative Agent and the Lenders may reasonably request from time to time in order to give full effect to the transactions contemplated by this Agreement.
SECTION 5.19 FINANCIAL STATEMENTS; BORROWING BASE AND OTHER INFORMATION.
The Borrower will furnish to each Finance Party:
(a)on each Weekly Settlement Date and Reporting Date, the Servicing Report;
(b)within one hundred and twenty (120) days after the end of each fiscal year of CURO Group Holdings Corp., its audited consolidated and consolidating balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year and separately breaking out the Borrower, all reported on by independent public accountants of recognized national standing (without a "going concern" or like qualification, commentary or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of CURO Group Holdings Corp. and its subsidiaries in accordance with GAAP consistently applied, accompanied by any management letter prepared by said accountants;
(c)within forty-five (45) days after the end of each fiscal quarter of CURO Group Holdings Corp. (beginning with the fiscal quarter ending September 30, 2018), its consolidated and consolidating balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in
comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal quarter and separately breaking out the Borrower;
(d)[***]
(e)on each Weekly Settlement Date, Reporting Date, on the date of each Borrowing Request and at such other times or as may be requested by the Administrative Agent, as of the period then ended, a Borrowing Base Certificate, and supporting information in connection therewith, together with any additional reports with respect to the Borrowing Base as the Administrative Agent may reasonably request;
(f)upon the request of the Administrative Agent, an Ontario Limited Partnership Report for the Borrower from the appropriate governmental officer;
(g)promptly after any request therefor by the Administrative Agent or any Lender, copies of
(i) any documents described in Section 101(k)(1) of ERISA that the Borrower or any ERISA Affiliate may request with respect to any Multiemployer Plan and (ii) any notices described in Section 101(l)(1) of ERISA that the Borrower or any ERISA Affiliate may request with respect to any Multiemployer Plan; provided that if a Borrower or any ERISA Affiliate has not requested such documents or notices from the administrator or sponsor of the applicable Multiemployer Plan, the Borrower or the applicable ERISA Affiliate shall promptly make a request for such documents and notices from such administrator or sponsor and shall provide copies of such documents and notices promptly after receipt thereof; and
(h)promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrower, or compliance with the terms of this Agreement, as any Finance Party may reasonably request.
SECTION 5.20 NOTICES OF MATERIAL EVENTS.
The Borrower will furnish to the Administrative Agent and each Lender promptly (but in any event within three (3) Business Days of becoming aware of such occurrence) written notice of the following:
(a)the occurrence of a Collateral Trigger Event, a Level 1 Regulatory Trigger Event, an Amortization Event or an Event of Default, together with a written statement signed by it setting forth the details of such event and any action taken or contemplated to be taken with respect thereto;
(b)receipt of any notice of any material investigation by a Governmental Authority or any material litigation or proceeding commenced or threatened against any Borrower Party;
(c)any Lien (other than Permitted Encumbrances) or claim made or asserted against any of the Collateral;
(d)any proposal by any Seller to increase the Intercompany Debt above the amount of Intercompany Debt outstanding as of the Closing Date;
(e)the occurrence of any ERISA Event; and
(f)any other development that results, or could reasonably be expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of a senior officer or other executive officer of the General Partner (in its capacity of general partner of the Borrower) setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.
SECTION 5.21 EXISTENCE; CONDUCT OF BUSINESS.
Each Credit Party will (a) do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, qualifications, licenses, permits, franchises, governmental authorizations, intellectual property rights, licenses and permits material to the conduct of its business, and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted, provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under Section 5.28, and (b) carry on and conduct its business only as permitted under the Transaction Documents.
SECTION 5.22 PAYMENT OF OBLIGATIONS.
Each Credit Party will pay or discharge all Indebtedness and all other material liabilities and obligations, including Taxes, before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower has set aside on its books adequate reserves with respect thereto in accordance with GAAP, (c) such liabilities would not result in aggregate liabilities in excess of $250,000, and (d) there is no risk of forfeiture of any property or asset constituting Collateral as a result of the failure to so pay or discharge such Indebtedness or other liabilities or obligations.
SECTION 5.23 BOOKS AND RECORDS; INSPECTION RIGHTS.
(a)Each Credit Party will, at the cost of the Borrower, (a) keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities, (b) permit any representatives designated by the Administrative Agent or any Lender (including employees of the Administrative Agent, any Lender or any consultants, accountants, lawyers, agents and appraisers retained by the Administrative Agent), upon reasonable prior notice, to visit and inspect its properties, to conduct at its premises field examinations of the its assets, liabilities, books and records, including examining and making extracts from its books and records and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested, and (c) permit any representatives designated by the Administrative Agent or any Lender (including employees of the Administrative Agent, any Lender or any consultants, accountants, lawyers, agents and appraisers retained by the Administrative Agent) to conduct a third-party review and reconciliation of all payment related activity, including ending balances, on not less than 100 Receivables per calendar quarter. Each Credit Party acknowledges that the Administrative Agent, after exercising its rights of inspection, may prepare and distribute to the Lenders certain Reports pertaining to its assets for internal use by the Administrative Agent and the Lenders. Notwithstanding the forgoing, only one of each of such field examination and inspection per calendar year per location shall be at the Credit Parties' sole expense. For purposes of this Section 5.23, it is understood and agreed that a single field examination or inspection may be conducted at multiple relevant sites as required.
(b)The Borrower shall arrange with the Sellers to make arrangements with the Seller Collections Account Bank to permit any representatives designated by the Administrative Agent (including employees of the Administrative Agent) to have the same log-in real-time electronic view rights that the Borrower holds in order to at any time to view the Seller Collections Accounts balances and payments activities.
SECTION 5.24 COMPLIANCE WITH LAWS AND MATERIAL CONTRACTUAL OBLIGATIONS.
Each Credit Party will ensure that each Borrower Party (i) complies with all Applicable Laws (including, without limitation, Privacy Laws) and (ii) performs in all material respects its obligations under the Transaction Documents to which it is a party, except, in each case, where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. Each Credit Party will ensure that the Borrower Parties maintain in effect and enforce policies and procedures designed to ensure compliance by the Borrower Parties and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions.
SECTION 5.25 ACCURACY OF INFORMATION.
Each Credit Party will ensure that any information, excluding Projections but including financial statements or other documents, furnished to the Administrative Agent or the Lenders in connection with this Agreement or any other Transaction Document or any amendment or modification hereof or thereof or waiver hereunder or thereunder contains no material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and the furnishing of such information shall be deemed to be a representation and warranty by it on the date thereof as to the matters specified in this Section 5.25; provided that, with respect to projected financial information, it will only ensure that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. Each Credit Party will ensure that any Projections are made in good faith.
SECTION 5.26 INDEBTEDNESS.
No Credit Party will create, incur, assume or suffer to exist any Indebtedness, except the Secured Obligations.
SECTION 5.27 LIENS.
No Credit Party will create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including Accounts) or rights in respect of any thereof, other than Permitted Encumbrances.
SECTION 5.28 FUNDAMENTAL CHANGES.
(a)No Credit Party will merge into or consolidate or amalgamate with any other Person, or permit any other Person to merge into or consolidate or amalgamate with it, or liquidate or dissolve (and distribute its assets).
(b)No Credit Party will engage in any business other than as permitted under the Transaction Documents and other than businesses substantially similar to the type conducted by it on the date hereof and businesses reasonably related thereto.
(c)No Credit Party will change its fiscal year from the basis in effect on the Closing Date.
(d)No Credit Party will change the accounting basis upon which its financial statements are prepared.
SECTION 5.29 NON-CONSOLIDATION.
No Credit Party will take any action which could reasonably result in the Borrower (i) being consolidated with any other entity in any insolvency or bankruptcy (or equivalent) proceedings (other than the General Partner) or (ii) losing its status as a limited partnership.
SECTION 5.30 DISPOSALS.
No Credit Party will sell, transfer, lease or otherwise dispose of (or commit to sell, transfer, lease or otherwise dispose of) any asset, except in connection with a Securitization Transaction permitted by Section 5.40 and provided that the terms thereof have been adhered to, and otherwise with the prior written consent of the Administrative Agent.
SECTION 5.31 SWAP AGREEMENTS.
The Borrower will not enter into any Swap Agreements, except with the prior written consent of the Administrative Agent.
SECTION 5.32 RESTRICTED PAYMENTS.
Following the occurrence of an Amortization Event or Event of Default, no Credit Party will declare or make, or agree to declare or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so. For the avoidance of doubt, to the extent of any conflict between the terms of sub-paragraph (l) of Article X of the Guaranty and the terms of this Section 5.32, the terms of this Section 5.32 shall prevail.
SECTION 5.33 RESTRICTIVE AGREEMENTS.
No Credit Party will, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon its ability to create, incur or permit to exist any Lien upon any of its property or assets; provided that (i) the foregoing shall not apply to restrictions and conditions imposed by any Requirement of Law or by any Transaction Document, and (ii) the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness.
SECTION 5.34 AMENDMENT OF ORGANIZATIONAL DOCUMENTS.
No Credit Party will amend, modify or waive any of its rights under its Organizational
Documents.
SECTION 5.35 PARTNERSHIP CORPORATE COVENANTS.
Each of the Credit Parties:
(a)will not conduct any activities, except in accordance with the powers and restrictions set out in the Partnership Agreement and its obligations under the Transaction Documents, in each case, to which it is a party;
(b)will not permit, consent, approve or otherwise agree to any proposed Change of Control;
(c)will not consent to or approve the granting of a Lien over any shares or partnership interests issued by it, other than to the Administrative Agent to directly or indirectly secure the Secured Obligations;
(d)will not issue any additional shares or partnership interests without the consent of the Administrative Agent, not to be unreasonably withheld; provided that it shall not be unreasonable for the Administrative Agent to withhold its consent to the issuance of additional shares or additional partnership interests by a Credit Party if such issuance would result in a change of Control or if such additional shares or additional partnership interests would not be subject to the Security, in the same manner and to the
same extent that the existing shares or additional partnership interests of the Credit Parties are subject to the Security; and
(e)will not amend the Partnership Agreement to: (i) provide that the jurisdiction of organization of the Borrower is other than Ontario, (ii) provide that the units or interest of the Borrower do not constitute "securities" under the Securities Transfer Act (Ontario), or (iii) add another general partner or remove the General Partner as the general partner of the Borrower, in each case, without the prior written consent of the Administrative Agent.
SECTION 5.36 ADMINISTRATIVE AGENT INSTRUCTIONS.
(a)The Borrower shall not exercise any of the following rights or discretions under the Transaction Documents (other than the Credit Agreement and Fee Letter) and the Insurer Notification Letter without the consent or instructions (as applicable) of the Administrative Agent (other than in the cases of items (iv), (vii), (ix) and (x) and more generally following the occurrence of an Event of Default, acting in its Permitted Discretion), and the Administrative Agent may (other than in the cases of items (iv), (vii), (ix) and (x) and more generally following the occurrence of an Event of Default, in its Permitted Discretion) at any time instruct the Borrower to exercise any discretion under the Transaction Documents, including, but not limited to, the following:
(i)upon notice by the Administrative Agent at any time following the occurrence of a Servicer Termination Event, the Borrower will exercise its rights to appoint a replacement Servicer pursuant to Section 7.02 of the Sale and Servicing Agreement;
(ii)upon notice by the Administrative Agent at any time following the occurrence of an Amortization Event, the Borrower shall promptly give notice to the Sellers (a "Receivables Sale Termination Notice") that it will no longer purchase receivables under the Sale and Servicing Agreement in accordance with the terms thereof;
(iii)upon notice by the Administrative Agent at any time following the occurrence of a Re-Direction Event, the Borrower shall at the request of the Administrative Agent (i) notify any Insurer of the ownership of the Purchased Assets and/or Security Interest (as defined in the General Security Agreement) and/or direct any Insurer to pay any proceeds of Insurance directly to an account specified by the Administrative Agent;
(iv)upon notice by the Administrative Agent at any time following the occurrence of an Event of Default, the Borrower shall at the request of the Administrative Agent (i) notify any Insurer of the ownership of the Purchased Assets and/or Security Interest (as defined in the General Security Agreement) and/or direct any Insurer to pay any proceeds of Insurance directly to an account specified by the Administrative Agent;
(v)upon notice by the Administrative Agent at any time, make a claim for indemnification on behalf of the Administrative Agent under the Sale and Servicing Agreement pursuant to its rights thereunder;
(vi)upon notice by the Administrative Agent at any time, the Borrower will exercise its discretion to give notice and require the Seller to re-purchase Receivables under Section 2.02 of the Sale and Servicing Agreement;
(vii)upon notice by the Administrative Agent, at any time following the occurrence of an Event of Default, notify any Obligors or any other person obligated on an account, chattel paper or instrument of the ownership of the Receivables and notify them to make payments to the party specified by the Administrative Agent (whether or not any Seller or Servicer was previously making collections on such accounts, chattel paper or instruments) or direct the Sellers or the Servicers, as applicable, to notify the Obligors, at the Borrower's expense, of the ownership of
the Receivables and to notify the Obligors or any other person obligated on an account, chattel paper or instrument to make payments to the party specified by the Borrower (whether or not any Seller or Servicer was previously making collections on such accounts, chattel paper or instruments) (and the identity of the owner may be withheld in any such notification);
(viii)upon notice by the Administrative Agent, acting reasonably and within its Permitted Discretion, with due consideration for the potential impact of such action on the collectability of Receivables in particular given the nature of the Obligors, at any time following the occurrence of a Re- Direction Event, notify any Obligors or any other person obligated on an account, chattel paper or instrument of the ownership of the Receivables and notify them to make payments to the party specified by the Administrative Agent (whether or not any Seller or Servicer was previously making collections on such accounts, chattel paper or instruments) or direct the Sellers or the Servicers, as applicable, to notify the Obligors, at the Borrower's expense, of the ownership of the Receivables and to notify the Obligors or any other person obligated on an account, chattel paper or instrument to make payments to the party specified by the Borrower (whether or not any Seller or Servicer was previously making collections on such accounts, chattel paper or instruments) (and the identity of the owner may be withheld in any such notification);
(ix)upon notice by the Administrative Agent at any time following the occurrence of an Event of Default, the Borrower shall promptly give notice to the Sellers of a Seller Event of Default (as defined in and) pursuant to and in accordance with the Sellers Security Agreement;
(x)[RESERVED]
(xi)upon notice by the Administrative Agent at any time, the Borrower will exercise any of its discretions under the Intercreditor Agreement, including its discretion to: (i) request a Lender's Confirmation, (ii) exercise a Purchase Right, (iii) deliver a Purchase Notice, (iv) consummate a Purchase, (v) deliver a request to release and discharge security interests over the Collection Accounts or (vi) deliver any Turnover Request (each as defined in the Intercreditor Agreement), at the direction of the Administrative Agent;
(xii)upon notice by the Administrative Agent at any time following a Servicer Termination Event, the Borrower will direct the Sellers to duly complete, execute and deliver such documents and actions required to be duly completed, executed and delivered pursuant to Section 7.05 of the Sale and Servicing Agreement; and
(xiii)with respect to any exercise of any power of attorney given to the Borrower pursuant to the Transaction Documents, including under Section 7.04 of the Sale and Servicing Agreement and Section 3.07 of the Sellers Security Agreement.
(b)The Borrower will promptly, and in all cases in no more than one (1) Business Day from its receipt thereof, provide to the Administrative Agent: (i) any information that it becomes aware of material to the interest of the Administrative Agent or the Lenders, (ii) any formal or informal notifications it receives or (iii) a copy of any notices it receives, in each case with respect to the Transaction Documents and the Insurer Notification Letter.
SECTION 5.37 RECORDS.
Each of the Credit Parties shall:
(a)keep and maintain all Records in accordance with GAAP and Applicable Law at the location listed in Section 8.01 or such other location as it may notify to the Secured Parties from time to time; provided that it shall provide such Persons with written notice of such change not later than ten (10) calendar days thereafter;
(b)maintain adequate back-ups of the Records;
(c)ensure that the Records, to the extent that they relate to Receivables, are held to the order and on trust for the Administrative Agent and comply with all reasonable instructions of any Finance Party in relation to the Records to the extent that they relate to Receivables; and
(d)keep and maintain Records adequate to permit, on and following the Effective Date, the daily identification of each Receivable and all Collections of and adjustments to each existing Receivable.
SECTION 5.38 DATA PROTECTION.
Each of the Credit Parties shall:
(a)ensure that any collection, use, transfer or disclosure of Customer Data is in compliance with Data Requirements, and, in particular, ensure that all consents are in place that are necessary under Privacy Laws for either it or the Sellers and the Initial Servicers: (i) to share such Customer Data with the Servicers and the Verification Agent; and (ii) to use and disclose such Customer Data for the purposes intended under the Transaction Documents; and
(b)promptly (and in any event within 5 Business Days) notify the Administrative Agent:
(i)if it receives from any Person or has been required to give to any Person any notice regarding any offense or alleged offense under Data Requirements;
(ii)if it receives notice from any of its suppliers of IT assets that are not owned or leased by the it that any Customer Data or other sensitive or confidential information (in each case, in its control or possession) was stolen or improperly accessed, used, or disclosed;
(iii)of the occurrence of:
(A)any loss or theft of any Customer Data, or accidental or unauthorised disclosure or access to Customer Data, including any unauthorized intrusions or security breaches of any IT asset which is owned or leased by it, in which Customer Data or other sensitive of confidential information was stolen or improperly accessed, used, or disclosed;
(B)any other actual, potential or suspected incident concerning or affecting Customer Data which has or could reasonably have a significant impact on the security of Customer Data; or
(C)any incident concerning or affecting Customer Data which gives rise to an obligation under Privacy Laws to notify a regulator.
SECTION 5.39 SELLER COLLECTIONS ACCOUNTS BLOCKED ACCOUNT AGREEMENT.
Each of the Credit Parties shall have used commercially reasonable efforts to ensure that, by not later than the date that was 30 days following the date of the initial Advance hereunder, it had delivered to the Administrative Agent a fully executed Seller Collections Accounts Blocked Account Agreement in form and substance satisfactory to the Administrative Agent, acting reasonably, provided that this provision has been deemed to be satisfied and performed by the execution and delivery of the Intercreditor Agreement by the parties thereto.
SECTION 5.40 SECURITIZATION TRANSACTIONS.
(a)The Borrower or its Affiliates may from time to time execute one or more Securitization Transactions in connection with which the Borrower proposes to create a Lien and/or assign to a Seller or to another Person, as the case may be, all or part of the Purchased Assets that are part of the Collateral (a “Financing Transaction Release”). To the extent that Curo Canada Corp., LendDirect Corp. (Canada) or any of their Affiliates intends to enter into a Securitization Transaction, it may offer to the Borrower the option to sell all or a portion of the Purchased Assets with respect thereto and, in such case, shall provide the Borrower with at least forty-five (45) calendar days’ or such shorter period as the parties may agree advance written notice. The Borrower may participate in or otherwise facilitate such a Securitization Transaction executed by it or its Affiliates, provided that (i) a Borrowing Base Deficiency shall not occur as a result of giving effect to the Financing Transaction Release, (ii) that, as of the date of the Financing Transaction Release, no Amortization Event or Event of Default or any event which with the giving of notice or the passage of time, or both, would become an Amortization Event or an Event of Default, has occurred, (iii) in selecting Purchased Assets to be sold and released from the Collateral in accordance with this Section 5.40, such selection shall be made in a manner that is not materially adverse to the interests of the Lenders, and (iv) upon the Financing Transaction Release, (1) each Lender will be paid such Lender’s pro rata share of the Financing Transaction Prepayment Amount (as defined below) for the applicable Loan, and (2) each other Person to whom monies are owed on the applicable Weekly Settlement Date under Section 2.03 will be paid all amounts owing to such Person from the amounts deposited in the Transaction Account, all in accordance with Section 2.03 (collectively, the “Financing Transaction Conditions”), and subject to the procedures and conditions, as follows:
(i)at least twenty (20) days prior to the related Financing Transaction Release:
(A)the Borrower will deliver a written notice to the Administrative Agent (the “Financing Transaction Notice”), of the intention of the Borrower to participate in or otherwise facilitate a Securitization Transaction to be entered into by it or its Affiliates, thereby (A) notifying the Administrative Agent that it will be paying the Financing Transaction Prepayment Amount in accordance with the terms hereof, which notice will state (I) the date fixed for pre-payment and the Financing Assignment Designation Cut-Off Date, and (II) the principal amount of the Loans to be repaid in connection with the Financing Transaction Release, together with any unpaid interest accrued thereon to (but excluding) the date fixed for pre-payment and any applicable premium in respect thereof (the “Financing Transaction Prepayment Amount”), and (B) certifying that, after giving effect to the Financing Transaction Release, the Financing Transaction Conditions will be satisfied;
(B)concurrently with the delivery of the notice referred to in Section 5.40(a)(i)(A), the Servicer will deliver to the Administrative Agent (A) a schedule of the Purchased Assets to be released from the Collateral in connection with a Financing Transaction Release (the “Financing Transaction Release List”), and (B) an updated schedule of Loans reflecting the Purchased Assets that will continue to be held by the Administrative Agent as Collateral following the proposed release;
(ii)the Administrative Agent shall have accepted, in writing, the Financing Transaction Notice (provided such acceptance shall not be unreasonably withheld or delayed) and be satisfied with (acting reasonably) the Financing Transaction Prepayment Amount and the Financing Transaction Release List; the Administrative Agent agrees that it shall respond to any Financing Transaction Notice within ten (10) days of receipt;
(iii)on or before the related Weekly Settlement Date, the Borrower will deposit into the Transaction Account an amount equal to the Financing Transaction Prepayment Amount for all or a portion, as the case may be, of the Loans to be repaid, together with such other amounts as may be required to be paid on the related Weekly Settlement Date, in accordance with Section 2.03; and
(iv)upon the deposit to the Transaction Account in accordance with Section 5.40(a)(iii), the Liens under the General Security Agreement affecting the portion of the Collateral corresponding to the Purchased Assets identified in the Financing Transaction Release List shall be considered to be automatically released by the Administrative Agent and the Administrative Agent will promptly deliver to the Borrower and the Servicers such documents and certificates in respect of the release as they may reasonably request.
(b)Upon the deposit to the Transaction Account in accordance with Section 5.40(a)(iv) in connection with any Financing Transaction Release, and subject to the other terms and conditions set forth herein, the Purchased Assets included in the related Financing Transaction Release List and all Collections paid and payable with respect to such Purchased Assets on and after the applicable Financing Assignment Designation Cut-Off Date shall be assigned by the Borrower to the applicable Seller or other Person designated by the Borrower, and if the Borrower receives any Collections on account of such Purchased Assets after the applicable Financing Assignment Designation Cut-Off Date, such Collections shall be paid over to the applicable Seller or such other Person who has acquired such Purchased Assets. For greater certainty, the purchase price paid by the applicable Seller or such other Person to the Borrower for such Purchased Assets shall be deposited to the Transaction Account for application as the Financing Transaction Prepayment Amount in accordance with this Section 5.40 and Section 2.03. The Borrower may execute and deliver to the applicable Seller or such other Person who has acquired such Purchased Assets any documents that may reasonably be required to give further effect this Section.
ARTICLE VI
EVENTS OF DEFAULT, AMORTIZATION EVENTS AND RE-DIRECTION EVENTS
SECTION 6.01 EVENTS OF DEFAULT.
If any of the following events ("Events of Default") shall occur:
(a)the Borrower shall fail to pay any principal due under any Loan when and as the same shall become due and payable, including the amount of any Borrowing Base Deficiency or in respect of any other Obligation, within two (2) Business Days of becoming due, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise;
(b)any representation or warranty made or deemed made by or on behalf of the Borrower in, or in connection with, this Agreement or any other Loan Document or any amendment or modification hereof or thereof or waiver hereunder or thereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any other Loan Document or any amendment or modification hereof or thereof or waiver hereunder or thereunder, shall prove to have been materially incorrect when made or deemed made and, if such misrepresentation is capable of being cured, is not cured within ten (10) Business Days after the earlier of (i) the date on which a Curo Entity has knowledge thereof or reasonably should have known; and (ii) the date on which written notice has been given by the Administrative Agent to the Borrower specifying the incorrectness and requiring that the circumstances giving rise thereto be eliminated or otherwise rectified;
(c)the Borrower fails to observe or perform any covenant, condition or agreement contained in the Loan Documents and such failure, if capable of being remedied, remains unremedied for a period of ten (10) Business Days after the earlier of (i) the date on which a Curo Entity has knowledge thereof or reasonably should have known; and (ii) the date on which written notice of such failure has been given by the Administrative Agent to the Borrower requiring such failure to be remedied;
(d)an Insolvency Event with respect to any Borrower Party;
(e)one or more (i) final judgments, orders or decrees by a court of competent jurisdiction for the payment of money in an aggregate amount in excess of the Judgment Threshold (net of any amounts that a reputable and creditworthy insurance company or financial institution has accepted full coverage) shall be rendered against any Borrower Party or any combination thereof and the same shall remain undischarged, unvacated or unbonded for a period of thirty (30) consecutive calendar days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to levy upon properties of any Borrower Party to enforce any such judgment or (ii) judgments, orders or decrees by a court of competent jurisdiction shall be entered against any Borrower;
(f)a Master Insurance Policy ceases to be in effect and is not replaced by one or more replacement Master Insurance Policies (including an existing Master Insurance Policy that is extended to cover the Receivables originated by such Seller that were subject to the Master Insurance Contract that is terminated, cancelled or surrendered) on substantially the same terms (including the corresponding Master Insurance Marketing Agreement that governs the relationship of the relevant Seller and relevant Insurer with respect to the Master Insurance Policy) and which provide(s) substantially the same risk coverage of the Obligors and Receivables and substantially the same coverage of the proportion of the Purchased Receivables in respect of which Insurance is place, as is provided by the Master Insurance Policies in effect on the Closing Date, within (i) if such Master Insurance Policy ceases to be in effect following receipt of notice of its termination from an Insurer or due to notification by a Seller to an Insurer that the Seller is terminating a Master Insurance Policy (in each case in accordance with the terms of the relevant Master Insurance Policy), a period of time equal to the contractual termination period specified in such Master Insurance Policy, and (ii) if a Master Insurance Policy is otherwise terminated, within 180 days of the relevant Master Insurance Policy ceasing to be in effect;
(g)any representation or warranty made or deemed made by or on behalf of the Guarantor under the Parent Guaranty or any amendment or modification hereof or thereof or waiver thereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with the Parent Guaranty or any amendment or modification thereof or waiver thereunder, shall prove to have been materially incorrect when made or deemed made and, if such misrepresentation is capable of being cured, is not cured within ten (10) Business Days after the earlier of (i) the date on which the Guarantor has knowledge thereof or reasonably should have known; and (ii) the date on which written notice from the Administrative Agent to the Guarantor specifying the incorrectness and requiring that the circumstances giving rise thereto be eliminated or otherwise rectified;
(h)the Guarantor fails to observe or perform any covenant, condition or agreement contained in the Parent Guaranty and such failure, if capable of being remedied, remains unremedied for a period of ten (10) Business Days after the earlier of (i) the date on which the Guarantor has knowledge thereof or reasonably should have known; and (ii) the date on which written notice of such failure has been given by the Administrative Agent to the Guarantor requiring such failure to be remedied;
(i)(i) any Curo Entity shall be required to register as, an "investment company" within the meaning of the Investment Company Act or (ii) the Borrower becomes a "covered fund" under the Volcker Rule;
(j)a Seller shall for any reason cease to have the legal capacity to transfer, or otherwise be incapable of transferring the Eligible Receivables to the Borrower under the Sale and Servicing Agreement;
(k)as of any date of determination, a Level 3 Collateral Trigger shall occur;
(l)a Servicer Termination Event shall occur;
(m)a Level 3 Regulatory Trigger Event shall occur;
(n)an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in a Material Adverse Effect;
(o)a Change of Control shall occur;
(p)the Partnership Agreement or the Organizational Documents of the General Partner shall be amended in a manner that changes the objects and powers of either of the Credit Parties or otherwise allows any Credit Party to carry on any business or activity in breach of Section 5.28(b), that has or could reasonably be expected to have a Material Adverse Effect, or any successor limited partner of the Borrower or successor General Partner shall fail to execute and deliver, concurrently upon succeeding as or becoming a limited partner of the Borrower or the General Partner, as the case may be, such certificates, agreements, other documents and opinions of its counsel as the Administration Agent shall reasonably request in order that such succeeding limited partner or General Partner, as the case may be, be bound by the applicable Transaction Documents and to preserve and protect the rights, remedies and interests of the Lenders under the Transaction Documents;
(q)except as permitted by the terms of the General Security Agreement or the Sellers Security Agreement, (i) the General Security Agreement shall or the Sellers Security Agreement for any reason fail to create a valid security interest in any Collateral purported to be covered thereby, or (ii) any Lien securing any Secured Obligation or Sellers Secured Obligation shall cease to be a perfected, first priority Lien;
(r)the General Security Agreement or the Sellers Security Agreement shall fail to remain in full force or effect or any action shall be taken to discontinue or to assert the invalidity or unenforceability of the General Security Agreement of the Sellers Security Agreement;
(s)the Back-up Servicing and Verification Agency Agreement shall at any time cease to be in full force and effect and a replacement Back-up Servicing and Verification Agency Agreement is not entered into within 90 days after the date of such agreement ceasing to be in full force and effect;
(t)any subordination or postponement agreement in favour of the Administrative Agent shall be invalidated or otherwise cease to constitute the legal, valid and binding obligations of the Borrower and the subordinated creditor party thereto, enforceable in accordance with its terms or the Borrower and the subordinated creditor party thereto, deny or contest the validity or enforceability of such subordination or postponement agreement; or
(u)any material provision of any Loan Document for any reason ceases to be valid, binding and enforceable in accordance with its terms (or the Borrower shall challenge the enforceability of any Loan Document or shall assert in writing, or engage in any action or inaction that evidences its assertion, that any provision of any of the Loan Documents has ceased to be or otherwise is not valid, binding and enforceable in accordance with its terms),
then, and in every such event (other than an event with respect to the Borrower described in clause (d) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take either or both of the following actions, at the same or different times: (i) terminate the Commitments, whereupon the Commitments shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, in each case without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; and in the case of any event with respect to the Borrower described in clause (d) of this Article, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, in each case
without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. Upon the occurrence and during the continuance of an Event of Default, the Administrative Agent may, and at the request of the Required Lenders shall, increase the rate of interest applicable to the Loans and other Secured Obligations as set forth in this Agreement and exercise any rights and remedies provided to the Administrative Agent under the Loan Documents or at law or equity, including all remedies provided under the PPSA.
Upon the occurrence of an Event of Default, the Administrative Agent may in its discretion:
(i)notify the Obligors, at the Borrower's expense, of the ownership or Security Interests (as defined in the General Security Agreement) of the Administrative Agent (on behalf of the Lenders) under the General Security Agreement and notify the Obligors or any other person obligated on an account, chattel paper or instrument to make payments to the Administrative Agent (whether or not the Borrower was previously making collections on such accounts, chattel paper or instruments) (and the identity of the Administrative Agent or such Lender may be withheld in any such notification);
(ii)notify any Insurer of the ownership of and/or Security Interests (as defined in the General Security Agreement) in the Purchased Assets and/or direct any Insurer to pay any proceeds of the Insurance directly to an account specified by the Administrative Agent; or
(iii)deliver an Activation Notice (as defined in and) pursuant to and in accordance with the Transaction Account Blocked Account Agreement by way of notification to the Transaction Account Bank and direction to the Transaction Account Bank to pay any funds that stand to the credit of the Transaction Account directly to an account specified by the Administrative Agent.
The rights set out in this Section 6.01 shall be without limitation, and shall be in addition to all other rights and remedies of the Administrative Agent otherwise available under any other provision of the Transaction Documents, by operation of law, at equity or otherwise, all of which are hereby expressly preserved, including, without limitation, all rights and remedies provided under the PPSA, all of which rights shall be cumulative.
SECTION 6.02 AMORTIZATION EVENTS.
Upon the occurrence of an Amortization Event, the Administrative Agent may in its discretion, upon notice to the Borrower, declare that the amortization date (the "Amortization Date") shall have occurred, whereupon the Revolving Period shall forthwith terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrower accrued hereunder shall be paid in accordance with Section 2.03; provided however, that upon the occurrence of an Amortization Event (i) described in clauses (b) or (d) of such definition, or (ii) described in clause (c) of such definition, in connection with an Event of Default of the type described in clause (d) of the definition of "Event of Default”, the Amortization Date shall automatically occur.
SECTION 6.03 RE-DIRECTION EVENTS.
Subject to Section 5.36, upon the occurrence of a Re-Direction Event, the Administrative Agent may in its discretion:
(a)direct the Borrower or the Servicers, as applicable, to notify the Obligors, at the Borrower's expense, of the ownership or Security Interests (as defined in the General Security Agreement) of the Administrative Agent (on behalf of the Lenders) under the General Security Agreement and to notify the Obligors or any other person obligated on an account, chattel paper or instrument to make payments to the Administrative Agent (whether or not the Borrower was previously making collections on such accounts, chattel paper or instruments), and if such notification is not made within five (5) calendar days after the Administrative Agent has so directed the Borrower or the Servicers, as
applicable, the Administrative Agent may make such notification (and the Borrower or the Servicers (as applicable) shall, at the Administrative Agent's or any Lender's request, withhold the identity of the Administrative Agent or such Lender in any such notification);
(b)notify any Insurer of the ownership of and/or Security Interests (as defined in the General Security Agreement) in the Purchased Assets and/or direct any Insurer to pay any proceeds of the Insurance directly to an account specified by the Administrative Agent; and
(c)deliver an Activation Notice (as defined in the Transaction Account Blocked Account Agreement) pursuant to and in accordance with the Transaction Account Blocked Account Agreement by way of notification to the Transaction Account Bank and direction to the Transaction Account Bank to pay any funds that stand to the credit of the Transaction Account directly to an account specified by the Administrative Agent, in accordance with the terms of the Transaction Account Blocked Account Agreement.
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.01 APPOINTMENT.
Each of the Lenders, on behalf of itself and any of its Affiliates that are Secured Parties hereby irrevocably appoints the Administrative Agent as its agent to hold the Collateral as security for and on behalf of the Secured Parties and authorizes the Administrative Agent to take such actions on its behalf, including execution of the other Loan Documents, and to exercise such powers as are delegated to the Administrative Agent by the terms of the Loan Documents, together with such actions and powers as are reasonably incidental thereto. In addition, to the extent required under the laws of any jurisdiction other than Canada, each of the Lenders hereby grants to the Administrative Agent any required powers of attorney to execute the General Security Agreement governed by the laws of such jurisdiction on such Lender's behalf. The provisions of this Article are solely for the benefit of the Administrative Agent and the Lenders, and the Borrower shall not have rights as a third party beneficiary of any of such provisions. It is understood and agreed that the use of the term "agent" as used herein or in any other Loan Documents (or any similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any Applicable Law. Instead, such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties.
SECTION 7.02 RIGHTS AS A LENDER.
The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent, and such bank and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Borrower or any Affiliate thereof as if it were not the Administrative Agent hereunder.
SECTION 7.03 DUTIES AND OBLIGATIONS.
The Administrative Agent shall not have any duties or obligations except those expressly set forth in the Loan Documents. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether an Event of Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated by the Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 8.02), and, (c) except as expressly set forth in the Loan Documents, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the
failure to disclose, any information relating to the Borrower that is communicated to or obtained by the bank serving as the Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 8.02) or in the absence of its own gross negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction. The Administrative Agent shall be deemed not to have knowledge of any Event of Default unless and until written notice thereof is given to the Administrative Agent by the Borrower or a Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or in connection with any Loan Document, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, the creation, perfection or priority of Liens on the Collateral or the existence of the Collateral, or (vi) the satisfaction of any condition set forth in Article IV or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.
SECTION 7.04 RELIANCE.
The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing believed by it to be genuine and to have been signed or sent by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person, and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
SECTION 7.05 ACTIONS THROUGH SUB-AGENTS.
The Administrative Agent may perform any and all of its duties and exercise its rights and powers by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions of the preceding paragraphs shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as the Administrative Agent.
SECTION 7.06 RESIGNATION.
Subject to the appointment and acceptance of a successor Administrative Agent as provided in this paragraph, the Administrative Agent may resign at any time by notifying the Lenders, and the Borrower. Upon any such resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor. If no successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, or an Affiliate of any such bank. Upon the acceptance of its appointment as Administrative Agent hereunder by its successor, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor, unless otherwise agreed by the Borrower and such successor. Notwithstanding the foregoing, in the event no successor Administrative Agent shall have been so appointed and shall have accepted such appointment within thirty (30) days after the retiring Administrative Agent gives notice of its intent to resign, the retiring
Administrative Agent may give notice of the effectiveness of its resignation to the Lenders and the Borrower, whereupon, on the date of effectiveness of such resignation stated in such notice, (a) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents, provided that, solely for purposes of maintaining any security interest granted to the Administrative Agent under the General Security Agreement for the benefit of the Secured Parties, the retiring Administrative Agent shall continue to be vested with such security interest as collateral agent for the benefit of the Secured Parties and, in the case of any Collateral in the possession of the Administrative Agent, shall continue to hold such Collateral, in each case until such time as a successor Administrative Agent is appointed and accepts such appointment in accordance with this paragraph (it being understood and agreed that the retiring Administrative Agent shall have no duly or obligation to take any further action under the General Security Agreement, including any action required to maintain the perfection of any such security interest), and (b) the Required Lenders shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, provided that (i) all payments required to be made hereunder or under any other Loan Document to the Administrative Agent for the account of any Person other than the Administrative Agent shall be made directly to such Person and (ii) all notices and other communications required or contemplated to be given or made to the Administrative Agent shall also directly be given or made to each Lender. Following the effectiveness of the Administrative Agent's resignation from its capacity as such, the provisions of this Article, Section 2.13(d) and Section 8.03, as well as any exculpatory, reimbursement and indemnification provisions set forth in any other Loan Document, shall continue in effect for the benefit of such retiring Administrative Agent, its sub agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while it was acting as Administrative Agent and in respect of the matters referred to in the proviso under clause (a)above. All services rendered in Canada under this Agreement or any other Loan Document to be performed by the Administrative Agent will be performed by a Canadian resident for purposes of the ITA or an authorized foreign bank for purposes of the Bank Act (Canada).
SECTION 7.07 NON-RELIANCE.
(a)Each Lender acknowledges and agrees that the extensions of credit made hereunder are commercial loans and letters of credit and not investments in a business enterprise or securities. Each Lender further represents that it is engaged in making, acquiring or holding commercial loans in the ordinary course of its business and has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement as a Lender, and to make, acquire or hold Loans hereunder. Each Lender shall, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information (which may contain material, non-public information within the meaning of the United States securities laws concerning the Borrower and their Affiliates) as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document, any related agreement or any document furnished hereunder or thereunder and in deciding whether or to the extent to which it will continue as a Lender or assign or otherwise transfer its rights, interests and obligations hereunder.
(b)Each Lender hereby agrees that (i) it has requested a copy of each Report prepared by or on behalf of the Administrative Agent; (ii) the Administrative Agent (A) makes no representation or warranty, express or implied, as to the completeness or accuracy of any Report or any of the information contained therein or any inaccuracy or omission contained in or relating to a Report and (B) shall not be liable for any information contained in any Report; (iii) the Reports are not comprehensive audits or examinations, and that any Person performing any field examination will inspect only specific information regarding the Borrower and will rely significantly upon the Borrower's books and records, as well as on representations of the Borrower's personnel and that the Administrative Agent undertakes no obligation to update, correct or supplement the Reports; (iv) it will keep all Reports confidential and strictly for its internal use, not share the Report with the Borrower or any other Person except as otherwise permitted pursuant to this Agreement; and without limiting the generality of any other indemnification provision contained in this Agreement, (A) it will hold the Administrative Agent and any such other Person preparing a Report harmless from any action the indemnifying Lender may take or conclusion the indemnifying
Lender may reach or draw from any Report in connection with any extension of credit that the indemnifying Lender has made or may make to the Borrower, or the indemnifying Lender's participation in, or the indemnifying Lender's purchase of, a Loan or Loans; and (B) it will pay and protect, and indemnify, defend, and hold the Administrative Agent and any such other Person preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs, expenses, and other amounts (including reasonable attorneys' fees) incurred by the Administrative Agent or any such other Person as the direct or indirect result of any third parties who might obtain all or part of any Report through the indemnifying Lender.
SECTION 7.08 NOT PARTNERS OR CO-VENTURERS; ADMINISTRATIVE AGENT AS REPRESENTATIVE OF THE SECURED PARTIES.
(a)The Lenders are not partners or co-venturers, and no Lender shall be liable for the acts or omissions of, or (except as otherwise set forth herein in case of the Administrative Agent) authorized to act for, any other Lender. The Administrative Agent shall have the exclusive right on behalf of the Lenders to enforce the payment of the principal of and interest on any Loan after the date such principal or interest has become due and payable pursuant to the terms of this Agreement.
(b)Each Lender authorizes the Administrative Agent to enter into the General Security Agreement and to take all action contemplated by such document. Each Lender agrees that no Secured Party (other than the Administrative Agent) shall have the right individually to seek to realize upon the security granted by the General Security Agreement, it being understood and agreed that such rights and remedies may be exercised solely by the Administrative Agent for the benefit of the Secured Parties upon the terms of the General Security Agreement. In the event that any Collateral is hereafter pledged by any Person as collateral security for the Secured Obligations, the Administrative Agent is hereby authorized, and hereby granted a power of attorney, to execute and deliver on behalf of the Secured Parties any Loan Documents necessary or appropriate to grant and perfect a Lien on such Collateral in favour of the Administrative Agent on behalf of the Secured Parties. For the avoidance of doubt, each Lender appoints the Administrative Agent as its agent for the purpose of perfecting Liens in assets which, in accordance with the PPSA, the Securities Transfer Act (Ontario) or any other Applicable Law can be perfected only by possession or control.
SECTION 7.09 NO SERVICES IN CANADA.
The Administrative Agent, its sub-agents, and their Related Parties and any successor thereto will not render any services under this Agreement or any other Loan Document in Canada.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 NOTICES.
(a)Except in the case of notices and other communications expressly permitted to be given by telephone or Electronic Systems (and subject in each case to paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile, as follows:
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All such notices and other communications (i) sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received, (ii) sent by facsimile shall be deemed to have been given when sent, provided that if not given during normal business hours of the recipient, such notice or communication shall be deemed to have been given at the opening of business on the next Business Day of the recipient, or (iii) delivered through Electronic Systems to the extent provided in paragraph (b) below shall be effective as provided in such paragraph.
(b)Notices and other communications to the Lenders hereunder may be delivered or furnished by Electronic Systems pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article II unless otherwise agreed by the Administrative Agent and the applicable Lender. Each of the Administrative Agent and the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by Electronic Systems pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications. Unless the Administrative Agent otherwise proscribes, all such notices and other communications (i) sent to an e-mail address shall be deemed received upon the sender's receipt of an acknowledgement from the intended recipient (such as by the "return receipt requested" function, as available, return e-mail or other written acknowledgement), provided that if not given during the normal business hours of the recipient, such notice or communication shall be deemed to have been given at the opening of business on the next Business Day for the recipient, and (ii) posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its e-mail address as described in the foregoing clause (i), of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii) above, if such notice, e-mail or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day of the recipient.
(c)Any party hereto may change its address, facsimile number or e-mail address for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt.
(d)Electronic Systems.
(i)The Borrower agrees that the Administrative Agent may, but shall not be obligated to, make Communications (as defined below) available to the Lenders by posting the Communications on Debt Domain, Intralinks, Syndtrak, ClearPar or a substantially similar Electronic System.
(ii)Any Electronic System used by the Administrative Agent is provided "as is" and "as available." The Administrative Agent does not warrant the adequacy of such Electronic Systems and expressly disclaim liability for errors or omissions in the Communications. No warranty of any kind, express, implied or statutory, including any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects, is made by the Administrative Agent in connection with the Communications or any Electronic System. In no event shall the Administrative Agent or any of its Related Parties (collectively, the "Agent Parties") have any liability to the Borrower, any Lender or any other Person or entity for damages of any kind, including direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of the Borrower's or the Administrative Agent's transmission of communications through an Electronic System. "Communications" means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of the Borrower pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative Agent, any Lender by means of electronic communications pursuant to this Section, including through an Electronic System.
SECTION 8.02 WAIVERS; AMENDMENTS.
(a)No amendment or waiver of any provision of this Agreement will be effective unless it is in writing signed by the parties hereto.
(b)No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder or under any other Transaction Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps
to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder and under any other Loan Document are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (c) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Event of Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default at the time.
(c)Except as provided in the first sentence of Section 2.07(b) (with respect to any commitment increase), neither this Agreement nor any other Transaction Document (other than any fee letter) nor any provision hereof or thereof may be waived, amended or modified except in the case of any other Loan Document, pursuant to an agreement or agreements in writing entered into by the Administrative Agent and the Borrower, with the consent of the Required Lenders; provided that no such agreement shall (i) increase the Commitment of any Lender without the written consent of such Lender (including any such Lender that is a Defaulting Lender), (ii) reduce or forgive the principal amount of any Loan or reduce the rate of interest thereon, or reduce or forgive any interest or fees payable hereunder, without the written consent of each Lender (including any such Lender that is a Defaulting Lender) affected thereby, (iii) postpone any scheduled date of payment of the principal amount of any Loan, or any date for the payment of any interest, fees or other Secured Obligations payable hereunder, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Lender (including any such Lender that is a Defaulting Lender) affected thereby, (iv) change Section 2.14(b) or Section 2.14(d) in a manner that would alter the manner in which payments are shared, without the written consent of each Lender (other than any Defaulting Lender), (v) increase the advance rates set forth in the definition of Borrowing Base or add new categories of eligible assets, without the written consent of the Supermajority Lender (other than any Defaulting Lender), (vi) change any of the provisions of this Section or the definition of "Required Lenders" or any other provision of any Loan Document specifying the number or percentage of Lender required to waive, amend or modify any rights thereunder or make any determination or grant any consent thereunder, without the written consent of each Lender (other than any Defaulting Lender) directly affected thereby, (vii) change Section 2.16, without the consent of each Lender (other than any Defaulting Lender) or (viii) except as provided in clause (d) of this Section or in the General Security Agreement, release or subordinate the Administrative Agent's Lien on all or substantially all of the Collateral, without the written consent of each Lender (other than any Defaulting Lender); provided further that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent (it being understood that any amendment to Section 2.16 shall require the consent of the Administrative Agent). The Administrative Agent may also amend the Commitment Schedule to reflect assignments entered into pursuant to Section 8.04.
(d)Notwithstanding the foregoing, the Administrative Agent may, with consent of the Borrower only, amend, modify or supplement this Agreement and the other Loan Documents to cure any ambiguity, omission, defect or inconsistency, so long as such amendment, modification or supplement does not adversely affect the rights of any Lender, without obtaining the consent of any other party to this Agreement.
(e)The Lenders hereby irrevocably authorize the Administrative Agent, at its option and in its sole discretion, to release any Liens granted to the Administrative Agent by the Borrower on any Collateral (i) upon the termination of all of the Commitments, payment and satisfaction in full in cash of all Secured Obligations (other than Unliquidated Obligations), and the cash collateralization of all Unliquidated Obligations in a manner satisfactory to each affected Lender, (ii) constituting property being sold or disposed of if the Borrower certifies to the Administrative Agent that the sale or disposition is made in compliance with the terms of this Agreement (and the Administrative Agent may rely conclusively on any such certificate, without further inquiry) or (iii) as required to effect any sale or other disposition of
such Collateral in connection with any exercise of remedies of the Administrative Agent and the Lenders pursuant to Article VI. Except as provided in the preceding sentence, the Administrative Agent will not release any Liens on Collateral without the prior written authorization of the Required Lenders; provided that, the Administrative Agent may in its discretion, release its Liens on Collateral valued in the aggregate not in excess of $1,000,000 during any calendar year without the prior written authorization of the Required Lenders (it being agreed that the Administrative Agent may rely conclusively on one or more certificates of the Borrower as to the value of any Collateral to be so released, without further inquiry). Any such release shall not in any manner discharge, affect, or impair the Secured Obligations or any Liens (other than those expressly being released) upon (or obligations of the Borrower in respect of) all interests retained by the Borrower, including the proceeds of any sale, all of which shall continue to constitute part of the Collateral. Any execution and delivery by the Administrative Agent of documents in connection with any such release shall be without recourse to or warranty by the Administrative Agent.
SECTION 8.03 EXPENSES; INDEMNITY; DAMAGE WAIVER.
(a)The Borrower shall pay all (i) reasonable out of pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of any outside general counsel, plus, if applicable, one local counsel in any relevant jurisdiction and one counsel with respect to any specialized matters for the Administrative Agent, in connection with the syndication and distribution (including, without limitation, via the internet or through an Electronic System) of the credit facilities provided for herein, the preparation and administration of the Loan Documents and any amendments, modifications or waivers of the provisions of the Loan Documents (whether or not the transactions contemplated hereby or thereby shall be consummated) and (ii) out-of-pocket expenses incurred by the Administrative Agent or any Lender, including the fees, charges and disbursements of any outside general counsel, plus, if applicable, one local counsel in any relevant jurisdiction and one counsel with respect to any specialized matters for each of the Administrative Agent or any Lender (to the extent that such Lender or similarly affected group of Lender has an actual or perceived conflict of interest with the Administrative Agent or another Lender or Lender), in connection with the enforcement, collection or protection of its rights in connection with the Loan Documents, including its rights under this Section, or in connection with the Loans made, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans. Expenses being reimbursed by the Borrower under this Section include, without limiting the generality of the foregoing, fees, costs and expenses incurred in connection with:
(i)appraisals and insurance reviews;
(ii)field examinations and the preparation of Reports based on the fees charged by a third party retained by the Administrative Agent or the internally allocated fees for each Person employed by the Administrative Agent with respect to each field examination;
(iii)background checks regarding senior management and/or key investors, as deemed necessary or appropriate in the sole discretion of the Administrative Agent;
(iv)Taxes, fees and other charges for (A) lien and title searches and title insurance and (B) filing financing statements and continuations, and other actions to perfect, protect, and continue the Administrative Agent's Liens;
(v)sums paid or incurred to take any action required of the Borrower under the Loan Documents that the Borrower fails to pay or take; and
(vi)forwarding loan proceeds, collecting checks and other items of payment, and establishing and maintaining the accounts and lock boxes, and costs and expenses of preserving and protecting the Collateral.
All of the foregoing fees, costs and expenses may be charged to the Borrower as Loans.
(b)The Borrower shall indemnify the Administrative Agent and each Lender, and each Affiliate of any of the foregoing Persons (each such Person being called an "Indemnitee") against, and hold each Indemnitee harmless from, any and all losses, claims, damages, penalties, incremental taxes, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of:
(i)the execution or delivery of the Transaction Documents or any agreement or instrument contemplated thereby, the performance by the parties hereto of their respective obligations thereunder or the consummation of the Transactions or any other transactions contemplated hereby;
(ii)any representation or warranty made by any Credit Party under this Agreement, or any other Transaction Document to which is it a party, which shall have been false or incorrect when made or deemed made;
(iii)any Loan or the use of the proceeds therefrom;
(iv)the failure of the Borrower to deliver to the Administrative Agent the required receipts or other required documentary evidence with respect to a payment made by the Borrower for Taxes pursuant to Section 2.12;
(v)any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not such claim, litigation, investigation or proceeding is brought by any lender or credit provider arising out of any actual or potential credit agreement or facility (or similar credit arrangement) between any lender or credit provider (other than any Indemnitee) and Curo Group Holding Corp. and/or any of its Subsidiaries; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, penalties, liabilities or related expenses are determined by a court of competent jurisdiction by final and non-appealable judgment to have resulted from the gross negligence, fraud or willful misconduct of such Indemnitee (but, for the avoidance of doubt, pending any such final and non-appealable judgment, the Borrower will pay each applicable Indemnitee any such losses, claims, damages, penalties, liabilities or related expenses, including by advancing all reasonable attorneys’ fees; provided, that any such advanced amounts shall be promptly repaid to the Borrower upon issuance of any such final and non-appealable judgment that the claimed losses, claims, damages, penalties, liabilities or related expenses have resulted from the gross negligence, fraud or willful misconduct of such Indemnitee);
(vi)to the extent not governed by clause (v) above, any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not such claim, litigation, investigation or proceeding is brought by the Borrower or their respective equity holders, Affiliates, creditors or any other third Person and whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, penalties, liabilities or related expenses are determined by a court of competent jurisdiction by final and non-appealable judgment to have resulted from the gross negligence, fraud or willful misconduct of such Indemnitee;
(vii)any representation or warranty made or deemed to be made by the Sellers or the Servicers (or any of its officers), in or in connection with any Transaction Document, which was incorrect in any material respect when made or deemed made or delivered;
(viii)the failure by the Sellers or the Servicers to perform or observe any of its covenants, duties or obligations under any of the Transaction Documents;
(ix)the failure by any of the Sellers or the Servicers to comply with any applicable law, rule, regulation, order, judgment, injunction, award or decree with respect to any part of the Purchased Assets, or the non-conformity of any Purchased Assets with any applicable law, rule, regulation, order, injunction, award or decree;
(x)any commingling of Collections with other funds of the Sellers or the Servicers or any other Person;
(xi)any Canadian, foreign, federal, provincial, state, municipal, local or other tax of any kind or nature whatsoever, including any capital, income, sales, excise, business or property tax, any customs duty, and any penalty or interest in respect of any thereof, which may be imposed on the Borrower on account of any payment made under Section 9.04 of the Sale and Servicing Agreement; and
(xii)any disclosure of personal information (within the meaning of applicable Canadian privacy legislation) of any individual by any Seller or Servicer to any Person (such personal information provided by the Sellers or the Servicers to any Person, if any, being "Personal Information"), that is not in compliance with PIPEDA or any other applicable Canadian privacy legislation.
(xiii)any other action or occurrence relating to or arising out of items (i) through (xi) above.
This Section 8.03(b) shall not apply with respect to Taxes other than any Taxes that represent losses or damages arising from any non-Tax claim.
(c)To the extent that the Borrower fails to pay any amount required to be paid by it to the Administrative Agent (or any sub-agent or Affiliate thereof) under paragraph (a) or (b) of this Section, each Lender severally agrees to pay to the Administrative Agent (or any Affiliate thereof), as the case may be, such Lender's Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount (it being understood that the Borrower's failure to pay any such amount shall not relieve the Borrower of any default in the payment thereof); provided that the unreimbursed expense or indemnified loss, claim, damage, penalty, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in its capacity as such.
(d)To the extent permitted by Applicable Law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee (i) for any damages arising from the use by others of information or other materials obtained through telecommunications, electronic or other information transmission systems (including the Internet) or (ii) on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the Transactions, any Loan or the use of the proceeds thereof; provided that, nothing in this paragraph (d) shall relieve the Borrower of any obligation it may have to indemnify an Indemnitee against special, indirect, consequential or punitive damages asserted against such Indemnitee by a third party.
(e)All amounts due under this Section shall be payable promptly after written demand therefor.
SECTION 8.04 SUCCESSORS AND ASSIGNS.
(a)The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that (i) no Credit
Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of each Lender (and any attempted assignment or transfer by a Credit Party without such consent shall be null and void) and (ii) no Lender may assign or otherwise transfer its rights or obligations hereunder except in accordance with this Section. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants (to the extent provided in paragraph (c) of this Section) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b)(i) Subject to the conditions set forth in paragraph (b)(ii) below, any Lender may assign to one or more Persons (other than an Ineligible Institution) all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it) with the prior written consent (such consent not to be unreasonably withheld) of:
(A)the Borrower, provided that the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within five (5) Business Days after having received notice thereof, and provided further that no consent of the Borrower shall be required for an assignment to a Lender, an Affiliate of a Lender, an Approved Fund or, if an Event of Default has occurred and is continuing, any other assignee; and
(B)the Administrative Agent, and
(ii)Assignments shall be subject to the following additional conditions:
(A)except in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund or an assignment of the entire remaining amount of the assigning Lender's Commitment, the amount of the Commitment or Loans of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent) shall not be less than $5,000,000 unless each of the Borrower and the Administrative Agent otherwise consent, provided that no such consent of the Borrower shall be required if an Event of Default has occurred and is continuing;
(B)each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement;
(C)the parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee of $10,000;
(D)the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire in which the assignee designates one or more credit contacts to whom all syndicate-level information (which may contain material non-public information about the Borrower and its Related Parties or their respective securities) will be made available and who may receive such information in accordance with the assignee's compliance procedures and Applicable Laws, including federal, provincial and state securities laws; and
(E)any assignments of all or a portion of a Lender's Commitment or other rights and obligations under this Agreement relating to the Borrower shall be made to a Qualified Lender.
For the purposes of this Section 8.04(b), the terms "Approved Fund" and "Ineligible Institution" have the following meanings:
"Approved Fund" means any Person (other than a natural person) that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or
(c)an entity or an Affiliate of an entity that administers or manages a Lender.
"Ineligible Institution" means a (a) natural person, (b) a Defaulting Lender or its parent,
(c)company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural person or relative(s) thereof; provided that, such company, investment vehicle or trust shall not constitute an Ineligible Institution if it (x) has not been established for the primary purpose of acquiring any Loans or Commitments, (y) is managed by a professional advisor, who is not such natural person or a relative thereof, having significant experience in the business of making or purchasing commercial loans, and (z) has assets greater than $25,000,000 and a significant part of its activities consist of making or purchasing commercial loans and similar extensions of credit in the ordinary course of its business, (d) the Borrower or Affiliate thereof or (e) at all times that no Event of Default has occurred and is continuing, a competitor of the Borrower.
(iii)Subject to acceptance and recording thereof pursuant to paragraph (b)(iv) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Section 2.16, Section 2.02, Section 2.12 and Section 8.03). Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 8.04 shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (c) of this Section.
(iv)The Administrative Agent, acting for this purpose as a non-fiduciary agent of the Borrower, shall maintain at one of its offices a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive, and the Borrower, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(v)Upon its receipt of a duly completed Assignment and Assumption executed by an assigning Lender and an assignee, the assignee's completed Administrative Questionnaire (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) of this Section and any written consent to such assignment required by paragraph (b) of this Section, the Administrative Agent shall accept such Assignment and Assumption and record the information contained therein in the Register; provided that if either the assigning Lender or the assignee shall have failed to make any payment required to be
made by it pursuant to Section 2.07(b), Section 2.14(b) or Section 8.03(c), the Administrative Agent shall have no obligation to accept such Assignment and Assumption and record the information therein in the Register unless and until such payment shall have been made in full, together with all accrued interest thereon. No assignment shall be effective for purposes of this Agreement unless it has been recorded in the Register as provided in this paragraph.
(c)Any Lender may, without the consent of the Borrower or the Administrative Agent, sell participations to one or more banks or other entities (a "Participant") other than an Ineligible Institution in all or a portion of such Lender's rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it); provided that (A) such Lender's obligations under this Agreement shall remain unchanged; (B) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations; and (C) the Borrower, the Administrative Agent and the other Lender shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver described in the first proviso to Section 8.02(c) that affects such Participant. The Borrower agrees that each Participant shall be entitled to the benefits of Section 2.13 and Section 2.12 (subject to the requirements and limitations therein, including the requirements under Section 2.13(f) and Section 2.13(g) (it being understood that the documentation required under Section 2.13(f)(i) shall be delivered to the participating Lender and the information and documentation required under Section 2.13(f)(ii) will be delivered to the Borrower and the Administrative Agent)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section; provided that such Participant (A) agrees to be subject to the provisions of Section 2.14 and Section 2.15 as if it were an assignee under paragraph (b) of this Section; and (B) shall not be entitled to receive any greater payment under Section 2.13 or Section 2.12, with respect to any participation, than its participating Lender would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation.
(d)Each Lender that sells a participation agrees, at the Borrower's request and expense, to use reasonable efforts to cooperate with the Borrower to effectuate the provisions of Section 2.15(b) with respect to any Participant. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 8.08 as though it were a Lender, provided such Participant agrees to be subject to the terms hereof as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as an agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant's interest in the Loans or other obligations under this Agreement or any other Loan Document (the "Participant Register"); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant's interest in any Commitments, Loans or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such Commitment, Loan or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
(e)Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank, and this Section shall not apply to any such pledge or assignment of a security interest; provided that no such pledge or assignment of a
security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
SECTION 8.05 SURVIVAL.
All covenants, agreements, representations and warranties made by the Borrower in the Loan Documents and in the certificates or other instruments delivered in connection with or pursuant to this Agreement or any other Loan Document shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of the Loan Documents and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Event of Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid and so long as the Commitments have not expired or terminated. The provisions of Section 2.12, Section 2.13, Section 8.03 and Article VII shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments or the termination of this Agreement or any other Loan Document or any provision hereof or thereof.
SECTION 8.06 COUNTERPARTS; INTEGRATION; EFFECTIVENESS; ELECTRONIC EXECUTION.
(a)This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other Loan Documents and any separate letter agreements with respect to fees payable to the Administrative Agent constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.
(b)Delivery of an executed counterpart of a signature page of this Agreement by telecopy, emailed pdf or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Agreement. The words "execution," "signed," "signature," "delivery," and words of like import in or relating to any document to be signed in connection with this Agreement and the transactions contemplated hereby or thereby shall be deemed to include Electronic Signatures, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any Applicable Law, including the Electronic Commerce Act (Ontario) and similar laws in relevant jurisdictions; provided that nothing herein shall require the Administrative Agent to accept electronic signatures in any form or format without its prior written consent.
SECTION 8.07 SEVERABILITY.
Any provision of any Loan Document held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions thereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.
SECTION 8.08 RIGHT OF SETOFF.
If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by such Lender or Affiliate to or for the credit or the account of the Borrower against any of and all the Secured Obligations held by such Lender, irrespective of whether or not such Lender shall have made any demand under the Loan Documents and although such obligations may be unmatured. The applicable Lender shall notify the Borrower and the Administrative Agent of such set-off or application, provided that any failure to give or any delay in giving such notice shall not affect the validity of any such set-off or application under this Section. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have.
SECTION 8.09 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.
(a)The Loan Documents (other than those containing a contrary express choice of law provision) shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein, provided, however, that if the laws of any jurisdiction other than the Province of Ontario shall govern in regard to the validity, perfection or effect of perfection of any Lien or in regard to procedural matters affecting enforcement of any Liens on all or any party of the Collateral, such laws of such other jurisdictions shall continue to apply to that extent.
(b)The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any Ontario court or Canadian federal court sitting in Toronto, Ontario in any action or proceeding arising out of or relating to any Loan Documents, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such Province of Ontario or, to the extent permitted by law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Administrative Agent, the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against the Borrower or its properties in the courts of any jurisdiction.
(c)The Borrower hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(d)Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 8.01. Nothing in this Agreement or any other Loan Document will affect the right of any party to this Agreement to serve process in any other manner permitted by law.
SECTION 8.10 WAIVER OF JURY TRIAL.
EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, OTHER AGENT (INCLUDING ANY ATTORNEY) OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 8.11 CONFIDENTIALITY.
(a)Each Party and each of their officers, directors and other advisers (each, a "Receiving Party") agrees to maintain the confidentiality of all Information of a confidential nature furnished or delivered to it pursuant to or in connection with the Transaction Documents. Such confidential Information may be used by the Receiving Parties only for the purpose for which it was disclosed to them and may be disclosed only for the purpose of or in connection with the transactions contemplated by the Transaction Documents to:
(i)such party's Affiliates or such party's or its Affiliates' directors, officers, employees, agents, accountants, auditors, legal counsel and other representatives (collectively, "Receiving Party Representatives"), in each case, who need to know such information for the purpose of assisting in the negotiation, completion and administration of such Transaction Documents, provided that any such Receiving Party Representative is made aware of the Receiving Party's obligations under this Section 8.11 prior to such disclosure being made;
(ii)such party's permitted assigns, transferee, successors and participants to the extent such disclosure is made pursuant to a written agreement to hold such information upon substantially the same terms as this Section 8.11 or such other terms as may be agreed by the Servicers and the Lenders;
(iii)any person who is a party to a Transaction Document;
(iv)the extent required by Applicable Law or requested or required by any Governmental Authority;
(v)the extent that such party needs to disclose the same for the exercise, protection or enforcement of any of its rights under any of the Transaction Documents or in connection with any action or proceeding relating to any Transaction Document or, in the case of the Administrative Agent, for the purpose of discharging, in such manner as it thinks fit, its duties or obligations under or in connection with the Transaction Documents in each case to such persons as require to be informed of such information for such purposes or, in the case of the Administrative Agent, in connection with transferring or purporting to transfer its rights and obligations to any successor Administrative Agent; and
(vi)if the applicable Party shall have consented, in writing, to such disclosure.
(b)No announcement or public disclosure, including but not limited to any press release, relating to the Commitments or the Loans and the transactions contemplated under the Transaction Documents may be made prior to receiving written approval from the Administrative Agent. If any of the Borrower Parties plan to publish any press release and/or other materials relating to the Commitments or the Loans and the transactions contemplated under the Transaction Documents or aspects of the to the Commitments or the Loans and the transactions contemplated under the Transaction Documents, the Borrower shall notify the Administrative Agent in writing of any such publication at least five (5) Business Days prior to such publication and provide a draft of such press release and/or other materials to the Administrative Agent for its review and approval.
SECTION 8.12 SEVERAL OBLIGATIONS; NON-RELIANCE; VIOLATION OF LAW.
The respective obligations of the Lenders hereunder are several and not joint and the failure of any Lender to make any Loan or perform any of its obligations hereunder shall not relieve any
other Lender from any of its obligations hereunder. Each Lender hereby represents that it is not relying on or looking to any margin stock (as defined in Regulation U of the Board) for the repayment of the Loans provided for herein. Anything contained in this Agreement to the contrary notwithstanding, no Lender shall be obligated to extend credit to the Borrower in violation of any Requirement of Law.
SECTION 8.13 USA PATRIOT ACT.
Each Lender that is subject to the requirements of the USA PATRIOT Act hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act, it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow such Lender to identify the Borrower in accordance with the USA PATRIOT Act.
SECTION 8.14 DISCLOSURE.
The Borrower, each Lender hereby acknowledges and agrees that the Administrative Agent and/or its Affiliates from time to time may hold investments in, make other loans to or have other relationships with the Borrower and its respective Affiliates.
SECTION 8.15 APPOINTMENT FOR PERFECTION.
Each Lender hereby appoints each other Lender as its agent for the purpose of perfecting Liens, for the benefit of the Administrative Agent and the other Secured Parties, in assets which, in accordance with the PPSA, the Securities Transfer Act (Ontario) or any other Applicable Law can be perfected only by possession or control. Should any Lender (other than the Administrative Agent) obtain possession or control of any such Collateral, such Lender shall notify the Administrative Agent thereof, and, promptly upon the Administrative Agent's request therefor shall deliver such Collateral to the Administrative Agent or otherwise deal with such Collateral in accordance with the Administrative Agent's instructions.
SECTION 8.16 INTEREST RATE LIMITATION.
Notwithstanding anything herein to the contrary, if at any time the Applicable Rate to any Loan, together with all fees, charges and other amounts which are treated as interest on such Loan under Applicable Law (collectively the "Charges"), shall exceed the maximum lawful rate (the "Maximum Rate") which may be contracted for, charged, taken, received or reserved by the Lenders holding such Loan in accordance with Applicable Law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon to the date of repayment, shall have been received by such Lender.
SECTION 8.17 NO ADVISORY OR FIDUCIARY RESPONSIBILITY.
In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), the Borrower acknowledges and agrees that: (i) (A) the arranging and other services regarding this Agreement provided by the Lenders are arm's-length commercial transactions between the Borrower and its Affiliates, on the one hand, and the Lenders and their Affiliates, on the other hand, (B) the Borrower has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (C) the Borrower is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (ii) (A) each of the Lenders and their Affiliates is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for the Borrower
or any of its Affiliates, or any other Person and (B) no Lender or any of its Affiliates has any obligation to the Borrower or any of its Affiliates with respect to the transactions contemplated hereby except, in the case of a Lender, those obligations expressly set forth herein and in the other Loan Documents; and (iii) each of the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower and its Affiliates, and no Lender or any of its Affiliates has any obligation to disclose any of such interests to the Borrower or its Affiliates. To the fullest extent permitted by law, the Borrower hereby waives and releases any claims that it may have against each of the Lenders and their Affiliates with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.
SECTION 8.18 ACKNOWLEDGEMENT AND CONSENT TO BAIL-IN OF EEA FINANCIAL INSTITUTIONS.
Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a)the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and
(b)the effects of any Bail-In Action on any such liability, including, if applicable:
(i)a reduction in full or in part or cancellation of any such liability;
(ii)a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent entity, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(iii)the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority.
SECTION 8.19 JUDGMENT CURRENCY CONVERSION.
(a)The obligations of the Borrower hereunder and under the other Loan Documents to make payments in dollars or in CAD, as the case may be (the "Obligation Currency"), shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any currency other than the Obligation Currency, except to the extent that such tender or recovery results in the effective receipt by the Borrower of the full amount of the Obligation Currency expressed to be payable to the Borrower under this Agreement or the other Loan Documents. If, for the purpose of obtaining or enforcing judgment against the Borrower in any court or in any jurisdiction, it becomes necessary to convert into or from any currency other than the Obligation Currency (such other currency being hereinafter referred to as the "Judgment Currency") an amount due in the Obligation Currency, the conversion shall be made, at the Administrative Agent's quoted rate of exchange prevailing, in each case, as of the date immediately preceding the day on which the judgment is given (such Business Day being hereinafter referred to as the "Judgment Currency Conversion Date").
(b)If there is a change in the rate of exchange prevailing between the Judgment Currency Conversion Date and the date of actual payment of the amount due, the Borrower covenants and agrees to pay, or cause to be paid, such additional amounts, if any (but in any event not a lesser amount), as may be necessary to ensure that the amount paid in the Judgment Currency, when converted at the rate
of exchange prevailing on the date of payment, will produce the amount of the Obligation Currency which could have been purchased with the amount of Judgment Currency stipulated in the judgment or judicial award at the rate of exchange prevailing on the Judgment Currency Conversion Date. Any amount due from the Borrower under this Section 8.19 shall be due as a separate debt and shall not be affected by judgment being obtained for any other amounts due under or in respect of any of the Loan Documents.
(c)For purposes of determining the prevailing rate of exchange, such amounts shall include any premium and costs payable in connection with the purchase of the Obligation Currency.
SECTION 8.20 CANADIAN ANTI-MONEY LAUNDERING LEGISLATION.
(a)The Borrower acknowledges that, pursuant to the Proceeds of Crime Act and other applicable anti-money laundering, anti-terrorist financing, government sanction and "know your client" laws (collectively, including any guidelines or orders thereunder, "AML Legislation"), the Secured Parties may be required to obtain, verify and record information regarding the Borrower and their respective directors, authorized signing officers, direct or indirect shareholders or other Persons in control of the Borrower, and the transactions contemplated hereby. The Borrower shall promptly provide all such information, including supporting documentation and other evidence, as may be reasonably requested by any Secured Party or any prospective assignee or participant of a Secured Party or the Administrative Agent, in order to comply with any applicable AML Legislation, whether now or hereafter in existence.
(b)If the Administrative Agent has ascertained the identity of the Borrower or any authorized signatories of the Borrower for the purposes of applicable AML Legislation, then the Administrative Agent:
(i)shall be deemed to have done so as an agent for each Secured Party, and this Agreement shall constitute a "written agreement" in such regard between each Secured Party and the Administrative Agent within the meaning of the applicable AML Legislation; and
(ii)shall provide to each Secured Party copies of all information obtained in such regard without any representation or warranty as to its accuracy or completeness.
Notwithstanding the preceding sentence and except as may otherwise be agreed in writing, each of the Secured Parties agrees that the Administrative Agent has no obligation to ascertain the identity of the Borrower or any of its authorized signatories on behalf of any Secured Party, or to confirm the completeness or accuracy of any information it obtains from the Borrower or any of its authorized signatories in doing so.
SECTION 8.21 AMENDMENT AND RESTATEMENT.
(a)This Agreement amends and restates the Original Credit Agreement. All rights, benefits, indebtedness, interest, liabilities and obligations of the parties pursuant to the Original Credit Agreement are hereby renewed, amended, restated and superseded in their entirety according to the terms and provisions set forth herein. This Agreement does not constitute, nor shall or result in, discharge or forgiveness of any amount payable pursuant to the Original Credit Agreement or any indebtedness or liabilities of the Borrower thereunder, all of which are renewed and continued and are hereafter payable and to be performed in accordance with this Agreement and the other Loan Documents. Neither this Agreement nor any other Loan Document extinguishes the indebtedness or liabilities outstanding in connection with the Original Credit Agreement or any of the Loan Documents, nor do they constitute a novation with respect thereto.
(b)All security interests, pledges, assignments, hypothecs and other Liens, and all registrations and filings related thereto in all applicable jurisdictions, previously granted by any Credit Party pursuant to the Original Credit Agreement or any of the Loan Documents shall remain in full force and effect as security for the Secured Obligations.
(c)Amounts in respect of interest, fees and other amounts payable to or for the account of the Administrative Agent or any Lender shall be calculated (i) in accordance with the provisions of the Original Credit Agreement with respect to any period (or a portion of any period) ending prior to the Effective Date, and (ii) in accordance with the provisions of this Agreement with respect to any period (or a portion of any period) commencing on or after the Effective Date.
(d)All references to Cash Money Cheque Cashing Inc. (Canada) in the Transaction Documents are now acknowledged to be references to Curo Canada Corp.
[Signature Pages Follow]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
Signature Page to Second Amended and Restated Credit Agreement
CURO CANADA RECEIVABLES LIMITED
PARTNERSHIP, by its general partner, CURO CANADA RECEIVABLES GP INC. as the
Borrower
By:
Name: Donald F. Gayhardt
Title: President and Chief Executive Officer
CURO CANADA RECEIVABLES GP INC. as
General Partner
Name: Donald F. Gayhardt
Title: President and Chief Executive Officer
WF MARLIE 2018-1, LTD.,
as Lender
Name: Authorized Person
Title:
WATERFALL ASSET MANAGEMENT, LLC,
as the Administrative Agent
Name:
Title
| | |
CAN_DMS: \142142078\8 13103835.4 |
Execution Version
Dated as of November 12, 2021 among
CURO GROUP HOLDINGS CORP.
as Guarantor and
LENDDIRECT CORP.
as Seller and Servicer and
CURO CANADA CORP.
as Seller and Servicer and
CURO CANADA RECEIVABLES LIMITED PARTNERSHIP,
by its general partner,
CURO CANADA RECEIVABLES GP INC.
as Borrower and
WF MARLIE 2018-1, LTD.
as Lender and
WATERFALL ASSET MANAGEMENT, LLC
as Administrative Agent
SECOND AMENDED AND RESTATED GUARANTY
TABLE OF CONTENTS
Section Page
CAN_DMS: \142235236\7 i
THIS SECOND AMENDED AND RESTATED GUARANTY (this "Guaranty") is dated as of November 12, 2021 and made between:
(1)CURO GROUP HOLDINGS CORP., as Guarantor;
(2)LENDDIRECT CORP., as Seller and Servicer;
(3)CURO CANADA CORP., as Seller and Servicer;
(4)CURO CANADA RECEIVABLES LIMITED PARTNERSHIP by its general partner CURO CANADA RECEIVABLES GP INC., as Borrower;
(5)WF MARLIE 2018-1, LTD., as Lender; and
(6)WATERFALL ASSET MANAGEMENT, LLC, as Administrative Agent, each of the foregoing a "Party" and together the "Parties".
BACKGROUND:
(A)Pursuant to a sale and servicing agreement dated September 26, 2019 (as amended, restated, supplemented or modified from time time), each Seller sold, assigned or otherwise conveyed to the Borrower all of its right, title and interest in certain Purchased Assets and each Servicer undertook the servicing and collection of the Purchased Receivables.
(B)In order to fund its acquisition of the Purchased Assets from the Sellers, the Borrower entered into the Original Credit Agreement, pursuant to which the Lenders made available an asset-backed securitization credit facility to the Borrower.
(C)Pursuant to a second amended and restated asset-backed revolving credit agreement entered into among the Borrower, the Lender and the Administrative Agent on the Second ARCA Closing Date (the "Credit Agreement"), the Lenders have severally agreed to make extensions of credit to the Borrower upon the terms and subject to the conditions set forth therein.
(D)Each of the Performance Parties is an Affiliate and a direct or indirect Subsidiary of the Guarantor, and the Guarantor expects to receive substantial direct and indirect benefits from the transactions described above and the other transactions contemplated by the Sale and Servicing Agreement, the Credit Agreement and the other Transaction Documents.
(E)As an inducement for (a) the Borrower to purchase or otherwise acquire Receivables from the Sellers pursuant to the Sale and Servicing Agreement, (b) the Lenders to lend certain funds to the Borrower from time to time under the Original Credit Agreement and (c) the Administrative Agent, the Lenders and the other Secured Parties to participate in the transactions contemplated by the Original Credit Agreement and the other Transaction Documents, the Guarantor agreed, on the terms provided in the guaranty dated August 2, 2018, as amended by a first amendment dated September 20, 2018 and a second amendment dated April 26, 2019, and as amended and restated by that certain amended and restated guaranty dated September 26, 2019, as amended by an amendment dated March 25, 2020 (the “Original Guaranty”), to (i) cause the due and punctual performance by each of the Sellers and the Servicers and the other Performance Parties of their respective Performance Party Obligations, (ii) guarantee for the benefit of the Lenders and the Administrative Agent against certain acts by the Borrower Parties, (iii) provide a limited guaranty with respect to the Borrower's Secured Obligations to the Administrative Agent and Lenders under the Credit Agreement and (iv) indemnify the Beneficiaries in relation to items (i) to
(iii) in this Recital D.
(F)The Parties hereto desire to amend and restate the Original Guaranty as provided herein, including to remove the limited guaranty with respect to the Borrower's Secured Obligations.
IT IS THEREFORE AGREED that:
ARTICLE I DEFINITIONS
SECTION 1.01 TERMS IN CREDIT AGREEMENT.
Except where the context otherwise requires or except as set out below, terms defined in Article I of the Credit Agreement shall have the same meanings where used in this Guaranty.
As used in this Guaranty, the following terms have the meanings specified below:
"Beneficiaries" means, collectively, the Lenders and the Administrative Agent, and "Beneficiary" means any of them.
"Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under a lease of (or other Indebtedness arrangements conveying the right to use) real or personal property which are required to be classified and accounted for as a capital lease or capitalized on a balance sheet of such Person determined in accordance with GAAP and the amount of such obligations shall be the capitalized amount thereof in accordance with GAAP and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease or other arrangement prior to the first date upon which such lease or other arrangement may be terminated by the lessee without payment of a penalty, provided that any obligations of the Guarantor and its Restricted Subsidiaries either existing on September 2, 2017, or created prior to the recharacterization described below (i) that were not included on the consolidated balance sheet of the Guarantor as capital lease obligations and (ii) that are subsequently recharacterized as capital lease obligations due to a change in accounting treatment or otherwise, shall for all purposes of this Agreement (including, without limitation, the calculation of Consolidated Net Income and Consolidated Cash Flow) not be treated as Capital Lease Obligations or Indebtedness.
"Capital Stock" means:
(a)in the case of a corporation, corporate stock or shares;
(b)in the case of an association or business entity other than a corporation, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(c)in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and
(d)any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of the issuing Person,
but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with such Capital Stock.
"CFC" means a controlled foreign corporation within the meaning of Section 957(a) of the Code and any entity that wholly-owns the stock of a CFC and which is disregarded for United States federal income purposes as an entity that is separate from its owner.
"Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person and its Restricted Subsidiaries for such period, plus:
(a)an amount equal to any extraordinary or non-recurring loss, to the extent that such losses were deducted in computing such Consolidated Net Income; plus
(b)an amount equal to any net loss realized in connection with an Asset Sale (as defined in the Senior Notes Indenture), the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness by such Person or its Restricted Subsidiaries, to the extent such losses were deducted in computing such Consolidated Net Income; plus
(c)provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus
(d)Consolidated Interest Expense of such Person and its Restricted Subsidiaries for such period; plus
(e)depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) to the extent deducted in computing such Consolidated Net Income; plus
(f)without duplication of the application of clause (d) of the definition of Consolidated Net Income, write offs, write downs or impairment of goodwill or other intangible assets, unrealized mark to market losses, and other non cash charges and expenses (excluding any such other non cash charge or expense to the extent that it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent deducted in computing such Consolidated Net Income; plus
(g)any fees or expenses relating to a Qualified Receivables Transaction, to the extent such fees or expenses are deducted in computing Consolidated Net Income; plus
(h)any one-time, non-recurring expenses or charges related to any Equity Offering, Permitted Investment (as defined in the Indenture), acquisition, recapitalization or Indebtedness permitted to be incurred under the Senior Notes Indenture (including a refinancing thereof), whether or not successful, including (i) such fees, expenses or charges related to the execution or delivery of the Credit Agreement and (ii) any amendment or other modification of the Senior Notes Indenture or the Credit Agreement, in each case, deducted in computing Consolidated Net Income; minus
(i)all non-cash items to the extent that such non-cash items increased Consolidated Net Income for such period (excluding the recognition of deferred revenue or any items which represent the reversal of any accrual of, or cash reserve for, anticipated cash charges in any prior period and any items for which cash was received in a prior period).
Notwithstanding the foregoing, the provision for taxes based on income or profits of, and the depreciation and amortization and other non-cash charges of, a Restricted Subsidiary of a Person shall be added to Consolidated Net Income to compute Consolidated Cash Flow only to the extent (and in the same proportion) that the Net Income of such Restricted Subsidiary was included in calculating the Consolidated Net Income of such Person.
"Consolidated Interest Expense" means, with respect to any Person for any period, the sum of, without duplication:
(a)the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including amortization of original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, commissions, discounts and other fees and charges Incurred in respect of letter of credit or bankers’ acceptance financings, and net payments and receipts (if
any) pursuant to Hedging Obligations); provided that the amortization or write-off of capitalized financing or debt issuance costs shall be excluded; plus
(b)the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period; plus
(c)any interest expense on Indebtedness of another Person to the extent that such Indebtedness is Guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on the assets of such Person or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is called upon).
"Consolidated Net Income" means, with respect to any Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided that:
(a)the Net Income of any Person that is not a Restricted Subsidiary of such Person, or that is accounted for by the equity method of accounting shall be included, but only to the extent of the amount of dividends or distributions that have been distributed in cash (or to the extend converted into cash) to the relevant Person or a Restricted Subsidiary thereof in respect of such period;
(b)the Net Income of any Restricted Subsidiary of such Person shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, unless such restriction has been legally waived;
(c)the cumulative effect of a change in accounting principles shall be excluded;
(d)the effect of any non-cash impairment charges or write-ups, write-downs or write-offs of assets or liabilities of Foreign Subsidiaries which are not incorporated in the United States resulting from the application of GAAP and the amortization of intangibles of Foreign Subsidiaries arising from the application of GAAP, including pursuant to ASC 805, Business Combinations, ASC 350, Intangibles- Goodwill and Other, or ASC 360, Property, Plant and Equipment, as applicable, shall be excluded; and
(e)Consolidated Net Income shall not be reduced by any fees and expenses paid or payable in respect of the offering contemplated the Senior Notes Indenture, the application of the use of proceeds therefrom and related transactions.
"CSO Obligations" means obligations to purchase, or other Guarantees of, consumer loans the making of which were facilitated by the Guarantor or a Restricted Subsidiary of the Guarantor acting as a credit services organization or other similar service provider.
"Disqualified Stock" means, with respect to any Person, any Capital Stock which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder) or upon the happening of any event:
(a)matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise;
(b)is convertible or exchangeable for Indebtedness or Disqualified Stock (excluding Capital Stock convertible or exchangeable solely at the option of the Guarantor or a Subsidiary of the Guarantor; provided that any such conversion or exchange will be deemed an incurrence of Indebtedness or Disqualified Stock, as applicable); or
(c)is redeemable at the option of the holder thereof, in whole or in part, in the case of each of clauses (a), (b) and (c), on or prior to the 91st day after the Stated Maturity of the Senior Notes; provided that any Capital Stock that would not constitute Disqualified Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an “asset sale” or “change of control” occurring on or before the 91st day after the Stated Maturity of the Senior Notes will not constitute Disqualified Stock of the terms of such Capital Stock provide that such Person may not repurchase or redeem any such Capital Stock pursuant to such provisions prior to the Guarantor’s purchase of the Senior Notes as are required to be purchased pursuant to Sections 5.10 and
5.14of the Senior Notes Indenture.
"Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for Capital Stock).
"Equity Offering" means a sale for cash of either common equity securities or units including or representing common equity securities of the Company (other than to a Subsidiary of the Company).
"Foreign Subsidiary" means any Restricted Subsidiary incorporated or organized in a jurisdiction other than the United States or any state thereof or the District of Columbia and any Restricted Subsidiary that wholly-owns the stock of a CFC and which is disregarded for United States federal income tax purposes as an entity that is separate from its owner.
"GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time, including those set forth in:
(a)the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants;
(b)the statements and pronouncements of the Financial Accounting Standards Board; and
(c)such other statements by such other entity as have been approved by a significant segment of the accounting profession.
"Guarantee" by any Person means any obligation, contingent or otherwise, of such Person guaranteeing any Indebtedness or other obligation of any other Person (the "Primary Obligor") in any manner, whether directly or indirectly, and including any obligation of such Person to:
(d)purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness;
(e)purchase property, securities or services for the purposes of assuring the holder of such Indebtedness of the payment of such Indebtedness; or
(f)maintain working capital, equity capital or other financial statement condition or liquidity of the Primary Obligor so as to enable the Primary Obligor to pay such Indebtedness,
provided, however, that the Guarantee by any Person shall not include endorsements by such Person for collection or deposit, in either case, in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume (pursuant to a merger, consolidation, acquisition or other transaction), Guarantee or otherwise become liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Person (and “Incurrence” and “Incurred” shall have meanings correlative to the
foregoing), provided, however, that a change in GAAP that results in an obligation of such Person that exists at such time becoming Indebtedness shall not be deemed an Incurrence of such Indebtedness. Indebtedness otherwise Incurred by a Person before it becomes a Subsidiary of the Guarantor will be deemed to have been Incurred at the time it becomes such a Subsidiary.
"Indebtedness" of the Guarantor means, without duplication with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent:
(a)obligations of such Person in respect of principal for money borrowed;
(b)obligations of such Person in respect of principal evidenced by bonds, debentures, notes or other similar instruments;
(c)every reimbursement obligation of such Person with respect to letters of credit, banker’s acceptances or similar facilities issued for the account of such Person, other than obligations with respect to letters of credit securing obligations;
(d)every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade payables, credit on open account, provisional credit, accrued liabilities or similar terms arising in the ordinary course of business which are not overdue by more than 30 days or which are being contested in good faith);
(e)every Capital Lease Obligation of such Person;
(f)the maximum fixed redemption or repurchase price of Disqualified Stock of such Person at the time of determination plus accrued but unpaid dividends;
(g)every net payment obligation of such Person under interest rate swap, cap, collar or similar agreements or foreign currency hedge, exchange or similar agreements of such Person ("Hedging Obligations"); and
(h)every obligation of the type referred to in clauses (a) through (g) of this definition of another Person the payment of which, in either case, such Person has Guaranteed or is liable, directly or indirectly, as obligor, guarantor or otherwise, to the extent of such Guarantee or other liability,
and notwithstanding any the foregoing, Indebtedness shall not include CSO Obligations. The term "Indebtedness" shall not include any lease, concession or license of property (or guarantee thereof) which would be considered an operating lease under GAAP as in effect on the date hereof, any prepayments of deposits received from clients or customers in the ordinary course of business, or obligations under any license, permit or other approval (or guarantees given in respect of such obligations) incurred in the ordinary course of business.
"Indemnitee Litigation Expenses" means any and all losses, claims, damages, penalties, incremental taxes, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of the matters described in Section 8.03(b) of the Credit Agreement.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest, encumbrance or hypothecation of any kind in respect of that asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any other agreement to give a security interest in and any filing of any financing statement under the PPSA or the Uniform Commercial Code (or equivalent statutes of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of Preferred Stock dividends, excluding, however, (1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (A) any Asset Sale (as defined in the Senior Notes Indenture) or (B) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Subsidiaries and (2) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss).
"Non-Recourse Debt" means Indebtedness:
(a)as to which neither the Guarantor nor any of its Restricted Subsidiaries (i) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness) or (ii) is directly or indirectly liable as a guarantor or otherwise; and
(b)no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary of the Guarantor) would permit upon notice, lapse of time or both any holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its Stated Maturity.
"Performance Party" means each Seller and each Servicer, and together the "Performance Parties"; and
"Performance Party Obligations" means all present and future covenants, agreements, terms, conditions, deemed collection undertakings, indemnities and other obligations (however created arising or evidenced, whether direct or indirect, absolute or contingent, or due or to become due) of whatever nature to be performed and observed by each Performance Party in any capacity under the Transaction Documents, whether monetary or non-monetary, including the due and punctual payment of all sums which are or may become due and owing by such Performance Party under the Transaction Documents, but excluding any such obligations arising due to (a) the insolvency, bankruptcy or lack of creditworthiness of an Obligor, or
(b)a decline in the market value of any Receivable (other than as a result of any action or inaction by any Borrower Party).
"Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock corporation, trust, unincorporated organization or government or agency or political subdivision thereof or any other entity.
"Preferred Stock" as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over shares of Capital Stock of any other class of such Person.
"Qualified Receivables Transaction" means any transaction or series of transactions that may be entered into by the Guarantor or any of the Restricted Subsidiaries pursuant to which the Guarantor or any of the Restricted Subsidiaries may sell, convey or otherwise transfer to:
(a)a Receivables Entity (in the case of a transfer by the Guarantor or any of the Restricted Subsidiaries); or
(b)any other Person (in the case of a transfer by a Receivables Entity),
or may grant a security interest in, any loans receivable (whether now existing or arising in the future) of the Guarantor or any of the Restricted Subsidiaries, and any assets related thereto, including all collateral securing such loans receivable, all contracts and all Guarantees or other obligations in respect of such loans receivable, proceeds of such loans receivable and other assets which are customarily
transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving loans receivable; provided, however, that the financing terms, covenants, termination events and other provisions thereof shall be market terms (as determined in good faith by the chief financial officer of the Guarantor).
"Restricted Subsidiary" means, with respect to any Person, any Subsidiary of such Person that is not an Unrestricted Subsidiary.
"Senior Notes" means the notes issued pursuant to the Senior Notes Indenture from time to time.
"Senior Notes Indenture" means (i) as of the Second ARCA Closing Date, that certain Indenture, dated as of July 30, 2021, entered into by Guarantor, as the issuer, the guarantors party thereto, and TMI Trust Company, as Trustee and Collateral Agent in connection with the issuance of the Senior Notes, together with all instruments and other agreements entered into by CFTC, Guarantor, and such guarantors in connection therewith, and (ii) from time thereafter, such Senior Notes Indenture as may be amended, restated, supplemented or otherwise modified in accordance with the terms and conditions thereof, or any successor indenture or other credit facility of the Guarantor, CFTC or Curo Intermediate Holdings Corp., pursuant to which the Senior Notes are refinanced.
"Stated Maturity" when used with respect to any security or installment of interest thereon, means the date specified in such security as the fixed date on which the principal of such security or such installment of interest is due and payable.
"Subsidiary" means, with respect to any Person, (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more Subsidiaries of such Person (or a combination thereof) and (2) any partnership (A) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (B) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof).
"Total Stockholders’ Equity" means with respect to the Guarantor as of any date, the total stockholders’ equity of the Guarantor and its Subsidiaries, shown on the balance sheet for the most recently ended fiscal quarter for which financial statements are available, determined on a consolidated basis in accordance with GAAP.
"Unrestricted Subsidiary" means, with respect to any Person, any Subsidiary of such Person that is designated by the Board of Directors (as defined in the Senior Notes Indenture) of such Person as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors (as defined in the Senior Notes Indenture) of such person, but only to the extent that such Subsidiary:
(a)has no Indebtedness other than Non-Recourse Debt;
(b)except as permitted under the Senior Notes Indenture, is not party to any agreement, contract, arrangement or understanding with the Guarantor or any Restricted Subsidiary of the Guarantor unless the terms of any such agreement, contract, arrangement or understanding are no less favourable to the Guarantor or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Guarantor;
(c)is a Person with respect to which neither the Guarantor nor any of its Restricted Subsidiaries has any direct or indirect obligation (i) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and
(d)has not guaranteed or otherwise directly provided credit support for any Indebtedness of the Guarantor or any of its Restricted Subsidiaries.
SECTION 1.02 PRINCIPLES OF INTERPRETATION.
Except as otherwise set out below, the principles of interpretation as set out in Article I of the Credit Agreement shall apply to this Guaranty as if set out in full again here, with such changes as are appropriate to fit this context. Unless otherwise provided, all amounts herein are in U.S. dollars.
ARTICLE II PERFORMANCE GUARANTY
(a)Subject to Article II(b), the Guarantor hereby unconditionally and irrevocably guarantees for the benefit of each of the Beneficiaries as a primary and independent obligation, to cause each Performance Party to fully and punctually pay and perform all Performance Party Obligations when and as due in accordance with the Transaction Documents, provided that, the undertaking of the Guarantor shall not be construed to extend to the Borrower’s obligations to make payments of principal, interest or fees under the Credit Agreement and it is the intention of the Parties that the guaranty under this Article 2 is not intended as credit support for the Borrower's obligations under the Credit Agreement and provided that in no event shall the Guarantor be liable for any amounts hereunder arising as a result of the gross negligence or wilful misconduct of a Beneficiary.
(b)If any Performance Party fails to pay or perform any of the Performance Party Obligations applicable to it when and as due in accordance with the Transaction Documents, then the Guarantor irrevocably and unconditionally agrees that it shall (i) after the expiry of any grace period applicable to the Performance Party Obligations in accordance with the Transaction Documents, immediately pay to the relevant Beneficiaries, in immediately available funds, any such Performance Party Obligations for the payment of monetary obligations and (ii) after the expiry of any such grace period, immediately perform, or cause the performance of, such Performance Party Obligations, in each case, without demand or notice of any nature (other than as expressly provided herein), all of which are hereby expressly waived by Guarantor.
(c)To facilitate the performance of the obligations of the Guarantor under this Article II (but not as a condition to such performance), each Performance Party shall notify the Guarantor if at any time a Performance Party Obligation has not been fulfilled when and as due.
(d)In the event that acceleration of the time for payment of any of the Performance Party Obligations is stayed upon the insolvency, bankruptcy or reorganization of any Performance Party or for any other reason with respect to any Performance Party, all such amounts then due and owing with respect to the Performance Party Obligations under the terms of the applicable Transaction Document or any other agreement evidencing, securing or otherwise executed in connection with the Performance Party Obligations, shall if not paid or performed by such Performance Party be immediately due and payable by the Guarantor.
ARTICLE III
BAD BOY GUARANTY
(a)The Guarantor hereby unconditionally and irrevocably guarantees for the benefit of each Beneficiary as a primary and independent obligation, against any and all damages, losses, claims, liabilities, costs and expenses (including reasonable legal fees and expenses) awarded against or incurred by any Beneficiary arising out of or as a result of any (i) willful misconduct, bad faith, fraud or gross negligence, on the part of any Borrower Party
(including, for the avoidance of doubt, by any officer, director, employee or agent of any Borrower Party) in connection with the performance of the Borrower’s covenants, obligations and duties under the Transaction Documents, (ii) criminal acts by a Borrower Party or by any officer, director, employee or agent of any Borrower Party, (iii) any intentional hindrance by a Borrower Party (including, for the avoidance of doubt, by any officer, director, employee or agent of any Borrower Party) of a Beneficiary's security interest in the Collateral, (iv) Guarantor or any of its Subsidiaries consenting to either of the Credit Parties filing a voluntary petition in bankruptcy, or (vi) any failure of Borrower to indemnify and hold harmless any Indemnitee in respect of any Indemnitee Litigation Expenses, excluding in each case damages, losses, claims, liabilities, costs and expenses arising as a result of the gross negligence or wilful misconduct of a Beneficiary.
(b)Any amounts payable under this Article III shall be immediately due and payable by the Guarantor on demand from any Beneficiary following the occurrence of any event specified in Article III(a).
ARTICLE IV [RESERVED]
ARTICLE V CONFIRMATION
The Guarantor hereby confirms that the transactions contemplated by the Transaction Documents have been arranged among the Borrower, the Performance Parties, the Administrative Agent and the Lenders, as applicable, with the Guarantor’s full knowledge and consent and any amendment, restatement, modification or supplement of, or waiver of compliance with, the Transaction Documents in accordance with the terms thereof by any of the foregoing shall be deemed to be with the Guarantor’s full knowledge and consent.
ARTICLE VI
GUARANTOR’S FURTHER AGREEMENTS TOPAY
The Guarantor further agrees, as the principal obligor and not as a guarantor or surety only, to pay the Beneficiaries (and their assigns), forthwith upon demand in funds immediately available to the Guarantor, all reasonable costs and expenses (including court costs and reasonable legal expenses) incurred or expended by the Beneficiaries in connection with the enforcement of this Guaranty, together with, without duplication, interest on amounts recoverable under this Guaranty from the time when such amounts become due hereunder until payment, at a rate of interest (computed for the actual number of days elapsed based on a 360 day year) equal to the lesser of (a) the CDOR Rate for each date during such period and (b) the maximum interest rate permitted by Applicable Law.
ARTICLE VII THE GUARANTEES
(a)The obligations of the Guarantor set forth in this Guaranty shall be absolute, unconditional, irrevocable (irrespective of any defence otherwise available to a surety or guarantor) and continuing and will not be affected prejudiced or diminished by an act, omission, matter or thing which would release or reduce or prejudice or release or otherwise exonerate the Guarantor from any of its obligations under this Guaranty in whole or in part, including without limitation:
(i)any change of ownership of the Guarantor, the Borrower or any Performance Party (the "CURO Guaranty Parties"), any CURO Guaranty Party becoming Insolvent, any incapacity or lack of power, authority or legal status of, or dissolution or other proceeding or change in the members or in the legal status of, any CURO Guaranty
Party, or any other person under any Transaction Document, or any other disability or other defence of any person with respect to the Performance Party Obligations or the Secured Obligations, as the case may be, whether consensual or arising by operation of law;
(ii)any assignment or transfer by any Person of any or all of the Performance Party Obligations or the Secured Obligations, as the case may be, or any transfer or purported transfer, any consolidation or merger of any Beneficiary with or into any other corporation or entity, or any change whatsoever in the objects, assets, capital structure, constitution or business of such Beneficiary, or any failure on the part of the Performance Party, the Borrower or any Beneficiary to perform or comply with any term of the Transaction Documents or any other document executed in connection with or delivered pursuant to any of them;
(iii)any failure of the Borrower, any Performance Party or the Guarantor or any other person to maintain in full force, validity or effect or to obtain or renew when required any or all authorizations (whether from a Governmental Authority or any other Person) required in connection with any Secured Obligation, any Performance Party Obligation, this Guaranty or any other Transaction Document, or to take any other action required in connection with the performance of any Secured Obligation, Performance Party Obligation, this Guaranty or any other Transaction Document;
(iv)any illegality or lack of validity or unenforceability of any Transaction Document or any actual or purported Secured Obligation or Performance Party Obligation becoming in full or partly void, being frustrated or having any defect or irregularity or any impossibility or impracticality of performance, illegality, force majeure, any act of any Governmental Authority or change in, or the imposition of, any Requirement of Law, decree, regulation or other governmental act which does or might impair, delay or in any way affect, in full or partly, the validity, enforceability or the payment when due, of any Secured Obligation or Performance Party Obligation;
(v)any act or omission to take up, perfect or enforce, fully or partly, any right, remedy, security, indemnity or guaranty under this Guaranty or against any of the Borrower or the Performance Parties or any other person;
(vi)any defence, set-off or counterclaim or claim against or enforcement of payment from any of the Borrower or the Performance Parties or any other person;
(vii)if any of the moneys included in the Secured Obligations or the Performance Party Obligations have become irrecoverable from the Borrower or the applicable Performance Party, as the case may be, for any other reason other than payment in full of the Secured Obligations or the Performance Party Obligations, as the case may be, in accordance with their terms; or
(viii)any other circumstance whatsoever (with or without notice to or knowledge of the Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of, or defence available to, the Guarantor under this Guaranty whether or not the Guarantor shall have had notice or knowledge of any act or omission, condition or occurrence referred to above in this Article VII(a).
(b)The guarantees provided by the Guarantor in this Guaranty are in no way conditioned upon any requirement that any Beneficiary first attempt to collect any payment from any other Person or resort to any collateral security, any balance of any deposit account or credit on the books of the Borrower, the Administrative Agent, or any Lender in favor of any
Performance Party or the Borrower, as the case may be, or any other Person or other means of obtaining payment hereunder. In this respect, the Parties hereby agree that if the Guarantor receives conflicting instructions from the Borrower and/or the Administrative Agent in connection with the enforcement of this Guaranty, then the Guarantor shall follow exclusively the relevant instructions received from the Administrative Agent.
(c)The Guarantor hereby waives promptness, diligence, notice of acceptance, presentment, demand for performance, notice of non-performance, default, acceleration, protest or dishonour and any other notice with respect to any of the Secured Obligations and this Guaranty. The Guarantor hereby waives any requirement that any Beneficiary be diligent or prompt in giving notice of any default or omission or action by the Borrower or any Performance Party or any other Person under any Transaction Document or otherwise, or in making any demand or asserting any rights of any Beneficiary under this Guaranty including any failure to delay on the part of a Beneficiary in asserting or enforcing any rights or in making any claims or demands under this Guaranty. The Guarantor hereby waives any defence based on any right of set-off or recoupment or counterclaim against or in respect of the obligations of the Guarantor hereunder.
(d)This Guaranty shall be in addition to any other guaranty, indemnity or other security for the Secured Obligations or the Performance Party Obligations, and shall not be rendered unenforceable by the invalidity of any such other guaranty, indemnity or security.
(e)All dealings between any Borrower Party, on the one hand, and the Secured Parties, on the other hand, shall be conclusively presumed to have been had or consummated in reliance upon the guarantees set forth in this Guaranty.
ARTICLE VIII WAIVERS BY GUARANTOR
(a)The Guarantor warrants that it has adequate means to obtain from each Performance Party and the Borrower, on a continuing basis, information concerning the financial condition of such party, and that it is not relying on the Beneficiaries or any other Person to provide such information, now or in the future. The Guarantor also irrevocably waives all defenses:
(a)that at any time may be available in respect of the Performance Party Obligations by virtue of any statute of limitations, valuation, stay, moratorium law or other similar law now or hereafter in effect or (b) that arise under the law of suretyship, including impairment of collateral.
(b)The Beneficiaries (and their assigns) shall be at liberty, without giving notice to or obtaining the assent of the Guarantor and without relieving the Guarantor of any liability under this Guaranty, to deal with the Borrower and each Performance Party and with each other party who now is or after the date hereof becomes liable in any manner for any of the Secured Obligations and the Performance Party Obligations, in such manner as the Beneficiaries in their reasonable discretion deems fit, and to this end the Guarantor agrees that the validity and enforceability of this Guaranty, including without limitation, the provisions of Article XIV hereof, shall not be impaired or affected by any of the following: (A) any extension, modification or renewal of, or indulgence with respect to, or substitutions for, the Performance Party Obligations or the Secured Obligations or any part thereof or any agreement relating thereto at any time (except that any such extension, modification or renewal of, or indulgence with respect to, or substitutions for, the Performance Party Obligations or the Secured Obligations, if duly granted or agreed to be granted in accordance with the Transaction Documents, shall be given effect in determining the extent of the Performance Party Obligations or Secured Obligations which the relevant Person is required to perform or cause to be performed); (B) any failure or omission to enforce any right, power or remedy with respect to the Performance Party Obligations or the Secured Obligations or any part thereof or any agreement relating thereto, or any collateral securing
the Performance Party Obligations or the Secured Obligations or any part thereof; (C) any waiver of any right, power or remedy or of the Maturity Date, any Servicer Termination Event, Amortization Event or Event of Default with respect to the Performance Party Obligations or the Secured Obligations or any part thereof or any agreement relating thereto (except that any such waiver, if duly granted, agreed to be granted or made in accordance with the Transaction Documents, shall be given effect in determining the extent of the Performance Party Obligations or the Secured Obligations (as applicable) which the Guaranty is required to perform or cause to be performed); (D) any release, surrender, compromise, settlement, waiver, subordination or modification, with or without consideration, of any other obligation of any person or entity with respect to the Performance Party Obligations or the Secured Obligations or any part thereof (except that any such release, surrender, compromise, settlement, waiver, subordination or modification, if duly granted, agreed to be granted or made in accordance with the Transaction Documents, shall be given effect in determining the extent of the Performance Party Obligations or the Secured Obligations which the Guaranty is required to perform or cause to be performed); (E) the enforceability, validity, binding effect, legality, subordination or disaffirmance of the Performance Party Obligations or the Secured Obligations or any part thereof or the genuineness, enforceability or validity or amendment, restatement, modification or supplement of, or waiver of compliance with, any agreement relating thereto or with respect to the Performance Party Obligations or the Secured Obligations or any part thereof; (F) the application of payments received from any source to the payment of any payment Performance Party Obligations or the Secured Obligations or any part thereof or amounts which are not covered by this Guaranty even though the Beneficiaries (or their assigns) might lawfully have elected to apply such payments to any part or all of the payment Performance Party Obligations or the Secured Obligations or to amounts which are not covered by this Guaranty; (G) the existence of any claim, setoff or other rights which the Guarantor may have at any time against any Performance Party or the Borrower in connection herewith or any unrelated transaction; (H) any assignment or transfer of the Performance Party Obligations or the Secured Obligations or any part thereof; or (I) any failure on the part of any Performance Party or the Borrower to perform or comply with any term of any Transaction Document or any other document executed in connection therewith or delivered thereunder, in each case whether or not the Guarantor shall have had notice or knowledge of any act or omission referred to in the foregoing sections (A) through (I) of this Article VIII(b).
ARTICLE IX REPRESENTATIONS AND WARRANTIES
As of the date of this Guaranty, the Second ARCA Closing Date, each Purchase Date and each Weekly Settlement Date, the Guarantor represents and warrants to each of the Parties, in each case by reference to the facts and circumstances then subsisting, that:
(a)Organization and powers: It (i) is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, (ii) has all corporate or other organizational power and authority required to carry on its business in each jurisdiction in which its business is now conducted and (iii) has obtained all necessary licenses and approvals in all jurisdictions in which the conduct of its business requires licenses or approvals.
(b)Authority; no conflict or violation: The execution and delivery by it of this Guaranty and the performance of its obligations under this Guaranty:
(i)are within its corporate and organizational powers;
(ii)have been duly authorized by all necessary corporate and other organizational action;
(iii)does not require any permit, license, authorization, consent, approval, order, filing, registration or qualification by or with any Governmental Authority or other third party, except those that have been obtained and are in full force and effect;
(iv)do not violate any provision of (A) any Applicable Law or of any order, writ, injunction or decree presently in effect having applicability to such Person save to the extent that any violation has not had and could not reasonably be expected to have a Material Adverse Effect or (B) the Organizational Documents of such Person; and
(v)do not contravene or constitute a default under any agreement or instrument binding on such Person or by which any of its assets may be bound or affected.
(c)Due execution: This Guaranty has been duly authorized, executed and delivered by it.
(d)Enforceability: This Guaranty constitutes its legal, valid and binding obligations of the Guarantor, enforceable against it in accordance with their respective terms.
(e)Legal opinions: The facts regarding the Guarantor set forth or assumed in each of the opinions of counsel delivered in connection with this Guaranty and the Transaction Documents are true and correct in all material respects.
(f)Compliance with laws, etc.: Each Curo Entity has complied with all Applicable Laws, except to the extent that non-compliance does not have or could not reasonably be expected to have a Material Adverse Effect.
(g)Compliance with Transaction Documents: It has complied with all of the terms, covenants and agreements contained in the other Transaction Documents to which it is a party.
(h)Litigation: There are no actions, suits, investigations, litigation or proceedings at law or in equity or by or before any Governmental Authority, in arbitration now commenced, pending or, to the best of its knowledge, threatened against or affecting any Curo Entity, which has not previously been disclosed by such Person to (and waived in writing by) the Finance Parties and that:
(i)asserts the invalidity of this Guaranty or any other Transaction Document;
(ii)seeks to prevent the consummation of any of the transactions contemplated by this Guaranty or any other Transaction Document; or
(iii)could otherwise (individually or in the aggregate) reasonably be expected to have a Material Adverse Effect if determined against such Person.
(i)Not Insolvent: Each Curo Entity is not Insolvent and no step has been taken or is intended to be taken by it or, to the best of its knowledge and belief, by any other Person that would lead to it being Insolvent, and after giving effect to the transactions contemplated by this Guaranty it will not be Insolvent.
(j)No immunity: In any proceedings taken in its jurisdiction of incorporation in relation to the applicable Transaction Document or any other Transaction Document to which it is a party it will not be entitled to claim for itself or any of its assets immunity from suit, execution, attachment or other legal process.
(k)Accuracy of Information: Any written information furnished by it pursuant to the Transaction Documents (the "Information") is true and correct in all material respects as of its date and no such Information contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not materially misleading.
(l)Tax residence: It is resident for tax purposes solely in the jurisdiction of its incorporation.
(m)Taxes: It has timely (taking into account any extensions) (i) filed all tax returns (federal, state, provincial, foreign and local) required to be filed by it and (ii) paid, or caused to be paid, all taxes, assessments and other governmental charges, if any, other than taxes, assessments and other governmental charges being contested in good faith by appropriate proceedings and as to which adequate reserves have been provided in accordance with GAAP.
(n)No merger: No step has been taken, or so far as it is aware, is intended to be taken, for any consolidation, amalgamation, demerger, merger or corporate reconstruction with any Person, or to convey, transfer, lease or otherwise dispose of all or substantially all of its assets to any Person, which would have a Material Adverse Effect.
(o)Financial Statements: All of its audited or unaudited financial statements which have been delivered to the Borrower or any Finance Party, are true and correct and fairly present and its financial condition, as of the date of such financial statements, and its results of operations, for the period then ended, all in accordance with the applicable accounting standards consistently applied.
(p)Anti-Money Laundering/International Trade Law Compliance:
(i)It (A) is not a Sanctioned Person, (B) has no assets in a Sanctioned Country or in the possession, custody or control of a Sanctioned Person, or (C) does not do business in or with, or derive any of its operating income from investments in or transactions with, any Sanctioned Country or Sanctioned Person in violation of any law or directive enforced by any sanctions authority.
(ii)The funds used to repay Indebtedness and other obligations under this Guaranty and the other Transaction Documents are not, derived from any unlawful activity.
(iii)None of (i) the Guarantor, any of its Subsidiaries or any of their respective directors or officers or, (ii) to the knowledge of the Guarantor or such Subsidiary, any of their respective employees, Affiliates or agents that will act in any capacity in connection with or benefit from the receivables purchase facility established hereby, in each case, is a Sanctioned Person.
(q)Anti-Terrorism Laws: It:
(i)is not in violation in any material respect of any Anti-Terrorism Law and does not engage in or conspire to engage in any material respect in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in any Anti-Terrorism Law;
(ii)is not a Blocked Person; and
(iii)does not (A) conduct any business or engage in making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person,
or (B) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order No. 13224.
(r)Policies and procedures: It has implemented and maintains in effect policies and procedures designed to ensure compliance by the Guarantor, its Subsidiaries and their respective directors, officers, employees and agents with Anti-Corruption Laws and applicable Sanctions, and the Guarantor, its Subsidiaries and their respective officers and directors and, to the knowledge of the Guarantor, its employees and agents, are in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects and are not knowingly engaged in any activity that would reasonably be expected to result in the Guarantor being designated as a Sanctioned Person.
(s)Investment Company Act: The Guarantor is not required to register as an "investment company" within the meaning of the Investment Company Act.
(t)Material Adverse Effect: To the best of its knowledge, no event has occurred that has had a Material Adverse Effect which has not previously been disclosed by the Guarantor to (and waived in writing by) the Finance Parties.
ARTICLE X COVENANTS
Until the Maturity Date, and without prejudice to Article XIII, the Guarantor hereby covenants and agrees that:
(a)Preservation of existence and franchises: It shall maintain its organizational existence and its rights and franchises in full force and effect in its jurisdiction of incorporation or organization, as the case may be.
(b)Compliance with laws, etc.: It shall comply with all Applicable Laws, except to the extent that the failure to comply with such laws does not have or could not reasonably be expected to have a Material Adverse Effect.
(c)Policies and Procedures: It shall maintain in effect and enforce policies and procedures designed to ensure compliance by it and its Subsidiaries and their respective directors, managers, officers, employees and agents with Anti- Corruption Laws and applicable Sanctions.
(d)Authorizations: It shall promptly obtain, comply with the terms of and do all that is necessary and within its control to maintain in full force and effect all Authorizations which are at any time required in or by all Applicable Laws in connection with the performance of its duties and obligations under the Transaction Documents to which it is a party or to ensure the legality, validity, enforceability and admissibility in evidence of the Transaction Documents, except to the extent that a failure to do so has not had or could not reasonably be expected to have a Material Adverse Effect.
(e)Financial Reports: It shall deliver to each Finance Party:
(i)within one hundred and twenty (120) days after the end of each fiscal year of the Guarantor, its audited consolidated and consolidating balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, and separately breaking out the Borrower, all reported on by independent public accountants of recognized national standing (without a "going concern" or like qualification, commentary or exception and without any
qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of CURO Group Holdings Corp. and its subsidiaries in accordance with GAAP consistently applied, accompanied by any management letter prepared by said accountants;
(ii)within forty-five (45) days after the end of each fiscal quarter of the Guarantor (beginning with the fiscal quarter ending September 30, 2018), its consolidated and consolidating balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal quarter and separately breaking out the Borrower.
(f)Maintain existence: It shall not (other than pursuant to the Transaction Documents) consolidate, amalgamate, or merge with any Person or convey, transfer, lease or dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired), to any Person, except to the extent that a failure to do so has not had or could not reasonably be expected to have a Material Adverse Effect.
(g)Separateness: It shall not take any action inconsistent with the "separateness covenants" set forth in Section 5.04 of the Credit Agreement.
(h)Anti-Terrorism Laws: it, or to its knowledge, its agents shall not (i) conduct any business or engage in any transaction or dealing with any Blocked Person, including making or receiving any contribution of funds, goods or services to or for the benefit of any Blocked Person, (ii) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked pursuant to the Executive Order No. 13224, or (iii) engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, or attempts to violate, any of the prohibitions set forth in the Executive Order No. 13224, the USA Patriot Act or any other Anti-Terrorism Law.
(i)Further information/Assurances: It shall:
(i)promptly furnish to the Administrative Agent and each Lender information, and in the form, as the Administrative Agent or any Lender may reasonably request from time to time; and/or
(ii)at its own cost and expense, cause to be promptly and duly taken, executed, acknowledged and delivered all such further acts, documents, and assurances as the Administrative Agent and any Lender may reasonably request from time to time in order to give full effect to the transactions contemplated by this Guaranty.
(j)Ownership and Control: The Guarantor shall continue to own, directly or indirectly, one hundred percent (100%) of the issued and outstanding Equity Interests and all other equity interests of each Performance Party, free and clear of any Liens.
(k)[***]; and
(l)It shall comply with the covenants as of the date hereof in Section 5.09 of the Indenture dated as of July 30, 2021 in respect of the 7.5% Senior Secured Notes due 2028 issued by CURO Group Holdings Corp., attached hereto for identification purposes in its current form as of the date hereof as Annex “A”, without regard to any amendment, restatement, supplement or other modification with respect thereto after the date hereof that has not been approved in writing by the Administrative Agent.
ARTICLE XI ENFORCEMENT
(a)The Parties agree that the Lenders and the Administrative Agent shall be entitled to enforce this Guaranty on an on-demand basis on one or more occasions.
(b)Each of the Performance Parties and the Borrower hereby authorizes the Guarantor to make payments under this Guaranty and furthermore releases the Guarantor from any applicable obligation or duty as to checking of whether or not the Performance Party Obligations at hand or the Secured Obligations are payable.
(c)This Guaranty shall not be terminated or rendered ineffective following the payment of any Performance Party Obligations or the Loans under the Credit Agreement until the rights and claims of the Borrower and the Finance Parties under the Transaction Documents have been fully performed and discharged.
ARTICLE XII ASSIGNABILITY
(a)The rights and obligations of the Guarantor under this Guaranty may not be assigned or transferred by the Guarantor to any person without the prior written consent of the other Parties.
(b)The rights of the Beneficiaries under this Guaranty may be assigned or transferred by such Party without the prior written consent of the Guarantor.
ARTICLE XIII TERMINATION; REINSTATEMENT
The Guarantor’s obligations under this Guaranty shall continue in full force and effect until the Secured Obligations and the obligations hereunder are fully and finally paid and discharged; provided, that this Guaranty shall continue to be effective or shall be reinstated, as the case may be, if at any time payment of, security for or other satisfaction of, any of the Performance Party Obligations or the Secured Obligations is avoided, rescinded or must otherwise be restored or returned upon any bankruptcy, insolvency, arrangement administration, reorganisation or similar event or proceedings of any Performance Party or otherwise, as though such payment had not been made or such other satisfaction had not occurred.
ARTICLE XIV SUBROGATION
The Guarantor waives and shall not exercise any rights that it may acquire by way of subrogation, contribution, reimbursement or indemnification for payments made under this Guaranty until all Performance Party Obligations and Secured Obligations shall have been indefeasibly paid and discharged in full.
ARTICLE XV TAXES
All payments to be made by the Guarantor hereunder shall be made free and clear of any deduction or withholding. If the Guarantor is required by law to make any deduction or withholding on account of tax or otherwise from any such payment, the sum due from it in respect of such payment shall be increased to the extent necessary to ensure that, after the making of such deduction or withholding, the Borrower or any Beneficiaries receive a net sum equal to the sum which it would have received had no deduction or withholding been made; provided that any payments to be made to the Administrative Agent or any Lender as assigns of the Borrower shall be subject to compliance by such Person with Section 5.15 of the Credit Agreement.
ARTICLE XVI INDEMNITIES BY GUARANTOR
Without limiting any other rights that the Beneficiaries may have hereunder or under Applicable Law, the Guarantor agrees to indemnify (and pay upon demand to) the Beneficiaries and their respective successors, assigns, officers, directors agents and employees (each a "Indemnified Party") from and against any and all losses, claims, damages, liabilities, deficiencies, disbursements or expenses (including reasonable legal and accounting fees), fees, costs, demands, actions, awards, judgments, penalties and charges awarded against or incurred by any of them (all of the foregoing being collectively referred to as "Indemnified Amounts") arising out of or as a result of any guaranty provided by the Guarantor hereunder or resulting from or in connection with: (i) (A) willful misconduct, bad faith, fraud or negligence, on the part of the Guarantor in the performance of its covenants, obligations and duties hereunder or on the part of a Borrower Party in the performance of its covenants, obligations and duties under the Transaction Documents, (B) criminal acts by the Guarantor or a Borrower Party or (C) any intentional hindrance by the Guarantor or a Borrower Party of a Beneficiary's security interest in the Collateral, (ii) any Performance Party fails to pay or perform any of the Performance Party Obligations applicable to it when and as due in accordance with the Transaction Documents, (iii) any representation or warranty made by the Guarantor under this Guaranty, which shall have been false or incorrect when made or deemed made, (iv) the failure by the Guarantor to perform its duties, covenants or other obligations in accordance with the provisions hereof; (v) any investigation, litigation or proceeding related to or arising from this Guaranty, or (vi) any attempt by any Person to void any guaranty granted hereunder, whether under statutory provision, common law or equitable action.
ARTICLE XVII FURTHER ASSURANCES
The Guarantor will, at its own cost and expense, cause to be promptly and duly taken, executed, acknowledged and delivered all such further acts, documents and assurances as the Borrower or Beneficiaries (or their assigns) may reasonably request from time to time in order to carry out the intent and purposes of this Guaranty more effectively and the transactions contemplated by this Guaranty.
ARTICLE XVIII AMENDMENTS AND WAIVERS
This Guaranty and the provisions hereof may only be amended, supplemented, modified or waived in a writing signed by each Party.
ARTICLE XIX MISCELLANEOUS
(a)USA Patriot Act. The Beneficiaries hereby notify the Guarantor on behalf of the Lenders subject to the requirements of the USA Patriot Act, that pursuant to the requirements of the USA Patriot Act, the Lenders are required to obtain, verify and record information that identifies the Guarantor and its Subsidiaries, which information includes the name and address of the Guarantor and its Subsidiaries and other information that will allow such Lenders to identify such parties in accordance with the USA Patriot Act.
(b)Set-off. The Beneficiaries (and their assigns) are hereby authorized by the Guarantor at any time and from time to time, without notice to the Guarantor (any such notice being expressly waived by the Guarantor) and to the fullest extent permitted by Applicable Law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final) and other sums at any time held by, and other indebtedness at any time owing to, any such Person to or for the credit of the account of the Guarantor, against any and all Performance Party Obligations of the Guarantor, now existing or hereafter arising under this Guaranty.
(c)No Petition. The Guarantor hereby agrees that it will not institute against the Borrower, the General Partner or any limited partner of the Borrower any bankruptcy, reorganization, arrangement, insolvency, winding-up, receivership, security enforcement or liquidation proceedings, or other proceeding under any federal or provincial bankruptcy, insolvency or similar law in connection with any obligations relating to this Agreement. The foregoing shall not limit the rights of the Guarantor to file any claim in or otherwise take any action with respect to any such proceeding that was instituted against the Borrower by any Person other than the Guarantor.
(d)Mutual Negotiations. This Guaranty and the other Transaction Documents are the product of mutual negotiations by the parties thereto and their counsel, and no party shall be deemed the draftsperson of this Guaranty or any other Transaction Document or any provision hereof or thereof or to have provided the same. Accordingly, in the event of any inconsistency or ambiguity of any provision of this Guaranty or any other Transaction Document, such inconsistency or ambiguity shall not be interpreted against any party because of such party’s involvement in the drafting thereof.
(e)Cumulative Rights. Each right, remedy and power hereby granted to each Beneficiary or allowed to it by Applicable Law or other agreement shall be cumulative and not exclusive of any other, and may be exercised by each Beneficiary at any time or from time to time.
(f)Integration; Binding Effect; Survival of Terms.
(i)This Guaranty and each other Transaction Document contain the final and complete integration of all prior expressions by the Parties with respect to the subject matter hereof and shall constitute the entire agreement among the Parties with respect to the subject matter hereof superseding all prior oral or written understandings.
(ii)This Guaranty shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns (including any trustee in bankruptcy).
(iii)This Guaranty shall create and constitute the continuing obligations of the Parties in accordance with its terms and shall remain in full force and effect until terminated in accordance with its terms; provided, however, that the rights and remedies with respect to the provisions of Article VI, Article XVI and Article XIX(c) shall be continuing and shall survive any termination of this Guaranty.
(g)Severability. Any provisions of this Guaranty which are prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
(h)Counterparts. This Guaranty may be executed in any number of counterparts and by different Parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same Guaranty. To the fullest extent permitted by Applicable Law, delivery of an executed counterpart of a signature page of this Guaranty by tele-facsimile or electronic image scan transmission (such as a "pdf" file) will be effective to the same extent as delivery of a manually executed original counterpart of this Guaranty.
ARTICLE XX CHOICE OF LAW
THIS GUARANTY SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW WHICH SHALL APPLY HERETO).
ARTICLE XXI
CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES
(a)EACH OF THE PARTIES HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR STATE COURT SITTING IN THE BOROUGH OF MANHATTAN, NEW YORK, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY OR ANY DOCUMENT EXECUTED BY SUCH PERSON PURSUANT TO THIS GUARANTY, AND EACH OF THE PARTIES HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE ADMINISTRATIVE AGENT OR THE LENDERS TO BRING PROCEEDINGS AGAINST the Guarantor IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY the Guarantor AGAINST THE ADMINISTRATIVE AGENT, THE LENDERS OR ANY AFFILIATE THEREOF INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS GUARANTY OR ANY DOCUMENT EXECUTED BY ANY PARTY PURSUANT TO THIS GUARANTY SHALL BE BROUGHT ONLY IN A COURT IN THE BOROUGH OF MANHATTAN, NEW YORK.
(b)the Guarantor HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ALL IMMUNITY (WHETHER ON THE BASIS OF SOVEREIGN OR OTHERWISE) FROM JURISDICTION, ATTACHMENT AND EXECUTION, BOTH BEFORE AND AFTER JUDGMENT, TO WHICH IT MIGHT OTHERWISE BE ENTITLED IN ANY ACTION OR PROCEEDING IN THE COURTS OF THE STATE OF NEW YORK, THE UNITED STATES COURT FOR THE SOUTHERN
DISTRICT OF NEW YORK OR ANY OTHER JURISDICTION IN ANY WAY RELATING TO THIS GUARANTY AND AGREES THAT IT WILL NEITHER RAISE NOR CLAIM ANY SUCH IMMUNITY AT OR IN RESPECT OF ANY SUCH ACTION OR THE PROCEEDING.
ARTICLE XXII WAIVER OF JURY TRIAL
EACH PARTY HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS GUARANTY, ANY DOCUMENT EXECUTED BY ANY PARTY PURSUANT TO THIS GUARANTY OR THE RELATIONSHIP ESTABLISHED UNDER THIS GUARANTY OR THEREUNDER.
ARTICLE XXIII AMENDMENT AND RESTATEMENT
Without limiting any of the terms and conditions set forth in the Original Guaranty, this Guaranty is an amendment and restatement of the Original Guaranty in its entirety, and nothing in this Guaranty shall be deemed to constitute a novation of the Original Guaranty or the obligations referred to therein or in anyway impair or otherwise affect the rights and obligations of the parties thereunder, except as such rights or obligations are amended or modified hereby. The Original Guaranty, as amended and restated hereby, shall be deemed to be a continuing agreement among its parties, and all documents, instruments, agreements and other Loan Documents executed and/or delivered pursuant to or in connection with such Original Guaranty and not amended and restated in connection with the entry of the parties into this Guaranty shall remain in full force and effect, in accordance with its terms, as of the date of delivery or such other date as contemplated by such document, instrument, agreement or other Loan Document, to the same extent as if the modifications to the Original Guaranty contained herein were set forth in an amendment to the Original Guaranty in a customary form, and are hereby reaffirmed and confirmed in all respects.
[Signature page to follow]
IN WITNESS WHEREOF, the parties hereto have caused this Guaranty to be duly executed by their respective authorized officers as of the day and year first above written:
CURO GROUP HOLDINGS CORP., as Guarantor
By: /s/
Name:
LENDDIRECT CORP., as Seller and Servicer
By: /s/
Name:
CURO CANADA CORP., as Seller and Servicer
By: /s/
Name:
CURO CANADA RECEIVABLES LIMITED PARTNERSHIP, by its general partner, CURO CANADA RECEIVABLES GP INC., as Borrower
By: /s/
Name:
WF MARLIE 2018-1, LTD., as Lender
By: /s/
Name:
WATERFALL ASSET MANAGEMENT, LLC., as Administrative Agent
By: /s/
Name:
| | |
https://www.bamsec.com/filing/90572921000167/5?cik=1711291 |
CERTAIN IDENTIFIED INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT BECAUSE IT IS NOT MATERIAL AND IS OF THE TYPE OF INFORMATION THAT THE REGISTRANT BOTH CUSTOMARILY AND ACTUALLY TREATS AS PRIVATE AND CONFIDENTIAL. [***] INDICATES THAT INFORMATION HAS BEEN OMITTED.
CREDIT AGREEMENT
dated as of December 31, 2019 among
SMC FINANCING LLC,
as Borrower
SOUTHERN MANAGEMENT CORPORATION
in its individual capacity and as Seller and as Servicer and
ARES AGENT SERVICES, L.P.,
as Administrative Agent and Collateral Agent and
the Lenders party hereto
$350,000,000 Senior Secured Revolving Loan
TABLE OF CONTENTS
Page
i
| | | | | | | | |
| APPENDICES: | A | Revolving Loan Commitments |
| B | Notice Addresses |
| C | Eligibility Criteria |
| D E-1 E-2 | Excess Concentration Amounts Tier 1 Collateral Performance Triggers Tier 2 Collateral Performance Triggers |
EXHIBITS: |
A |
Form of Funding Notice |
| B | Form of Revolving Note |
| C | Form of Borrowing Base Certificate |
| D | Form of Assignment Agreement |
| E | Form of Closing Date Certificate |
| F | Form of Solvency Certificate |
| G | Credit Policies |
| H | Form of Funds Release Request |
| I | Form of Contract |
SCHEDULES: |
1.1 |
Specified Local Amounts |
| 1.2 | Minimum Account Amounts |
| 4.1 | List of DBAs |
CREDIT AGREEMENT
This CREDIT AGREEMENT, dated as of December 31, 2019, is entered into among SMC Financing LLC, a Delaware limited liability company, as Borrower (the “Borrower”), Southern Management Corporation, a South Carolina corporation, in its individual capacity (in such capacity, the “Company”), as Seller (in such capacity, the “Seller”) and as primary servicer (in such capacity, the “Servicer”), and Ares Agent Services, L.P., a Delaware limited partnership (“Ares”), as Administrative Agent (in such capacity, the “Administrative Agent”) and Collateral Agent (in such capacity, the “Collateral Agent”) and the Lenders (as defined herein) party hereto.
WITNESSETH:
WHEREAS, pursuant to the Receivables Purchase Agreement, Borrower may from time to time in the future acquire from Seller certain Receivables originated or acquired by an Originator that, if the Seller did not originate such Receivables, the Seller pursuant to the Transfer Agreement will have acquired from the applicable Originators; and
WHEREAS, Borrower has requested that the Lenders make available to Borrower a revolving senior secured loan facility in an amount up to $350,000,000 (the “Facility”), the proceeds of which shall be used by Borrower to fund the purchase of certain Receivables from Seller and to pay transaction expenses at closing; and
WHEREAS, the Borrower has agreed to secure all of its Obligations by granting to the Collateral Agent, for the benefit of the Secured Parties, a first priority Lien on all of its assets.
NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. DEFINITIONS AND INTERPRETATION
1.1.Definitions. The following terms used herein, including in the preamble, recitals, exhibits and schedules hereto, shall have the following meanings:
“Adjusted LIBOR Rate” means, for any Interest Period, the per annum rate equal to the greater of (a) 1.00% per annum and (b)(i) the rate per annum (rounded to the nearest 1/100 of 1%) equal to the rate determined by the Administrative Agent to be the offered rate which appears on the page of the Reuters Screen which displays the London interbank offered rate as administered by ICE Benchmark Administration (or any other Person that takes over the administration of such rate) (such page currently being Reuters Screen LIBOR01 Page) for deposits (for delivery on the first day of such period) for a one-month period in Dollars, determined as of approximately 11:00 a.m. (London, England time) on the related Interest Rate Reset Date, or (ii) in the event the rate referenced in the preceding clause (i) does not appear on such page or service or if such page or service shall cease to be available, the rate per annum (rounded to the nearest 1/100 of 1%) equal to the rate determined by the Administrative Agent to be the offered rate on such other page or other service which displays the London interbank offered rate as administered by ICE Benchmark Administration (or any other Person that takes over the administration of such rate) for deposits (for delivery on the first day of such period) for a one-month period in Dollars, determined as of approximately 11:00 a.m. (London, England time) on the related Interest Rate
Reset Date, or (iii) in the event the rates referenced in the preceding clauses (i) and (ii) are not available, the rate per annum (rounded to the nearest 1/100 of 1%) equal to the offered quotation rate to first class banks in the London interbank market for deposits (for delivery on the first day of the relevant period) in Dollars of amounts in same day funds comparable to the principal amount of the applicable Loan for which the Adjusted LIBOR Rate is then being determined with maturities equal to a one-month period as of approximately 11:00 a.m. (London, England time) on such Interest Rate Reset Date. Notwithstanding the foregoing, if “LIBOR” ceases being reported on the Reuters Screen LIBOR01 Page (or by any other Person that takes over the administration of such rate) or is otherwise no longer in effect, Adjusted LIBOR Rate shall mean (x) a successor rate, including any adjustments thereto, applied in a manner consistent with market practice, selected by the Administrative Agent in its reasonable discretion (after consultation with the Company) to maintain the Lenders’ then-current yield on the LIBOR Rate Loans or (y) solely if no such broadly accepted comparable successor rate consistent with market practice exists at such time, a successor or alternative index rate as the Administrative Agent determines (after consultation with the Company) in its reasonable judgment to maintain the Lenders’ then-current yield on the LIBOR Rate Loans.
[***].
“Administrative Agent” as defined in the preamble hereto.
“Advance Rate” means [***].
“Adverse Proceeding” means, with respect to any Person, any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration (whether or not purportedly on behalf of such Person) at law or in equity, or before or by any Governmental Authority, domestic or foreign, whether pending or, to the knowledge of such Person, threatened in writing against or affecting such Person or its properties (which for the avoidance of doubt excludes any routine examination, inquiry or investigation).
“Affected Lender” as defined in Section 2.12(b). “Affected Loans” as defined in Section 2.12(b).
“Affiliate” means, as applied to any Person, any other Person directly or indirectly controlling (including any member of senior management of such Person), controlled by, or under
common control with, that Person. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power (a) to vote 20% or more of the Securities having ordinary voting power for the election of directors of such Person or (b) to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or other beneficial interests or by contract or otherwise.
“Agent” means each of the Administrative Agent and the Collateral Agent.
“Agreement” means this Credit Agreement, dated as of December 31, 2019, as it may be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof.
“Amortization Advance Rate” means, as of any date of determination during the Amortization Period, the lowest of the rates, calculated for each of the previous Settlement Dates since the Scheduled Commitment Termination Date, expressed as a percentage, equal to a fraction, the numerator of which is the aggregate principal amount of all Loans outstanding after the application of Collections pursuant to Section 2.10(b)(i) through (vi) on such Settlement Date, and the denominator of which is the aggregate Invested Amount of all Eligible Receivables on the last day of the Collection Period for such Settlement Date minus the aggregate of the Excess Concentration Amounts on the last day of the Collection Period for such Settlement Date; provided, however, that at any time that a Tier 1 Collateral Performance Trigger has occurred and is continuing, the “Amortization Advance Rate” shall be the Amortization Advance Rate (determined without giving effect to this proviso) minus 10 percentage points until the non- existence of a Tier I Collateral Performance Trigger, as of three consecutive Settlement Dates.
“Amortization Period” means the period beginning on, but excluding, the Scheduled Commitment Termination Date and ending on the date that is twenty-four (24) months following the last day of the Revolving Period.
“Amount Financed” means, with respect to any Receivable, the original financed balance of such Receivable.
“Applicable Margin” means [***]
“Approved Fund” means any Person (other than a natural person) that is administered, advised or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers, advises or manages a Lender.
“Approved State” means Alabama, Georgia, Illinois, Indiana, Kentucky, Missouri, Oklahoma, South Carolina, Tennessee, Texas and Wisconsin, and any other state that the Borrower requests to add, subject to prompt completion of customary regulatory review, the results of which are satisfactory to the Administrative Agent, exercising commercially reasonable discretion, not to be unreasonably withheld, conditioned or delayed.
“APR” of a Receivable means the annualized rate of the monthly finance charges stated in the Contract.
“Ares” as defined in the preamble hereto.
“Assignment” as defined in the Receivables Purchase Agreement.
“Assignment Agreement” means an Assignment and Assumption Agreement substantially in the form of Exhibit D, with such amendments or modifications as may be approved by the Administrative Agent in its reasonable discretion.
“Authorized Officer” means, as applied to any Person, any individual holding the position of chairman of the board (if an officer), chief executive officer, president or one of its vice presidents (or the equivalent thereof), chief financial officer, chief operations officer, treasurer or manager.
“Backup Servicer” means Vervent Inc. or any independent third party selected by the Company and approved by the Administrative Agent in its reasonable discretion, to perform monitoring functions with respect to the Receivables and to assume the role of Successor Servicer upon removal or resignation of the Servicer, in each case, as set forth in the Backup Servicing Agreement.
“Backup Servicing Agreement” means that certain Backup Servicing Agreement, dated as of the date hereof, by and among the Backup Servicer, the Servicer, the Administrative Agent, the Collateral Agent, and the Borrower, as it may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, in form and substance acceptable to the Administrative Agent in its reasonable discretion.
“Backup Servicing Fees” as defined in the Backup Servicing Agreement.
“Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy,” as now and hereafter in effect, or any successor statute.
“Base Rate” means, for any day, a rate per annum equal to the greater of (a) [***].
“Base Rate Loan” means a Loan bearing interest at a rate determined by reference to the Base Rate.
“Benefit Plan Investor” as defined in Section 4.27. “Borrower” as defined in the preamble hereto.
“Borrowing Base” means, as of any date of determination, an amount equal to (a) the Maximum Advance Amount as of such date, plus (b) all amounts related to Collections on deposit on such date in the Collection Account, minus (c) all accrued but unpaid interest and fees payable by the Borrower under the Credit Documents, and amounts due from the Borrower in respect of expenses or indemnified amounts under the Credit Documents for which written demand has been
made to the Borrower. If the Borrowing Base is being determined in connection with a Reporting Date then the amount in clause (b) above should be determined after giving effect to all amounts to be released pursuant to Section 2.10 on the related Settlement Date.
“Borrowing Base Action” means any of the following actions: (i) the borrowing of a Loan pursuant to Section 2.1(b) and (ii) the application of funds in the Collection Account toward the purchase of Eligible Receivables pursuant to Section 2.10(c).
“Borrowing Base Certificate” means a certificate, substantially in the form of Exhibit C, executed by an Authorized Officer of the Borrower and delivered to the Administrative Agent, which sets forth the calculation of the Borrowing Base, including a calculation of each component thereof, as of the close of business on the second Business Day prior to delivery thereof or if delivered as part of the Monthly Servicing Report, as of the last day of the Collection Period that ended immediately before the related Reporting Date.
“Borrowing Base Deficiency” means, as of any date of determination, the amount by which the aggregate principal amount of all Loans outstanding exceeds the Borrowing Base; provided, however, that for purposes of determining a Borrowing Base Deficiency on any Settlement Date, the definition of Borrowing Base shall exclude clauses (b) and (c) thereof.
“Branch Account” as defined in the Master Collection Account Agreement.
“Branch Office” means each location of any Originator at which Company Receivables are advanced or payments on Company Receivables are received.
“Budget” as defined in the Credit Policies for Heights.
“Business Day” means (a) any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close, and
(b) with respect to all notices, determinations, fundings and payments in connection with the Adjusted LIBOR Rate or any LIBOR Rate Loans, the term “Business Day” shall mean any day which is a Business Day described in clause (a) and which is also a day for trading by and between banks in Dollar deposits in the London interbank market.
“Calculated Net Balance” means, with respect to any Receivable, (a) if either the date of determination is the last day of a calendar month or such Receivable was originated in the same calendar month that its Calculated Net Balance is being determined, the Net Balance for such Receivable and (b) otherwise, the Gross Balance for such Receivable, multiplied by the ratio, expressed as a percentage, calculated as of the last day of the calendar month immediately preceding the date of determination, of (i) the aggregate Net Balance of all Eligible Receivables, to (ii) the aggregate Gross Balance of all Eligible Receivables.
“Capital Lease” means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP as in effect on the date hereof, is or should be accounted for as a capital lease on the balance sheet of that Person or after the adoption of FAS 13 by such Person, is or should be accounted for as a finance lease on the balance sheet of that Person.
“Capital Stock” means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), including, without limitation, partnership interests and membership interests, and any and all warrants, rights or options to purchase or other arrangements or rights to acquire any of the foregoing.
“Cash” means money, currency or a credit balance in any demand or deposit account. “Cash Equivalents” means, as at any date of determination, (a) marketable securities
(i) issued or directly and unconditionally guaranteed as to interest and principal by the United States Government, or (ii) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one (1) year after such date, (b) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one (1) year after such date and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody’s, (c) commercial paper maturing no more than one (1) year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody’s, (d) certificates of deposit or bankers’ acceptances maturing within one (1) year after such date and issued or accepted by a Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (i) is at least “adequately capitalized” (as defined in the regulations of its primary United States Federal banking regulator), and (ii) has Tier 1 capital (as defined in such regulations) of not less than $100,000,000; and (e) shares of any money market mutual fund that (i) has substantially all of its assets invested continuously in the types of investments referred to in clauses (a) and (b) above, (ii) has net assets of not less than
$500,000,000, and (iii) has the highest rating obtainable from either S&P or Moody’s. For the avoidance of doubt, Permitted Investments as described in the foregoing clause (e) can include any such money market funds in which the Collection Account Bank or an affiliate of the Collection Account Bank acts as an investment advisor or provides other investment related services.
“Cash Management System” as defined in Section 5.7(a)(v).
“Cash Out Ratio” means (i) the net cash paid to the Obligor at the time of origination of a Receivable divided by (ii) the original Amount Financed of such Receivable.
“CFPB” means the Consumer Financial Protection Bureau, or any successor agency. “Change in Law” means the occurrence, after the date of this Agreement, of any of the
following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory
authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued.
“Change of Ownership” means, at any time, (a) with respect to the Parent, SouthernCo Holdings, LLC shall cease to directly beneficially own and control, 100% on a fully diluted basis of the economic and voting interest in the Capital Stock of the Parent, (b) with respect to the Company, the Parent shall cease to beneficially own and control, directly or indirectly, 100% on a fully diluted basis of the economic and voting interest in the Capital Stock of the Company, (c) with respect to Heights, the Company shall cease to directly beneficially own and control, 100% on a fully diluted basis of the economic and voting interest in the Capital Stock of Heights and (d) with respect to the Borrower, the Company shall cease to directly beneficially own and control, 100% on a fully diluted basis of the economic and voting interest in the Capital Stock of the Borrower.
“Change of Ownership Make-Whole Payment” as defined in the Payment Letter.
“Charge-Off Rate” means, with respect to any date of determination for any Collection Period for a Receivables Segment, the product of (a) 12 multiplied by (b) a rate, expressed as a percentage, equal to a fraction (i) the numerator of which is the aggregate Net Balance of all Receivables in such Receivables Segment that became Charged-Off Receivables during such Collection Period and (ii) the denominator of which is the aggregate Net Balance of all Receivables in such Receivables Segment at the beginning of such Collection Period.
“Charged-Off Receivable” means, with respect to any date of determination, a Receivable or Company Receivable with respect to which the earlier of any of the following shall have occurred (without duplication): (a) a Scheduled Receivable Payment under such Receivable or Company Receivable is (i) one hundred eighty-one (181) or more Days Past Due or (ii) one hundred fifty-one (151) or more Days Past Due if such Receivable or Company Receivable is under a Retail Installment Sales Contract, (b) if such Receivable or Company Receivable is secured by collateral, the Servicer has repossessed such collateral, (c) the Servicer has otherwise determined, in accordance with the applicable Servicing Policy, that the related Receivable or Company Receivable is uncollectible or should be charged-off, (d) the related Obligor is deceased,
(e) Net Liquidation Proceeds have been received in respect of such Receivable or Company Receivable, (f) proceeds have been received in respect of such Receivable or Company Receivable which, in the Servicer’s good faith judgment, constitute the final amounts recoverable in respect of such Receivable or Company Receivable, (g) the Servicer has determined or has knowledge that the Obligor or Merchant has committed fraud in connection with the related Contract or (h) the obligations of the related Obligor with respect to such Receivable or Company Receivable have been discharged pursuant to a proceeding under the Bankruptcy Code or other applicable Debtor Relief Laws.
“Closing Date” means December 31, 2019.
“Closing Date Certificate” means a Closing Date Certificate of an Authorized Officer of each Credit Party substantially in the form of Exhibit E.
“Closing Date Material Adverse Change” means a material adverse change in (a) the business operations, assets, condition (financial or otherwise), or liabilities of the Borrower, or of the Other Credit Parties taken as a whole, since December 31, 2018, (b) the ability of the Borrower, or the Other Credit Parties taken as a whole, to fully and timely perform each of their material Obligations under the Credit Documents to which each of them is a party, or (c) the legality, validity, binding effect, or enforceability against any Credit Party of any of the Credit Documents to which it is a party.
“Collateral” means, collectively, all of the personal property in which Liens are purported to be granted pursuant to the Collateral Documents as security for the Obligations; provided, however, that any Receivable that is repurchased in accordance with and pursuant to the terms and conditions of Section 2.8(a) shall no longer constitute Collateral from and after the date of such repurchase.
“Collateral Agent” as defined in the preamble hereto.
“Collateral Documents” means this Agreement, the Security Agreement, the Guaranty, the Equity Pledge Agreement, the Control Agreement, the Master Collection Account Agreement, the SMC Account Control Agreement, the Heights Account Control Agreement and all other instruments, documents and agreements delivered by any Credit Party pursuant to this Agreement or any of the other Credit Documents in order to grant to the Collateral Agent, for the benefit of the Secured Parties, a Lien on any personal property of such Credit Party as security for the Obligations.
“Collection Account” as defined in the Security Agreement. “Collection Account Bank” as defined in the Security Agreement.
“Collection Account Bank Fee” means, collectively, the fees due and owing to the Collection Account Bank pursuant to the terms of the Control Agreement.
“Collection Period” means, (a) with respect to the initial Settlement Date, the period beginning on the Closing Date and ending on the last day of the calendar month in which the Closing Date occurs, and (b) with respect to any other Settlement Date, the immediately preceding calendar month.
“Collections” means all Cash collections on the Receivables, including, without limitation, all Scheduled Receivable Payments, all non-scheduled payments, all prepayments (including in connection with any renewal), all deposits of Daily Cash Usage, all late fees, all other fees, all Net Insurance Proceeds, all insurance claims, all Net Liquidation Proceeds, investment earnings, residual proceeds, payments received under any personal guaranty with respect to a Receivable and all other payments received with respect to the Receivables, but excluding any and all Excluded Amounts.
“Commitment Availability” means, as of any date of determination during the Revolving Period, the lesser of (i) an amount equal to the Borrowing Base minus the aggregate principal balance of all Loans outstanding and (ii) the Undrawn Amount.
“Commitment Payment” as defined in the Payment Letter.
“Company” means Southern Management Corporation, a South Carolina corporation. “Company Receivables” means all amortizing installment loan receivables originated by
an Originator and all installment sale receivables originated by a Merchant and acquired by an Originator and, in each case, if the applicable Originator is different from the Seller, acquired by the Seller from the applicable Originator from time to time, including the Receivables.
“Confidential Information” as defined in Section 9.22.
“Consolidated Liquidity” means, as of any date of determination, with respect to the Parent and its consolidated Subsidiaries, the sum of [***]; provided that, as of such date, all of the conditions to funding such amounts under clause (b) have been fully satisfied (other than delivery of prior notice of funding and prefunding notices, opinions and certificates that are reasonably capable of delivery as of such date) and no lender under such credit facilities shall have refused to make a loan or other advance thereunder at any time after a request for a loan or other advance was made thereunder.
“Consolidated Net Income” means, for any period, an amount equal to the net income (or loss) of the Parent and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP.
“Contract” means, with respect to any Receivable or Company Receivable, the contract, promissory note (if applicable) and disclosure statement (including any modifications thereto) between the applicable Originator (or, in the case of a Retail Installment Sales Contract, the applicable Merchant) and the applicable Obligor, and (if applicable) consent for use of electronic records and signatures, in each case, substantially in the forms attached hereto as Exhibit I.
“Contractual Obligation” means, as applied to any Person, any provision of any Security issued by that Person or of any indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject.
“Control” means, the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or other beneficial interests or by contract or otherwise.
“Control Agreement” means the Collection Account Control Agreement, dated as of the date hereof, among the Borrower, the Collateral Agent and the Collection Account Bank, as it may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof.
“Credit Date” means the date of a Credit Extension.
“Credit Document” means any of (a) this Agreement, the Notes, if any, the Collateral Documents, the Guaranty, the Payment Letter, the Exclusivity Side Letter and the Related Agreements and (b) all other documents, instruments or agreements executed and delivered by any Credit Party for the benefit of any Agent or any Lender in connection herewith and therewith.
“Credit Extension” means the making of a Loan.
“Credit Party” means, each of the Borrower, the Company, the Seller, the Servicer, each Originator and the Guarantor.
“Credit Policies” means the practices, credit models, underwriting guidelines and pricing grid of the Company and Heights attached hereto as Exhibit G, as such practices, credit models, underwriting guidelines and pricing grid may be amended, restated, supplemented or otherwise modified from time to time in accordance herewith.
“Credit Score” means, with respect to an Obligor of a Receivable, the statistical credit score of the Obligor of a Receivable based on methodology developed by Fair Isaac Corporation or methodology maintained by VantageScore Solutions, LLC and used by the applicable originator or its agents to determine credit risk when underwriting such Receivable. For purposes of clarification, (i) the “Credit Score” of any Obligor shall mean the most recent Credit Score used by the Borrower, or the applicable Originator as the case may be, to make a credit decision with respect to such Obligor, by the Borrower, or the applicable Originator, as the case may be and (ii) solely for purposes of determining the weighted average Credit Score, if a five point range is provided with respect to any Obligor in lieu of an exact number, the “Credit Score” with respect to such Obligor shall be the median of such five point range. For the avoidance of doubt, if any Obligor does not have a Credit Score, such Credit Score shall be deemed to be zero for purposes of the Credit Documents.
“Cumulative Net Loss Rate” means, as of any Reporting Date and with respect to any Quarterly Vintage Pool, a rate, expressed as a percentage equal to a fraction, (a) the numerator of which is the Cumulative Net Losses with respect to all Receivables in such Quarterly Vintage Pool and (b) the denominator of which is the aggregate Net Balance of all Receivables in such Quarterly Vintage Pool at the time of origination or acquisition thereof by the applicable Originator.
“Cumulative Net Losses” means, as of any Reporting Date and with respect to any Quarterly Vintage Pool, the aggregate Net Balance of all Receivables in such Quarterly Vintage Pool that have become Charged-Off Receivables during the period beginning on the applicable Origination Date through the last day of the related Vintage Age, net of all Net Liquidation Proceeds received with respect to such Receivables as of the last day of the related Vintage Age. For the avoidance of doubt, the Cumulative Net Losses for each Monthly Vintage Pool comprising a Quarterly Vintage Pool shall be evaluated at the latest Vintage Age for which data is available for all three Monthly Vintage Pools within a Quarterly Vintage Pool for the relevant Vintage Age identified on the charts set forth on Appendices E-1 and E-2.
“Daily Cash Usage” as defined in Section 5.7(a)(iv).
“Days Past Due” means, as of any date of determination, the number of calendar days elapsed since the due date of the earliest Scheduled Receivable Payment that has not been received from the related Obligor.
[***].
“Debtor Relief Laws” means the Bankruptcy Code, and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, suspension of payments, readjustment of debt, marshalling of assets, assignment for the benefit of creditors or similar debtor relief laws of the United States, any state or any foreign country from time to time in effect, affecting the rights of creditors generally or the rights of creditors of banks.
“Default” means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default.
“Default Excess” means, with respect to any Defaulting Lender, the excess, if any, of such Defaulting Lender’s pro rata share of the aggregate outstanding principal amount of Loans of all Lenders (calculated as if all Defaulting Lenders had funded all of their respective Defaulted Loans) over the aggregate outstanding principal amount of all Loans of such Defaulting Lender.
“Default Funding Rate” as defined in Section 2.5.
“Default Period” means, with respect to any Defaulting Lender, the period commencing on the date of the applicable Funding Default and ending on the earliest of the following dates: (a) the date on which all Revolving Loan Commitments are cancelled or terminated and/or the Obligations are declared or become immediately due and payable, (b) the date on which (i) the Default Excess with respect to such Defaulting Lender shall have been reduced to zero (whether by the funding by such Defaulting Lender of any Defaulted Loans of such Defaulting Lender or by the non- pro rata application of any voluntary or mandatory prepayments of the Loans in accordance with the terms hereof), and (ii) such Defaulting Lender shall have delivered to the Borrower and the Administrative Agent a written reaffirmation of its intention to honor its obligations hereunder with respect to its Revolving Loan Commitments and (c) the date on which the Borrower and the Administrative Agent waive all Funding Defaults of such Defaulting Lender in writing, if applicable.
“Defaulted Loan” as defined in Section 9.24.
“Defaulting Lender” has the meaning set forth in Section 9.24.
“Delinquency Rate” means, with respect to any Receivables Segment, a rate, expressed as a percentage, equal to a fraction (a) the numerator of which is the aggregate Gross Balance of all Receivables in such Receivables Segment that are Delinquent Receivables and (b) the denominator
of which is the aggregate Gross Balance of all Receivables in such Receivables Segment, in each case, as of the last day of the most recently ended Collection Period.
“Delinquent Receivable” means, with respect to any date of determination, a Receivable with respect to which the related Obligor is more than thirty-one (31) Days Past Due with respect to any portion of a Scheduled Receivable Payment and which is not a Charged-Off Receivable.
“Dollars” and the sign “$” mean the lawful money of the United States of America. “Eligibility Criteria” means the criteria set forth on Appendix C.
“Eligible Assignee” means (i) any Lender, any Lender Affiliate (other than a natural person) or any Approved Fund, (ii) Pacific Western Bank (together with its successors and permitted assigns) and (iii) any other Person (other than a natural Person) approved by Company (which approval shall not be required if a Tier 1 Collateral Performance Trigger, a Regulatory Trigger Event, an Event of Default or a Default has occurred and in continuing) and Administrative Agent (each such approval not to be unreasonably withheld).
“Eligible Obligor” means, with respect to any Receivable, an Obligor that (a) is not subject to a proceeding under the Bankruptcy Code or other applicable Debtor Relief Laws, (b) has a valid social security number or taxpayer identification number and holds a valid driver’s license or other acceptable form of identification issued by a state or federal government, (c) is a natural person,
(d) has not committed fraud in connection with any Contract, (e) is at least 18 years old and (f) to the knowledge of the Credit Parties, (i) is not an employee, or an Immediate Family Member of any employee of, any Credit Party, (ii) is living in the United States, and (iii) is not deceased.
“Eligible Receivable” means a Receivable with respect to which the Eligibility Criteria are satisfied as of the applicable date of determination.
“Employee Benefit Plan” means any “employee benefit plan” as defined in Section 3(3) of ERISA which is sponsored, maintained or contributed to by, or required to be contributed by, the Borrower, the Company or any of their respective Subsidiaries, or under which the Borrower, the Company or any of their respective Subsidiaries has, or could reasonably be expected to have, any liability (including contingent liability and liability on account of an ERISA Affiliate).
“Equity Pledge Agreement” means that certain Pledge Agreement dated as of the date hereof between the Company and the Collateral Agent.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto.
“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with Borrower, the Company, or any of their respective Subsidiaries, is treated as a single employer for purposes of Section 414 of the Code or Section 4001 of ERISA.
“ERISA Event” means (i) a “reportable event” within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision of thirty (30) day notice to the PBGC has been waived by regulation); (ii)
the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(c) of the Internal Revenue Code) or the failure to make by its due date a required installment under Section 430(j) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by Borrower, the Company, any of their respective Subsidiaries or any ERISA Affiliate from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in liability to the Borrower, the Company, or any of their respective Subsidiaries pursuant to Section 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition which might constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of liability on the Borrower, the Company, any of their respective Subsidiaries or any ERISA Affiliate pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal of the Borrower, the Company, any of their respective Subsidiaries or any ERISA Affiliate in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan, or the receipt by the Borrower, the Company, any of their respective Subsidiaries or any ERISA Affiliate of notice from any Multiemployer Plan that it is in insolvency pursuant to Section 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of an act or omission which could give rise to the imposition on the Borrower, the Company, or any of their respective ERISA Affiliates with respect to any Employee Benefit Plan of fines, penalties, taxes or related charges under Chapter 43 of the Internal Revenue Code or under Section 409, Section 502(c), (i) or (l), or Section 4071 of ERISA in respect of any Employee Benefit Plan; (ix) the assertion of a material claim against any Employee Benefit Plan or the assets thereof, or against Borrower, the Company, any of their respective ERISA Affiliates with respect to any Employee Benefit Plan other than routine claims for benefits due but not delinquent; (x) the failure of any Employee Benefit Plan intended to be qualified under Section 401(a) of the Internal Revenue Code to qualify under Section 401(a) of the Internal Revenue Code, or the failure of any trust forming part of any such Employee Benefit Plan to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code; (xi) the imposition of a Lien pursuant to Section 430(k) of the Internal Revenue Code or pursuant to Section 303(k) of ERISA with respect to any Pension Plan; or (xii) the determination that a Plan is considered an at-risk plan or a plan in endangered or critical status within the meaning of Sections 430, 431 and 432 of the Code or Sections 303, 304 and 305 of ERISA.
“Event of Default” means any of the conditions or events set forth in Section 7.1.
“Excess Concentration Amounts” means each of the amounts set forth on Appendix D, but without duplication.
“Exchange Act” means the Securities Exchange Act of 1934, as amended to the date hereof and from time to time hereafter, and any successor statute.
“Excluded Amounts” means any amount deposited into the Collection Account in error.
“Excluded Taxes” means, with respect to any payment made by or on account of any obligation of any Credit Party under any Credit Document, any of the following Taxes: (a) Taxes imposed on or measured by any Recipient’s net income (however denominated), franchise Taxes and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, any U.S. federal withholding taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Revolving Loan Commitment pursuant to a law in effect at the time such Lender (i) acquires the applicable interest in a Loan or Revolving Loan Commitment (other than pursuant to a request by the Company under Section 2.19) or (ii) designates a new lending office or branch, except, in each case to the extent that, pursuant to Section 2.14, amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, (c) Taxes that are attributable to a Recipient’s failure to comply with Section 2.14(e), and (d) withholding Taxes imposed pursuant to FATCA.
“Exclusivity Side Letter” means the letter agreement, dated as of the date hereof, between the Administrative Agent, the Company, the Guarantor and the Borrower, as it may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof.
“Facility” as defined in the recitals hereto.
“Facility Availability” means, with respect to any date of determination during the Revolving Period, (i) all Collections on deposit in the Collection Account, minus (ii) the product of (x) 1.10 and (y) the total amount of funds to be distributed pursuant to Section 2.10(a)(i) through
(iv) on the immediately succeeding Settlement Date (or, for any date of determination occurring on or after the first day of any calendar month and prior to the Settlement Date occurring in such calendar month, on the immediately succeeding two (2) Settlement Dates), as determined by the Administrative Agent in its reasonable discretion.
“Fair Valuation” means, in respect of any Person, the value of the consolidated assets of such Person on the basis of the amount which may be realized by a willing seller within a reasonable time through collection or sale of such assets at market value on a going concern basis to an interested buyer who is willing to purchase under ordinary selling conditions in an arm’s- length transaction.
“FATCA” means Sections 1471 through 1474 of the Internal Revenue Code, as of the date of the Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b)(1) of the Code, and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities entered into in connection with the implementation of such Sections of the Code and any legislation, regulation or guidance giving effect to such intergovernmental agreements.
“Federal Funds Effective Rate” means for any day, the rate per annum (expressed, as a decimal, rounded upwards, if necessary, to the next higher 1/100 of 1%) equal to the weighted average of the rates on overnight United States Federal funds transactions with members of the Federal Reserve System arranged by United States Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the next succeeding Business Day; provided, (a) if such day is not a Business Day, the Federal Funds Effective Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Effective Rate for such day shall be the average rate charged to Ares on such day on such transactions similar in size and tenor of the Loans as determined by the Administrative Agent.
“Final Maturity Date” means the date that is the last day of the Amortization Period.
“Fiscal Quarter” means, with respect to a particular Fiscal Year, each fiscal quarter corresponding to such Fiscal Year.
“Fiscal Year” means for any Credit Party, any consecutive twelve-month period commencing on the date following the last day of the previous fiscal year and ending on December 31 of each calendar year.
“Foreign Plan” shall mean any “employee benefit plan” as defined in Section 3(3) of ERISA that is (a) neither subject to ERISA nor a governmental plan within the meaning of Section 3(32) of ERISA and (b) mandated by a government other than the United States or a state within the United States or an instrumentality thereof.
“Funding Notice” means a notice substantially in the form of Exhibit A. “Funding Default” as defined in Section 9.24.
“Funds Release Request” means a notice substantially in the form of Exhibit H.
“GAAP” means, subject to the limitations on the application thereof set forth in Section 1.2, United States generally accepted accounting principles in effect as of the date of determination thereof.
“Governmental Authority” means any federal, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government, and which has jurisdiction over the applicable Credit Party.
“Gross Balance” means, with respect to any Receivable, all remaining amounts owed by the related Obligor under such Receivable.
“Guarantor” means the Parent, in its capacity as a guarantor under the Guaranty.
“Guaranty” means that certain Limited Guaranty, dated as of the date hereof, by the Guarantor in favor of the Administrative Agent, on behalf of the Secured Parties, as the same may be amended, restated, supplemented or otherwise modified from time to time in accordance with the terms thereof.
“Heights” means Heights Finance Corporation, an Illinois corporation.
“Heights Account Control Agreement” means that certain Blocked Account Agreement, dated as of December 31, 2019 among Heights, the Heights Collection Account Bank and the Master Collection Account Bank, as secured party, as amended, restated, supplemented or otherwise modified from time to time.
“Heights Collection Account” means the account numbered [***], or such other accounts agreed to by the Administrative Agent in writing, in all cases, in the name of Heights at the Heights Collection Account Bank.
“Heights Collection Account Bank” means a bank designated by Heights and approved by the Administrative Agent in its reasonable discretion.
“Heights Receivable” means any Receivable originated or acquired by Heights or any of its Subsidiaries.
“Highest Lawful Rate” means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under the laws applicable to any Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow.
“Immediate Family Member” means a Person’s spouse, parent or child residing at the same address as such Person.
“Increase Payment” as defined in the Payment Letter.
“Indebtedness” as applied to any Person, means, without duplication, (a) all indebtedness for borrowed money, (b) that portion of obligations with respect to Capital Leases that is properly classified as a liability on a balance sheet in conformity with GAAP, (c) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money, (d) any obligation owed for all or any part of the deferred purchase price of property or services (excluding trade payables incurred in the ordinary course of business and that are unsecured and any such obligations incurred under ERISA); (e) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person, (f) the face amount of any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings, (g) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the Indebtedness of another, (h) any obligation of such Person the primary purpose or intent of which is to provide assurance to an obligee that the Indebtedness of the obligor thereof will be paid or discharged, or
the holders thereof will be protected (in whole or in part) against loss in respect thereof, (i) any liability of such Person for Indebtedness of another through any agreement (contingent or otherwise) (A) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (B) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclauses (A) or (B) of this clause (i), the primary purpose or intent thereof is as described in clause (h) above, and (j) all obligations of such Person in respect of any exchange traded or over the counter derivative transaction, whether entered into for hedging or speculative purposes.
“Indemnified Liabilities” means, collectively, any and all liabilities, obligations, losses, damages, penalties, claims, costs, expenses and disbursements of any kind or nature whatsoever (including the reasonable, documented, out-of-pocket fees and disbursements of counsel for Indemnitees and any reasonable, documented, out-of-pocket fees or expenses incurred by Indemnitees in connection with any investigative, administrative or judicial proceeding commenced by any Person, whether or not any such Indemnitee shall be designated as a party or potential party thereto, and any reasonable, documented, out-of-pocket fees or expenses incurred by Indemnitees in enforcing the indemnification provisions of Section 9.3 (including the reasonable, documented, out-of-pocket fees and disbursements of counsel for Indemnitees incurred in enforcing the indemnification provisions of Section 9.3)), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations, on common law or equitable cause or on contract or otherwise) that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of this Agreement or the other Credit Documents or the transactions contemplated hereby or thereby (including each Lender’s agreement to make Credit Extensions or the use or intended use of the proceeds thereof, or any enforcement of any of the Credit Documents (including any sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Guaranty)).
“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Credit Party under any Credit Document and (b) to the extent not otherwise described in (a), Other Taxes.
“Indemnitee” as defined in Section 9.3(a). “Indemnitee Agent Party” as defined in Section 8.9. “Indemnitor” as defined in Section 9.3(c).
“Independent Accountants” means (a) RSM US LLP or (b) such other firm of independent certified public accountants acceptable to the Administrative Agent in its reasonable discretion.
“Independent Director” means an employee of Citadel SPV LLC or another natural person meeting the qualifications set forth in Section 6.13 and otherwise acceptable to the Administrative Agent in its reasonable discretion.
“Interest Period” means, with respect to any Loan, (a) with respect to the initial Settlement Date, the period beginning on the initial Credit Date and ending on the last day of the calendar month in which such initial Credit Date occurs, and (b) with respect to any other Settlement Date, the immediately preceding calendar month; provided, that no Interest Period with respect to any portion of the Loans shall extend beyond the Termination Date.
“Interest Rate” means, (a) with respect to any Loan that is a LIBOR Rate Loan and any Interest Period, the Adjusted LIBOR Rate plus the Applicable Margin for such Interest Period, and
(b) with respect to any Loan that is a Base Rate Loan and any Interest Period, the Base Rate plus the Applicable Margin for such Interest Period.
“Interest Rate Reset Date” means, with respect to any Interest Period, the date that is two
(2)Business Days prior to the first day of such Interest Period.
“Internal Revenue Code” means the Internal Revenue Code of 1986.
“Invested Amount” means, with respect to each Receivable and any date of determination, an amount equal to the product of (a) a fraction, (i) the numerator of which is the Amount Financed of such Receivable at the time of origination minus (A) (to the extent included in the Amount Financed) any Origination Fee charged to the Obligor with respect to such Receivable and (B) any Merchant Discounts with respect to such Receivable, and (ii) the denominator of which is the Amount Financed of such Receivable at the time of origination, multiplied by (b) the Calculated Net Balance of such Receivable as of such date.
“Investment” means (a) any direct or indirect purchase or other acquisition by the Borrower of, or of a beneficial interest in, any of the Securities of any other Person, (b) any direct or indirect redemption, retirement, purchase or other acquisition for value, from any Person, of any Capital Stock of such Person, and (c) any direct or indirect loan, advance or capital contributions by such Person to any other Person, including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment.
“Lender” means each financial institution listed on the signature pages hereto as a Lender and any other Person that becomes a party hereto pursuant to an Assignment Agreement.
“Lender Affiliate” means, as applied to any Lender or Agent, any Approved Fund or Person directly or indirectly controlling (including any member of senior management of such Person), controlled by, or under common control with, such Lender or Agent. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power (a) to vote 20% or more of the Securities having ordinary voting power for the election of directors of such Person or (b) to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise.
“Lender Report” as defined in the Backup Servicing Agreement.
“LIBOR Rate Loan” means a Loan bearing interest at a rate determined by reference to the Adjusted LIBOR Rate.
“LIBOR Unavailability” as defined in Section 2.12(a).
“Lien” means (a) any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and any lease in the nature thereof) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing, and (b) in the case of Securities, any purchase option, call or similar right of a third party with respect to such Securities.
“Live Check Receivable” means any Receivable originated by the mailing of a live check and a Contract to a potential new Obligor (excluding for the avoidance of doubt an existing Obligor or any Person who was an Obligor on a Company Receivable at any time within the fourteen months immediately preceding the Origination Date of such Receivable), who accepts the terms of such Contract by depositing such live check.
“Loan” or “Revolving Loan” means each revolving loan made to the Borrower pursuant to Section 2.1(a).
“Lock-Out Make-Whole Payment” as defined in the Payment Letter.
“Margin Stock” as defined in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time.
“Master Collection Account” has the meaning set forth in the Master Collection Account Agreement.
“Master Collection Account Agreement” means the Master Collection Account Agreement, dated as of the date hereof, among the Master Collection Account Bank, the Company, the Collateral Agent, the Borrower and the other parties thereto from time to time, as the same may be amended, restated, supplemented or otherwise modified from time to time in accordance with its terms.
“Master Collection Account Bank” means Wells Fargo Bank, National Association, or a bank designated by the Company and approved by the Administrative Agent in its reasonable discretion.
“Material Adverse Effect” means a material adverse effect on (a) the business, operations, assets, condition (financial or otherwise) or liabilities of the Borrower or of the Other Credit Parties taken as a whole, (b) the ability of the Borrower or of the Other Credit Parties taken as a whole to fully and timely perform each of their material obligations under the Credit Documents to which each of them is a party, (c) the legality, validity, binding effect, or enforceability against a Credit Party of any Credit Document to which it is a party, (d) the rights and remedies available to, or conferred upon, any Agent, any Lender or any Secured Party under any Credit Document, (e) the enforceability or collectability of the Receivables taken as a whole or any material portion thereof
or (f) the ability of any Credit Party to originate, own, hold, purchase, sell, pledge, service, collect or enforce a material portion of the Receivables.
“Material Contract” means any contract or other arrangement to which a Credit Party is a party (other than the Credit Documents) for which breach, nonperformance, cancellation or failure to renew could reasonably be expected to have a Material Adverse Effect.
“Material Indebtedness” means any Indebtedness in excess of [***].
“Maximum Advance Amount” means, as of any date, the product of (a)(i) the Invested Amount of all Eligible Receivables as of such date less (ii) the Excess Concentration Amounts as of such date and (b) the Advance Rate as of such date.
“Maximum Committed Amount” means $350,000,000; provided, that, the “Maximum Committed Amount” may be increased, in the Administrative Agent’s and the Lenders’ sole discretion, at the request of the Borrower.
“Merchant” means any seller of goods and/or services who originates a Contract by providing point of sale financing to an Obligor.
“Merchant Agreement” means an agreement between a Merchant and an Originator pursuant to which such Merchant assigned, sold, or otherwise transferred (or purported to assign, sell or otherwise transfer) a Receivable to such Originator.
“Merchant Discounts” means, with respect to any Receivable, any discounts or rebates paid or credited by the Merchant with respect thereto pursuant to the applicable Merchant Agreement at the time of the assignment of the Contract to the applicable Originator.
“Merchant Recourse” means the rights against the Merchant under the Merchant Agreement in respect of a Receivable, including any right to cause the Merchant to repurchase a Receivable in the event of a breach of a representation or warranty and rights to indemnification.
“Minimum Account Amount” means with respect to each Branch Account, the SMC Collection Account, the Heights Collection Account and the Master Collection Account, the amount specified on Schedule 1.2 hereto (as such Schedule may be updated from time to time pursuant to Section 5.7 hereof).
“Monthly Backup Servicing Report” means that monthly report to be delivered to the Administrative Agent by the Backup Servicer, in the form agreed to by the Administrative Agent in its reasonable discretion.
“Monthly Vintage Pool” means, for a Receivables Segment, a pool of Receivables in such Receivables Segment that have ever been owned by the Borrower, with Origination Dates occurring in a common month. For the avoidance of doubt, notwithstanding the Seller’s subsequent repurchase of a Receivable in any Monthly Vintage Pool or the Borrower’s subsequent sale for any reason, such Receivable shall remain part of such Monthly Vintage Pool.
“Monthly Servicing Report” has the meaning set forth in the Servicing Agreement.
“Moody’s” means Moody’s Investor Services, Inc., and any successor thereto.
“Multiemployer Plan” means any Employee Benefit Plan which is a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA.
“Net Balance” means, with respect to any Receivable, as of any date of determination, the excess of (i) the Gross Balance for such Receivable over (ii) all unearned, or accrued but unpaid, interest, fees, finance charges, insurance commissions and any other unearned amounts of such Receivable.
“Net Insurance Proceeds” means an amount equal to: (a) any Cash payments or proceeds received by the Borrower, the Company or the Servicer in respect of any covered loss under any policy of insurance specified in Section 5.8, minus (b) any actual and reasonable costs incurred or to be incurred by the Borrower, the Company or the Servicer in connection with the adjustment or settlement of any claims of the Borrower, the Company or the Servicer in respect thereof.
“Net Liquidation Proceeds” means, all amounts received in connection with a Receivable after such Receivable was first identified as a Charged-Off Receivable, minus the reasonable expenses incurred by the Servicer in connection with the collection of such Receivable, including reasonable collection agency fees and the reasonable cost of legal counsel in connection with the enforcement of such Receivable; provided, however, that the “Net Liquation Proceeds” with respect to any Receivable shall not be less than zero.
“Non-U.S. Lender” means a Lender that is not a U.S. Person.
“Note” means a promissory note substantially in the form of Exhibit B attached hereto, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof.
“Obligations” means all obligations of every nature of the Borrower from time to time owed to the Agents (including former Agents), any Lender or any Indemnitee or any of them, under any Credit Document, whether for principal, interest (including interest which, but for the filing of a petition in bankruptcy with respect to the Borrower, would have accrued on any Obligation, whether or not a claim is allowed against the Borrower for such interest in the related bankruptcy proceeding), fees, expenses, indemnification or otherwise.
“Obligor” means, with respect to each Receivable or Company Receivable, the borrower or purchaser under the related loan or sale transaction or any other Person who owes or may be liable for payments under such Receivable or Company Receivable.
“Organizational Documents” means (a) with respect to any corporation, its certificate or articles of incorporation or organization, as amended, and its by-laws, as amended, (b) with respect to any limited partnership, its certificate of limited partnership, as amended, and its partnership agreement, as amended, (c) with respect to any general partnership, its partnership agreement, as amended, (d) with respect to any limited liability company, its certificate of formation, as amended, and its operating agreement, as amended, and (e) with respect to any statutory trust, its certificate of trust, as amended, and its trust agreement, as amended. In the event any term or condition of this Agreement or any other Credit Document requires any Organizational Document
to be certified by a secretary of state or similar governmental official, the reference to any such “Organizational Document” shall only be to a document of a type customarily certified by such governmental official.
“Origination Date” means for each Receivable, the date on which funds were disbursed by or on behalf of the applicable Originator to an Obligor or, with respect to a Receivable under a Retail Installment Sales Contract, the date on which goods or services were sold by the applicable Merchant to an Obligor.
“Origination Fee” means a prepaid finance charge that is either paid by the Obligor at the time of origination or withheld from the proceeds included in the Amount Financed of a Receivable in accordance with the Contract.
“Originator” means, with respect to each Receivable, the Company or its applicable Subsidiary, which originated such Receivable or acquired such Receivable from the related Merchant.
“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Credit Document, or sold or assigned an interest in any Credit Document).
“Other Credit Parties” means the Credit Parties other than the Borrower.
“Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Credit Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than assignment pursuant to Section 2.19).
“Parent” means SouthernCo, Inc., a Delaware Corporation. “Participant Register” as defined in Section 9.6(h). “Patriot Act” as defined in Section 4.21.
“Payment Letter” means the letter agreement, dated as of the date hereof, between the Administrative Agent and the Borrower, as it may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof.
“Payment Rate” means, with respect to any date of determination for any Collection Period for a Receivables Segment, a rate, expressed as a percentage, equal to a fraction (i) the numerator of which is the aggregate Collections received from the related Obligors in the form of a payment less return charges in respect of all Receivables in such Receivables Segment during such Collection Period and (ii) the denominator of which is the aggregate outstanding Gross Balance of
all Receivables in such Receivables Segment at the beginning of such Collection Period. For the avoidance of doubt, the numerator shall not include any amounts deemed collected in connection with a refinanced or renewed Receivable.
“PBGC” means the Pension Benefit Guaranty Corporation or any successor thereto. “Pension Plan” means any Employee Benefit Plan, other than a Multiemployer Plan, which
is subject to Section 412 of the Internal Revenue Code or Section 302 or Title IV of ERISA.
“Permit” shall mean collectively all licenses, leases, powers, permits, franchises, certificates, authorizations and approvals.
“Permitted Expenses” means the reasonable costs and expenses incurred by the Agents and the Lenders (and their respective agents or professional advisors) in connection with the preparation, administration, amendment, due diligence and enforcement of this Agreement and the other Credit Documents and, which costs and expenses the Borrower is required to pay or cause to be paid. “Permitted Expenses” shall include, without limitation, the expenses set forth in Sections 5.10 and 9.2 hereof.
“Permitted Liens” means:
(a)Liens arising in favor of the Collateral Agent under the Collateral Documents;
(b)Liens imposed by law for Taxes, assessments or other governmental charges payable by the Borrower that are not yet delinquent or are being contested in compliance with Section 5.3; and
(c)Other Liens consented to in writing by the Administrative Agent.
“Person” means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts, statutory trusts, series trusts, or other organizations, whether or not legal entities, and Governmental Authorities.
“Plan Assets” as defined in Section 9.25(a). “Plan Fiduciary” as defined in Section 9.25(c)(i).
“Prepayment Payment” as defined in the Payment Letter.
“Prime Rate” means the rate of interest quoted in The Wall Street Journal, Money Rates Section as the Prime Rate (currently defined as the base rate on corporate loans posted by at least 75% of the nation’s 30 largest banks), as in effect from time to time.
“Principal Office” means, for the Administrative Agent, 245 Park Avenue, 42nd Floor, New York, NY 10167 (or such other location in the United States of America as the Administrative Agent may from time to time designate in writing to the Borrower and the Lenders).
“QPAM Exemption” means ERISA Prohibited Transaction Class Exemption 84-14, as amended, and “QPAM” means a “qualified professional asset manager” within the meaning of the QPAM Exemption.
“Quarterly Vintage Pool” means, for a Receivables Segment, the pool of three Monthly Vintage Pools of such Receivables Segment in a common calendar quarter. For the avoidance of doubt, notwithstanding the Seller’s subsequent repurchase of a Receivable in any Monthly Pool or the Borrower’s subsequent sale for any reason, such Receivable shall remain part of such Quarterly Vintage Pool.
“Receivable” means the obligations of an Obligor under a Contract to make payments thereunder, originated by an Originator or originated by a Merchant and acquired by an Originator and, if the applicable Originator is different from the Seller, subsequently sold or otherwise transferred (or purported to be sold or transferred) by such Originator to the Seller pursuant to the terms of the Transfer Agreement and, in any case, sold or otherwise transferred (or purported to be sold or transferred) by the Seller to the Borrower pursuant to the terms of the Receivables Purchase Agreement.
“Receivable Database” means the databases, platforms and systems maintained by or on behalf of the Servicer with respect to the Receivables, which provides, on a receivable-by- receivable basis, up-to-date information regarding all activities with respect to the Receivables, including but not limited to originations, payments, charge-offs and recoveries.
“Receivable File” as defined in the Servicing Agreement. “Receivable File Datasite” as defined in the Servicing Agreement.
“Receivable Repurchase Event” means (a) with respect to any Receivable, the failure of such Receivable to satisfy the Eligibility Criteria as of the Credit Date on which such Receivable was first reflected in a Borrowing Base Certificate, or (b) any required repurchase of a Receivable pursuant to Section 3.2 of the Receivables Purchase Agreement.
“Receivables Purchase Agreement” means that certain Receivables Purchase Agreement dated as of the date hereof between Borrower, as purchaser, and Seller, as seller.
“Receivables Repurchase Price” means, with respect to any Receivable and any date of determination, the Net Balance of such Receivable, plus all accrued and unpaid interest, fees, finance charges, insurance commissions and any other contractual amounts accrued but unpaid on the Net Balance of such Receivable through the date on which such Receivable is repurchased.
“Receivables Segment” means SMC Receivables or Heights Receivables, respectively. “Recipient” means any Agent or Lender, as applicable.
“Register” as defined in Section 2.3(a).
“Regulatory Trigger Event” means (a) (i) any Change in Law the effect of which would reasonably be expected to have a Material Adverse Effect under clauses (b), (e) or (f) of the definition of Material Adverse Effect or (ii) the commencement by a federal or state Governmental Authority (excluding, for the avoidance of doubt, any municipality) of a formal investigation, legal action or proceeding, against any Credit Party or a third party that has been engaged by the Servicer or the Originator to substantially assist the Servicer or Originator with the origination, holding, owning, purchasing, selling, servicing, pledging or enforcing a material portion of Receivables, challenging such Person’s authority to originate, hold, own, purchase, sell, service, pledge or enforce a material portion of Receivables with respect to the residents of any jurisdiction, or otherwise alleging substantial noncompliance by any Credit Party or any third party that has been engaged by the Servicer or the Originator to substantially assist the Servicer or Originator with the origination, holding, owning, purchasing, selling, servicing, pledging or enforcing a material portion of Receivables with such jurisdiction’s applicable laws related to originating, holding, owning, purchasing, selling, pledging, servicing or enforcing such Receivables, which formal investigation, legal action or proceeding (x) has not been resolved, stayed, vacated or discharged in a manner acceptable to the Administrative Agent in its reasonable discretion within 90 days and
(y) would reasonably be expected to have a Material Adverse Effect, as determined by the Administrative Agent in its reasonable discretion, or (b) the issuance or entering of a stay, order, judgment, cease and desist order, injunction, temporary restraining order, or other judicial sanction, order or ruling (other than the imposition of a monetary fine that is not material), arising solely from a formal investigation, legal action or proceeding (governmental, civil or otherwise), against any Credit Party or any third party, which has been engaged by the Servicer or the Originator to substantially assist the Servicer or Originator with the origination, holding, owning, purchasing, selling, servicing, pledging or enforcing a material portion of Receivables, meaningfully related to the originating, holding, owning, purchasing, selling, pledging, servicing or enforcing of a material portion of Receivables or rendering the Transfer Agreement or the Receivables Purchase Agreement unenforceable in such jurisdiction, in each case, (x) which is not resolved, stayed, vacated or discharged within 30 days of being rendered and (y) the effect of which would reasonably be expected to have a Material Adverse Effect, as determined by the Administrative Agent in its reasonable discretion; provided, however, in the case of clauses (a)(ii) and (b) above, upon the favorable resolution of such investigation, action or proceeding (whether by judgment, reversal of the judgment by another court or any other tribunal of competent jurisdiction, withdrawal of such action or proceeding or settlement of such action or proceeding) as determined by the Administrative Agent in its reasonable discretion and in good faith and confirmed by written notice from the Administrative Agent, such Regulatory Trigger Event for such jurisdiction shall cease to exist immediately, upon such determination by the Administrative Agent.
“Related Agreements” means, collectively, the Transfer Agreement, the Receivables Purchase Agreement the Servicing Agreement and the Backup Servicing Agreement.
“Release Date” as defined in Section 3.3(b).
“Reporting Date” as defined in the Servicing Agreement.
“Required Remedies Lenders” means one or more Lenders having or holding (i) prior to the termination of the Revolving Loan Commitments, Revolving Loan Commitments representing more than 50% of the sum of the aggregate Revolving Loan Commitments of all Lenders and (ii) upon and after the termination of the Revolving Loan Commitments, aggregate outstanding principal amount of the Loans representing more than 50% of the aggregate outstanding principal amount of all Loans. For the avoidance of doubt, the Required Remedies Lenders shall have the sole right to suspend or terminate any remedial action that the Required Remedies Lenders authorized or directed be commenced.
“Required Receivables” means, for any Credit Date or Release Date, the Receivables for which the Required Upload Documents must be uploaded to the Receivable File Datasite pursuant to the Backup Servicing Agreement for such Credit Date or Release Date.
“Required Upload Documents” as defined in the Backup Servicing Agreement.
“Retail Installment Sales Contract” means a Contract between a Merchant and the applicable Obligor, under which an extension of credit by the applicable Merchant is made in the ordinary course of business to such Obligor in connection with the purchase of a good or service.
“Revolving Loan Commitment” means the commitment of a Lender to make or otherwise fund any Loan during the Revolving Period. The amount of each Lender’s Revolving Loan Commitment is set forth on Appendix A or in the applicable Assignment Agreement, subject to any suspension, adjustment or reduction pursuant to the terms and conditions hereof.
“Revolving Period” means the period beginning on the Closing Date and ending on the Scheduled Commitment Termination Date.
“S&P” means Standard & Poor’s Rating Services, Inc., a Standard & Poor’s Financial Services, LLC business, and any successor thereto.
“Scheduled Commitment Termination Date” means the earlier to occur of (a) the date that is thirty-six (36) months after the Closing Date or such later date as may be agreed to by the Borrower and the Lenders, (b) a Regulatory Trigger Event and (c) the Termination Date.
“Scheduled Receivable Payment” means, for any Collection Period and for any Receivable or Company Receivable, as applicable, the amount indicated in the Contract relating to such Receivable or Company Receivable as required to be paid by the Obligor in such Collection Period. If after the Closing Date the Obligor’s obligation under such Receivable or Company Receivable with respect to a Collection Period has been modified so as to differ from the amount specified in such Receivable or Company Receivable, as applicable, as a result of (a) the order of a court in a proceeding relating to Debtor Relief Laws as to which the Obligor is a debtor or (b) the application of the Servicemembers Civil Relief Act, the Scheduled Receivable Payment with respect to such Collection Period shall refer to the Obligor’s payment obligation with respect to such Collection Period as so modified and such modification shall be reflected in the Receivable Database pursuant to the terms of the Servicing Agreement.
“Secured Party” as defined in the Security Agreement.
“Securities” means any stock, shares, partnership interests, limited liability company interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as “securities” or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.
“Securities Act” means the Securities Act of 1933, as amended to the date hereof and from time to time hereafter, and any successor statute.
“Security Agreement” means the Security Agreement, dated as of the date hereof between the Borrower and the Collateral Agent on behalf of the Secured Parties, as it may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof.
“Selected Receivables” as defined in the Backup Servicing Agreement. “Seller” as defined in the preamble hereto.
“Servicer” as defined in the preamble hereto.
“Servicer Default” as defined in the Servicing Agreement.
“Servicing Agreement” means (i) the Servicing Agreement, dated as of the date hereof among the Borrower, the Servicer, the Administrative Agent and the Collateral Agent, as it may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, or (ii) the Successor Servicing Agreement, as applicable.
“Servicing Fee” as defined in the Servicing Agreement. “Servicing Policies” as defined in the Servicing Agreement.
“Settlement Date” means (a) the fifteenth (15th) calendar day following the end of each Collection Period, or if such day is not a Business Day, the immediately following Business Day, beginning in the month of February 2020 and (b) the Final Maturity Date.
“Similar Laws” as defined in Section 4.27.
“SMC Account Control Agreement” means that certain Deposit Account Control Agreement, dated as of December 31, 2019 among the Company, the SMC Collection Account Bank and the Master Collection Account Bank, as secured party, as amended, restated, supplemented or otherwise modified from time to time.
“SMC Collection Account” means the account numbered [***], or such other accounts agreed to by the Administrative Agent in writing, in all cases, in the name of the Company at the SMC Collection Account Bank.
“SMC Collection Account Bank” means a bank designated by the Company and approved by the Administrative Agent in its reasonable discretion.
“SMC Receivable” means any Receivable originated by the Company or any of its Subsidiaries (other than Heights or any Subsidiary of Heights).
“Solvency Certificate” means a Solvency Certificate of an Authorized Officer of each Credit Party substantially in the form of Exhibit F.
“Solvent” means, with respect to any Person, that as of the date of determination, both (a)(i) the sum of such Person’s debt (including contingent liabilities) does not exceed the assets of such entity, at Fair Valuation, (ii) such Person’s capital is not unreasonably small in relation to its business as contemplated on the Closing Date, and (iii) such Person has not incurred and does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due (whether at maturity or otherwise), and (b) such Person is “solvent” within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standard No. 5).
“Specified Local Amount” means with respect to each Branch Office, the amount determined in accordance with Schedule 1.1 hereto.
“Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof; provided, in determining the percentage of ownership interests of any Person controlled by another Person, no ownership interest in the nature of a “qualifying share” of the former Person shall be deemed to be outstanding.
“Successor Servicer” means the Backup Servicer or any other successor to the Servicer appointed pursuant to a Successor Servicing Agreement.
“Successor Servicing Agreement” means any successor servicing agreement entered into by the Borrower, the Administrative Agent, the Collateral Agent and the Successor Servicer named therein, in form and substance acceptable to the Administrative Agent.
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Termination Date” means the earlier to occur of (a) the Final Maturity Date, and (b) the occurrence and continuance of an Event of Default and the declaration of all outstanding Obligations to be due and payable pursuant to Section 7.1.
“Tier 1 Collateral Performance Trigger” means the breach of any of the collateral performance tests set forth on Appendix E-1 as of any Reporting Date.
“Tier 1 Regulatory Trigger Event” means a Regulatory Trigger Event described in clause
(a)of the definition thereof.
“Tier 2 Collateral Performance Trigger” means the breach of any of the collateral performance tests set forth on Appendix E-2 as of any Reporting Date.
“Tier 2 Regulatory Trigger Event” means a Regulatory Trigger Event described in clause
(b)of the definition thereof.
“Transfer Agreement” means (i) that certain Transfer Agreement dated as of the date hereof between Seller, as purchaser, and Originators, as sellers and (ii) any other transfer agreement entered into by Seller and approved by the Administrative Agent in its reasonable discretion.
“UCC” means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction.
“Unasserted Obligations” means, at any time, contingent indemnification obligations under the Credit Documents for which no claim has been asserted.
“Undrawn Amount” means, on any date of determination during the Revolving Period, the Maximum Committed Amount minus the then outstanding principal amount of Loans made to Borrower under this Agreement.
“Unused Payment” as defined in the Payment Letter.
“Uploaded Receivable” as defined in the Backup Servicing Agreement.
“U.S. Person” means any Person that is a “United States person” as defined in section 7701(a)(30) of the Internal Revenue Code.
“U.S. Tax Compliance Certificate” as defined in Section 2.14(e). “Verifiable Documents” as defined in the Backup Servicing Agreement.
“Verification Completion Condition” means a condition that shall be satisfied on the date that the Borrower has demonstrated to the Administrative Agent that the Borrower has the ability to upload to the Receivable File Datasite Verifiable Documents of all Receivables originated on and after such date.
“Verification Report” as defined in the Backup Servicing Agreement.
“Vintage Age” means, for any Monthly Vintage Pool, the number of months such Monthly Vintage Pool has been outstanding, starting with the month following the month in which such pool of Receivables was originated (this month shall be designated as month number “1”).
“Vintage Pool Period” means any full calendar quarter.
“Volcker Rule” shall mean Section 13 of the U.S. Bank Holding Company Act of 1956, as amended, and the applicable rules and regulations thereunder.
1.2.Accounting Terms. (a) Generally. All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Company’s audited financial statements, except as otherwise specifically prescribed herein.
(b) Changes in GAAP. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Credit Document, and any of the Borrower, the Company or any Lender shall so request, the Administrative Agent, each Lender, the Borrower and the Company shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP; provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrower and the Company shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.
1.3.Interpretation, etc. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. References herein to any Section, Appendix, Schedule or Exhibit shall be to a Section, an Appendix, a Schedule or an Exhibit, as the case may be, hereof unless otherwise specifically provided. The use herein of the word “include” or “including,” when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not limiting language (such as “without limitation” or “but not limited to” or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter. The words “hereof,” “herein,” “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless the context requires otherwise or otherwise specified in any applicable Credit Document, (a) reference to any Person includes that Person’s successors and assignees, (b) any definition of or reference to any Credit Document, agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements, or modifications set forth herein or therein), and (c) any reference to any law or regulation herein shall refer to such law or regulation as amended, modified or supplemented from time to time.
SECTION 2. LOANS
2.1.Revolving Loans.
(a)Generally.
(i)During the Revolving Period, subject to the terms and conditions hereof, each Lender agrees from time to time to make loans to the Borrower (each a “Loan” and collectively, the “Loans”) in an aggregate amount up to but not exceeding its Revolving Loan Commitment.
(ii)During the Revolving Period, the remaining Revolving Loan Commitments of the Lenders hereunder on any date shall be equal to the Commitment Availability.
(iii)The Revolving Loan Commitment shall expire on the Scheduled Commitment Termination Date and no new Loans shall be funded after such date.
(iv)Subject to Section 2.7, amounts borrowed pursuant to this Section 2.1(a) may be repaid and reborrowed during the Revolving Period.
(b)Borrowing Mechanics for Loans.
(i)Loans made on any Credit Date shall be in a minimum amount of
$250,000.
(ii)Whenever the Borrower desires that the Lenders make Loans, the
Borrower shall deliver to the Administrative Agent a fully executed Funding Notice together with a Borrowing Base Certificate no later than 12:00 noon (New York City time) at least two (2) Business Days in advance of the proposed Credit Date. Each such Funding Notice shall be delivered reflecting sufficient Commitment Availability for the requested Loans.
(iii)The Lenders shall, upon satisfaction of the conditions precedent specified herein, make the amount of the Loans requested available to the Borrower not later than 4:00 p.m. (New York City time) on the proposed Credit Date by wire transfer of same day funds in Dollars, to such account as may be designated in writing to the Administrative Agent by the Borrower.
(iv)Unless otherwise permitted by the Administrative Agent in its sole and absolute discretion, (x) no more than two (2) Loans shall be made per calendar week and (y) in no event will the Borrower engage in Borrowing Base Actions on more than four
(4) Business Days per calendar week.
2.2.Use of Proceeds. The proceeds of the Loans shall be applied by the Borrower only to finance the acquisition of Receivables from the Seller pursuant to the Receivables Purchase Agreement and to pay reasonable ongoing transaction expenses of the Borrower in accordance with the Credit Documents.
2.3.Register; Notes.
(a)Register. The Administrative Agent shall maintain at its Principal Office a register for the recordation of (i) the names and addresses of the Lenders and (ii) information relating to their respective Revolving Loan Commitments and Loans (including, for the avoidance of doubt, principal amounts and stated interest) from time to time (the “Register”). The Register shall be available for inspection by the Credit Parties or the Lenders at any reasonable time and from time to time upon reasonable prior notice to the Administrative Agent. The Administrative Agent shall record in the Register the Loans, and each repayment or prepayment in respect of the principal amount (and stated interest) of the Loans, and any such recordation shall be conclusive and binding on the Borrower and the Lenders, absent manifest error. The Borrower hereby designates the entity serving as Administrative Agent to serve as the Borrower’s agent solely for purposes of maintaining the Register as provided in this Section 2.3.
(b)Notes. If so requested by a Lender prior to the Closing Date or upon three
(3)Business Days prior written notice at any time after the Closing Date, the Borrower shall execute and deliver to such Lender (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of such Lender pursuant to Section 9.6) on the Closing Date (or, if such notice is delivered after the Closing Date, promptly after the Borrower’s receipt of such notice) a Note or Notes, as so requested, to evidence such Lender’s Loans.
2.4.Interest on Loans.
(a)Except as otherwise set forth herein, each Loan shall bear interest on the unpaid principal amount thereof from the date made through repayment (whether by acceleration or otherwise) as follows: [***].
(b)Interest payable pursuant to Section 2.4(a) shall be computed on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the related Credit Date or the first day of an Interest Period applicable to such Loan shall be included, and the date of payment of such Loan or the expiration date of an Interest Period applicable to such Loan shall be excluded; provided, that if a Loan is repaid on the same day on which it is made, one (1) day’s interest shall be paid on that Loan.
(c)Except as otherwise set forth herein, interest on each Loan shall be payable in arrears on (i) each Settlement Date, (ii) with respect to any prepayment, in whole or in part, of such Loan, the date of such prepayment in an amount equal to the interest accrued and unpaid on the amount so prepaid to the date of prepayment, and (iii) the Final Maturity Date.
2.5.Default Interest. Upon the occurrence and during the continuance of an Event of Default, the principal amount of all Loans outstanding and, to the extent permitted by applicable law, any interest payments on the Loans or any fees or other amounts owed hereunder, shall thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or other applicable Debtor Relief Laws) payable in accordance with the provisions of
Section 2.10 at a rate that is [***]. Payment or acceptance of the increased rates of interest provided for in this Section 2.5 is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of the Administrative Agent or any Lender.
2.6.[Reserved].
2.7.Voluntary Prepayments; Commitment Reductions. (a) Subject to paragraph (e) below, the Borrower shall not make any prepayments, in whole or in part and the Borrower shall not reduce or terminate the Revolving Loan Commitments at any time prior to the one (1) year anniversary of the Closing Date. Notwithstanding the foregoing, if the Facility is prepaid, in whole or in part, or the Revolving Loan Commitments are reduced or terminated either (i) by the Borrower or its Affiliates or (ii) by the Administrative Agent in accordance with Section 7 following an Event of Default caused by an intentional or willful breach of this Agreement or any other Credit Document by any Credit Party, prior to the one (1) year anniversary of the Closing Date, the Borrower shall pay (unless the Change of Ownership Make-Whole Payment is due pursuant to paragraph (g) below) the Lock-Out Make-Whole Payment to the Lenders on the date of any such prepayment, reduction or termination.
(b)Subject to paragraph (e) below, the Borrower may make prepayments or terminate the Revolving Loan Commitments, in whole but not in part, during the period from the one (1) year anniversary of the Closing Date through but not including the two (2) year anniversary of the Closing Date; provided, however, that if the Facility is prepaid in whole or the Revolving Loan Commitments are terminated during such period either (i) by the Borrower or its Affiliates or (ii) by the Administrative Agent in accordance with Section 7 following an Event of Default caused by an intentional or willful breach of this Agreement or any other Credit Document by any Credit Party, the Borrower shall pay the applicable Prepayment Payment to the Lenders on the date of any such prepayment or termination.
(c)Subject to paragraph (e) below, the Borrower may make prepayments or terminate the Revolving Loan Commitments, in whole but not in part, during the period from the two (2) year anniversary of the Closing Date through but not including the date that is thirty (30) calendar months following the Closing Date; provided, however, that if the Facility is prepaid in whole or the Revolving Loan Commitments are terminated during such period either (i) by the Borrower or its Affiliates or (ii) by the Administrative Agent in accordance with Section 7 following an Event of Default caused by an intentional or willful breach of this Agreement or any other Credit Document by any Credit Party, the Borrower shall pay the applicable Prepayment Payment to the Lenders on the date of any such prepayment or termination.
(d)From and after the date that is thirty (30) calendar months following the Closing Date, the Borrower may prepay the Loans or terminate the Revolving Loan Commitments, in whole but not in part, at any time upon ten (10) Business Days’ prior written notice to the Lenders and the Administrative Agent without the obligation to pay any Prepayment Payment or Lock-Out Make-Whole Payment.
(e)For the avoidance of doubt, (i) the Borrower shall not make any prepayments in part and the Borrower shall not reduce the Revolving Loan Commitments in part at any time and (ii) the repayment of the Loans pursuant to Section 2.8, Sections 2.10(a)(v), 2.10(b)(v), 2.10(b)(vi) or 2.10(b)(vii), and shall not result in the obligation to pay the Prepayment Payment or the Lock-Out Make-Whole Payment.
(f)Concurrently with any prepayment pursuant to Section 2.7, the Borrower shall deliver, or cause to be delivered, to the Administrative Agent a certificate of an Authorized Officer demonstrating the calculation of the amount of such prepayment.
(g)If, in connection with a Change of Ownership, the Borrower prepays the Loans or terminates the Revolving Loan Commitments, in whole but not in part, at any time prior to the one (1) year anniversary of the Closing Date, then the Borrower shall pay the Change of Ownership Make-Whole Payment to the Lenders on the date of any such prepayment or termination.
(h)The Borrower agrees that each of the Lock-Out Make-Whole Payment, Change of Ownership Make-Whole Payment and Prepayment Payment is a reasonable calculation of Lenders’ lost profits in view of the difficulties and impracticality of determining actual damages resulting from an early termination of the Revolving Loan Commitments.
2.8.Mandatory Receivable Repurchases.
(a)Receivable Repurchase Events.
(i)Upon the occurrence of a Receivable Repurchase Event following the Scheduled Commitment Termination Date, with respect to any Receivable the Seller shall, within two (2) Business Days of such occurrence, (x) repurchase each affected Receivable pursuant to the terms of the Receivables Purchase Agreement at a price equal to the Receivable Repurchase Price and (y) deposit the Receivable Repurchase Price for each affected Receivable directly into the Collection Account upon repurchase thereof. All amounts deposited into the Collection Account pursuant to this Section 2.8(a)(i) shall be applied as Collections on the related Settlement Date pursuant to Section 2.10.
(ii)Upon the occurrence of a Receivable Repurchase Event during the Revolving Period, the Seller shall, within two (2) Business Days of such occurrence, substitute each affected Receivable with a substitute Eligible Receivable pursuant to the terms of the Receivables Purchase Agreement. In the event the Seller is unable to effect such substitution of affected Receivables, the Seller shall, with the prior written consent of the Administrative Agent, which consent shall not be unreasonably withheld, conditioned or delayed, (x) repurchase each affected Receivable pursuant to the terms of the Receivables Purchase Agreement at a price equal to the Receivables Repurchase Price and
(y) deposit the Receivables Repurchase Price for each affected Receivable directly into the Collection Account to be applied as Collections on the related Settlement Date pursuant to Section 2.10 or released to the Borrower pursuant to Section 2.10(c) in order to purchase Eligible Receivables at a later date.
(b) Repurchase Certificate. Concurrently with any repurchase of any Receivable pursuant to Section 2.8(a), the Borrower shall deliver, or cause to be delivered, to the Administrative Agent a certificate of an Authorized Officer demonstrating the calculation of the amount paid.
2.9.Controlled Accounts.
(a)On or prior to the date hereof, the Borrower shall cause to be established and maintained, a securities account at the Collection Account Bank, in the name of the Borrower, designated as the Collection Account, as to which the Collateral Agent has control for the benefit of the Secured Parties within the meaning of Section 8-106 of the UCC pursuant to the Control Agreement.
(b)Except as provided in paragraph (c) below, all income from amounts on deposit in the Collection Account shall be retained in the Collection Account, until the next Settlement Date, at which time such income shall be applied, at the direction of the Collateral Agent in accordance with Section 2.10. The Borrower shall treat all income from amounts on deposit in the Collection Account as its income for U.S. federal, state and local income tax purposes.
(c)Subject to the Facility Availability and to the conditions set forth in Section 2.10(c) and Section 3.3, the Borrower, in accordance with Section 2.10(c), may use amounts on deposit in the Collection Account to purchase additional Receivables.
(d)Funds on deposit in the Collection Account will be invested pursuant to Section 2(b) of the Control Agreement.
2.10.Application of Collections. (a) During the Revolving Period, so long as no Event of Default has occurred and is continuing, the Collateral Agent will instruct the Collection Account Bank in writing, pursuant to Disbursement Instructions, by 1:00 p.m. (New York City time) on each Settlement Date to apply Collections with respect to the related Collection Period on such Settlement Date (after giving effect to any withdrawals in accordance with Section 2.10(c)) as follows:
(i)First, on a pari passu basis to the Servicer and the Successor Servicer, any accrued and unpaid Servicing Fees due under the Servicing Agreement;
(ii)Second, on a pari passu basis, (A) to the Collection Account Bank, the Collection Account Bank Fees, reimbursable expenses and indemnification amounts of the Collection Account Bank accrued and unpaid as of the last day of the related Collection Period, (B) to the Backup Servicer, the Backup Servicing Fees, reimbursable expenses (including, without limitation, any transition costs) and indemnification amounts of the Backup Servicer accrued and unpaid as of the last day of the related Collection Period and
(C) to the Successor Servicer, reimbursable expenses and indemnification amounts of the Successor Servicer accrued and unpaid as of the last day of the related Collection Period, but to the extent and only to the extent Successor Servicer has not been paid in (B) above;
(iii)Third, to the Administrative Agent, to pay any accrued but unpaid fees and expenses and indemnification amounts of the Administrative Agent and the Collateral Agent in connection with this Agreement and any other Credit Document;
(iv)Fourth, to, or at the direction of, the Administrative Agent for the benefit of the Lenders, to pay any accrued but unpaid interest, payments and expenses of the Lenders in connection with this Agreement and any other Credit Document (including, without limitation, any Commitment Payment, Increase Payment, Unused Payment, Prepayment Payment and Lock-Out Make-Whole Payment);
(v)Fifth, to, or at the direction of, the Administrative Agent for the benefit of the Lenders, any amounts necessary to reduce the Borrowing Base Deficiency, if any, to zero;
(vi)Sixth, to the Servicer, any reimbursable expenses and indemnification amounts of the Servicer accrued and unpaid as of the last day of the related Collection Period; and
(vii)Seventh, to the Borrower, for its own account, any remaining
amount.
(b)During the Amortization Period or following the occurrence and during the continuance of an Event of Default, in each case, the Collateral Agent will instruct the Collection Account Bank in writing, pursuant to Disbursement Instructions, by 1:00 p.m. (New York City time) on each Settlement Date to apply all Collections with respect to the related Collection Period on such Settlement Date as follows:
(i)First, on a pari passu basis to the Servicer and the Successor Servicer, any accrued and unpaid Servicing Fees due under the Servicing Agreement;
(ii)Second, on a pari passu basis, (A) to the Collection Account Bank, the Collection Account Bank Fees, reimbursable expenses and indemnification amounts of the Collection Account Bank accrued and unpaid as of the last day of the related Collection Period, (B) to the Backup Servicer, the Backup Servicing Fees, reimbursable expenses (including, without limitation, any transition costs) and indemnification amounts of the Backup Servicer accrued and unpaid as of the last day of the related Collection Period and
(C) to the Successor Servicer, reimbursable expenses and indemnification amounts of the Successor Servicer accrued and unpaid as of the last day of the related Collection Period, but to the extent and only to the extent Successor Servicer has not been paid in (B) above;
(iii)Third, to the Administrative Agent, to pay any accrued but unpaid fees and expenses and indemnification amounts of the Administrative Agent and the Collateral Agent in connection with this Agreement and any other Credit Document;
(iv)Fourth, to, or at the direction of, the Administrative Agent for the benefit of the Lenders, to pay any accrued but unpaid interest, payments and expenses of the Lenders in connection with this Agreement and any other Credit Document (including,
without limitation, any Commitment Payment, Increase Payment, Unused Payment, Prepayment Payment and Lock-Out Make-Whole Payment);
(v)Fifth, to, or at the direction of, the Administrative Agent for the benefit of the Lenders, any amounts necessary to reduce the Borrowing Base Deficiency, if any, to zero;
(vi)Sixth, to, or at the direction of, the Administrative Agent for the benefit of the Lenders, 50% of all Collections remaining after application of clauses (i) through (v) above to reduce the outstanding principal amount of the Loans;
(vii)Seventh, with respect to (A) the Settlement Date occurring on the Final Maturity Date, (B) each Settlement Date occurring following the occurrence and during the continuance of an Event of Default or Tier 1 Regulatory Trigger Event and (C) each Settlement Date occurring on or after the first date on which the aggregate principal amount of the Loans outstanding has been reduced to an amount equal to or less than 10% of the Maximum Committed Amount, to, or at the direction of, the Administrative Agent for the benefit of the Lenders, all remaining amounts until the outstanding principal amount of the Loans and Obligations has been reduced to zero;
(viii)Eighth, to the Servicer, any reimbursable expenses and indemnification amounts of the Servicer accrued and unpaid as of the last day of the related Collection Period; and
(ix)Ninth, to the Borrower, for its own account, any remaining amount.
(c)In addition, during the Revolving Period, so long as (x) the Facility Availability is greater than zero and (y) no Event of Default has occurred and is continuing, the Borrower may request the Collateral Agent to instruct the Collection Account Bank to release funds to the Borrower in an amount up to the Facility Availability to be used by Borrower to purchase additional Eligible Receivables in accordance with this Section 2.10(c) and subject to the conditions set forth in Section 3.3. The Collateral Agent shall, upon satisfaction of the conditions precedent specified in Section 3.3(a), direct the Collection Account Bank to release funds in the Collection Account in the amount specified in the related Funds Release Request (subject to the Facility Availability), to the Borrower not later than 4:00 p.m. (New York City time) on the Release Date by wire transfer of same day funds in Dollars, to such account as may be designated in writing to the Administrative Agent by the Borrower. Unless otherwise permitted by the Administrative Agent in its sole and absolute discretion, (x) no more than three (3) such requests for funds shall be made per calendar week and (y) in no event will the Borrower engage in Borrowing Base Actions on more than four (4) Business Days per calendar week.
(d)The Borrower may request and the Collateral Agent shall instruct the Collection Account Bank, to withdraw funds from the Collection Account to pay to the Person entitled thereto any amounts credited thereto constituting Excluded Amounts if the Borrower has, prior to such withdrawal and consent, delivered to the Administrative Agent a certificate setting forth the calculation of such Excluded Amounts in form and substance reasonably satisfactory to the Administrative Agent, which certificate shall include a brief description of the facts and
circumstances supporting such request and designate a date for the payment of such reimbursement, which date shall not be earlier than three (3) Business Days following delivery of such certificate.
2.11.General Provisions Regarding Payments.
(a)All payments by the Borrower of principal, interest, fees and other Obligations shall be made in Dollars in immediately available funds, without defense, recoupment, setoff or counterclaim (except as otherwise provided in Section 2.14), free of any restriction or condition, and delivered to, or at the direction of, the Administrative Agent, for the account of the Administrative Agent, the Collateral Agent or the applicable Lender at such account as is directed by such Agent or Lender, not later than 3:00 p.m. (New York City time) on the date due via wire transfer of immediately available funds. Funds received by an Agent or a Lender after that time on such due date shall be deemed to have been paid by the Borrower on the next Business Day (except to the extent such delay in payment results solely from the Collection Account Bank’s failure to distribute funds on deposit in the Collection Account and available for distribution as of 3:00 p.m. (New York City time) on such Business Day in accordance with Section 2.10).
(b)For the avoidance of doubt (i) all payments of principal shall be applied to the Loans, pro rata based on outstanding principal amount, in reduction of the outstanding principal amount thereof, (ii) any Lock-Out Make-Whole Payment and/or Prepayment Payment paid by the Borrower shall be distributed to the Lenders, pro rata, in accordance with each Lender’s Revolving Loan Commitment and (iii) any Unused Payment paid by the Borrower shall be distributed to the Lenders, pro rata, in accordance with the Undrawn Amount with respect to each such Lender’s Revolving Loan Commitment.
(c)All payments in respect of the principal amount of any Loan shall be accompanied by payment of accrued interest on the principal amount being repaid or prepaid.
(d)Notwithstanding the foregoing provisions hereof, if any Affected Lender makes Base Rate Loans in lieu of any LIBOR Rate Loans, the Borrower shall give effect thereto in apportioning payments made thereafter.
(e)Whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder.
(f)The Administrative Agent and each Lender, as applicable, shall give prompt telephonic notice to the Borrower, the Administrative Agent and the Lenders, as applicable, (confirmed in writing) if any payment is not made in conformity with this Section 2.11. Interest shall continue to accrue on any principal as to which a non-conforming payment is made until such funds become available funds (but in no event less than the period from the date of such payment to the next succeeding applicable Business Day) at the Interest Rate or the Default Funding Rate, as applicable, from the date such amount was due and payable until the date such amount is paid in full.
(g)The Borrower hereby agrees to pay the entire outstanding principal balance of each of the Loans, together with all accrued interest thereon and all other accrued but unpaid Obligations, on or before the Final Maturity Date and all such Obligations are due and payable on the Final Maturity Date regardless of whether there are Collections available therefor.
2.12.Making LIBOR Rate Loans.
(a)Inability to Determine Applicable Interest Rate. In the event that the Administrative Agent shall have reasonably determined in good faith (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Reset Date with respect to any LIBOR Rate Loans, that by reason of circumstances affecting the London interbank market adequate and fair means do not exist for ascertaining the interest rate applicable to such LIBOR Rate Loans on the basis provided for in the definition of Adjusted LIBOR Rate (“LIBOR Unavailability”), the Administrative Agent shall on such date give notice (by telefacsimile or by telephone confirmed in writing) to the Borrower and the Lenders of such determination, whereupon (i) no Loans may be made as LIBOR Rate Loans until such time as the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (ii) all then-existing Loans shall convert automatically to Base Rate Loans at the end of the then-applicable Interest Period if such circumstances still exist at such time, (iii) the Borrower shall have the right to rescind any Funding Notice previously given by the Borrower with respect to the Loans in respect of which such determination was made by giving notice (by telefacsimile or by telephone confirmed in writing) to the Administrative Agent of such rescission on the date on which the Administrative Agent gives notice of its determination as described above and (iv) any Loans made during such period shall be made as Base Rate Loans. At such time as the Administrative Agent shall notify the Borrower and the Lenders that any period of LIBOR Unavailability has ended, on the first day of the Interest Period next following such determination, all Base Rate Loans carried by the Lenders as a consequence of this Section 2.12(a) shall automatically convert to LIBOR Rate Loans having an initial Interest Period commencing on the first day of such Interest Period.
(b)Illegality or Impracticability of LIBOR Rate Loans. In the event that on any date any Lender shall have reasonably determined in good faith (which determination shall be final and conclusive and binding upon all parties hereto but shall be made only after consultation with the Borrower and the Administrative Agent) that the making or maintaining of its LIBOR Rate Loans has become (i) unlawful after the date hereof as a result of compliance by such Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful), or (ii) impracticable, as a result of contingencies occurring after the date hereof which materially and adversely affect the London interbank market or the position of such Lender in that market, then, and in any such event, such Lender shall be an “Affected Lender” and it shall on that day give notice (by telefacsimile or by telephone confirmed in writing) to the Borrower and the Administrative Agent of such determination (which notice the Administrative Agent shall promptly transmit to each other Lender). Thereafter (i) the obligation of the Affected Lender to make Loans as LIBOR Rate Loans shall be suspended until such notice shall be withdrawn by the Affected Lender at such time as the circumstances giving rise to such notice no longer exist, (ii) to the extent such determination by the Affected Lender relates to a Loan then being requested by the Borrower pursuant to a
Funding Notice or any other Loan thereafter, the Affected Lender shall make such Loan as a Base Rate Loan, (iii) the Affected Lender’s obligation to maintain its outstanding LIBOR Rate Loans (the “Affected Loans”) shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (iv) the Affected Loans shall automatically convert into Base Rate Loans on the date of such termination. Notwithstanding the foregoing, to the extent a determination by an Affected Lender as described above relates to a Loan then being requested by the Borrower pursuant to a Funding Notice, the Borrower shall have the option to rescind such Funding Notice by giving notice (by telefacsimile or by telephone confirmed in writing) to the Administrative Agent of such rescission on the date on which the Affected Lender gives notice of its determination as described above. Except as provided in the immediately preceding sentence, nothing in this Section 2.12(b) shall affect the obligation of any Lender (if there is more than one Lender hereunder at such time) other than an Affected Lender to make Loans in accordance with the terms hereof.
(c)Compensation for Breakage or Non-Commencement of Interest Periods. The Borrower shall compensate each Lender, upon written request by such Lender (which request shall set forth the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including any interest paid or calculated to be due and payable by such Lender to lenders of funds borrowed by it to make or carry its LIBOR Rate Loans and any loss, expense or liability sustained by such Lender in connection with the liquidation or re-employment of such funds but excluding loss of anticipated profits) which such Lender actually sustains: (i) if for any reason (other than a default by such Lender) a borrowing of any LIBOR Rate Loan does not occur on a date specified therefor in a Funding Notice, (ii) if any prepayment or other principal payment of any of its LIBOR Rate Loans occurs on any day other than a Settlement Date (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise) or on the Final Maturity Date, or
(iii) if any prepayment of any of its LIBOR Rate Loans is not made on any date specified in a notice of prepayment given by the Borrower.
(d)Booking of LIBOR Rate Loans. A Lender may make, carry or transfer LIBOR Rate Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of such Lender.
2.13.Increased Costs; Capital Adequacy.
(a)Compensation For Increased Costs. In the event that any Lender shall have reasonably determined in good faith (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any Change in Law: (i) subjects such Lender to any additional Tax (other than any Indemnified Tax or Excluded Tax) on its loans, loan principal, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto, (ii) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirements), or (iii) imposes any other condition (other than Taxes) on or affecting such Lender (or its applicable lending office) or its obligations hereunder or the London interbank market; and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining the Loans
hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such case, the Borrower shall pay to such Lender within ten (10) Business Days of receipt of the statement referred to in the next sentence, such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its reasonable discretion shall determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Lender shall deliver to the Borrower (with a copy to the Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this Section 2.13(a), which statement shall be conclusive and binding upon all parties hereto absent manifest error.
(b)Capital Adequacy Adjustment. In the event that any Lender shall have determined that any Change in Law affecting such Lender regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender’s Loans or Revolving Loan Commitments or participations therein or other obligations hereunder with respect to the Loans to a level below that which such Lender or such controlling corporation could have achieved but for such Change in Law (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, within ten (10) Business Days after receipt by the Borrower from such Lender of the statement referred to in the next sentence, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after- tax basis for such reduction. Such Lender shall deliver to the Borrower (with a copy to the Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this Section 2.13(b), which statement shall be conclusive and binding upon all parties hereto absent manifest error.
(c)Delay in Requests. Failure or delay on the part of any Lender to demand compensation pursuant to this Section 2.13 shall not constitute a waiver of such Lender’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to this Section 2.13 for any increased costs incurred or reductions suffered more than 270 days prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions, and of such Lender’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 270-day period referred to above shall be extended to include the period of retroactive effect thereof).
2.14.Taxes; Withholding; Payments Free of Taxes.
(a)Payments Without Deduction or Withholding. Any and all payments by or on account of any obligation of a Credit Party under any Credit Document shall be made free and clear of and without deduction or withholding for any Taxes; provided that if any applicable law requires the deduction or withholding of any Tax by a Credit Party from any such payment, then such Credit Party shall be entitled to make such deduction and timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law and, if any withheld or deducted Tax is an Indemnified Tax, then the sum payable by the applicable Credit Party shall be increased as necessary so that after making all such deductions and withholdings (including such
deductions and withholdings applicable to additional sums payable under this Section 2.14) the applicable Recipient receives an amount equal to the sum it would have received had no such deductions or withholdings of Indemnified Taxes been made.
(b)Payment of Other Taxes. Each applicable Credit Party shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes.
(c)Indemnification. Without duplication of any amounts payable pursuant to clause (a) or (b), each Credit Party shall indemnify the Administrative Agent and any Lender pursuant to this Section 2.14(c) within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 2.14) payable or paid by the Administrative Agent or such Lender and any reasonable expenses arising therefrom or with respect thereto. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, setting forth in reasonable detail the basis and calculation of such amounts, shall be conclusive absent manifest errors.
(d)Evidence of Payments. As soon as practicable after any payment of Taxes by any Credit Party to a Governmental Authority pursuant to this Section 2.14, such Credit Party shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(e)Status of Lenders.
(i)If a Lender is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Credit Document, such Lender shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, a Lender, if requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Sections 2.14(e)(ii)(A), 2.14(e)(ii)(B)(I) through (IV) and 2.14(e)(ii)(C) below) shall not be required if in such Lender’s judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender (it being understood that providing information currently required by any U.S. federal income tax withholding form shall not be considered prejudicial to any Lender).
(ii)Without limiting the generality of the foregoing,
(A)any Lender that is a U.S. Person and the Administrative Agent shall deliver to the Borrower and the Administrative Agent (in the case of a Lender) on or prior to the date on which such Person becomes a party under this Agreement (and from time to time thereafter upon the request of the Borrower or the Administrative Agent), executed originals of IRS Forms W-9 certifying that such Lender or the Administrative Agent, as applicable, is not subject to U.S. federal backup withholding tax; and
(B)any Non-U.S. Lender shall deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Non-U.S. Lender becomes a Lender under this Agreement (and, to the extent it is legally entitled to do so, from time to time thereafter upon the request of the Borrower or the Administrative Agent), whichever of the following is applicable:
(I)in the case of a Non-U.S. Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Credit Document, executed originals of IRS Forms W-8BEN or IRS Forms W-8BEN-E establishing an exemption from, or reduction of,
U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and
(y) with respect to any other applicable payments under any Credit Document, IRS Forms W-8BEN or IRS Forms W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;
(II)executed originals of IRS Forms W-8ECI;
(III)in the case of a Non-U.S. Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Internal Revenue Code,
(x) a certificate to the effect that such Non-U.S. Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Internal Revenue Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Internal Revenue Code (a “U.S. Tax Compliance Certificate”) and (y) executed originals of IRS Forms W-8BEN or IRS Forms W- 8BEN-E;
(IV)to the extent a Non-U.S. Lender is not the beneficial owner, executed originals of IRS Forms W-8IMY, accompanied by IRS Forms W-8ECI, IRS Forms W-8BEN or IRS Forms W-8BEN-E, U.S. Tax Compliance Certificate, IRS Forms W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Non-U.S. Lender is a partnership (and not a participating Lender) and one or more beneficial owners of such Non-U.S. Lender are claiming the portfolio interest exemption, such Non-U.S. Lender may provide a U.S. Tax Compliance Certificate on behalf of each such beneficial owner; and
(V)to the extent legally entitled to do so, executed originals of any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made.
(C)If a payment made to a Lender under any Credit Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Internal Revenue Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Internal Revenue Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment under FATCA, if any. Solely for purposes of this clause (C), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
(f)Treatment of Certain Refunds. If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes (including any direct Tax credit in lieu of refund) as to which it has been indemnified pursuant to this Section 2.14 (including additional amounts pursuant to this Section 2.14), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section 2.14 with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this Section 2.14(f) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this Section 2.14(f), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this Section 2.14(f) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This paragraph shall not be construed to require any indemnified party to make available its tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.
(g)Survival. Each party’s obligations under this Section 2.14 shall survive any assignment of rights by, or the replacement of, a Lender, the termination of the Facility and the repayment, satisfaction or discharge of all obligations under any Credit Document.
2.15.Obligation to Mitigate. Each Lender agrees that, as promptly as practicable after an officer of such Lender responsible for administering its Loans becomes aware of the occurrence of an event or the existence of a condition that would cause such Lender to become an Affected Lender or that would entitle such Lender to receive payments under Sections 2.12, 2.13 or 2.14, it will, to the extent not inconsistent with the internal policies of such Lender and any applicable legal or regulatory restrictions, use commercially reasonable efforts to (a) make, issue, fund or maintain its Credit Extensions, including any Affected Loans, through a Lender Affiliate, or
(b) take such other measures as such Lender may, in its sole discretion, deem appropriate if, as a result thereof, the circumstances which would cause such Lender to be an Affected Lender would cease to exist or the additional amounts which would otherwise be required to be paid to such Lender pursuant to Sections 2.12, 2.13 or 2.14 would be materially reduced and if, as determined by such Lender in its sole discretion, the making, issuing, funding or maintaining of its Revolving Loan Commitments or Loans through such Lender Affiliate, or in accordance with such other measures, as the case may be, would not otherwise adversely affect its Revolving Loan Commitments or Loans or the interests of the Borrower or the applicable Lender; provided, no Lender will be obligated to utilize a Lender Affiliate, pursuant to this Section 2.14 unless the Borrower agrees to pay all reasonable, documented, out-of-pocket incremental expenses incurred by such Lender as a result of utilizing such Lender Affiliate as described above. A certificate as to the amount of any such expenses payable by the Borrower pursuant to this Section 2.14 (setting forth in reasonable detail the basis for requesting such amount) submitted by the applicable Lender to the Borrower (with a copy to the Administrative Agent) shall be conclusive absent manifest error.
2.16.Determination of Borrowing Base. The Borrowing Base at any time shall be determined by reference to the most recent Borrowing Base Certificate and Monthly Servicing Report delivered to the Administrative Agent.
2.17.Cure of Borrowing Base Deficiency. With respect to any Borrowing Base Deficiency resulting solely from the reduction of the Advance Rate following the occurrence of a Tier 1 Collateral Performance Trigger, the Borrower may, within thirty (30) days of the date on which the Advance Rate was reduced, pledge additional Eligible Receivables to the Collateral Agent and/or prepay the Loans in an aggregate amount up to the amount necessary to cure such Borrowing Base Deficiency.
2.18.Increases. At any time prior to the Scheduled Commitment Termination Date, the Borrower may request, in writing delivered to the Administrative Agent, an increase in the Maximum Committed Amount in increments of $50,000,000. Any such increase to the Maximum Committed Amount will be made at the sole and absolute discretion of the Lenders and the Administrative Agent subject to, among other things, payment by the Borrower of the Increase Payment and no Event of Default, no Borrowing Base Deficiency, no Regulatory Trigger Event and no Tier 1 Collateral Performance Trigger or Tier 2 Collateral Performance Trigger existing under the Facility. The Administrative Agent (on behalf of the Lenders) shall respond to any such
request by providing a written response to the Borrower not less than thirty (30) days after receipt of such request.
2.19.Removal or Replacement of a Lender. Anything contained herein to the contrary notwithstanding, in the event that: (a) (i) any Lender (an “Increased-Cost Lender”) shall give notice to Company that such Lender is entitled to receive payments under Section 2.13 or Section 2.14 in an amount which causes the effective margin above the benchmark interest rate to exceed 11.5% when such payment is added to the Applicable Margin, (ii) the circumstances which entitle such Lender to receive such payments shall remain in effect, and (iii) such Lender shall fail to withdraw such notice within five (5) Business Days after Company’s request for such withdrawal; (b) (i) any Lender shall become a Defaulting Lender, (ii) the Default Period for such Defaulting Lender shall remain in effect, and (iii) such Defaulting Lender shall fail to cure the default as a result of which it has become a Defaulting Lender within five (5) Business Days after Company’s request that it cure such default; or (c) in connection with any proposed amendment, modification, termination, waiver or consent with respect to any of the provisions hereof as contemplated by Section 9.5(a)(ii), the consent of Administrative Agent shall have been obtained but the consent of one or more of such other Lenders that are not Affiliates of the Administrative Agent (each a “Non- Consenting Lender”) whose consent is required shall not have been obtained; then, with respect to each such Increased-Cost Lender, Defaulting Lender or Non-Consenting Lender (the “Terminated Lender”), Company may, by giving written notice to any Terminated Lender of its election to do so, elect to cause such Terminated Lender (and such Terminated Lender hereby irrevocably agrees) to assign its outstanding Revolving Loans and its Revolving Loan Commitments, if any, in full to one or more Eligible Assignees identified by Company (each a “Replacement Lender”) in accordance with the provisions of Section 9.6; provided, (1) on the date of such assignment, the Replacement Lender shall pay to the Terminated Lender an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Revolving Loans of the Terminated Lender, and (B) an amount equal to all accrued, but theretofore unpaid, fees owing to such Terminated Lender pursuant to Section 2.7; (2) on the date of such assignment, Company shall pay any amounts payable to such Terminated Lender pursuant to Section 2.13 and/or Section
2.14 and any other amounts due to such Terminated Lender; (3) in the event such Terminated Lender is an Increased-Cost Lender, such assignment will result in a reduction in any claims for payments under Section 2.13 and/or Section 2.14, as applicable, and (4) in the event such Terminated Lender is a Non-Consenting Lender, each Replacement Lender shall consent, at the time of such assignment, to each matter in respect of which such Terminated Lender was a Non- Consenting Lender. Upon the prepayment of all amounts owing to any Terminated Lender and the termination of such Terminated Lender’s Revolving Loan Commitments, such Terminated Lender shall no longer constitute a “Lender” for purposes hereof; provided, any rights of such Terminated Lender to indemnification hereunder shall survive as to such Terminated Lender.
SECTION 3. CONDITIONS PRECEDENT
3.1.Closing Date. The obligation of the Lenders to make the initial Loans hereunder is subject to the satisfaction, or waiver in accordance with Section 9.5, of the following conditions on or before the Closing Date:
(a)Credit Documents. The Administrative Agent shall have received copies of each Credit Document originally executed and delivered by each applicable Credit Party, the
Backup Servicer and the Collection Account Bank, as applicable, and the original, executed membership interests of the Borrower representing 100% of all outstanding membership interests of the Borrower, along with executed assignments in blank with respect thereto.
(b)Organizational Documents; Incumbency. The Administrative Agent shall have received copies of (i) each Organizational Document executed and delivered by each Credit Party, and, to the extent applicable, certified as of a recent date by the appropriate governmental official, (ii) signature and incumbency certificates of the officers of each Credit Party,
(i)resolutions of the board of directors, board of managers, managing member or similar governing body of each Credit Party approving and authorizing the execution, delivery and performance of this Agreement and the other Credit Documents to which it is a party, as applicable, or by which it or its assets may be bound as of the Closing Date, certified as of the Closing Date by its secretary or an assistant secretary or its director of operations or another officer acceptable to the Administrative Agent as being in full force and effect without modification or amendment, and (iv) a good standing certificate from the applicable Governmental Authority of each Credit Party’s jurisdiction of incorporation, organization or formation, each dated a recent date prior to the Closing Date.
(c)Due Organization and Good Standing. Each Credit Party shall be duly organized and in good standing in the jurisdiction of its organization and qualified to do business in any other jurisdiction where it conducts its business other than in jurisdictions where the failure to be so qualified has not had, and would not be reasonably expected to have, a Material Adverse Effect.
(d)Governmental Authorizations and Consents. Each Credit Party shall have obtained all authorizations from each applicable Governmental Authority and all consents of other Persons, in each case that are necessary in connection with the entry into the Credit Documents by such Credit Party and performance of its obligations under the Credit Documents to which it is a party and each of the foregoing shall be in full force and effect and in form and substance reasonably satisfactory to the Administrative Agent. All applicable waiting periods shall have expired without any action being taken or threatened by any Governmental Authority which would restrain, prevent or otherwise impose adverse conditions on the transactions contemplated by the Credit Documents and no action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending, and the time for any applicable agency to take action to set aside its consent on its own motion shall have expired.
(e)Collateral. In order to create in favor of the Collateral Agent, for the benefit of Secured Parties, a valid, perfected first priority Lien in the Collateral, the Collateral Agent shall have received:
(i)evidence satisfactory to the Administrative Agent of the compliance by the Credit Parties with their obligations under the Collateral Documents and the Related Agreements (including, without limitation, their obligations to authorize or execute, as the case may be, and deliver UCC financing statements, originals of securities, instruments and chattel paper and any agreements governing deposit accounts or securities accounts as provided therein);
(ii)the results of a recent search of all effective UCC financing statements (or equivalent filings) made with respect to any personal property of the Borrower in Delaware, the Company in South Carolina, Heights in Illinois and each other Originator in its jurisdiction of organization, together with copies of all such filings disclosed by such search, which shall be provided by the Credit Parties;
(iii)UCC termination statements (or similar documents) duly approved by all applicable Persons for filing in all applicable jurisdictions as may be necessary to terminate any effective UCC financing statements (or equivalent filings) disclosed in such searches with respect to the Collateral (other than any UCC financing statement filed in connection with the transactions contemplated under the Credit Documents);
(iv)evidence that each Credit Party shall have taken or caused to be taken any other action, executed and delivered or caused to be executed and delivered any other agreement, document and instrument and made or caused to be made any other filing and recording (other than as set forth herein) reasonably required by the Collateral Agent or the Administrative Agent; and
(v)evidence that the Collateral does not secure any Indebtedness other than the Obligations.
(f)Financial Statements; Forecasts. The Administrative Agent shall have received from the Credit Parties (i) any historical financial information regarding the Credit Parties reasonably requested by the Administrative Agent, (ii) any financial projections, origination projections, and cash uses and sources reports with respect to the Credit Parties reasonably requested by the Administrative Agent, and (iii) any other financial information regarding the Credit Parties as the Administrative Agent may reasonably request.
(g)Opinions of Counsel to Credit Parties. The Administrative Agent shall have received originally executed copies of the favorable written opinions of counsel for the Credit Parties, as to (i) corporate and enforceability matters, (ii) the creation and perfection of the security interests (A) in favor of the Collateral Agent in the Collateral under the Collateral Documents,
(B)in favor of the Borrower in the Receivables under the Receivables Purchase Agreement and
(C)in favor of the Seller in the Receivables under the Transfer Agreement, and in the equity interests under the Equity Pledge Agreement, (iii) true sale and nonconsolidation matters, and
(ii)such other matters as the Administrative Agent may reasonably request, dated as of the Closing Date and otherwise in form and substance reasonably satisfactory to the Administrative Agent and its counsel.
(h)Payments and Expenses. The Credit Parties shall have paid to the Administrative Agent the payments payable on the Closing Date referred to in the Payment Letter and all outstanding Permitted Expenses shall have been paid by the Credit Parties or reimbursed to the Agents and Lenders, as applicable.
(i)Solvency Certificates. On the Closing Date, the Administrative Agent shall have received Solvency Certificates from each Credit Party dated as of the Closing Date and
addressed to the Administrative Agent, attesting that before and after giving effect to the consummation of the initial Credit Extension, such Credit Party is Solvent.
(j)Closing Date Certificates. Each Credit Party shall have delivered to the Administrative Agent an executed Closing Date Certificate.
(k)No Litigation. There shall not exist any action, suit, investigation, litigation or proceeding or other legal or regulatory developments, pending or threatened in any court or before any arbitrator or Governmental Authority with respect to any of the Credit Parties, or the transactions contemplated by the Credit Documents, that would reasonably be expected to have a Material Adverse Effect.
(l)No Closing Date Material Adverse Change. No Closing Date Material Adverse Change shall have occurred.
(m)Service of Process. On the Closing Date, the Administrative Agent shall have received evidence that each of the Credit Parties has appointed C T Corporation System as its agent for the purpose of service of process and such agent shall agree in writing to give the applicable Credit Party notice of any resignation of such service agent or other termination of the agency relationship. Upon receipt by the applicable Credit Party of any notice of resignation from C T Corporation System, such Credit Party shall promptly notify the Administrative Agent.
(n)Evidence of Insurance. The Collateral Agent shall have received certificates from the Servicer’s, the Company’s and the Borrower’s insurance broker, or other evidence satisfactory to it that all insurance required to be maintained hereunder is in full force and effect, and the Administrative Agent shall have completed its review of the insurance coverage for the Servicer, the Company and the Borrower and the results of such review shall be satisfactory to the Administrative Agent in its reasonable discretion.
(o)Backup Servicer Data Mapping. The Backup Servicer shall have completed all required data mapping and obtained any other information necessary to act in its capacity as Backup Servicer, in each case, as set forth in the Backup Servicing Agreement and in a manner acceptable to the Administrative Agent in its reasonable discretion.
(p)Access to Servicing Systems. The Servicer shall have provided the Administrative Agent with remote, read-only on-line access to the Master Collection Account, Collection Account, the SMC Collection Account and the Heights Collection Account, acceptable to the Administrative Agent in its reasonable discretion; and
(q)Cash Management and Reporting Systems. The Administrative Agent shall be satisfied, in its reasonable discretion, with each of the Borrower’s, the Servicer’s and the Seller’s cash management systems and each of the Borrower’s, the Servicer’s, the Seller’s and the Backup Servicer’s operating and reporting procedures and systems, and the Borrower shall have executed account control agreements and acknowledgements satisfactory to the Administrative Agent in its reasonable discretion.
(r)Diligence. The Administrative Agent and the Lenders shall have completed their due diligence review of the financial, business, operations (including the Servicing Policies
and Credit Policies), assets (including the Receivables), liabilities, corporate, capital, legal and management structure (including receipt of satisfactory background checks on principals of any Credit Party) and contractual obligations of the Credit Parties, which review shall have provided the Administrative Agent and the Lenders with results and information which, in the reasonable judgment of the Administrative Agent and the Lenders, are satisfactory to permit the Administrative Agent and each Lender to enter into the financing transactions contemplated hereby.
3.2.Conditions to Each Credit Extension. The obligation of the Lenders to make any Loan, on any Credit Date, including the Closing Date, is subject to the satisfaction, or waiver in accordance with Section 9.5, of the following conditions precedent:
(a)each Credit Document shall be in full force and effect, shall include terms and provisions reasonably satisfactory to the Administrative Agent (provided that the terms and provisions set forth in the Credit Documents as of the Closing Date shall be deemed satisfactory to the Administrative Agent) and no provision thereof shall have been amended, restated, supplemented, modified or waived in any respect reasonably determined by the Administrative Agent to be material, in each case, without the consent of the Administrative Agent;
(b)the Administrative Agent shall have received a fully executed Funding Notice signed by an Authorized Officer of the Borrower, together with a Borrowing Base Certificate, not later than 12:00 noon (New York City time) two (2) Business Days prior to such Credit Date, evidencing sufficient Commitment Availability with respect to the requested Loan together with an updated schedule of Receivables including the Receivables to be pledged in connection with the Loan, such schedule to (A) be in an electronic file format reasonably satisfactory to the Administrative Agent and (B) set forth the information required to be provided under the Backup Servicing Agreement (including, without limitation, and with respect to each Contract, (i) the account number and (ii) the Calculated Net Balance, Gross Balance, Invested Amount, APR and term of the Receivable evidenced by such Contract) and any other information reasonably requested by the Administrative Agent with respect to such Credit Date;
(c)as of such Credit Date, immediately prior to and after giving effect to such Loan, the representations and warranties made by the applicable Credit Parties contained herein and in the other Credit Documents to which it is a party shall be true and correct in all material respects on and as of that Credit Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date;
(d)as of such Credit Date, immediately prior to and after giving effect to such Loan, no event shall have occurred and be continuing or would result from the consummation of the applicable Credit Extension that would constitute an Event of Default or a Default;
(e)as of such Credit Date, the Collateral Agent shall have received a fully executed Assignment;
(f)the Administrative Agent shall have approved all adverse changes made to the Credit Policies and the Servicing Policies in accordance with the terms set forth herein;
(g)in accordance with the terms of the Backup Servicing Agreement, the Borrower shall have uploaded the Required Upload Documents for such Credit Date and the related Lender Report to the Receivable File Datasite;
(h)no Closing Date Material Adverse Change shall have occurred;
(i)no Tier 2 Collateral Performance Trigger shall have occurred;
(j)no Regulatory Trigger Event shall have occurred; and
(k)immediately prior to and after making the Credit Extensions requested on such Credit Date, no Borrowing Base Deficiency shall exist.
Any Agent shall be entitled, but not obligated, to request and receive, prior to the making of any Credit Extension, additional information reasonably satisfactory to the requesting party confirming the satisfaction of any of the foregoing if, in the reasonable good faith judgment of such Agent, such request is warranted under the circumstances.
3.3.Conditions to Each Release of Funds. The obligation of the Collateral Agent to release funds in the Collection Account to the Borrower in accordance with Section 2.10(c) is subject to the satisfaction, or waiver in accordance with Section 9.5, of the following conditions precedent:
(a)each Credit Document shall be in full force and effect, shall include terms and provisions reasonably satisfactory to the Administrative Agent (provided that the terms and provisions set forth in the Credit Documents as of the Closing Date shall be deemed satisfactory to the Administrative Agent) and no provision thereof shall have been amended, restated, supplemented, modified or waived in any respect reasonably determined by the Administrative Agent to be material, in each case, without the consent of the Administrative Agent.
(b)the Administrative Agent shall have received a fully executed Funds Release Request signed by an Authorized Officer of the Borrower together with a Borrowing Base Certificate no later than 12:00 noon (New York City time) one (1) Business Day prior to the date on which Borrower proposes to use the requested funds to purchase additional Eligible Receivables (the “Release Date”), evidencing sufficient Facility Availability with respect to the requested funds together with an updated schedule of Receivables including the Receivables to be purchased on the Release Date, such schedule to (i) be in an electronic file format reasonably satisfactory to the Administrative Agent and (ii) set forth the information required to be provided under the Backup Servicing Agreement (including, without limitation, and with respect to each Contract, (1) the account number and (2) the Calculated Net Balance, Gross Balance, Invested Amount, APR and term of the Receivable evidenced by such Contract) and any other information reasonably requested by the Administrative Agent with respect to such Release Date;
(c)as of such Release Date, immediately prior to and after giving effect to the requested release of funds from the Collection Account, the representations and warranties made
by the applicable Credit Parties contained herein and in the other Credit Documents to which it is a party shall be true and correct in all material respects on and as of that Credit Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date;
(d)as of such Release Date, immediately prior to and after giving effect to the requested release of funds from the Collection Account, no event shall have occurred and be continuing or would result from such release of funds from the Collection Account to the Borrower that would constitute an Event of Default or a Default;
(e)as of such Release Date, the Collateral Agent shall have received a fully executed Assignment;
(f)the Administrative Agent shall have approved all adverse changes made to the Credit Policies and the Servicing Policies in accordance with the terms set forth herein;
(g)in accordance with the terms of the Backup Servicing Agreement, the Borrower shall have uploaded the Required Upload Documents for such Release Date and the related Lender Report to the Receivable File Datasite;
(h)no Closing Date Material Adverse Change shall have occurred;
(i)no Tier 2 Collateral Performance Trigger shall have occurred;
(j)no Regulatory Trigger Event shall have occurred; and
(k)immediately after the release of the requested funds to Borrower and the purchase by the Borrower of additional Eligible Receivables on such Release Date, no Borrowing Base Deficiency shall exist.
Any Agent shall be entitled, but not obligated, to request and receive, prior to the release of any funds from the Collection Account to the Borrower, additional information reasonably satisfactory to the requesting party confirming the satisfaction of any of the foregoing if, in the reasonable good faith judgment of such Agent, such request is warranted under the circumstances.
SECTION 4. REPRESENTATIONS AND WARRANTIES
In order to induce the Agents and the Lenders to enter into this Agreement and to make each Credit Extension to be made hereunder, each of the Borrower and the Company represents and warrants, as to itself, to the Agents and the Lenders, on the Closing Date, on each Credit Date and on each Release Date, that the following statements are true and correct (it being understood and agreed that the representations and warranties made on the Closing Date are deemed to be made concurrently with the consummation of the transactions contemplated by the Credit Documents):
4.1.Organization; Requisite Power and Authority; Qualification; Other Names. Each Credit Party (a) is duly organized or formed, validly existing and in good standing under the laws
of the State of its organization, (b) has all requisite corporate or limited liability company power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Credit Documents to which it is a party, and to carry out the transactions contemplated thereby and fulfill its obligations thereunder, and (c) is qualified to do business and is in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, except in jurisdictions where the failure to be so qualified or in good standing has not had, and could not be reasonably expected to have, a Material Adverse Effect. As of the date hereof, none of the Credit Parties operates or does business under any assumed, trade or fictitious name, other than as set forth on Schedule 4.1 (List of DBAs). The Borrower has no Subsidiaries.
4.2.Due Authorization. The execution, delivery and performance of the Credit Documents to which each Credit Party is a party have been duly authorized by all necessary action on the part of such Credit Party.
4.3.No Conflict. The execution, delivery and performance by each Credit Party of the Credit Documents to which it is a party and the consummation of the transactions contemplated by the Credit Documents do not and will not (a)(i) violate any provision of any law or any governmental rule or regulation applicable to such Credit Party, (ii) violate any of the Organizational Documents of such Credit Party, or (iii) violate any order, judgment or decree of any court or other agency of government binding on such Credit Party, (b) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of such Credit Party, except as could not reasonably be expected to result in a Material Adverse Effect, (c) other than any Permitted Liens, result in or require the creation or imposition of any Lien upon any of the properties or assets of such Credit Party, or (d) require any approval of stockholders, members or partners or any approval or consent of any Person under any Contractual Obligation of such Credit Party, except for such approvals or consents which will be obtained on or before the Closing Date and delivered to the Administrative Agent.
4.4.Governmental Consents. The execution, delivery and performance by each Credit Party of the Credit Documents to which it is a party and the consummation of the transactions contemplated by the Credit Documents do not and will not require any registration with; consent or approval of; permit, license, authorization, plan or directive from; notice to; or other action to, with or by, any Governmental Authority or any other Person, except for filings and recordings with respect to the Collateral to be made, or otherwise delivered to the Collateral Agent for filing and/or recordation, as of the Closing Date other than (i) those that have already been obtained and are in full force and effect and (ii) those the failure to obtain which would not reasonably be expected to result in a Material Adverse Effect.
4.5.Binding Obligation. Each Credit Document to which each Credit Party is a party has been duly executed and delivered by such Credit Party and is the legally valid and binding obligation of such Credit Party and is in full force and effect, enforceable against such Credit Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability.
4.6.Receivables. Each Receivable that is identified by the Borrower as an Eligible Receivable on a Borrowing Base Certificate or Funding Notice, or by the Servicer on a Monthly Servicing Report, satisfies the Eligibility Criteria as of the date of such certificate, notice or report; provided, however, for the avoidance of doubt, the failure of a Receivable to satisfy the Eligibility Criteria shall not constitute a breach hereunder as long as such Receivable is repurchased or replaced in accordance with Section 2.8.
4.7.No Adverse Selection. As of the date of the transfer by the Company to the Borrower, the Receivables sold or transferred by the Seller to the Borrower on such date were selected using procedures and criteria that were not known or intended by the Seller to result in such Receivables, when taken together with the Receivables previously sold by the Seller to the Borrower and considered as a whole, being of lesser quality than (a) the Company Receivables, considered as a whole, or (b) the Company Receivables pledged under any other financing facility or sold pursuant to any sale agreement under which the Company or an Affiliate of the Company is a borrower, either directly or indirectly (acting through a special purpose borrowing entity, or otherwise indirectly), in each case, as of the time of that transfer, and no selection procedures adverse to the Borrower, the Facility, the Agents or the Lenders, have been used (i) in selecting any Receivable from all other similar Company Receivables, or (ii) in allocating Company Receivables among any financing facility or sale agreement under which the Company or an Affiliate of the Company is a borrower, either directly or indirectly (acting through a special purpose borrowing entity, or otherwise); provided, however, that selection procedures that merely reflect differing eligibility criteria and excess concentration limits of the Facility and other financing facilities shall not be deemed a violation of this provision.
4.8.No Material Adverse Effect. Since December 31, 2018, no event, circumstance or change has occurred that has caused or evidences, either individually or in the aggregate, a Material Adverse Effect.
4.9.No Change of Ownership. No Change of Ownership has occurred other than with the prior written consent of the Administrative Agent.
4.10.Adverse Proceedings, etc. There are no Adverse Proceedings pending, individually or in the aggregate, that could reasonably be expected to have a Material Adverse Effect. No Credit Party is (a) in violation of any applicable laws that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, or (b) subject to or in default with respect to any final judgments, writs, injunctions, decrees, rules or regulations of any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
4.11.Payment of Taxes. Except as otherwise permitted under Section 5.3, (i) all
U.S. federal income tax returns and all other material tax returns and reports of the Borrower and the Company required to be filed by it have been timely filed, and (ii) all U.S. federal income Taxes and all other material Taxes due and payable, and all assessments, fees and other governmental charges upon the Borrower and the Company and upon its properties, assets, income, businesses and franchises which are due and payable have been timely paid when due and payable except those which are being contested in good faith by appropriate proceedings diligently
conducted and for which adequate reserves have been provided in accordance with GAAP. The Borrower is, and shall at all relevant times continue to be, a “disregarded entity” (within the meaning of U.S. Treasury Regulations Section 301.7701-3) of a U.S. Person. The Borrower is not an association or publicly traded partnership taxable as a corporation for U.S. federal income tax purposes.
4.12.Title to Assets. Each of the Borrower and the Company has good and valid title to all of its assets reflected in the most recent financial statements delivered pursuant to Section 5.9. Except as permitted by this Agreement, all such properties and assets of the Borrower are free and clear of Liens, other than Permitted Liens.
4.13.No Indebtedness. The Borrower does not have any Indebtedness, other than Indebtedness incurred under (or contemplated by) the terms of this Agreement, the other Credit Documents or otherwise permitted hereunder.
4.14.No Defaults. No Credit Party is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any of its Contractual Obligations, and to the Borrower’s and the Company’s knowledge, no condition exists which, with the giving of notice or the lapse of time or both, could constitute such a default, except where,
(a)such defaults have been waived, or (b) individually or in the aggregate, the consequences, direct or indirect, of such default or defaults, if any, could not reasonably be expected to have a Material Adverse Effect.
4.15.Governmental Regulation. The Borrower is not subject to regulation under the Investment Company Act of 1940 or under any other federal or state statute or regulation which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations unenforceable. The Borrower is not a “registered investment company” or a company “controlled” by a “registered investment company” or a “principal underwriter” of a “registered investment company” as such terms are defined in the Investment Company Act of 1940. The interest of the Lenders and the Agent hereunder and under the other Credit Documents (including, without limitation, the Loans) does not constitute an “ownership interest” in a “covered fund,” in each case, as defined under the Volcker Rule.
4.16.Margin Stock. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. No part of the proceeds of the Loans made to the Borrower will be used directly or indirectly to purchase or carry any such Margin Stock, for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry Margin Stock, to extend credit to others for the purpose of purchasing or carrying any such Margin Stock or for any purpose that violates, or is inconsistent with, the provisions of Regulations T or U of the Board of Governors of the Federal Reserve System or Regulations B, X or Z of the CFPB.
4.17.Certain Fees. No broker’s or finder’s fee or commission will be payable by the Borrower with respect to this Agreement or any of the transactions contemplated hereby. No broker’s or finder’s fee or commission will be payable by the Company with respect to this Agreement or any of the transactions contemplated hereby.
4.18.Solvency and Fraudulent Conveyance. The Borrower is and, upon the incurrence of any Credit Extension by the Borrower on any date on which this representation and warranty is made, will be, Solvent. No Credit Party is transferring any Collateral with any intent to hinder, delay or defraud any of its creditors. No Credit Party shall use the proceeds from the transactions contemplated by this Agreement to give preference to any class of creditors, except that proceeds may be used to (i) repay any Indebtedness secured by Receivables transferred to the Borrower on the Closing Date, (ii) repay any Indebtedness owed to Wells Fargo Bank, National Association under the Company’s existing credit facility, and (iii) repay any Indebtedness owed to any other creditor of a Credit Party only if such creditor has entered into an intercreditor agreement with the Administrative Agent that is acceptable to the Administrative Agent in its reasonable discretion. The Borrower has given fair consideration and reasonably equivalent value in exchange for the sale of the Receivables under the Receivables Purchase Agreement.
4.19.Compliance with Statutes, etc. Each of the Credit Parties is in compliance in all material respects with and has all Permits necessary or required by all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all Governmental Authorities, in respect of the conduct of its business and the ownership of its property, except for such failures to comply as could not reasonably be expected to have a Material Adverse Effect.
4.20.Disclosure. No report, financial statement, certificate or other information furnished (whether in writing or orally) by or at the direction of any Credit Party to any Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder or under any other Credit Document (in each case, as modified or supplemented by other information so furnished), other than projections, budgets, estimates, forward-looking statements and information of a general economic or industry specific nature, contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. The projected financial information that has been furnished by the Credit Parties to the Administrative Agent has been prepared in good faith based upon assumptions believed by the preparer thereof to be reasonable at the time. There are no facts known to any Credit Party (other than matters of a general economic nature) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect and that have not been disclosed herein or in such other documents, certificates and statements furnished to any Agent or any Lender for use in connection with the transactions contemplated hereby.
4.21.Money Control Acts/FCPA. To the extent applicable, each Credit Party is in compliance, in all material respects, with the (a) Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 C.F.R., Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto, and (b) Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act of 2001) (the “Patriot Act”). No part of the proceeds of the Loans will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended.
4.22.Security Interest.
(a)The Security Agreement creates a valid and continuing security interest (as defined in the UCC) in the Collateral (as defined thereunder) in favor of the Collateral Agent, for the benefit of the Secured Parties, which security interest is prior to all other liens (other than Permitted Liens that have priority to the security interest of the Collateral Agent under applicable law);
(b)Immediately upon the pledge by the Borrower of the Receivables and the other Collateral to the Collateral Agent under the Security Agreement, the Collateral Agent, for the benefit of the Secured Parties, shall have a valid and enforceable security interest in the Collateral, free and clear of all liens, encumbrances, security interests and rights of others, other than Permitted Liens; and
(c)All filings (including, without limitation, UCC filings or other actions) necessary in any jurisdiction to give the Collateral Agent, for the benefit of the Secured Parties, a first priority perfected security interest in Collateral of the Borrower have been made, given, taken or performed.
4.23.Payment Instructions; etc.
(a)The conditions and requirements set forth in Section 5.7 have at all times been duly satisfied and performed.
(b)The SMC Collection Account is maintained solely in the name of the Company and is not subject to any Liens other than Permitted Liens and customary liens in favor of the Master Collection Account Bank with respect to the SMC Collection Account. The Company has not granted any Person, other than the Master Collection Account Bank, dominion and control of the SMC Collection Account or the right to take dominion and control of the SMC Collection Account at a future time or upon the occurrence of a future event. The Heights Collection Account is maintained solely in the name of Heights and is not subject to any Liens other than Permitted Liens and customary liens in favor of the Master Collection Account Bank with respect to the Heights Collection Account. Heights has not granted any Person, other than the Master Collection Account Bank, dominion and control of the Heights Collection Account or the right to take dominion and control of the Heights Collection Account at a future time or upon the occurrence of a future event. Each Branch Account is maintained solely in the name of the applicable Originator and is not subject to any Liens other than Permitted Liens. None of the Company, any Originator or any of their respective Affiliates has granted any Person dominion and control of any Branch Account or the right to take dominion and control of such Branch Account at any future time or upon the occurrence of a future event.
(c)The Master Collection Account is maintained solely in the name of the Master Collection Account Bank and is not subject to any Liens other than the Liens contemplated by the Master Collection Account Agreement. The Company has not granted any Person, other than the Master Collection Account Bank, dominion and control of the Master Collection Account or the right to take dominion and control of the Master Collection Account at a future time or upon the occurrence of a future event.
(d)The Collection Account is maintained solely in the name of the Borrower. The Borrower has not granted any Person, other than the Collateral Agent as contemplated by this Agreement, dominion and control of the Collection Account, or the right to take dominion and control of the Collection Account at a future time or upon the occurrence of a future event. The Collection Account Bank has been instructed to distribute funds on deposit in the Collection Account at the direction of the Collateral Agent.
4.24.Transfer Agreement. The Transfer Agreement is valid, in full force and effect, and enforceable against the parties thereto and the Transfer Agreement creates a valid transfer and assignment to Seller of all right, title and interest of the applicable Originator in and to all Receivables and the other Collateral conveyed or purported to be conveyed to Seller thereunder. Seller has given reasonably equivalent value to the applicable Originator in consideration for the transfer to Seller by such Originator of the Receivables and Collateral pursuant to the Transfer Agreement.
4.25.Places of Business. The principal places of business and chief executive office of each Credit Party and the offices where each keeps all of its records are located at the address(es) listed in Appendix B of this Agreement or such other locations of which Collateral Agent has been notified in accordance with Section 5.1(e) in jurisdictions where all action required by Section 5.1(e) has been taken and completed. The Company is organized as a corporation under the laws of the State of South Carolina. The Borrower is organized as a limited liability company under the laws of the State of Delaware.
4.26.ERISA . No ERISA Event has occurred or is reasonably expected to occur. Neither the Borrower nor any ERISA Affiliate maintains, contributes to or has any liability with respect to any Employee Benefit Plan or Foreign Plan and has never contributed to or had any liability (including contingent liability and liability on account of an ERISA Affiliate) with respect to any Multiemployer Plan or Pension Plan. The assets of Borrower do not constitute “plan assets” within the meaning of Section 3(42) of ERISA. The Borrower is not an employee benefit plan subject to Title I of ERISA, a “plan” as defined in Section 4975(e)(1) of the Code and subject to 4975 of the Code, or a governmental plan, church plan, or Foreign Plan that is subject to federal, state, local or non-U.S. laws substantially similar in form or application to Section 406 of ERISA or Section 4975 of the Code (“Similar Laws”). The transactions contemplated by this Agreement will not cause a non-exempt prohibited transaction under Section 406 of ERISA, Section 4975 of the Code or a violation of any Similar Laws. Notwithstanding anything to the contrary in this Agreement, representations in this Section 4.27 shall be made on the Closing Date and on each day a Loan remains outstanding.
SECTION 5. AFFIRMATIVE COVENANTS
Each of the Borrower and the Company covenants and agrees, as to itself, that so long as any Revolving Loan Commitment is in effect and until payment in full of all of the Obligations (other than Unasserted Obligations), it shall, and shall cause each other Credit Party to, perform all covenants applicable to it in this Section 5.
5.1.Reports. The applicable Credit Parties specified below shall deliver, or cause to be delivered, to the Administrative Agent:
(a)Collateral Reporting. Two Business Days prior to each Credit Date and one
(1)Business Day prior to each Release Date, and in any event at least once a month, and at such other times as the Administrative Agent shall reasonably request, the Borrower shall deliver a Borrowing Base Certificate to the Administrative Agent, in form and substance satisfactory to the Administrative Agent. Each Borrowing Base Certificate delivered to the Administrative Agent shall bear a signed statement by an Authorized Officer certifying the accuracy and completeness of all information included therein. The execution and delivery of a Borrowing Base Certificate shall in each instance constitute a representation and warranty by the Borrower to the Lenders that each Eligible Receivable included therein satisfies the Eligibility Criteria as of the “as of” date of such Borrowing Base Certificate. In the event any Funding Notice or Borrowing Base Certificate with respect to a Loan or other information required by this Section 5.1(a) is delivered to the Administrative Agent by the Borrower electronically or otherwise without signature, such Funding Notice, Borrowing Base Certificate or other information shall, upon such delivery, be deemed to be signed and certified on behalf of the Borrower by an Authorized Officer and constitute a representation to the Administrative Agent as to the authenticity thereof. The Administrative Agent shall have the right to review and adjust any such calculation of the Borrowing Base to reflect exclusions from Eligible Receivables or such other matters as are necessary to determine the Borrowing Base in accordance with the terms hereof, and shall provide notice of such adjustments (with a reasonably detailed explanation of the reasons therefore) to the Borrower and the Company.
(b)Notice of Default, Collateral Performance Trigger and Servicer Default. Promptly upon any Authorized Officer of any Credit Party obtaining knowledge (i) of any condition or event that constitutes a Default, an Event of Default, a Regulatory Trigger Event, a Tier 1 Collateral Performance Trigger, a Tier 2 Collateral Performance Trigger or a Servicer Default, (ii) that any Person has given any notice to any Credit Party or taken any other action with respect to any event or condition set forth in Section 7.1, or (iii) of the occurrence of any event or change that has caused or evidences, either individually or in the aggregate, a Material Adverse Effect, a certificate of one of its Authorized Officers specifying the nature and period of existence of such condition, event or change, or specifying the notice given and action taken by any such Person and the nature of such claimed Event of Default, Default, Regulatory Trigger Event, Tier 1 Collateral Performance Trigger, Tier 2 Collateral Performance Trigger or Servicer Default, event or condition, and what action the applicable Credit Party has taken, is taking and proposes to take with respect thereto;
(c)Notice of Litigation. Promptly upon any Authorized Officer of any Credit Party obtaining actual knowledge of (i) the institution of, or non-frivolous threat of, any Adverse Proceeding against a Credit Party not previously disclosed in writing by the Borrower to the Lenders and of any material development in any such proceeding, (ii) any development in any Adverse Proceeding against the Borrower, (iii) any material development in any Adverse Proceeding against any Credit Party (other than the Borrower) that, if adversely determined, is reasonably likely to result in a judgment in an amount in excess of $500,000, or seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby, written notice thereof together with such other information as may be reasonably available to the Credit Parties to enable the Administrative Agent and its counsel to evaluate such matters; (iv) the commencement of any proceedings by or against any Credit Party under any applicable bankruptcy, reorganization, liquidation, rehabilitation,
insolvency or other similar law now or hereafter in effect or of any proceeding in which a receiver, liquidator, conservator, trustee or similar official shall have been, or may be, appointed or requested for any Credit Party, or (v) the receipt of notice that (A) any Credit Party is being placed under regulatory supervision, (B) any license, permit, charter, registration or approval necessary for the conduct of any Credit Party’s business is to be, or may be, suspended or revoked, (C) any Credit Party is to cease and desist any practice, procedure or policy employed by any Credit Party in the conduct of their respective businesses or (D) any formal investigation is commenced or threatened in writing by any Governmental Authority against any Credit Party.
(d)Breach of Representations and Warranties. Promptly upon any Authorized Officer of any Credit Party becoming aware of a material breach with respect to any representation or warranty made or deemed made by any Credit Party in any Credit Document or in any certificate at any time given by any Credit Party in writing pursuant hereto or thereto or in connection herewith or therewith, a certificate of an Authorized Officer specifying the nature and period of existence of such breach and what action such Credit Party has taken, is taking and proposes to take with respect thereto.
(e)Information Regarding Collateral. Each Credit Party will furnish to the Collateral Agent prior written notice of any change to its (i) corporate name, (ii) identity, organizational structure or jurisdiction of organization, or (iii) Federal Taxpayer Identification Number. Each of the Borrower and the Company agrees not to effect or permit any change referred to in the preceding sentence unless all filings have been made under the UCC or otherwise that are required in order for the Collateral Agent to continue at all times following such change to have a valid, legal and perfected security interest in all the Collateral. Each of the Borrower and the Company agrees to promptly notify the Collateral Agent if any material portion of the Collateral is damaged or is destroyed;
(f)Tax Returns. As soon as practicable and in any event within fifteen
(15) days following the filing thereof, the Borrower shall provide to the Administrative Agent copies of each U.S. federal income tax return or information return or report relating to taxes filed by the Company and its consolidated Subsidiaries;
(g)Credit Policies and Servicing Policies. The Borrower shall provide at least ten (10) Business Days prior written notice to the Administrative Agent of any change to the Credit Policies or the Servicing Policies; and
(h)Termination of Agent for Service of Process. Each Credit Party shall provide the Administrative Agent with prompt notice of any resignation of the service agent referred to in Section 3.1(m) with respect to such Credit Party, or any termination of the related agency relationship.
(i)Notice of DBAs. If at any time any Credit Party begins to operate or do business under any assumed, trade or fictitious name, other than as set forth on Schedule 4.1 (List of DBAs) (as the same may be updated from time to time pursuant to this Section 5.1(i)), Borrower shall provide the Administrative Agent with an updated Schedule 4.1 (List of DBAs) listing such assumed, trade or fictitious name concurrently with the next scheduled delivery of financial statements pursuant to Section 5.9(b).
(j)ERISA Notices. The applicable Credit Party shall deliver to each Agent and each Lender (i) promptly upon any Authorized Officer of any Credit Party becoming aware of the occurrence of or forthcoming occurrence of any ERISA Event, a written notice specifying the nature thereof, what actions the Credit Parties or any of their respective ERISA Affiliates has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; and (ii) with reasonable promptness, copies of (1) the most recent Schedule SB (Actuarial Information) to the annual report (Form 5500 Series) filed by any Credit Party or any of their respective ERISA Affiliates with the Internal Revenue Service with respect to each affected Plan;
(2) all notices received by any Credit Party or any of their respective ERISA Affiliates from a Multiemployer Plan sponsor concerning an ERISA Event; and (3) copies of such other documents or governmental reports or filings relating to any affected Plan of the Credit Parties or their respective ERISA Affiliates (with respect to an affected Multiemployer Plan, to the extent that the Credit Parties have rights to access such documents, reports or filings), as any Agent or Lender shall reasonably request.
5.2.Existence. Each Credit Party shall at all times preserve and keep in full force and effect (a) its existence (provided, that any Originator may liquidate, dissolve, wind up or merge with another Originator or the Company) and (b) all rights and franchises, licenses and permits material to its business as conducted by it from time to time. For the avoidance of doubt, this Section 5.2 shall not prohibit a Credit Party from exercising its business judgment in relocating or closing a branch location.
5.3.Payment of Taxes and Claims. Each of the Borrower and the Company shall pay all U.S. federal income and other material Taxes imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any penalty or fine accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided, that no such Tax or claim need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as (a) adequate reserve or other appropriate provision, as shall be required in conformity with GAAP shall have been made therefor, and (b) in the case of a Tax or claim which has or may become a Lien against any of the Collateral, such contested proceedings conclusively operate to stay the sale of any portion of the Collateral to satisfy such Tax or claim. The Borrower shall not (a) file or consent to the filing of any consolidated income tax return with any Person (other than the Parent and its Subsidiaries) or
(b)elect to be classified as an association taxable as a corporation for federal or state tax purposes.
5.4.Compliance with Laws. Each Credit Party shall comply with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority noncompliance with which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
5.5.Further Assurances. At any time or from time to time upon the request of the Administrative Agent, each Credit Party will, at its expense, promptly execute, acknowledge and deliver such further documents and take such other actions as the Administrative Agent or the Collateral Agent may reasonably request of such Credit Party in order to effect fully the purposes
of the Credit Documents, including providing any Lender with any information reasonably requested pursuant to Section 9.19.
5.6.Separateness. The Borrower acknowledges that each Lender is entering into this Agreement in reliance upon the Borrower’s identity as a legal entity that is separate from any other Person. Therefore, from and after the date of this Agreement, the Borrower shall take all reasonable steps, including without limitation, all steps that the Administrative Agent may from time to time reasonably request, to maintain the Borrower’s identity as a separate legal entity and to make it manifest to third parties that the Borrower is a separate legal entity. Without limiting the generality of the foregoing, the Borrower agrees that it has not and shall not (except as otherwise provided in the Credit Documents):
(a)fail to maintain its limited liability company existence and make independent decisions with respect to its daily operations and business affairs and, other than decisions of its member pursuant to the terms of the limited liability company agreement of the Borrower, be controlled in making such decisions by any Affiliate thereof or any other Person;
(b)fail to file its own tax returns, if any, as may be required under applicable law, to the extent it is not treated as a division for tax purposes of another taxpayer, and pay any taxes so required to be paid under applicable law;
(c)(i) fail to maintain an email address not used by any Affiliate thereof, or
(ii) share a telephone number or facsimile number with any such Affiliate;
(d)fail to pay its own liabilities only out of its own funds; provided, however, that the foregoing shall not require the member of the Borrower to make any additional capital contributions to the Borrower;
(e)fail to compensate (either directly or through reimbursement of its allocable share of any shared expenses) all employees, consultants and agents, and Affiliates of the Borrower, to the extent applicable, for services provided to the Borrower by such employees, consultants and agents or such Affiliates, in each case, from the Borrower’s own funds; provided, however, that the foregoing shall not require the member of the Borrower to make any additional capital contributions to the Borrower;
(f)except to the extent otherwise permitted under this Agreement, make or declare any dividends or other distributions of cash or property to the holders of its equity securities or make redemptions or repurchases of its equity securities, in either case, other than in accordance with appropriate corporate formalities and consistent with sound business judgment;
(g)engage, either directly or indirectly, in any business or activity other than the acquisition, ownership, financing and disposition of the Receivables in accordance with the Credit Documents and activities incidental thereto;
(h)acquire or own any material asset other than the Collateral and proceeds
thereof;
(i)merge into or consolidate with any Person or entity or dissolve, terminate or liquidate in whole or in part, transfer or otherwise dispose of all or substantially all of its assets or change its legal structure, without in each case, to the extent permitted by law, the Administrative Agent’s consent;
(j)fail to preserve its existence as an entity duly organized, validly existing and in good standing (if applicable) under the laws of the jurisdiction of its formation, or without the prior written consent of the Administrative Agent, amend, modify, change, repeal, terminate or fail to comply with the provisions of the Borrower’s certificate of formation, or its limited liability company agreement, as the case may be;
(k)own any Subsidiary or make any investment in, any Person or entity without the consent of the Administrative Agent;
(l)except as expressly provided herein, commingle its assets with the assets of any of its general partners, members, Affiliates, principals or any other Person or entity;
(m)incur any Indebtedness except the Obligations;
(n)fail to remain Solvent; provided, that this provision shall not require the member of the Borrower to make additional capital contributions to the Borrower;
(o)fail to maintain its records, books of account and bank accounts, separate and apart from those of the general partners, members, principals and Affiliates of the Borrower or the Affiliates of a general partner or member of the Borrower or any other Person;
(p)except for the Credit Documents, and as otherwise expressly permitted by the Credit Documents, enter into any contract or agreement with any other Credit Party or any general partner, member, principal or Affiliate of any other Credit Party, except with the Administrative Agent’s consent and upon terms and conditions that are intrinsically fair and substantially similar to those that would be available on an arms-length basis with third parties other than any general partner, member, principal or Affiliate of the Company, any other Credit Party, or any general partner, member, principal or Affiliate thereof or fail to maintain separate financial statements from those of its general partners, members, principles and Affiliates; provided, however, that the Borrower’s financial position, assets, liabilities, net worth and operating results may be included in the consolidated financial statements of the Company and its Affiliates; provided, further, that such consolidated financial statements disclose that the Borrower is a separate legal entity and that its assets are not generally available to satisfy the claims of creditors of the Company and its Affiliates;
(q)seek the dissolution or winding up, in whole or in part, of the Borrower or take any action that would cause the Borrower to become insolvent;
(r)fail to take reasonable efforts to correct any misunderstanding known to the Borrower regarding the separate identity of the Borrower;
(s)maintain its assets in such a manner that it will be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person;
(t)except as provided in the Credit Documents, assume or guaranty the debts of any other Person, hold itself out to be responsible for the debts of any other Person, or otherwise pledge its assets for the benefit of any other Person or hold out its credit as being available to satisfy the obligations of any other Person;
(u)except as provided in the Credit Documents, make any loans or advances to any third party, including any general partner, member, principal or Affiliate of the Borrower, or any general partner, member, principal or Affiliate thereof;
(v)fail either to hold itself out to the public as a legal entity separate and distinct from any other entity or Person or to conduct its business solely in its own name in order not (i) to mislead others as to the identity with which such other party is transacting business, or (ii) to suggest that the Borrower is responsible for the debts of any third party (including any general partner, member, principal or Affiliate of the Borrower, or any general partner, member, principal or Affiliate thereof);
(w)fail to maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations to the extent there exists sufficient cash flow from Collections to do so after payment of the Obligations, and this provision shall not require the member of the Borrower to make additional capital contributions to the Borrower;
(x)file or consent to the filing of any petition, either voluntary or involuntary, to take advantage of any applicable insolvency, bankruptcy, liquidation or reorganization statute, or make an assignment for the benefit of creditors;
(y)hold itself out as or be considered as a department or division (other than for tax purposes) of any general partner, principal, member or Affiliate of the Borrower or any other Person or entity;
(z)fail to allocate fairly and reasonably shared expenses (including, without limitation, shared office space and services performed by an employee of an Affiliate) among the Persons sharing such expenses and to use separate stationery, invoices and checks;
(aa) acquire obligations or securities of its partners, members, shareholders or other Affiliates, as applicable;
(bb) violate or cause to be violated the assumptions made with respect to the Borrower in any opinion letter pertaining to substantive consolidation delivered to the Lenders in connection with the Credit Documents;
(cc) fail to have Organizational Documents that provide that, so long as the Obligations of the Borrower shall be outstanding, the Borrower shall not (i) seek the dissolution or winding up in whole, or in part, of the Borrower, or (ii) file or consent to the filing of any petition, either voluntary or involuntary, or commence a case under any applicable insolvency, bankruptcy, liquidation or reorganization statute, or make an assignment for the benefit of creditors without the consent of the Independent Director; and
(dd) fail to cause its officers, agents and other representatives to act at all times with respect to the Borrower consistently and in furtherance of the foregoing and in the best interests of the Borrower;
(ee) fail to observe all requisite organizational formalities under Delaware law.
In the event of any inconsistency between the covenants set forth in this Section 5.6 or the other covenants set forth in this Agreement, or in the event that any covenant set forth in this Section 5.6 poses a greater restriction or obligation than is set forth elsewhere in this Agreement, the covenants set forth in this Section 5.6 shall control.
5.7.Cash Management Systems. The Borrower shall establish and maintain cash management systems as set forth below.
(a)Cash Management System.
(i)The Borrower shall have established, or have caused the Servicer to establish, pursuant to the Control Agreement for the benefit of the Collateral Agent, on behalf of the Secured Parties, a Collection Account as described in Section 2.9 into which all Collections in respect of the Receivables shall be swept.
(ii)The Company shall have established the SMC Collection Account and caused the SMC Collection Account to be subject to the SMC Account Control Agreement. Heights shall have established the Heights Collection Account and caused the Heights Collection Account to be subject to the Heights Account Control Agreement. On the Closing Date, the Company will deposit into each of the SMC Collection Account, the Heights Collection Account, each Branch Account and the Master Collection Account the amount necessary, if any, to cause such account to contain the applicable Minimum Account Amount. The Company shall cause the SMC Collection Account, the Heights Collection Account, each Branch Account and the Master Collection Account to contain at all times the applicable Minimum Account Amount. Upon the opening of any new Branch Account, the Company shall by written notice to the Agent provide an update to Schedule 1.2 hereto to designate the Minimum Account Amount for such Branch Account. The Company may from time to time adjust the Minimum Account Amount for a Branch Account, the SMC Collection Account, the Heights Collection Account, or the Master Collection Account by written notice to the Agent, which adjustment shall become effective (with the consent of the Agent in its reasonable discretion) immediately prior to the close of business (and any required sweep of funds pursuant to clause (iv) below) on the fifth (5th) Business Day following delivery thereof and as of such effective time shall constitute an update to Schedule 1.2 hereto; provided that upon the opening of any new Branch Account or any increase to any Minimum Account Amount, the Company shall, from its own funds, provide cash to the applicable account sufficient to cause such account to have the Minimum Account Amount on deposit. On and after the Closing Date, the Company will cause each Branch Office to have cash on hand at the start of business on each Business Day in an amount equal to the Specified Local Amount. The Company may from time to time replace Schedule 1.1 hereto by written notice to the Agent, which replacement shall become effective immediately prior to the close of business (and any
required sweep of funds pursuant to clause (iv)(1)(y) below) on the fifth (5th) Business Day following delivery thereof and as of such effective time shall constitute a replacement of Schedule 1.1 hereto; provided that upon any increase to any Specified Local Amount, the Company shall, from its own funds, provide cash to such Branch Office sufficient to cause such Branch Office to have the Specified Local Amount on hand.
(iii)The Company shall have caused the Master Collection Account Bank to establish the Master Collection Account and caused the Master Collection Account to be subject to the Master Collection Account Agreement.
(iv)The Borrower and the Servicer (1) will instruct (or otherwise cause) each Obligor to make all payments with respect to Receivables directly to a branch for deposit to a Branch Account (for payments made by cash or check) and directly to the SMC Collection Account or the Heights Collection Account (for payments made by credit card, ACH or any other electronic form of payment), it being understood that (x) upon receipt of any payments by check by a branch, such branch shall cause such checks to be deposited to a Branch Account, and (y) all cash in excess of the Specified Local Amount at any Branch Office at the end of each day shall be deposited to a Branch Account; provided, however, that such Branch Office may use such cash on hand to advance new loans and for local expenses; provided further that such Branch Office shall provide notice to Servicer each day of the amount of cash so used (the “Daily Cash Usage”), (2) will instruct (or otherwise cause) the account bank for each Branch Account to deposit, on each Business Day, all available funds in any such Branch Account in excess of the applicable Minimum Account Amount, to the Master Collection Account or the SMC Collection Account or the Heights Collection Account, as applicable, (3) will instruct (or otherwise cause) the SMC Collection Account Bank and the Heights Collection Account Bank to deposit, on each Business Day, all available funds in the SMC Collection Account or the Heights Collection Account, as applicable, in excess of the applicable Minimum Account Amount to the Master Collection Account, (4) will instruct (or otherwise cause) the Master Collection Account Bank to deposit all Collections deposited into the Master Collection Account to the Collection Account within two (2) Business Days after receipt in the Master Collection Account pursuant to the terms of the Master Collection Account Agreement and (5) will deposit (or cause to be deposited, including by standing instruction) to the Master Collection Account on each Business Day an amount equal to the Daily Cash Usage for the prior Business Day. Each Branch Account, the SMC Collection Account, the Heights Collection Account and the Master Collection Account shall hold only collections on Company Receivables (including deposits of Daily Cash Usage) and such collections shall not be commingled with any other funds other than any Minimum Account Amounts deposited therein on the Closing Date. Each remittance of Collections to the Collection Account shall be without setoff, netting, deduction or counterclaim of any kind. The instructions to the account bank for each Branch Account, the SMC Collection Account Bank and the Heights Collection Account Bank, as applicable, pursuant to the foregoing clauses (2) and (3) shall be in the form of (x) if available, an automatic sweep in accordance with the applicable control agreement, or (y) if an automatic sweep is not available, an irrevocable standing instruction to the applicable account bank, SMC Collection Account Bank or Heights Collection Account Bank, as applicable, in form and substance satisfactory to the Administrative Agent.
(v)The cash management system described in clauses (i) through (iv) above shall be referred to herein as the “Cash Management System”.
(vi)Other than as contemplated above, the Borrower shall not establish any new Cash Management System without the prior written consent of the Administrative Agent in its sole discretion, and prior to establishing any such new Cash Management System, the Borrower shall cause each bank, financial institution or post office box, as applicable, with which it seeks to establish such a Cash Management System to enter into a control agreement similar to the Control Agreement; provided, however, if documented fraud shall occur requiring Borrower to establish any new account, Borrower may establish such new account in consultation with the Administrative Agent and the Borrower shall cause each bank, financial institution or post office box, as applicable, with which it seeks to establish such new account to enter into a control agreement with respect to such account similar to the Control Agreement contemporaneously with the establishment of such new account.
(vii)Without the prior written consent of the Administrative Agent, in its sole discretion, the Borrower shall not, in a manner adverse to the Collateral Agent,
(A) change the general instructions given to the Obligors, the Servicer, the Master Collection Account Bank or the Collection Account Bank in respect of payments on account of Receivables to be deposited in the Cash Management System, or (B) change any instructions given to any bank or financial institution which in any manner redirects the proceeds of any collections in the Cash Management System to any account which is not subject to a control agreement in favor of the Master Collection Account Bank or the Collateral Agent, as applicable.
(viii)The Borrower acknowledges and agrees that the funds on deposit in the Collection Account shall continue to be collateral security for the Obligations secured thereby.
(ix)The Company agrees that each of the SMC Collection Account and the Heights Collection Account shall at all times be maintained solely in the name of the Company or Heights, as applicable, and shall not be or become subject to any Liens other than Permitted Liens and customary liens in favor of the Master Collection Account Bank with respect to the SMC Collection Account and the Heights Collection Account. The Company shall not grant any Person, other than the Master Collection Account Bank, dominion and control of the SMC Collection Account or the Heights Collection Account or the right to take dominion and control of the SMC Collection Account or the Heights Collection Account at any future time or upon the occurrence of any future event. The Company agrees that each of the Branch Accounts shall at all times be maintained solely in the name of the applicable Originator, and shall not be or become subject to any Liens other than Permitted Liens. The Company shall not grant, and shall not permit any of its Affiliates to grant, any Person dominion and control over any Branch Account or the right to take dominion and control of any Branch Account at any future time or upon the occurrence of any future event.
(b)Receivables Payment Collection. The Borrower and Servicer each agrees
(i)to instruct or otherwise cause each Obligor to make all payments with respect to Receivables directly to the Cash Management System, and (ii) promptly (and, except as set forth in the proviso to this Section 5.7(b), in no event later than two (2) Business Days following receipt) to deposit, or cause to be deposited, all Collections received by the Borrower or the Servicer in any manner not described in Section 5.7(a)(iv), whether in the form of cash, checks, notes, drafts, bills of exchange, money orders, credit card payments, electronic payments, ACH payments or otherwise, with any endorsements of the Borrower or the Servicer, as applicable, necessary for deposit or collection, into the SMC Collection Account or the Heights Collection Account, as applicable, without deposit into any intervening account, in each case to be swept to the Master Collection Account; provided, however, that with respect to any payment received that does not contain sufficient identification of the account number to which such payment relates or cannot be processed due to an act beyond the control of the Borrower or the Servicer, such deposit shall be made no later than the second (2nd) Business Day following the date on which such account number is identified or such payment can be processed, as applicable. Until such amounts are deposited, the Borrower or the Servicer, as applicable, will hold such payments in trust for and as the property of the Collateral Agent for the benefit of the Secured Parties.
5.8.Insurance. The Borrower, the Company and the Servicer shall maintain in force
(a) an “errors and omissions” insurance policy in an amount not less than $1,000,000, naming the Borrower as loss payee, (b) an employee fidelity insurance policy in an amount not less than
$1,000,000, naming the Administrative Agent, for the benefit of the Secured Parties, as beneficiary and additional loss payee and (c) property and casualty insurance in an amount reasonably acceptable to the Administrative Agent, in each case, (i) in a form reasonably acceptable to the Administrative Agent and (ii) with an insurance company reasonably acceptable to the Administrative Agent. Unless otherwise directed by the Administrative Agent, the Borrower, the Company and the Servicer shall prepare and present, on behalf of itself, the Administrative Agent and the Secured Parties, claims under any such policy in a timely fashion in accordance with the terms of such policy, and upon the filing of any claim on any policy described in this Section 5.8, the Borrower, the Company or the Servicer, as the case may be, shall promptly notify the Administrative Agent of such claim and deposit, or cause to be deposited, the Net Insurance Proceeds of any such claim into the Collection Account; provided, however, that such requirements shall not apply to any property and casualty insurance that is unrelated to the Borrower or the assets of the Borrower. Prior to the Closing Date and annually thereafter, the Borrower shall deliver copies of such policies to the Administrative Agent together with a certification from the applicable insurance company that such policy is in force on such date. The Borrower shall deliver proof of maintenance of such policies and payment of premiums no less frequently than annually, in form and substance reasonably acceptable to the Administrative Agent.
5.9.Financial Statements.
(a)Annual Financial Statements. (i) As soon as available and no later than one hundred twenty (120) days after the end of each Fiscal Year, the Borrower shall deliver to the Administrative Agent one (1) copy of: (A)(x) the audited consolidated balance sheets of the Parent and its consolidated Subsidiaries (including the Borrower) and (y) the consolidating balance sheets of the Parent and the Borrower and (B)(x) the audited consolidated statements of income,
stockholders’ equity and cash flows of the Parent and its consolidated Subsidiaries (including the Borrower) and (y) the consolidating statements of income and stockholders’ equity of the Parent and the Borrower and in each case, setting forth in comparative form the figures for the previous Fiscal Year and accompanied by an opinion of the Independent Accountants stating that such audited balance sheet and audited financial statements present fairly the financial condition and results of operation of the companies being reported upon and have been prepared in accordance with GAAP consistently applied (except for changes in application in which such accountants concur.
(b)Monthly Financial Statements. As soon as available and no later than thirty
(30) days after the end of each calendar month, the Borrower shall deliver, or cause to be delivered, to the Administrative Agent one (1) copy of: (A)(x) the unaudited consolidated balance sheets of the Parent and its consolidated Subsidiaries (including the Borrower) and (y) the consolidating balance sheets of the Parent and the Borrower and (B)(x) the unaudited consolidated statements of income, stockholders’ equity and cash flows of the Parent and its consolidated Subsidiaries (including the Borrower) and (y) the consolidating statements of income and stockholders’ equity of the Parent and the Borrower and in each case, which shall be prepared and presented in accordance with, and provide all necessary disclosure (other than footnote disclosure) required by, GAAP and shall be accompanied by a certificate signed by the president, financial vice president, treasurer, chief financial officer, chief investment officer or controller of the Parent or another officer of the Parent reasonably acceptable to the Administrative Agent stating that such balance sheet and financial statements presents fairly the financial condition and results of operation of the Parent and its consolidated Subsidiaries and has been prepared in accordance with GAAP consistently applied. Any financial statements delivered pursuant to this Section 5.9(b) may be subject to adjustment in accordance with GAAP upon delivery of the financial statements required under Section 5.9(a).
5.10.Due Diligence; Access to Certain Documentation.
(a)Each of Administrative Agent and each Lender (and their respective agents or professional advisors) shall have the right under this Agreement, from time to time, so long as no Event of Default or Regulatory Trigger Event has occurred and is continuing upon three
(3) Business Days’ prior notice to the relevant party (or, following the occurrence of an Event of Default or Regulatory Trigger Event, at any time, in their sole discretion), to examine and audit, during regular business hours, any and all of the books, records, financial statements, credit and collection policies, legal and regulatory compliance, operating and reporting procedures and information systems (including without limitation customer service and/or whistleblower hotlines), directors, officers and key employees of the Credit Parties, or held by another Person for a Credit Party or on its behalf, concerning or otherwise affecting the Company Receivables or the Credit Documents. Any participants of any Lender shall be permitted to participate in any examination or audit pursuant to this Section 5.10. The Administrative Agent and each Lender (and their respective agents, professional advisors and participants) shall treat as confidential any information obtained during the aforementioned examinations which is not already publicly known or available; provided, however, that the Administrative Agent (and its agents or professional advisors) may disclose such information with any participants of any Lender and if required to do so by law or by any regulatory authority.
(b)So long as no Event of Default or Regulatory Trigger Event has occurred and is continuing upon three (3) Business Days’ prior notice to the relevant party (or, following the occurrence of an Event of Default or Regulatory Trigger Event, at any time) and during regular business hours, each of the Borrower and the Company agrees to promptly provide the Administrative Agent and each Lender (and their respective agents or professional advisors) with access to, copies of and extracts from any and all documents, records, agreements, instruments or information (including, without limitation, any of the foregoing in computer data banks and computer software systems) which the Administrative Agent or any such Lender (and their respective agents or professional advisors) may reasonably require in order to conduct periodic due diligence relating to the Credit Parties in connection with the Company Receivables and the Credit Documents.
(c)Each Credit Party will make available to the Administrative Agent and each Lender (and their respective agents or professional advisors) knowledgeable financial, accounting, legal and compliance officers for the purpose of answering questions with respect to the Credit Parties and the Company Receivables and to assist in the Administrative Agent’s and/or such Lender’s diligence. In addition, the Borrower shall provide, or shall cause the Servicer to provide, the Administrative Agent with remote access to any electronic Receivable Files and any related documents and to the Collection Account, the SMC Collection Account, the Heights Collection Account, and, to the extent that the Master Collection Account Bank provides such a service, the Master Collection Account. Each of the Borrower and the Company agrees that the Servicer will cooperate with the Administrative Agent in order for the Administrative Agent to confirm any information relating to the Receivables directly with the applicable Obligors.
(d)All reasonable costs and expenses incurred by the Administrative Agent and the Lenders (and their respective agents or professional advisors) in connection with the matters outlined in this Section 5.10 shall be Permitted Expenses, which the Borrower shall reimburse to the Administrative Agent or the Lenders, as applicable, or shall pay or cause to be paid.
(e)Prior to the occurrence of a Regulatory Trigger Event, a Tier 1 Collateral Performance Trigger, a Default or an Event of Default, the Administrative Agent and the Lenders, collectively, shall not conduct more than four (4) examinations or audits pursuant to this Section 5.10 at the expense of the Borrower per calendar year; provided that from and after the date that the Verification Completion Condition has been satisfied and prior to the occurrence of a Regulatory Trigger Event, a Tier 1 Collateral Performance Trigger, a Default or an Event of Default, Borrower shall not be responsible for any portion of such expenses that exceeds $125,000 in the aggregate for any calendar year. The Administrative Agent shall work in good faith to coordinate any examinations or audits pursuant to this Section 5.10 with other creditors of the Credit Parties.
5.11.Dividend Restriction. The Borrower shall not make any payments of Cash dividends or other Cash distributions to the Company, other than (i) on each Settlement Date during the Revolving Period, Cash dividends to the Company from funds received by the Borrower pursuant to Section 2.10(a)(vii); (ii) on each Settlement Date during the Amortization Period or following the occurrence and during the continuance of an Event of Default, Cash dividends to the Company from funds received by the Borrower pursuant to Section 2.10(b)(ix); and (iii) Cash
dividends or Cash distributions made with the prior written consent of the Administrative Agent, in its reasonable discretion.
5.12.Facility Rating. The Administrative Agent may, at any time after the Closing Date, upon written notice to the Borrower, request private ratings of this Facility from one or more credit rating agencies selected by such Administrative Agent. The Borrower and the Company agree that each of them shall cooperate with the Administrative Agent’s efforts to obtain such ratings, and shall provide the applicable credit rating agencies (either directly or through distribution to the Administrative Agent), reasonable access to their respective books, records, financial statements, policies, directors, officers and employees, other documents or other information, in each case, as reasonably requested by such credit rating agencies for the purpose of providing and monitoring such ratings. Each of the Borrower and the Company agrees that the Lenders and the Administrative Agent shall have the right to disclose the terms of this Agreement and the transactions contemplated hereby to the applicable credit rating agencies; provided, however, that each such rating agency shall agree to comply with requirements substantially similar to those set forth in Section 9.22 with respect to any Confidential Information provided thereto. None of the Borrower, the Company or any of their respective Affiliates shall be responsible to pay or bear any costs or expenses in connection with this Section 5.12.
5.13.Transfer Agreement. Each of the Seller and the Borrower shall enforce the rights and remedies afforded to it against the applicable Originators under the Transfer Agreement.
5.14.Renewals of Receivables. Upon the occurrence of a renewal of any Receivable, the Borrower shall either (i) deposit, or cause to be deposited, the Net Balance of such Receivable in accordance with the Cash Management System on the day of such renewal and any other amounts owed on such Receivable or (ii) solely if the resulting renewed Receivable is an Eligible Receivable with a Net Balance greater than or equal to the Net Balance of the Receivable that was renewed, acquire such renewed Receivable pursuant to the Receivables Purchase Agreement and pledge such renewed Receivable to the Collateral Agent, for the benefit of the Secured Parties, pursuant to the Security Agreement on the day of such renewal.
5.15.Verification Completion Condition. The Company shall satisfy the Verification Completion Condition on or prior to the date that is nine (9) months following the Closing Date, or such later date as agreed to in writing by the Administrative Agent in its reasonable discretion.
SECTION 6. NEGATIVE COVENANTS
Each of the Borrower and the Company covenants and agrees, as to itself, that so long as any Revolving Loan Commitment is in effect and until payment in full of all of the Obligations (other than Unasserted Obligations), it shall, and shall cause each other Credit Party to, perform all covenants applicable to it in this Section 6.
6.1.Indebtedness. The Borrower shall not directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to any Indebtedness, except for (i) the Obligations or (ii) any other Indebtedness under the Credit Documents.
6.2.Liens. The Borrower shall not, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of the Borrower whether now owned or hereafter acquired, or any income or profits therefrom, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any Lien with respect to any such property, asset, income or profits under the UCC of any State or under any similar recording or notice statute, except (a) Liens in favor of the Collateral Agent for the benefit of Secured Parties granted pursuant to any Credit Document, and (b) Permitted Liens.
6.3.Investments. The Borrower shall not make or own any Investment, except Investments in Cash, Cash Equivalents and Receivables.
6.4.Fundamental Changes; Disposition of Assets; Acquisitions. The Borrower shall not (a) enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or (b) convey, sell, lease or sub-lease (as lessor or sublessor), exchange, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, assets (including, but not limited to, the Receivables) or property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, whether now owned or hereafter acquired, except as otherwise permitted in the Credit Documents, or
(c) acquire by purchase or otherwise the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person or any division or line of business or other business unit of any Person, except Receivables and Other Conveyed Property (as defined in the Receivables Purchase Agreement) acquired pursuant to the Receivables Purchase Agreement and Investments made in compliance with Section 6.3. No other Credit Party shall (a) enter into any transaction of merger or consolidation, liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution) or (b) convey, sell, lease or sub-lease (as lessor or sublessor), exchange, transfer or otherwise dispose of, in one transaction or a series of transactions, all or substantially all of its business, assets or property, except, (i) any Originator may liquidate, dissolve, wind up or merge with another Originator or the Company and (ii) in each case, with the prior written consent of the Administrative Agent, which consent shall not be unreasonably withheld, conditioned or delayed.
6.5.Material Contracts and Organizational Documents. The Borrower shall not
(a) enter into any contract or agreement with any Person other than the Credit Documents, the Independent Director, any agent appointed by the Borrower for the purpose of service of process or as otherwise permitted or contemplated under the Credit Documents, (b) agree to any material amendment, restatement, supplement or other modification to, or waiver of, any of its material rights under any Related Agreement after the Closing Date, or (c) materially amend or permit any material amendments to its Organizational Documents, without in each case obtaining the prior written consent of the Administrative Agent to such entry, amendment, restatement, supplement, modification or waiver, as the case may be. No other Credit Party shall agree to any material amendment, restatement, supplement or other modification to, or waiver of, any of its material rights under any Related Agreement after the Closing Date, which amendment, restatement, supplement, modification or waiver would, in the Administrative Agent’s reasonable discretion, adversely affect any Lender, without obtaining the prior written consent of the Administrative Agent to such amendment, restatement, supplement, modification or waiver, as the case may be.
6.6.Sales and Lease-Backs. The Borrower shall not directly or indirectly become or remain liable as lessee or as a guarantor or other surety with respect to any lease of any property (whether real, personal or mixed), whether now owned or hereafter acquired, which the Borrower
(a)has sold or transferred or is to sell or to transfer to any other Person, or (b) intends to use for substantially the same purpose as any other property which has been or is to be sold or transferred by the Borrower to any Person in connection with such lease.
6.7.Transactions with Affiliates. The Borrower shall not, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any of its Affiliates other than the transactions contemplated or permitted by the Credit Documents.
6.8.Conduct of Business. From and after the Closing Date, the Borrower shall not engage in any business other than the businesses engaged in by the Borrower on the Closing Date.
6.9.Fiscal Year. No Credit Party shall change its Fiscal Year; provided that Heights and its subsidiaries may change their Fiscal Year to December 31 to match the Parent and its other consolidated subsidiaries.
6.10.Accounts. The Borrower shall not establish or maintain any deposit account or securities account that is not subject to a “control agreement” in favor of the Administrative Agent. The Borrower shall not, nor shall it direct any Person to, deposit Collections in a deposit account or a securities account that is not a Branch Account, the SMC Collection Account or the Heights Collection Account.
6.11.Prepayments of Certain Indebtedness. The Borrower shall not, directly or indirectly, voluntarily purchase, redeem, defease or prepay any principal of, premium, if any, interest or other amount payable in respect of any Indebtedness prior to its scheduled maturity, other than the Obligations.
6.12.Servicing Agreement and Backup Servicing Agreement. Each of the Credit Parties shall use its commercially reasonable efforts to cause Servicer and the Backup Servicer respectively, to comply at all times with the applicable terms of the Servicing Agreement and the Backup Servicing Agreement, respectively. None of the Credit Parties may (i) terminate, remove or replace the Servicer or the Backup Servicer, as applicable or (ii) subcontract out any portion of the servicing or permit third party servicing other than to the respective Originators and to the Backup Servicer, except, in each case, as expressly set forth in the applicable Credit Document and subject to satisfaction of the related requirements therein. The Administrative Agent may not terminate, remove, or replace the Servicer or the Backup Servicer except as expressly set forth in the applicable Credit Document and subject to satisfaction of the related requirements therein.
6.13.Independent Director. The Borrower shall not fail at any time to have at least one
(1)Independent Director that is not and has not been for at least five (5) years, (a) a shareholder (or other equity owner) of, or an officer, director, partner, manager, member (other than as a special member in the case of single member Delaware limited liability companies), employee, attorney or counsel of, the Borrower or any of its Affiliates, (b) a customer or creditor of, or supplier to, the Borrower or any of its Affiliates, who derives any of its purchases or revenue from its activities
with the Borrower or any of its Affiliates (other than a de minimis amount), (c) a person who controls or is under common control with any such officer, director, partner, manager, member, employee, supplier, creditor or customer, or (d) a member of the immediate family of any such officer, director, partner, manager, member, employee, supplier, creditor or customer; provided that the foregoing subclause (a) shall not apply to any Person who serves, or has served, as an independent director or an independent manager for any Affiliate of the Borrower; provided, that upon the death or incapacity of such Independent Director, the Borrower will have a period of ten
(10) Business Days following such event to appoint a replacement Independent Director; provided, further, that the Borrower shall cause its Independent Director not to resign until a replacement independent director has been appointed; provided, further, that before any Independent Director is replaced, removed, resigns or otherwise ceases to serve (for any reason other than the death or incapacity of such Independent Director), the Borrower shall provide written notice to the Administrative Agent no later than three (3) Business Days prior to such replacement, removal or effective date of cessation of service and of the identity and affiliations of the proposed replacement Independent Director.
6.14.Sales of Receivables by the Borrower. The Borrower shall not sell, transfer or otherwise dispose of any Receivables without the prior written consent of the Administrative Agent (which consent may be granted or withheld in its reasonable discretion), other than:
(a)the sale, transfer or disposition of any Receivable in accordance with Section 2.8(a) in connection with a Receivable Repurchase Event; or
(b)that, following commercially reasonable collection efforts on the part of the Servicer, is a Charged-Off Receivable to a Person who is not an Affiliate of any Credit Party, so long as no Event of Default has occurred and is continuing at such time, the Agent (in its reasonable discretion) has consented to such sale (or series of sales pursuant to a forward flow purchase arrangement) in writing and the proceeds of the sale of such Charged-Off Receivable are deposited directly into the Collection Account.
6.15.Changes to the Credit Policies or the Servicing Policies. No Credit Party shall make any adverse changes or adverse modifications to the Credit Policies or the Servicing Policies without the prior written consent of the Borrower and the Administrative Agent (such consent not to be unreasonably withheld or delayed); provided that changes or modifications that a Credit Party determines in good faith are required by applicable law may be made with prior notice to the Administrative Agent and the Borrower without such prior written consent.
SECTION 7. EVENTS OF DEFAULT
7.1.Events of Default. Each of the following conditions or events shall constitute an “Event of Default” hereunder:
(a)Failure to Make Payments When Due. Other than with respect to a Borrowing Base Deficiency, the failure by any Credit Party, as applicable, to (i) make payments of any principal, interest, premiums, payments or fees due to the Administrative Agent, the Collateral Agent or any Lender on the date such payment or deposit is due, (ii) make any other payment or deposit required to be made under any Credit Documents within two (2) Business Day
of the date such payment or deposit is due (provided Borrower has been provided prior written notice) or, (iii) if any such payment is due on the Final Maturity Date, make such payment on the Final Maturity Date; or
(b)Borrowing Base Deficiency. Failure by the Borrower to cure (x) any Borrowing Base Deficiency resulting solely from the reduction of the Advance Rate following the occurrence of a Tier 1 Collateral Performance Trigger within thirty (30) days of the earlier of (i) an Authorized Officer of the Borrower becoming aware that a Borrowing Base Deficiency exists, and
(ii)receipt by the Borrower of notice from the Administrative Agent that a Borrowing Base Deficiency exists or (y) any Borrowing Base Deficiency not resulting solely from the reduction of the Advance Rate following the occurrence of a Tier 1 Collateral Performance Trigger within two
(2) Business Days of the earlier of (i) an Authorized Officer of the Borrower becoming aware that a Borrowing Base Deficiency exists, and (ii) receipt by the Borrower of notice from the Administrative Agent that a Borrowing Base Deficiency exists; or
(c)Cross Defaults. (i) The failure by any Credit Party to make any payment when due (after giving effect to any applicable grace period) on any Material Indebtedness or
(ii)the default by any Credit Party in the performance of any term, provision or condition contained in any agreement under which any such Material Indebtedness was created or is governed, the effect of which is to cause, or to permit the holder or holders of such Material Indebtedness to cause, such Material Indebtedness to become due prior to its stated maturity; or any such Material Indebtedness of any Credit Party shall be declared to be due and payable or required to be prepaid (other than by a regularly scheduled payment) prior to the date of maturity thereof; or
(d)Breach of Certain Covenants. Failure of any Credit Party, as applicable, to perform or comply with any covenant or other agreement contained in Sections 2.8, 5.2(a), 5.4, 5.6, 5.7, 5.9, 5.11, 5.15 or 6, hereof, in Section 3.2 of the Receivables Purchase Agreement or in the Exclusivity Side Letter unless otherwise previously consented to by the Administrative Agent in writing; or
(e)Breach of Representations, etc. Any representation, warranty, certification or other statement made or deemed made by any Credit Party in any Credit Document to which it is a party or in any statement or certificate at any time given by any Credit Party or any of its Subsidiaries in writing pursuant hereto or thereto or in connection herewith or therewith, shall be false as of the date made or deemed made and which shall not have been remedied or waived within fifteen (15) Business Days after the earlier of (i) an Authorized Officer of such Credit Party becoming aware of such falsity, or (ii) receipt by such Credit Party of written notice from the Administrative Agent or any Lender of such falsity; or
(f)Other Defaults Under Credit Documents. Any Credit Party shall default in the performance of or compliance with any covenant or other term contained herein or any of the other Credit Documents to which it is a party, other than any such term referred to in any other provision of this Section 7.1, and shall not have been remedied or waived within fifteen (15) Business Days after the earlier of (i) an Authorized Officer of such Credit Party becoming aware of such default, or (ii) receipt by such Credit Party of written notice from the Administrative Agent or any Lender of such default; or
(g)Involuntary Bankruptcy; Appointment of Receiver, etc. (i) A court of competent jurisdiction shall enter a decree or order for relief (other than a decree or order described in clause (ii)) in respect of any Credit Party in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law, or (ii) an involuntary case shall be commenced against any Credit Party under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over such Credit Party shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of such Credit Party, and any such event described in this clause (ii) shall continue for sixty (60) days without having been dismissed, bonded or discharged; or
(h)Voluntary Bankruptcy; Appointment of Receiver, etc. (i) Any Credit Party shall commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or any such Credit Party shall make any assignment for the benefit of creditors, or (ii) any Credit Party shall be unable, or shall fail generally, or shall admit in writing its inability, to pay its debts as such debts become due; or the board of directors (or similar governing body) of such Credit Party (or any committee thereof) shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to herein or in Section 7.1(g); or
(i)Judgments and Attachments. Any money judgment, writ or warrant of attachment or similar process involving the Borrower, or with respect to any other Credit Party, in the aggregate at any time an amount in excess of $500,000 with respect to all other Credit Parties, to the extent not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage, shall be entered or filed against a Credit Party or any of its assets and (A) shall remain undischarged, unvacated, unbonded or unstayed for a period of thirty
(30) days (or in any event later than five (5) days prior to the date of any proposed sale thereunder in connection with any enforcement proceedings commenced by a creditor upon such judgment, writ, warrant of attachment or similar process), or (B) a decree or order is entered for the appointment of a receiver, liquidator, sequestrator, trustee, or custodian assignee for the benefit of creditors (or other officer having similar powers) over such assets; or
(j)Dissolution. Any order, judgment or decree shall be entered against any Credit Party decreeing the dissolution or split up of such Credit Party and such order shall remain undischarged or unstayed for a period in excess of thirty (30) days; or
(k)Change of Ownership. A Change of Ownership shall occur or any Credit Party shall enter into any transaction of merger or consolidation in which it is not the surviving entity, in each case, without the prior written consent of the Administrative Agent; or
(l)Collateral Documents and other Credit Documents. At any time after the execution and delivery thereof, (i) this Agreement or any Collateral Document ceases to be in full force and effect (other than by reason of a release of Collateral in accordance with the terms hereof or thereof or the satisfaction in full of the Obligations in accordance with the terms hereof) or shall be declared null and void or the enforceability thereof shall be impaired in any material respect, or the Collateral Agent shall not have or shall cease to have a valid and perfected Lien in any Collateral purported to be covered by the Collateral Documents with the priority required by the relevant Collateral Document, in each case for any reason other than the failure of the Collateral Agent or any Secured Party to take any action within its control, or (ii) any of the Credit Documents for any reason, other than the satisfaction in full of all Obligations, shall cease to be in full force and effect (other than in accordance with its terms) or shall be declared to be null and void or a party thereto, as the case may be, shall repudiate its obligations thereunder or shall contest the validity or enforceability of any Credit Document in writing; or
(m)Servicing Agreement. A Servicer Default shall have occurred and has not been cured or waived as permitted under the Servicing Agreement; or
(n)Financial Statements. The auditor’s opinion accompanying the audited financial statements of any Credit Party delivered hereunder is adverse or is qualified in any material manner; or
(o)Material Exceptions. A material exception in any audit conducted pursuant to Section 5.10 which is not cured within ten (10) Business Days of the earlier to occur of an Authorized Officer of the applicable Credit Party having knowledge thereof or an Authorized Officer of the applicable Credit Party receiving written notice thereof from the Administrative Agent; or
(p)Material Adverse Effect. The occurrence of any event which is reasonably determined by the Administrative Agent, acting in good faith, to have a Material Adverse Effect; or
(q)Action by Administrative Body. The occurrence of a Tier 2 Regulatory Trigger Event; or
(r)Collateral Performance Trigger. The occurrence of any Tier 2 Collateral Performance Trigger; or
(s)Guaranty Trigger Event. The occurrence of any Trigger Event (as defined in the Guaranty), and such occurrence extends beyond the applicable grace period, if any, provided therefor; or
(t)Guaranty Default. The occurrence of a default by the Guarantor under the Guaranty, and such default extends beyond the applicable grace period, if any, provided therefor; or
(u)ERISA. Either (i) there shall occur one or more ERISA Events, (ii) the Borrower establishes, contributes or becomes obligated to contribute to, or otherwise incurs any material liability with respect to, an Employee Benefit Plan, (iii) Borrower, the Company, any of
its Subsidiaries or any ERISA Affiliate shall establish, contribute to or incur any liability with respect to any Pension Plan or Multiemployer Plan, or (iv) the assets of Borrower constitute “plan assets” within the meaning of Section 3(42) of ERISA; or
(v)Investment Company. The Borrower shall become subject to regulation under the Investment Company Act of 1940; or
(w)Backup Servicing Agreement. The Backup Servicing Agreement shall terminate for any reason and the Borrower shall not have entered into a replacement backup servicing agreement acceptable to the Administrative Agent in its reasonable discretion within sixty (60) days of such termination; or
(x)[***] or
(y)[***]; or
(z)[***].
THEN, (A) upon the occurrence of any Event of Default described in Sections 7.1(g), 7.1(h) or 7.1(j), automatically, and (B) upon the occurrence and during the continuance of any other Event of Default, at the request of (or with the consent of) the Administrative Agent or the Required Remedies Lenders, upon written notice to the Borrower, the Servicer, the Backup Servicer and the Lenders by the Administrative Agent, (x) the Revolving Loan Commitments, if any, shall immediately terminate; (y) each of the following shall immediately become due and payable, in each case without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by each Credit Party: (1) the unpaid principal amount of and accrued interest on the Loans and (2) all other Obligations (other than contingent indemnification obligations for which no claim, demand or notice has been made); and (z) the Administrative Agent shall cause the Collateral Agent to enforce any and all Liens and security interests created pursuant to the Collateral Documents. Notwithstanding anything in this Agreement or any other Credit Documents to the contrary, no Credit Party (other than the Borrower) shall be liable for the payment of any principal or accrued and unpaid interest on the Loans or any other Obligations or any losses incurred by Administrative Agent or any Lender incurred in connection with any failure by the Borrower to pay such amounts other than in accordance with the Guaranty.
Upon the occurrence and during the continuance of an Event of Default, the principal amount of all Loans outstanding and, to the extent permitted by applicable law, any interest payments on the Loans or any fees or other amounts owed hereunder, shall thereafter bear interest (including post-
petition interest in any proceeding under the Bankruptcy Code or other applicable Debtor Relief Laws) payable in accordance with the provisions of Section 2.10 at the Default Funding Rate until no Event of Default is then continuing.
SECTION 8. AGENTS
8.1.Appointment of Agents. Ares is hereby appointed Administrative Agent and Collateral Agent hereunder and under the other Credit Documents and each Lender hereby authorizes Ares, in such capacity, to act as its agent in accordance with the terms hereof and the other Credit Documents. Each Agent hereby agrees to act upon the express conditions contained herein and the other Credit Documents, as applicable. The provisions of this Section 8 are solely for the benefit of Agents and the Lenders and the Borrower shall not have any rights as a beneficiary of any of the provisions thereof. In performing its functions and duties hereunder, each Agent shall act solely as an agent of the Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for the Borrower.
8.2.Agents Entitled to Act as Lenders. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, any Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as if it were not performing the duties and functions delegated to it hereunder, and the term “Lender” shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity.
8.3.Powers and Duties.
(a)Each Lender irrevocably authorizes each Agent to take such action on such Lender’s behalf and to exercise such powers, rights and remedies hereunder and under the other Credit Documents as are specifically delegated or granted to such Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. Each Agent shall have only those duties and responsibilities that are expressly specified herein and in the other Credit Documents. Each Agent may exercise such powers, rights and remedies and perform such duties by or through its agents or employees. No Agent shall have, by reason hereof or in any of the other Credit Documents, a fiduciary relationship in respect of any Lender; and nothing herein or any of the other Credit Documents, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect hereof or any of the other Credit Documents except as expressly set forth herein or therein.
(b)The Administrative Agent shall use commercially reasonable efforts to provide to each Lender, (i) within two (2) Business Days of receipt thereof, all reports, notices and other information provided to the Administrative Agent by any Credit Party pursuant to Section 5.1 or Section 5.9 and (ii) on the same Business Day of its receipt thereof (A) from the Borrower, each Funding Notice received pursuant to Section 2.1 hereof and (B) from the Servicer pursuant to the Servicing Agreement, the Monthly Servicing Report.
(c)Each Agent shall exercise its discretion under this Agreement in good faith and, solely with respect to such Agent’s discretion that must be exercised reasonably pursuant to
the terms hereof, with commercially reasonable credit judgment in accordance with such Agent’s customary business practices.
8.4.No Responsibility for Certain Matters. No Agent shall be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectability or sufficiency hereof or any other Credit Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statements or in any financial or other statements, instruments, reports or certificates or any other documents furnished or made by any Agent to any Lender or by or on behalf of the Borrower to any Agent or any Lender in connection with the Credit Documents and the transactions contemplated thereby or for the financial condition or business affairs of the Borrower or any other Person liable for the payment of any Obligations, nor shall any Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Credit Documents or as to the use of the proceeds of the Loans or as to the existence or possible existence of any Event of Default or Default or to make any disclosures with respect to the foregoing. Anything contained herein to the contrary notwithstanding, Administrative Agent shall not have any liability arising from confirmations of the amount of outstanding Loans or the component amounts thereof.
8.5.Exculpatory Provisions. No Agent nor any of its officers, partners, directors, employees or agents shall be liable to any Lender for any action taken or omitted by any Agent under or in connection with any of the Credit Documents except to the extent caused by such Agent’s gross negligence or willful misconduct as determined by a final, non-appealable judgment of a court of competent jurisdiction. Each Agent shall be entitled to refrain from any act or the taking of any action (including the failure to take an action) in connection herewith or any of the other Credit Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until such Agent shall have received instructions in respect thereof from the Required Remedies Lenders or such other Lenders as may be required to give such instruction under Section 9.5 and, upon receipt of such instructions from the Lenders, such Agent shall be entitled to act or (where so instructed) refrain from acting, or to exercise such power, discretion or authority, in accordance with such instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper Person or Persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of counsel (who may be counsel for the Borrower), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against any Agent as a result of such Agent acting or (where so instructed) refraining from acting hereunder or any of the other Credit Documents in accordance with the instructions of such Lender or the Required Remedies Lenders.
8.6.Collateral Documents. Each Lender hereby further authorizes the Administrative Agent or the Collateral Agent, as applicable, on behalf of and for the benefit of such Lender, to be the agent for and representative of such Lender with respect to the Collateral and the Collateral Documents. Subject to Section 9.5, the Administrative Agent or the Collateral Agent may, without further written consent or authorization from any Lender, execute any documents or instruments necessary to release any Lien encumbering any item of Collateral that is the subject of a sale or
other disposition of assets permitted hereby or to which the Lenders or the Administrative Agent has otherwise consented.
8.7.Lenders’ Representations, Warranties and Acknowledgments. Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of the Borrower in connection with Loans hereunder and that it has made and shall continue to make its own appraisal of the creditworthiness of the Borrower. No Agent shall have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of a Lender or to provide such Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter, and no Agent shall have any responsibility with respect to the accuracy of or the completeness of any information provided to a Lender.
(a)Each Lender, by funding a Loan, shall be deemed to have acknowledged receipt of, and consented to and approved, each Credit Document and each other document required to be approved by any Agent or any Lender, as applicable on the Closing Date or any Credit Date.
8.8.Actions Taken By Lenders. Each Lender shall obtain the prior approval and consent of the Administrative Agent before taking any action or providing any approval hereunder or under any other Credit Document.
8.9.Right to Indemnity. Each Lender, in proportion to its pro rata share of the aggregate outstanding principal amount of Loans of all Lenders (or if no Loans are outstanding, the Revolving Loan Commitments of all Lenders), severally agrees to indemnify each Agent, their Affiliates and their respective officers, partners, directors, trustees, employees and agents of each Agent (each, an “Indemnitee Agent Party”), to the extent that such Indemnitee Agent Party shall not have been reimbursed by the Borrower, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against such Indemnitee Agent Party in exercising its powers, rights and remedies or performing its duties hereunder or under the other Credit Documents or otherwise in its capacity as such Indemnitee Agent Party in any way relating to or arising out of this Agreement or the other Credit Documents, IN ALL CASES, WHETHER OR NOT CAUSED BY OR ARISING, IN WHOLE OR IN PART, OUT OF THE COMPARATIVE, CONTRIBUTORY, OR SOLE NEGLIGENCE OF SUCH INDEMNITEE AGENT PARTY; provided, no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Indemnitee Agent Party’s gross negligence or willful misconduct as determined by a final, non- appealable judgment of a court of competent jurisdiction. If any indemnity furnished to any Indemnitee Agent Party for any purpose shall, in the opinion of such Indemnitee Agent Party, be insufficient or become impaired, such Indemnitee Agent Party may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished; provided, in no event shall this sentence require any Lender to indemnify any Indemnitee Agent Party against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement in excess of such Lender’s pro rata share of the aggregate outstanding principal amount of Loans of all Lenders; and provided further, this sentence shall not
be deemed to require any Lender to indemnify any Indemnitee Agent Party against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement described in the proviso in the immediately preceding sentence.
8.10.Resignation of Administrative Agent and Collateral Agent. Each of the Administrative Agent and the Collateral Agent may resign at any time by giving thirty (30) days’ prior written notice thereof to Lenders and the Borrower. Upon any such notice of resignation, the Lenders shall have the right, upon five (5) Business Days’ prior notice to Borrower, to appoint a successor Administrative Agent or Collateral Agent, as the case may be. Upon the acceptance of any appointment as Administrative Agent or Collateral Agent hereunder by such successor Administrative Agent or Collateral Agent, such successor Administrative Agent or Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent or Collateral Agent, and the retiring Administrative Agent or Collateral Agent shall promptly (i) transfer to such successor Administrative Agent or Collateral Agent all sums, Securities and other items of Collateral held under the Collateral Documents, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Administrative Agent or Collateral Agent under the Credit Documents, and (ii) execute and deliver to such successor Administrative Agent or Collateral Agent such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Administrative Agent or Collateral Agent of the Liens created under the Collateral Documents, whereupon such retiring Administrative Agent or Collateral Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent’s or Collateral Agent’s resignation hereunder, the provisions of this Section 8.10 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent or Collateral Agent hereunder.
SECTION 9. MISCELLANEOUS
9.1.Notices. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given to any Credit Party, the Collateral Agent or the Administrative Agent shall be sent to such Person’s address as set forth on Appendix B or in the other relevant Credit Document, and in the case of any Lender, the address as indicated on Appendix B or otherwise indicated to the Administrative Agent in writing. Each notice hereunder shall be in writing and may be personally served, sent by telefacsimile (with telephonic confirmation of receipt), courier service or email (to the extent that an email address shall have been provided for the recipient) and shall be deemed to have been given when delivered in person or by courier service and signed for against receipt thereof, upon receipt of telefacsimile or email.
9.2.Expenses. The Company agrees to pay promptly (a) all of each Agent’s actual, reasonable and documented out-of-pocket costs and expenses (including reasonable and customary fees and expenses of counsel to such Agent of negotiation, preparation, execution and administration of the Credit Documents and any consents, amendments, waivers or other modifications thereto and any other documents or matters requested by the Borrower; (b) all the actual, documented out-of-pocket costs and reasonable out-of-pocket expenses of creating, perfecting and enforcing Liens in favor of Collateral Agent, for the benefit of Secured Parties, including filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees, title insurance premiums and reasonable and documented out-of-pocket fees, expenses and
disbursements of counsel for each Lender; (c) each Agent’s actual, reasonable and documented out-of-pocket costs and reasonable fees, expenses for, and disbursements of such Agent’s, auditors, accountants, consultants or appraisers incurred by such Agent; (d) all the actual, reasonable and documented out-of-pocket costs and expenses (including the reasonable fees, expenses and disbursements of any appraisers, consultants, advisors and agents employed or retained by the Collateral Agent and its counsel) in connection with the custody or preservation of any of the Collateral; (e) all other actual and reasonable, documented out-of-pocket costs and expenses incurred by each Agent in connection with the syndication of the Loans and the Revolving Loan Commitments and the negotiation, preparation and execution of the Credit Documents and any consents, amendments, waivers or other modifications thereto and the transactions contemplated thereby, (f) after the occurrence of a Default or an Event of Default, all documented, out-of-pocket costs and expenses, including reasonable attorneys’ fees and costs of settlement, incurred by any Agent or any Lender in enforcing any Obligations of or in collecting any payments due from any Credit Party hereunder or under the other Credit Documents by reason of such Default or Event of Default (including in connection with the sale of, collection from, or other realization upon any of the Collateral) or in connection with any refinancing or restructuring of the credit arrangements provided hereunder in the nature of a “work-out” or pursuant to any insolvency or bankruptcy cases or proceedings and (g) without duplication, all other Permitted Expenses.
9.3.Indemnity.
(a)IN ADDITION TO THE PAYMENT OF EXPENSES PURSUANT TO SECTION 9.2, BORROWER AGREES TO DEFEND (SUBJECT TO INDEMNITEES’ SELECTION OF COUNSEL), INDEMNIFY, PAY AND HOLD HARMLESS, EACH LENDER AND EACH AGENT, THEIR AFFILIATES AND THEIR RESPECTIVE OFFICERS, PARTNERS, DIRECTORS, TRUSTEES, EMPLOYEES AND AGENTS (EACH, AN “INDEMNITEE”), FROM AND AGAINST ANY AND ALL INDEMNIFIED LIABILITIES, IN ALL CASES, WHETHER OR NOT CAUSED BY OR ARISING, IN WHOLE OR IN PART, OUT OF THE COMPARATIVE, CONTRIBUTORY, OR SOLE NEGLIGENCE OF SUCH INDEMNITEE; PROVIDED, THAT THE BORROWER SHALL HAVE NO OBLIGATION TO ANY INDEMNITEE HEREUNDER WITH RESPECT TO ANY INDEMNIFIED LIABILITIES TO THE EXTENT SUCH INDEMNIFIED LIABILITIES ARISE FROM THE GROSS NEGLIGENCE, BAD FAITH OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE OR THE COMPANY, AS DETERMINED BY A COURT OF COMPETENT JURISDICTION IN A FINAL NON-APPEALABLE ORDER OR JUDGMENT. TO THE EXTENT THAT THE UNDERTAKINGS TO DEFEND, INDEMNIFY, PAY AND HOLD HARMLESS SET FORTH IN THIS SECTION 9.3 MAY BE UNENFORCEABLE IN WHOLE OR IN PART BECAUSE THEY ARE VIOLATIVE OF ANY LAW OR PUBLIC POLICY, THE BORROWER SHALL CONTRIBUTE THE MAXIMUM PORTION THAT IT IS PERMITTED TO PAY AND SATISFY UNDER APPLICABLE LAW TO THE PAYMENT AND SATISFACTION OF ALL OF ITS INDEMNIFIED LIABILITIES INCURRED BY ALL INDEMNITEES OR ANY INDEMNITEE. THE BORROWER FURTHER AGREES THAT NO INDEMNITEE SHALL HAVE ANY LIABILITY BASED ON ITS COMPARATIVE, CONTRIBUTORY, OR SOLE NEGLIGENCE OR OTHERWISE TO THE BORROWER EXCEPT TO THE EXTENT SUCH INDEMNIFIED LIABILITIES ARISE FROM THE GROSS NEGLIGENCE, BAD FAITH OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE, AS DETERMINED BY A COURT OF
COMPETENT JURISDICTION IN A FINAL NON-APPEALABLE ORDER OR JUDGMENT; PROVIDED, HOWEVER, THAT IN NO EVENT SHALL SUCH INDEMNITEE HAVE ANY LIABILITY FOR ANY INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES. THIS SECTION 9.3 SHALL NOT APPLY WITH RESPECT TO TAXES, OTHER THAN TAXES THAT REPRESENT LOSSES ARISING FROM A NON-TAX CLAIM.
(b)THE COMPANY AGREES TO DEFEND (SUBJECT TO INDEMNITEES’ APPROVAL OF COUNSEL), INDEMNIFY, PAY AND HOLD HARMLESS, EACH INDEMNITEE, FROM AND AGAINST ANY AND ALL INDEMNIFIED LIABILITIES ARISING OUT OF OR AS A RESULT OF, IN WHOLE OR IN PART, ANY ACT OR OMISSION OF THE COMPANY IN CONNECTION WITH ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS, IN ALL CASES, WHETHER OR NOT CAUSED BY OR ARISING, IN WHOLE OR IN PART, OUT OF THE COMPARATIVE, CONTRIBUTORY, OR SOLE NEGLIGENCE OF SUCH INDEMNITEE; PROVIDED, THAT THE COMPANY SHALL HAVE NO OBLIGATION TO ANY INDEMNITEE HEREUNDER WITH RESPECT TO ANY INDEMNIFIED LIABILITIES TO THE EXTENT SUCH INDEMNIFIED LIABILITIES ARISE FROM THE GROSS NEGLIGENCE, BAD FAITH OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE OR THE BORROWER, AS DETERMINED BY A COURT OF COMPETENT JURISDICTION IN A FINAL NON- APPEALABLE ORDER OR JUDGMENT. TO THE EXTENT THAT THE UNDERTAKINGS TO DEFEND, INDEMNIFY, PAY AND HOLD HARMLESS SET FORTH IN THIS SECTION 9.3 MAY BE UNENFORCEABLE IN WHOLE OR IN PART BECAUSE THEY ARE VIOLATIVE OF ANY LAW OR PUBLIC POLICY, THE COMPANY SHALL CONTRIBUTE THE MAXIMUM PORTION THAT IT IS PERMITTED TO PAY AND SATISFY UNDER APPLICABLE LAW TO THE PAYMENT AND SATISFACTION OF ALL OF ITS INDEMNIFIED LIABILITIES INCURRED BY ALL INDEMNITEES OR ANY INDEMNITEE. THE COMPANY FURTHER AGREES THAT NO INDEMNITEE SHALL HAVE ANY LIABILITY BASED ON ITS COMPARATIVE, CONTRIBUTORY, OR SOLE NEGLIGENCE OR OTHERWISE TO THE COMPANY EXCEPT TO THE EXTENT SUCH INDEMNIFIED LIABILITIES ARISE FROM THE GROSS NEGLIGENCE, BAD FAITH OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE, AS DETERMINED BY A COURT OF COMPETENT JURISDICTION IN A FINAL NON-APPEALABLE ORDER OR JUDGMENT; PROVIDED, HOWEVER, THAT IN NO EVENT SHALL SUCH INDEMNITEE HAVE ANY LIABILITY FOR ANY INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES.
(c)If any claim or action for Indemnified Liabilities shall be brought against an Indemnitee, it shall notify the Borrower or the Company (each, an “Indemnitor”), as applicable, thereof, and each Indemnitor shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified Indemnitor, to assume the defense thereof with counsel reasonably satisfactory to the Indemnitee, unless such Indemnitee reasonably objects to such assumption on the ground that there may be legal defenses available to it which are different from or in addition to those available to such Indemnitor. After notice from an Indemnitor to the Indemnitee of its election to assume the defense of such claim or action, except to the extent provided in the following paragraph, such Indemnitor shall not be liable to the Indemnitee under this Section 9.3 for any fees and expenses of counsel subsequently incurred by the Indemnitee in connection with the defense thereof other than reasonable costs of investigation.
(d)Any Indemnitee shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnitee unless: (i) the employment thereof has been specifically authorized by each Indemnitor in writing, (ii) such Indemnitee shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to each Indemnitor and in the reasonable judgment of such counsel it is advisable for such Indemnitee to employ separate counsel, or (iii) the Indemnitor has failed to assume the defense of such action and employ counsel reasonably satisfactory to the Indemnitee, in which case, if such Indemnitee notifies the Indemnitor in writing that it elects to employ separate counsel at the expense of the Indemnitor, the Indemnitor shall not have the right to assume the defense of such action on behalf of such Indemnitee, it being understood, however, the Indemnitor shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to local counsel) at any time for all such Indemnitees, which firm shall be designated in writing by the Administrative Agent, but in either case reasonably satisfactory to the Indemnitee.
(e)Each Indemnitee, as a condition of the indemnity agreement contained in the foregoing subparagraph (a), shall use its reasonable efforts to cooperate with the Indemnitor in the defense of any such action or claim. No Indemnitor shall be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld, conditioned or delayed), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the Indemnitor agrees to indemnify and hold harmless any Indemnitee from and against any Indemnified Liabilities by reason of such settlement or judgment. No Indemnitor shall, without the prior written consent of the Indemnitee, affect any settlement of any pending or threatened action in respect of which such Indemnitee is or could have been a party and indemnity could have been sought hereunder by such Indemnitee unless such settlement
(i) includes an unconditional release of such Indemnitee 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 such Indemnitee.
(f)To the extent permitted by applicable law, neither the Borrower nor the Company shall assert, and each of the Borrower and the Company hereby waives, any claim against the Lenders, the Agents and their respective Affiliates, directors, employees, attorneys or agents, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) (whether or not the claim therefor is based on contract, tort or duty imposed by any applicable legal requirement) arising out of, in connection with, as a result of, or in any way related to, this Agreement or any Credit Document or any agreement or instrument contemplated hereby or thereby or referred to herein or therein, the transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof or any act or omission or event occurring in connection therewith, and each of the Borrower and the Company hereby waives, releases and agrees not to sue upon any such claim or any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.
9.4.Set-Off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default, each Lender and its Affiliates each is hereby authorized by the Borrower at any time or from time to
time subject to the consent of the Administrative Agent, without notice to the Borrower or to any other Person (other than the Administrative Agent) except to the extent required by applicable law, any such notice being hereby expressly waived to the maximum extent under applicable law, and subject to any requirements or limitations imposed by applicable law, to set-off and to appropriate and to apply any and all deposits (general or special, including Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts (in whatever currency)) and any other Indebtedness at any time held or owing by such Lender to or for the credit or the account of the Borrower (in whatever currency) against and on account of the obligations and liabilities of the Borrower to such Lender arising hereunder or under the other Credit Documents, including all claims of any nature or description arising out of or connected hereto or with any other Credit Document, irrespective of whether or not (a) such Lender shall have made any demand hereunder, (b) the principal of or the interest on the Loans or any other amounts due hereunder shall have become due and payable pursuant to Section 2 and although such obligations and liabilities, or any of them, may be contingent or unmatured or (c) such obligation or liability is owed to a branch or office of such Lender different from the branch or office holding such deposit or obligation or such Indebtedness.
9.5.Amendments and Waivers; Administrative Agent Consents.
(a)Amendments and Waivers.
(i)Subject to Sections 9.5(a)(ii), 9.5(a)(iii) and 9.5(b), no amendment, modification, termination or waiver of any provision of the Credit Documents, or consent to any departure by any Credit Party therefrom, shall in any event be effective without the written concurrence of each Credit Party that is party thereto and the Administrative Agent.
(ii)Lender Consent. Without the written consent of each Lender to the extent affected thereby, no amendment, modification, termination, or consent shall be effective if the effect thereof would:
(1)extend the scheduled final maturity of any Loan or Note;
(2)waive, reduce or postpone any scheduled repayment;
(3)reduce the rate of interest on any Loan (other than any waiver of any increase in the interest rate applicable to any Loan pursuant to Section 2.5) or any fee payable hereunder;
(4)extend the time for payment of any such interest or fees;
(5)reduce the principal amount of any Loan;
(6)(A) amend the definition of “Borrowing Base,” or “Maximum Committed Amount” in a manner that increases the Commitment Availability to the Borrower, (B) amend the definition of “Required Remedies Lenders” or
(C) amend, modify, terminate or waive any provision of Sections 2.10, 2.11, 9.5(a) or 9.5(b);
(7)release all or substantially all of the Collateral, except as expressly provided in the Credit Documents;
(8)consent to the assignment or transfer by any Credit Party of any of its rights and obligations under any Credit Document;
(9)increase the Revolving Loan Commitment of any Lender; or
(10)amend, modify, terminate or waive any provision of Section 3.2(a) with regard to any Credit Extension (for the avoidance of doubt, the consent of each Lender shall be required in connection with such action);
(iii)Other Consents. No amendment, modification, termination or waiver of any provision of the Credit Documents, or consent to any departure by any Credit Party therefrom, shall:
(1)amend, modify, terminate or waive any provision of Section 8 as the same applies to any Agent, or any other provision hereof as the same applies to the rights or obligations of any Agent, in each case without the consent of such Agent; or
(2)adversely affect the Collection Account Bank or the Backup Servicer (including, for the avoidance of doubt, if it is then acting as Successor Servicer) without the consent of such affected party.
(b)Execution of Amendments, etc. The Administrative Agent may execute amendments, modifications, waivers or consents on behalf of the Lenders. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on a Credit Party in any case shall entitle such Credit Party to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 9.5 shall be binding upon the Lenders at the time outstanding, each future Lender and, if signed by a Credit Party, upon such Credit Party. Notwithstanding anything to the contrary contained in this Section 9.5, if the Administrative Agent and the Credit Parties shall have jointly identified an obvious error or any error or omission of a technical nature, in each case that is immaterial (as determined by the Administrative Agent in its sole discretion), in any provision of the Credit Documents, then the Administrative Agent (in its capacity thereunder as Administrative Agent) and the Credit Parties shall be permitted to amend such provision and such amendment shall become effective without any further action or consent by any Lender if the same is not objected to in writing by a Lender within five (5) Business Days following receipt of notice thereof.
9.6.Successors and Assigns; Participations.
(a)Generally. This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the
successors and assigns of the Lenders. No Credit Party’s rights or obligations hereunder nor any interest herein may be assigned or delegated without the prior written consent of the Administrative Agent and the Lenders. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, Indemnitees under Section 9.3, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, Lender Affiliates of each of the Agents and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement; provided that the Collection Account Bank shall be considered a beneficiary of Section 2.10, for purposes of receiving its rights to payment hereunder.
(b)Register. The Credit Parties, the Administrative Agent and the Lenders shall deem and treat each Person listed as “Lender” in the Register as a holder and owner of the corresponding Revolving Loan Commitments and Loans listed therein for all purposes hereof, and no assignment or transfer of any such Revolving Loan Commitment or Loan shall be effective, in each case, unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been delivered to and accepted by the Administrative Agent and recorded in the Register. Prior to such recordation, all amounts owed with respect to the applicable Revolving Loan Commitment or Loan shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Revolving Loan Commitments or Loans.
(c)Right to Assign. Each Agent and each Lender shall have the right, with the prior written consent of the Borrower (such consent not to be unreasonably withheld, conditioned or delayed), to sell, assign or transfer all or a portion of its respective rights and obligations under this Agreement, including, without limitation, all or a portion of its Revolving Loan Commitment or Loans owing to it or other Obligations owing to it; provided, however, that, notwithstanding the foregoing, each Agent and each Lender shall have the right at any time to sell, assign or transfer all or a portion of its respective rights and obligations under this Agreement, including, without limitation, all or a portion of its Revolving Loan Commitment or Loans owing to it or other Obligations owing to it to any Eligible Assignee without the consent of any other party; provided, further, that, notwithstanding the foregoing, during the continuance of any Regulatory Trigger Event or Event of Default, each Agent and each Lender shall have the right to at any time to sell, assign or transfer all or a portion of its respective rights and obligations under this Agreement, including, without limitation, all or a portion of its Revolving Loan Commitment or Loans owing to it or other Obligations owing to it without the consent of the Borrower. Furthermore, in no event may any rights or obligations of any Lender under this Agreement, including, without limitation, all or a portion of its Revolving Loan Commitment or Loans owing to it or other Obligations owing to it, be assigned to or otherwise acquired by (whether by assignment or participation or through a swap or other derivative transaction) any Person which is not a “qualified purchaser” (within the meaning of the Investment Company Act of 1940, and the rules and regulations thereunder). Any assignment or acquisition not in compliance with the foregoing sentence shall be void ab initio and of no force or effect, and shall not be effective to transfer any interest whatsoever herein.
(d)Mechanics. The assigning Lender and the assignee thereof shall execute and deliver to Administrative Agent and the Borrower an Assignment Agreement, together with such forms, certificates or other evidence, if any, with respect to U.S. federal income Tax withholding matters as the assignee under such Assignment Agreement may be required to deliver to Administrative Agent.
(e)Notice of Assignment. Upon its receipt and acceptance of a duly executed and completed Assignment Agreement and any forms, certificates or other evidence required by this Agreement in connection therewith, the Administrative Agent shall record the information contained in such Assignment Agreement in the Register, shall give prompt notice thereof to the Borrower and the Company and shall maintain a copy of such Assignment Agreement.
(f)Representations and Warranties of Assignee. Each assignee of a Lender, upon executing and delivering an Assignment Agreement, represents and warrants to the Lenders and the Credit Parties as of the applicable Effective Date (as defined in the applicable Assignment Agreement) that (i) it is an Eligible Assignee, (ii) it is, or meets the criteria for being, a “qualified purchaser” (within the meaning of the Investment Company Act of 1940 and the rules and regulations thereunder), and (iii) it will make or invest in, as the case may be, its Revolving Loan Commitments or Loans for its own account in the ordinary course of its business and without a view to distribution of such Revolving Loan Commitments or Loans within the meaning of the Securities Act or the Exchange Act or other applicable securities laws (it being understood that, subject to the provisions of this Section 9.6, the disposition of such Revolving Loan Commitments or Loans or any interests therein shall at all times remain within its exclusive control).
(g)Effect of Assignment. Subject to the terms and conditions of this Section 9.6, as of the “Effective Date” specified in the applicable Assignment Agreement: (i) the assignee thereunder shall have the rights and obligations of an “Agent” or a “Lender” hereunder to the extent such rights and obligations hereunder have been assigned to it pursuant to such Assignment Agreement and shall thereafter be a party hereto and an “Agent” or a “Lender” for all purposes hereof, (ii) the assigning Agent or Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned thereby pursuant to such Assignment Agreement, relinquish its rights (other than any rights which survive the termination hereof under Section 9.8) and be released from its obligations hereunder (and, in the case of an Assignment Agreement covering all or the remaining portion of an assigning Agent’s or assigning Lender’s rights and obligations hereunder, such assigning Agent or assigning Lender shall cease to be a party hereto; provided, anything contained in any of the Credit Documents to the contrary notwithstanding, such assigning Agent or assigning Lender shall continue to be entitled to the benefit of all indemnities hereunder as specified herein with respect to matters arising out of the prior involvement of such assigning Lender as a Lender hereunder), (iii) if applicable, the Revolving Loan Commitments shall be modified to reflect the Revolving Loan Commitment of such assignee and any Revolving Loan Commitment of such assigning Lender, if any, and (iv) if any such assignment occurs after the issuance of any Note hereunder, the assigning Lender shall, upon the effectiveness of such assignment or as promptly thereafter as practicable, surrender its applicable Notes to the Administrative Agent for cancellation, and thereupon the Borrower shall issue and deliver new Notes, if so requested by the assignee and/or assigning Lender, to such assignee and/or to such assigning Lender, with appropriate insertions, to reflect the new Revolving Loan Commitments and/or outstanding Loans of the assignee and/or the assigning Lender.
(h)Participations. Each Lender shall have the right at any time to sell one or more participations to any Person which certifies in writing to such Lender that it is a “qualified purchaser” (within the meaning of the Investment Company Act of 1940 and the rules and regulations thereunder) (other than the Company, any of its Subsidiaries or any of its Affiliates) in all or any part of the Revolving Loan Commitments, the Loans or in any other Obligation. No such participation arrangement shall relieve a Lender of any of its obligations under the Credit Documents, including, without limitation, the Revolving Loan Commitments. The holder of any such participation, other than a Lender Affiliate of the Lender granting such participation, Pacific Western Bank (together with its successors and permitted assigns) and Axos Bank, shall not be entitled to require such Lender to take or omit to take any action hereunder except with respect to any amendment, modification, termination, waiver or consent that would: (i) extend the final scheduled maturity of any Loan or Note in which such participant is participating, or reduce the rate or extend the time of payment of interest or fees thereon or reduce the principal amount thereof, or increase the amount of the participant’s participation over the amount thereof then in effect (it being understood that an increase in any Revolving Loan Commitment or Loan shall be permitted without the consent of any participant if the participant’s participation is not increased as a result thereof), (ii) result in the assignment or transfer by the Borrower or the Company of any of its rights and obligations under this Agreement, (iii) release all or substantially all of the Collateral under the Collateral Documents (except as expressly provided in the Credit Documents) supporting the Loans hereunder in which such participant is participating, (iv) otherwise be required of any Lender under Sections 9.5(a)(ii) or 9.5(a)(iii) hereof, (v) waive or declare an Event of Default hereunder, (vi) result in any material change to the Eligibility Criteria, or (vii) result in an adverse regulatory impact on any such participant. Each of the Borrower and the Company agrees that each participant shall be entitled to the benefits of Sections 2.13 and 2.14 (subject to the requirements and limitations therein, including the requirements under Section 2.14(e) (it being understood that the documentation required under Section 2.14(e) shall be delivered to the participating Lender)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to clause (c) of this Section 9.6; provided, (i) a participant shall not be entitled to receive any greater payment under Sections 2.13 and 2.14 than the applicable Lender would have been entitled to receive with respect to the participation sold to such participant, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the participant acquired the applicable participation, and (ii) a participant agrees to be subject to the provisions of Sections 2.15 and 2.19 as if it were an assignee pursuant to clause (c) of this Section 9.6. Each Lender that sells a participation agrees, at the Borrower’s (or Company’s) request and expense, to use reasonable efforts to cooperate with the Borrower to effectuate the provisions of Section 2.19 with respect to any participant. To the extent permitted by law, each participant also shall be entitled to the benefits of Section 9.4 as though it were a Lender. Notwithstanding any participation made hereunder (i) such selling Lender’s obligations under this Agreement shall remain unchanged, (ii) such selling Lender shall remain solely responsible to the Borrower for the performance of its obligations hereunder, and (iii) except as set forth above, the Credit Parties, the Agents and the other Lenders shall continue to deal solely and directly with such selling Lender in connection with such selling Lender’s rights and obligations under this Agreement, and such selling Lender shall retain the sole right to enforce the obligations of the Credit Parties relating to the Obligations and to approve, without the consent or consultation with any participate, any amendment, modification or waiver of any provision of this Agreement; provided, however, if the Borrower is provided notice of the sale of the participation to such
participant, then during the occurrence and continuance of an Event of Default, the participant (to the extent of its interest in any Loans) shall have the right to exercise any remedies hereunder and vote any claims with respect to the Borrower or the Loans in any bankruptcy, insolvency or similar type of proceeding of the Borrower. Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each participant and the principal amounts (and stated interest) of each participant’s participation (the “Participant Register”); provided, that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any participant or any information relating to a participant’s interest in any Revolving Loan Commitments, Loans, or in any of its other Obligations) to any Person except to the extent that such disclosure is necessary to establish that such Revolving Loan Commitment, Loan, or other Obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations or to the extent reasonably necessary for Borrower or the Administrative Agent to comply with their obligations under FATCA. The entries in the Participant Register shall be conclusive, absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
(i)Certain Other Assignments. In addition to any other assignment permitted pursuant to this Section 9.6, each Lender may assign, pledge and/or grant a security interest in, all or any portion of its Loans, the other Obligations owed by or to such Lender, and its Notes, if any, to secure obligations of such Lender including, without limitation, any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank; provided, such Lender, as between the Borrower and such Lender, shall not be relieved of any of its obligations hereunder as a result of any such assignment and pledge, and provided further, in no event shall the applicable Federal Reserve Bank, pledgee or trustee be considered to be a “Lender” or be entitled to require the assigning Lender to take or omit to take any action hereunder. Each of the Borrower and the Company agrees that it shall cooperate with the Administrative Agent with respect to any such assignment, pledge or granting of a security interest, and shall provide the applicable assignee, lender or secured party (either directly or through distribution to the Administrative Agent), as applicable, access to their respective books, records, financial statements, policies, directors, officers and employees, other documents or other information, in each case, as requested by such assignee, lender or secured party, as applicable. Each of the Borrower and the Company agrees that each Lender and the Administrative Agent shall have the right to disclose the terms of this Agreement and the transactions contemplated hereby to any assignee, lender or secured party; provided, however, that each such party shall agree to comply with requirements substantially similar to those set forth in Section 9.22 with respect to any Confidential Information provided thereto.
9.7.Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists.
9.8.Survival of Representations, Warranties and Agreements. All representations, warranties and agreements made herein shall survive the execution and delivery hereof and the making of any Credit Extension and each Release Date. Notwithstanding anything herein or implied by law to the contrary, the agreements of the Borrower set forth in Sections 2.7, 2.11, 2.13, 2.14, 9.2, 9.3, 9.4 and 9.10 shall survive the payment of the Loans and the termination hereof, subject to any applicable statute of limitations.
9.9.No Waiver; Remedies Cumulative. No failure or delay on the part of any Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Credit Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. The rights, powers and remedies given to each Agent and each Lender hereby are cumulative and shall be in addition to and independent of all rights, powers and remedies existing by virtue of any statute or rule of law or in any of the other Credit Documents. Any forbearance or failure to exercise, and any delay in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy.
9.10.Marshalling; Payments Set Aside. Neither any Agent nor any Lender shall be under any obligation to marshal any assets in favor of the Borrower or any other Person or against or in payment of any or all of the Obligations. To the extent that any Credit Party makes a payment or payments to the Administrative Agent or any Lender (or to the Administrative Agent, on behalf of a Lender), or the Administrative Agent, the Collateral Agent or any Lender enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred.
9.11.Severability. In case any provision or obligation hereunder or any Note or other Credit Document shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.
9.12.Headings. Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.
9.13.APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES (OTHER
THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW) THEREOF.
9.14.CONSENT TO JURISDICTION.
(a)ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY CREDIT PARTY ARISING OUT OF OR RELATING HERETO OR ANY OTHER CREDIT DOCUMENT, OR ANY OF THE OBLIGATIONS, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH OF THE BORROWER AND THE COMPANY, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (i) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS, (ii) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, (iii) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE TO ANY PROCESS AGENT APPOINTED IN ACCORDANCE WITH SUBPARAGRAPH (b) BELOW IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH CREDIT PARTY, IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT, AND (iv) AGREES THAT AGENTS AND THE LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ANY CREDIT PARTY, IN THE COURTS OF ANY OTHER JURISDICTION.
(b)EACH OF THE BORROWER AND THE COMPANY HEREBY APPOINTS C T CORPORATION SYSTEM, 28 LIBERTY STREET, NEW YORK, NY 10005, AS ITS AGENT TO RECEIVE SERVICE OF PROCESS. ANY AND ALL SERVICE OF PROCESS AND ANY OTHER NOTICE IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE EFFECTIVE AGAINST SUCH PERSON IF GIVEN TO ITS AGENT TO RECEIVE SERVICE OF PROCESS PROVIDED ABOVE. IN THE EVENT C T CORPORATION SYSTEM SHALL NOT BE ABLE TO RECEIVE SERVICE OF PROCESS AND IF THE BORROWER OR THE COMPANY, AS APPLICABLE, SHALL NOT MAINTAIN AN OFFICE IN NEW YORK CITY, SUCH PERSON SHALL PROMPTLY APPOINT AND MAINTAIN AN AGENT QUALIFIED TO ACT AS AN AGENT FOR SERVICE OF PROCESS WITH RESPECT TO THE COURTS SPECIFIED IN THIS SECTION 9.14 ABOVE, AND ACCEPTABLE TO THE ADMINISTRATIVE AGENT, AS SUCH PERSON’S AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON SUCH PERSON’S BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION, SUIT OR PROCEEDING.
9.15.WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE SERVICER, THE COMPANY, EACH AGENT AND EACH LENDER HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING HEREUNDER OR UNDER ANY OF THE OTHER CREDIT DOCUMENTS OR ANY DEALINGS BETWEEN IT RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL- ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT
AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH OF THE BORROWER, THE SERVICER, THE COMPANY, EACH AGENT AND EACH LENDER ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT IT HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT IT WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH OF THE BORROWER, THE SERVICER, THE COMPANY, EACH AGENT AND EACH LENDER FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 9.15 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO OR ANY OF THE OTHER CREDIT DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
9.16.Usury Savings Clause. Notwithstanding any other provision herein, the aggregate interest rate charged or agreed to be paid with respect to any of the Obligations, including all charges or fees in connection therewith deemed in the nature of interest under applicable law shall not exceed the Highest Lawful Rate. If the rate of interest (determined without regard to the preceding sentence) under this Agreement at any time exceeds the Highest Lawful Rate, the outstanding amount of the Loans made hereunder shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect. In addition, if when the Loans made hereunder are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, the Borrower shall pay to the Administrative Agent an amount equal to the difference between the amount of interest paid and the lesser of (a) the amount of interest which would have been paid if the stated rates of interest set forth in this Agreement had at all times been in effect and (b) the amount of interest which would have been paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of the Lenders and the Borrower to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for, charges, or receives any consideration which constitutes interest in excess of the Highest Lawful Rate, then any such excess shall be cancelled automatically and, if previously paid, shall at such Lender’s option be applied to the outstanding amount of the Loans made hereunder or be refunded to the Borrower. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Highest Lawful Rate, such Person may, to the extent permitted by applicable law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize,
prorate, allocate, and spread in equal or unequal parts the total amount of interest, throughout the contemplated term of the Obligations hereunder.
9.17.Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Delivery of an executed signature page to this Agreement by facsimile transmission or other electronic image scan transmission (e.g., “PDF” or “tif” via email) shall be as effective as delivery of a manually signed counterpart of this Agreement.
9.18.Effectiveness. This Agreement shall become effective upon the execution and delivery of a counterpart hereof by each of the parties hereto.
9.19.Patriot Act. Each Lender and the Administrative Agent (for itself and not on behalf of the Lenders) hereby notifies each Credit Party that pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record information that identifies a Credit Party, which information includes the name and address of such Credit Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify such Credit Party in accordance with the Patriot Act.
9.20.Prior Agreements. This Agreement and the other Credit Documents contain the entire agreement of the parties hereto and thereto in respect of the transactions contemplated hereby and thereby, and all prior agreements among or between such parties, whether oral or written, are superseded by the terms of this Agreement and the other Credit Documents and unless specifically set forth in a writing contemporaneous herewith the terms, conditions and provisions of any and all such prior agreements do not survive execution of this Agreement.
9.21.Third Party Beneficiaries. The Backup Servicer (including, for the avoidance of doubt, if it is then acting as Successor Servicer) and the Collection Account Bank shall be express third party beneficiaries of the provisions of Section 2.10.
9.22.Confidentiality.
(a)Unless required by law or regulation to do so or otherwise expressly permitted by the Credit Documents, none of the Lenders, the Administrative Agent and the Collateral Agent, on the one hand, nor any Credit Party, on the other hand, shall publish or otherwise disclose any information and material of any type, scope or subject matter relating to another party, the material terms of the Facility, any of the Credit Documents or the transactions contemplated hereby or thereby (collectively, “Confidential Information”) to any Person (other than an Affiliate). No party shall publish any press release naming the other party without the prior written consent of the other. Notwithstanding the foregoing, but subject to the requirements of any applicable privacy laws, each party may disclose the Confidential Information (a) to any of their respective Affiliates and to their and their respective Affiliates’ officers, directors, managers, administrators, trustees, employees, agents, accountants, legal counsel and other representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such information and instructed to keep such information confidential),
(b)to the extent required by applicable law, regulation, subpoena or other legal process, (c) to the
extent requested by any governmental or regulatory authority purporting to have jurisdiction over such party (including any self-regulatory authority), (d) to Standard & Poor’s, Moody’s or any other nationally recognized statistical rating organization in connection with the rating of this Facility pursuant to Section 5.12, (e) to any other party involved in the Facility, (f) in connection with the exercise of any remedies hereunder or under any of the other Credit Documents or any action or proceeding relating to this Agreement or any other Credit Document or the enforcement of rights hereunder or thereunder, (g) pursuant to Section 5.10, (h) with the consent of the other parties, (i) with respect to the Lenders or Agents, to any participants, equity investors or institutional creditors or potential participants, equity investors or institutional creditors of such party and/or its Affiliates or (j) to the extent that such information (i) was or becomes available to such party from a source other than a party hereto other than as a result of a beach under this Section 9.22, (ii) has been independently acquired or developed by any such party without violating any of their respective obligations under this Agreement, or (iii) becomes publicly available other than as a result of a breach of this Section 9.22; provided, however, that in the case of any disclosure of information which includes, directly or indirectly, the identity of any Obligor, the Person disclosing such information shall provide to the Company and the Borrower not less than ten (10) Business Days’ prior notice of such disclosure provided, further, each party (A) hereto acknowledges and understands that the Confidential Information may contain “nonpublic personal information” as that term is defined in Section 6809(4) of the Gramm-Leach-Bliley Act (the “Act”), and each party hereto agrees to maintain such nonpublic personal information received hereunder in accordance with the Act and other applicable federal and state privacy laws, (B) shall, and shall direct employees, Affiliates directly involved in the transaction contemplated by the Credit Documents and its respective advisors to (i) not disclose such nonpublic personal information to any third party, that is not a party to a Credit Document, including third party service providers, without the prior written consent of the Borrower; (ii) agree not to use nonpublic personal information for any purpose not reasonably contemplated by their respective roles in the transactions contemplated by the Credit Documents; (iii) protect against any unauthorized access to or use of such nonpublic personal information; (iv) in the event of any actual or apparent theft, unauthorized use or disclosure of such nonpublic personal information, immediately commence all reasonable efforts to investigate and correct the causes and remediate the results thereof; and
(v) as soon as practicable following its having actual knowledge or receipt of written notice of any event described in clause (iv) hereof, provide notice thereof to the Borrower, and the Servicer, and such further information and assistance as may be reasonably requested by the Borrower or Servicer in relation thereto. This confidentiality agreement shall apply to any and all information relating to the Facility, any of the Credit Documents and the transactions contemplated hereby and thereby at any time on or after the date hereof.
(b)Notwithstanding anything to the contrary herein, the parties hereto (and each of their employees, representatives and other agents) may disclose to any Persons, without limitation of any kind, the tax treatment and tax structure of the transaction contemplated by this Agreement and all materials of any kind (including opinions or other tax analyses) that are provided to either party relating to such tax treatment and tax structure; provided that this Section 9.22(b) does not authorize any party hereto (or any of its employees, representatives or other agents) to disclose any information that is not necessary to understanding the tax treatment and tax structure of the transaction contemplated by the this Agreement or that does not relate directly to the tax treatment and tax structure of the transaction contemplated by this Agreement (including, if applicable, the identity of the parties hereto and any information that could
reasonably lead another to determine the identity of the parties hereto), or to the extent it is reasonably necessary to keep any such information confidential in order to comply with any federal or state securities law. This Section 9.22(b) is intended to make certain that this Agreement does not cause any of the transactions contemplated by this Agreement to constitute “confidential transactions” within the meaning of Treasury Regulations Section 1.6011-4(b)(3), 301.6111-2(c), 301.6111-3(b)(2)(ii)(B) and any similar applicable state or local law in effect as of the date hereof, and it shall be construed accordingly.
(c)Each party hereto agrees that it will, upon the termination of this Agreement and the repayment of all Obligations owing by the Borrower hereunder, upon written request therefor from the Servicer within ninety (90) days of the date of such termination and repayment, return or destroy (in the Administrative Agent’s reasonable discretion and at the Servicer’s expense) any copies of confidential information related thereto then in its possession to the Servicer, except such copies and related materials as are required to be retained by any applicable law, regulation, professional standard or internal compliance policies, which copies shall remain subject to the terms of this Section 9.22 for so long as they are so retained.
9.23.No Consolidation. Each Lender hereby covenants and agrees that, to the extent that any bankruptcy, reorganization, insolvency or liquidation proceedings, or other proceedings under the Bankruptcy Code or any other Debtor Relief Laws (a “Bankruptcy Action”) is instituted or commenced against any Credit Party (other than the Borrower) as debtor (the “Debtor”), if such Lender is a creditor of the Debtor, such Lender shall not seek or consent to the consolidation of the Borrower with the Debtor with respect to such Bankruptcy Action.
9.24.Defaulting Lenders. In the event that any Ares Lender or the Agent syndicates the Facility (other than to Affiliates of such Ares Lender or the Agent), if any Lender defaults (in each case, a “Defaulting Lender”) in its obligation to fund (a “Funding Default”) any Loan (in each case, a “Defaulted Loan”), then:
(a)during any Default Period with respect to such Defaulting Lender, such Defaulting Lender shall be deemed not to be a “Lender” for purposes of voting on any matters (including the granting of any consents or waivers) with respect to any of the Credit Documents;
(b)to the extent permitted by applicable law, until such time as the Default Excess, if any, with respect to such Defaulting Lender shall have been reduced to zero, (i) any voluntary prepayment (in accordance with the terms of this Agreement) of the Loans shall, if Administrative Agent so directs at the time of making such voluntary prepayment, be applied to the Loans of other Lenders as if such Defaulting Lender had no Loans outstanding and the Revolving Loan Commitment of such Defaulting Lender were zero, and (ii) any mandatory prepayment of the Loans shall, if Administrative Agent so directs at the time of making such mandatory prepayment, be applied to the Loans of other Lenders (but not to the Loans of such Defaulting Lender) as if such Defaulting Lender had funded all Defaulted Loans of such Defaulting Lender, it being understood and agreed that the Company shall be entitled to retain any portion of any mandatory prepayment of the Loans that is not paid to such Defaulting Lender solely as a result of the operation of the provisions of this clause (b);
(c)no Revolving Loan Commitment of any Lender shall be increased or otherwise affected, and, except as otherwise expressly provided in this Section 9.24, performance by the Borrower of its obligations hereunder and the other Credit Documents shall not be excused or otherwise modified as a result of any Funding Default or the operation of this Section 9.24. The rights and remedies against a Defaulting Lender under this Section 9.24 are in addition to other rights and remedies which the Credit Parties and the Administrative Agent may have against such Defaulting Lender with respect to any Funding Default.
9.25.ERISA. (a) Each Lender represents and warrants to the Administrative Agent and each Credit Party that with respect to each Loan, either (i) no portion of such Loan shall be funded or held with the “plan assets” of any “benefit plan investor” within the meaning of Section 3(42) of ERISA (“Plan Assets”) or (ii) if such Loan is funded or held with Plan Assets, (A) then an investment manager with respect to such Plan Assets qualifies, and is acting, as a QPAM with respect to such Plan Assets, and all conditions of the QPAM Exemption have been satisfied with respect to such Loan or (B) Lender has provided Administrative Agent with evidence that the conditions of another applicable exemption from the prohibited transaction provisions under ERISA, the Code or Similar Laws, to the extent applicable, have been met.
(b)The Borrower represents and warrants to the Administrative Agent and each Lender that, with respect to any “employee benefit plan” within the meaning of Section 3(3) of ERISA (other than such a plan that is maintained by Borrower or an “affiliate” of the Borrower within the meaning of Section VI(c) of the QPAM Exemption for the benefit of its own employees), neither Borrower nor any “affiliate” of the Borrower within the meaning of Section VI(c) of the QPAM Exemption has the authority to appoint or terminate any person as a QPAM or to negotiate the terms of a QPAM’s management agreement with a plan.
(c)Each Lender that funds all or any part of a Loan with Plan Assets acknowledges and agrees that none of the Credit Parties or any of their respective Affiliates involved in the transactions contemplated by this Agreement has undertaken or is undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity, in connection with the transactions covered by this Agreement or any Credit Document with respect to such Lender.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above,
SMC FINANCING LLC
as Borrower
Chief Financial Officer and Treasurer
SOUTHERN MANAGEMENT CORPORATION
in its individual capacity and as Seller and Servicer
Title: Chief Financial Officer and Treasurer
| | |
[Signature Page to Credit Agreement] |
| | |
ARES AGENT SERVICES, L.P., |
as Administrative Agent and Collateral Agent
By: Ares Agent Services GP LLC, its General Partner
Name:
Title:
JAUTHORIZED SIGNATORY
SONORAN CACTUS PRIVATE ASSET BACKED FUND, LLC,
as a Lender
By: Ares Cactus Operating Manager GP, LLC, its Manager
-Title: AUTHORIZED SIGNATORY
GLENLAKE LOAN FUND, LLC,
as a Lender
By: Ares Management ILC, its Investment Manager
By: -
Title:
ARES LOAN ORIGINATION LP,
as a Lender
By: Ares ICOF m Management LP, its Investment Manager By: -
Name:
Title:
| | |
[Signature Page to Credit Agreement] |
| | |
ARES CREDIT STRATEGIES INSURANCE DEDICATED FUND SERIES INTERESTS |
OF THE SALi MULTI-SERIES FUND, L.P.,
as a Lender
By: Ares Management LLC, its investment subadvisor
By:
Title
DEARBORN PARK ASSET-BACKED FUND LLC,
as a Lender
By: Ares Management LLC, its Manager
By:_-
Name:
Title:
ARES MULTI-CREDIT FUND LLC,
as a Lender
By: Ares Management LLC, its manager
By:.
Name:
Title:
ARES DIRECT FINANCE I LP,
as a Lender
By: Ares Capital Management, its investment manager
By
Name:
Title:
| | |
[Signature Page to Credit Agreement] |
REVOLVING COMMITMENTS
[***]
TO CREDIT AGREEMENT
NOTICE ADDRESSES
[***]
APPENDIX C TO CREDIT AGREEMENT
ELIGIBILITY CRITERIA
[***]
APPENDIX D TO CREDIT AGREEMENT
EXCESS CONCENTRATION AMOUNTS
[***]
APPENDIX E-1 TO CREDIT AGREEMENT
TIER 1 COLLATERAL PERFORMANCE TRIGGERS
[***]
APPENDIX E-2 TO CREDIT AGREEMENT
TIER 2 COLLATERAL PERFORMANCE TRIGGERS
[***]
EXHIBIT A
[FORM OF] FUNDING NOTICE
[***]
EXHIBIT B
[FORM OF] REVOLVING NOTE
[***]
EXHIBIT C
[FORM OF] BORROWING BASE CERTIFICATE
[***]
EXHIBIT D
[FORM OF] ASSIGNMENT AGREEMENT
[***]
[FORM OF] CLOSING DATE CERTIFICATE
[***]
[FORM OF] SOLVENCY CERTIFICATE
[***]
CREDIT POLICIES
[***]
[FORM OF] FUNDS RELEASE REQUEST
[***]
EXHIBIT H-2
FORM OF CONTRACT
[***]
EXHIBIT I-1
SCHEDULE 1.1
SPECIFIED LOCAL AMOUNTS
[***]
SCHEDULE 1.2
MINIMUM ACCOUNT AMOUNTS
[***]
CERTAIN IDENTIFIED INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT BECAUSE IT IS NOT MATERIAL AND IS OF THE TYPE OF INFORMATION THAT THE REGISTRANT BOTH CUSTOMARILY AND ACTUALLY TREATS AS PRIVATE AND CONFIDENTIAL. [***] INDICATES THAT INFORMATION HAS BEEN OMITTED.
FLEXITI SECURITIZATION LIMITED PARTNERSHIP,
BY ITS GENERAL PARTNER, FLEXITI SECURITIZATION GENERAL PARTNER INC.
as Issuer
- and -
FLEXITI SECURITIZATION GENERAL PARTNER INC.
in its own right
- and -
FLEXITI FINANCIAL INC.
as Seller and Initial Servicer
- and -
NATIONAL BANK OF CANADA
as a Class A Noteholder
- and -
PRECISION TRUST
as a Class A Noteholder
- and -
WF TORCA, LTD.
as Class B Noteholder
- and -
NATIONAL BANK OF CANADA
as Structuring Agent
- and -
COMPUTERSHARE TRUST COMPANY OF CANADA
as Indenture Trustee
| | |
NOTE PURCHASE AGREEMENT dated as of December 9, 2021 |
TABLE OF CONTENTS
Page
NOTE PURCHASE AGREEMENT
FLEX Series 2021-1 Floating Rate Debt Securities, Class A
FLEX Series 2021-1 Floating Rate Debt Securities, Class B
made as of December 9, 2021.
B E T W E E N:
FLEXITI SECURITIZATION LIMITED PARTNERSHIP, a limited partnership established under laws of the Province of Ontario, by its general partner FLEXITI SECURITIZATION GENERAL PARTNER INC., a corporation organized under the laws of Canada
as the Issuer
-and-
FLEXITI SECURITIZATION GENERAL PARTNER INC., in its own right
as the General Partner
-and-
FLEXITI FINANCIAL INC., a corporation existing under the laws of Canada
as the Seller and the Initial Servicer
-and-
NATIONAL BANK OF CANADA, a bank established under the laws of Canada
as a Class A Noteholder
-and -
BNY TRUST COMPANY OF CANADA, in its capacity as trustee of PRECISION TRUST, a trust formed under the laws of Ontario
as a Class A Noteholder
-and -
WF TORCA, Ltd.
as the Class B Noteholder
-and -
NATIONAL BANK OF CANADA, a bank established under the laws of Canada
as the Structuring Agent
-and -
COMPUTERSHARE TRUST COMPANY OF CANADA, a trust company established under the laws of Canada
as the Indenture Trustee
WHEREAS the Issuer and Computershare Trust Company of Canada, as indenture trustee, have entered into the Indenture providing for, among other things, the creation of Series 2021-1 Debt Securities;
WHEREAS the Seller and the Servicer will, pursuant to the Receivables Sale and Servicing Agreement, sell to the Issuer or designate Series 2021-1 Assets securing the Series 2021-1 Debt Securities;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the premises and the covenants and agreements of the parties herein contained and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged by each of the parties), the parties hereby covenant and agree as follows:
Article 1
DEFINITIONS
1.1Definitions
(a)(i) All initial capitalized terms used but not otherwise defined in this Agreement that are defined in the Indenture, either directly or by reference therein, shall have the meanings specified therefor in the Indenture; and (ii) all initial capitalized terms used but not otherwise defined in this Agreement that are defined in the Receivables Sale and Servicing Agreement, either directly or by reference therein, shall have the meanings specified therefor in the Receivables Sale and Servicing Agreement.
(b)In addition, whenever used in this Agreement with respect to the Series 2021-1 Debt Securities, the following terms shall have the following meanings, respectively:
“Basel III” means “A Global Regulatory Framework for More Resilient Banks and Banking Systems” developed by the Basel Committee on Banking Supervision, initially published in December 2010 and revised in June 2011 and as may be further revised from time to time, including all reform measures established thereunder.
“Class A Commitment Amount” means, in respect of a Class A Noteholder, the committed amount of such Class A Noteholder as set forth in Schedule A to this Agreement.
“Class A Non-Consenting Noteholder” has the meaning ascribed thereto in Section 6.2.
“Class A Increase Amount” means, in respect of each Class A Noteholder and the Increase of the Series 2021-1 Class A Debt Securities, the principal amount by which the Series 2021-1 Class A Debt Securities of such Class A Noteholder is to be increased as specified in the related Funding Request (provided, for the avoidance of doubt, that such amount shall not exceed such Class A Noteholder’s Commitment Percentage of the remaining Class A Commitment Amount at the time of such Increase).
“Class A Note Purchase Price” means, in respect of each Class A Noteholder and the purchase of Series 2021-1 Class A Debt Securities, the principal amount of the Series 2021-1 Class A Debt Securities to be acquired by such Class A Noteholder in respect of such purchase (provided, for the avoidance of doubt, that such amount shall not exceed such Class A Noteholder’s Commitment Percentage of the remaining Class A Commitment Amount at the time of such purchase).
“Class A Standby Fee” means, in respect of each Settlement Period, each Settlement Date and a Class A Noteholder, an amount equal to the aggregate of [***].
“Class B Commitment Amount” means, in respect of a Class B Noteholder, the committed amount of such Class B Noteholder as set forth in Schedule A to this Agreement.
“Class B Increase Amount” means, in respect of each Class B Noteholder and the Increase of Series 2021-1 Class B Debt Securities, the principal amount by which the Series 2021-1 Class B Debt Securities of such Class B Noteholder is to be increased as specified in the related Funding Request (provided, for the avoidance of doubt, that such amount shall not exceed such Class B Noteholder’s Commitment Percentage of the remaining Class B Commitment Amount at the time of such Increase).
“Class B Note Purchase Price” means, in respect of each Class B Noteholder and the purchase of Series 2021-1 Class B Debt Securities, the principal amount of the Series 2021-1 Class B Debt Securities to be acquired by such Class B Noteholder in respect of such purchase (provided, for the avoidance of doubt, that such amount shall not exceed such Class B Noteholder’s Commitment Percentage of the remaining Class B Commitment Amount at the time of such purchase).
“Class B Standby Fee” means, in respect of each Settlement Period, Settlement Date and a Class B Noteholder, an amount equal to the aggregate of [***].
“Commitment Percentage” means, in respect of a Series 2021-1 Noteholder and a Class of Series 2021-1 Debt Securities at any date of determination, an amount equal to (a) the Commitment Amount of such Series 2021-1 Noteholder with respect to such Class at such time, divided by (b) the aggregate Commitment Amount with respect to such Class at such time.
“Increased Costs” has the meaning ascribed thereto in Section 5.3.
“Indenture” means the Master Trust Indenture as supplemented by the Series 2021-1 Supplemental Indenture, as amended, supplemented, modified, restated or replaced from time to time.
“Interest Distribution Amount” means, in respect of a Settlement Period, the sum of the Class A Interest Distribution Amount and the Class B Interest Distribution Amount, in each case, in respect of such Settlement Period.
“Investment Company Act” has the meaning ascribed thereto in Section 4.2.
“Master Trust Indenture” means the master trust indenture made on or around the date hereof between the Issuer, by its general partner, General Partner, as issuer, by the General Partner in its own right, and Computershare Trust Company of Canada, as indenture trustee, as amended, supplemented, modified, restated or replaced from time to time.
“Noteholder Account” means, in respect of each Series 2021-1 Noteholder, the account maintained by such Series 2021-1 Noteholder which is designated in writing on five (5) Business Days’ advance notice to the Servicer and the Issuer as the Noteholder Account for such Series 2021-1 Noteholder for the purposes of payments in respect of the Series 2021-1 Debt Securities.
“Permitted Transferee” means, with respect to a Series 2021-1 Noteholder, (a) any asset-backed commercial paper conduit administered by such Series 2021-1 Noteholder or an Affiliate of such Series 2021-1 Noteholder (whether funded through the issuance of commercial paper or otherwise), or (b) any Affiliate of such Series 2021-1 Noteholder.
“Required Class A Noteholders” means, at any time, Class A Noteholders holding more than 33 1/3% of the aggregate outstanding principal amount of the Series 2021-1 Class A Debt Securities and the Class A Commitment Amounts.
“Series 2021-1 Supplemental Indenture” means the supplemental indenture to the Master Trust Indenture dated as of the date hereof among the Issuer, the Indenture Trustee, the General Partner and the Paying Agent, constituting the Series 2021-1 Debt Securities, as the same may be further amended, supplemented, modified, restated or replaced from time to time.
“Sponsor” has the meaning ascribed thereto in Section 4.3.
“Structuring Agent” means National Bank of Canada and its successors and assigns, in its capacity as the structuring agent under this Agreement.
“U.S. Risk Retention Rules” has the meaning ascribed thereto in Section 4.3.
“U.S. Securities Act” has the meaning ascribed thereto in Section 4.1.
1.2Other Rules of Interpretation
For all purposes of this Agreement, except as otherwise expressly provided herein or unless the context otherwise requires:
(a)any reference to a designated “Article”, “section” or other subdivision or to a “Schedule” is to the designated Article, section or other subdivision of or Schedule to this Agreement;
(b)the words “this Agreement”, “herein”, “hereof” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular Article, section or other subdivision of or Schedule to this Agreement;
(c)the headings are for convenience of reference only and do not form part of this Agreement and are not intended to interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof;
(d)the word “including” is not to be construed to limit a general statement, term or matter to the items set forth following such word but rather refers to all other items or matters that could reasonably fall within the scope of such general statement, term or matter;
(e)any reference to a statute is a reference to such statute and to the regulations made pursuant thereto, with all amendments made thereto and in force from time to time, and to any statute or regulations that may be passed which have the effect of supplementing or superseding such statute or regulations;
(f)any reference to an entity is also a reference to any entity that is a successor to such entity, provided that all restrictions on assignability and transfer set forth herein are complied with;
(g)unless stated otherwise, all amounts herein are stated in Canadian Dollars and all references in the Series 2021-1 Agreements to “$” or “dollars”, unless otherwise specifically indicated, are expressed in Canadian Dollars;
(h)any reference to an “approval”, “authorization” or “consent” of a party means the written approval, written authorization or written consent of such party; and
(i)words importing the masculine gender include the feminine or neuter gender and words in the singular include the plural, and vice versa.
Article 2
NOTE PURCHASE FACILITY
1.1Purchases of Debt Securities by the Series 2021-1 Noteholders
Subject to and upon the terms and conditions set forth herein and in the Indenture (including satisfaction of the conditions precedent specified in the executed Series 2021-1 Supplemental Indenture that is in form and substance satisfactory to each Series 2021-1 Noteholder) and delivery of: (a) a duly executed Series 2021-1 Supplemental Indenture that is in form and substance satisfactory to each Series 2021-1 Noteholder; and (b) duly executed Series 2021-1 Class A Debt Securities or Series 2021-1 Class B Debt Securities, as the case may be, in a face amount up to the Class A Commitment Amount or Class B Commitment Amount, as the case may be, of such Series 2021-1 Noteholder, (A) each Class A Noteholder hereby agrees to purchase from the Issuer, Series 2021-1 Class A Debt Securities in an amount up to the Class A Commitment Amount of such Class A Noteholder; and (B) each Class B Noteholder hereby agrees to purchase from the Issuer, Series 2021-1 Class B Debt Securities in an amount up to the Class B Commitment Amount of such Class B Noteholder, on the Closing Date mutually agreed upon among the parties hereto, as the Initial Funding Date.
1.2Increase Procedures
To the extent that on the Closing Date (A) the full Class A Commitment Amount is not advanced, or (B) the full Class B Commitment Amount is not advanced, and there is a second Funding Date which is not an Issuance Date, subject to the delivery of a duly completed Funding Request by the Issuer to the Series 2021-1 Noteholders on a Weekly Reporting Date or Monthly Determination Date that is not less than two (2) Business Days before the applicable Increase Date and the satisfaction of the conditions precedent set out in the Indenture (including satisfaction of the conditions precedent in Section 2.5 of the Series 2021-1 Supplemental Indenture), each Series 2021-1 Noteholder shall advance to the Issuer its Class A Increase Amount or Class B Increase Amount, as applicable, by wire transfer on or before 5:00 p.m. (Eastern Time) on the Increase Date, and the outstanding principal amount of the Series 2021-1 Debt Securities held by such Series 2021-1 Noteholder shall be increased by the applicable amount advanced by such Series 2021-1 Noteholder on a single subsequent funding date following the Closing Date, which date shall be no later than six (6) months following the Closing Date, as the second Funding Date. For the avoidance of doubt, if such single subsequent Increase Date does not occur on or before the date that is six (6) months following the Closing Date, the commitment of each Series 2021-1 Noteholder to advance to the Issuer its Class A Increase Amount or Class B Increase Amount, as applicable, shall terminate and, upon such termination, the Issuer’s obligation to pay the Class A Standby Fee and Class B Standby Fee will be terminated.
Article 3
PAYMENTS, INTEREST AND STANDBY FEES
1.1Payments
Payments of principal and interest on the Series 2021-1 Debt Securities will be made in accordance with the provisions of the Indenture and this Agreement. All payments required to be made to a Series 2021-1 Noteholder hereunder and under the Series 2021-1 Debt Securities shall be paid in immediately available funds to the Noteholder Account of such Series 2021-1 Noteholder, and the wire transfer in respect of any such payment will be initiated no later than 2:00 p.m. (Eastern Time) on the day such payments are due. Any amounts in respect of wire transfers sent after 2:00 p.m. (Eastern Time) shall be deemed to have been received on the immediately following day. Each Series 2021-1 Noteholder shall promptly record in its records with respect to the Series 2021-1 Debt Securities held by it the date of any increase or decrease of the principal amount of such Series 2021-1 Debt Securities and the principal amount of such Series 2021-1 Debt Securities following the increase or decrease. The actual recording of such information will, in the absence of manifest error, be prima facie evidence of the same; provided that the failure of a Series 2021-1 Noteholder to record the same in its records will not affect the obligations of the Issuer hereunder and under the Indenture.
1.2Interest Calculation
The Structuring Agent shall advise the Issuer, the Paying Agent and the Class B Noteholder of the Structuring Agent’s determination of CDOR (for the avoidance of doubt, based on determination of CDOR in accordance with the definition of CDOR in the Series 2021-1 Supplemental Indenture) or the Canadian Prime Rate in effect, as applicable at any time in accordance with the Series 2021-1 Agreements, for purposes of calculating the Class A Interest Rate and the Class B Interest Rate during any Settlement Period. For the avoidance of doubt, to the extent that a Related Event of Default in respect of the Series 2021-1 Debt Securities occurs following a notification of CDOR but prior to the end of the Settlement Period, the Structuring Agent shall advise the Issuer, the Paying Agent and the Class B Noteholder of the Structuring Agent’s determination of the Canadian Prime Rate in effect for purposes of calculating the Class A Interest Rate and the Class B Interest Rate during the remaining portion of the Settlement Period. The Issuer shall determine the Class B Interest Rate (or rates) in effect for any Settlement Period or portion thereof and each Class A Noteholder shall advise the Issuer and the Paying Agent, upon request, of the Class A Interest Rate (or rates) in effect for any Settlement Period or portion thereof, in each case, in accordance with the Series 2021-1 Supplemental Indenture using the CDOR and the Canadian Prime Rate determined by the Structuring Agent (in accordance with the respective definitions thereof in the Series 2021-1 Supplemental Indenture), as applicable for such Settlement Period or portion thereof, as applicable. No later than two (2) Business Days prior to the date each Monthly Servicer Report is required to be delivered pursuant to the Receivables Sale and Servicing Agreement, (a) each Class A Noteholder shall notify the Issuer and the Paying Agent of; and (b) the Issuer shall determine in respect of the Class B Noteholder, for inclusion in the Monthly Servicer Report (i) that portion of the Interest Distribution Amount attributable to the Series 2021-1 Debt Securities held by such Series 2021-1 Noteholder for the current Settlement Period and any adjustment required to account for any difference between the Interest
Distribution Amount for the prior Settlement Period and such amounts as shown on the Monthly Servicer Report for the prior Settlement Period; and (ii) the outstanding principal amount of the Series 2021-1 Debt Securities held by such Series 2021-1 Noteholder.
1.3Standby Fees
In consideration of each Series 2021-1 Noteholder’s commitment to purchase Series 2021-1 Debt Securities, the Issuer will, on each Settlement Date:
[***]
1.4Series 2021-1 Noteholder Records
The books and records maintained by the Series 2021-1 Noteholders shall constitute, in the absence of manifest error, conclusive evidence of the indebtedness of the Issuer to the Series 2021-1 Noteholders pursuant to the Series 2021-1 Debt Securities and this Agreement.
Article 4
REPRESENTATIONS AND WARRANTIES, COVENANTS, ACKNOWLEDGEMENTS
1.1Acknowledgements of the Series 2021-1 Noteholders
(a)Each Series 2021-1 Noteholder that is a resident of Canada hereby acknowledges and agrees with the Issuer, and acknowledges that the Issuer is relying on such acknowledgements in entering into this Agreement and in selling Series 2021-1 Debt Securities to such Series 2021-1 Noteholder, that, as of the date hereof and as of each Issuance Date and Increase Date:
(i)it has not received or been provided with any offering memorandum, any prospectus, sales or advertising literature, or any other document describing or purporting to describe the Issuer, its business and affairs or the transactions contemplated herein which has been prepared for delivery to, and review by, prospective purchasers in order to assist them in making an investment decision in respect of the Series 2021-1 Debt Securities;
(ii)the Series 2021-1 Debt Securities are subject to resale restrictions under applicable securities laws and it shall comply with all relevant securities laws concerning any resale of the Series 2021-1 Debt Securities;
(iii)unless permitted under applicable securities laws, it shall not trade, sell or otherwise dispose of, the Series 2021-1 Debt Securities for a period of four (4) months and one (1) day from the date the Issuer becomes a reporting issuer in any province or territory of Canada;
(iv)the certificate representing the Series 2021-1 Debt Securities issued on an Issuance Date, as well as any certificate(s) issued in exchange therefor, or in substitution thereof, shall bear the following legend and the Series 2021-1 Debt Securities shall be subject to such restrictions on transferability:
“EXCEPT IN THE PROVINCE OF MANITOBA, IN ACCORDANCE WITH NATIONAL INSTRUMENT 45-102 — RESALE OF SECURITIES, UNLESS OTHERWISE PERMITTED UNDER CANADIAN SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE THE DATE THAT IS FOUR MONTHS AND A DAY AFTER THE LATER OF (I) THE DATE ON WHICH THE SECURITY IS ISSUED; AND (II) THE DATE THE ISSUER BECOMES A REPORTING ISSUER IN ANY PROVINCE OR TERRITORY OF CANADA. IN THE PROVINCE OF MANITOBA, UNLESS OTHERWISE PERMITTED UNDER APPLICABLE CANADIAN SECURITIES LAWS OR WITH THE PRIOR WRITTEN CONSENT OF THE APPLICABLE
REGULATORS, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE THE DATE THAT IS TWELVE MONTHS AND A DAY AFTER THE DATE THE PURCHASER ACQUIRED THE SECURITY.”;
(v)neither the Issuer nor its respective representatives have made any written or oral representations (A) that any person will resell or repurchase any Series 2021-1 Debt Securities, (B) that any person will refund the Class A Note Purchase Price or Class B Note Purchase Price of any Series 2021-1 Debt Securities, (C) as to the future price or value of any Series 2021-1 Debt Securities, or (D) that any Series 2021-1 Debt Securities will be listed and posted for trading on any stock exchange or that application has been made therefore;
(vi)it shall execute and deliver, within the applicable time periods, all documentation as may be required by applicable securities laws to permit the sale to it of any Series 2021-1 Debt Securities; and
(vii)it is a resident of or subject to the laws of Canada and: (a) it is an “accredited investor” (if the Series 2021-1 Noteholder is resident in the Province of Ontario, as such term is defined in National Instrument 45-106 – Prospectus Exemptions, as modified by Section 73.3 of the Securities Act (Ontario), or, if the Series 2021-1 Noteholder is not resident in the Province of Ontario, as such term is defined in National Instrument 45-106 – Prospectus Exemptions); or (b) that: (i) it is not an individual; (ii) it has not been created to, or is not being used solely to, purchase or hold securities in reliance on any exemption from the prospectus requirements of Canadian securities legislation; (iii) it is purchasing the Series 2021-1 Debt Securities as principal; and (iv) the Series 2021-1 Debt Securities to be acquired have an acquisition cost to it of not less than $150,000 paid in cash at the time of the distribution.
(b)The Class B Noteholder hereby acknowledges and agrees with the Issuer, and acknowledges that the Issuer is relying on such acknowledgements in entering into this Agreement and in selling Series 2021-1 Debt Securities to such Series 2021-1 Noteholder, that, as of the date hereof and as of each Issuance Date and Increase Date:
(i)it is an “accredited investor” as such term is defined in Rule 501 of Regulation D under the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”);
(ii)it or its representatives have been furnished with all information regarding the Issuer and its business, assets, results of operations and financial condition that the Class B Noteholder has requested. The Class B Noteholder further represents that it has had an opportunity to ask questions of and receive answers from the Issuer regarding the Issuer and its business, assets, results of operations, and financial condition and the terms and conditions of the issuance of the Series 2021-1 Class B Debt Securities;
(iii)it has such knowledge, experience and skill in evaluating and investing in notes and other securities, based on actual participation in financial, investment and business matters, so that it is capable of evaluating the merits and risks of an investment in the Series 2021-1 Class B Debt Securities and has such knowledge, experience and skill in financial and business matters that it is capable of evaluating the merits and risks of the investment in the Issuer and the suitability of the Series 2021-1 Class B Debt Securities as an investment and can bear the economic risk of an investment in the Series 2021-1 Class B Debt Securities;
(iv)it is acquiring the Series 2021-1 Class B Debt Securities purchased hereunder or acquired pursuant hereto for its own account with the present intention of holding such securities for purposes of investment, and that it has no intention of selling such securities in a public distribution in violation of the U.S. securities laws or the securities laws of any state of the United States of America;
(v)it is a “U.S. Person” as such term is defined in 17 CFR Part 246.20(a);
(vi)no Series 2021-1 Noteholder incorporated or registered in the Cayman Islands is a member of the public in the Cayman Islands and no such Series 2021-1 Noteholder has acquired the Series 2021-1 Debt Securities pursuant to an offer from or within the Cayman Islands; and
(vii)each note or instrument representing the Series 2021-1 Class B Debt Securities shall be imprinted with a legend in substantially the following form:
“THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. BY ITS ACCEPTANCE OF THIS NOTE THE HOLDER HEREOF IS DEEMED TO REPRESENT TO THE ISSUER, THE SELLER AND THE SERVICER AND THE INDENTURE TRUSTEE THAT IT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D PROMULGATED UNDER THE U.S. SECURITIES ACT (AN “ACCREDITED INVESTOR”) AND THAT IT IS ACQUIRING THIS NOTE FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF ANY OTHER PERSON) FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, PUBLIC DISTRIBUTION HEREOF. NO SALE, PLEDGE OR OTHER TRANSFER OF THIS NOTE MAY BE MADE BY ANY PERSON UNLESS EITHER SUCH SALE, PLEDGE OR OTHER TRANSFER IS OTHERWISE MADE IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT, IN WHICH CASE THE INDENTURE TRUSTEE SHALL REQUIRE THAT BOTH THE PROSPECTIVE TRANSFEROR AND THE PROSPECTIVE TRANSFEREE CERTIFY TO THE INDENTURE TRUSTEE, THE ISSUER AND THE SELLER AND THE SERVICER IN WRITING THE FACTS SURROUNDING SUCH TRANSFER, WHICH CERTIFICATION SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO THE INDENTURE TRUSTEE AND THE ISSUER.”
1.2Representations of the Issuer
The Issuer hereby agrees that each of the representations and warranties of the Issuer contained in the Series 2021-1 Agreements is deemed to be incorporated herein for the benefit of the Series 2021-1 Noteholders on and as of the date given, and the Issuer furthermore hereby represents and warrants to each of the Series 2021-1 Noteholders that, as of the date hereof and as of each Issuance Date and Increase Date:
(a)the offer and sale of the Series 2021-1 Debt Securities in the manner contemplated by this Agreement will be exempt from the registration requirements of the U.S. Securities Act by reason of Section 4(a)(2) thereof;
(b)the Indenture is not required to be qualified under the Trust Indenture Act of 1939, as amended;
(c)none of the Issuer, the Seller, the Servicer nor any of their respective affiliates or any person acting on their behalf has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the U.S. Securities Act) in connection with any offer or sale of the Series 2021-1 Debt Securities or has taken or will take any other action which would subject the offer, issuance, sale or delivery of the Series 2021-1 Debt Securities to the provisions of Section 5 of the U.S. Securities Act or to the registration provisions of any securities laws of any state or other jurisdiction of the United States;
(d)neither the Issuer nor any of its affiliates will make any offer or sale of securities of any class if, as a result of the doctrine of “integration” referred to in Rule 502 under the U.S. Securities Act, such offer or sale would render invalid the exemption of the Series 2021-1 Debt Securities from the registration requirements of the U.S. Securities Act provided by Section 4(a)(2) thereof or otherwise;
(e)it is not necessary, in connection with the issuance of the Series 2021-1 Debt Securities and the sale thereof to the Series 2021-1 Noteholder to register the Series 2021-1 Debt Securities under the U.S. Securities Act;
(f)the Issuer is not and, after giving effect to the offering and sale of the Series 2021-1 Debt Securities, will not be subject to registration as an “investment company” under the Investment Company Act of 1940, as amended, including the rules and regulations thereunder (the “Investment Company Act”), and in making this determination the Issuer will be relying on the exclusion from the definition of “investment company” contained in Section 3(c)(5) thereof, although there may be additional exclusions or exemptions available to the Issuer; and
(g)the Issuer is not a “covered fund” for purposes of the final regulations adopted to implement Section 619 of the Dodd Frank Wall Street Reform and Consumer Protection Act by virtue of the exemption contained in Rule 3a-7 of the Investment Company Act of 1940.
1.3Representations of the Seller and the Initial Servicer
The Seller and the Initial Servicer hereby agrees that each of the representations and warranties made by the Seller and the Initial Servicer in the Series 2021-1 Agreements is deemed incorporated herein for the benefit of the Series 2021-1 Noteholders on and as of the date given. In addition, the Seller and the Initial Servicer represents and warrants to the Series 2021-1 Noteholders that, as of the date hereof and as of each Issuance Date and Increase Date (and in respect of (b) below the date of any Asset Purchase or Asset Designation pursuant to a Series 2021-1 Sale and Servicing Supplement or Series 2021-1 Designation and Servicing Supplement, as the case may be):
(a)other than as disclosed in the documents and information furnished to the Series 2021-1 Noteholders in connection with their due diligence investigation of the Issuer, Seller and the Initial Servicer, it does not have any additional credit facilities or other material indebtedness;
(b)it is not insolvent and has not (i) admitted its inability to pay its debts generally as they become due or failed to pay its debts generally as they become due; (ii) proposed a compromise or arrangement to its creditors; (iii) had any petition for a receiving order or bankruptcy filed against it; (iv) consented to have itself declared bankrupt or wound up; (v) consented to have a receiver, liquidator or trustee appointed over any part of its assets; (vi) had any encumbrancer take possession of any of its property, which taking of possession could reasonably be expected to have a material adverse effect on its ability to carry out its obligations under the Series 2021-1 Agreements; (vii) had any execution or distress become enforceable or become levied upon any of its property, which event contemplated in this clause could reasonably be expected to have a material adverse effect on its ability of to carry out its obligations under the Series 2021-1 Agreements; or (viii) had any material unsatisfied judgment outstanding against it for more than fifteen (15) days;
(c)it is the “sponsor” (in such capacity, the “Sponsor”) of the transactions contemplated hereby and will retain (directly or through a “majority-owned affiliate”) (in each case, as defined under Regulation RR of the Securities and Exchange Act of 1934, as amended (the “U.S. Risk Retention Rules”)) an “eligible horizontal residual interest” (as defined in the U.S. Risk Retention Rules) equal to at least 5% of the applicable “ABS Interests” (as defined in the U.S. Risk Retention Rules); and
(d)as of the date hereof, the Sponsor complied with and was solely responsible for ensuring that the disclosure required by Rule 4(c)(1)(i) of the U.S. Risk Retention Rules was contained in a side letter delivered by the Sponsor to the Series 2021-1 Noteholders on or prior to the date hereof and the Sponsor shall comply with and be solely responsible for compliance with any applicable obligations under the U.S. Risk Retention Rules, including without limitation (i) complying with the post-closing disclosure requirements set forth in Rule 4(c)(ii) of the U.S. Risk Retention Rules, (ii) complying with the records maintenance requirements set forth in Rule 4(d) of the U.S. Risk Retention Rules and (iii) complying and causing the compliance with the hedging, transfer and financing prohibitions set forth in Rule 12 of the U.S. Risk Retention Rules.
The representations and warranties made or deemed made above shall survive the execution and delivery of this Agreement and each purchase of Series 2021-1 Debt Securities or Increase thereof, notwithstanding any investigations or examinations which may be made by or on behalf of the Series 2021-1 Noteholders or the Structuring Agent and the Series 2021-1 Noteholders shall be deemed to have relied on such representations and warranties in the making of each purchase of Series 2021-1 Debt Securities or funding an Increase in respect thereof.
1.4Covenants of the Issuer
The Issuer:
(a)acknowledges that its covenants contained in the Series 2021-1 Agreements that are made to the Indenture Trustee are for the benefit of the Series 2021-1 Noteholders and that it will comply with and perform each of its covenants contained therein;
(b)covenants to provide to the Series 2021-1 Noteholders, as soon as possible, copies of all reports, notices, notifications and other documents delivered by the Issuer to the Indenture Trustee pursuant to any Series 2021-1 Agreement;
(c)covenants with the Series 2021-1 Noteholders to comply with the provisions of the Limited Partnership Agreement; and
(d)the Issuer agrees that it will not solicit any rating in respect of the Series 2021-1 Debt Securities without the prior written consent of each of the Series 2021-1 Noteholders.
1.5Covenants of the Seller and the Initial Servicer
Each of the Seller and the Initial Servicer covenants with the Series 2021-1 Noteholders:
(a)to comply with and perform each of its covenants contained in the Series 2021-1 Agreements;
(b)to provide to each of the Series 2021-1 Noteholders, as soon as possible, copies of all reports (including, for the avoidance of doubt, each Weekly Report and Monthly Servicer Report), notices, notifications and other documents delivered by the Seller or the Initial Servicer, as the case may be, to the Issuer and/or the Indenture Trustee pursuant to the Series 2021-1 Agreements to which it is a party (including, for the avoidance of doubt, any notices delivered pursuant to Section 4.1 of the Receivable Sale and Servicing Agreement, documents delivered pursuant to Article 7 of the Receivables Sale and Servicing Agreement and Section 2.5 of the Supplemental Indenture) and to ensure that any opinions, reports and closing certificates that are addressed to the Issuer and the Indenture Trustee are also addressed directly to the Series 2021-1 Noteholders;
(c)to direct its auditors to assist each Series 2021-1 Noteholder’s auditors to the extent and in such manner as is required for each Series 2021-1 Noteholder’s auditors to report on the status of the Series 2021-1 Assets;
(d)to provide the Series 2021-1 Noteholders with prompt notice of any Change of Control or the entering into by the Seller or Initial Servicer, as the case may be, of any definitive agreement which, when completed, will result in a Change of Control;
(e)furnish to the Series 2021-1 Noteholders promptly after becoming known to the Seller or Initial Servicer, as the case may be, information with respect to any action, suit or proceeding involving the Seller, the Initial Servicer, the Issuer or any of the their Affiliates by or before any court or any governmental agency or tribunal which would reasonably be expected to have a Material Adverse Effect;
(f)(i) not to cease to be a limited partner of the Issuer, exercise any right to terminate the Limited Partnership Agreement or amend the Limited Partnership Agreement other than in accordance with the terms of the Limited Partnership Agreement; and (ii) not to effect a Change of Control of the Issuer by ceasing to wholly own the General Partner, other than in accordance with the terms of the Series 2021-1 Agreements, and not to exercise any
right to wind-up the General Partner or amend the articles of incorporation of the General Partner other than in accordance with the terms of the Limited Partnership Agreement;
(g)from time to time during regular business hours, but not more than once in any twelve (12) month period prior to the occurrence of an Amortization Event, to permit any Series 2021-1 Noteholder, its agents or representatives upon five (5) Business Days’ prior notice, to (i) examine and make copies of all Records in the possession (or under the control) of the Seller or Initial Servicer, as the case may be; and (ii) visit the offices and properties of the Seller or Initial Servicer, as the case may be, for the purpose of examining such Records and discussing matters relating to the Series 2021-1 Assets and the Seller’s or Initial Servicer’s, as the case may be, performance under the Series 2021-1 Assets or hereunder with any of the Seller’s or Initial Servicer’s, as the case may be, officers or employees having knowledge of such matters; and
(h)the Issuer will not conduct its business in a manner that will require it to be registered under the Investment Company Act;
(i)not, without the prior written consent of each of the Series 2021-1 Noteholders, make any change in the Credit and Collection Policies which would reasonably be expected to have a Material Adverse Effect;
(j)not to subcontract any part of the servicing of the Series 2021-1 Assets other than in accordance with Section 5.1(b) of the Receivables Sale and Servicing Agreement without the prior written consent of the Series 2021-1 Noteholders; provided, however, that no such subcontracting by the Servicer shall relieve it of its obligations as Servicer under the Receivables Sale and Servicing Agreement and Series 2021-1 Sale and Servicing Supplements;
(k)not to enter into any transaction whereby all or substantially all of its undertaking, property and assets would become the property of any other corporation, unless such transaction shall be on such terms that it would not reasonably be expected to have a Material Adverse Effect or such transaction is in connection with a Change of Control, which has been consented to by (i)(A) each Class A Noteholder, if there are less than three (3) Class A Noteholders; and (B) holders of at least 66 2/3% of the aggregate principal amount of the Series 2021-1 Class A Debt Securities, if there are three (3) or more Class A Noteholders, and (ii) the Class B Noteholders;
(l)the Sponsor shall comply with and be solely responsible for compliance with the U.S. Risk Retention Rules, including, without limitation, (i) complying with or causing the Servicer to comply with the post-closing disclosure requirements set forth in Rule 4(c)(2)(ii) of the U.S. Risk Retention Rules, (ii) complying with the records maintenance requirements set forth in Rule 4(d) of the U.S. Risk Retention Rules, and (iii) complying and causing the compliance with the hedging, transfer and financing prohibitions set forth in Rule 12 of the U.S. Risk Retention Rules; and
(m)[***].
1.6Series 2021-1 Collateral
(a)The Issuer hereby covenants and agrees with the Indenture Trustee that so long as any of the Series 2021-1 Debt Securities remain outstanding, it shall not consent to a release, assignment or sale of its interest in the Series 2021-1 Collateral other than in accordance with the Series 2021-1 Agreements, unless (i) the Class A Noteholders have consented thereto pursuant to an Extraordinary Resolution, and (ii) the Class B Noteholders have consented thereto pursuant to an Extraordinary Resolution.
(b)If it is determined, based on the calculations by the Servicer for any Weekly Report to be delivered on each Weekly Reporting Date, that a Class A Pool Balance Deficiency or Class B Pool Balance Deficiency has occurred in respect of the corresponding Weekly Reporting Period: (i) the Servicer will on behalf of the Issuer notify the Seller that the Issuer is offering to purchase and the Seller may, at its sole discretion, by close of business on the Weekly Reporting Date sell to the Issuer or designate to the relevant
Series of Debt Obligations, as the case may be and in accordance with the procedures for selling or designating Obligor Account Assets pursuant to the Receivables Sale and Servicing Agreement, additional Obligor Account Assets in respect of specified Series 2021-1 Eligible Obligor Accounts in a sufficient amount such that, after giving effect to such sale or designation of Obligor Account Assets in additional Series 2021-1 Eligible Obligor Accounts, the Class A Pool Balance Deficiency or Class B Pool Balance Deficiency is cured by the Issuer; and (ii) the Issuer and the Seller will notify the Series 2021-1 Noteholders of such Class A Pool Balance Deficiency and/or Class B Pool Balance Deficiency (A) in the case of any Weekly Reporting Period during which a Settlement Date falls, promptly upon determination thereof and (B) in any other case, in the Weekly Report delivered on the related Weekly Reporting Date.
(c)The Seller and the Servicer shall ensure that: (i) all conditions precedent to the completion of the related Asset Purchase and/or Asset Designation, as the case may be, pursuant to a Series 2021-1 Sale and Servicing Supplement or a Series 2021-1 Designation and Servicing Supplement, as the case may be, which are required to be satisfied on the date of each Asset Designation and/or Asset Purchase pursuant to the Receivables Sale and Servicing Agreement, as the case may be, shall have been satisfied; and (ii) each of the Series 2021-1 Noteholders shall have received copies of all reasonably required data with respect to the Series 2021-1 Assets subject to any related Asset Designations and/or Asset Purchases, as the case may be, not less than two (2) Business Days prior to the related Asset Designation Date or Asset Purchase Date.
(d)The Seller acknowledges having received a copy of the Supplemental Indenture, and shall ensure that it repays any Excess Collections paid to it in the circumstances and to the extent it is required to do so in accordance with Section 5.2 of the Supplemental Indenture. Furthermore, the Seller and Servicer acknowledge and agree that Section 2.2 of the Receivables Sale and Servicing Agreement is inapplicable in respect of the Series 2021-1 Debt Securities and consequently, for the avoidance of doubt, a Funding Account and Prefunding Ledgers are not required to be established in respect of the Series 2021-1 Debt Securities and so Sections 6.5, 6.6 and 6.7 of the Receivables Sale and Servicing Agreement are inapplicable in respect of the Series 2021-1 Debt Securities.
1.7Series 2021-1 Agreements and Structuring Agent
(a)Each of the Indenture Trustee, the Issuer, the Seller and the Initial Servicer acknowledge and agree that the Structuring Agent may enforce directly, without joinder of the Issuer, the rights of the Issuer under the Receivables Sale and Servicing Agreement and any Series 2021-1 Sale and Servicing Supplement thereto and any Sale and Servicing Québec Assignment, in each case with respect to the Series 2021-1 Assets, in the circumstances set forth below. The Issuer agrees that it shall not exercise any remedies under the Receivables Sale and Servicing Agreement (including any right to appoint a Replacement Servicer or agree to a Replacement Servicer Fee) or under any Series 2021-1 Sale and Servicing Supplement thereto or any Sale and Servicing Québec Assignment, in each case with respect to the Series 2021-1 Assets, or provide any consents or waivers under the Receivables Sale and Servicing Agreement and any Series 2021-1 Sale and Servicing Supplement thereto or any Sale and Servicing Québec Assignment, in each case with respect to the Series 2021-1 Assets, without the consent of the Structuring Agent. The Issuer shall, if requested by the Structuring Agent, exercise any of its remedies or give consents and waivers under the Receivables Sale and Servicing Agreement or under any Series 2021-1 Sale and Servicing Supplement thereto or any Sale and Servicing Québec Assignment, in each case with respect to the Series 2021-1 Assets only in accordance with an express written direction signed by the Structuring Agent. If the Issuer fails to act on any such direction within one (1) Business Day, the Structuring Agent may exercise such remedies directly. The Issuer shall not assign any of its rights under the Receivables Sale and Servicing Agreement or under any Series 2021-1 Sale and Servicing Supplement thereto or any Sale and Servicing Québec Assignment, in each case with respect to the Series 2021-1 Assets, except (i) in favour of the Indenture Trustee or the Series 2021-1 Noteholders, or (ii) with the consent in writing of the Structuring Agent. The Structuring Agent shall exercise its rights under this Agreement and any other Series 2021-1 Agreement with the consent or direction of all Class A Noteholders, if there are two (2) or less Class A Noteholders, or Class A Noteholders holding at least 66 2/3% of the Series 2021-1 Balance on Series 2021-1 Class A Debt Securities, if there are more than two (2) Class A Noteholders. Furthermore,
for the avoidance of doubt, the Structuring Agent rights and discretions under this Agreement and any other Series 2021-1 Agreement shall be exercised subject to Article 6.
(b)Each of the Issuer, the General Partner, the Seller and the Initial Servicer agrees that it will not agree to any amendment or waiver of any provision of, or assign any of its rights under, or provide any consent under any Series 2021-1 Agreement without the consent in writing of each Series 2021-1 Noteholder.
(c)The Indenture Trustee will not take an action under the Series 2021-1 Agreement requiring the written direction of the Series 2021-1 Noteholders or any portion thereof without first obtaining such written consent.
1.8Agreed Upon Procedures
The Seller and the Servicer shall furnish to the Series 2021-1 Noteholders, at its own expense, agreed upon procedures reports from a mutually agreed upon Person addressed to the Series 2021-1 Noteholders and prepared in accordance with the scope of agreed upon procedures attached hereto as Schedule B. Such agreed upon procedures report, which shall relate to the Series 2021-1 Loans, shall be provided on or before March 31 of each year; provided that the initial agreed upon procedures report following the Closing Date shall be provided within 120 days from the Closing Date and; provided however, that after the occurrence of a the Servicer Termination Event and for so long as a the Servicer Termination Event shall be continuing, a Series 2021-1 Noteholder may request the Seller and the Servicer to furnish to the Series 2021-1 Noteholders, at the expense of the Seller and the Servicer, up to three (3) such additional agreed upon procedures reports per year based on the agreed upon procedures attached hereto as Schedule B, subject to any changes and/or additional agreed upon procedures, as shall be requested by a Series 2021-1 Noteholder, acting reasonably. The Seller and the Servicer shall act to ensure that any issues identified in any agreed upon procedures report are remedied within thirty (30) days of the Seller and the Servicer’s receipt of such agreed upon procedures report; provided, for the avoidance of doubt, that this provision is without prejudice to any other cure periods in respect of covenants contained in the Series 2021-1 Agreements and, in the event of any conflict or inconsistency between this provisions and the covenants and cure periods in the other Series 2021-1 Agreements, the provisions of the other Series 2021-1 Agreements shall prevail.
1.9[***]
1.10Series 2021-1 Noteholder Requests for Information
The Indenture Trustee hereby agrees in favour of the Class A Noteholders and Class B Noteholders with respect to the Series 2021-1 Debt Securities that:
(a)Upon fifteen (15) Business Days’ prior written notice from a Class A Noteholder or Class B Noteholder, a Person identified by a Class A Noteholder or Class B Noteholder (or its designated agent) as a prospective transferee of its Series 2021-1 Debt Securities, the Indenture Trustee will, to the extent any such items are in its possession, make available originals or copies of the following information at its corporate trust office for review during normal business hours: (i) the Receivables Sale and Servicing Agreement, (ii) and any other disclosure document relating to the Series 2021-1 Debt Securities in the form most recently provided to the Indenture Trustee by the Seller or by any Person designated by the Seller, and (iii) all notices issued to Series 2021-1 Noteholders pursuant to the Series 2021-1 Supplemental Indenture.
(b)Without limiting the foregoing, in connection with providing access to or copies of the items described in clause (a) above, the Indenture Trustee or the Servicer will require: (i) in the case of Class A Noteholders or Class B Noteholders, a confirmation executed by the requesting Person substantially in the form of Schedule C-1 to the Series 2021-1 Supplemental Indenture (or such other form as may be reasonably acceptable to the Indenture Trustee or the Servicer, as the case may be) generally to the effect that such Person is a Class A Noteholder or Class B Noteholder; and (ii) in the case of a prospective purchaser of Series 2021-1 Debt Securities or an interest therein, a confirmation executed by the requesting Person substantially in the form of Schedule C-2 to the Series 2021-1 Supplemental Indenture (or such other form as may be reasonably acceptable to the Indenture Trustee or the Servicer, as the case may be) generally to the
effect that such Person is a prospective purchaser of Series 2021-1 Debt Securities or an interest therein.
(c)The Servicer (other than when the Servicer is the Seller or an affiliate of the Seller) and the Indenture Trustee may require payment from any Person of a sum sufficient to cover the reasonable costs and expenses of providing any such information or access pursuant to this Section including, without limitation, copy charges and reasonable fees for employee time and for space.
(d)The Indenture Trustee, upon receipt of all resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Indenture Trustee which are specifically required to be furnished pursuant to any provision of the Indenture, will examine them to the extent specifically set forth herein to determine whether they conform to the requirements of the Indenture. If any such instrument is found not to conform to the requirements of the Indenture in a material manner, the Indenture Trustee will inform the Issuer or the Servicer who will take such action as it deems appropriate to have the instrument corrected. The Indenture Trustee will not be responsible for the accuracy or content of any resolution, certificate, statement, opinion, report, document, order or other instrument furnished by the Issuer or the Servicer, and accepted by the Indenture Trustee in good faith, pursuant to the Indenture.
Article 5
MISCELLANEOUS
1.1Indemnification by the Seller and the Initial Servicer
(a)Subject to clause (b) below, each of the Seller and the Initial Servicer hereby agrees to indemnify each Series 2021-1 Noteholder and to save them harmless from and against any and all damages, losses, claims, liabilities, costs and expenses (including reasonable legal fees and disbursements) awarded against or incurred by such Series 2021-1 Noteholder arising out of or as a result of:
(i)any representation or warranty made or deemed to be made by the Seller (including in its capacity as Paying Agent) or the Initial Servicer (or any of its officers) in or in connection with any Series 2021-1 Agreement (including in any Monthly Servicer Report or Weekly Report), which was incorrect in any material respect when made or deemed made or delivered;
(ii)the failure of the Seller (including in its capacity as Paying Agent) or the Initial Servicer to perform or observe any of its covenants, duties or obligations under any Series 2021-1 Agreements;
(iii)the failure by the Seller (including in its capacity as Paying Agent) or the Initial Servicer to comply with any Applicable Law, rule, regulation, order, judgment, injunction, award or decree with respect to any part of the Series 2021-1 Assets, or the non-conformity of any Series 2021-1 Asset with any applicable law, rule, regulation, order, injunction, award or decree;
(iv)any commingling of Collections with other funds of the Seller or the Initial Servicer or any other Person;
(v)any reduction in the amount remitted to the Issuer due to any waiver by the Seller or Servicer of any amounts due under the Series 2021-1 Assets, except in accordance with the Credit and Collection Policies;
(vi)any Indemnified Taxes, and any penalty or interest in respect of any Indemnified Taxes, including any Indemnified Taxes imposed on the Series 2021-1 Noteholders on account of any payment made under this Section 5.1;
(vii)any collection, use, transfer or disclosure of Confidential Personal Information by the Seller or the Initial Servicer to the Issuer, the Backup Servicer, a Replacement Servicer or a Series 2021-1 Noteholder and the use or disclosure
of such Confidential Personal Information by the Issuer, the Backup Servicer, a Replacement Servicer or a Series 2021-1 Noteholder for a purpose consistent with the Series 2021-1 Agreements; and
(viii)willful misfeasance, bad faith, fraud or gross negligence on the part of the Seller (including in its capacity as Paying Agent), the Servicer or the Issuer in the performance of its covenants, obligations and duties under any Series 2021-1 Agreement.
(b)For the avoidance of doubt, notwithstanding anything to the contrary contained in clause (a) above, the Seller and the Initial Servicer shall not be liable to the Series 2021-1 Noteholders hereunder for any damages, losses, claims, liabilities, costs or expenses resulting solely from the failure of any Obligor to discharge its payment obligations and shall not be liable for any Obligor payment obligations under any Series 2021-1 Assets.
(c)The Seller and the Initial Servicer and the Series 2021-1 Noteholders each agree to provide to the others reasonable assistance, at the request of such other party and, in any case, at the Seller’s and the Initial Servicer’s expense, in any action, suit or proceeding brought by or against, or any investigation involving such requesting party relating to any of the transactions contemplated herein or to any part of the Series 2021-1 Assets. If the Seller and the Initial Servicer have acknowledged their liability under this Section 5.1 in respect of any damages, losses, claims, liabilities, costs or expenses in connection with any such action, suit, proceeding or investigation, the Seller and the Initial Servicer will have the right, on behalf of the Series 2021-1 Noteholders but at the Seller’s and Initial Servicer’s expense, to defend such action, suit or proceeding, or participate in such investigation, with counsel selected by it, and reasonably acceptable to the Series 2021-1 Noteholders and will have sole discretion as to whether to litigate or appeal and will have the right to settle if such settlement (i) provides for an unconditional release of the Series 2021-1 Noteholders in connection with all matters relating to the proceeding that have been asserted against the Series 2021-1 Noteholders in such proceeding by the other parties to such settlement and (ii) does not require or contain a statement as to, or an admission of fault, culpability or failure to act by or on behalf of the Series 2021-1 Noteholders. In any such proceeding, the Series 2021-1 Noteholders’ shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of the Series 2021-1 Noteholders unless (i) the Seller or the Initial Servicer, as the case may be, shall have agreed to the retention of such counsel, (ii) the named parties to any such proceeding (including any impleaded parties) include both the Seller or the Initial Servicer, as the case may be, and the Series 2021-1 Noteholders, and representation of the parties by the same counsel would be inappropriate due to actual or potential different interests between them or (iii) the Seller or the Initial Servicer, as the case may be, shall have failed to designate, within a reasonable period of time, counsel reasonably satisfactory to the Series 2021-1 Noteholders.
(d)Other than as set out in Section 5.1(e), the obligations of the Seller and the Initial Servicer under this Section 5.1 will, subject to Applicable Law, survive this Agreement and remain in full force and effect for a period up to and including the date that is two (2) years from the Final Maturity Date of the Series 2021-1 Debt Securities.
(e)The obligations of the Seller and the Initial Servicer under Section 5.1(a)(vi) relating to Indemnified Taxes will, subject to Applicable Law, survive this Agreement and remain in full force and effect for a period up to and including the date that is six (6) years from the Final Maturity Date of the Series 2021-1 Debt Securities.
1.2Confidential Personal Information
Each Series 2021-1 Noteholder shall use or disclose Confidential Personal Information only in connection with its rights and obligations under this Agreement and for purposes consistent with the Series 2021-1 Agreements.
1.3Change in Circumstances
If at any time:
(a)the introduction of, or any change (including any change by way of imposition or increase of any reserve requirements or a capital tax) in, or in the interpretation or administration of, any Applicable Law by any court or governmental authority occurs in each case after the Closing Date;
(b)the Issuer, a Series 2021-1 Noteholder or any of their Affiliates complies with any changed or introduced guideline, direction or request, or any change in the interpretation or administration thereof, made after the Closing Date from or by any governmental authority or professional self-regulating or governing body (including, for greater certainty, the Office of the Superintendent of Financial Institutions Canada, the Board of Governors of the United States Federal Reserve System or any other body or entity governing accounting treatment or reserve requirements) (whether or not having the force of law); or
(c)the Issuer, a Series 2021-1 Noteholder or any of their Affiliates, as a result of any legal or regulatory requirement, request, direction or guideline, or change in the interpretation or administration thereof (including with respect to reserve, deposit, capital adequacy, capital allocation or similar requirements), regardless of the date proposed, adopted, enacted, implemented or issued, from or by any governmental authority or other body described in (b) above or the Bank for International Settlements or the Basel Committee on Banking Supervision (or any successor or similar authority to any of them), posts, maintains or allocates additional capital or is otherwise affected by any of the foregoing, to or from that which is maintained by any such Issuer, Series 2021-1 Noteholder or Affiliate, and any such change or affect is determined by the Series 2021-1 Noteholder to be due to, related to or as a result of the Series 2021-1 Noteholder obligations under or related to this Agreement, including, for greater certainty, as a result of the current proposals and frameworks of the Basel Committee on Banking Supervision (including Basel III) or the implementation thereof by any governmental authority or other body described in (b) above or the Bank for International Settlements or the Basel Committee on Banking Supervision (or any successor or similar authority to any of them),
and any such event or action has the effect of:
(i)(A) increasing the costs, expenses, or liabilities of the Series 2021-1 Noteholder (including as a result of a change in the Series 2021-1 Noteholder’s capital position), as such costs, expenses or liabilities relate to the advancing or funding of the Series 2021-1 Debt Securities hereunder or maintaining all or any portion of the Series 2021-1 Debt Securities held by it, (B) reducing the rate of return (on capital or otherwise) to the Series 2021-1 Noteholder in connection with, or as a result of the Series 2021-1 Noteholder either having to raise additional capital, having to adjust the amount of capital to be maintained or incurring a deteriorated capital position as a result of the advancing or funding of the Series 2021-1 Debt Securities held by it hereunder, (C) requiring the payment of any taxes on or calculated with reference to the capital or debt of the Series 2021-1 Noteholder, or (D) requiring the Series 2021-1 Noteholder to make any payment it would not otherwise be required to make; or
(ii)reducing the amount of any Interest Distribution Amount of the Series 2021-1 Noteholder,
the Issuer and the Seller, jointly and severally, shall, from time to time upon demand by the Series 2021-1 Noteholder, pay to the Series 2021-1 Noteholder the amount of any such increased costs, expenses or liabilities incurred, reduction in amounts received or receivable, reduction in rate of return or required payment made or to be made (“Increased Costs”). The affected Series 2021-1 Noteholder shall deliver to the Issuer and the Seller a certificate setting forth the computation of the amount of any Increased Costs, which computation shall utilize reasonable averaging and attribution methods. Upon becoming aware thereof, an affected Series 2021-1 Noteholder shall promptly notify the Issuer and the Seller of any event or circumstance which could result in any payment being required to be made by the Issuer and the Seller to such Series 2021-1 Noteholder pursuant to this Section 5.3. Each of the Issuer and the Seller shall
have no liability for any such demand hereunder to the extent it relates to Increased Costs not disclosed to the Issuer and the Seller within ninety (90) days of the Series 2021-1 Noteholder becoming aware of such Increased Costs.
It is expressly acknowledged and agreed by the parties hereto that the obligations of the Seller and the Issuer under this Section 5.3 shall survive the consummation of the transactions contemplated by any of the Series 2021-1 Agreements and, notwithstanding the occurrence of such events, shall continue in full force and effect (and, for the avoidance of doubt, the obligations of the Issuer are subject to Section 7.7).
Article 6
INTERCREDITOR PROVISIONS
1.1Class B Intercreditor Provisions
(a)The Class B Noteholder shall have the right to purchase (i) all, but not less than all, of the Series 2021-1 Class A Debt Securities from the Class A Noteholders, upon the occurrence of a Related Event of Default (including any Related Event of Default or Servicer Termination Event that has been waived by the Class A Noteholders or the Indenture Trustee acting on a direction from the Class A Noteholders), at a purchase price sufficient to pay the Class A Noteholders the aggregate outstanding principal amount of the Series 2021-1 Class A Debt Securities, plus all accrued and unpaid interest and fees thereon, and (ii) the Series 2021-1 Assets from the Issuer at a private sale, upon the occurrence of a Related Event of Default, at a price which is not less than the amount which is sufficient to allow the Issuer to pay the Class A Noteholders the aggregate outstanding principal amount of the Series 2021-1 Class A Debt Securities plus all accrued and unpaid interest and fees thereon. The Class A Noteholders shall not exercise their right under the Indenture to direct the Indenture Trustee with respect to any sale, assignment, granting of an option or options to purchase, contract to sell or other disposition of the Series 2021-1 Collateral, or any part thereof, in one or more portions at public or private sale or sales, until five (5) Business Days have passed since the occurrence of the Related Event of Default (or such later time as may be acceptable to the Class A Noteholders) and the Class B Noteholder has not entered into a legally binding agreement to purchase all of the Series 2021-1 Class A Debt Securities or Series 2021-1 Assets as provided in this Section 6.1 providing that the consummation of the purchase of the Series 2021-1 Class A Debt Securities or Series 2021-1 Assets shall occur within ten (10) Business Days following the occurrence of the Related Event of Default (or such later time as may be acceptable to the Class A Noteholders).
(b)Notwithstanding any other provision of the Series 2021-1 Agreements to the contrary, the Class B Noteholder shall have the sole right, in its sole discretion, to waive any Amortization Event or Related Event of Default related solely to a failure of the Issuer to make any payment of principal or interest due on the Series 2021-1 Class B Debt Securities and any purported waiver of any such Amortization Event or Related Event of Default by the Class A Noteholders shall be void.
(c)The appointment of (i) a Replacement Servicer (other than the Backup Servicer or Vervent Inc.) with respect to the Series 2021-1 Assets, or (ii) a successor Backup Servicer under the Backup Servicing Agreement shall each be subject to approval of the Class B Noteholder. Additionally, any Interest Rate Hedging Agreements entered into shall be in form and substance satisfactory to the Class B Noteholder, acting reasonably.
(d)Any party to this Agreement that delivers a notice to the Class A Noteholders pursuant to any of the Series 2021-1 Agreements shall also as soon as reasonably practicable deliver a copy of such notice to the Class B Noteholder and, in the case of any notices received by the Structuring Agent pursuant to any of the Series 2021-1 Agreements from any Person that is not party to this Agreement, the Structuring Agent shall as soon as reasonably practicable deliver a copy of such notices to the Class B Noteholder. The Class A Noteholders shall as soon as reasonably practicable deliver a copy of any notice it delivers to the Issuer, the Indenture Trustee or the Seller pursuant to any of the Series 2021-1 Agreements to the Class B Noteholder.
(e)If any amendment to any Series 2021-1 Agreement or any consent to any action or waiver of any provision of a Series 2021-1 Agreement that requires the consent of the Series 2021-1 Noteholders or a resolution of the Series 2021-1 Noteholders (including an Extraordinary Resolution) could reasonably be expected to have a material adverse effect on the Class B Noteholder, such amendment, waiver or consent shall be subject to the consent of the Class B Noteholder.
1.2Replacement of Series 2021-1 Noteholders
(a)[***]
(b)[***]
Article 7
GENERAL
1.1Assignment
(a)Neither the Issuer nor the Seller and the Servicer may assign or transfer any of its rights or obligations hereunder without the prior written consent of each of the Series 2021-1 Noteholders.
(b)No Series 2021-1 Noteholder may sell, exchange, transfer, assign, pledge, hypothecate or otherwise dispose of or subject to any charge, lien, security interest or other encumbrance all or any interest herein or in Series 2021-1 Debt Securities except with the prior written consent of the Issuer and the Seller and the Servicer, not to be unreasonably withheld, and the purchaser, transferee or assignee assumes the obligations of the applicable Series 2021-1 Noteholder hereunder; and provided, for the avoidance of doubt, that the Series 2021-1 Debt Securities may only be sold, exchanged, transferred, assigned or otherwise disposed of in accordance with applicable securities laws and the terms of the Indenture.
(c)Notwithstanding Section 7.1(b), a Series 2021-1 Noteholder may:
(i)pledge, hypothecate or otherwise subject to any charge, lien, security interest or other encumbrance its interest herein and in the Series 2021-1 Debt Securities pursuant to any trust indenture or deed of hypothec granting security over the Series 2021-1 Noteholder’s assets;
(ii)sell, exchange, transfer, assign or otherwise dispose of all or any part of its interest herein and in the Series 2021-1 Debt Securities to (A) any Permitted Transferee without the consent of the Issuer or the Seller and the Servicer, provided any such sale, exchange, transfer, assignment or disposition does not result in any additional cost or expense to the Issuer or the Seller and the Servicer under Section 5.3 hereof and further provided that either the purchaser, transferee, assignee or assignor assumes the obligations of the Series 2021-1 Noteholder hereunder, or (B) to any other Canadian Schedule I bank or their Affiliates without the consent of the Issuer or the Seller and the Servicer, provided any such sale, exchange, transfer, assignment or disposition does not result in any additional cost or expense to the Issuer or the Seller and the Servicer under Section 5.3 hereof and further provided that either the purchaser, transferee, assignee or assignor assumes the obligations of the Series 2021-1 Noteholder hereunder; provided, for the avoidance of doubt, that the Series 2021-1 Debt Securities may only be sold, exchanged, transferred, assigned or otherwise disposed of in accordance with applicable securities laws and the terms of the Indenture; and
(iii)if a Servicer Termination Event or Related Event of Default occurs that has not been waived, transfer the whole or any part of its interest herein and in the Series 2021-1 Debt Securities without the consent of the Issuer or the Seller and the Servicer, subject to the transferee agreeing to be bound under the terms of this
Agreement and assuming the obligations of the Series 2021-1 Noteholder hereunder,
provided, with respect to both (i) and (ii) above, for the avoidance of doubt, that the Series 2021-1 Debt Securities may only be sold, exchanged, transferred, assigned or otherwise disposed of in accordance with applicable securities laws and the terms of the Indenture.
1.2Governing Law
This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. Each of the parties hereto hereby attorns to the non-exclusive jurisdiction of the courts of the Province of Ontario.
1.3Severability
In the event that one or more of the provisions contained in this Agreement shall be invalid, illegal or unenforceable in any respect under any Applicable Law, the validity, legality or enforceability of the remaining provisions hereof shall not be affected or impaired thereby. Each of the provisions of this Agreement is hereby declared to be separate and distinct.
1.4Notices, etc.
Any notice, document or other communication required or permitted to be given or delivered hereunder shall, unless otherwise stated herein, be in writing (including photocopy, facsimile, electronic mail or other digital communication) and sent, as to each party hereto, at its address indicated as follows, or at such other address as shall be designated by such party in a written notice to the other parties hereto:
(a)if to the Issuer, addressed to it at:
[***]
(b)if to the Seller and the Servicer, addressed to it at:
[***]
(c)if to NBC, addressed to it at:
[***]
(d)if to Precision Trust, addressed to it at:
[***]
(e)if to the Class B Noteholder, addressed to it at:
[***]
(f)if to the Indenture Trustee, addressed to it at:
[***]
Any such communication that is given by personal delivery shall be deemed to have been received on the day of actual delivery thereof and any notice given by electronic mail shall be deemed to have been received on the first Business Day after the transmittal thereof.
1.5Waivers and Amendments
(a)This agreement may not be amended except by an agreement in writing between the parties hereto.
(b)No failure by a party hereto to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single exercise or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right.
1.6Costs and Expenses
The Issuer shall be responsible for all fees and expenses (including reasonable legal fees and disbursements payable by the Series 2021-1 Noteholders to external counsel and any applicable taxes thereon) incurred by the Series 2021-1 Noteholders and their agents in connection with advice relating to the amendment or enforcement of this Agreement and the other Series 2021-1 Agreements and the transactions contemplated hereby and thereby.
1.7Limited Recourse
It is expressly acknowledged and agreed by the parties hereto that recourse for any amounts payable by the Issuer pursuant to this Agreement shall be limited to amounts available for such payments pursuant to the Indenture.
1.8Confidentiality
Each of the parties hereto shall make all reasonable efforts to hold all non-public information obtained pursuant to this Agreement and the transactions contemplated hereby or effected in connection herewith in accordance with its customary procedures for handling confidential information of this nature, provided that, notwithstanding the foregoing, the parties hereto may disclose non-public information as required by any governmental agency or representative thereof or pursuant to legal process or when required under Applicable Law, and may disclose non-public information to it professional advisors, dealers, investors and potential assignees, provided that such party is subject to similar confidentiality obligations in respect of any such disclosed non-public information.
1.9No Set-Off
The Issuer, Seller and Initial Servicer will make all payments required to be made hereunder or under any other Series 2021-1 Agreement without deduction or set-off (except as expressly permitted hereunder or under another Series 2021-1 Agreement), regardless of any defence or counterclaim.
1.10Binding Effect
This Agreement shall be binding upon and enure to the benefit of the parties hereto and, to the extent permitted hereunder, their respective successors and assigns.
1.11Execution in Counterparts
This Agreement or any amendment may be executed in any number of counterparts (including counterparts by facsimile, electronic transmission and email in PDF or similar transmissions) each of which, when so executed, shall be deemed to be an original and which counterparts together shall constitute one and the same agreement.
1.12Limitation of Liability of the Indenture Trustee
The Indenture Trustee is entering into this Agreement not in its individual capacity but solely in its capacity as Indenture Trustee under the Indenture. In executing this Agreement and acting hereunder, the Indenture Trustee shall be entitled to all of the rights, protections, indemnities, and immunities afforded to it in the Indenture. The permissive authorizations, entitlements, powers, and rights granted to the Indenture Trustee herein shall not be construed as duties. Any exercise of discretion on behalf of the Indenture Trustee shall be exercised in accordance with the terms of the Indenture.
[Remainder of page intentionally left blank; signature page follows]
IN WITNESS WHEREOF the parties hereto have executed this Agreement.
| | | | | | | | | | | |
| | FLEXITI SECURITIZATION LIMITED PARTNERSHIP, by its general partner, FLEXITI SECURITIZATION GENERAL PARTNER INC. |
| Per: | |
| Name: |
| Title: |
| Per: | |
| Name: |
| Title: |
Signature Page to Note Purchase Agreement
| | | | | | | | | | | |
| | FLEXITI SECURITIZATION GENERAL PARTNER INC., as General Partner, in its own right |
| Per: | |
| Name: |
| Title: |
| Per: | |
| Name: |
| Title: |
Signature Page to Note Purchase Agreement
| | | | | | | | | | | |
| | FLEXITI FINANCIAL INC.,
as the Seller and the Initial Servicer |
| Per: | |
| Name: |
| Title: |
| Per: | |
| Name: |
| Title: |
Signature Page to Note Purchase Agreement
| | | | | | | | | | | |
| | NATIONAL BANK OF CANADA,
as a Class A Noteholder |
| Per: | |
| Name: |
| Title: |
| Per: | |
| Name: |
| Title: |
Signature Page to Note Purchase Agreement
| | | | | | | | | | | |
| | BNY TRUST COMPANY OF CANADA, in its capacity as trustee of PRECISION TRUST, by its Securitization Agent BMO NESBITT BURNS INC.,
as a Class A Noteholder |
| Per: | |
| Name: |
| Title: |
| Per: | |
| Name: |
| Title: |
Signature Page to Note Purchase Agreement
| | | | | | | | | | | |
| | NATIONAL BANK OF CANADA,
as the Structuring Agent |
| Per: | |
| Name: |
| Title: |
| Per: | |
| Name: |
| Title: |
Signature Page to Note Purchase Agreement
| | | | | | | | | | | |
| | WF TORCA, LTD.,
as Class B Noteholder, by its director, WATERFALL ASSET MANAGEMENT, LLC |
| Per: | |
| Name: |
| Title: |
| Per: | |
| Name: |
| Title: |
Signature Page to Note Purchase Agreement
| | | | | | | | | | | |
| | COMPUTERSHARE TRUST COMPANY OF CANADA, as Indenture Trustee |
| Per: | |
| Name: |
| Title: |
| Per: | |
| Name: |
| Title: |
Signature Page to Note Purchase Agreement
Schedule A
COMMITMENT AMOUNTS
| | | | | |
| Class A Noteholder | Commitment Amount |
| National Bank of Canada | $300,000,000 |
| Precision Trust | $150,000,000 |
| | | | | |
| Class B Noteholder | Commitment Amount |
| WF TORCA, Ltd. | $76,500,000 |
Schedule B
FORM OF AGREED UPON PROCEDURES SCOPE
[***]
Schedule C
FORM OF FUNDING REQUEST
[***]
CERTAIN IDENTIFIED INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT BECAUSE IT IS NOT MATERIAL AND IS OF THE TYPE OF INFORMATION THAT THE REGISTRANT BOTH CUSTOMARILY AND ACTUALLY TREATS AS PRIVATE AND CONFIDENTIAL. [***] INDICATES THAT INFORMATION HAS BEEN OMITTED.
FLEXITI SECURITIZATION LIMITED PARTNERSHIP,
BY ITS GENERAL PARTNER, FLEXITI SECURITIZATION GENERAL PARTNER INC.
as Issuer
- and -
FLEXITI SECURITIZATION GENERAL PARTNER INC.
in its own
- and -
COMPUTERSHARE TRUST COMPANY OF CANADA
as Indenture Trustee
| | |
TRUST INDENTURE
Dated December 9, 2021 |
TABLE OF CONTENTS
Page
TRUST INDENTURE
TRUST INDENTURE made as of December 9, 2021, between Flexiti Securitization Limited Partnership, a limited partnership organized under the laws of the Province of Ontario, by its general partner, Flexiti Securitization General Partner Inc., a corporation organized under the laws of Canada, as Issuer, Flexiti Securitization General Partner Inc., in its own right (“General Partner”) and Computershare Trust Company of Canada, a trust company established under the laws of Canada and licensed to carry on business in each of the provinces and territories of Canada (the “Indenture Trustee”).
WHEREAS the Issuer is desirous of creating and issuing from time to time asset-backed securities in the manner hereinafter provided;
NOW THEREFORE THIS INDENTURE WITNESSES that, in consideration of the covenants and agreements herein contained, the parties hereto agree as follows:
Article 1
INTERPRETATION
1.1Definitions.
In this Indenture, the following terms will have the following meanings:
“Act” means the Securities Act (Ontario), as in effect from time to time;
“Affiliate” means, with respect to any specified Person, any other Person directly or indirectly controlling, controlled by or under common control with such specified Person and, for the purposes of this definition, “control” means, in respect of any specified Person, the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing;
“Anti-Terrorism Laws” has the meaning ascribed thereto in Section 12.3(e)(ii);
“Book-Entry Noteholder” means, with respect to a Book-Entry Note, the Person who is the beneficial owner of a Book-Entry Note;
“Book-Entry Notes” means the Notes held through the Book-Entry System as described in Section 2.13; provided that after the occurrence of an event whereupon book-entry transfers are no longer permitted and Definitive Notes have been issued to holders of any Book-Entry Notes, such Book-Entry Notes shall be cancelled;
“Book-Entry System” means the record entry securities transfer and pledge system administered by the Clearing Agency in accordance with its operating rules and procedures;
“Business Day” means any day of the year, other than a Saturday, Sunday or statutory or civic holiday, on which banks are open for business in Toronto, Ontario;
“Canadian Dollars” means the lawful money of Canada;
“CDS” means CDS Clearing and Depository Services Inc. and its successors and assigns;
“Certificate of the Issuer” means a certificate of the Issuer conforming to the requirements of Section 12.16;
“Class” means, in respect of a Series, each class of Notes of such Series issued pursuant to this Indenture and the Related Supplement and each class of Loans, if any, authorized, issued, created, obtained or borrowed by the Issuer, and designated as a class of Debt Obligations, pursuant to such Related Supplement or the Related Credit Agreements;
Signature Page to Master Trust Indenture
“Clearing Agency” means CDS or, if otherwise specified in the Related Supplement with respect to the Notes of any particular Series, any other organization registered as a “clearing agency” pursuant to the Act;
“Clearing Agency Letter of Representation” means any letter of representation provided by the Issuer to a Clearing Agency with respect to procedures under the Book-Entry System;
“Collateral” means any collateral over which the Issuer grants a Security Interest to the Indenture Trustee or U.S. Indenture Trustee for any Series of Debt Obligations, as specified in the Related Supplement;
“Collections” means all cash collections and other proceeds of Purchased Asset Interests including, without limitation, all payments by a Credit Enhancer under any Credit Enhancement Agreement, all proceeds of any Related Collateral and any collection of such Purchased Asset Interests or any proceeds of sale of such Purchased Asset Interests received by or deemed to have been received by the Issuer, or any agent on behalf of the Issuer, including the General Partner or any Servicer of such Purchased Asset Interests;
“Corporate Trust Office” means the address of the Indenture Trustee specified in Section 14.2 or such other address as to which the Indenture Trustee may give notice to the Noteholders and the Issuer;
“Counsel” means any attorney, barrister or solicitor or firm of attorneys, barristers and solicitors retained by the Indenture Trustee, which may include counsel to the Issuer and, in the case of Counsel to the Issuer, any attorney, barrister or solicitor or firm of attorneys, barristers and solicitors retained, acting reasonably, by the Issuer (who may also be Counsel to the Indenture Trustee and/or the General Partner);
“Credit Agreement” means a loan agreement executed in connection with one or more Purchased Asset Sale Agreements or a Series or Class of Debt Obligations among the Funding Providers thereunder and the Issuer providing for a loan or other accommodation or credit facility to the Issuer to enable the Issuer to (a) repay or refund Debt Obligations in accordance with the terms of such Debt Obligations or (b) enable the Issuer to acquire any Related Purchased Asset Interests or to fund or maintain the Issuer’s investment in or ownership of any Purchased Asset Interests, as amended, supplemented or otherwise modified and in effect from time to time;
“Credit Enhancement” means the provision by a Credit Enhancer of credit support (howsoever characterized) in respect of the Purchased Asset Interests or Debt Obligations or any Series or Class thereof, by any means whatsoever, including over-collateralization provided by a Seller to cover losses on Purchased Asset Interests (whether through a deferred purchase price or rent mechanism, excess income spread, a subordinated position or any other method) and also including any monies held by, or rights to hold money in favour of, the Issuer in a spread account or cash collateral account or as a reserve, and any insurance policy, letter of credit, surety bond, guaranteed rate agreement, refinancing facility, tax protection agreement, interest rate swap agreement or other similar arrangement, but excluding, for greater certainty, the right of a Credit Enhancer to the return, payment, reimbursement or release of a Credit Enhancement once its stated purpose has been satisfied;
“Credit Enhancement Agreement” means any agreement pursuant to which a Credit Enhancer provides Credit Enhancement;
“Credit Enhancer” means any Person, other than the Issuer and the General Partner, but including a Seller, that provides Credit Enhancement pursuant to a Credit Enhancement Agreement and any successor or assign of such Person;
“Custodian” means one or more Persons designated to act as a custodian in respect of Purchased Asset Interests or any Related Transaction Account and to perform other tasks associated therewith under the Related Supplement or Related Purchased Asset Sale Agreement or other agreement entered into by the Issuer with any Person providing for the custody of the Purchased Asset Interests or any Related Transaction Account, and its successors and permitted assigns in such capacity;
Signature Page to Master Trust Indenture
“Dealer” means one or more Persons who are parties to a Dealer Agreement (other than the Issuer, the General Partner or a Seller) for the purpose of facilitating the sale and distribution, or resale, of the Notes referred to in the Dealer Agreement;
“Dealer Agreement” means any agreement which may be entered into from time to time between the Issuer and a Dealer providing for the purchase and sale and distribution of Notes of the Issuer or the sale and distribution of Notes on an agency basis;
“Debt Obligation” means a Note or Loan of any Series or Class;
“Debtholder” or “holder” means a Noteholder or the holder or owner of a Debt Obligation other than a Note (including, for the avoidance of doubt, a Funding Provider);
“Default” means, for any Series, any occurrence that is, or with notice or the lapse of time or both would become, a Related Event of Default;
“Definitive Notes” means fully registered certificates representing Notes in the form specified in the Related Supplement;
“Distribution Date” means any day in a month upon which periodic payments of principal and/or interest are to be paid on any Debt Obligation;
“Eligible Institution” means any trust company incorporated under the laws of Canada or any province thereof or any bank listed in Schedule I, Schedule II or Schedule III (provided that a Schedule III bank must have deposit taking authority) to the Bank Act (Canada), and which, at any time funds comprising part of the Collateral are on deposit therein, has the Required Rating, or, if such trust company or bank does not satisfy any such rating requirement, such lower rating that satisfies the Rating Agency Condition, as applicable in respect of any rated Debt Obligations and is approved by an Extraordinary Resolution of holders of any non-rated Debt Obligations, as applicable;
“Equivalent Amount” means, on any given date, the amount of Canadian Dollars resulting from the conversion of a specified amount of any other currency converted (i) at the spot rate determined in accordance with the Related Supplement; or (ii) if the specified amount of such other currency is the subject of a Hedging Agreement which provides for the delivery of or conversion to an equivalent amount of Canadian Dollars, the specified amount of such other currency shall be deemed to be converted to an amount in Canadian Dollars at the effective rate under such Hedging Agreement;
“Event of Default” has the meaning ascribed thereto in Section 8.1;
“Extraordinary Resolution” means a resolution described in Section 11.13;
“Flexiti” means Flexiti Financial Inc. and its successors and permitted assigns;
“Funding Providers” means the Persons that are at any time lenders under any Credit Agreements;
“General Partner” means Flexiti Securitization General Partner Inc. and its successors and permitted assigns;
“Hedging Agreement” means any currency exchange or interest rate exchange agreement, interest rate cap, collar or floor agreement, forward rate or currency agreement or other similar agreement between the Issuer and a Swap Counterparty; provided, for the avoidance of doubt, that a Hedging Agreement shall consist of (i) the ISDA Master Agreement entered into by the Issuer and Swap Counterparty, (ii) each Schedule or Annex thereto, if any, and (iii) each confirmation executed and delivered by the Issuer and such Swap Counterparty pursuant to such ISDA Master Agreement and Schedule;
“Hypothec” means a deed of hypothec, if any, to be granted by the Issuer in favour of the Indenture Trustee under the laws of the Province of Quebec for the purposes of further assuring
Signature Page to Master Trust Indenture
the Collateral, or a part thereof, to the Indenture Trustee for the benefit of the Related Specified Creditors, as amended, supplemented or otherwise modified and in effect from time to time;
“IFRS” means International Financial Reporting Standards as adopted by the International Accounting Standards Board (or any successor board or agency), and approved by the Chartered Professional Accountants of Canada (or any successor institute or agency with similar function);
“Indenture” means this trust indenture, as amended, supplemented, modified, restated or replaced from time to time, and the expressions “hereof”, “herein”, “hereto”, “hereunder”, “hereby” and similar expressions refer to this Indenture and not to any Article, Section, paragraph, subparagraph or clause hereof;
“Indenture Trustee” means Computershare Trust Company of Canada, as indenture trustee hereunder or as the fondé de pouvoir under a Hypothec, and its successors and permitted assigns in such capacity, or any successor trustee appointed pursuant to Article 12;
“Issuer” means Flexiti Securitization Limited Partnership, by its general partner, Flexiti Securitization General Partner Inc., as issuer hereunder, and its successors and permitted assigns;
“Issuer Property” means, as of any particular time, all assets of the Issuer and all property, real, personal or otherwise, tangible or intangible, which has been transferred, conveyed or paid to, or acquired by the Issuer, including all income, earnings, profits and gains therefrom, and which at such time is owned or held by the Issuer;
“ITA” means the Income Tax Act (Canada);
“Limited Partnership Agreement” means the limited partnership agreement dated September 22, 2021, as amended and restated as of November 30, 2021, among, inter alios, the Issuer and the General Partner, as any such agreement may be amended, supplemented, restated or replaced from time to time;
“Loan” means a loan, advance or other accommodation or extension of credit made to, or obtained by, the Issuer pursuant to a Credit Agreement and includes (a) the obligation of the Issuer to pay or repay such loan, advance or other accommodation or extension of credit in accordance with the terms and provisions of the Related Credit Agreement and the Related Supplement, and (b) all other obligations and liabilities of the Issuer pursuant to the Related Credit Agreement and the Related Supplement;
“LPA” means the Limited Partnerships Act (Ontario);
“Note Purchase Agreement” means any agreement which may be entered into from time to time between the Issuer and a Person or Persons providing for the purchase and sale of Notes to enable the Issuer to (a) repay or refund Debt Obligations in accordance with the terms of such Debt Obligations; or (b) enable the Issuer to acquire any Related Purchased Asset Interests or to fund or maintain the Issuer’s investment in or ownership of any Purchased Asset Interests, as amended, supplemented or otherwise modified and in effect from time to time;
“Note Registers” means the registers providing for the registration of the Notes which the Indenture Trustee is required to maintain pursuant to Section 2.6;
“Noteholder” means the Person in whose name the Note is registered in the applicable Note Register from time to time in accordance with the provisions of this Indenture;
“Notes” means the notes from time to time issued in Series pursuant to this Indenture and any Related Supplement, which may include one or more Classes of Notes;
“Obligations Secured” means, for any Series of Debt Obligations, all present and future debts, expenses and liabilities, direct or indirect, absolute or contingent, due, owing or accruing due or owing from time to time by the Issuer to the Related Specified Creditors in their capacity as such, including, without limitation, (i) the unpaid face amount of any Notes of that Series issued on a discount basis, discounted to their present value using a discount rate equivalent to the yield to
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maturity of such Notes when issued, or the principal amount of, together with the accrued and unpaid interest on, interest bearing Notes, as applicable; (ii) the principal amount together with the accrued and unpaid interest on Loans; (iii) accrued fees, whether or not then due and payable; and (iv) any other evidence of indebtedness issued by the Issuer pursuant to or in respect of an amount owing by the Issuer under a Program Agreement;
“Opinion of Counsel” means an opinion delivered by Counsel to the Issuer, or the General Partner on behalf of the Issuer, conforming to the requirements of Section 12.16;
“Original Currency” has the meaning ascribed thereto in Section 15.6;
“Other Assets” has the meaning ascribed thereto in Section 15.4;
“Participant” means a broker, dealer, bank or other financial institution or other Person who is a participant in the Book-Entry System and on whose behalf a Clearing Agency or its nominee holds Notes;
“Paying Agent” means any paying agent or co-paying agent appointed pursuant to the Related Supplement;
“Performance Guarantee” means a performance guarantee, support agreement or similar performance undertaking pursuant to which a Person guarantees or otherwise assures the performance of the obligations of one or more parties under one or more Related Program Agreements;
“Permitted Investment” means, in relation to the investment of funds on deposit in Related Transaction Accounts, investments which satisfy the criteria for Permitted Investments, as such term is defined in any Related Supplement;
“Permitted Liens” means (i) liens for taxes, assessments or other governmental charges or levies on the assets of the Issuer not at the time delinquent or thereafter payable without penalty or contested in good faith by appropriate proceedings and for which adequate reserves, in accordance with IFRS, shall have been set aside on the Issuer’s books; (ii) the Security Interests; and (iii) in respect of any Series of Debt Obligations and the Related Collateral, such liens or other encumbrances expressly permitted in any of the Related Program Agreements;
“Person” means any individual, corporation, estate, partnership, limited partnership, joint venture, association, joint stock company, trust (including any beneficiary thereof), unincorporated organization, government (or any agency or political subdivision thereof), or any other entity;
“PPSA” means (a) the personal property security legislation as in effect in each Province or Territory of Canada (other than Quebec), and (b) the Civil Code of Quebec as in effect in Quebec (but excluding any portions of the Civil Code of Quebec which are not equivalent to the PPSA of the provinces or territories described in clause (a));
“Principal Terms” means, with respect to the Debt Obligations of any particular Series:
(i)the name or designation of each Class of Debt Obligations of such Series;
(ii)the aggregate principal amount of each Class of Debt Obligations of such Series which may be issued, which aggregate principal amount may vary and be determined in the manner specified in the Related Supplement from time to time;
(iii)the interest rates, if any, applicable to each Class of Debt Obligations of such Series and the period over which any interest is to accrue, which interest rates may vary as between Debt Obligations of the same Series or Class as specified in the Related Supplement;
(iv)the Distribution Dates, if any, applicable to each Class of Debt Obligations of such Series;
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(v)the language and currency of such Debt Obligations, which currencies may vary as between Debt Obligations of the same Series or Class as specified in the Related Supplement;
(vi)the method for allocating principal and interest and other Collections to fund payments to each Class of Debt Obligations of such Series;
(vii)the forms of each Class of Debt Obligations of such Series;
(viii)the final maturity date of each Class of Debt Obligations of such Series and any expected final payment date, which dates may vary as between Debt Obligations of the same Series or Class as specified in the Related Supplement;
(ix)any redemption, retraction, repurchase or early repayment provisions for the Debt Obligations of such Series or, if applicable, the Classes of Debt Obligations of such Series, which may vary as between Debt Obligations of the same Series or Class as specified in the Related Supplement;
(x)a description of the items, if any, required to be delivered to the Indenture Trustee on the Related Series Issuance Date in addition to those specified in Subsection 2.3(b);
(xi)to the extent such Debt Obligations are Notes, whether such Notes are to be Definitive Notes or Book-Entry Notes and any limitations imposed thereon;
(xii)the minimum amounts and denominations in which such Debt Obligations may be issued, if applicable;
(xiii)any additional or alternative Related Events of Default;
(xiv)the required terms of any Credit Agreement for such Series, if applicable;
(xv)any terms which amend, supplement, modify, restate or replace the terms of this Indenture as such pertain to such Debt Obligations;
(xvi)any other provisions expressing or referring to the terms or conditions upon which the Debt Obligations of such Series are to be issued or obtained under this Indenture and the Related Supplement;
(xvii)the designation of any Series Accounts and the terms governing the operation of such Series Accounts;
(xviii)the Related Collateral for such Series;
(xix)the specification of any Purchased Asset Sale Agreement for such Series;
(xx)the number of Classes of Debt Obligations of such Series and, if such Series consists of more than one Class, the rights and priorities of each such Class;
(xxi)the voting rights for holders of Debt Obligations of such Series and, if applicable, the holders of Classes of Debt Obligations of such Series;
(xxii)the priority of such Series with respect to any other Series;
(xxiii)the Rating Agency or Rating Agencies, if any, rating such Series; and
(xxiv)any deposit into any account maintained for the benefit of the Debtholders of such Series;
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“Proceeding” means, with respect to any Series and the Related Obligations Secured, any suit in equity, action at law or other judicial or administrative proceeding;
“Program Agreements” means, at any time, collectively, this Indenture, together with any Related Supplements, Hypothecs, Hedging Agreements, Purchased Asset Sale Agreements, Credit Enhancement Agreements, Performance Guarantees, Subordinated Issuer Credit Agreements, Credit Agreements, Note Purchase Agreements, Dealer Agreements, Designation and Servicing Supplement, Sale and Servicing Supplement, the Limited Partnership Agreement and any other agreement to which the Issuer is a party or has a legal interest in, in effect at such time;
“Purchased Asset Interests” means whole or undivided interests in, or interests in pools of, receivables, loans, customer accounts or other evidences of indebtedness or other assets originated or acquired by a Seller and transferred to the Issuer pursuant to a Purchased Asset Sale Agreement and any other rights, interests and benefits acquired by the Issuer on or after the date hereof pursuant to the terms of the Program Agreements;
“Purchased Asset Sale Agreement” means any loans, customer accounts or receivables purchase agreement, co-ownership agreement, loan agreement or other agreement entered into by the Issuer and the Seller and, in certain cases, other parties, and a document related to the servicing of such Purchased Asset Interests, as any such agreement may be amended, supplemented, restated or replaced from time to time;
“Rating Agencies” means, with respect to any Series and with respect to any Class of any rated Debt Obligations, each credit rating agency which, has been requested by the Issuer to rate such Series or Class and any reference to each Rating Agency in relation to any Series or Class shall only apply to the specified rating agency if such rating agency is then rating such Series or Class;
“Rating Agency Condition” means, with respect to any Series or Class of any rated Debt Obligations, a condition which is satisfied in respect of any particular matter or action when each Rating Agency advises the Issuer or the Indenture Trustee, as applicable, in writing (which may be in electronic .pdf form) that such matter or action will not in and of itself decrease or result in the downgrade or withdrawal of its rating on the Debt Obligations of such Series or Class; provided that, if a Rating Agency waives, declines or refuses to review any request for a Rating Agency Condition in writing either generally (including by way of published policy or general written waivers, email or facsimile) or in respect of any specified event, matter or thing, then such waiver, declination or refusal will be deemed to eliminate, for such request only, the condition that such Rating Agency Condition must be satisfied with respect to that Rating Agency and that matter or action; and provided further that, if reference to satisfying the Rating Agency Condition is related to a proposed action that will be completed in connection with the initial assignment of a rating, the Rating Agency Condition is considered to have been satisfied upon assignment of the initial rating; and provided further, for the avoidance of doubt, that to the extent that at any time any Series or Class of Debt Obligations is not rated by a Rating Agency, no matter or action will require completion or satisfaction of any Rating Agency Condition with respect to such Series or Class;
“Receiver” means one or more of a receiver, receiver-manager or receiver and manager of all or a portion of any Collateral appointed pursuant to Article 9;
“Record Date” means, with respect to any Distribution Date, the close of business on the last Business Day of the calendar month immediately preceding the month in which such Distribution Date occurs;
“Related” is used in reference to the Debt Obligations of a particular Series and means, when used in conjunction with:
(i)“Collateral”: all Collateral for any Series of Debt Obligations, as specified in the Related Supplement or Related Credit Agreement, as the case may be;
(ii)“Collections”: all Collections with respect to Related Purchased Asset Interests;
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(iii)“Credit Agreement”: a Credit Agreement with respect to one or more Series or Class of Debt Obligations;
(iv)“Credit Enhancement”: Credit Enhancement provided pursuant to a Related Credit Enhancement Agreement in respect of such Debt Obligations or Purchased Asset Interests;
(v)“Credit Enhancement Agreement”: a Credit Enhancement Agreement pursuant to which Credit Enhancement has been provided in respect of such Debt Obligations;
(vi)“Credit Enhancer”: a Credit Enhancer under a Related Credit Enhancement Agreement;
(vii)“Custodian”: a Custodian in respect of the Related Purchased Asset Interests;
(viii)“Dealer Agreement”: a Dealer Agreement in respect of Notes comprising such Debt Obligations;
(ix)“Debt Obligation” means a Debt Obligation of such Series;
(x)“Debtholder” means a Debtholder of or with respect to such Series of Debt Obligations;
(xi)“Default”: any occurrence that is, or with notice or the lapse of time or both would become, a Related Event of Default;
(xii)“Designation and Servicing Supplement”: a designation and servicing supplement executed in connection with a Purchased Asset Sale Agreement entered into in connection with such Debt Obligations;
(xiii)“Distribution Date”: the Distribution Date specified in the Related Supplement;
(xiv)“Event of Default”: each Event of Default described in Section 8.1 and any additional Event of Default set out in the Related Supplement in respect of such Debt Obligations;
(xv)“Hedging Agreement”: a Hedging Agreement relating to such Debt Obligations or to the Related Purchased Asset Interests;
(xvi)“Hypothec”: a Hypothec relating to such Debt Obligations or to the Related Purchased Asset Interests;
(xvii)“Issuer Expenses”: those expenses of the Issuer which are attributable to a specific Series of Debt Obligations or on a Related Proportionate Share basis;
(xviii)“Loan”: a Loan under a Related Credit Agreement;
(xix)“Note Purchase Agreement”: a Note Purchase Agreement pursuant to which one or more Classes of such Notes are being sold by the Issuer to one or more Persons;
(xx)“Obligations Secured”: all Obligations Secured relating to the holders of such Debt Obligations and to Specified Creditors under the Related Program Agreements, including the Related Issuer Expenses;
(xxi)“Paying Agent” means a Paying Agent under a Related Supplement;
(xxii)“Payment Account”: an account which may be established and maintained by or on behalf of the Issuer for the Debt Obligations of such Series;
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(xxiii)“Performance Guarantee”: a Performance Guarantee specified in the Related Supplement as relating to any Debt Obligations of such Series or Related Obligations Secured;
(xxiv)“Permitted Liens” means Permitted Liens under a Related Program Agreement;
(xxv)“Program Agreements”: this Indenture, the Limited Partnership Agreement and any other Program Agreement relating to such Debt Obligations;
(xxvi)“Proportionate Share”: at any time with respect to Debt Obligations of such Series, the outstanding principal amount of such Debt Obligations at such time divided by the outstanding principal amount of all Debt Obligations of all Series at such time;
(xxvii)“Purchased Asset Interests”: any Purchased Asset Interests relating to such Debt Obligations;
(xxviii)“Purchased Asset Sale Agreement”: any Purchased Asset Sale Agreement relating to such Debt Obligations;
(xxix)“Rating Agency”: a Rating Agency which has established a rating for all or any Classes of such Debt Obligations;
(xxx)“Sale and Servicing Supplement”: a sale and servicing supplement executed in connection with a Purchased Asset Sale Agreement entered into in connection with such Debt Obligations;
(xxxi)“Seller”: a seller under a Related Purchased Asset Sale Agreement;
(xxxii)“Series Issuance Date”: the date upon which the first of such Debt Obligations are issued or to be issued;
(xxxiii)“Servicer”: the Servicer of Related Purchased Asset Interests under a Related Purchased Asset Sale Agreement or other agreement entered into by the Issuer and any Person providing for the present or future servicing of Related Purchased Asset Interests;
(xxxiv)“Significant Event” means any event which would or, with the passage of time or giving of notice would, permit the Issuer to exercise any remedy against any other party to a Program Agreement or change the manner in which the proceeds of Purchased Asset Interests would be applied to repay all present and future debts, expenses and liabilities, direct or indirect, absolute or contingent, due, owing or accruing due or owing from time to time by the Issuer, including, without limitation, those owing to any Debtholder, any lender to the Issuer or change the manner in which the proceeds of Purchased Asset Interests would be allocated between the Issuer and a Seller pursuant to a securitization agreement;
(xxxv)“Specified Creditors”: collectively, the holders of such Debt Obligations, Related Credit Enhancers, Swap Counterparties pursuant to Related Hedging Agreements, lenders pursuant to Related Subordinated Issuer Credit Agreements, any Related Servicer (other than a Related Seller or an Affiliate thereof), any Related Seller, any Related Custodian, and the Indenture Trustee and General Partner to the extent their claims relate to such Debt Obligations or the Related Purchased Asset Interests;
(xxxvi)“Subordinated Issuer Credit Agreement”: a Subordinated Issuer Credit Agreement in respect of such Debt Obligations;
(xxxvii)“Supplement”: a supplement to this Indenture executed in connection with the issuance of such Debt Obligations;
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(xxxviii)“Transaction Accounts”: those accounts of the Issuer or a Custodian described in the Related Supplement or Related Purchased Asset Sale Agreement as “Collection Accounts” or “Distribution Accounts” into which Related Collections are to be deposited;
“Related Person” means, in respect of (i) the Issuer, any director, officer, employee, agent or representative of the Issuer or the General Partner; and (ii) any other Person, any Affiliate, shareholder, director, officer, employee, agent or representative of such Person and the directors, officers, employees, agents or representatives of any such Affiliate or shareholder, and the term “Related Persons” refers to more than one such Person;
“Required Rating” means, in respect of any Series or Class of Debt Obligations, the ratings threshold specified in the Related Supplement or the Related Credit Agreement.
“Responsible Officer” means with respect to the Indenture Trustee, any officer assigned to the Corporate Trust Office of the Indenture Trustee or any other officer of the Indenture Trustee customarily performing functions similar to those performed by any designated officer and having direct responsibility for the administration of this Indenture, and also, with respect to a particular matter, any other officer of the Indenture Trustee to whom such matter is referred because of such officer’s knowledge of and familiarity with the particular subject;
“Security Interest” means, collectively, all security interests, mortgages, charges, pledges, grants, assignments, hypothecs, deposit arrangements, encumbrances and liens (consensual, statutory or otherwise) granted to the Indenture Trustee (or any co-trustee or separate indenture trustee) pursuant to a Related Supplement in the Related Collateral as security for the Related Obligations Secured, and “Security Interests” means, collectively, all Security Interests in all Related Collateral pursuant to all Related Supplements;
“Seller” means Flexiti Financial Inc., and any of its successors and permitted assigns;
“Series” means any series of Debt Obligations within which series there may be one or more Classes, issued pursuant to this Indenture and any Related Supplement;
“Series Accounts” has, with respect to any Series or Class, the meaning specified in the Related Supplement and includes the Related Transaction Accounts for such Series or Class;
“Servicer” means a Person designated to collect payments in respect of the Purchased Asset Interests and to perform other tasks associated therewith under a Purchased Asset Sale Agreement or other agreement entered into by the Issuer with any Person providing for the present or future servicing of the Purchased Asset Interests;
“Specified Creditors” means, collectively, Debtholders, Credit Enhancers, the General Partner, the Indenture Trustee, Swap Counterparties, Custodians, the lenders pursuant to Subordinated Issuer Credit Agreements, Dealers, Servicers, Sellers, and other Persons in respect of Obligations Secured, in each case, to the extent their claims relate to one or more Program Agreement;
“Subordinated Issuer Credit Agreement” means any loan agreement between a Seller and the Issuer, pursuant to which a Seller (or its Affiliate) lends money to the Issuer for the purpose of financing the payment by the Issuer of expenses payable by the Trust in connection with the transactions contemplated pursuant to the Program Agreements;
“Supplement” means a supplement to this Indenture executed in connection with the creation and issuance of Debt Obligations;
“Swap Counterparty” means a party (other than the Issuer) to a Hedging Agreement, and its successors and permitted assigns;
“U.S. Indenture Trustee” means an entity meeting the requirements set forth in the Related Supplement and which is appointed as U.S. Indenture Trustee with respect to a Series of Debt Obligations pursuant to such Related Supplement; and
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“Written Order” means an order of the Issuer delivered in writing or sent by email.
1.2Meaning of “Outstanding” for Certain Purposes.
Each Note issued and certified in accordance with the terms hereof will be deemed to be outstanding until it has been surrendered by the holder thereof to the Indenture Trustee and cancelled by the Indenture Trustee, or until money for the payment thereof in the necessary amount has been deposited with the Indenture Trustee for the Noteholders; provided, however, that where a new Note has been issued in substitution for a Note which has been mutilated, destroyed, lost or stolen, only the substituted Note will be counted for the purpose of determining the aggregate principal amount of Debt Obligations outstanding.
In determining whether Noteholders holding the requisite percentage of Debt Obligations of any Class have given any request, demand, authorization, direction, notice, consent, vote or waiver pursuant to this Indenture, except (i) as expressly provided for in this Indenture or a Related Supplement, or (ii) in circumstances where Flexiti, the Servicer or an Affiliate of either are the sole holders or beneficial owners of the relevant Class or Classes entitled to vote, Notes owned by any of Flexiti, the Servicer or an Affiliate of either, shall be disregarded and deemed not to be outstanding, except that, in determining whether the Issuer and the Indenture Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent, vote or waiver, only the Notes which the Issuer or the Indenture Trustee, as the case may be, knows to be so owned shall be so disregarded. Notes so owned which have been pledged in good faith shall not be disregarded and may be regarded as outstanding if the pledgee establishes to the satisfaction of the Issuer or the Indenture Trustee the pledgee’s right so to act with respect to such Notes and that the pledgee is not Flexiti, the Servicer or an Affiliate of either.
1.3References to Statutes.
Unless otherwise specified herein, all references herein to any statute or any provision thereof shall mean such statute or provision as the same may be amended, re-enacted or replaced from time to time.
1.4Extended Meanings.
Words importing the singular number only will include the plural and vice versa and words importing the masculine gender will include the feminine and neuter genders and vice versa. A reference to any agreement, instrument or declaration means such agreement, instrument or declaration as the same may be amended, supplemented, modified, restated or replaced from time to time.
1.5Headings.
The table of contents does not form part of this Indenture. The division of this Indenture into Articles and Sections and the insertion of headings are for convenience of reference only and will not affect the construction or interpretation of this Indenture. The terms “this Indenture”, “hereof”, “hereunder” and similar expressions refer to this Indenture and not to any particular Article, Section or other portion of this agreement and include any agreement or instrument supplemental or ancillary hereto. Unless something in the subject matter or context is inconsistent therewith, references herein to Articles and Sections are to Articles and Sections of this Indenture.
1.6Governing Law of Indenture.
This Indenture will be governed by and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein and each of the parties hereto attorn to the non-exclusive jurisdiction of the courts of the Province of Ontario.
1.7Waiver of Jury Trial.
EACH OF THE GENERAL PARTNER, THE ISSUER AND THE INDENTURE TRUSTEE 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 INDENTURE, THE NOTES OR THE TRANSACTIONS CONTEMPLATED HEREBY.
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1.8Invalidity of Provisions.
Except for any provision or covenant contained herein which is fundamental to the subject matter of this Indenture (including, without limitation, those that relate to the payment of money), the invalidity or unenforceability of any provisions or covenants hereof or herein contained will not affect the validity or enforceability of any other provision or covenant hereof or herein contained and any such invalid or unenforceable provision or covenant will be deemed to be severable.
1.9Computation of Time Periods.
In this Indenture, with respect to the computation of periods of time from a specified date to a later specified date, unless otherwise expressly stated, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”.
1.10Non-Business Days.
Whenever any payment to be made hereunder shall be stated to be due, any calculation is to be made or any other action to be taken hereunder shall be stated to be required to be taken on a day other than a Business Day, such payment shall be made, such calculation shall be made and such other action shall be taken on the next succeeding Business Day and an extension of time shall be included for such purposes.
Any payment made after 5:00 p.m. (Toronto time) on a Business Day shall be deemed to be made on the next following Business Day.
1.11Accounting Principles.
Where the character or amount of any assets or liabilities or item of revenue or expense is required to be determined, or any consolidation or other accounting computation is required to be made for the purpose of this Indenture, such determination or calculation shall, to the extent applicable and except as otherwise specified herein or as otherwise agreed in writing by the parties, be made in accordance with IFRS applied on a consistent basis. Wherever in this Indenture reference is made to IFRS, such reference shall be deemed to be to the IFRS from time to time approved by the Chartered Professional Accountants of Canada, or any successor institute or agency, applicable as at the date on which such calculation is made or required to be made in accordance with IFRS. To the extent that the definitions of accounting terms in this Indenture or in any such certificate or other document are inconsistent with the meanings of such terms under IFRS, the definitions contained in this Indenture or in any such certificate or other document shall prevail.
1.12Currency.
Unless stated otherwise, all amounts herein are stated in Canadian Dollars.
1.13Time of the Essence.
Time shall be of the essence of this Indenture.
1.14Approvals and Consents.
All references in this Indenture that require the approval or consent of any Person shall mean the approval or consent of such Person in writing. Except to the extent a contrary intention is expressly set forth herein, whenever a party is to provide its approval or consent, such approval or consent shall not be unreasonably withheld or delayed.
1.15Discontinuance and Changes in Designation of Ratings.
In applying any definition or other term or provision hereof which contemplates a specific rating of a rating agency at a time, (a) each rating agency specified will include any successor thereof at the time (whether as a result of a change in name, an amalgamation, merger or other reorganization, or otherwise), (b) if a specified rating agency and any successor ceases to exist, the reference to such rating agency and its ratings shall not be applicable, and (c) if a specified rating agency changes the designation of its debt
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rating categories, the debt rating categories specified will refer to each debt rating category of the rating agency at the time which can reasonably be determined to be equivalent to the specified rating categories of the rating agency.
Article 2
THE DEBT OBLIGATIONS
1.1Notes and Loans.
The aggregate principal amount of Notes which may be created and issued pursuant to this Indenture and the Related Supplements is unlimited. The aggregate principal amount of Notes of a particular Series or Class which may be created and issued pursuant to this Indenture and a Related Supplement is limited to the aggregate principal amount of the Notes or the Series or Class, if any, specified in the Related Supplement. The Notes of each Series created and issued from time to time hereunder shall have the Principal Terms specified in the Related Supplement and shall bear such distinguishing letters, numbers and legends as the Indenture Trustee shall approve. The aggregate principal amount of Loans that may be incurred by the Issuer under this Indenture and the Related Supplements or Related Credit Agreements is unlimited. The aggregate principal amount of Loans of a particular Series or Class incurred under this Indenture and a Related Supplement or Related Credit Agreement is limited to the aggregate principal amount of the Loans of the Series stated in the Related Supplement or Related Credit Agreement. A Related Supplement in respect of an Loan shall be acknowledged by the Indenture Trustee as being a Related Supplement under this Indenture. The Related Supplement or Related Credit Agreements for a Series of Loans will set out the Principal Terms of the Loans.
1.2Requirements for Initial Creation of Debt Obligations.
Debt Obligations may be created by the Issuer, in accordance with the provisions hereof, provided that on or prior to the initial creation of Debt Obligations hereunder, the Issuer shall have delivered to the Indenture Trustee:
(i)a certified copy of the Limited Partnership Agreement;
(ii)a Certificate of the Issuer, dated the date of issuance of such Debt Obligations, stating that the creation and issuance of the Debt Obligations will not result in the occurrence of an Event of Default; and
(iii)the provisions of Subsection 2.3(b) shall have been satisfied.
1.3Creation and Issuance in Series.
(a)Debt Obligations may, at the election of the Issuer, be created and issued in one or more Series and in one or more Classes of each Series with such further particular designations added or incorporated in such title for the Debt Obligations of any particular Series or Class as the Issuer may determine. All Debt Obligations of the same Series and Class at any time outstanding shall be identical in all respects except for the denominations and dates thereof and as may be otherwise specified in the Related Supplement including any division of the Debt Obligations of such Series into Classes and the matters differentiating the Classes within such Series. All Debt Obligations of a particular Class of a Series created and issued under this Indenture shall be in all respects entitled, equally and rateably with all other Debt Obligations of such Class of such Series, to the benefits hereof and of the Related Supplement without preference, priority or distinction on account of the actual time or times of certification and delivery, all in accordance with the terms and provisions of this Indenture and the Related Supplement.
(b)In order to create Debt Obligations of any particular Series hereunder, the Issuer and the Indenture Trustee shall, on or before the Related Series Issuance Date, execute and deliver a Related Supplement. The terms of such Related Supplement may amend, supplement, modify, restate or replace the terms of this Indenture solely as applied to such Debt Obligations. The obligation of the Indenture Trustee to execute and deliver the Related Supplement is subject to the satisfaction of the following conditions:
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(i)copies of any Related Purchased Asset Sale Agreement, any Related Credit Enhancement Agreement, any Related Hedging Agreement, any Related Subordinated Issuer Credit Agreement, any Related Credit Agreement, any Related Note Purchase Agreement and any Related Dealer Agreement then in effect shall have been delivered to the Indenture Trustee;
(ii)a Clearing Agency Letter of Representation, if any, to the extent applicable to any Notes forming part of the Debt Obligations shall have been delivered to the Indenture Trustee and the Clearing Agency by the Issuer;
(iii)the Rating Agency Condition shall have been satisfied in respect of any rated Debt Obligations;
(iv)the Indenture Trustee shall have received a Certificate of the Issuer certifying that, as of the date of such execution and delivery, (i) the representations and warranties set forth in Section 7.1 are true and correct in all material respects; and (ii) the Issuer has established or caused to be established the Related Transaction Accounts prior to the Related Series Issuance Date;
(v)in the event that an offering memorandum, prospectus or other similar document is required or is to be provided to prospective purchasers of any such Debt Obligations (as to which the Indenture Trustee shall have no duty or role in determining), the Related Seller shall have executed and delivered to the Issuer an indemnity relating to any misrepresentations contained therein in form and substance satisfactory to the Issuer;
(vi)any other items specified in the Related Supplement shall have been executed by and delivered to the appropriate Persons and all conditions precedent to the creation of such Debt Obligations contained therein shall have been satisfied;
(vii)the Indenture Trustee shall have received an Opinion of Counsel, in form and substance acceptable to the Indenture Trustee, stating that all requirements imposed by the terms of this Indenture for the creation of such Debt Obligations have been fulfilled in accordance with the terms of this Indenture;
(viii)the Related Supplement shall set out, at a minimum, the Principal Terms; and
(ix)no event shall have occurred which would constitute a Related Event of Default nor shall the issue of the Debt Obligations constitute or result in the occurrence of a Related Event of Default.
1.4Execution, Certification and Delivery.
(a)The form of Notes of any particular Series and the certificate of the Indenture Trustee to be endorsed thereon shall be substantially in the forms set out in the Related Supplement, with such appropriate insertions, omissions, substitutions and variations as may be approved by or permitted under the terms hereof or of the Related Supplement or as the Issuer and the Indenture Trustee may approve.
(b)The form of any Credit Agreement, if any, for any Series shall be substantially in the form set out in the Related Supplement, with such appropriate insertions, omissions, substitutions and variations as may be approved by or permitted under the terms hereof or of the Related Supplement or, subject to the terms of the Related Supplements and this Indenture, in such form as the Issuer and the Related Funding Providers may approve.
(c)The Issuer may at any time and from time to time deliver Notes executed by it to the Indenture Trustee for certification.
(d)Subject to Section 2.13, the Indenture Trustee shall certify Notes from time to time and make such Notes available for pick-up without receiving any consideration therefor upon receipt by and deposit with the Indenture Trustee of a Written Order for the certification
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and delivery of the Notes specifying for each such Note the name and address of the payee and the date, principal amount and interest rate, if applicable, of the Note.
(e)No Noteholder shall be entitled to any benefit under this Indenture and no Note shall be issued or, if issued, shall be valid or obligatory for any purpose unless there appears on the Note a certificate executed by the Indenture Trustee, by the manual signature of its authorized officers, representatives or employees, and such certificate upon any Note shall be conclusive evidence that the Note has been duly certified and delivered hereunder. Any signature on behalf of the Issuer or any guarantor of the Notes may be manual or by facsimile. Notes bearing the manual or facsimile signature (as applicable) of an individual who was at the time of execution a proper authorized signatory of the General Partner on behalf of the Issuer in respect of the Issuer, any guarantor or the Indenture Trustee shall be valid and binding notwithstanding that any such individual shall have ceased to hold such office prior to the certification and delivery of such Notes or shall not have held such office at the date of issue of such Notes. Any certification of Notes issued hereunder shall not be construed as a representation or warranty by the Indenture Trustee as to the validity of this Indenture, the Related Supplement or the Notes (except as to the due certification thereof) and the Indenture Trustee shall in no respect be liable or answerable for the use made of the Notes or of the proceeds thereof. The certification of the Indenture Trustee signed on any Notes shall however be a representation and warranty by the Indenture Trustee that such Notes have been duly certified and delivered by or on behalf of the Indenture Trustee pursuant to the provisions of this Indenture and the Related Supplement.
(f)The certification and delivery of any Note by the Indenture Trustee shall constitute the issuance of such Note pursuant to the terms of this Indenture and the Related Supplement as of the date of such delivery.
1.5Temporary Notes.
(a)Pending the preparation of Definitive Notes, the Issuer may execute, and upon Written Order the Indenture Trustee shall certify and deliver, temporary Notes which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially in the form of the Definitive Notes in lieu of which they are issued and with such variations as the Issuer and the Indenture Trustee may determine, as evidenced by the Indenture Trustee’s certification of such Notes.
(b)If temporary Notes are certified and delivered, the Issuer shall cause Definitive Notes to be prepared without unreasonable delay. After the preparation of Definitive Notes, the temporary Notes shall be exchangeable for Definitive Notes upon surrender of the temporary Notes at the office or agency of the Indenture Trustee to be maintained as provided in Section 2.6, without charge to the holder. Upon surrender for cancellation of any one or more temporary Notes, the Issuer shall execute and the Indenture Trustee shall certify and deliver in exchange therefor a like principal amount of Definitive Notes of authorized denominations. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as Definitive Notes.
(c)The provisions of this Section 2.5 do not apply with respect to Book-Entry Notes.
1.6Registration, Transfer and Exchange.
(a)The Indenture Trustee shall at all times while Notes are outstanding cause to be kept by and at its Corporate Trust Office in the City of Toronto or such other location as it may designate from time to time Note Registers in which will be entered the name of each Noteholder or Clearing Agency or its nominees, as the case may be, and particulars of each of the Notes (including Notes issued under the Book-Entry System). The Indenture Trustee shall also at all times while any Notes are outstanding cause to be provided by and at its Corporate Trust Office in the City of Toronto or such other location as it may designate from time to time facilities for the exchange and transfer of Notes. The Indenture Trustee may from time to time provide additional facilities at its other offices or, with the approval of the Issuer, at the offices of third parties for such registration, exchange and transfer. No transfer of a Note in registered form nor any transmission thereof by death will be valid unless made at one of such offices by the
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Noteholder or by his or her executors, administrators or other legal representatives, or his or her or their attorney duly appointed by an instrument in writing, in form and as to execution satisfactory to the Indenture Trustee and upon compliance with such reasonable requirements as the Indenture Trustee may prescribe and upon surrender of the Note to the Indenture Trustee for cancellation, whereupon a new Note in an aggregate principal amount, currency and interest rate, if any, and with the same maturity date, will be issued to the transferee in exchange therefor. The Note Registers will, at all reasonable times on Business Days, be open for inspection by the Issuer and any Noteholder.
(b)Notes in any authorized denomination may be exchanged for an equal aggregate principal amount of Notes of the same Series and Class and having the same Principal Terms in any other authorized denomination or denominations. In every case of exchange of Notes of any denomination for other Notes and of any transfer and registration of Notes, the Indenture Trustee may make a sufficient charge to reimburse it for any stamp taxes or governmental charge for its services and a reasonable sum per Note issued upon such exchange or transfer. Payment of such taxes and charges will be made by the party requesting the exchange or transfer as a condition precedent thereto.
(c)In every case of exchange or transfer of a Note, the surrendered Note shall be cancelled.
(d)The Indenture Trustee shall not be required to make transfers or exchanges of any Notes for the period beginning on the close of business on the day which is (i) in the case of Debt Obligations that are Book-Entry Notes, fifteen (15) days, and (ii) in the case of Debt Obligations that are not Book-Entry Notes, five (5) days, prior to a Related Distribution Date (or the next succeeding Business Day if such day is not a Business Day) through to and including such Related Distribution Date.
1.7Persons Entitled to Payment.
(a)The registered holder of any Note registered to a named payee or the transferee thereof, if such Note has been transferred in accordance with the provisions of Section 2.6, shall upon presentation of such Note be entitled to the principal money and interest, if any, when due and payable, evidenced by such Note, free from all equities or rights of set-off or counterclaim between the Issuer and the original or any intermediate holder thereof, and all Persons may act accordingly.
(b)Delivery of a Note to the Indenture Trustee by the holder of such Note shall, upon payment in full of all amounts outstanding on such Note, be a good discharge to the Issuer of all obligations evidenced by such Note. The Indenture Trustee shall not be bound to enquire into the title of any such holder, save as ordered by a court of competent jurisdiction or as required by statute, nor shall it be bound to see to the execution of any trust affecting the ownership of any Note or be affected by notice of any equity that may be subsisting in respect thereof.
(c)In the case of the death of one or more joint registered owners, the principal money of and interest, if any, on a Note may be paid to the survivor or survivors of such registered holders whose receipt thereof, accompanied by the delivery of such Note, shall constitute a valid discharge to the Issuer and the Indenture Trustee.
(d)Any payment of principal or interest on any Note which is due on a day other than a Business Day shall be payable on the next succeeding Business Day without adjustment for interest thereon and such payment shall be deemed to have been made with the same force and effect as if made on the due date unless stated otherwise in the Related Supplement.
1.8Mutilated, Destroyed, Lost or Stolen Notes.
If any of the Notes outstanding hereunder shall become mutilated or be lost, destroyed or stolen, the applicable Noteholder shall deliver to the Indenture Trustee (except in the case of a mutilated Note) a sworn affidavit of loss. Upon receipt of such affidavit (or, in the case of a mutilated Note, upon such delivery) and an indemnity and a surety bond in an amount and form satisfactory to the Issuer and the
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Indenture Trustee, in each case, as they may require, the Indenture Trustee shall certify and deliver a new Note of the same Series and Class and having the same Principal Terms and an equivalent principal amount as the one mutilated, lost, destroyed or stolen in exchange for and in place of and upon surrender and cancellation of such mutilated Note or in lieu of and in substitution for such lost, destroyed or stolen Note and the substituted Note shall be entitled to the security hereof and rank equally in accordance with its terms with all other Notes of the same Series and Class issued hereunder. The applicant for a new Note shall bear the cost of the issue thereof, and in case of loss, destruction or theft, as a condition precedent to the issue thereof shall furnish such an affidavit of loss in form satisfactory to the Issuer and the Indenture Trustee, and an indemnity and a surety bond in amount and form satisfactory to the Issuer and the Indenture Trustee, in each case, as they may require, and shall pay the reasonable charges of the Issuer and the Indenture Trustee in connection therewith.
1.9Cancellation of Notes.
All Notes surrendered or delivered to the Indenture Trustee for cancellation under this Indenture shall be forthwith cancelled by it as soon as practicable and, if required by the Issuer, the Indenture Trustee shall furnish to it a certificate setting forth the numbers and denominations of the Notes so cancelled.
1.10Protection of Notes.
(a)The Indenture Trustee shall hold in safekeeping the Notes which have not been issued (but which have been delivered to the Indenture Trustee by or on behalf of the Issuer) pending receipt of a Written Order. The Indenture Trustee shall acknowledge receipt of the Notes so delivered by signing and returning to the Issuer an acknowledgement of receipt of the Notes, such acknowledgement to be in a form satisfactory to the Issuer.
(b)The Indenture Trustee’s responsibility for any Notes held in its custody hereunder shall be limited to using the same diligence in physically safeguarding such Notes as it does for its own securities. The Indenture Trustee shall account for the unissued Notes held in its custody whenever so required by the Issuer. If at any time the Indenture Trustee shall discover that any of such Notes have been lost, damaged, destroyed, stolen or misappropriated, it shall promptly advise the Issuer thereof and identify, to the extent practicable, such Notes.
1.11Access to List of Noteholders’ Names and Addresses.
The Indenture Trustee will furnish or cause to be furnished to the Issuer or the Related Paying Agent, within five (5) Business Days after receipt by the Indenture Trustee of a request therefor, a list in such form as the Issuer or the Related Paying Agent may reasonably require, of the names and addresses of the current Noteholders of any particular Series or Classes.
1.12Certifying Agent.
(a)The Indenture Trustee may appoint one or more certifying agents with respect to the Notes which shall be authorized to act on behalf of the Indenture Trustee in certifying the Notes in connection with the issuance, delivery, registration of transfer, exchange or repayment of the Notes. Whenever reference is made in this Indenture to the certification of Notes by the Indenture Trustee or the Indenture Trustee’s certification, such reference shall be deemed to include certification on behalf of the Indenture Trustee by a certifying agent and certification executed on behalf of the Indenture Trustee by a certifying agent. Each certifying agent must be acceptable to the Issuer.
(b)Any institution succeeding to the corporate agency business of a certifying agent shall continue to be a certifying agent without any further act on the part of the Indenture Trustee or such certifying agent. A certifying agent may at any time resign by giving thirty (30) days’ notice to the Issuer and the Indenture Trustee. The Indenture Trustee may at any time terminate the agency of a certifying agent by giving notice of termination to such certifying agent and the Issuer. Upon receiving such a notice of resignation or upon such a termination, or in case at any time a certifying agent shall cease to be acceptable to the Issuer or the Indenture Trustee, the Indenture Trustee promptly may appoint a successor certifying agent. Any successor certifying agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor
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hereunder, with like effect as if originally named as a certifying agent. No successor certifying agent shall be appointed unless acceptable to the Issuer and the Indenture Trustee. The Issuer agrees to pay to each certifying agent from time to time reasonable compensation for its services under this Section 2.12. The provisions of Article 12 shall be applicable, mutatis mutandis, to any certifying agent.
(c)Pursuant to an appointment made under this Section 2.12, the Notes may have endorsed thereon, in lieu of the Indenture Trustee’s certification, an alternate certification in substantially the following form:
This is one of the Notes described in the Indenture.
_____________________________
_____________________________
as Certifying Agent
for the Indenture Trustee,
By __________________________
Authorized Officer
1.13Book-Entry Notes.
(a)Except as provided in the Related Supplement for any Notes of a particular Series and subject to Subsection 2.13(c), Notes of a particular Class of a Series, upon original issuance, shall be issued under the Book-Entry System, in the form of a global Note certificate representing the Book-Entry Notes, to be delivered to the Clearing Agency by or on behalf of the Issuer in respect of such Class of Notes of such Series. The Notes shall initially be registered on the Note Registers in the name of the Clearing Agency or its nominee and no Book-Entry Noteholder will receive Definitive Notes representing such Noteholder’s interest in the Notes, except as provided in Subsection 2.13(c) or the Related Supplement. Unless and until Definitive Notes have been issued to the applicable Noteholders pursuant to Subsection 2.13(c) or as otherwise specified in the Related Supplement for any Notes:
(i)the provisions of this Section 2.13 shall be in full force and effect;
(ii)the Indenture Trustee and the Issuer may deal with the Clearing Agency for all purposes (including the making of payments and the delivery of any notice, report or other communication) as the registered holder of the Notes and as the authorized representative of the respective Book-Entry Noteholders;
(iii)to the extent that the provisions of this Section 2.13 conflict with any other provisions of this Indenture, the provisions of this Section 2.13 shall prevail;
(iv)the rights of the respective Book-Entry Noteholders shall be exercised only through the Clearing Agency (in person or represented by proxy in favour of the respective Participants) and shall be limited to those established herein and by law;
(v)all transfers and exchanges of Book-Entry Notes must be made through the Book-Entry System and any Person transferring a Book-Entry Note in such manner shall be deemed to have transferred to the transferee all of such Person’s rights and obligations in respect thereof; all transferees of Book-Entry Notes shall be deemed to have received and accepted such transfer and be deemed to have agreed to be bound by the provisions of this Indenture; and
(vi)for purposes of any provision of this Indenture requiring or permitting actions with the consent of, or at the direction of, holders of Debt Obligations evidencing a specified percentage of the aggregate unpaid principal amount of Debt
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Obligations then outstanding, the Indenture Trustee is entitled to act and rely upon the instructions of the Clearing Agency that it has received instructions, directly or indirectly through their respective Participants, to such effect from Book-Entry Noteholders owning or representing, respectively, the requisite percentage of Notes.
(b)Subject to Subsection 2.13(a), each of the parties hereto acknowledges and agrees that the Book-Entry Noteholders through their respective Participants are collectively entitled, under the terms hereof, to all of the rights accorded to registered holders of Notes and are bound by all of the obligations of such Noteholders.
(c)When a Book-Entry Note has been deposited with the Clearing Agency, the rights of the Book-Entry Noteholders represented by a Book-Entry Note, with respect to the interest acquired, the time at which it is acquired, the method of transfer and the ability and procedure to enforce payment shall be as determined by the rules of the Clearing Agency.
(d)Payments of interest on Book-Entry Notes and payments of amounts due upon maturity of Book-Entry Notes will be made in accordance with the rules of the Clearing Agency.
(e)If Book-Entry Notes have been issued and (i) the Issuer advises the Indenture Trustee that the Clearing Agency is no longer willing or able to discharge properly its responsibilities as the Clearing Agency with respect to such Notes and the Clearing Agency is unable to locate a qualified successor; or (ii) after the occurrence and during the continuance of a Related Event of Default, Book-Entry Noteholders representing, in aggregate, not less than 50% of the aggregate unpaid principal amount then outstanding of the Notes of the affected Series advise the Indenture Trustee through the Clearing Agency and the Participants in writing, that the continuation of the Book-Entry System with respect to such Notes is no longer in the best interests of the Book-Entry Noteholders with respect to such Notes, then the Indenture Trustee shall notify the relevant Book-Entry Noteholders of such Notes, through the Clearing Agency, of the occurrence of any such event and of the availability of Definitive Notes to Book-Entry Noteholders requesting the same. Upon surrender by the Clearing Agency of the single global certificate or certificates representing the Notes and accompanied by registration instructions from the Clearing Agency for re-registration, the Indenture Trustee shall certify and deliver such Definitive Notes. None of the General Partner, the Issuer or the Indenture Trustee shall be liable for any delay in delivery of such instructions and may conclusively act and rely on, and shall be protected in acting and relying on, such instructions. Upon the issuance of such Definitive Notes, the Indenture Trustee and the Issuer shall recognize the registered holders of such Definitive Notes as Noteholders hereunder.
(f)If Definitive Notes have been issued and thereafter the Issuer advises the Indenture Trustee of the availability of the Book-Entry System in regard to such Notes, the Indenture Trustee and the Issuer may agree to allow for the re-registration of such Definitive Notes under the Book-Entry System and the Indenture Trustee shall forthwith deliver notice thereof to each registered holder of such Notes. Upon surrender by any such Noteholder of its Definitive Note accompanied by instructions for re-registration of the Note under the Book-Entry System, such Note shall thereafter be re-issued under the Book-Entry System and be subject to Subsection 2.13(a), (b), (c), (d) and (e), mutatis mutandis.
(g)Whenever any notice or other communication is required to be given to the Noteholders of any Series, unless and until Definitive Notes shall have been issued to the applicable Noteholders, the Issuer or the Indenture Trustee, as the case may be, shall give all such notices and communications to the applicable Clearing Agency.
1.14Payment of Debt Obligations.
(a)The entire principal amount of the Debt Obligations, except as otherwise specified in the Related Supplement, shall be due and payable on the maturity thereof unless such Debt Obligations become due and payable at an earlier date by acceleration, call, redemption or otherwise.
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(b)The Debt Obligations shall accrue interest as specified in the Related Supplement.
(c)Subject to Section 2.14(f), any amount payable on any Note shall be paid to the Noteholder as of the Record Date, if any, for the Related Distribution Date by cheque mailed at least one Business Day prior to the Related Distribution Date to such Noteholder’s address as it appears in the Note Register at the close of business on such Record Date. The forwarding of such cheque shall satisfy and discharge the liability for the payment due on such Note to the extent of the sum represented thereby, unless such cheque is not paid on presentation. In the event of non-receipt of such cheque by such Noteholder or the loss or destruction thereof, the Issuer and/or the Indenture Trustee, upon being furnished with reasonable evidence of such non-receipt, loss or destruction and indemnity satisfactory to the Issuer and the Indenture Trustee in their discretion, shall issue or cause to be issued to such Noteholder a replacement cheque for the amount of such cheque. Notwithstanding the foregoing, if a Book-Entry Note is deposited with the Clearing Agency, then, unless and until the rules of the Clearing Agency are amended to permit the discharge from liability of the Issuer upon the deposit or making available of funds, the deposit or making available of such amount to the Related Payment Account or mailing of cheques shall neither satisfy nor discharge the liability of the Issuer for the Note represented by such Book-Entry Note to which the deposit or making available of funds relates to the extent of the amount deposited or made available (plus the amount of any taxes deducted as aforesaid). Until the rules of the Clearing Agency are amended as aforesaid, the liability of the Issuer for a Book-Entry Note will be discharged upon payment by the Issuer in accordance with the provisions of Section 2.14(e). Notwithstanding the foregoing or any provision in any Note to the contrary, the Issuer will pay, if so requested in writing by a Noteholder or if required by the rules, by-laws, procedures or guidelines of Payments Canada or similar body, all amounts payable to such Noteholder, by wire transfer of immediately available funds on the Related Distribution Date to such account or accounts as specified by the Noteholder.
(d)The Issuer shall deposit to the Related Payment Account not later than each Related Distribution Date such sums as may be sufficient to pay all amounts then due to the Debtholders of the Related Series on such Related Distribution Date. To the extent that the amounts on deposit in the Related Payment Account on any Related Distribution Date (including proceeds of Debt Obligations issued) are insufficient to pay all amounts then due on the Related Series on such Related Distribution Date, the amount so deposited shall be paid to the Debtholders of such Related Series in accordance with the Related Supplement.
(e)The final payment on any Note shall, if such Note is a Definitive Note, be made only upon presentation and surrender of such Note on or after the Related Distribution Date at one or more chartered banks in the City of Toronto identified by the Issuer or any branch of the Indenture Trustee designated for such purpose from time to time by the Issuer and the Indenture Trustee, or if such Note has been called for redemption or repayment, at any other place as may be specified in the notice of redemption or repayment. If such Note is a Book-Entry Note on deposit with a Clearing Agency, such final payment shall be deposited with such Clearing Agency and paid to the beneficial owners thereof in accordance with the Clearing Agency’s practices and procedures and the Clearing Agency shall deliver such Note to the Indenture Trustee for cancellation.
(f)Notwithstanding any of the foregoing provisions, if an Event of Default has occurred, then payments shall be made in accordance with the Related Supplement.
1.15Interest Act.
For the purpose of disclosure pursuant to the Interest Act (Canada), the yearly rate of interest to which any rate of interest payable under this Indenture that is calculated on any basis other than a full calendar year is equivalent may be determined by multiplying such rate by a fraction the numerator of which is the actual number of days in the calendar year in which such yearly rate of interest is to be ascertained and the denominator of which is the number of days comprising such other basis. The parties further agree that for the purposes of the Interest Act (Canada), (i) the principle of deemed reinvestment of interest shall not apply to any interest calculation under this Indenture or the Notes, and (ii) the rates of interest stipulated in this Indenture or the Notes are intended to be nominal rates and not effective rates or yields.
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1.16Repayment of Unclaimed Money.
Subject to applicable law, any money deposited to the Related Payment Accounts pursuant to Section 2.14 and not claimed by and paid to Noteholders as provided in such Section within six (6) years after the date on which payment first becomes due and payable, shall be repaid to the Issuer, with interest, if any, on demand, and thereupon the Issuer shall be released from all further liability with respect to such money, and thereafter the holders of the Notes in respect of which such moneys were so repaid to the Issuer shall have no rights in respect thereof and the Issuer shall be discharged from its obligations in respect thereof.
1.17Maintenance of Records.
The Indenture Trustee shall open and maintain appropriate records with respect to each outstanding Note. The Indenture Trustee shall record by appropriate entries therein each payment made on account of interest and principal owing with respect to each such Note. For the purposes thereof, the Issuer shall to the extent applicable provide to the Indenture Trustee satisfactory evidence of each payment as soon as practicable after making such payment. Such records of payment shall be conclusive evidence of the unpaid principal balance and interest owing in the absence of demonstrable error. The failure to record, or any error in recording, any such payment shall not, however, limit or otherwise affect the obligations of the Issuer as to the principal amount or accrued interest owing with respect to any such Note.
Article 3
SUBORDINATION
1.1Subordination.
Payments to be made on a particular Class of Debt Obligations of a Series may be made subordinate and rank junior to payments to be made on one or more other Classes of Debt Obligations of such Series, as specified in the Related Program Agreements.
1.2Holding in Trust.
If, with respect to the Debt Obligations of any particular Series, a Related Event of Default shall have occurred and be continuing and the Indenture Trustee or any holder of the Debt Obligations of such Series shall receive from the Issuer, or the Indenture Trustee shall hold, any amount for payment of the principal of or interest on such Debt Obligations, the Indenture Trustee or such holder, as the case may be, shall hold such amount in trust for the benefit of the Specified Creditors, as their interests may appear in the Related Program Agreements, in accordance with and to the extent of their respective priorities. The Indenture Trustee or such holder of such Debt Obligations, as the case may be, shall from time to time, in accordance with Section 9.6 and the Related Supplement, pay over to the appropriate Specified Creditors from the amount so held in trust for the benefit of such Specified Creditors, so much as shall at the time of such payment by the Indenture Trustee or such holder of such Debt Obligations, as the case may be, have become due, and remain unpaid, of the Related Obligations Secured or, if the amount so due and remaining unpaid shall be greater than the amount so held in trust for the benefit of such Specified Creditors, then the entire amount so held; provided, however, that if such Related Event of Default shall be waived in accordance with Section 11.11(a)(iv), or all amounts that shall have become due for payment of the Related Obligations Secured shall have been paid or duly provided for to the satisfaction of the Indenture Trustee, such trusts for the benefit of such Specified Creditors shall terminate and any amount still held by the Indenture Trustee or such holders of such Debt Obligations, as the case may be, shall be applied by it for the purposes originally intended. In the event that the Indenture Trustee shall make any payment to any holder of such Debt Obligations contrary to the provisions of this Section 3.2, then such holder shall repay any amount so received to the Indenture Trustee, to be held and applied by the Indenture Trustee in accordance with the provisions of this Section 3.2.
1.3Rights of Holders Preserved.
In respect of a particular Class of Debt Obligations of a Series, nothing in this Article 3 is intended to or shall impair the obligation of the Issuer, subject to the rights of the holders of a different Class of Debt Obligations of such Series to receive payments in priority, to pay such Debt Obligations as and when the same shall become due and payable in accordance herewith, or affect the relative rights of the holders of such Debt Obligations and creditors of the Issuer other than the holders of the Class of Debt Obligations of such Series entitled to priority in payment, nor shall anything in this Article 3 prevent the
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Indenture Trustee or the holder of any Debt Obligations from exercising all remedies otherwise permitted by this Indenture, subject to the rights (if any) under this Article 3 of the holders of the Class of Debt Obligations of such Series entitled to priority in payment and the Indenture Trustee on their behalf in respect of any payment or distribution of cash, property or securities of the Issuer received upon the exercise of any such remedy.
Article 4
SECURITY
1.1Security for the Obligations Secured.
As security for the due payment and performance of (a) all Related Obligations Secured of the Issuer with respect to a Series and (b) all representations, warranties, covenants and agreements made or contained in this Indenture and the Related Supplement for the benefit of the holders of the Debt Obligations of that Series and on the part of the Issuer to be observed or performed, the Issuer shall grant to the Indenture Trustee a Security Interest in the Related Collateral pursuant to and as provided in the Related Supplement and/or in any Related Hypothec.
The Indenture Trustee’s rights, claim and recourse on behalf of the Related Specified Creditors against the Issuer for any Related Obligations Secured owed to the Related Specified Creditors shall be limited to the Issuer’s right, title and interest in and to the Related Collateral and no recourse shall be had to any other assets of the Issuer, the General Partner or any Affiliate thereof or the Related Collateral for any other Class of Debt Obligations or any other Issuer Property. None of the Indenture Trustee, any Specified Creditor or any other party to a Purchased Asset Sale Agreement shall be entitled to institute legal proceedings against the Issuer, the General Partner or any Affiliate thereof or to make the Issuer, the General Partner or any Affiliate thereof a party to any legal proceedings except only to the extent that it may be necessary to do so from a procedural standpoint to enforce its rights, claims or recourses against the Related Collateral.
1.2Habendum.
To have and to hold the Collateral and all rights conferred pursuant to the Indenture unto the Indenture Trustee, its successors and permitted assigns forever but in trust nevertheless for the benefit of the Specified Creditors and for the uses and purposes and subject to the terms and conditions set forth in this Indenture and in the Related Supplement.
1.3Registration of Security.
The Issuer shall promptly from time to time file financing statements and make any other necessary registrations in respect of this Indenture and all Supplements or Hypothecs required to perfect and preserve the Security Interest granted pursuant to any Supplement or Hypothec and the rights of the Specified Creditors and the Indenture Trustee thereunder. The Issuer shall renew such filings or registrations from time to time as and when required to keep them in full force and effect. The Issuer shall from time to time, promptly following any such filing or registration, furnish the Indenture Trustee with evidence that all such filings and registrations have been completed. For greater certainty the Indenture Trustee shall have no obligation to prepare, register, file, enter, record or re-record any instrument in connection herewith, including, but not limited to, any financing statement, perfection statement, continuation statement or other instrument in any public office or otherwise ensuring the perfection or maintenance of the Security Interests granted pursuant to the Indenture (for the avoidance of doubt, including any Related Supplement or Related Hypothec).
1.4Satisfaction and Discharge.
The Indenture Trustee will from time to time, upon the receipt of a Written Order and upon receipt of a Certificate of the Issuer and an Opinion of Counsel stating that (i) all conditions precedent set forth in this Indenture and the applicable Related Supplement to the discharge of this Indenture and any security granted under such Related Supplement have been satisfied, and (ii) discharge of this Indenture and any security granted under the applicable Related Supplement is permitted by the terms of this Indenture and such Related Supplement (all at the expense of the Issuer), cancel and discharge any of the security constituted by, or pursuant to, any Related Supplement and execute and deliver to the Issuer such assignments or other instruments as are required to discharge any of the security constituted by such Related Supplement and re-convey to the Issuer any property subject to any of the security constituted
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thereby, free and clear of such security, and to effect the cancellation or partial discharge of any registration or recording of the Security Interest or other encumbrance created thereby, and to release the Issuer from this Indenture and the obligations hereof and the covenants herein contained (other than the provisions relating to the indemnification and compensation of the Indenture Trustee) at such time as the Issuer has paid and satisfied all Obligations Secured to which such security relates at the times and in the manner therein and herein provided.
1.5Other Security Documents.
The Issuer acknowledges that, in order to give full force and effect to Section 4.1, it may be necessary or advisable from time to time to execute other forms of security documents for particular jurisdictions, including any Hypothec, and the Issuer agrees to promptly execute any such other security document to similar effect as Section 4.1 as the Indenture Trustee, relying on the advice of Counsel, may reasonably request from time to time. All rights acquired by the Indenture Trustee under any such other security documents will be held by the Indenture Trustee for the benefit of the Specified Creditors and will be subject to the terms of this Indenture and for the same purposes as it holds the security contemplated pursuant to Section 4.1.
Article 5
POSSESSION AND USE OF COLLATERAL
1.1General.
(a)Subject to the express terms of this Indenture and the Related Supplement, until, in respect of the Debt Obligations of any Series, the Related Obligations Secured have become due and payable pursuant to Section 8.2, the Issuer will be permitted to possess and use the Related Collateral in connection with the activities of the Issuer, including, without limitation, the right to exercise all of its rights and perform all of its obligations under each Related Program Agreement and enter into Related Hedging Agreements without consultation with or the consent of the Indenture Trustee.
(b)Each Debt Obligation is issued on the express understanding and acknowledgement that the rights under such Debt Obligation are subject in all respects to the priority and sharing arrangements set forth herein and in the Related Supplement, and to the provisions set forth herein and therein regarding allocation of payments. The benefit of this Indenture shall be allocated and shared among the Issuer and the Debtholders in accordance with the terms hereof and any Related Supplement.
(c)The Indenture Trustee shall be entitled to amounts received by the Indenture Trustee pursuant to this Indenture and any Supplement or any enforcement thereof, for its own account, to the extent of any amounts owing to the Indenture Trustee pursuant hereto or in connection herewith, for which the Indenture Trustee is expressly provided the benefit of the security constituted by any Supplement, and any amounts so paid to the Indenture Trustee shall reduce the amounts otherwise available under this Indenture to each other Specified Creditor on a pro rata basis, based on their relative entitlement to such amounts.
1.2Transaction Accounts.
(a)With respect to the Debt Obligations of any particular Series, the Issuer shall deposit or direct another Person to deposit all cash proceeds received by it in connection with Related Collateral, including, without limitation, any Related Collections, all Permitted Investments thereof and all proceeds of such Permitted Investments, to the Related Transaction Accounts. Until the Related Obligations Secured have become due and payable pursuant to Section 8.2 and except as expressly provided for in a Related Supplement, the Issuer shall have access to such Related Transaction Accounts and may use the funds in such accounts for any purpose not in violation of this Indenture or the Related Program Agreements, including, without limitation, payment of the Related Issuer Expenses.
(b)All amounts payable by the Issuer hereunder or under any Supplement shall, prior to the occurrence of a Related Event of Default, be paid (i) out of the Related Transaction
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Accounts to the extent attributable to the Debt Obligations of any particular Series, or the Related Collateral, the Related Obligations Secured or the Related Program Agreements; and (ii) out of all Related Transaction Accounts to the extent not so attributable in an amount equal to the Related Proportionate Share thereof.
(c)All such amounts deposited in the Related Transaction Accounts shall be allocated only to the Debtholders of the appropriate Series, except as otherwise expressly provided herein or in the Related Supplement.
1.3Location of Accounts.
On or before the initial issue of a particular Series of Debt Obligations, the Issuer will establish or cause to be established and thereafter maintain or cause to be maintained the Related Transaction Accounts and any other account required by the Related Supplement and/or other Related Program Agreements. Each of the Related Transaction Accounts and any other account (if required to be established) shall be maintained at an Eligible Institution.
Article 6
COVENANTS OF THE ISSUER AND THE GENERAL PARTNER
1.1Positive Covenants.
The Issuer and, in the case of (c), (e), (f), (i), (k), (l), (p), the General Partner in its own right, hereby covenants and agrees that, so long as any Obligations Secured remain outstanding and except as otherwise permitted by the prior written consent of the Indenture Trustee (acting on the written direction of holders of at least 50% of the aggregate principal amount of the applicable Debt Obligations (or applicable Series or Class of Debt Obligations, as the case may be) then outstanding) and satisfaction of the Rating Agency Condition, as applicable in respect of any rated Debt Obligations, or as contemplated or permitted herein or in the Program Agreements, it shall:
(a)Pay Obligations. Duly and punctually pay or cause to be paid to every Debtholder the principal of and interest and premium, if any, on the Debt Obligations held by such Debtholder on the date, at the places and in the manner provided for in this Indenture, each Related Supplement and the Related Debt Obligations and duly and punctually pay all Obligations Secured to the other Specified Creditors, in each case, in the manner provided for in the Program Agreements;
(b)Maintain Collateral. Subject to the express terms of this Indenture and each Related Supplement and any Related Hypothec, diligently maintain and protect the Collateral and the Indenture Trustee’s interest therein;
(c)Maintain Existence. Do or cause to be done all things necessary to keep in full force and effect its corporate existence or its existence as a limited partnership validly existing under the laws of the Province of Ontario and all properties, rights, franchises, licences and qualifications required to carry on its business in each jurisdiction in which it owns property or carries on business from time to time;
(d)Compliance with Program Agreements. Comply in all material respects with the obligations imposed on it by the Program Agreements and exercise its rights hereunder and thereunder in accordance with the provisions hereof and thereof;
(e)Compliance with Laws, etc. Comply with all applicable governmental restrictions and regulations and obtain and maintain in good standing all licences, permits, qualifications and approvals from any and all governments, governmental commissions, boards or agencies of jurisdictions in which it carries on business required in respect of the operations of the Issuer;
(f)Pay Taxes. Pay or cause to be paid all taxes, government fees and dues levied, assessed or imposed upon it and its property or any part thereof, as and when the same become due and payable; provided that it may protest the payment of any such taxes, fees or dues if it is acting in good faith and if it either provides the Indenture Trustee with cash in an amount sufficient to satisfy the same or otherwise satisfies the Indenture
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Trustee that its interests are not prejudiced thereby, and the Rating Agency Condition, as applicable in respect of any rated Debt Obligations, in respect of each affected Series is satisfied and such action is approved by an Extraordinary Resolution of holders of any non-rated Debt Obligations, as applicable;
(g)Further Assurances. From time to time execute and deliver all financing statements, instruments of further assurance, deeds and other instruments and take other or further action as may be necessary or advisable in connection with the security granted to the Specified Creditors in any Related Supplement or in any Hypothec;
(h)Pay Indenture Trustee. Pay the Indenture Trustee reasonable remuneration as agreed from time to time for its services as Indenture Trustee hereunder and pay to the Indenture Trustee on demand and in accordance with the provisions of the terms hereof any other Program Agreements, any indemnities and all reasonable expenses, disbursements and advances incurred by the Indenture Trustee in connection with the trusts hereof (including, without limitation, legal fees and expenses, indemnities, and the reasonable compensation and disbursements of all other advisors, agents, and experts and assistants not regularly in its employ) both before any default hereunder and thereafter until all the duties of the Indenture Trustee under the trusts hereof shall be finally and fully performed, except any such expense, disbursement or advance as may arise from or in connection with the fraud, bad faith, wilful misconduct or gross negligence by the Indenture Trustee, its officers, employees, agents or representatives;
(i)Appoint Successors. Use its best efforts, following any (i) termination or resignation of a Servicer, the General Partner or the Indenture Trustee, or, in each case, any successor thereof; or (ii) termination, non-renewal or expiry of a Credit Agreement or a Credit Enhancement Agreement (other than, in the latter case, a termination, non-renewal or expiry which occurs because the Related Purchased Asset Interests have been collected or assigned to the Related Credit Enhancer and neither party thereto has any further obligation thereunder), to appoint and enter into an agreement with a successor to such Servicer, General Partner or Indenture Trustee, or replace or renew such Credit Agreement or Credit Enhancement Agreement, in form and substance the same as the applicable provisions in the Program Agreement so replaced or renewed (subject, in each case, to such amendments as may be consented to by the Indenture Trustee) and, in each such case, the Issuer will notify the Indenture Trustee and each of the Related Rating Agencies at least ten (10) Business Days prior to each such occurrence and new agreement and will submit any such agreement relating to the appointment of a successor Servicer, General Partner or successor Indenture Trustee to the Indenture Trustee and, as applicable in respect of any rated Debt Obligations, each of the Related Rating Agencies for its and their approval (or, in the case of Related Rating Agencies, for the satisfaction of the Rating Agency Condition, as applicable in respect of any rated Debt Obligations) before executing the same, and will execute and deliver all supplemental indentures and amendments hereto and all instruments of further assurance and other instruments and will take such other and further action as may be necessary or advisable to assign and render subject to this Indenture any such agreement;
(j)Security Interest. Defend the Security Interests of the Indenture Trustee in and to the Collateral, whether now existing or hereafter acquired, against all claims of third parties claiming through or under the Issuer or a Seller, as applicable. The Issuer will notify the Indenture Trustee promptly upon becoming aware of a security interest claimed against the Collateral other than the Permitted Liens;
(k)Change of Name. Provide ten (10) Business Days’ prior written notice to the Indenture Trustee and each of the Rating Agencies of any change in name of the General Partner or the Issuer;
(l)Change of Address. Provide ten (10) Business Days’ prior written notice to the Indenture Trustee and each of the Rating Agencies of any change in address of the General Partner or the Issuer;
(m)Register Financing Statements. Take all necessary action to ensure the due registration and renewal, as necessary, of all requisite financing statements, financing
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change statements or other instruments to properly maintain, preserve and perfect the security provided hereunder or pursuant to any Related Supplement or Hypothec in favour of the Indenture Trustee;
(n)Significant Event or Related Event of Default. Immediately notify each of the Rating Agencies, if applicable, and the Indenture Trustee of the occurrence of a Significant Event or, in respect of Debt Obligations of a particular Series, the occurrence of a Related Event of Default;
(o)Obligations Secured. Promptly notify the Indenture Trustee in writing of the entering into of any agreement with a Specified Creditor which would give rise to Obligations Secured and provide the Indenture Trustee with a copy of any such agreement and the street address and email address of each Specified Creditor thereunder; and
(p)Separateness Covenants. Comply with each of the following separateness covenants:
(i)conduct its business solely in its own name and in a manner separate from any other Person so as to not mislead others with who it is dealing;
(ii)maintain its own cheques and stationery, separate and apart from each other and any other Person;
(iii)maintain its own books of account and business records separate from those of any other Person, including separate financial statements, provided its assets may be included in the consolidated financial statements, if any, of an Affiliate so long as appropriate notation is made on such consolidated financial statements to indicate its separateness from such Affiliate and to indicate its assets and credit are not available to satisfy the debts or other obligations of such Affiliate;
(iv)maintain its own bank accounts, separate from each other and from any other Person;
(v)maintain its assets in such a manner that it is not costly or difficult to segregate, ascertain or otherwise identify its individual assets from or against those of any other Person;
(vi)not commingle or pool its assets, funds or liabilities with those of any other Person;
(vii)not hold itself out to be responsible for the obligations of any other Person and correct any misunderstanding about such matters known to it; and
(viii)not remove or conceal from its Specified Creditors or any other interested party any of its assets and not participate in removing or concealing the assets of others.
1.2Negative Covenants.
(a)Each of the Issuer and the General Partner, in its own right, hereby covenants and agrees that, so long as any Obligations Secured remain outstanding and, unless it first satisfies the Rating Agency Condition, as applicable in respect of any rated Series of Debt Obligations, and unless such action is approved by an Extraordinary Resolution of holders of any non-rated Series of Debt Obligations, as applicable, or as otherwise contemplated herein or in the Program Agreements, it shall not:
(i)No Sale. Sell, transfer, exchange or otherwise dispose of any of the Collateral;
(ii)No Structural Changes. Permit itself to merge, amalgamate or consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to, any Person;
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(iii)Limit Activities. Engage in any activity other than the activities contemplated by the Program Agreements;
(iv)Impair Security. Permit the validity or effectiveness hereof or of the Collateral to be impaired or permit the security created by this Indenture to be amended, hypothecated, subordinated, terminated or discharged, or permit any Person to be released from any covenants or obligations under this Indenture, except as may be expressly permitted hereby;
(v)Create Encumbrances. Create, incur, assume or suffer to exist any encumbrance in respect of any of the Issuer’s undertaking, property or assets except for Permitted Liens;
(vi)Create Indebtedness. Create, incur, assume or guarantee any indebtedness or obligation or pay any amount in respect thereof at any time after the date hereof (other than the Obligations Secured); and
(vii)Loans and Investments. Make any loan to or investment in, or give any guarantee on behalf of or other financial assistance to, any Person except pursuant to a Funding Agreement.
1.3Indenture Trustee May Perform Covenants.
If the Issuer fails to perform any of its covenants herein contained, the Indenture Trustee may, subject to the receipt of indemnification and funding reasonably acceptable to the Indenture Trustee as provided in Sections 12.3(b) and 12.3(c), itself perform the covenant if the covenant is capable of being performed by the Indenture Trustee, but will be under no obligation so to do and, if the covenant requires the payment or expenditure of money, the Indenture Trustee may make the payment or expenditure with its own funds or with money borrowed by or advanced to it for such purpose, but will be under no obligation so to do; and all sums so expended or advanced will bear interest at a rate per annum equal to the then current rate of interest charged by the Indenture Trustee to its corporate customers on overdue accounts from the date of expenditure until repayment and will (together with such interest) be paid by the Issuer upon demand and will until paid form part of the Obligations Secured and constitute a charge or lien on the Collateral to which such covenant related in priority to the security hereby constituted and will be payable out of any funds coming into possession of the Indenture Trustee hereunder. No performance or payment will be deemed to release the Issuer from the consequences of the occurrence of any Related Event of Default hereunder.
Article 7
REPRESENTATIONS AND WARRANTIES
1.1Representations and Warranties of the Issuer and the General Partner.
Each of the Issuer and, in the case of (a)(ii) and (b) to (i) (inclusive), the General Partner in its own right in respect of itself, hereby represents and warrants to the Indenture Trustee and shall be deemed to represent and warrant to the Indenture Trustee on each issuance of Debt Obligations of any particular Series hereunder that:
(a)Valid Existence and Due Qualification. (i) The Issuer is a limited partnership duly constituted and validly existing under the LPA, is duly qualified to carry on its business in each jurisdiction in which it carries on business, has the power and authority to enter into and perform its obligations under this Indenture and the other Program Agreements executed by it and all instruments and agreements delivered pursuant hereto and thereto and to own its property and carry on its business as currently conducted including, without limitation, the power and authority and legal right to purchase, lease or otherwise acquire the Purchased Asset Interests and grant a security interest in the Collateral, and has obtained all material licences, permits and approvals from all governments, governmental commissions, boards and other agencies required in respect of its operations; and (ii) the General Partner is (1) the sole general partner of the Issuer, and (2) a corporation duly constituted and validly existing under the laws of the Province of Ontario, and has the corporate power and capacity to own property and assets, carry on business, act as general partner of the Limited Partnership and enter into and perform its
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obligations under the Limited Partnership Agreement and each of the Program Agreements to which the Limited Partnership is a party;
(b)Due Authorization and Enforceability. The execution, delivery and performance of this Indenture, the other Program Agreements executed by the Issuer and the General Partner, in its own right, and every instrument or agreement delivered pursuant hereto and thereto has been duly authorized by all necessary corporate action on the part of the Issuer and the General Partner, in its own right, as applicable, and have been executed and delivered by it and constitute its valid and binding obligations enforceable against it in accordance with their respective terms subject to (i) applicable bankruptcy, insolvency, moratorium and similar laws at the time in effect affecting the rights of creditors generally, and (ii) equitable principles which may limit the availability of certain remedies, including the remedy of specific performance;
(c)No Litigation. There are no actions, suits or proceedings pending or, to its knowledge, threatened against or affecting the Issuer or the General Partner, in its own right, at law or in equity or before or by any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or before any arbitrator of any kind, which would result in any material adverse change in the business, operations, prospects, properties, assets or condition, financial or otherwise, of the Issuer or the General Partner, in its own right, or in the ability of the Issuer or the General Partner, in its own right, to perform its obligations under this Indenture, the other Program Agreements executed by it or any agreement or instrument delivered pursuant hereto or thereto; it is not aware of any existing ground on which any such action, suit or proceeding might be commenced with any reasonable likelihood of success; and the Issuer or the General Partner, in its own right, is not in default with respect to any judgment, order, writ, injunction, decree, award, rule or regulation of any court, arbitrator or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, either separately or in the aggregate, would result in any such material adverse change;
(d)No Burdensome Agreements. The Issuer or the General Partner, in its own right, is not a party to any agreement or instrument which materially adversely affects its ability to perform its obligations under this Indenture, the other Program Agreements executed by it or any agreements or instruments delivered pursuant hereto or thereto or materially adversely affects the business, operations, prospects, properties, assets or condition, financial or otherwise, of the Issuer or the General Partner, in its own right, as applicable;
(e)No Restriction. It is not subject to any restriction or any judgment, order, writ, injunction, decree, award, rule or regulation which materially adversely affects, or in the future may materially adversely affect, the business, operations, prospects, properties, assets or condition, financial or otherwise, of the Issuer or the General Partner, in its own right, or its ability to perform its obligations under this Indenture, the other Program Agreements executed by it or any agreements or instruments delivered pursuant hereto or thereto;
(f)No Conflict. Neither the execution nor delivery of this Indenture, the other Program Agreements executed by it or any agreements or instruments delivered pursuant hereto or thereto, the consummation of the transactions herein and therein contemplated, nor compliance with the terms, conditions and provisions hereof or thereof conflicts with or will conflict with, or results or will result in any breach of, or constitutes a default under, (i) any of the provisions of the Limited Partnership Agreement or any agreements or instruments to which the Issuer or the General Partner, in its own right, is a party or by which it or any of its property and assets are bound, or (ii) the constating documents or by-laws of the General Partner or any resolution of the board of directors (or any committee thereof) or shareholders of the General Partner, or results or will result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the property or assets of the Issuer or the General Partner, in its own right (other than Permitted Liens), or contravenes or will contravene any applicable law, rule or regulation of Canada or of any of the provinces and territories of Canada;
(g)No Consents Required. No consent, approval or authorization of, or declaration, registration, filing or qualification with, or giving of notice to, or taking of any other action in respect of, any governmental authority or agency on the part of the Issuer or the
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General Partner, in its own right, is required in connection with the execution and delivery of this Indenture, the other Program Agreements executed by it or any agreements or instruments delivered pursuant hereto or thereto, or the consummation of any of the transactions contemplated hereby or in connection with the enforcement of this Indenture, the other Program Agreements executed by it or any agreements or instruments delivered pursuant hereto or thereto (except those which have been obtained, made or given, as the case may be);
(h)Residency. Each of the General Partner and the Issuer are a resident of Canada within the meaning of the ITA;
(i)Solvency. Each of the General Partner and the Issuer is not insolvent and will not be rendered insolvent within the meaning of applicable laws by entering into, or immediately after completion of, the transactions contemplated herein and in the Program Agreements;
(j)Collateral. The Collateral is free from all encumbrances except for Permitted Liens; and
(k)No Default. No event has occurred which constitutes, or with notice or lapse of time or both, would constitute a Related Event of Default.
1.2Representation and Warranty of the Indenture Trustee.
The Indenture Trustee hereby represents and warrants to the Issuer and shall be deemed to represent and warrant to the Issuer on each issuance of the Debt Obligations of any particular Series hereunder that:
(a)Valid Existence and Due Qualification. The Indenture Trustee is a trust company (as defined in the Trust and Loan Companies Act (Canada)) validly existing under the laws of Canada, is duly qualified to carry on its business in each province and territory of Canada, has the power and authority to enter into and perform its obligations under this Indenture and all instruments and agreements delivered pursuant hereto;
(b)Execution, Delivery and Enforceability. The execution, delivery and performance by the Indenture Trustee of this Indenture (a) are within the powers of the Indenture Trustee, (b) have been duly authorized by all necessary action on the part of the Indenture Trustee, and (c) do not contravene any law in effect on the date of this Indenture. This Indenture has been duly executed and delivered by the Indenture Trustee, and constitutes valid and binding obligations of the Indenture Trustee enforceable against the Indenture Trustee in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, moratorium and similar laws at the time in effect affecting the rights of creditors generally, and (ii) equitable principles which may limit the availability of certain remedies, including the remedy of specific performance; and
(c)No Consents Required. No consent, approval or authorization of, or declaration, registration, filing or qualification with, or giving of notice to, or taking of any other action in respect of, any governmental authority or agency on the part of the Indenture Trustee is required in connection with the execution and delivery of this Indenture or any agreements or instruments delivered pursuant hereto, or the consummation of any of the transactions contemplated hereby (except those which have been obtained).
1.3Survival of Representations and Warranties.
The representations and warranties of the Issuer, the General Partner and the Indenture Trustee in Sections 7.1 and 7.2, respectively, shall survive the execution of this Indenture.
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Article 8
EVENTS OF DEFAULT
1.1Related Event of Default.
(a)A Related Event of Default means, with respect to the Related Debt Obligations, (i) the occurrence of any event specified as such in the Related Supplement; or (ii) the happening of any of the following events (each an “Event of Default”):
(i)Insolvency. The Issuer or the General Partner admits its inability to pay its liabilities generally as they become due or makes a general assignment for the benefit of the creditors of the Issuer or the General Partner or otherwise acknowledges the insolvency of the Issuer or the General Partner, or any proceeding shall be instituted by or against the Issuer or the General Partner seeking to adjudicate it a bankrupt or insolvent or seeking liquidation, winding up, dissolution, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization, moratorium or relief of debtors or seeking the entry of an order for relief by the appointment of a Receiver, trustee or other similar official for the Issuer or the General Partner or for any substantial part of its property and if such proceeding has been instituted against the Issuer or the General Partner, either such proceeding has not been stayed or dismissed within forty-five (45) days or any of the actions sought in such proceeding (including the entry of an order for relief or the appointment of a Receiver) are granted in whole or in part, or if a Receiver is privately appointed in respect of the Issuer or the General Partner or of the property of the Issuer or the General Partner or any substantial part thereof;
(ii)Encumbrancer. An encumbrancer, other than the Indenture Trustee, takes possession of the Collateral or any material part thereof, or any process or execution is levied or enforced upon or against the Collateral or any material part thereof, and remains unsatisfied for such period as would permit any such property to be sold thereunder, and such event could reasonably be expected to have a material adverse effect on the ability of the Issuer to satisfy its obligations under the Related Debt Obligations (such material adverse effect to be determined without reference to any available Credit Enhancement) unless such process is in good faith disputed by the Issuer and the Issuer gives or causes to be given security which is sufficient to pay in full the amount thereby claimed in case the claim is held to be valid;
(iii)Winding-Up Order. An order is made or an effective resolution passed for the winding up, liquidation or dissolution of the Issuer or the General Partner;
(b)The Issuer shall deliver to a Responsible Officer of the Indenture Trustee, promptly upon the Issuer obtaining knowledge thereof, written notice in the form of a Certificate of the Issuer of any Related Default or Related Event of Default, its status and what action the Issuer is taking or proposes to take with respect thereto.
1.2Acceleration of Maturity; Rescission and Annulment.
(a)Subject to the terms of the Related Supplement for any Series, if a Related Event of Default for any Series should occur and be continuing, then and in every such case (other than in the case of an Event of Default set out in Section 8.1(a)(i) or as provided in the Related Supplement for any Series) the Indenture Trustee may and shall, upon the request in writing of the holders of such Series representing not less than 50% of the aggregate principal amount of Debt Obligations of such Series then outstanding, declare all the Debt Obligations of such Series to be immediately due and payable, by a notice in writing to the Issuer (and to a Responsible Officer of the Indenture Trustee if given by the Debtholders), and upon any such declaration or upon the occurrence of an Event of Default described in Section 8.1(a)(i) or as provided in the Related Supplement for any Series, the aggregate principal amount of Debt Obligations of such Series then outstanding, together with accrued and unpaid interest thereon through the date of
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acceleration, shall become immediately due and payable and the security hereby constituted and pursuant to the Related Supplement shall forthwith become enforceable. Subject to the provisions of Section 8.2(b), if the Indenture Trustee or such holders makes such declaration, the Issuer will forthwith pay to the Indenture Trustee and the Debtholders all Obligations Secured together with all accrued and unpaid interest thereon to the date of such payment.
(b)At any time after such declaration of or other acceleration of maturity of a Series has been made and before a judgment or order for payment of the money due has been obtained by the Indenture Trustee as provided in Article 9, the holders representing not less than 50% of the aggregate principal amount of Debt Obligations of such Series then outstanding may, by written notice to the Issuer and a Responsible Officer of the Indenture Trustee, rescind and annul such declaration or other acceleration and its consequences if:
(i)the Issuer has paid or deposited with the Indenture Trustee a sum sufficient to pay:
(A)all payments of principal of and interest on all Debt Obligations of the affected Series and all other amounts that would then be due hereunder or upon such Debt Obligations if the Event of Default giving rise to such acceleration had not occurred;
(B)all sums paid or advanced by the Indenture Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and its agents and Counsel; and
(C)all amounts due and payable to the other Related Specified Creditors; and
(ii)all Related Events of Default, other than the non-payment of the principal of the Debt Obligations that have become due solely by such acceleration, have been cured or waived.
No such rescission shall affect any subsequent Default or Event of Default or impair any right consequent thereto.
Article 9
REMEDIES
1.1Collection of Indebtedness and Suits for Enforcement by Indenture Trustee.
(a)The Issuer covenants that upon the acceleration of any Series of Debt Obligations pursuant to Section 8.2, the Issuer will, upon demand of the Indenture Trustee, pay to the Indenture Trustee, for the benefit of the Debtholders of such Series, the whole amount then due and payable on such Debt Obligations for principal and interest, with interest upon the overdue principal and interest at the applicable interest rate, and in addition thereto such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee and its agents and Counsel (less any taxes required to be deducted pursuant to applicable laws).
(b)In case the Issuer shall fail forthwith to pay such amounts upon such demand, the Indenture Trustee in its own name and as trustee of an express trust, may, subject to Sections 15.2, 15.3 and 15.4, institute a Proceeding for the collection of the sums so due and unpaid, and may prosecute such Proceeding to judgment, and may enforce the same against the Issuer and collect in the manner provided by law out of the Related Collateral, wherever situated, the moneys adjudged or ordered to be payable.
(c)In case any Related Event of Default for any Series occurs and is continuing, the Indenture Trustee may, as more particularly provided in Section 9.5, subject to Sections 15.2, 15.3 and 15.4, proceed to protect and enforce its rights and the rights of the
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Related Debtholders and other Related Specified Creditors, by such appropriate Proceedings such holders shall specify to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or the Related Supplement, as applicable, or in aid of the exercise of any power granted herein or therein, or to enforce any other proper remedy or legal or equitable right vested in the Indenture Trustee by this Indenture or by law.
(d)In case there shall be pending, relative to the Issuer upon the Related Obligations Secured for any Series or any Person having or claiming an ownership interest in the Related Collateral, Proceedings under any applicable bankruptcy, insolvency or other similar law, or in case a Receiver, assignee, trustee in bankruptcy, liquidator, sequestrator or similar official shall have been appointed for or taken possession of the Issuer or its property, or in case of any other comparable judicial Proceedings relative to the Issuer upon such Related Obligations Secured, or to the creditors or property of the Issuer or the Indenture Trustee, irrespective of whether the principal of any affected Obligations Secured shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Indenture Trustee shall have made any demand pursuant to this Section, shall be entitled and empowered, by intervention in such proceedings or otherwise:
(i)to file and prove a claim or claims for the whole amount of principal and interest owing and unpaid in respect of the Related Obligations Secured and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustee (including any claim for reasonable compensation to the Indenture Trustee and each predecessor Indenture Trustee, and their respective agents, attorneys and Counsel, and for reimbursement of all expenses and liabilities incurred, and all advances made, by the Indenture Trustee and each predecessor Indenture Trustee, except as a result of fraud, bad faith, gross negligence or wilful misconduct) and of the Related Specified Creditors allowed in such Proceedings;
(ii)unless prohibited by applicable law or regulations, to vote on behalf of the Specified Creditors for any affected Series in any election of a trustee, a monitor, an interim trustee or any Person performing similar functions in any such Proceedings;
(iii)to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute all amounts received with respect to the claims of the affected Debtholders and other Related Specified Creditors and of the Indenture Trustee on their behalf; and
(iv)to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustee or the Related Specified Creditors allowed in any judicial Proceedings relative to the Issuer, its creditors and its property;
and any trustee, Receiver, liquidator, assignee, custodian, sequestrator or other similar official in any such Proceeding is hereby authorized by each of such Related Specified Creditors to make payments to the Indenture Trustee, and, in the event that the Indenture Trustee shall consent to the making of payments directly to such Related Specified Creditors, to pay to the Indenture Trustee such amounts as shall be sufficient to cover reasonable compensation to the Indenture Trustee, each predecessor Indenture Trustee and their respective agents, attorneys and Counsel, and all other expenses and liabilities incurred, and all advances made, by the Indenture Trustee and each predecessor Indenture Trustee except as a result of fraud, bad faith, gross negligence or wilful misconduct.
(e)Nothing herein contained shall be deemed to authorize the Indenture Trustee to authorize or consent to or vote for or accept or adopt on behalf of any Related Specified Creditor any plan of reorganization, arrangement, adjustment or composition affecting the Related Obligations Secured or the rights of any Related Specified Creditor or to authorize the Indenture Trustee to vote in respect of the claim of any Related Specified
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Creditor in any such Proceeding except, as aforesaid, to vote for the election of a trustee in bankruptcy or similar Person.
(f)All rights of action and of asserting claims under this Indenture and any Related Supplement, or under any of the Related Obligations Secured, may be enforced by the Indenture Trustee without the possession of any of the Related Obligations Secured or the production thereof in any trial or other Proceedings relative thereto, and any such action or Proceedings instituted by the Indenture Trustee shall be brought in its own name and as trustee of an express trust, and any recovery of judgement, subject to the payment of the expenses, disbursements and compensation of the Indenture Trustee, each predecessor Indenture Trustee and their respective agents and attorneys, shall be for the ratable benefit of the holders of the Related Obligations Secured.
(g)In any Proceedings brought by the Indenture Trustee (and also any Proceedings involving the interpretation of any provision of this Indenture to which the Indenture Trustee shall be a party), the Indenture Trustee shall be held to represent all Related Specified Creditors, and it shall not be necessary to make any Related Specified Creditor a party to any such Proceedings, subject to the provisions of any applicable Related Supplement.
1.2Notice of Event of Default.
(a)The Indenture Trustee shall give notice to the Related Debtholders of the occurrence of a Default, within a reasonable time, but not exceeding in any event ten (10) Business Days, after a Responsible Officer of the Indenture Trustee receives written notice of the occurrence thereof, unless the Indenture Trustee in good faith determines that the withholding of such notice is in the best interests of the Related Debtholders and so advises the Issuer in writing. The Indenture Trustee shall give notice of the occurrence of every Default to the Rating Agencies within ten (10) Business Days after the Indenture Trustee receives notice of the occurrence thereof.
(b)When such notice of the occurrence of a Default has been given and the Default is thereafter waived or cured, notice that the Default is no longer continuing shall be given by the Indenture Trustee to Persons to whom notice was sent pursuant to Section 9.2(a) as soon as practicable after the curing of such Default, but not exceeding in any event ten (10) Business Days, after a Responsible Officer of the Indenture Trustee receives written notice that the Default has been cured.
1.3Remedies; Priorities.
(a)If a Related Event of Default for any Series of Debt Obligations shall have occurred and be continuing, the Indenture Trustee may do one or more of the following (subject to Sections 9.5, 15.2, 15.3 and 15.4, and the Indenture Trustee’s rights hereunder and under the Related Supplement):
(i)institute Proceedings in its own name and as trustee of an express trust for the collection of all amounts then payable on the Related Obligations Secured or under this Indenture and the Related Supplement with respect thereto, whether by declaration or otherwise, enforce any judgement obtained, and collect upon such Obligations Secured moneys adjudged due;
(ii)institute Proceedings from time to time for the complete or partial foreclosure with respect to the Related Collateral;
(iii)exercise any remedies of a secured party under the PPSA, including taking possession of and using the Related Collateral or any portion thereof, and take any other appropriate action to protect and enforce the rights and remedies of the Indenture Trustee and the Specified Creditors of such Series;
(iv)sell the Related Collateral, or any portion thereof or rights or interest therein, at one or more public or private sales called and conducted in any manner permitted by law; and
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(v)appoint a Receiver with respect to the Related Collateral.
provided, however, that the Indenture Trustee may not sell or otherwise liquidate the Related Collateral for any Series following a Related Event of Default, other than an Event of Default described in Section 8.1(a)(i) or (iii) or a Related Event of Default so specified in the Related Supplement, unless: (A) 662/3% of the Debtholders of such Series consent thereto, (B) the proceeds of such sale or liquidation distributable to the Debtholders of such Series in accordance with the provisions of the Related Supplement will be sufficient to discharge in full all amounts then due and unpaid upon the Related Obligations Secured owing to the Debtholders of such Series or (C) the Indenture Trustee determines that the Related Collateral will not continue to provide sufficient funds for the payment of principal of and interest on the Related Obligations Secured owing to the Debtholders of such Series as they would have become due if the Related Obligations Secured had not been declared due and payable, and the Indenture Trustee obtains the consent of Debtholders of such Series by Extraordinary Resolution of such Debtholders. In determining such sufficiency or insufficiency with respect to clauses (B) and (C), the Indenture Trustee may, but need not, obtain and rely upon an opinion of an independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of the Related Collateral for such purpose.
(b)If the Indenture Trustee collects any money or property pursuant to this Article 9 in respect of any Series or the Related Collateral, it shall pay out such money or property in accordance with the Related Supplement.
1.4Performance and Enforcement of Certain Obligations.
(a)Promptly following a request from the Indenture Trustee to do so, the Issuer shall take all such lawful action as the Indenture Trustee may request to compel or secure the performance and observance by a Seller, a Servicer or any other Persons, as applicable, of its obligations to the Issuer under or in connection with any applicable Purchased Asset Sale Agreement in accordance with the terms thereof, and to exercise any and all rights, remedies, powers and privileges lawfully available to the Issuer under or in connection with such Purchased Asset Sale Agreement to the extent and in the manner directed by the Indenture Trustee (acting on the written direction of holders of at least 50% of the aggregate principal amount of the applicable Debt Obligations (or applicable Series or Class of Debt Obligations, as the case may be) then outstanding), including the transmission of notices of default on the part of the Seller or the Servicer thereunder and the institution of legal or administrative actions or proceedings to compel or secure performance by the Seller or the Servicer of each of their obligations under the affected Purchased Asset Sale Agreement.
(b)If a Related Event of Default has occurred and is continuing, the Indenture Trustee may, and at the written direction of the Debtholders of such Series upon an Extraordinary Resolution of such Debtholders shall (subject to the Indenture Trustee’s rights hereunder and under the Related Supplement), exercise all rights, remedies, powers, privileges and claims of the Issuer against the Related Seller or the Related Servicer under or in connection with the Related Purchased Asset Sale Agreement, including the right or power to take any action to compel or secure performance or observance by the Related Seller or the Related Servicer of each of their obligations to the Issuer thereunder and to give any consent, request, notice, direction, approval, extension or waiver under the Related Purchased Asset Sale Agreement, and any right of the Issuer to take such action shall be suspended.
1.5Optional Preservation of the Related Collateral.
If the Debt Obligations of any Series have been declared to be due and payable under Section 8.2 following a Related Event of Default, and such declaration and its consequences have not been rescinded and annulled, the Indenture Trustee may, but need not, elect to permit the Issuer to maintain possession of the Related Collateral. It is the desire of the parties hereto and the Debtholders of each Series that there be at all times sufficient funds for the payment of principal of and interest on the Related Debt Obligations, and the Indenture Trustee shall take such desire into account when determining whether or not to permit the Issuer to maintain possession of the Related Collateral. In determining whether to permit the Issuer to maintain possession of the Related Collateral for any Series, the Indenture Trustee may, but
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need not, obtain and rely upon an opinion of an independent investment banking or accounting firm of national reputation as to the feasibility of such proposed action and as to the sufficiency of such Related Collateral for such purpose.
1.6Application of Moneys.
Subject to the provisions of any Related Supplement, upon the occurrence and during the continuance of a Related Event of Default, the Indenture Trustee shall transfer all moneys standing in the Related Series Accounts in accordance with the provisions of the Related Supplement. The Indenture Trustee shall have sole access to such accounts and shall apply the moneys therein for the benefit of the Related Specified Creditors as provided in the Related Supplement.
1.7Trust Moneys.
All moneys held by the Indenture Trustee pursuant to the provisions of this Indenture and any Supplement shall, subject to any provision herein to the contrary, be held by the Indenture Trustee as part of the Collateral as security for the Related Specified Creditors as herein provided. Any moneys held by the Indenture Trustee under the trusts of this Indenture shall be invested by the Indenture Trustee in Permitted Investments upon written direction of the Issuer. Upon receipt of (i) a Certificate of the Issuer stating that no Related Event of Default has occurred and is continuing; and (ii) a Written Order for payment to the Issuer, the Indenture Trustee shall pay or cause to be paid all interest earned on moneys so deposited to the Issuer for application against the Related Obligation Secured.
1.8Restoration of Rights And Remedies.
If the Indenture Trustee or any Debtholder has instituted any Proceeding to enforce any right or remedy under this Indenture and any Related Supplement and such Proceeding has been discontinued or abandoned for any reason or has been determined adversely to the Indenture Trustee or to such Debtholder, then and in every such case the Issuer, the Indenture Trustee and the Debtholders shall, subject to any determination in such Proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Indenture Trustee and the Debtholders shall continue as though no such Proceeding had been instituted.
1.9Delay or Omission Not A Waiver.
No delay or omission of the Indenture Trustee or any Specified Creditor to exercise any right or remedy accruing upon any Related Default or Related Event of Default shall impair any such right or remedy or constitute a waiver of any such Related Default or Related Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Indenture Trustee or to the Specified Creditors may be exercised from time to time, and as often as may be deemed expedient, by the Indenture Trustee or by the Specified Creditors, as the case may be.
1.10Control By Debtholders.
Subject to the Indenture Trustee’s rights hereunder and under any Related Supplement, the holders of not less than 50% of the aggregate principal amount of Debt Obligations of a Series then outstanding shall have the right to direct the time, method and place of conducting any Proceeding for any remedy available to the Indenture Trustee with respect to the Debt Obligations of such Series or exercising any trust or power conferred on the Indenture Trustee with respect to the Related Collateral; provided, that:
(i)such direction shall not be in conflict with any rule of law or with this Indenture or the Related Supplement;
(ii)subject to the express terms of Section 9.3, any direction to the Indenture Trustee to sell or liquidate the Related Collateral shall be by all the Debtholders of such Series;
(iii)if the Indenture Trustee elects to allow the Issuer to retain the Related Collateral pursuant to Section 9.5, then any direction to the Indenture Trustee by Debtholders representing less than 100% of the aggregate principal amount of Debt Obligations of such Series then outstanding to sell or liquidate the Related Collateral shall be of no force and effect; and
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(iv)the Indenture Trustee may take any other action deemed proper by the Indenture Trustee that is not inconsistent with such direction;
provided, however, that the Indenture Trustee need not take any action at the request of any Debtholders that it determines might involve it in any loss, liability or expense unless such Debtholders have offered the Indenture Trustee security and indemnity satisfactory to the Indenture Trustee against such loss, liability or expense.
1.11Purchase by Specified Creditors.
Subject to applicable law, any one or more of the Specified Creditors or any agent or representative thereof may become purchasers at any sale of any Collateral whether made under the power of sale herein contained or pursuant to judicial proceedings.
1.12Protection of Persons Dealing with Indenture Trustee.
No Person dealing with the Indenture Trustee or its agents will be obliged to inquire as to whether any of the security hereby constituted or constituted under any Hypothec has become enforceable, or whether the powers which the Indenture Trustee is purporting to exercise have become exercisable, or whether any money remains due upon such security hereby constituted or the Obligations Secured, or as to the necessity or expediency of the stipulations and conditions subject to which any sale is made, or otherwise as to the propriety or regularity of any sale or of any other dealing by the Indenture Trustee with any of the Collateral, or to see to the application of any money paid to the Indenture Trustee; and in the absence of fraud on the part of the Person, the dealing will be deemed, so far as regards the safety and protection of the Person, to be within the powers hereby conferred and to be valid and effectual accordingly.
1.13Remedies Cumulative.
No right or remedy herein conferred upon or reserved to the Indenture Trustee, or upon or to the Specified Creditors is intended to be exclusive of any other right or remedy, and every right and remedy shall be cumulative and is in addition to every other right and remedy given hereunder or now existing or hereafter to exist by law, in equity or by statute.
1.14Issuer to Execute Confirmatory Deed.
In case of any sale hereunder, whether by the Indenture Trustee or under judicial proceedings, the Issuer will execute and deliver to the purchaser on demand any instrument reasonably necessary to confirm to the purchaser its title to the property so sold, and in case of any such sale, the Indenture Trustee is hereby irrevocably authorized to carry the sale into effect and to execute on its behalf and in its name any such confirmatory instrument.
1.15Indenture Trustee Appointed Attorney.
The Issuer irrevocably constitutes and appoints the Indenture Trustee and any officer, representative or employee thereof, with full power of substitution, as its true and lawful attorney with full power and authority in the name of the Issuer or in its own name, in its discretion, upon the occurrence and during the continuance of any Related Event of Default, for the purpose of carrying out the terms of this Indenture and any Related Supplement to take all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes hereof, and without limiting the generality of the foregoing, hereby gives the Indenture Trustee the power and right on behalf of the Issuer, without notice to or assent by the Issuer, to the extent permitted by applicable law, to do the following:
(a)to ask for, demand, sue for, collect and receive all and any moneys due or becoming due with respect to the Related Collateral;
(b)to receive, take, endorse, assign and deliver any and all cheques, notes, drafts, acceptances, documents and other negotiable and non-negotiable instruments, documents and chattel paper taken or received by the Indenture Trustee in connection therewith and herewith; and
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(c)to commence, file, prosecute, defend, settle, compromise or adjust any claim, suit, action or proceeding with respect to the Related Collateral.
The foregoing power of attorney shall be coupled with an interest and survive any dissolution, liquidation or winding-up of the Issuer.
1.16Credit Enhancement Agreements.
Notwithstanding any other provision of this Indenture, where, with respect to the Debt Obligations of any particular Series, (i) the unutilized portion of the Credit Enhancement available under any Related Credit Enhancement Agreement is greater than zero; or (ii) the Related Credit Enhancer is owed any amount thereunder, in making any disposition of the Related Collateral, the Indenture Trustee shall, if so set out in a Related Supplement, exercise its rights and privileges under this Article 9 in accordance with those sections of such Related Credit Enhancement Agreement specifically identified in the Related Supplement, and the Related Credit Enhancer shall have the right upon giving written notice to the Indenture Trustee and the Related Rating Agencies to initiate at any time any action, suit, or proceeding to enforce its rights under such agreement. Without limiting the generality of the foregoing, any conflict between the provisions of this Indenture and those provisions of the Credit Enhancement Agreement specifically identified in the Related Supplement shall be resolved by applying such provisions of the Credit Enhancement Agreement so long as the unutilized portion of the Credit Enhancement available thereunder is greater than zero or the Related Credit Enhancer is owed any amount thereunder. Any funds received by way of Related Collections of amounts payable in respect of Related Purchased Asset Interests which have been purchased by the Related Credit Enhancer shall, notwithstanding any other provision hereof, be held in trust separate and apart in a segregated account for the benefit of the Related Credit Enhancer and remitted to the Related Credit Enhancer as it may direct as soon as practicable.
1.17Disclaimer of Marshalling.
In the event that the security hereby constituted or constituted under any Hypothec shall become enforceable and the Indenture Trustee shall have determined or become bound to enforce the same, the Issuer covenants not to invoke the doctrine of marshalling or any other equitable principle for the purpose of requiring the Indenture Trustee to realize or to have realized on any particular asset forming part of the Collateral.
1.18Appointment of Receiver.
If the Indenture Trustee determines under the provisions of this Indenture to appoint a Receiver in respect of any Series, the following provisions will apply:
(a)the Indenture Trustee may from time to time in the same manner remove any Receiver so appointed and appoint another in its stead; in making any appointment the Indenture Trustee will be deemed to be acting as the agent of the Issuer;
(b)any appointment will be limited to the Related Collateral and may be made either before or after the Indenture Trustee has taken possession of such Related Collateral;
(c)every Receiver may in the discretion of the Indenture Trustee be vested with all or any of the powers and discretions of the Indenture Trustee;
(d)the Indenture Trustee may from time to time fix the reasonable remuneration of every Receiver and direct the payment thereof out of such Related Collateral, the income therefrom or the proceeds thereof;
(e)the Indenture Trustee may from time to time require any Receiver to give security for the performance of its duties and may fix the nature and amount thereof, but will not be bound to require security;
(f)every Receiver may, with the consent in writing of the Indenture Trustee, borrow money and grant security for the purposes of the maintenance, protection or preservation of such Related Collateral or any part thereof with any amount so borrowed and any interest thereon to be a charge or lien on such Related Collateral in priority to the security hereby constituted;
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(g)every Receiver will, so far as concerns responsibility for its acts or omissions, be deemed the agent of the Issuer and in no event the agent of the Indenture Trustee, and the Indenture Trustee will not, in making or consenting to the appointment, incur any liability to the Receiver for its remuneration or otherwise, provided that the Trust hereby irrevocably authorizes the Indenture Trustee to give instructions to the Receiver relating to the performance of its duties as set out herein;
(h)except as may be otherwise directed by the Indenture Trustee or as otherwise specifically provided in this Indenture, all money from time to time received by any Receiver will be paid over to the Indenture Trustee to be held by it on the trusts of this Indenture; and
(i)the Indenture Trustee may pay over to any Receiver any money constituting part of such Related Collateral to the extent that the same may be required to be applied for the purposes hereof by such Receiver, and the Indenture Trustee may from time to time determine what funds such Receiver is at liberty to keep in hand with a view to the performance of its duty as Receiver.
Article 10
SUITS BY DEBTHOLDERS AND INDENTURE TRUSTEE
1.1Debtholders May Not Sue.
Subject to Section 9.16, no Debtholder will have any right to institute any suit, action or proceeding for payment of any part of the Obligations Secured or for the purpose of bringing Collateral to sale, or for the execution of any trust or power hereunder in relation thereto, or for the appointment of a Receiver of such Collateral or for any other remedy hereunder, provided that the Debtholders may take such action if the following conditions precedent have been fulfilled:
(a)the Debtholder previously has given to the Indenture Trustee written notice of the occurrence of a Related Event of Default;
(b)in the case of any suit by the Debtholders of any particular Series, such Debtholders by Extraordinary Resolution, have made a request to the Indenture Trustee and the Indenture Trustee has been afforded reasonable opportunity itself to either proceed to exercise the powers hereinbefore granted or to institute an action, suit or proceeding in its name for the purpose requested;
(c)the Debtholders referred to in (b) above have offered to the Indenture Trustee, when so requested by the Indenture Trustee, sufficient funds and security and indemnity satisfactory to the Indenture Trustee, acting reasonably, against the costs, expenses and liabilities to be incurred therein or thereby; and
(d)the Indenture Trustee has failed to act hereunder within a reasonable time which shall, for the purposes hereof, not exceed a period of sixty (60) days in any event after notification, request and offer of sufficient funds and indemnity by such Debtholders,
it being understood and intended that no Related Specified Creditor with respect to a Series will have any right in any manner whatsoever to take any action against any Collateral other than the Collateral for such Series or to effect, disturb or prejudice the rights of any other Specified Creditor (of the same or any other Series), or to obtain or seek to obtain priority over or preference to any other Specified Creditor (of the same or any other Series), or to enforce any right under this Indenture, except in the manner herein provided and for the equal, rateable and common benefit of all Related Specified Creditor of the same Series, except as otherwise expressly provided in this Indenture and the Related Supplement.
1.2Indenture Trustee Not Required to Possess Debt Obligations.
All rights of action under this Indenture may be enforced by the Indenture Trustee without the possession of any of the Debt Obligations or the production thereof at any trial or other proceedings relative thereto and any such proceeding instituted by the Indenture Trustee may be brought in its own name as trustee of an express trust. Any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee, its agents and Counsel,
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be for the benefit of the Debtholders in respect of which such judgment has been recovered in the manner herein provided.
1.3Indenture Trustee May Institute All Proceedings.
The Indenture Trustee will have the power to institute and maintain any and all suits and proceedings as it may consider necessary or expedient to enforce the security hereby constituted or pursuant to any Related Supplement or Hypothec or to prevent any impairment of such security by any acts of the Issuer or of others in contravention of this Indenture or the Program Agreements or in violation of law, or as the Indenture Trustee may be advised by Counsel are necessary or expedient to preserve and to protect its interest and the security and interests of the Specified Creditors in respect of the Collateral or in respect of the income, earnings, issues and profits therefrom. Following the occurrence of a Related Event of Default, any suit or proceedings may be instituted by the Indenture Trustee against others in the name of the Issuer and the Indenture Trustee is hereby irrevocably constituted and appointed the agent of the Issuer for this purpose.
1.4Application of Proceeds.
If, following the occurrence of a Related Event of Default, any Specified Creditor receives any amount in satisfaction of any part of the Obligations Secured from any source whatsoever other than pursuant hereto, such amount shall be held in trust for and immediately remitted to the Indenture Trustee and shall be applied by the Indenture Trustee in the manner provided in the Related Supplement.
Article 11
MEETINGS OF DEBTHOLDERS
1.1Right to Convene Meetings.
The Indenture Trustee may at any time and from time to time and will on receipt of a Written Order or a written request signed by the holders of not less than 25% of the aggregate principal amount of the Debt Obligations then outstanding to which such meeting relates and upon receiving sufficient funds and on being indemnified to its reasonable satisfaction by the Issuer or by the Debtholders signing such order or request against the costs which may be incurred in connection with the calling and holding of such meeting, convene a meeting of the Debtholders. In the event of the Indenture Trustee failing within thirty (30) days after receipt of any such order or request and such sufficient funds and indemnity to give notice convening a meeting, the Issuer or such Debtholders, as the case may be, may convene such meeting.
1.2Notice of Meetings.
At least fifteen (15) days’ notice of any meeting will be given to (a) the Debtholders to which such meeting relates in the manner provided in Section 14.3, (b) the other Related Specified Creditors in the manner provided in Section 14.4, and (c) the Related Rating Agencies in the manner provided in Section 14.5, and a copy thereof will be sent to the Indenture Trustee in the manner provided in Section 14.2, unless the meeting has been called by it, and to the Issuer, unless the meeting has been called by it. Such notice will state the time when and the place where the meeting is to be held and will state briefly the general nature of the business to be transacted thereat. It will not be necessary for any such notice to set out the terms of any resolution to be proposed or any of the provisions of this Article 11. Such notice will also state that any Debtholder may be represented at any meeting of Debtholders by a proxy duly appointed by instrument in writing in accordance with the regulations made from time to time by the Indenture Trustee pursuant to Section 11.9 and that the appointment of any proxy may be revoked at any time before the commencement of the meeting to which the appointment relates. The non-receipt of any such notice by a Debtholder shall not invalidate any resolution passed at such meeting.
1.3Chairperson.
Any individual, who need not be a Debtholder, nominated in writing by the Indenture Trustee will be chairperson of the meeting and if no person is so nominated, or if the individual so nominated is not present within 15 minutes of the time fixed for the holding of the meeting, the Debtholders present in person or represented by proxy will choose an individual present to be chairperson.
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1.4Quorum.
Subject to the provisions of Section 11.13, at any meeting of the Debtholders a quorum will consist of Debtholders present in person or represented by proxy and representing at least 25% of the aggregate principal amount of the Debt Obligations then outstanding to which such meeting relates. If a quorum of the Debtholders is not present within thirty (30) minutes from the time fixed for holding any meeting, the meeting, if summoned by the Debtholders or pursuant to a request of the Debtholders, will be dissolved; but in any other case the meeting will be adjourned to the same day in the next calendar week (unless such day is not a Business Day in which case it will be adjourned to the next following Business Day thereafter) at the same time and place and no notice will be required to be given in respect of such adjourned meeting. At the adjourned meeting the Debtholders present in person or represented by proxy will constitute a quorum and may transact the business for which the meeting was originally convened notwithstanding that they may not represent at least 25% of the aggregate principal amount of the Debt Obligations then outstanding to which such meeting relates. Where a Debtholder has executed a document in writing appointing a Person as proxy and such Person who is a proxyholder is present at the meeting, the Debtholder will be deemed to be present for the purposes of determining a quorum and be deemed to have voted; provided, that such Debtholder will be considered as present or voting only with respect to the matters covered by such document in writing.
1.5Power to Adjourn.
The chairperson of any meeting at which a quorum of Debtholders is present may, with the consent of the holders of a majority of the principal amount of the Debt Obligations then outstanding represented thereat, adjourn any such meeting and no notice of such adjournment need be given except such notice, if any, as the meeting may prescribe.
1.6Show of Hands.
Every question submitted to a meeting will be decided in the first place by a majority of the votes given on a show of hands except that votes on Extraordinary Resolutions will be given in the manner provided in Section 11.7. At any such meeting, unless a poll is duly demanded as hereinafter provided, a declaration by the chairperson that a resolution had been carried or carried unanimously or by a particular majority or lost or not carried by a particular majority will be conclusive evidence of the fact.
1.7Poll.
On every Extraordinary Resolution, and on any other question submitted to a meeting when demanded by the chairperson or by one or more Debtholders or proxies for Debtholders holding at least 5% of the aggregate principal amount of the Debt Obligations then outstanding to which such meeting relates, a poll will be taken in such manner and either at once or after an adjournment as the chairperson directs. Questions other than Extraordinary Resolutions will, if a poll be taken, be decided by the votes of the holders of a majority in principal amount of the Debt Obligations then outstanding represented at the meeting and voting on the poll.
1.8Voting.
On a show of hands, every person who is present and entitled to vote, whether as a Debtholder or as proxy for one or more Debtholders or both, will have one vote. On a poll, each Debtholder present in person or represented by a proxy will be entitled to one vote in respect of each $1,000 principal amount (or the Equivalent Amount in any other currency) of Debt Obligations of which he is then the holder or which he represents by proxy. A proxy need not be a Debtholder. In the case of joint registered holders of a Debt Obligation, any one of them present in person or represented by proxy at the meeting may vote in the absence of the other or others but in case more than one of them be present in person or represented by proxy, they will vote together in respect of the Debt Obligations of which they are joint registered holders.
1.9Regulations.
The Indenture Trustee may from time to time make reasonable regulations and may make reasonable variations to the regulations as it thinks fit with respect to:
(a)the voting by Debtholders in respect of Debt Obligations which are not Notes;
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(b)the voting represented by proxy by Debtholders and the form of instrument appointing proxies and the manner in which the same will be executed and with respect to the production of the authority of any Person signing on behalf of the giver of the proxy;
(c)the lodging of instruments appointing proxies at any place or places and in such custody as the Indenture Trustee directs and the time, if any, before the holding of the meeting or adjourned meeting by which the same must be deposited;
(d)the forwarding by the custodian thereof of particulars of instruments appointing proxies by letter, cable, telegraph, facsimile or electronic messaging system before the meeting to the Issuer or to the Indenture Trustee or to the chairperson of the meeting;
(e)the issue of voting certificates to holders of Book-Entry Notes which voting certificates shall entitle the holders named therein to be present and vote at any such meeting and at any adjournment thereof or to appoint a proxy or proxies to represent them and vote for them at any such meeting and at any adjournment thereof, in the same manner and with the same effect as though the holders so named in such voting certificates were the actual registered holders of Definitive Notes; and
(f)any other matters it deems necessary for the proper conduct of the meeting.
Any regulations so made will be binding and effective and votes given in accordance therewith will be valid and will be counted. Instruments appointing proxies, the particulars of which are forwarded in accordance with the regulations, will confer the same right to vote as though the instruments themselves were produced at the meeting. Save as herein otherwise specified, the only Persons who will be recognized at any meeting of Debtholders as the holders of Debt Obligations or as entitled to vote or be present at the meeting in respect thereof will be Debtholders to which such meeting relates and holders of proxies of such Debtholders.
1.10The Issuer and Indenture Trustee.
Each of the Issuer, the Indenture Trustee, the Related Credit Enhancers and the Related Rating Agencies, by their respective employees, representatives, officers and directors, and the legal advisors of such parties, may attend any meeting of any Debtholders, but will not as such have a vote.
1.11Powers Exercisable by Extraordinary Resolution of all Debtholders.
(a)In addition to any powers hereinbefore given, the Debtholders generally shall by Extraordinary Resolution of all Debtholders have the power to:
(i)subject to Article 12 and the Related Supplement, require the Indenture Trustee to exercise or refrain from exercising any of the powers conferred upon it by this Indenture;
(ii)sanction the release of the Issuer from its covenants and obligations hereunder;
(iii)remove the Indenture Trustee from office and appoint a new Indenture Trustee hereunder;
(iv)subject to the provisions of this Indenture, sanction any supplement, amendment, modification, restatement or replacement of or waiver of or postponement of compliance with any provision of this Indenture (other than a Related Supplement) or the Limited Partnership Agreement which shall be agreed to by the Issuer and any modification, alteration, abrogation, compromise or arrangement of or in respect of the rights of the Debtholders against the Issuer whether such rights shall arise under the provisions of this Indenture or otherwise;
(v)appoint a committee with power and authority (subject to such limitations, if any, as may be prescribed in the Extraordinary Resolution) to exercise, and to direct the Indenture Trustee to exercise, on behalf of the Debtholders, such of the powers of the Debtholders as are exercisable by Extraordinary Resolution or
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other resolution as shall be included in the Extraordinary Resolution appointing the committee. The Extraordinary Resolution making such appointment may provide for payment of the expenses and disbursements of and compensation to such committee. Such committee shall consist of such number of persons as shall be prescribed in the Extraordinary Resolution appointing it and the members need not be themselves Debtholders. Every such committee may elect its chairperson and may make regulations respecting its quorum, the calling of its meetings, the filling of vacancies occurring in its number and its procedures generally. Such regulations may provide that the committee may act at a meeting at which a quorum is present or may act by minutes signed by the number of members thereof necessary to constitute a quorum. All acts of any such committee within the authority delegated to it shall be binding upon all Debtholders. Neither the committee nor any member thereof shall be liable for any loss arising from or in connection with any action taken or omitted to be taken by them in good faith;
(vi)assent to any compromise or arrangement by the Issuer with any creditor, creditors or class or classes of creditors or with the holders of any securities of the Issuer;
(vii)restrain any holder of any Note or any lender in respect of any Loan from taking or instituting any suit, action or proceeding for the recovery of amounts payable under such Note or Loan or hereunder or for the execution of any trust or power hereunder or for the appointment of a Receiver or trustee in bankruptcy or the winding up of the Issuer or for any other remedy hereunder and to direct such holder of any Note or lender in respect of a Loan to waive any Related Event of Default on which any suit or proceeding is founded;
(viii)direct any holder of a Note or lender in respect of any Loan bringing any action, suit or proceeding and the Indenture Trustee to waive the Related Event of Default in respect of which such action, suit or proceeding will have been brought; and
(ix)take any other action authorized by this Indenture to be taken by Extraordinary Resolution.
(b)Notwithstanding any other provision of this Indenture, (i) no change whatsoever to (x) the payee of a Debt Obligation, the date of maturity of a Debt Obligation, the principal amount or currency of a Debt Obligation, the interest rate or premium payable on a Debt Obligation, if any, the place of payment of a Debt Obligation, or the amount or timing of distributions which are required to be made on a Debt Obligation, may be made without the consent of the holders of such Debt Obligation; or (y) the percentage specified in the definition of “Extraordinary Resolution” in Section 11.13 for passage of a resolution may be made without the consent of all Debtholders of each Series or Class adversely affected; and (ii) no Extraordinary Resolution may be adopted which would be prejudicial to the rights or interests of a Credit Enhancer or the Indenture Trustee without the express written consent of such Credit Enhancer or the Indenture Trustee, as the case may be.
1.12Powers Exercisable by Extraordinary Resolution of Holders of Series.
(a)The Debtholders of each particular Series shall, in addition to any powers herein given to holders of Debt Obligations generally and to the exclusion of the holders of the Debt Obligations of all other Series, have the power, exercisable from time to time by Extraordinary Resolution:
(i)to sanction and agree to any supplement, amendment, modification, restatement or replacement of, or waiver of or postponement of compliance with, any of the provisions of the Debt Obligations of such Series or the Related Supplement or this Indenture affecting such Debt Obligations solely or otherwise in a manner or to an extent differing from that in or to which it affects the rights of the holders of Debt Obligations of any other affected Series, provided such supplement, amendment, modification, restatement, replacement, waiver or postponement
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does not, in the opinion of the Indenture Trustee (relying on the advice of Counsel), adversely affect any Debt Obligations of any other Series;
(ii)subject to the consent of each Related Credit Enhancer and any other Related Specified Creditor who is a party to a Related Program Agreement, permit or direct the Indenture Trustee to sanction any supplement, amendment, modification, restatement or replacement of, or waiver of or postponement of compliance with such Related Program Agreement which could reasonably be considered to be prejudicial to the rights and interests of any Related Specified Creditor, provided however, that where such Amendment could not reasonably be considered to be prejudicial to the rights or interests of a particular Related Credit Enhancer, the consent of such Related Creditor Enhancer will not be required hereunder;
(iii)sanction the sale, exchange or other disposition of the Related Collateral or any part thereof for such consideration as may be specified in the Extraordinary Resolution; and
(iv)take such other action which such Debtholders are authorized to take by Extraordinary Resolution pursuant to the Related Supplement.
(b)If any business to be transacted at a meeting of Debtholders, or any action to be taken or power to be exercised by instrument in writing under Section 11.17, affects the rights of the holders of Debt Obligations of one or more Series in the manner described in Section 11.12(a), then:
(i)reference to such fact, indicating each Series so affected, shall be made in the notice of such meeting and the meeting shall be and is herein called a “Series meeting”; and
(ii)the holders of Debt Obligations of a Series so affected shall not be bound by an action taken or power exercised at a meeting of Debtholders generally, or at a Series meeting or by instrument in writing under Section 11.17 unless, in addition to compliance with the other provisions of this Article 11, such action is taken or power exercised by resolution of the Debtholders of such Series as follows:
(A)at such Series meeting:
(I)there is present a quorum consisting of two (2) or more persons holding either personally or as proxies not less than 25% of the aggregate principal amount then outstanding of the Debt Obligations of such Series (subject to the provisions of this Article 11 as to adjourned meetings); and
(II)the resolution is passed by an Extraordinary Resolution of the Debtholders of such Series; or
(iii)by a written instrument signed in one or more counterparts by the holders of not less than 662/3% of the aggregate principal amount then outstanding of the Debt Obligations of such Series.
(c)Notwithstanding any of the provisions hereof, if, in the opinion of the Indenture Trustee, relying upon the advice of Counsel, any business to be transacted at any meeting, or any action to be taken or power to be exercised by instrument in writing under Section 11.17, does not affect the rights of the holders of Debt Obligations of one or more particular Series, the provisions of this Article 11 shall apply as if the Debt Obligations of such Series were not outstanding and no notice of any such meeting need be given to the holders of Debt Obligations of such Series. For greater certainty, but without limiting the generality of the foregoing;
(i)a proposal to modify or terminate any covenant or agreement which by its terms is effective only so long as Debt Obligations of a particular Series are outstanding
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shall be deemed not to adversely affect the rights of the holders of Debt Obligations of any other Series; and
(ii)the holders of Debt Obligations of any Series not adversely affected by any proposal to be submitted to a Series meeting in accordance with Section 11.12(b) shall not have the right to attend at such Series meeting or to vote on or otherwise approve or reject such proposal; and
(iii)the holders of Debt Obligations of any Class of a Series not adversely affected by any proposal to be submitted to a Class meeting in accordance with 11.12(c) will not have the right to attend at such Class meeting or to vote on or otherwise approve or reject such proposal.
1.13Meaning of “Extraordinary Resolution”.
(a)“Extraordinary Resolution”, wheresoever used herein, subject as hereinafter in this Article 11 provided, means a resolution proposed to be passed as an Extraordinary Resolution at a meeting of Debtholders (of such Series or Class of Debt Obligations, as the case may be) duly convened for the purpose and held in accordance with the provisions of this Article 11 at which the holders of at least 25% of the aggregate principal amount of the applicable Debt Obligations (or applicable Series or Class of Debt Obligations, as the case may be) then outstanding to which such meeting relates are present in person or represented by proxy and passed by the favourable votes of the holders of not less than 662/3% of the aggregate principal amount of such Debt Obligations (or applicable Series or Class of Debt Obligations, as the case may be) represented at the meeting and voted on a poll upon such resolution. If, at any such meeting, the holders of 25% of the aggregate principal amount of such Debt Obligations (or applicable Series or Class of Debt Obligations, as the case may be) then outstanding to which such meeting relates are not present in person or represented by proxy within 30 minutes after the time appointed for the meeting, then the meeting, if convened by or on the requisition of Debtholders, will be dissolved; but in any other case will stand adjourned to such date, being not less than fifteen (15) nor more than sixty (60) days later and to such place and time as may be appointed by the chairperson. Not less than ten (10) days’ notice will be given to Debtholders of the time and place of such adjourned meeting, in the manner provided in Section 14.3. Such notice will state that at the adjourned meeting, the Debtholders present in person or represented by proxy will constitute a quorum but it will not be necessary to set forth the purposes for which the meeting was originally called or any other particulars. At the adjourned meeting, the Debtholders present in person or represented by proxy will constitute a quorum and may transact the business for which the meeting was originally convened and a resolution proposed at such adjourned meeting and passed by the requisite vote as provided in this Section 11.13 will be an Extraordinary Resolution within the meaning of this Indenture notwithstanding that the holders of 25% of the aggregate principal amount of the Debt Obligations (or applicable Series or Class of Debt Obligations, as the case may be) then outstanding to which such meeting relates are not present in person or represented by proxy at such adjourned meeting. Votes on an Extraordinary Resolution will always be given on a poll and no demand for a poll on an Extraordinary Resolution will be necessary. The Issuer shall give notice to the Related Rating Agencies and the Related Credit Enhancers of any resolution passed as an Extraordinary Resolution.
(b)All actions which may be taken and all powers that may be exercised by the Debtholders at a meeting held as hereinbefore in this Article 11 provided may also be taken and exercised by the holders of not less than 662/3% of the aggregate principal amount of Debt Obligations (or applicable Series or Class of Debt Obligations, as the case may be) then outstanding, by an instrument in writing signed in one or more counterparts and the expression ‘Extraordinary Resolution’ when used in this Indenture will include an instrument so signed.
1.14Class Meetings.
If any business to be transacted at a meeting, or any action to be taken or power to be exercised by an instrument in writing under Section 11.13(b), especially affects the rights relating to a Class of Debt Obligations of a particular Series in a manner or to an extent substantially differing from the manner
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in or to the extent which it affects the rights relating to another affected Class of Debt Obligations of such particular Series (as to which the opinion of the Indenture Trustee, relying on the advice of Counsel shall be binding on all Debtholders and all other Persons for all purposes hereof) then:
(a)reference to such fact, indicating the Class of Debt Obligations so especially affected, shall be made in the notice of such meeting and the meeting shall be and is herein called a “Class meeting”; and
(b)the holders of the Class of Debt Obligations so especially affected shall not be bound by any action taken or power exercised at a meeting or by an instrument in writing under Section 11.17 unless, in addition to compliance with the other provisions of this Article 11, such action is taken or power exercised by resolution of the holders of such Class of Debt Obligations as follows:
(i)at such Class meeting:
(A)there is present a quorum consisting of two (2) or more persons holding either personally or as proxies not less than 25% of the aggregate principal amount of the Debt Obligations of such Class (subject to the provisions of this Article 11 as to adjourned meetings); and
(B)the resolution is passed by an Extraordinary Resolution of the Debtholders of such Class; or
(ii)by a written instrument signed in one or more counterparts by the holders of not less than 662/3% of the aggregate principal amount then outstanding of the Debt Obligations of such Class.
1.15Powers Cumulative.
It is hereby declared and agreed that any one or more of the powers or any combination of the powers in this Indenture stated to be exercisable by the Debtholders by Extraordinary Resolution or otherwise may be exercised from time to time and the exercise of any one or more of such powers or any combination of powers from time to time will not be deemed to exhaust the rights of the Debtholders to exercise the same or any other power or combination of powers thereafter from time to time.
1.16Minutes.
Minutes of all resolutions and proceedings at every meeting as aforesaid will be made and duly entered in books to be provided for that purpose by the Indenture Trustee at the expense of the Issuer and any such minutes as aforesaid, if signed by the chairperson of the meeting at which such resolutions were passed or proceedings taken, or by the chairperson of the next succeeding meeting of Debtholders to which such meeting relates, will be prima facie evidence of the matters therein stated and, until the contrary is proved, every such meeting, with respect to the proceedings of which minutes have been made, will be determined to have been duly held and convened, and all resolutions passed thereat or proceedings taken thereat to have been duly passed and taken.
1.17Binding Effect of Resolutions.
Subject to Sections 11.12 and 11.14, every resolution and every Extraordinary Resolution passed in accordance with the provisions of this Article 11 at a meeting of Debtholders will be binding upon all the Debtholders, whether present at or absent from such meeting, and every instrument in writing signed by Debtholders in accordance with Section 11.13(b) will be binding upon all the Debtholders whether signatories thereto or not, and each and every Debtholder and the Indenture Trustee (subject to the provisions for its indemnity contained in Section 12.3(b) will be bound to give effect accordingly to every such resolution, Extraordinary Resolution and instrument in writing. The Issuer shall provide written notice to the Related Rating Agencies of any Extraordinary Resolution passed in accordance with the provisions of this Article 11.
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Article 12
THE INDENTURE TRUSTEE
1.1Trust Indenture Legislation.
(a)In this Article 12, the term “applicable legislation” means the provisions, if any, of the Trust and Loan Companies Act (Canada) and any other statute of Canada or a province thereof, and of regulations under any such statute, relating to trust indentures and to the rights, duties and obligations of trustees under trust indentures and of entities issuing debt obligations under trust indentures, to the extent that in the opinion of Counsel to the Issuer such provisions are at the time in force and applicable to this Indenture.
(b)If and to the extent that any provision of this Indenture limits, qualifies or conflicts with a mandatory requirement of applicable legislation, such mandatory requirement shall prevail.
(c)The Issuer and the Indenture Trustee agree that each will at all times in relation to this Indenture and any action to be taken hereunder, observe and comply with and be entitled to the benefits of applicable legislation.
1.2Rights and Duties of Indenture Trustee.
(a)In the exercise of the rights and duties prescribed or conferred by the terms of this Indenture, the Indenture Trustee will act honestly and in good faith with a view to the best interests of the Specified Creditors as a whole and will exercise its powers and carry out its obligations hereunder exercising that degree of care, diligence and skill that a reasonably prudent trustee would exercise in comparable circumstances. Subject to the foregoing, the Indenture Trustee shall not be liable for any error in judgment or for any act done or step taken or omitted by it in good faith or for any mistake, in fact or law, made in good faith by it or for anything which it may do or refrain from doing in good faith in connection herewith, except arising out of its own fraud, bad faith, gross negligence or wilful misconduct.
(b)Nothing contained herein shall be construed to relieve the Indenture Trustee or any of its Related Persons from liability in respect of anything done, omitted to be done or permitted to be done arising from or in connection with any fraud, bad faith, wilful misconduct or gross negligence on the part of the Indenture Trustee or any of its Related Persons.
(c)Every provision of this Indenture that by its terms relieves the Indenture Trustee of liability or entitles it to rely upon any evidence submitted to it, is subject to the provisions of applicable legislation and of Subsection 12.2(a) and Sections 12.3 and 12.4.
1.3Conditions Precedent to Indenture Trustee’s Obligation to Act.
(a)The Indenture Trustee shall not be bound to give any notice or do or take any act, action or proceeding pursuant hereto unless and until it shall have been required so to do under the terms hereof. The Indenture Trustee shall not be required to take notice of any Related Event of Default hereunder, other than in payment of any moneys required by any provision hereof to be paid to it, unless and until a Responsible Officer of the Indenture Trustee has been notified in writing of such Related Event of Default, which notice shall distinctly specify the Related Event of Default desired to be brought to the attention of the Indenture Trustee and, in the absence of any such notice, the Indenture Trustee may for all purposes of this Indenture conclusively assume that the Issuer is not in default hereunder and that no Related Event of Default has occurred.
(b)The Indenture Trustee will not be bound to do, observe or perform or see to the observance or performance by the Issuer of any of the obligations herein imposed upon the Issuer or of the covenants on the part of the Issuer herein contained, nor to take or continue any steps to enforce the security hereof, nor in any way to supervise or interfere with any of the activities of the Issuer, unless and until the Related Obligations Secured have become due and payable pursuant to Section 8.2 and then only after it has been
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indemnified and provided with sufficient funds, in each case, to its reasonable satisfaction against all actions, proceedings, claims and demands to which it may render itself liable and all costs, charges, damages and expenses which it may incur by so doing.
(c)None of the provisions contained in this Indenture shall require the Indenture Trustee to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties or in the exercise of any of its rights or powers unless indemnified as aforesaid and provided with sufficient funds or to give any bond or security in respect of the trust and powers of this Indenture.
(d)The Indenture Trustee may, before commencing or at any time during the continuance of any such act, action or proceeding, require the Noteholders at whose instance it is acting to deposit with the Indenture Trustee the Notes held by them, for which Notes the Indenture Trustee shall issue receipts.
(e)The Indenture Trustee shall retain the right not to act and shall not be held liable for refusing to act due to:
(i)a lack of information or for any other reason whatsoever unless it receives clear and reasonable documentation which complies with the terms of this Indenture. Such documentation must not require the exercise of any discretion or independent judgment, except as otherwise provided herein;
(ii)the Indenture Trustee, in its sole judgment, reasonably exercised, determines that such act might cause it to be in non-compliance with any law, judgment, order, executive order, decree, ordinance, rule or regulation related to terrorism financing or money laundering including Part II.1 of the Criminal Code (Canada), the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), and regulations promulgated pursuant to the Special Economic Measures Act (Canada) and the United Nations Act (Canada) (“Anti-Terrorism Laws”).
(f)The Indenture Trustee may, as a condition precedent to any action to be taken by it under this Indenture, require such opinions, statutory declarations, reports, certificates or other evidence as it, acting reasonably, considers necessary or advisable.
1.4Experts and Advisors; Remuneration.
(a)The Indenture Trustee may, in the exercise of all or any of the trusts, powers and discretions vested in it hereunder act by its directors, officers, employees, agents or representatives. The Indenture Trustee may delegate to any Person the performance of any of the trusts and powers vested in it by this Indenture, and any delegation may be made upon terms and conditions and subject to regulations as the Indenture Trustee may think to be in the interest of the Specified Creditors as a whole.
(b)The Indenture Trustee may rely and act upon any statement, report or opinion prepared by or any advice received from the auditors, Counsel or other professional advisors or experts of the Indenture Trustee and shall not be responsible or held liable for any loss or damage resulting from so relying or acting if the Indenture Trustee acted in good faith in relying upon the advice received and has complied with the standard of care referred to in Section 12.2(a) in the selection of such auditors, Counsel or other professional advisors or experts. The Indenture Trustee is entitled to rely and act upon the genuineness and authenticity of any writing, paper, document or instrument submitted to it by any Person, not only as to its due execution and the validity and the effectiveness of its provisions but also as to the truth and acceptability of any information therein contained, which it in good faith believes to be genuine and what it purports to be.
(c)The Indenture Trustee may, but is not required to, employ or consult any agents or other assistants (including, without limitation, Counsel, accountants, appraisers, other experts, agencies and advisors) as it may reasonably require for the proper determination and discharge of its duties hereunder or any agreement entered into in connection herewith, and will remain primarily liable for the acts or omissions of any such agent or assistant,
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but will not be responsible for any negligence or misconduct on the part of any agents or other assistants or for any liability incurred by any Person as a result of not appointing such agents or other assistants, provided that in appointing such agents or other assistants it has acted in accordance with Section 12.2(a), and may pay reasonable remuneration for all services performed for it in the discharge of the trusts hereof without taxation of any costs or fees of any Counsel, and the Indenture Trustee will be entitled to receive reasonable remuneration for all services performed by it in the discharge of the trusts hereof and compensation for all disbursements, costs, liabilities and expenses made or incurred by it in the discharge of its duties hereunder and in the management of the trusts hereof. All such remuneration, disbursements, costs, liabilities and expenses and all remuneration and expenses incidental to the preparation, execution and recording of this Indenture, any Related Supplement or any instrument ancillary or supplemental hereto and to the creation of the Debt Obligations, whether done by or owing to the Indenture Trustee or done or incurred at the request of the Indenture Trustee or the Issuer, will bear interest at a rate per annum equal to the then current rate of interest charged by the Indenture Trustee to its corporate customers on overdue accounts from the date of the same being incurred or expended (or the date of invoice in the case of Indenture Trustee’s remuneration) until the date of reimbursement and will (together with such interest) be payable by the Issuer upon demand and will until paid form part of the Obligations Secured entitled to the security hereby constituted and will be payable out of any funds coming into the possession of the Indenture Trustee in accordance with the terms of this Indenture and the Related Supplement.
(d)Wherever by this Indenture the Indenture Trustee is authorized to employ or consult Counsel and to pay costs secured by the security constituted hereby, the costs need not be taxed unless the Indenture Trustee deems it necessary to tax the same but may be agreed to by the Indenture Trustee and paid as a lump sum. No costs paid by the Indenture Trustee pursuant to this Section 12.4(d) in good faith will be disallowed in the taking of any accounts by reason only of the fact that the costs are greater than they might have been if taxed, or by reason of their not being taxed, but the costs so paid by the Indenture Trustee will, if not improperly incurred by it, be allowed and paid to the Indenture Trustee and will until paid form part of the Obligations Secured entitled to the security created by the Related Supplement and will be payable out of any funds coming into the possession of the Indenture Trustee in accordance with the terms of this Indenture and the Related Supplement. Any Counsel employed or consulted by the Indenture Trustee may be, but need not be, Counsel to the Issuer.
1.5Evidence of Compliance, Certificates of the Issuer and Written Orders.
(a)The Issuer will furnish on a basis no more frequently than monthly but not less frequently than annually to the Indenture Trustee (i) evidence of compliance with respect to the satisfaction and discharge of this Indenture; and (ii) evidence as to the balance outstanding of the Obligations Secured, including, without limitation, the particulars and amounts of any Debt Obligations outstanding from time to time. Such evidence will consist of:
(i)a Certificate of the Issuer stating that the conditions of this Indenture with respect to the satisfaction and discharge of this Indenture have been complied with in accordance with the terms of this Indenture;
(ii)in the case of a condition of compliance which is, by the terms of this Indenture, subject to review by Counsel, an Opinion of Counsel that such condition has been complied with in accordance with the terms of this Indenture; and
(iii)a Certificate of the Issuer stating the balance outstanding of the Obligations Secured, including, without limitation, the particulars and amounts of any Debt Obligations outstanding from time to time.
(b)In addition to any other provisions of this Indenture, the Issuer shall furnish to the Indenture Trustee, upon reasonable request of such Indenture Trustee, evidence of such compliance with the conditions precedent provided for in this Indenture and any Program Agreement relating to the taking of any other action or step to be taken by such
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Indenture Trustee at the request of or on the application of the Issuer or the General Partner.
(c)The Indenture Trustee will be furnished upon demand with evidence, in the form of a Certificate of the Issuer, as to compliance with any provision of this Indenture relating to any action required or permitted to be taken by the Issuer under, or any obligation imposed on the Issuer by, this Indenture.
(d)The evidence of compliance referred to in 12.5(a), 12.5(b) and 12.5(c) shall include a certificate by the individual in his stated capacity giving the evidence declaring that he or she has read and understands the conditions of the Indenture relating to the matter in question and declaring that he or she has made such examinations or investigations as he or she believes necessary to enable him or her to make the statements or give the opinions contained or expressed therein.
(e)Except where some other mode of proof is required by this Indenture, the Indenture Trustee will be at liberty to accept a Certificate of the Issuer (i) as to any statement of facts as conclusive evidence of the truth of the statement; (ii) as to any particular act or transaction or step or thing which, in the opinion of the individual or officer so certifying, is expedient, as sufficient evidence that the act, transaction, step or thing is expedient; and (iii) as to any expenditure made or indebtedness incurred by the Issuer or any successor trustee to the Issuer as sufficient evidence that the expenditure or indebtedness was made or incurred for the purpose set forth in the Certificate of the Issuer, and, in each case, the Indenture Trustee will be in no way bound to call for further evidence or be responsible for any loss that may be occasioned by its failing to do so. However, the Indenture Trustee may cause to be made any independent investigations as it may reasonably require and the expense thereof (together with interest at a rate per annum equal to the then current rate of interest charged by the Indenture Trustee to its corporate customers on overdue accounts, from the date of the Indenture Trustee’s expenditure to the date of its reimbursement) will be paid by the Issuer upon demand and will until paid by the Issuer form part of the Obligations Secured entitled to the security hereby constituted and will be payable out of any funds coming into the possession of the Indenture Trustee. If, as a result of any independent investigation, the Indenture Trustee is not satisfied as to any matter or thing set forth in the Certificate of the Issuer, the Indenture Trustee may refuse to act thereon.
(f)Wherever applicable legislation requires that evidence be in the form of a statutory declaration, the Indenture Trustee may accept such statutory declaration in lieu of a Certificate of the Issuer.
(g)The Indenture Trustee will not be bound to act in accordance with any order, direction or request of the Issuer or the General Partner until a Written Order has been delivered to the Indenture Trustee, and the Indenture Trustee will be fully empowered to act and will be fully protected from all liability in acting upon any instruments purporting to be Written Orders and believed by the Indenture Trustee to be genuine.
(h)The regularity and validity of all acts, consents, requests and directions of the Issuer will, for the protection of the Indenture Trustee, be deemed conclusively proved by a Certificate of the Issuer or a Written Order, as the case may be.
1.6Instruments Held By Indenture Trustee.
The Indenture Trustee will be at liberty to place all instruments or other securities or deeds or other documents of title comprising part of the Collateral in safekeeping with any Canadian chartered bank, foreign bank licensed under the Bank Act (Canada), or trust company or loan company (which may be an Affiliate of the Indenture Trustee) and the Indenture Trustee will not be responsible for any loss incurred in connection with any such placement. The Indenture Trustee may pay out of any funds in the possession of the Indenture Trustee all sums required to be paid on account of or in respect of any such placing.
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1.7Protection of Indenture Trustee.
By way of supplement to the provisions of any law for the time being relating to trustees, it is expressly declared and agreed as follows:
(a)the Indenture Trustee will not be bound to give notice to any Person of the execution hereof or of the charge of this Indenture or any Hypothec unless and until any of the security constituted hereby or thereby has become enforceable and the Indenture Trustee has determined or become obliged to enforce the same;
(b)the Indenture Trustee will not be liable for or by reason of any failure or defect of title to or any lien, charge or encumbrance upon any of the Collateral or for or by reason of the statements or implications of fact or law contained in or arising out of anything contained in this Indenture or in the Debt Obligations or be required to verify the same, but all statements or implications will be deemed to have been made by the Issuer only, and it will not be the duty of the Indenture Trustee, except as herein otherwise specifically provided, to see to or require evidence of the registration or filing or renewal of this Indenture, or any other indenture or writing by way of mortgage, pledge, hypothec, charge, transfer or assignment of or upon any of the Collateral or any part thereof or upon any other property of the Issuer or to procure any mortgage, pledge or charge or other additional instrument of further assurance or to do any other act for the continuance of the security constituted hereby or for giving notice of the existence of any of the security constituted hereby or by any Hypothec or for extending or supplementing the same, or to insure or keep insured or require evidence of insurance against loss or damage by fire or otherwise the Collateral or any part thereof, or to keep itself informed or advised as to the payment by the Issuer of any taxes or assessments or premiums of insurance or other payments which the Issuer should make or to require payments to be made;
(c)the Indenture Trustee will not be responsible for any error made or act done by it resulting from reliance upon the signature of any Person on behalf of the Issuer or of any Person on whose signature the Indenture Trustee may be called upon or entitled to act or refrain from acting under this Indenture;
(d)the Indenture Trustee will not incur any liability or responsibility whatsoever in consequence of permitting or suffering the Issuer to retain or to be in possession of any part of any of the Collateral and to use and enjoy the same; nor will the Indenture Trustee be or become responsible or liable for any destruction, deterioration, loss, injury or damage which may occur or be done by the Issuer or by any other Person to any of the Collateral, or be in any way responsible for the consequence of any breach on the part of the Issuer of any of the covenants herein contained or of any acts of servants or agents of the Issuer;
(e)the Indenture Trustee may buy, sell, lend upon and deal in the Debt Obligations and generally contract and enter into financial transactions with the Issuer or the General Partner without being liable to account for any profits made thereby;
(f)the Indenture Trustee shall not be liable for or by reason of any statements of fact or recital in this Indenture or in the Debt Obligations or required to verify the same, but all said statements or recitals are and shall be deemed to be made by the Issuer;
(g)no property or assets of the Indenture Trustee owned in its personal capacity will be subject to levy, execution or other enforcement procedure arising under or in connection with this Indenture;
(h)the Indenture Trustee shall not incur any liability or responsibility whatsoever or be in any way responsible for the consequences of any breach on the part of the Issuer of any of the representations, warranties or covenants herein contained or of any acts of the agents or servants of the Issuer;
(i)the Issuer hereby indemnifies and saves harmless the Indenture Trustee and its Related Persons from and against any and all claims, demands, losses, actions, causes
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of action, costs, charges, expenses, damages, liabilities and obligations whatsoever, including without limitation, legal fees and disbursements of Counsel or solicitors and costs and expenses incurred in connection with enforcement of the indemnity obligations hereunder, enforcement of any term of this Indenture or Related Supplement, defense against a claim for a breach of its standard of care hereunder (whether brought by a party hereto or any third party), which the Indenture Trustee or any of its Related Persons may suffer or incur, whether at law or in equity, in any way caused by or arising, directly, or indirectly, in respect of anything done, omitted to be done or permitted to be done by the Indenture Trustee or any of the Related Persons in or about or in relation to the execution of the Indenture Trustee’s duties as Indenture Trustee hereunder or under any Program Agreement or as collateral agent of the Issuer under any Funding Agreement or in any other way arising out of this Indenture or any Program Agreement including, without limitation, any such amounts incurred in connection with holding a security interest in the Collateral or otherwise relating to the Collateral, any costs of enforcement relating to the Collateral and anything done or omitted to be done in relation to the registration, perfection, release or discharge of security; provided that the foregoing indemnification shall not apply in respect of anything done, omitted to be done or permitted to be done by the Indenture Trustee arising from or in connection with its fraud, bad faith, wilful misconduct or gross negligence (as determined by a court of competent jurisdiction). This indemnification shall survive the termination or discharge of this Indenture and the resignation or replacement of the Indenture Trustee (and as collateral agent);
(j)notwithstanding any other provision of this Indenture, and whether such losses or damages are foreseeable or unforeseeable, the Indenture Trustee shall not be liable under any circumstances whatsoever for any (i) breach by any other party of securities law or other rule of any securities regulatory authority, (ii) lost profits or (iii) special, indirect, incidental, consequential, exemplary, aggravated or punitive losses or damages of any person;
(k)the Indenture Trustee shall not be required to give security for the execution of the trusts or its conduct or administration under this Indenture; and
(l)the Indenture Trustee will not be required to disburse money according to this Indenture except to the extent that money has been deposited with it.
1.8Resignation or Removal of Indenture Trustee; Conflict of Interest.
(a)The Indenture Trustee:
(i)may resign its trust upon giving sixty (60) days’ prior notice in writing to the Issuer, the Servicer and the Rating Agencies or such shorter notice as the Issuer and the Rating Agencies may accept as sufficient, provided that no such voluntary resignation shall be effective until a replacement Indenture Trustee acceptable to the Issuer and the Rating Agencies, acting reasonably, and that satisfies the requirements of Section 12.12 has been appointed and has executed a written agreement whereby such replacement Indenture Trustee agrees to assume the obligations of the Indenture Trustee hereunder.
(ii)may resign its trust upon giving ten (10) days’ prior notice in writing to the Issuer, the Seller, the Servicer and the Rating Agencies or such shorter notice as the Issuer and the Rating Agencies may accept as sufficient, if the Indenture Trustee, in its sole judgment, reasonably exercised, determines that its acting under this Indenture has resulted in its being in non-compliance with any Anti-Terrorism Laws, provided that (x) the Indenture Trustee’s written notice shall describe the circumstances of such non-compliance, and (y) if such circumstances are rectified to the Indenture Trustee’s satisfaction within such ten (10)-day period, then such resignation shall not be effective.
(iii)shall resign if a material conflict of interest arises in its role as a trustee under this Indenture that is not eliminated within ninety (90) days after the Indenture Trustee becomes aware that it has such a material conflict of interest; provided that no such resignation shall be effective until a replacement Indenture Trustee acceptable to the Issuer and the Rating Agencies, acting reasonably, and that
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satisfies the requirements of Section 12.12 has been appointed and has executed a written agreement whereby such replacement Indenture Trustee agrees to assume the obligations of the Indenture Trustee hereunder. Forthwith after the Indenture Trustee becomes aware that it has a material conflict of interest it shall provide the Issuer, the Servicer and the Rating Agencies with written notice of the nature of that conflict.
Upon resignation in accordance with this Section 12.8(a) or removal in accordance with Section 12.8(b), the Indenture Trustee shall be discharged from all further duties under this Indenture. If, notwithstanding the foregoing provisions of this Section 12.8(a), the Indenture Trustee has such a material conflict of interest, the validity and enforceability of this Indenture and of the Debt Obligations issued hereunder shall not be affected in any manner whatsoever by reason only of the existence of such material conflict of interest. If the Indenture Trustee contravenes the foregoing provisions of this Section 12.8(a), any interested party may apply to a court of competent jurisdiction for an order that the Indenture Trustee be replaced as trustee hereunder. The Indenture Trustee represents to the Issuer and to each Debtholder that at the time of the execution and delivery hereof no material conflict of interest exists in the Indenture Trustee’s role as a fiduciary hereunder.
(b)The Debtholders of all outstanding Series and Classes may at any time, by Extraordinary Resolution, remove the Indenture Trustee and appoint a replacement Indenture Trustee.
(c)In the event of the Indenture Trustee resigning or being removed or being dissolved, becoming bankrupt, going into liquidation or otherwise becoming incapable of acting hereunder, the Issuer shall forthwith appoint a replacement Indenture Trustee that is acceptable to the Rating Agencies, acting reasonably, and that satisfies the requirements of Section 12.12 unless a replacement Indenture Trustee has already been appointed by the Debtholders pursuant to Section 12.8(b); failing which the retiring Indenture Trustee, at the expense of the Issuer, or any Specified Creditor may apply to a judge of a court of competent jurisdiction, on such notice as such judge may direct, for the appointment of a replacement Indenture Trustee. Any replacement Indenture Trustee so appointed by the Issuer or by the Court shall be subject to removal by the Debtholders.
(d)The expense of any act, document or other instrument or thing required under this Section 12.8 will be satisfied from the Related Collateral according to their Related Proportionate Shares.
(e)Subject to Section 12.8(a), any successor Indenture Trustee shall, forthwith upon appointment, become vested with all the estates, properties, rights, powers and trusts of its predecessor in the trusts hereunder, with like effect as if originally named as Indenture Trustee herein. Nevertheless, upon the written request of the successor Indenture Trustee or of the Issuer, the Indenture Trustee ceasing to act shall execute and deliver an instrument assigning and transferring to such successor Indenture Trustee, upon the trusts herein expressed, all the rights, powers and trusts of the Indenture Trustee so ceasing to act, and shall duly assign, transfer and deliver all property and money held by such Indenture Trustee to the successor Indenture Trustee so appointed in its place. Should any deed, conveyance or instrument in writing from the Issuer be required by any successor Indenture Trustee for more fully and certainly vesting in and confirming to it such estates, properties, rights, powers and trusts, then any and all such deeds, conveyances and instruments in writing shall, on the request of the successor Indenture Trustee, be made, executed, acknowledged and delivered by the Issuer.
1.9Authority to Carry on Business.
The Indenture Trustee represents to the Issuer that at the date of execution and delivery by it of this Indenture it is authorized to carry on the business of a trust company in each of the provinces and territories of Canada and otherwise satisfies the requirements of Section 12.12. If, notwithstanding the provisions of this Section 12.9, the Indenture Trustee ceases to be so authorized to carry on business, the validity and enforceability of this Indenture and the Debt Obligations issued hereunder shall not be affected in any manner whatsoever by reason only of such event but the Indenture Trustee shall, within ninety (90) days after ceasing to be authorized to carry on a trust business as contemplated hereby in each of the provinces and territories of Canada, either become so authorized or resign in the manner and
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with the effect specified in Section 12.8 and subject to the provisions thereof in respect of the date on which such resignation will be effective.
1.10Authorization for Quebec Security.
For greater certainty and without limiting the powers of the Indenture Trustee herein and for purposes of constituting security on any of the Issuer’s property in the Province of Quebec as security for the due payment of all Obligations Secured and the performance by the Issuer of all of the obligations of the Issuer contained herein, the Issuer and the Indenture Trustee hereby acknowledge that the Indenture Trustee shall, for purposes of holding any security granted by the Issuer on any of the Issuer’s property pursuant to the laws of Quebec, be the holder of an irrevocable power of attorney for all present and future Specified Creditors. The Indenture Trustee hereby agrees to act in such capacity for the benefit of all present and future Specified Creditors for purposes of holding any security on any of the Issuer’s property. The purchase of any Note by any Noteholder or the making of any Account by any Funding Provider shall constitute ratification by such Noteholder or Funding Provider, as the case may be, of the power of attorney of the Indenture Trustee constituted hereunder and the incurrence of any debt by the Issuer with the other Specified Creditors pursuant to the applicable Program Agreement shall constitute such ratification by such Specified Creditor of such power of attorney constituted hereunder.
1.11Successor Indenture Trustee By Merger.
If the Indenture Trustee consolidates with, amalgamates, merges or converts into, or transfers all or substantially all its corporate trust business or assets to, another corporation, the resulting successor or transferee corporation without any further act, formality or instrument shall be the successor Indenture Trustee under this Indenture and each other Program Agreement to which the Indenture Trustee is a party; provided, that such corporation shall be otherwise qualified and eligible under Section 12.12. The Indenture Trustee shall provide the Related Rating Agencies and the Issuer written notice of any such transaction and agrees that any successor to its trust business will execute an assumption of the Indenture Trustee’s obligations hereunder and will execute and deliver any necessary new transfers of the Collateral to the successor of the Indenture Trustee.
In case at the time such successor(s) by amalgamation, merger, conversion, consolidation or transfer to the Indenture Trustee shall succeed to the trusts created by this Indenture any of the Notes shall have been certified but not delivered, any such successor to the Indenture Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Notes so certified; and in case at that time any of the Notes shall not have been certified, any successor to the Indenture Trustee may certify such Notes either in the name of any predecessor trustee hereunder or in the name of the successor to the Indenture Trustee; and in all such cases such certificates of authentication shall have the full force and effect to the same extent given to the certificate of authentication of the Indenture Trustee anywhere in the Notes or in this Indenture.
1.12Eligibility; Disqualification.
The Indenture Trustee must at all times (a) be a corporation organized under the laws of Canada or any province thereof, (b) be licensed, qualified or authorized to carry on business in all provinces and territories of Canada, (c) be authorized under such laws to exercise corporate trust powers, (d) be subject to supervision or examination by federal or provincial authority, (e) either (i) have a combined capital and surplus set forth in its most recent financial statements of at least $50,000,000; (ii) be a wholly-owned direct or indirect subsidiary of a Canadian chartered bank listed in Schedule I of the Bank Act (Canada) or a United States banking or trust institution, (iii) have long-term unsecured debt obligations that are rated by each of the Rating Agencies in a generic rating category which denotes investment grade, (iv) have its obligations hereunder guaranteed by a Canadian or United States entity which has long-term unsecured debt obligations that are rated by each of the Rating Agencies in a generic rating category which denotes investment grade or (v) otherwise be satisfactory to the Rating Agencies, and (f) be a resident of Canada for purposes of the Income Tax Act (Canada).
1.13Acceptance of Trusts by Indenture Trustee.
The Indenture Trustee hereby accepts the trusts in this Indenture declared and provided and agrees to perform the same upon the terms and conditions herein set forth.
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1.14Confidentiality.
At all times (including, without limitation, at any time after the Indenture Trustee should resign or be discharged from the trusts and powers reposed in or conferred on it by this Indenture), the Indenture Trustee (or the trustee so resigning and being discharged, as the case may be) will treat as confidential for a period of two (2) years from the date of effectiveness of its resignation or removal all information relating to the Issuer, the Issuer Property and the transactions contemplated by the Program Agreements obtained by it in its capacity as Indenture Trustee. The Indenture Trustee shall have the right to disclose any information disclosed or released to it if in the opinion of legal Counsel to the Indenture Trustee it is required to disclose such information under any applicable laws, court order or administrative directions provided that the Indenture Trustee uses its best efforts to give prior written notice to the Issuer and the Servicer prior to making any such disclosure and uses reasonable efforts to accommodate any requests made by the Issuer or the Servicer with respect to the form or scope of any such disclosure, subject to its obligation to comply with law. The Indenture Trustee shall not be responsible or liable to any party for any loss or damage arising out of or in any way sustained or incurred or in any way relating to such disclosure.
1.15Appointment of Co-Trustee or Separate Indenture Trustee.
(a)Notwithstanding anything to the contrary contained herein or in any Related Supplement, the parties hereto agree that (i) a U.S. Indenture Trustee may be appointed (along with the Indenture Trustee) as a co-trustee with respect to a particular Series of Debt Obligations pursuant to the terms of the Related Supplement, (ii) such co-trustee appointment may be general in nature or for a particular purpose, and (iii) a U.S. Indenture Trustee may delegate to the Indenture Trustee, as agent for and on behalf of such U.S. Indenture Trustee, any of the rights or duties of such U.S. Indenture Trustee hereunder or under any Related Supplement; provided, however, that, with respect to any such delegation (x) the Security Interest granted under the Related Supplement by the Issuer to such U.S. Indenture Trustee are not being delegated in any manner, (y) such U.S. Indenture Trustee shall remain liable as trustee hereunder and under any Related Supplement despite such delegation, and (z) such delegation may be revoked by such U.S. Indenture Trustee at any time.
(b)A U.S. Indenture Trustee shall, to the extent permitted by applicable law, be appointed and act subject to the following provisions and conditions:
(i)all rights, powers, duties and obligations conferred or imposed upon the Indenture Trustee shall be conferred or imposed upon and exercised or performed by the Indenture Trustee and such U.S. Indenture Trustee jointly (it being understood that such U.S. Indenture Trustee is not authorized to act separately without the Indenture Trustee joining in such act), except as expressly permitted in a Related Supplement or to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed, the Indenture Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Issuer’s property or any portion thereof in any such jurisdiction) shall be exercised and performed singly by such U.S. Indenture Trustee;
(ii)where such U.S. Indenture Trustee has been appointed in a Related Supplement, then any reference to the Indenture Trustee in Article 4, Sections 5.1, 6.1(j), 6.1(m), 6.3, 8.1(b) and 8.2, Article 9, Article 10, Article 12 (except this Section 12.15) and Article 15 of this Indenture shall be deemed to also include such U.S. Indenture Trustee as if that U.S. Indenture Trustee was a signatory to this Indenture for purposes of those Sections and Articles; provided that in the case of any conflict between a Related Supplement and those Sections and Articles, the Related Supplement shall govern; and
(iii)such U.S. Indenture Trustee hereunder shall not be personally liable by reason of any act or omission of any other trustee hereunder.
(c)Any notice, request or other writing given to the Indenture Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any U.S. Indenture Trustee shall refer
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to this Indenture and the conditions of this Article 12. Any U.S. Indenture Trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Indenture Trustee or separately, as may be provided therein, subject to all the provisions of this Indenture, specifically including every provision of this Indenture relating to the conduct of, affecting the liability of, or affording protection to, the Indenture Trustee. Every such instrument shall be filed with the Indenture Trustee.
(d)Any U.S. Indenture Trustee may at any time appoint the Indenture Trustee, its agent or attorney-in-fact with full power and authority, to the extent not prohibited by applicable law, to do any lawful act under or in respect of this Indenture on its behalf and in its name. If any U.S. Indenture Trustee shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Indenture Trustee, to the extent permitted by applicable law, without the appointment of a new or successor trustee.
(e)All such appointments made in accordance with this Section 12.15 shall be subject to the approval of the Issuer. The Issuer will give prior written notice of the appointment of any separate trustee or co-trustee to each Rating Agency.
1.16General Provisions as to Certificates, Opinions, Etc.
(a)Each Certificate of the Issuer, Opinion of Counsel and report or confirmation required under or referred to in this Indenture or furnished in connection with any application or Written Order made to the Indenture Trustee or any Noteholder pursuant to any provisions of this Indenture shall specify the Section under which such certificate, opinion, report, confirmation, approval, application or Written Order is being made and shall include:
(i)a statement that the Person signing such certificate or giving such report, confirmation, approval or opinion has read and is familiar with those provisions of this Indenture relating to the conditions precedent with respect to compliance with which such evidence is being given; and
(ii)a statement that, in the belief of the Person giving the evidence, he or she has made such examination or investigation as is necessary to enable him to make the statements or give the opinions contained or expressed therein.
(b)Whenever the delivery of a certificate, opinion, report, confirmation or approval is a condition precedent to the taking of any action by the Indenture Trustee under this Indenture, the truth and accuracy of the facts and opinions stated in such certificate, opinion, report, confirmation or approval shall in each case be conditions precedent to the right of the Issuer to have such action taken. The Indenture Trustee has the right not to act except upon receipt of any authorized documents required to be delivered to the Indenture Trustee pursuant to the terms of this Indenture in connection with such action.
(c)Any application, written demand, statement, request, notice, designation, direction, nomination or other instrument to be made by the Issuer under any of the provisions hereof shall, unless otherwise provided, be deemed sufficiently made and executed if executed by any officer of the General Partner, in its capacity as general partner of the Issuer.
(d)Any Certificate of the Issuer or Opinion of Counsel may be based, insofar as it relates to factual matters, upon information with respect to the Issuer, the General Partner any other Person which is in possession of the Issuer, the General Partner or such other Person, or upon the certificate or opinion of or representations by an officer or officers of the Issuer or by any Person serving in such capacity unless such Counsel has actual knowledge that the certificate or opinion or representations with respect to the matters upon which his or her certificate or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should have known that the same were erroneous.
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(e)Counsel in giving any opinion under this Indenture may rely in whole or in part upon the opinion of other counsel, provided that Counsel shall consider such other counsel as one upon whom he or she may properly rely.
(f)Any certificate of any expert, if it relates to matters outside of such expert’s competence or responsibility, may be based upon a certificate or opinion of or upon representations by Counsel or some other qualified expert, unless such first-mentioned expert has actual knowledge that the certificate or opinion or representations with respect to the matters upon which his certificate may be based as aforesaid are erroneous, or in the exercise of reasonable care should have known that the same were erroneous. The Indenture Trustee, acting reasonably, shall have the right to require further documentation evidencing such compliance.
(g)Wherever applicable legislation requires that evidence be in the form of a statutory declaration, the Indenture Trustee may accept such statutory declaration in lieu of a Certificate of the Issuer.
Article 13
SUPPLEMENTAL INDENTURES AND AMENDMENTS
1.1Supplemental Indentures.
(a)From time to time, the Indenture Trustee and the Issuer may, in addition to any Related Supplements, without the consent of the Specified Creditors, make, execute, acknowledge and deliver deeds or indentures supplemental hereto which thereafter will form part hereof, for any one or more of the following purposes:
(i)correcting or amplifying the description of any property in which security is specifically granted or intended so to be;
(ii)adding to the limitations or restrictions herein specified further limitations or restrictions thereafter to be observed upon the amount of the issue of Debt Obligations hereunder or upon the dealing with the property of the Issuer, or upon the release of property forming part of the Collateral; provided that, in each case, the Indenture Trustee, relying on the advice of Counsel, is of the opinion that the further limitations or restrictions will not be prejudicial to the interests of the Specified Creditors;
(iii)adding to the covenants of the Issuer herein contained for the protection of the Specified Creditors or providing for Related Events of Default in addition to those herein specified;
(iv)making such provisions not inconsistent with this Indenture as may be necessary or desirable with respect to matters or questions arising hereunder, including the making of any modifications in the form of the Notes which do not affect the substance thereof and which, in the opinion of the Indenture Trustee, are expedient to make, if the Indenture Trustee, relying on the advice of Counsel, is of the opinion that the provisions and modifications will not be prejudicial to the interests of the Specified Creditors;
(v)evidencing the succession, or successive successions, of any other Person to the Issuer or the General Partner and the covenants of and obligations assumed by any such successor in accordance with the provisions of this Indenture; or
(vi)any other purposes considered appropriate by the Indenture Trustee, relying on the advice of Counsel and with the prior written consent of the Related Rating Agencies, which are not prejudicial to the rights and interests of the Specified Creditors,
provided, however, that no such amendment will:
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(i)reduce in any manner the amount of or delay the time or alter the priority of any payments (whether principal, interest or otherwise) to be made to the holders of Notes then outstanding of a Series or Class of Notes or the Funding Providers of Loans then outstanding of a Series or Class of Loans, as applicable, or deposits of amounts to be so paid, without the consent of each affected holder of a Note then outstanding of such Series or Class of Notes or each affected Funding Provider of a Loan then outstanding of such Series or Class of Accounts, as applicable;
(ii)change the definition of or the manner of calculating amounts to which any holder of Notes or Funding Provider of a Loan then outstanding, as applicable, is entitled under this Indenture and the Related Supplement, without the consent of each affected holder of Notes then outstanding of the related Series or Class of Notes or each affected Funding Provider under Loans then outstanding of the related Series or Class of Accounts, as applicable;
(iii)result in the downgrade or withdrawal by the Related Rating Agencies of their respective ratings, if applicable, of Notes or Accounts of an applicable Series or Class of Notes or Accounts without the consent of the holders of Notes or Funding Providers of Loans then outstanding of such Series or Class expressed by an Extraordinary Resolution; or
(iv)change the consent requirements referred to in clauses (i), (ii) or (iii) above or reduce the specified percentage of the aggregate unpaid principal amount of Notes or Accounts then outstanding of a Series or Class of Notes or Accounts or all applicable Series of Notes or Accounts then outstanding, as the case may be, required to consent to any such amendment, without the consent of each affected holder of a Note then outstanding or each affected Funding Provider of a Loan outstanding, as the case may be, who is present in person or by proxy at meeting of such holders of Notes or Funding Providers called to consent to such reduction or pursuant to a document or documents in writing signed by each affected holder of Notes then outstanding of such Series or Class of Notes or all applicable Series of Notes or each affected Funding Provider under Loans then outstanding of such Series or Class or all applicable Series of Loans then outstanding, as the case may be,
provided, however, that the Indenture Trustee may, in its sole discretion, decline to enter into any such supplemental indenture which may not afford to it adequate protection at such time when it becomes operative.
(b)Subject to Section 11.11(b), amendments to this Indenture for any purpose other than specified above may be made by the Indenture Trustee and the Issuer upon (a) satisfaction of the Rating Agency Condition, as applicable in respect of any rated Debt Obligations, and (b) receipt of an Extraordinary Resolution of each Class of adversely affected holders of Debt Obligations.
1.2Automatic Amendment.
Upon the General Partner ceasing to be the general partner of the Issuer, this Indenture will be automatically amended to delete any reference to the name of the general partner so ceasing to be the general partner of the Issuer and to substitute therefor the name or names of the successor general partner or general partners as the continuing general partner or general partners of the Issuer, as the case may be.
1.3Amendments to Program Agreements.
(a)Subject to Section 13.3(c), the Indenture Trustee will from time to time, upon receipt of a Written Order, enter into or consent to, as applicable, any proposed amendment, modification, termination or waiver of, or any proposed postponement of compliance with, any provision of any Program Agreement, which action may be taken without the necessity of obtaining the consent of the Related Specified Creditors with respect to any and all Series of Debt Obligations if (a) the Issuer has delivered a Certificate of the Issuer certifying that such amendment, modification, termination, waiver or postponement would
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not materially or adversely affect the interests of the holders of the Debt Obligations then outstanding of any and all Series, and (b) the Issuer has given prompt prior written notice of such proposed action to the Rating Agencies and, within ten (10) days of receipt of such notice, no Rating Agency has indicated its disagreement with the Issuer’s certification described in the foregoing clause (a); provided further that if, in the opinion of the Indenture Trustee, relying on the advice of Counsel, such amendment, modification, termination, waiver or postponement would materially or adversely affect the interests of any Debtholders, the Indenture Trustee will not enter into or consent to, as applicable, such amendment, modification, termination, waiver or postponement without, (y) satisfaction of the Rating Agency Condition, as applicable in respect of any rated Debt Obligations, and (z) subject to Section 13.3(b), the consent of the holders of Debt Obligations of the Series or Class that would be materially adversely affected, as evidenced by an Extraordinary Resolution of the holders of each such Series or Class, as the case may be. Notwithstanding the foregoing, the Indenture Trustee may decline to enter into or consent to, as applicable, a proposed amendment, modification, termination or waiver of, or a proposed postponement of compliance with, any such Program Agreement that adversely affects its own rights, duties or immunities under this Indenture or otherwise.
(b)Notwithstanding anything in Section 13.3(a) to the contrary, no proposed amendment, modification, termination, waiver of, or any postponement of compliance with, any Program Agreement may be entered into or consented to, as applicable, pursuant to Section 13.3(a) which would materially adversely affect the interests of any Related Specified Creditor in respect of a Series of Debt Obligations and whose consent to such proposed amendment, modification, termination waiver or postponement is expressly required under the Related Supplement, without the consent of such Related Specified Creditor.
(c)It shall not be necessary for the consent of the holders of Debt Obligations of any Series of Debt Obligations under this Section 13.3 or, unless otherwise provided in a Related Supplement, the other Related Specified Creditors with respect to any such Series of Debt Obligations whose consent is required as contemplated in Section 13.3(b), to approve the particular form of any proposed amendment, modification, termination, waiver or postponement, but it shall be sufficient if such consent shall approve the substance thereof. The manner of obtaining such consents and of evidencing the authorization of the execution thereof shall be subject to such reasonable requirements as the Indenture Trustee, relying upon the advice of Counsel, may prescribe from time to time.
Article 14
NOTICES
1.1Notice to Issuer and General Partner.
Any notice, document or other communication required or permitted to be given or delivered to the Issuer or the General Partner hereunder shall, unless otherwise stated herein, be in writing (including photocopy, facsimile, electronic mail or other digital communication) and sent at the addresses indicated below. All such notices shall, if given after normal business hours, be deemed to have been given on the next Business Day:
To the Issuer:
[***]
To the General Partner:
[***]
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1.2Notice to Indenture Trustee.
Any notice, document or other communication required or permitted to be given or delivered to the Indenture Trustee hereunder shall, unless otherwise stated herein, be in writing (including photocopy, facsimile, electronic mail or other digital communication) and sent at the addresses indicated below:
[***]
All such notices shall, if given after normal business hours, be deemed to have been given on the next Business Day.
1.3Notice to Noteholders.
Any notice, document or other communication required or permitted to be given or delivered hereunder to the holders of Notes in registered form will be deemed to be validly given electronically by the applicable procedures of the applicable Clearing Agency, or if sent to a destination within Canada by first class mail and if sent to a destination outside of Canada by airmail, postage prepaid in each case, or sent by facsimile transmission or electronic messaging system and confirmed by first class mail in the case of a destination within Canada and airmail in the case of a destination outside of Canada, addressed in each case to the Noteholder at its post office address appearing in the Note Register. Every notice sent by mail will be deemed to have been given on the fifth Business Day following the mailing of the same, unless at the time or within five (5) Business Days following the mailing of the same, postal service is disrupted in which case notice shall be effectively given only when received or in the case of advertisement, on the day following the day on which it is first advertised. Every notice sent by facsimile transmission or electronic messaging system on a day other than a Business Day or after the normal business hours of the recipient on a Business Day shall be deemed to have been given on the next Business Day.
1.4Notice to Other Specified Creditors.
Any notice, document or other communication required or permitted to be given or delivered to (i) a Funding Provider will be given in accordance with the Related Credit Agreement; (ii) a Credit Enhancer will be given in accordance with the Related Credit Enhancement Agreement; (iii) a Servicer will be given in accordance with the Related Purchased Asset Sale Agreement; (iv) a Seller will be given in accordance with the Related Purchased Asset Sale Agreement; and (v) a Swap Counterparty will be given in accordance with the Related Hedging Agreement.
1.5Notice to Rating Agencies.
Any notice, document or other communication required or permitted to be given or delivered to the Rating Agencies hereunder shall, unless otherwise stated herein, be in writing (including photocopy, facsimile, electronic mail or other digital communication) and sent at the applicable addresses provided to the parties hereto by the Rating Agencies from time to time. All such notices delivered after normal business hours shall be deemed to have been given on the next Business Day.
1.6Change of Address.
Any Person referenced above may from time to time notify any other interested Person, in accordance with the provisions hereof, of any change of address which thereafter, until changed by like notice, shall be the address of such Person for all purposes of this Indenture.
Article 15
GENERAL
1.1Evidence of Rights of Specified Creditors.
Any request, direction, notice, consent or other instrument which this Indenture may require or permit to be executed by the Specified Creditors may be in any number of concurrent instruments of similar tenor and may be signed or executed by the Specified Creditors in person or by attorney duly appointed in writing. The Indenture Trustee may act and rely upon any of the following as proof of the execution of any
Signature Page to Master Trust Indenture
instrument or of a writing appointing an attorney and will not be bound to make any investigation into the facts or matters stated in any such documents:
(a)the certificate of a notary public or other officer, authorized to take acknowledgements of deeds to be recorded at the place where the certificate was made, to the effect that the Person signing the instrument or writing acknowledged to him the execution thereof;
(b)any resolution, officer’s certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties; or
(c)an affidavit of a witness of the execution.
1.2Issuer Obligation.
No recourse may be taken, directly or indirectly, with respect to the obligations of the Issuer on the Debt Obligations or the other debts, liabilities or obligations of the Issuer to the other Specified Creditors under this Indenture, any Supplement, any Related Program Agreement or any certificate or other writing delivered in connection herewith or therewith, against: (i) either the Indenture Trustee or the General Partner in its individual capacity, (ii) any owner of a beneficial interest in the Issuer or the General Partner (iii) any partner, owner, beneficiary, officer, director, employee, representative or agent of: (a) either the Indenture Trustee or the General Partner in its individual capacity, (b) any owner of a beneficial interest in the General Partner or the Indenture Trustee, or (c) of any successor or assign of either the Indenture Trustee or General Partner in its individual capacity, except as any such Person may have expressly agreed (it being understood that neither the Indenture Trustee nor the General Partner in its individual capacity have such obligations).
1.3No Petition.
The Indenture Trustee, by entering into this Indenture, and each Debtholder and other Specified Creditor, by accepting, making or acquiring a Debt Obligation or becoming a Specified Creditor, hereby covenants and agrees that they will not at any time institute or encourage against the Issuer or the General Partner, either in its capacity as the general partner of the Issuer or in its own capacity, or join or acquiesce in any institution against the Issuer or the General Partner, either in its capacity as the general partner of the Issuer or in its own capacity, of, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings against the Issuer or the General Partner, either in its capacity as the general partner of the Issuer or in its own capacity, under any federal or provincial bankruptcy, insolvency, winding-up or similar law in connection with any obligations relating to the Obligations Secured, this Indenture or any of the other Program Agreements. The foregoing shall not limit the rights of the Indenture Trustee to file any claim in or otherwise take any action with respect to any insolvency proceeding that was instituted against the Issuer or the General Partner by any Person other than the Indenture Trustee. Notwithstanding anything to the contrary contained in this Indenture, no Supplement or other supplemental indenture hereto may modify or amend this Section 15.3 with respect to rights of the Debtholders or the rights of any other Specified Creditors. Notwithstanding any prior termination of this Indenture, each Specified Creditor and its respective successors and permitted assigns (whether absolutely or by way of security), by accepting the benefits of this Indenture, hereby covenants and agrees that, except in the case of the Indenture Trustee in connection with the enforcement of its rights and remedies under Article 10 or, except in the case of a Specified Creditor, as provided for in Section 10.1, they will not at any time before or within one year and one day after the termination of this Indenture institute against the Issuer or the General Partner, either in its capacity as the general partner of the Issuer or in its own capacity, any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under any Canadian federal or provincial or foreign bankruptcy, insolvency, arrangement or similar laws, now or hereafter in effect, or otherwise take any action to prompt a Receiver of the Issuer or the General Partner, either in its capacity as the general partner of the Issuer or in its own capacity, or any substantial part of the Collateral, or order the winding-up or liquidation of the affairs of the Issuer or the General Partner, either in its capacity as the general partner of the Issuer or in its own capacity.
1.4Limited Recourse and Subordination.
The Indenture Trustee, by entering into this Indenture, and each Debtholder and other Specified Creditor, by accepting, making or acquiring a Debt Obligation or becoming a Specified Creditor, acknowledges and agrees that the Obligations Secured represent indebtedness of the Issuer and do not represent an
Signature Page to Master Trust Indenture
interest in any assets (other than the Related Collateral for such Obligations Secured) of the Issuer (including by virtue of any deficiency claim in respect of Related Obligations Secured not paid or otherwise satisfied from the Related Collateral for such Obligations Secured and proceeds thereof). In furtherance of and not in derogation of the foregoing, to the extent the Issuer enters into other securitization transactions or issues any other Series of Debt Obligations, the Indenture Trustee as well as each Related Specified Creditor acknowledges and agrees that it shall have no right, title or interest in or to any assets (or interests therein) of the Issuer other than the Related Collateral for such Series and the Related Obligations Secured. To the extent that, notwithstanding the agreements and provisions contained in the preceding sentences of this section, the Indenture Trustee or any Related Specified Creditor either (i) asserts an interest or claim to, or benefit from, assets of the Issuer other than the Related Collateral for the Related Obligations Secured due or owing to the Indenture Trustee or such Related Specified Creditor (“Other Assets”), or (ii) is deemed to have any such interest, claim or benefit in or from Other Assets, whether by operation of law, legal process, pursuant to applicable provisions of bankruptcy or insolvency laws or otherwise, and whether deemed asserted against or through the Issuer or any other Person, the Indenture Trustee and each such Related Specified Creditor further acknowledges and agrees that any such interest, claim or benefit in or from Other Assets is and shall be expressly subordinated to the indefeasible payment in full of all obligations and liabilities of the Issuer which, under the terms of the relevant documents relating to the securitization of such Other Assets, are entitled to be paid from, entitled to the benefits of, or otherwise secured by such Other Assets (whether or not any such entitlement or security interest is legally perfected or otherwise entitled to a priority of distribution or application under applicable law, including bankruptcy or insolvency laws, and whether asserted against the Issuer or any other Person). Each Specified Creditor further acknowledges and agrees that no adequate remedy at law exists for a breach of this Section 15.4 and the terms of this Section 15.4 may be enforced by an action for specific performance.
1.5Foreign Currency Obligations.
The Issuer shall make payment relative to each Debt Obligation in the currency (the “Original Currency”) in which the Issuer is required to pay such Debt Obligation. If the Issuer makes payment relative to any Debt Obligation to the Indenture Trustee or a Debtholder in a currency other than the Original Currency (whether voluntary or pursuant to an order or judgement of a court or tribunal of any jurisdiction), such payment shall constitute a discharge of the liability of the Issuer in respect of such Debtholder only to the extent of the amount of the Original Currency which such Person is able to purchase at Toronto, Ontario with the amount such Person receives on the date of receipt of such Debt Obligations, the Issuer shall indemnify and save such Person harmless from and against any loss or damage arising as a result of such deficiency. This indemnity shall constitute an obligation separate and independent from the other obligations contained herein or otherwise, shall give rise to a separate and independent cause of action, shall apply irrespective of any indulgence granted by such Person and shall continue in full force and effect notwithstanding any judgement or order in respect of any amount due hereunder or under any judgement or order.
1.6Third Party Beneficiaries.
This Indenture specifically provides benefits and rights to Persons that are not parties or signatories to it. Such Persons are entitled to rely on this Indenture in any action, suit, proceeding, hearing or other forum to recognize or enforce their specified benefits and rights. The Issuer and the Indenture Trustee reserve their rights to vary or rescind the rights at any time and in any way whatsoever, if any, granted by or under this Indenture to any Person who is not a party or signatory to this Indenture, without notice to or consent of that Person. To the extent necessary to allow any such Person to take full advantage of these rights in any action, suit, proceeding, hearing or other forum, the Indenture Trustee undertakes that it is trustees and agent of any rights granted to such Person under this Indenture for the benefit of such Person.
1.7Formal Date.
For the purposes of convenience, this Indenture may be referred to as being a formal date of December 9, 2021 irrespective of the actual date of execution hereof.
1.8Force Majeure
No party shall be liable to the other, or held in breach of this Indenture, if prevented, hindered, or delayed in the performance or observance of any provision contained herein by reason of force majeure, such as acts of God, riots, terrorism, acts of war, epidemics or pandemics, governmental action or judicial order, earthquakes, or any other similar causes (including, but not limited to, mechanical, electronic or
Signature Page to Master Trust Indenture
communication interruptions, disruptions or failures). Performance times under this Indenture shall be extended for a period of time equivalent to the time lost because of any delay that is excusable under this Section.
1.9Execution in Counterparts.
This Indenture or any amendment may be executed in any number of counterparts (including counterparts by facsimile, electronic transmission and email in PDF or similar transmissions) each of which, when so executed, shall be deemed to be an original and which counterparts together shall constitute one and the same agreement.
1.10Delivery of Executed Copies.
Each party acknowledges delivery of a fully executed copy of this Indenture.
[Remainder of page intentionally left blank; signature page follows]
IN WITNESS WHEREOF the parties hereto have duly executed this Indenture.
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| FLEXITI SECURITIZATION GENERAL PARTNER INC., as General Partner, in its own right |
| Per: | |
| | Name: |
| | Title: |
| |
| Per: | |
| | Name: |
| | Title: |
| |
Signature Page to Master Trust Indenture
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| FLEXITI SECURITIZATION LIMITED PARTNERSHIP, as Issuer, by its general partner, FLEXITI SECURITIZATION GENERAL PARTNER INC. |
| Per: | |
| | Name: |
| | Title: |
| |
| Per: | |
| | Name: |
| | Title: |
| |
Signature Page to Master Trust Indenture
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| COMPUTERSHARE TRUST COMPANY OF CANADA, as Indenture Trustee |
| Per: | |
| | Name: |
| | Title: |
| |
| Per: | |
| | Name: |
| | Title: |
| |
Signature Page to Master Trust Indenture CERTAIN IDENTIFIED INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT BECAUSE IT IS NOT MATERIAL AND IS OF THE TYPE OF INFORMATION THAT THE REGISTRANT BOTH CUSTOMARILY AND ACTUALLY TREATS AS PRIVATE AND CONFIDENTIAL. [***] INDICATES THAT INFORMATION HAS BEEN OMITTED.
FLEXITI SECURITIZATION LIMITED PARTNERSHIP,
BY ITS GENERAL PARTNER, FLEXITI SECURITIZATION GENERAL PARTNER INC.
as Issuer
- and -
FLEXITI SECURITIZATION GENERAL PARTNER INC.
in its own right
- and -
FLEXITI FINANCIAL INC.
as initial Paying Agent
- and -
COMPUTERSHARE TRUST COMPANY OF CANADA
as Indenture Trustee
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SERIES 2021-1 SUPPLEMENTAL INDENTURE
Dated December 9, 2021
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TABLE OF CONTENTS
Page
FLEX SERIES 2021-1 FLOATING RATE DEBT SECURITIES, CLASS A
FLEX SERIES 2021-1 FLOATING RATE DEBT SECURITIES, CLASS B
SUPPLEMENTAL INDENTURE made as of December 9, 2021, between FLEXITI SECURITIZATION LIMITED PARTNERSHIP, a limited partnership organized under the laws of the Province of Ontario, by its general partner, FLEXITI SECURITIZATION GENERAL PARTNER INC., a corporation incorporated under the laws of Canada, as Issuer, and FLEXITI SECURITIZATION GENERAL PARTNER INC., in its own right (the “General Partner”), FLEXITI FINANCIAL INC., a corporation existing under the laws of Canada, as initial Paying Agent (the “Paying Agent”), COMPUTERSHARE TRUST COMPANY OF CANADA, a trust company established under the laws of Canada and licensed to carry on business in each of the provinces and territories of Canada (together with its successors and permitted assigns, the “Indenture Trustee”).
WHEREAS pursuant to the Master Trust Indenture, provision was made for the issuance and the creation of Debt Obligations from time to time;
AND WHEREAS pursuant to Section 2.3 of the Master Trust Indenture, Debt Obligations may, at the election of the Issuer, be issued in one or more Series by the execution and delivery of a Related Supplement, which Series may be comprised of one or more Classes;
AND WHEREAS the Issuer has authorized the issuance of a Series of Debt Obligations to be designated as the “Series 2021-1 Debt Securities” consisting of (a) a class of notes to be known as the “FLEX Series 2021-1 Floating Rate Debt Securities, Class A”, and (b) a class of notes to be known as the “FLEX Series 2021-1 Floating Rate Debt Securities, Class B”;
AND WHEREAS the parties are executing and delivering this Supplemental Indenture to provide for the creation and issuance of the Series 2021-1 Debt Securities;
AND WHEREAS the Issuer shall use the proceeds to purchase or redesignate as Related Collateral for the Series 2021-1 Debt Securities certain Obligor Account Assets pursuant to the Receivables Sale and Servicing Agreement, and will grant a security interest in the Series 2021-1 Collateral to the Indenture Trustee to secure its obligations under the Series 2021-1 Debt Securities;
AND WHEREAS the foregoing recitals and statements of fact are made by the Issuer and not by the Indenture Trustee;
NOW THEREFORE THIS SUPPLEMENTAL INDENTURE WITNESSES and it is hereby covenanted, agreed and declared as follows:
Article 1
INTERPRETATION
1.1Definitions
(a)All initial capitalized terms used but not otherwise defined in this Supplemental Indenture that are defined in the Master Trust Indenture, either directly or by reference therein, shall have the meanings specified therefor in the Master Trust Indenture. All initial capitalized terms used but not otherwise defined in this Supplemental Indenture that are defined in the Receivables Sale and Servicing Agreement, either directly or by reference therein, shall have the meanings specified therefor in the Receivables Sale and Servicing Agreement.
(b)Whenever used in this Supplemental Indenture, the following terms shall have the following meanings, respectively:
“1-Cycle Delinquent Loan” means, as at any date of determination, a Series 2021-1 Loan which is not then a Charged-Off Obligor Account but where the Obligor has not made the required payment for the lesser of (a) one (1) or more payment cycles; and (b) one (1) day.
“2-Cycle Delinquent Loan” means, as at any date of determination, a Series 2021-1 Loan which is not then a Charged-Off Obligor Account but where the Obligor has not made the required payment for the lesser of (a) two (2) or more payment cycles; and (b) thirty-four (34) days.
“Account Bank” means National Bank of Canada, or any replacement bank appointed in connection with a replacement Series 2021-1 Collections Account and/or Series 2021-1 Cash Reserve Account in accordance with Section 5.1, together with its successors and permitted assigns.
“Adjusted Eligible Principal Outstanding Balance” means, as of any date of determination and in respect of any Series 2021-1 Eligible Loan, [***].
“Adverse Claim” has the meaning ascribed thereto in the Receivables Sale and Servicing Agreement.
“Adverse Tax Event” has the meaning ascribed thereto in Section 2.6(a)(i).
“Aggregate Eligible Pool Balance” means, as at any date of determination, the number equal to [***].
“Aggregate Eligible Pool Balance (LFL)” means, as at any date of determination, the number equal to [***].
“Aggregate Eligible Pool Balance (Non-Prime)” means, as at any date of determination, the number equal to [***].
“Aggregate Eligible Pool Balance (Standard)” means, as at any date of determination, the number equal to [***].
“Aggregate Excess Portfolio Amount” means, at any date of determination, [***].
“Aggregate Increase Amount” means, in respect of each Increase on a Funding Date, an amount equal to the aggregate of the Class A Increase Amount and the Class B Increase Amount.
“Amortization Event” means the occurrence of any of the following events:
[***]
“Applicable CDOR” means on any day, CDOR as of the Business Day prior to the first day of the applicable Settlement Period.
“Applicable Law” means, with respect to any Person, property, transaction, event or other matter, any law, rule, statute, regulation, order, judgment, decree, treaty or other requirement having the force of law relating or applicable to such Person, property, transaction, event or other matter, including applicable general principles of common law, equity or civil law.
“Asset Designation” means a designation of additional Series 2021-1 Assigned Obligor Account Assets, together with the related Rights including Collections, as Series 2021-1 Assets by the Seller pursuant to a Series 2021-1 Designation and Servicing Supplement.
“Asset Designation Cut-Off Date” means, in respect of any Asset Designation, the date specified as such in the related Asset Designation Notice.
“Asset Designation Date” means any Business Day during the Class A Funding Period (including, for the avoidance of doubt, during the Class B Funding Period).
“Asset Designation Notice” means a notice by the Seller offering to designate assets in the form attached as Schedule B to the Receivables Sale and Servicing Agreement.
“Asset Designation Payment” means a payment by the Issuer to the Seller in respect of any Asset Designation in the amount specified in the applicable Series 2021-1 Designation and Servicing Supplement, as the case may be.
“Asset Purchase” means a purchase by the Issuer of additional Series 2021-1 Assigned Obligor Account Assets, together with the related Rights including Collections, as Series 2021-1 Assets by the Seller pursuant to a Series 2021-1 Sale and Servicing Supplement.
“Asset Purchase Cut-Off Date” means, in respect of any Asset Purchase, the date specified as such in the related Asset Purchase Notice.
“Asset Purchase Date” means any Business Day during the Class A Funding Period (including, for the avoidance of doubt, during the Class B Funding Period).
“Asset Purchase Notice” means a notice by the Seller specifying assets offered to the Issuer for purchase, in the form attached as Schedule A to the Receivables Sale and Servicing Agreement.
“Asset Purchase Price” means the purchase price paid by the Issuer to the Seller in respect of any Asset Purchase in the amount specified in the applicable Series 2021-1 Sale and Servicing Supplement, as the case may be.
“Available Amount” has the meaning ascribed to it in Section 5.2.
“Average Payment Rate” means, at any date of determination in respect of any Collection Period beginning from (and including) [***].
“Backup Servicer” means Millennium Process Group, Inc., and its successors, assigns and replacements under any replacement Backup Servicing Agreement.
“Backup Servicing Agreement” means the Backup Servicing Agreement dated December 9, 2021 between the Initial Servicer, the Issuer, the Indenture Trustee and the Backup Servicer, as amended, restated, replaced, supplemented or otherwise modified from time to time.
“Blocked Account Agreements” means [***].
“Business Day” means any day of the year, other than a Saturday, Sunday or statutory or civic holiday, on which banks are open for business in Toronto, Ontario and New York, New York State.
“Canadian Prime Rate” means, on any day, as determined by the Structuring Agent, the rate per annum expressed on the basis of a 365-day or 366-day year (as applicable) (rounded upwards, if necessary, to the next 1/100 of 1%) determined by the Structuring Agent to be the highest of (i) the interest rate per annum publicly announced from time to time by the Structuring Agent, acting through its Canada branch, as its reference rate in effect on such day at its principal office in Toronto for determining interest rates applicable to commercial loans denominated in Canadian Dollars and made by it in Canada (each change in such reference rate being effective from and including the date such change is publicly announced as being effective); (ii) the Reference Rate for thirty (30) days, plus 1% per annum; and (iii) zero (0); provided that any change in the Canadian Prime Rate due to a change in the publicly announced rate or the Reference Rate shall be effective from and including the effective date of such change in the Reference Rate, respectively, and provided that in the event that the Structuring Agent does not publicly announce a “prime rate”, such rate shall be the average “prime rate” publicly announced by three (3) Schedule I chartered banks in Canada selected by the Structuring Agent.
“CDOR” means on any day, as determined by the Structuring Agent, the average rate for Canadian Dollar one month bankers acceptances for that day which appears on the Bloomberg Screen ALLX CDOR<GO> Page as of 10:00 a.m., Eastern Time on that day and, if such day is not a Business Day, then on the immediately preceding Business Day, and if such rate does not appear on the Bloomberg Screen ALLX CDOR<GO> on any particular Business Day, then CDOR on that day shall be calculated as the average of the thirty (30) day rates applicable to Canadian Dollar denominated bankers’ acceptances quoted by each of the Bank of Montreal and the National Bank of Canada as of 10:00 a.m. Eastern Time on such day; and if such day is not a Business Day, then as quoted by such banks on the immediately preceding Business Day.
“Change in Circumstances Redemption” has the meaning ascribed thereto in Section 2.6(a)(iii).
“Change of Control” means any change of the control of the Issuer or the Seller, as the case may be, where “control” means the power, directly or indirectly, to direct or cause the direction of the management or policies of the Issuer or the Seller, as the case may be, whether through the ability to exercise voting power, by contract or otherwise.
[***]
“Charged-Off Obligor Account” means an Obligor Account that is or is required to be charged-off as uncollectible by the Servicer in accordance with the Credit and Collection Policies, or is no more than 185 days past due, as determined as at the last day of a Collection Period.
“Class A Commitment Amount” has the meaning ascribed thereto in the Note Purchase Agreement.
“Class A Commitment Maturity Date” means December 9, 2024.
“Class A Debt Securities” means the FLEX Series 2021-1 Floating Rate Debt Securities, Class A issued by the Issuer pursuant to the terms hereof.
“Class A Default Rate” has the meaning ascribed to it in the Class A Fee Letter.
“Class A Early Redemption Amount” has the meaning ascribed to it in the Class A Fee Letter.
“Class A Fee Letter” means, the fee letter dated December 9, 2021 between Flexiti Financial Inc., the Issuer, NBC, and Precision Trust in respect of the determination of the Class A Funding Rate, the Class A Default Rate, the Class A Standby Fee Rate, the Class A Early Redemption Amount, the payment of certain costs and expenses, and other matters, as such fee letters may be amended, restated, supplemented, replaced or otherwise modified from time to time; provided that if any amendment, restatement, supplement, replacement or other modification could reasonably be expected to have an adverse effect on the Class B Noteholders, then any such amendment, restatement, supplement, replacement or other modification shall only be effective to the extent that the Class B Noteholders have consented thereto by Extraordinary Resolution of the Class B Noteholders.
“Class A Funding Period” means the period that begins on the Closing Date and ends on the earliest of (a) the Class A Commitment Maturity Date; (b) the occurrence of an Amortization Event.
“Class A Funding Rate” has the meaning ascribed to it in the Class A Fee Letter.
“Class A Increase Amount” means, in respect of each Increase in respect of Class A Debt Securities on any Funding Date, the principal amount by which the Class A Debt Securities are to be increased as specified in the related Funding Request.
“Class A Interest Distribution Amount” means, in respect of a Settlement Period and the related Settlement Date, an amount equal to the sum for each day during such Settlement Period of the product of (a) the outstanding principal amount of the Class A Debt Securities on such day; multiplied by (b) the Class A Interest Rate for such day, divided by (c) 365.
“Class A Interest Rate” means in respect of any Settlement Period and any day during such Settlement Period, (a) prior to the occurrence of a Related Event of Default, the rate, expressed as a percentage, equal to [***}.
“Class A Non-Consenting Noteholder Redemption” has the meaning ascribed thereto in Section 2.6(d)(iii).
“Class A Note O/C Percentage (Non-Prime)” means, [***]
“Class A Note O/C Percentage (Standard)” means, [***]
“Class A Note O/C Percentage (Supplemental)” means, with respect to any Collection Period:
[***]
“Class A Noteholders” means the holders of the Class A Debt Securities, and “Class A Noteholder” means any of them.
“Class A Pool Balance Deficiency” means, at any time, the amount, if any, by which [***]
“Class A Principal Distribution Amount” means (a) prior to the occurrence of an Amortization Event or the Class A Commitment Maturity Date, zero (0); and (b) from and after the occurrence of an Amortization Event or after the Class A Commitment Maturity Date, the lesser of (i) the balance of the Available Amount on such Settlement Date after first making the required distributions under Sections 5.2(a) to (e) and (ii) the amount, if any, required to reduce the outstanding principal amount of the Class A Debt Securities to zero (0).
“Class A Standby Fee Rate” has the meaning ascribed to it in the Class A Fee Letter.
“Class A Target Pool Balance” means, as of any date of determination:
[***]
“Class B Commitment Amount” has the meaning ascribed thereto in the Note Purchase Agreement.
“Class B Commitment Maturity Date” means December 9, 2024.
“Class B Debt Securities” means the FLEX Series 2021-1 Floating Rate Debt Securities, Class B issued by the Issuer pursuant to the terms hereof.
“Class B Default Rate” has the meaning ascribed to it in the Class B Fee Letter.
“Class B Early Redemption Amount” has the meaning ascribed to it in the Class B Fee Letter.
“Class B Fee Letter” means the fee letter dated December 9, 2021 between Flexiti Financial Inc., the Issuer and WF TORCA, Ltd. in respect of the determination of the Class B Funding Rate, the Class B Standby Fee Rate, the Class B Early Redemption Amount, the payment of certain costs and expenses, and other matters, as such fee letter may be amended, restated, supplemented, replaced or otherwise modified from time to time; provided that if any amendment, restatement, supplement, replacement or other modification could reasonably be expected to have an adverse effect on the Class A Noteholders, then any such amendment, restatement, supplement, replacement or other modification shall only be effective to the extent that the Class A Noteholders have consented thereto by Extraordinary Resolution..
“Class B Funding Period” means the period that begins on the Closing Date and ends on the earlies of (a) the Class B Commitment Maturity Date; (b) the occurrence of an Amortization Event.
“Class B Funding Rate” has the meaning ascribed to it in the Class B Fee Letter.
“Class B Increase Amount” means, in respect of each Increase in respect of Class B Debt Securities on any Funding Date, the principal amount by which the Class B Debt Securities are to be increased as specified in the related Funding Request.
“Class B Interest Distribution Amount” means, in respect of a Settlement Period and the related Settlement Date, an amount equal to the sum for each day during such Settlement Period of the product of (a) the outstanding principal amount of the Class B Debt Securities on such day; multiplied by (b) the Class B Interest Rate for such day, divided by (c) 365.
“Class B Interest Rate” means, in respect of any Settlement Period and any day during such Settlement Period, [***].
“Class B Noteholders” means the holders of the Class B Debt Securities, and “Class B Noteholder” means any of them.
“Class B Note O/C Percentage (Non-Prime)” means [***].
“Class B Note O/C Percentage (Standard)” means [***].
“Class B Pool Balance Deficiency” means, at any time, the amount, if any, by which [***]
“Class B Principal Distribution Amount” means (A) prior to the occurrence of an Amortization Event or the Class B Commitment Maturity Date, zero (0); and (B) from and after the occurrence of an Amortization Event or after the Class B Commitment Maturity Date, the Class B Principal Distribution Amount on any Settlement Date shall be the lesser of (i) the balance of the Available Amount on such Settlement Date after first making the required distributions under Sections 5.2(a) to (f) of this Supplemental Indenture and (ii) the amount, if any, required to reduce the outstanding principal amount of the Class B Debt Securities to zero (0).
“Class B Standby Fee Rate” has the meaning ascribed to it in the Class B Fee Letter.
“Class B Target Pool Balance” means the sum of: [***]
“Closing Date” means December 9, 2021.
“Closing Payment” means (a) an Asset Purchase Price; or (b) an Asset Designation Payment, as the case may be.
“Code” has the meaning ascribed thereto in the definition of “FATCA”.
“Collateral Trigger Amortization Event” means, [***]
“Collection Period” means each calendar month.
“Collections” means without duplication (a) in respect of any Series 2021-1 Assigned Obligor Account Assets, all cash collections and other cash proceeds in respect thereof and of the related Rights received after the applicable Asset Purchase Cut-Off Date or Asset Designation Cut-Off Date, as the case may be (including prepayments in respect of such Series 2021-1 Assigned Obligor Account Assets and related Rights which are in respect of periods after the applicable Asset Designation Cut-Off Date or Asset Purchase Cut-Off Date, as the case may be, but made prior to the corresponding Asset Designation Date or Asset Purchase Date, as the case may be) and including the net proceeds of any disposition or re-designation of the related Series 2021-1 Account and any recoveries of such Series 2021-1 Account after it becomes a Charged-Off Obligor Account; and (b) any Deemed Collections in respect of such Series 2021-1 Assigned Obligor Account Assets.
“Commitment Amount” means, in respect of the Series 2021-1 Noteholders, the committed amount of such Series 2021-1 Noteholder in respect of a particular Class of Series 2021-1 Debt Securities, as set forth in Schedule A to the Note Purchase Agreement.
“Commitment Maturity Date” means the Class A Commitment Maturity Date and the Class B Commitment Maturity Date.
“Cost of Funds” means, with respect to any Collection Period, the sum of any interest and fee amounts payable under Sections 5.2(d) and 5.2(e) during such Collection Period.
“COVID-19 Payment Deferral Plan” means a Series 2021-1 Loan which has retained its current status due to the Obligor being permitted to defer minimum payments for 3 cycles as set out in the “Payment Deferral Policy (COVID-19)” in accordance with the Credit and Collection Policies; provided that once such a Series 2021-1 Loan has remained current for at least three (3)
consecutive months, it shall cease to be considered subject to a COVID-19 Payment Deferral Plan.
“Credit and Collection Policies” means the Seller’s written credit, collection and administration policies and procedures relating to its Obligor Accounts and the related Rights, as of July 2021, as provided to the Series 2021-1 Noteholders, as such may be amended, restated, replaced, supplemented or otherwise modified from time to time in accordance with the Series 2021-1 Agreements and the Receivables Sale and Servicing Agreement.
“Credit Score” means the numeric credit score for the Obligor of any Series 2021-1 Loan, as determined by Trans Union of Canada, Inc. or Equifax Canada, or such other credit score mutually agreed between the Issuer and the Series 2021-1 Noteholders of each Class from time to time.
“Current Credit Score” means (a) for Obligor Accounts that were originated 3 or less months prior to the date of determination, the Credit Score of any Obligor at the time of origination of the Obligor Account; and (b) for Obligor Accounts that were originated more than 3 months prior to the date of determination, the Credit Score of any Obligor, as determined by the Servicer in its most recent quarterly review of the applicable Obligor’s Credit Score.
“DBRS” means DBRS Limited and its successors.
“Deemed Collections” means amounts required to be deposited to the Series 2021-1 Collections Account pursuant the Receivables Sale and Servicing Agreement.
“Deferred Asset Purchase Price” has the meaning ascribed thereto in the Receivables Sale and Servicing Agreement.
“Deferred Promotional Plan” means a promotional plan under which the Obligor is not required to make payments in respect of the balance subject to the promotion during the promotional term other than in connection with a monthly minimum payment that may be required under the terms of the promotion, and for the avoidance of doubt does not include an Equal Monthly Payment Plan.
“Dilution Ratio” means [***].
“Dilutions” means, for any Collection Period, the aggregate amount in respect of all Series 2021-1 Loans in Series 2021-1 Obligor Accounts, equivalent to amounts as to which the Obligor thereunder has disputed and Obligor rebates, returns, refunds, billing errors, NSF cheques, fraudulent charges or similar payment reconciliations.
“Discount Rate” means, in respect of a Series 2021-1 Promo Loan, [***] per annum.
“Early Redemption Amount” means the Class A Early Redemption Amount or the Class B Early Redemption Amount, as the case may be.
“Eligible Deposit Account” means a bank account at an Eligible Institution.
“Enhanced Yield” means, with respect to any Collection Period, the sum of [***].
“Equal Monthly Payment Plan” means a promotional plan under which the balance subject to the promotion is charged to the Obligor Account in equal monthly amounts over the promotional term.
“Excess Collections” has the meaning ascribed thereto in Section 5.2.
“Excess Spread Percentage” means, [***]
“Excluded Taxes” means (i) any Taxes imposed on the net income or net profits (including branch profits) of a Series 2021-1 Noteholder (or any assignee of a Series 2021-1 Noteholder) imposed by the jurisdiction (or by any political subdivision or taxing authority thereof) in which
such Series 2021-1 Noteholder or assignee is organized or the jurisdiction (or any political subdivision or taxing authority thereof) in which such Series 2021-1 Noteholder’s or assignee’s principal office is located, in each case as a result of a present or former connection between such Series 2021-1 Noteholder or assignee and the jurisdiction or taxing authority imposing the Tax (other than any such connection arising solely from such Series 2021-1 Noteholder or assignee having executed, delivered or performed its obligations or received payment under, or enforced its rights or remedies under the Note Purchase Agreement); (ii) any Taxes imposed on a payment required to be made under the Note Purchase Agreement: to a Person with whom the Issuer or the Seller does not deal at arm’s length (for purposes of the ITA) at the time of such payment; (iii) any Taxes imposed on a Series 2021-1 Noteholder or its assignee by reason of such recipient: (A) being a “specified shareholder” (as defined in subsection 18(5) of the ITA) of the Issuer or the Seller, or (B) not dealing at arm’s length (for the purposes of the ITA) with a “specified shareholder” (as defined in subsection 18(5) of the ITA) of the Issuer or the Seller; and (iv) any United States or Canadian federal withholding taxes imposed under FATCA.
“FATCA” means (a) sections 1471 to 1474 of the US Internal Revenue Code of 1986 (the “Code”) or any associated regulations or other official guidance; (b) any treaty, law, regulation or other official guidance enacted in any other jurisdiction, or relating to an intergovernmental agreement between the US and any other jurisdiction, which (in either case) facilitates the implementation of paragraph (a) above; or (c) any agreement pursuant to the implementation of paragraphs (a) or (b) above with the US Internal Revenue Service, the US government or any governmental or taxation authority in any other jurisdiction.
“Final Maturity Date” means in respect of any Series 2021-1 Note, the earlier of (a) the date on which the Series 2021-1 Assets have been fully exhausted and all Collections have been applied in accordance with Article 5; and (b) the date that is one year after the Commitment Maturity Date.
“Final Redemption” has the meaning ascribed thereto in Section 2.6(a).
“Final Redemption Price” has the meaning ascribed thereto in Section 2.6(b)(i).
“Funding Dates” means (a) the Initial Funding Date; and (b) the subsequent funding date following the Closing Date on the Increase Date or Issuance Date, as the case may be, which may be no later than 6 months following the Initial Funding Date, and “Funding Date” means either of them.
“Funding Request” means a request in substantially the form of Schedule C attached to the Note Purchase Agreement.
“General Partner” has the meaning ascribed thereto in the recitals.
“Guarantee” means the performance guarantee and indemnity agreement dated December 9, 2021 between the Guarantor, the Series 2021-1 Noteholders and the Structuring Agent.
“Guarantor” means CURO Group Holdings Corp. and its successors and permitted assigns.
“Hedge Cost” means, on any day, the amount determined by the Structuring Agent as being required in order for the Issuer to execute and enter into all Interest Rate Hedging Agreements provided for in Section 3.1(a)(v).
“Hedge Cost Decrease Amount” has the meaning ascribed thereto in Section 5.3(b).
“Increase” means an increase in the Series 2021-1 Balance in accordance with Section 2.4 of this Supplemental Indenture and the provisions of the Note Purchase Agreement.
“Increase Date” has the meaning ascribed thereto in Section 2.4(a).
“Increased Costs” has the meaning ascribed to it in Section 5.3 of the Note Purchase Agreement.
“Indemnified Taxes” means any Taxes other than Excluded Taxes.
“Indenture Trustee” has the meaning ascribed thereto in the recitals.
“Initial Funding Date” means the initial funding date on the Closing Date.
“Intercreditor Agreement” means (i) the intercreditor agreement re servicer account dated December 3, 2021 between Flexiti Financial Inc., as Servicer, Curo Group Holdings Corp, and TSX Trust Company, as collateral agent, as amended, supplemented, modified, restated or replaced from time to time; and (ii) the accession agreement to the intercreditor agreement re servicer account dated December 9, 2021 between Flexiti Financial Inc., as Servicer, TSX Trust Company, as collateral agent and the Indenture Trustee.
“Interest Rate Hedging Agreements” means any interest rate cap agreements that are required to be entered into pursuant to Section 3.1(a)(v) between the Issuer and Bank of Montreal or National Bank of Canada, from time to time, for the purpose of hedging interest rate risk in connection with the Series 2021-1 Debt Securities.
“Issuance Date” has the meaning ascribed thereto in Section 2.3(a).
“ITA” means the Income Tax Act (Canada).
“Late Collections” means, with respect to any Series 2021-1 Loans, all amounts received thereon during any Collection Period, whether as payments, insurance proceeds or otherwise, which represent collections after the Due Date of the Periodic Payment in respect of such Series 2021-1 Loans due or deemed due on a Due Date in a previous Collection Period, and not previously recovered.
[***]
“Lien” means (i) any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and any lease in the nature thereof) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing.
“Master Trust Indenture” means the master trust indenture made as of December 9, 2021 between the Issuer, by its general partner, as issuer, the General Partner in its own right, and Computershare Trust Company of Canada, as indenture trustee, as amended, supplemented, modified, restated or replaced from time to time.
“Material Adverse Effect” means any effect upon the business, operations, property or financial or other condition of the Seller, the Servicer or the Issuer or upon the Series 2021-1 Assets, which materially adversely affects the interest of the Issuer, the Indenture Trustee or any Series 2021-1 Noteholders in the Series 2021-1 Assets, the collectability of the Series 2021-1 Assets, the enforceability of the Series 2021-1 Assets or Series 2021-1 Agreements or the ability of the Seller, the Servicer or the Issuer to perform its respective obligations under the Series 2021-1 Agreements to which each is party.
“Merchant Discount Rate” means, in respect of any Series 2021-1 Loan, the discount rate given by the merchant with respect to such Series 2021-1 Loan (substantially in accordance with the terms and conditions of any existing or future agreement with such merchant) at the time of origination of such Series 2021-1 Loan.
“Merchant Recourse Loan” means a [***].
“Monthly Servicer Report” means a monthly report substantially in the form attached as Schedule D, as amended, supplemented, modified, restated or replaced from time to time with the consent of each Series 2021-1 Noteholder, delivered by the Servicer to the Issuer and the Series 2021-1 Noteholders covering the immediately preceding Collection Period, which Monthly Servicer Report shall include a list of the Series 2021-1 Assigned Obligor Account Assets as of the end of the Collection Period to which such Monthly Servicer Report relates.
“Moodys” means Moody’s Investors Services, Inc. and its successors.
“MPG Master Services Agreement” means the amended and restated master services agreement dated June 7, 2018 between Millennium Process Group, Inc. and Flexiti Financial Inc.
“NBC” means National Bank of Canada and its successors and permitted assigns.
“Net Charge-Off Ratio” means, [***].
“Net Charge-Offs” means, [***].
“Net Present Value” means, for any Series 2021-1 Promo Loan, as at any date of determination, the net present value of the aggregate remaining scheduled instalments due from the Obligor under the agreement relating to such Series 2021-1 Promo Loan, calculated using the Discount Rate.
[***]
“Non-Network Spend” means, in respect of any Series 2021-1 Loan, charges that are billed to the applicable Obligor in accordance with the Seller’s customary practice aside from those made to a merchant enrolled with the Seller.
“Nonrecoverable Advances” means any Servicer Advance made in respect of any Series 2021-1 Obligor Account that, as determined by the Servicer in good faith and in its reasonable judgment, will not be ultimately recoverable from Late Collections or any other recovery on or in respect of such Series 2021-1 Obligor Account.
“Note Purchase Agreement” means the Note Purchase Agreement dated December 9, 2021 between the Issuer, the General Partner, the Seller, the Series 2021-1 Noteholders, and the Structuring Agent, as the same may be further amended, restated, supplemented, replaced or otherwise modified from time to time as permitted thereunder.
“Obligor” means, in respect of any Obligor Account, a Person obligated to make payments pursuant to such Obligor Account including, where the context permits or requires, any Person obligated to make such payments pursuant to any guarantee or indemnity referred to in clause (e) of the definition of Rights.
[***]
“Optional Redemption” has the meaning ascribed thereto in Section 2.6(d).
“Optional Redemption Price” has the meaning ascribed thereto in Section 2.6(e)(i).
“Outstanding Balance” means, with respect to any Series 2021-1 Loan, as at any date of determination, the unpaid outstanding amount due by the Obligor of such Series 2021-1 Loan.
“Paying Agent” has the meaning ascribed thereto in Section 2.2(l).
[***]
“Permitted Investments” means negotiable instruments or securities represented by instruments in bearer or registered form denominated in Canadian Dollars and maturing on or before the next Settlement Date and having remaining maturities of 30 days or less at the time of investment such that such funds will be available at the close of business on or before the Business Day next preceding the date on which payment of such funds from the Series 2021-1 Accounts is scheduled to be made in respect of the Series 2021-1 Debt Securities, and which evidence:
(a)Obligations issued or fully guaranteed as to both credit and timeliness by the Government of Canada, unsecured debt obligations issued or fully guaranteed by any province of Canada, provided that such obligations have at least the minimum ratings specified below for each rating agency which does rate such obligations;
(i)“R-l (low)” (short term) or “A” (long term) by DBRS;
(ii)“A-1+” (short term) or “AA-” (long term) by S&P; and
(iii)“P-1” (short term) or “Aa3” (long term) by Moodys;
(b)Deposits/Guaranteed Investment Certificates at any Eligible Institution which has at least the minimum ratings specified below for each rating agency which does rate such Eligible Institution:
(i)“R-l (low)” (short term) or “A” (long term) by DBRS;
(ii)“A-1+” (short term) or “AA-” (long term) by S&P; and
(iii)“P-1” (short term) or “Aa3” (long term) by Moodys;
(c)Unsecured debt obligations issued or fully guaranteed by any municipality in Canada, provided that such obligations have at least the minimum ratings specified below for each rating agency which does rate such obligations:
(i)“R-l (low)” (short term) or “A” (long term) by DBRS;
(ii)“A-1+” (short term) or “AA-” (long term) by S&P; and
(iii)“P-1” (short term) or “Aa3” (long term) by Moodys;
(d)Bankers’ acceptances issued or accepted by any Canadian Schedule I bank, provided that such obligations have at least the minimum ratings specified below for each rating agency which does rate such securities:
(i)“R-l (low)” (short term) or “A” (long term) by DBRS;
(ii)“A-1+” (short term) or “AA-” (long term) by S&P; and
(iii)“P-1” (short term) or “Aa3” (long term) by Moodys;
(e)Commercial paper and secured bonds provided that such securities are issued in the Canadian market and have at least the minimum ratings specified below for each rating agency which does rate such securities:
(i)“R-l (low)” (short term) or “A” (long term) by DBRS;
(ii)“A-1+” (short term) or “AA-” (long term) by S&P; and
(iii)“P-1” (short term) or “Aa3” (long term) by Moodys; and
(f)Commercial paper of any Canadian bank-sponsored trust, provided that such securities benefit from the support of a global style liquidity facility from a Canadian Schedule I bank and have at least the minimum ratings specified below for each rating agency which does rate such securities:
(i)“R-l (high)” (short term) by DBRS;
(ii)“A-1+” (short term) by S&P; and
(iii)“P-1” (short term) by Moodys,
provided that:
(a)if any rating agency referred to above changes its name or is the subject of any amalgamation or merger, the Required Rating must be given by the applicable successor thereof;
(b)if any rating agency referred to above ceases to exist or to rate Canadian debt offerings, all of the above references to such agency shall be deemed deleted; and
(c)if any rating agency referred to above changes the designation of its debt rating categories, the above references to such designations shall be deemed amended to refer to the then applicable equivalent of such original rating designation.
“Permitted Liens” means Liens in favour of the Indenture Trustee for the benefit of Specified Creditors granted pursuant to any Series 2021-1 Agreement and Liens for Taxes which are not yet due and for which suitable reserves are maintained by the Seller for payment of such Taxes.
“Person” means an individual, a partnership (including a limited partnership), a corporation, a joint stock company, a trust (including a business trust), a joint venture, an unincorporated association, a board or body established by statute, a government (or any agency or political subdivision thereof), or any other entity.
“Pool Balance” means at any date of determination, with respect to all the Series 2021-1 Loans, or such specified portion of the Series 2021-1 Loans (such as the Series 2021-1 Revolving Loans, Series 2021-1 Promo Loans, Series 2021-1 Eligible Loans, Series 2021-1 Eligible Revolving Loans or Series 2021-1 Eligible Promo Loans, as the case may be), the sum of the aggregate of the Outstanding Balance of all, or such specified portion, of the Series 2021-1 Loans.
“Portfolio Limits” means, as at any date of determination, in respect of the Series 2021-1 Eligible Loans, each of the following conditions: [***]
“Precision Trust” means Precision Trust and its successors and permitted assigns.
“RBC Blocked Account Agreement” means the blocked account agreement dated June 7, 2018 between Flexiti Financial Inc., TSX Trust Company and Royal Bank of Canada, as amended, restated, replaced, supplemented or otherwise modified from time to time.
“Re-Aged” means returning a Series 2021-1 Loan to current status that was delinquent as at the prior month end, in accordance with the Credit and Collection Policies, without collecting the total amount of principal, interest, and fees that are contractually due; provided that once such a Series 2021-1 Loan has remained current for at least twelve (12) consecutive months, it shall cease to be considered “Re-aged”.
“Receivables” means, in respect of any Series 2021-1 Assigned Obligor Account Asset or Series 2021-1 Loan, as the context may require, all moneys payable with respect to such Series 2021-1 Assigned Obligor Account Assets or Series 2021-1 Loans, as the case may be, including all periodic payments of principal and interest, extra charges, fees and penalties and other moneys payable by the related Obligor under such Series 2021-1 Assigned Obligor Account Assets or Series 2021-1 Loans, as the case may be, in accordance with the terms thereof during the period from but excluding the applicable Asset Purchase Cut-Off Date or Asset Designation Cut-Off Date, as the case may be, to the date when all amounts have been paid under such Series 2021-1 Assigned Obligor Account Assets or Series 2021-1 Loans, as the case may be.
“Receivables Eligibility Criteria” means the following criteria in respect of the Series 2021-1 Loans:
(a)the Series 2021-1 Loan (i) is evidenced by a genuine, legal, valid and binding document, instrument or agreement evidencing the payment obligation of the related Obligor, (ii) is enforceable by or on behalf of the holder thereof in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, fraudulent conveyance and similar laws relating to creditors’ rights generally and subject to general principles of equity, and (iii) has not been satisfied, subordinated or rescinded and no right of rescission, setoff, counterclaim or defense has been asserted or, to the Seller’s knowledge, threatened;
(b)(i) the Series 2021-1 Loan and the origination and servicing thereof have at all times complied, in all material respects with the Credit and Collection Policies and all Applicable Law, (ii) the sale or assignment of which to the Issuer pursuant to the Receivables Sale and Servicing Agreement, and the granting of a security interest to the Indenture Trustee pursuant to the Series 2021-1 Agreements, do not contravene or conflict with any Applicable Law, or require the consent or approval of, or notice to, any Person other than consent or approvals which have been received or notices which have been given; and (iii) with respect to which no further act, obligation or performance is required to be performed by the Issuer or any other party to complete the Issuer’s acquisition of such Series 2021-1 Loans;
(c)immediately prior to the sale of the Series 2021-1 Loan to the Issuer, the Seller had, and immediately following the acquisition thereof, the Issuer has, good and valid title to such Series 2021-1 Loan free and clear of any Adverse Claim or other encumbrance, Lien or security interest, or any other prior commitment, other than Permitted Liens;
(d)the Series 2021-1 Loan is denominated and payable only in Canadian Dollars, the Obligor was a Canadian resident at the time of origination and the Series 2021-1 Loan was originated in Canada;
(e)[***];
(f)[***];
(g)[***];
(h)[***];
(i)[***];
(j)[***];
(k)[***];
(l)[***]
(m)the interest rate applicable to such Series 2021-1 Loan has a rate of interest not exceeding the maximum rate allowable pursuant to, and expressed in accordance with, Applicable Law in the applicable Province or Territory;
(n)Series 2021-1 Loan has been originated in the ordinary course of the Seller’s business without any fraud or misrepresentation on the part of the Seller or on the part of any Obligor;
(o)each Series 2021-1 Loan is identifiable by reference to the details thereof which are electronically stored in the computer systems of the Servicer at any time and identified as sold by the Seller to the Issuer pursuant to the Receivables Sale and Servicing Agreement;
(p)in respect of which the Obligor thereunder is an individual, and not any other type of Person;
(q)the Series 2021-1 Loan is not a 2-Cycle Delinquent Loan;
(r)which is not in a Charged-Off Obligor Account;
(s)which may be assigned in whole or in part without the consent of the related Obligor;
(t)which is not classified in the Seller’s records as counterfeit, cancelled, fraudulent, stolen or lost; and which does not contain any suspense accounts;
(u)in respect of which, at the time of its sale to the Issuer, (i) the Seller had satisfied all obligations on its part to be fulfilled under the applicable lending agreement, and (ii) the Seller had not taken any action which, or failed to take any action the omission of which, would, at the time of its sale to the Issuer, impair in any material respect the rights of the Issuer therein;
(v)[***]
(w)the Series 2021-1 Loan arises under an Obligor Account which satisfies the Obligor Account Eligibility Criteria.
“Receivables Sale and Servicing Agreement” means the master sale and servicing agreement dated December 9, 2021 among Flexiti Financial Inc., as Seller and Servicer, the Issuer, as purchaser, and the Indenture Trustee, as amended, supplemented, modified, restated or replaced from time to time.
“Records” means, in respect of any Series 2021-1 Account, all contracts (including those evidencing such Series 2021-1 Account), books, records, reports and other documents and information (including, to the extent obtainable by way of existing software controlled by the Seller, hard copies of all data maintained in databases of the Seller, tapes and disks) maintained by or on behalf of the Seller in respect of the Series 2021-1 Assets and the related Obligor.
“Reference Rate” means, on each day, Applicable CDOR for such day.
“Related Event of Default” means each of the events indicated in Section 2.2(n) of this Supplemental Indenture and in Section 8.1(a) of the Master Trust Indenture.
“Related Obligations Secured” has the meaning ascribed thereto in Section 4.1.
“Release Schedule” has the meaning ascribed thereto in Section 2.6(e)(iii).
“Replacement Servicer” means any successor or replacement Servicer as may be appointed to assume the Servicer Obligations in respect of the Series 2021-1 Assigned Obligor Account Asset following the occurrence of a Servicer Termination Event, in accordance with the provisions of the Series 2021-1 Agreements.
“Required Cash Reserve Amount” means on any date, the sum of: [***]
“Required Cash Reserve Deposit Amount” means (a) on any Settlement Date that is not a Funding Date, the amount by which the Required Cash Reserve Amount for such date calculated after giving effect to any payments on such Settlement Date pursuant to Section 5.2 (other than pursuant to Section 5.2(h)) exceeds the amount on deposit in the Series 2021-1 Cash Reserve Account on such date, and (b) on any Settlement Date that is a Funding Date, the amount by which the Required Cash Reserve Amount for such date calculated after giving effect to the Increase exceeds the amount on deposit in the Series 2021-1 Cash Reserve Account on such date.
“Required Rating” means the following minimum ratings: (a) in the case of DBRS, (i) a rating on unsecured short-term indebtedness of “R-1(low)” or higher, (ii) a rating on unsecured long-term indebtedness of “A” or higher, or (iii) a rating on long-term non-bail-inable senior indebtedness of “A” or higher; (b) in the case of Moodys, (i) a rating on unsecured short-term indebtedness of “P-1” or higher, or (ii) a rating on unsecured long-term indebtedness of “A2” or higher, and (c) in the case of S&P, (i) a rating on unsecured short-term indebtedness of “A-1” or higher, (ii) a rating on unsecured long-term indebtedness of “AA” or higher, or (iii) an issuer credit rating of “AA” or higher, and, in the case of investments in money market funds, means a rating of “AAA” from DBRS, “Aaa” from Moodys and “AAA” from S&P when purchased.
“Responsible Officer” means, with respect to an Indenture Trustee, any officer within the corporate trust office, including any vice president, assistant secretary, senior associate, associate, trust officer or any other officer of such Indenture Trustee customarily performing functions similar to those performed by any Person who at the time shall be a designated officer and having direct responsibility for administration of the Master Trust Indenture and this
Supplemental Indenture and also any particular officer to whom any corporate trust matter is referred because of such officer’s knowledge of and familiarity with the particular subject, in each case who, at the time shall be a designated officer and shall have direct responsibility for administration of the Master Trust Indenture and this Supplemental Indenture.
“Restricted Debt Securities” has the meaning ascribed thereto in Section 2.2(o).
“Rights” means, in respect of any Series 2021-1 Assigned Obligor Account Assets, the following:
(a)all rights and benefits accruing to the Seller under such Series 2021-1 Assigned Obligor Account Assets, including all right, title and interest in and to the related Receivables but excluding all rights and benefits excluded in the definition of “Receivables”;
(b)all rights to payments under any insurance policies maintained pursuant to the terms of such Series 2021-1 Assigned Obligor Account Assets;
(c)the benefit of all covenants made by the related Obligor, including all indemnities;
(d)the right of the Seller to ask, demand, sue for, collect, receive and enforce any and all sums payable under the Series 2021-1 Assigned Obligor Account Assets and to enforce all other covenants, obligations, rights and remedies thereunder with respect thereto, except to the extent that the same indemnify against liability to third parties;
(e)all of the right, title and interest of the Seller in, to and under all prepayments made after the applicable Asset Purchase Cut-Off Date or Asset Designation Cut-Off Date, as the case may be, all service and other contracts relating to the Series 2021-1 Assigned Obligor Account Assets, all guarantees, promissory notes and indemnities, payment or reimbursement obligations or guarantees, and other agreements or arrangements of whatsoever character (including all security interests, movable and immovable hypothecs, mortgages of real property and all property subject thereto) from time to time supporting or securing payment or performance of the related Obligor’s obligations in respect of the Series 2021-1 Assigned Obligor Account Assets, whether pursuant to the Series 2021-1 Assigned Obligor Account Assets or otherwise;
(f)the related Records; and
(g)all amendments, renewals and proceeds of or relating to any of the foregoing.
“S&P” means S&P Global Ratings, acting through Standard & Poor’s Financial Services LLC, and its successors.
“Seller Note” means the limited recourse unsecured demand promissory note, substantially in the form of Schedule F and issued by the Issuer to evidence the unpaid balance of the purchase price for the Assigned Obligor Account Assets determined in accordance with the terms of the Master Trust Indenture.
“Series 2021-1 Accounts” means collectively, the Series 2021-1 Collections Account and the Series 2021-1 Cash Reserve Account.
“Series 2021-1 Agreements” means the Master Trust Indenture, the Receivables Sale and Servicing Agreement, the RBC Blocked Account Agreement, the Intercreditor Agreement, any Series 2021-1 Sale and Servicing Supplement, any Series 2021-1 Sale and Servicing Québec Assignment, any Series 2021-1 Designation and Servicing Supplement, the Guarantee, this Supplemental Indenture, the Note Purchase Agreement, the Backup Servicing Agreement, the Blocked Account Agreements, the Class A Fee Letter, the Class B Fee Letter, the Subordinated Loan Agreement, and the Interest Rate Hedging Agreements, and any ancillary documents thereto entered into by the Issuer, to the extent relevant and applicable to the Series 2021-1 Debt Securities and the Series 2021-1 Assets.
“Series 2021-1 Assets” means, collectively, the Series 2021-1 Loans, the related Rights including Collections, and all proceeds of the foregoing.
“Series 2021-1 Assigned Obligor Account Assets” means the Obligor Account Assets sold to the Issuer pursuant to Series 2021-1 Sale and Servicing Supplements under the Receivables Sale and Servicing Agreement or designated by the Issuer pursuant to Series 2021-1 Designation and Servicing Supplements under the Receivables Sale and Servicing Agreement, and “Series 2021-1 Assigned Obligor Account Asset” means any of them.
“Series 2021-1 Balance” means, at any date of determination, the aggregate outstanding principal amount of the Series 2021-1 Debt Securities.
“Series 2021-1 Cash Reserve Account” means the Eligible Deposit Account in the name of the Issuer at the Account Bank, transit number 14171, account number 1194928, or such other Eligible Deposit Account in the name of the Issuer as is designated by the Issuer by notice to the Servicer and the Indenture Trustee as the Series 2021-1 Cash Reserve Account for the purposes hereof.
“Series 2021-1 Class A Debt Securities” means the class of notes to be known as the “FLEX Series 2021-1 Floating Rate Debt Securities, Class A” issued hereunder, and “Series 2021-1 Class A Debt Security” means any of them.
“Series 2021-1 Class B Debt Securities” means the class of notes to be known as the “FLEX Series 2021-1 Floating Rate Debt Securities, Class B” issued hereunder, and “Series 2021-1 Class B Debt Security” means any of them.
“Series 2021-1 Collateral” has the meaning ascribed thereto in Section 4.1.
“Series 2021-1 Collections Account” means the Eligible Deposit Account in the name of the Issuer at the Account Bank, transit number 14171, account number 1194820, or such other Eligible Deposit Account in the name of the Issuer as is designated by the Issuer by notice to the Servicer and the Indenture Trustee as the Series 2021-1 Collections Account for the purposes hereof.
“Series 2021-1 Debt Securities” means, collectively, the Class A Debt Securities and the Class B Debt Securities.
“Series 2021-1 Designation and Servicing Supplement” means a Series 2021-1 Designation and Servicing Supplement, pursuant to the Receivables Sale and Servicing Agreement, among the Issuer, the Seller, the Servicer, the General Partner in its own right, the Indenture Trustee and, in the case of a Series 2021-1 Designation and Servicing Supplement entered into in connection with either (i) the Issuance Date that is the Initial Funding Date, or (ii) an Increase Date, the Series 2021-1 Noteholders, as the same may be further amended, restated, supplemented, replaced or otherwise modified from time to time as permitted thereunder.
“Series 2021-1 Eligible Loans” means, collectively, Series 2021-1 Loans with respect to which the Receivables Eligibility Criteria specified herein are satisfied as of the applicable date of determination, and “Series 2021-1 Eligible Loan” means any of them.
“Series 2021-1 Eligible Obligor Accounts” means the Series 2021-1 Obligor Accounts with respect to which the Obligor Accounts Eligibility Criteria specified herein are satisfied as of the applicable date of determination and “Series 2021-1 Eligible Obligor Account” means any of them.
“Series 2021-1 Eligible Promo Loans” means, collectively, Series 2021-1 Promo Loans with respect to which the Receivables Eligibility Criteria specified herein, including those applicable to Series 2021-1 Promo Loans, are satisfied as of the applicable date of determination, and “Series 2021-1 Eligible Promo Loan” means any of them.
“Series 2021-1 Eligible Revolving Loans” means, collectively, Series 2021-1 Revolving Loans with respect to which the Receivables Eligibility Criteria specified herein, including those applicable to Series 2021-1 Revolving Loans, are satisfied as of the applicable date of determination, and “Series 2021-1 Eligible Revolving Loan” means any of them.
“Series 2021-1 Loans” means the loans made to Obligors in specified Series 2021-1 Eligible Obligor Accounts, which for the avoidance of doubt, includes Series 2021-1 Promo Loans and Series 2021-1 Revolving Loans.
“Series 2021-1 Non-Prime Loans” means, collectively, Series 2021-1 Loans in respect of which, at its origination date, the Obligor has a Current Credit Score of [***].
“Series 2021-1 Noteholders” means, collectively, the Class A Noteholders and the Class B Noteholders, and “Series 2021-1 Noteholder” means any of them.
“Series 2021-1 Obligor Accounts” means the Obligor Accounts under which the Obligor Account Assets are sold to the Issuer pursuant to Series 2021-1 Sale and Servicing Supplements or are designated by the Issuer pursuant to Series 2021-1 Designation and Servicing Supplements under the Receivables Sale and Servicing Agreement, and “Series 2021-1 Obligor Account” means any of them.
“Series 2021-1 Promo Loans” means, collectively, Series 2021-1 Loans that are, as of any date of determination, subject to a plan, program or promotion, and consequently are not Series 2021-1 Revolving Loans, and (for the avoidance of doubt) are not Charged-Off Obligor Accounts, and “Series 2021-1 Promo Loan” means any of them.
“Series 2021-1 Revolving Loans” means, collectively, all Series 2021-1 Loans that, as of any date of determination, relate to an extension of credit to an Obligor that is not subject to a plan, program or promotion, including any outstanding balance owing for a promotion that is no longer subject to a promotion after the promotional expiry date or current amount due date, or after a promotion has been terminated or has expired without the full amount owing being paid, and that are subject to interest (whether or not a grace period applies pursuant to the loan arrangement with the Obligor), and “Series 2021-1 Revolving Loan” means any of them.
“Series 2021-1 Sale and Servicing Supplement” means a Series 2021-1 Sale and Servicing Supplement, pursuant to the Receivables Sale and Servicing Agreement, among the Issuer, the Seller, the Servicer, the General Partner in its own right, the Indenture Trustee and, in the case of a Series 2021-1 Sale and Servicing Supplement entered into in connection with either (i) the Issuance Date that is the Initial Funding Date, or (ii) an Increase Date, the Series 2021-1 Noteholders, as the same may be further amended, restated, supplemented, replaced or otherwise modified from time to time as permitted thereunder.
“Series 2021-1 Sale and Servicing Québec Assignment” means a Series 2021-1 Sale and Servicing Québec Assignment, pursuant to the Receivables Sale and Servicing Agreement, among the Issuer, the Seller, the General Partner in its own right, and the Indenture Trustee, as the same may be further amended, restated, supplemented, replaced or otherwise modified from time to time as permitted thereunder.
"Servicer" means (i) as at the Closing Date, the Initial Servicer, and (ii) if the Initial Servicer has been terminated, the Replacement Servicer.
“Servicer Advances” has the meaning ascribed to it in the Receivables Sale and Servicing Agreement.
“Servicer Obligations” means the obligations of the Servicer to service the Series 2021-1 Assets set forth in the Receivables Sale and Servicing Agreement, in any Series 2021-1 Sale and Servicing Supplement and any Series 2021-1 Designation and Servicing Supplement, as the case may be, in the Note Purchase Agreement, or, in the case of a Replacement Servicer, the obligations of the Replacement Servicer under the replacement servicing agreement entered into by the Replacement Servicer in connection with its appointment as Replacement Servicer.
“Servicer Termination Events” means any of the following in connection with the Series 2021-1 Debt Securities, and “Servicer Termination Event” means any one of them:
(a)the Servicer fails to make any payment or deposit to be made by it under the Receivables Sale and Servicing Agreement or any other Series 2021-1 Agreement within two (2) Business Days after the date such payment or deposit is required to be made;
(b)the Servicer fails to observe or perform any of its covenants or obligations contained in the Receivables Sale and Servicing Agreement or any other Series 2021-1 Agreement (other than those obligations referred to in paragraph (a) above) and such failure remains unremedied for twenty-five (25) days after the earlier of (A) the Servicer becoming aware of such failure, and (B) written notice of such failure being given to the Servicer by the Purchaser or the Indenture Trustee; provided that such cure period shall only be applicable if the Servicer is proceeding with all due diligence to cure or cause to be cured such failure and its proceedings can be reasonably expected to cure or cause to be cured such failure within such period;
(c)any representation or warranty made by the Servicer in or pursuant to any Series 2021-1 Agreement proves to have been false or incorrect when made in any material respect and such incorrectness shall not have been remedied within twenty-five (25) days after the earlier of (A) the Servicer becoming aware of such incorrectness, and (B) the Purchaser or the Indenture Trustee giving notice of such incorrectness to the Servicer; provided that such cure period shall only be applicable if the Servicer is proceeding with all due diligence to cure or cause to be cured such incorrectness and its proceedings can be reasonably expected to cure or cause to be cured such incorrectness within such period;
(d)the taking of possession by an encumbrancer of assets of the Servicer (other than solely to perfect a security interest therein) or the levying or enforcement of a distress or execution or any similar process against assets of the Servicer if unsatisfied for such period as to permit a sale or other disposition of such assets to occur, which would have a Material Adverse Effect;
(e)the Servicer (i) is unable to pay its debts as they fall due, or shall admit in writing its inability to pay its debts generally; or (ii) makes a general assignment for the benefit of creditors or a proposal under the Bankruptcy and Insolvency Act (Canada), the Companies’ Creditors Arrangement Act (Canada) or a similar law of any applicable jurisdiction; or (iii) any proceedings shall be instituted by or against it, as the case may be, seeking to adjudicate it as bankrupt or insolvent or seeking liquidation, dissolution, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief or protection of insolvent debtors, or seeking the entry of an order for relief by the appointment of a receiver, trustee, custodian or similar official for its or a substantial part of its property and, if such proceeding or action has been instituted against the Servicer, while being contested in good faith by Servicer, such proceeding or action has not been stayed or dismissed within thirty (30) days; or (iv) a receiver, trustee, custodian or other similar official is appointed for it or any substantial part of its property, or a receiver is privately appointed in respect of all or a substantial part of the assets of the Servicer; or (v) the Servicer takes any corporate action to authorize any of the actions described above;
(f)the Servicer enters into any corporate re-organization, amalgamation or corporate arrangement, except where the surviving entity is the Servicer; or the Servicer sells, assigns, transfers, conveys, leases, licences or otherwise disposes of all or substantially all of its assets, and such disposition could reasonably be expected to have a Material Adverse Effect, and for the avoidance of doubt, any such corporate re-organization, amalgamation or corporate arrangement or assignment, transfer or disposal is in connection with a Change of Control, which has been consented to by the Indenture Trustee (acting at the written direction of (i)(A) each Class A Noteholder, if there are less than three (3) Class A Noteholders; and (B) holders of at least 66 2/3% of the aggregate principal amount of the Series 2021-1 Class A Debt Securities, if there are three (3) or more Class A Noteholders, and (ii) the holders of the Series 2021-1 Class B Debt Securities);
(g)[***];
(h)[***];
(i)[***];
(j)[***]; and
(k)the Backup Servicing Agreement shall at any time cease to be in full force and effect and a replacement backup servicing agreement is not entered into.
“Settlement Date” means, in respect of a Collection Period, the 15th Business Day of the calendar month following such Collection Period or any other day as agreed to in writing by the Series 2021-1 Noteholders.
“Settlement Date Amount” has the meaning ascribed thereto in Section 5.2.
“Settlement Period” means, in respect of a Settlement Date, the period commencing on and including the immediately preceding Settlement Date to but excluding the current Settlement Date, provided that the first Settlement Period shall commence on and include the Closing Date and the final Settlement Date shall end on and exclude the date that is sixty-six (66) months after the Final Maturity Date.
“Structuring Agent” means National Bank of Canada, acting in its capacity as Structuring Agent under the Note Purchase Agreement.
“Subordinated Lender” means the Seller, in its capacity as lender under the Subordinated Loan Agreement.
“Subordinated Loan Agreement” means the subordinated loan agreement made as of December 9, 2021 between the Subordinated Lender and the Issuer, the proceeds of which shall be used to fund the issuance expenses of the Series 2021-1 Debt Securities, as the same may be amended, supplemented, modified, restated or replaced from time to time.
“Supplemental Cash Reserve Account Funding Amount” means, [***]
“Supplemental Indenture” means this Supplemental Indenture, which is a Related Supplement for the Series 2021-1 Debt Securities, together with the schedules hereto, as amended, supplemented, modified, restated or replaced from time to time, together with all schedules hereto and the expressions “hereof”, “herein”, “hereto”, “hereunder”, “hereby” and similar expressions refer to this Supplemental Indenture and not to any Article, Section, paragraph, subparagraph or clause hereof.
[***]
[***]
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any governmental authority, including any interest, additions to tax or penalties applicable thereto.
“U.S. Securities Act” means the U.S. Securities Act of 1933, as amended.
“Unrestricted Notes” has the meaning ascribed thereto in Section 2.2(o).
“Weekly Report” means a weekly report delivered by the Servicer on the Weekly Reporting Date covering the immediately preceding Weekly Reporting Period, substantially in the form attached as Schedule E, as amended, supplemented, modified, restated or replaced from time to time with the consent of each Series 2021-1 Noteholder.
“Weekly Reporting Cut-Off Date” means the Sunday of each week.
“Weekly Reporting Date” means the Friday following each Weekly Reporting Cut-Off Date or, if such day is not a Business Day, the next following Business Day.
“Weekly Reporting Period” means the period from and including Monday to and including the Weekly Reporting Cut-Off Date.
“Yield” means, with respect to any Collection Period, an amount equal to the sum of the aggregate of all interest charges, fee charges and all other ancillary revenue for such Collection Period.
“Yield Supplement” means, [***]
1.2Interpretation
Subject to the next following sentences, this Supplemental Indenture is supplemental to the Master Trust Indenture and the Master Trust Indenture shall be read in conjunction with this Supplemental Indenture and all of the provisions of the Master Trust Indenture shall apply to and shall have effect in connection with this Supplemental Indenture in the same manner as if all of the provisions of the Master Trust Indenture and of this Supplemental Indenture were contained in one instrument. This Supplemental Indenture shall, unless the context otherwise requires, be subject to the interpretative provisions contained in Article 1 of the Master Trust Indenture. Solely in respect of the Series 2021-1 Debt Securities, if any terms of the Master Trust Indenture are inconsistent with the express terms or provisions hereof, the terms and provisions of the Master Trust Indenture shall be amended and supplemented so as to be consistent herewith. The provisions of this Supplemental Indenture are applicable only in respect of the Series 2021-1 Debt Securities and not the Debt Obligations of any other Series.
1.3Application of this Supplemental Indenture
With respect to the Series 2021-1 Debt Securities only, the terms of the Master Trust Indenture are amended, supplemented, modified, restated and replaced to the extent applicable by the terms of this Supplemental Indenture in respect of the Series 2021-1 Debt Securities in accordance with Section 1.2 above.
Article 2
PRINCIPAL TERMS
1.1Creation of Series 2021-1 Debt Securities
There is hereby created a Series of Debt Securities to be issued pursuant to the Master Trust Indenture and this Supplemental Indenture in two (2) Classes and designated as the “FLEX Series 2021-1 Floating Rate Debt Securities, Class A” and the “FLEX Series 2021-1 Floating Rate Debt Securities, Class B”, respectively.
1.2Principal Terms
The Principal Terms of the Series 2021-1 Debt Securities are as follows:
(a)Designation of Series 2021-1 Debt Securities. The designation of each Class of Series 2021-1 Debt Securities shall be as set out in Section 2.1. Each Series 2021-1 Note shall have the attributes specified herein, and recourse to the Series 2021-1 Collateral as set out in Article 5.
(b)Principal Amount of the Series 2021-1 Debt Securities. The maximum aggregate principal balance of the Class A Debt Securities outstanding at any time shall not exceed the Class A Commitment Amount and the maximum aggregate principal balance of the Class B Debt Securities outstanding at any time shall not exceed the Class B Commitment Amount. The Series 2021-1 Debt Securities shall, notwithstanding any provision of the Master Trust Indenture, (A) be decreased in principal amount by the amount of any principal payment made thereon on any Settlement Date; and (B) be increased in principal amount by the amount of any principal increases made thereon on any Increase Date or otherwise as provided in the Note Purchase Agreement. Principal shall be repayable on the Series 2021-1 Debt Securities in accordance with Article 5 hereof, provided however, that prior to a Related Event of Default, principal shall only be repayable on the Series 2021-1 Debt Securities to the extent of amounts allocated and available for distribution pursuant to Article 5.
(c)Form of Debt Securities. The Series 2021-1 Debt Securities are to be issued as Definitive Debt Obligations. The Series 2021-1 Debt Securities shall be in registered form and may be issued from time to time in Canadian Dollars and shall (A) be dated the respective Issuance Date thereof; and (B) be substantially in the forms of the Series 2021-1 Debt Securities set forth in Schedule A and Schedule B, respectively, with such appropriate insertions, omissions, substitutions and variations as may be approved by the Issuer and with such appropriate insertions, omissions, substitutions and variations as are required pursuant to applicable Canadian securities laws; (C) bear such distinguishing letters and numbers as the Indenture Trustee shall approve, such approval to be conclusively evidenced by the certification of the Series 2021-1 Debt Securities by the Indenture Trustee.
(d)Date and Terms of Series 2021-1 Debt Securities. Each Series 2021-1 Note shall be dated the date of its certification by the Indenture Trustee. The terms of the Series 2021-1 Debt Securities set forth in Schedule A and Schedule B are part of the terms of this Supplemental Indenture. The “Series Issuance Date” for the Series 2021-1 Debt Securities shall be the Closing Date.
(e)Minimum Amounts. Subject to applicable securities laws, the Series 2021-1 Debt Securities shall be issued in minimum denominations of $1 and in integral multiples of $1 thereafter, provided, however, the Class B Debt Securities shall be issued in minimum denominations of $100,000 and in integral multiples of $1 thereafter.
(f)Final Maturity Date. The Series 2021-1 Debt Securities shall mature and become due and payable on the Final Maturity Date. No payment of principal in respect of the Series 2021-1 Debt Securities or any other amounts owing thereunder will be payable after the date which is sixty-six (66) months after the Final Maturity Date.
(g)Interest. Interest on each Class A Note shall accrue at the applicable Class A Interest Rate. Interest on each Class B Note shall accrue at the applicable Class B Interest Rate. Interest shall be calculated and payable monthly in arrears on each Settlement Date for the relevant Settlement Period, subject to the availability of funds allocated for such payment in accordance with Article 5 hereof and the terms of the Series 2021-1 Debt Securities. As provided in the Master Trust Indenture, interest on each Series 2021-1 Note shall cease to accrue from the date which is sixty-six (66) months after the Final Maturity Date thereof, upon due surrender thereof for payment on or after such date, unless such payment is improperly withheld or refused in which case interest shall be payable on overdue amounts at the same rate both before and after default and judgment.
(h)CDOR Discontinuance. If the Structuring Agent has determined that CDOR has been discontinued and an alternative reference rate has been selected by a central bank, reserve bank, monetary authority or any similar institution (including any committee or working group thereof), or identified through any other applicable regulatory authority or legislative action or guidance, that is consistent with accepted market practice, the Structuring Agent will use such alternative rate as a substitute for CDOR. As part of such substitution, the Structuring Agent will make such adjustments to such alternative rate or the spread thereon, as well as the business day convention, determination dates and related provisions and definitions, in each case that are consistent with accepted market practice or applicable regulatory or legislative action or guidance for the use of such alternative rate, as determined by the Structuring Agent. If, with respect to any Settlement Period or other applicable calculation period, the Structuring Agent determines that CDOR has been discontinued, but there is no clear market consensus as to whether any rate has replaced CDOR in customary market usage, the Structuring Agent may, with the consent of the Series 2021-1 Noteholders and in consultation with the Issuer, as evidenced by a written instrument, determine the alternative rate and make any adjustments thereon, which determinations will be binding on the parties hereto, and use such alternative rate as a substitute for CDOR. If the Structuring Agent is unable to determine an alternative rate in accordance with either of the foregoing methods, then each Series 2021-1 Noteholder shall determine its own alternative rate as a substitute for CDOR, provided that such alternative rate shall only be used for purposes of calculating the interest payable to such Series 2021-1 Noteholder, and shall not be used for purposes of calculating the interest payable to any other Series 2021-1 Noteholder.
(i)Payments. Payments on the Series 2021-1 Debt Securities shall be made monthly in arrears on each Settlement Date during the term of the Series 2021-1 Debt Securities, commencing on January 24, 2022.
(j)Language and Currency. The Series 2021-1 Debt Securities shall be denominated in Canadian Dollars and the Series 2021-1 Debt Securities may be in the English language or the English and the French languages.
(k)Method for Allocating Principal and Interest. The payments of principal and interest on the Series 2021-1 Debt Securities shall be made in accordance with Article 5.
(l)Paying Agent. Flexiti Financial Inc., or any replacement or co-agent appointed pursuant to Section 7.1.
(m)Note Registrar. Computershare Trust Company of Canada, or any replacement appointed pursuant to the terms of the Indenture.
(n)Related Events of Default. Additional Related Events of Default in respect of the Series 2021-1 Debt Securities shall be:
(i)the Issuer fails to pay any amount due on any of the Series 2021-1 Debt Securities when the same becomes due and payable and such failure continues for a period of two (2) Business Days after the date on which written notice of such failure, requiring the same to be remedied, has been given to the Issuer by the Indenture Trustee or by any holder of Series 2021-1 Debt Securities;
(ii)the Issuer or the General Partner defaults in the performance of any covenant contained in the Master Trust Indenture or this Supplemental Indenture (other than a default as described in paragraph (i) above, which is addressed therein) or any other Series 2021-1 Agreement, and such default in performance could reasonably be expected to have a material adverse effect on the ability of the Issuer to satisfy its obligations under the Series 2021-1 Debt Securities (such material adverse effect to be determined without reference to any available Credit Enhancement) and continues to be unremedied for a period of twenty-five (25) days after notice thereof is given in writing by the Indenture Trustee or by any holder of Series 2021-1 Debt Securities specifying the nature of the default and requiring that it be remedied, provided that such twenty-five (25) day grace period shall only be applicable if (i) the Issuer or the General Partner, as the case may be, is proceeding with all due diligence to cure or cause to be cured such failure; (ii) its proceedings can be reasonably expected to cure or cause to be cured such failure within such period; and (iii) the Issuer or the General Partner, as the case may be, shall thereafter cure or cause to be cured such failure with all due diligence and within such period;
(iii)any representation or warranty made by the Issuer or the General Partner (or any of their agents) in or pursuant to the Master Trust Indenture, this Supplemental Indenture, the other Series 2021-1 Agreements or any other document or instrument delivered hereunder or thereunder proves to have been incorrect when made, and such incorrect representation or warranty could reasonably be expected to have a material adverse effect on the ability of the Issuer to satisfy its obligations under the Series 2021-1 Debt Securities (such material adverse effect to be determined without reference to any available Credit Enhancement) and continues to be unremedied for a period of twenty-five (25) days after delivery by the Indenture Trustee or by any holder of Series 2021-1 Debt Securities, of written notice thereof to the Issuer specifying the nature of the incorrectness and requiring that it be remedied, provided that such twenty-five (25) day grace period shall only be applicable if (i) the Issuer or the General Partner, as the case may be, is proceeding with all due diligence to cure or cause to be cured such failure; (ii) its proceedings can be reasonably expected to cure or cause to be cured such failure within such period; and (iii) the Issuer or the General Partner, as the case may be, shall thereafter cure or cause to be cured such failure with all due diligence and within such period;
(iv)[***];
(v)[***]; and
(vi)[***],
provided that, notwithstanding the foregoing, if there is a Related Event of Default under Subsection 2.2(n)(vi) but (A) the Class A Non-Consenting Noteholder is replaced pursuant to Section 6.2 of the Note Purchase Agreement; or (B) the Notes of the non-consenting Series 2021-1 Noteholder(s) have been redeemed in full pursuant to a Change of Control Redemption, then the Related Event of Default shall be considered to be cured.
(o)Transfer of Debt Securities. The certificates representing the Class A Debt Securities or the Class B Debt Securities, as applicable, which are sold to purchasers resident in the United States shall initially bear the legend and be subject to the restrictions on transfer described herein (together, the “Restricted Debt Securities”). If, at any time, a beneficial holder of an interest in the Restricted Debt Securities wishes to transfer its interest therein to a Person permitted to take delivery thereof in the form of an interest in a Class A Note or the Class B Note, as applicable, that is not subject to such restrictions (the “Unrestricted Note”), the Indenture Trustee shall reduce the outstanding principal amount of such Restricted Debt Securities by such amount and increase the outstanding principal amount of the Unrestricted Note into which such Person’s interest in the Class A Debt Securities or the Class B Debt Securities, as applicable, is transferred by a corresponding amount. Any beneficial interest in the Restricted Debt Securities that is transferred to a Person that takes delivery in the form of a beneficial interest in the Unrestricted Note will, upon transfer, cease to be an interest in the Restricted Debt Securities and will become an interest in the Unrestricted Note.
(p)Taxation. All amounts payable (whether in respect of principal, interest or otherwise) in respect of the Series 2021-1 Debt Securities by or on behalf of the Issuer will be paid free and clear of and without withholding or deduction for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied by or on behalf of Canada, any province or territory or political subdivision thereof or any authority or agency therein or thereof having power to tax, unless the withholding or deduction of such taxes, duties, assessments or governmental charges is required by law or the interpretation or administration thereof. In that event:
(i)the Issuer, or the Paying Agent on its behalf, shall make any such deductions or withholdings;
(ii)the Issuer, or the Paying Agent on its behalf, shall pay forthwith the full amount deducted or withheld to the relevant taxation authority or other authority in accordance with Applicable Law and will provide to the Series 2021-1 Noteholders copies of such forms as are required to be provided to such authority evidencing the payment by the Issuer; and
(iii)the Issuer will pay such additional amounts as may be necessary in order that the net amounts received by the holder after such withholding or deduction shall equal the respective amounts of principal and interest which would have been received in respect of the Series 2021-1 Debt Securities in the absence of such withholding or deduction; except that no additional amounts shall be payable with respect to any payment in respect of any Series 2021-1 Debt Securities that is an Excluded Tax,
provided, for the avoidance of doubt but subject to Article 7, that (while the Paying Agent is assisting the Issuer in performing administrative obligations in connection with payments on the Series 2021-1 Debt Securities in accordance with payments on the Series 2021-1 Debt Securities in accordance with the appointment pursuant to Section 7.1) the Paying Agent shall not be responsible for any withholding tax obligations which may apply in connection with the Series 2021-1 Debt Securities since these are legal obligations of the Issuer. If the Indenture Trustee or Paying Agent is notified by any Series 2021-1 Noteholder that the Issuer is required by Applicable Law to deduct or withhold, or
a Series 2021-1 Noteholder shall be required to pay, any Indemnified Taxes from or in respect of any sum payable by the Issuer to a Series 2021-1 Noteholder hereunder or under any other Series 2021-1 Agreement and the consummation and performance of the transactions contemplated hereby or thereby, then the Indenture Trustee or Paying Agent, as the case may be, shall notify the Issuer.
1.3Issuance of the Series 2021-1 Debt Securities
(a)The Series 2021-1 Debt Securities may be issued, in the aggregate up to the Commitment Amounts, on the Initial Funding Date (an “Issuance Date”) for the purposes of funding an Asset Purchase and/or Asset Designation of Series 2021-1 Assigned Obligor Account Assets in accordance with the Receivables Sale and Servicing Agreement pursuant to the delivery of an Asset Purchase Notice or an Asset Designation Notice by the Seller to the Issuer.
(b)On each Issuance Date, the proceeds of the issuance of the Series 2021-1 Debt Securities on such date shall be applied:
(i)first, by deposit to the Series 2021-1 Cash Reserve Account in an amount equal to the Required Cash Reserve Deposit Amount in connection with such Asset Purchase and/or Asset Designation;
(ii)second, as payment of the Closing Payment in respect of any related Asset Purchase and/or Asset Designation, as the case may be, pursuant to the Receivables Sale and Servicing Agreement and the applicable Series 2021-1 Sale and Servicing Supplement or Series 2021-1 Designation and Servicing Supplement, as applicable; and
(iii)third, to the Seller in reduction of any Deferred Asset Purchase Price.
(c)Prior to the initial issuance of a Series 2021-1 Note the Issuer shall have complied with the conditions specified in Section 2.3 and 2.4 of the Master Trust Indenture and the Indenture Trustee and each Series 2021-1 Noteholder shall have received from the Issuer the following documents, in form and substance satisfactory to each of the Series 2021-1 Noteholders:
(i)copies of all Related Program Agreements which the Issuer and all other parties shall have entered into;
(ii)a certificate from an officer of the General Partner certifying (A) the names and signatures of the officers of the General Partner authorized to sign each Series 2021-1 Agreement to which the General Partner in its own right and on behalf of the Issuer is a party, and (B) certain corporate matters of the General Partner in its own right and on behalf of the Issuer;
(iii)reports showing the results of searches conducted against the General Partner and the Issuer under applicable personal property security registers in the provinces where the Series 2021-1 Assets are located, together with executed copies of all discharges or releases of prior security interests relating to the Series 2021-1 Assets; provided that the Issuer may establish that any particular registration does not affect any such Series 2021-1 Assets by delivering a letter or acknowledgement signed by the applicable secured party;
(iv)a copy of verification statements or other filings filed in the provinces where the Series 2021-1 Assets are located that are sufficient to perfect or render opposable the interests of the Indenture Trustee on behalf of the Series 2021-1 Noteholders in the Series 2021-1 Assets;
(v)executed copies of all discharges and releases, if any, necessary to discharge or release all security interests and other rights or interests of any Person in the Series 2021-1 Assets, previously granted by or through the Issuer and which could constitute a Security Interest, together with, where applicable, copies of the
relevant financing change statements or other discharge statements with the registration particulars stamped thereon;
(vi)a favourable opinion or opinions addressed to the Indenture Trustee, the Series 2021-1 Noteholders and the Structuring Agent, in form and substance satisfactory to each of the Series 2021-1 Noteholders, from counsel to the Seller, the Issuer, the General Partner and (in the case of (i) only) the Guarantor in the jurisdiction of formation of each such party and in each jurisdiction specified by a Series 2021-1 Noteholder as is relevant, including an opinion or opinions as to: (i) existence, good standing, due authorization, execution, enforceability, no filing with or consent of government authorities and no conflict with documents or Applicable Laws; (ii) the validity and perfection of the Security Interests created by the Indenture; (iii) the validity and perfection of the transfers under a Series 2021-1 Sale and Servicing Supplement; (iv) true sale matters in respect of the Series 2021-1 Assets; (v) compliance with applicable securities laws with respect to issuance of Series 2021-1 Debt Securities; (vi) Quebec universality matters with respect to a Series 2021-1 Sale and Servicing Supplement; (vii) due issuance of the Series 2021-1 Debt Securities; and (vii) bankruptcy remoteness matters and non-consolidation matters; and
(vii)evidence that each of the conditions set out in Section 7.1 of the Receivables Sale and Servicing Agreement have been satisfied and not waived.
1.4Increases of the Series 2021-1 Debt Securities
(a)To the extent that on the Issuance Date that is the Initial Funding Date, the Series 2021-1 Debt Securities are not issued in a principal amount that is the full Commitment Amount, the outstanding principal amount of the Series 2021-1 Debt Securities may be increased up to their respective Commitment Amounts on a single Funding Date subsequent to the Initial Funding Date (such day, the “Increase Date”) only for the purposes of funding an Asset Purchase and/or Asset Designation of Series 2021-1 Assigned Obligor Account Assets in accordance with the Receivables Sale and Servicing Agreement and Series 2021-1 Sale and Servicing Supplement or Series 2021-1 Designation and Servicing Supplement, as applicable, in each case, in connection with the delivery of an Asset Purchase Notice or an Asset Designation Notice by the Seller to the Issuer or for the purpose of reducing the Deferred Asset Purchase Price (an “Increase”).
(b)On each Increase Date, the Aggregate Increase Amount of the Series 2021-1 Debt Securities outstanding on such date shall be applied:
(i)first, by deposit to the Series 2021-1 Cash Reserve Account in an amount equal to the Required Cash Reserve Deposit Amount in connection with such Asset Purchase and/or Asset Designation;
(ii)second, as payment of the Closing Payment in respect of any related Asset Purchase and/or Asset Designation, as the case may be, pursuant to the Receivables Sale and Servicing Agreement and Series 2021-1 Sale and Servicing Supplement or Series 2021-1 Designation and Servicing Supplement, as applicable; and
(iii)third, to the Seller in reduction of any Deferred Asset Purchase Price.
(c)On each Increase Date, the Aggregate Increase Amount of the Series 2020-1 Debt Securities outstanding on such date shall be paid by the applicable Series 2021-1 Noteholders.
1.5Conditions Precedent to Issuances or Increases
(a)Prior to issuance of a Series 2021-1 Note, including the initial Issuance, or the Increase of any Series 2021-1 Debt Securities, the Issuer shall have complied with the following in form and substance satisfactory to each of the Series 2021-1 Noteholders:
(i)each of the Series 2021-1 Noteholders shall have received an executed Funding Request no later than two (2) Business Days prior to the applicable Issuance Date or Increase Date;
(ii)all conditions precedent to the completion of the related Asset Purchase and/or Asset Designation, as the case may be, pursuant to Section 7.2 of the Receivables Sale and Servicing Agreement, a Series 2021-1 Sale and Servicing Supplement or a Series 2021-1 Designation and Servicing Supplement, as the case may be, which are required to be satisfied on the date of each Asset Designation and/or Asset Purchase, as the case may be, shall have been satisfied and not waived;
(iii)each of the Series 2021-1 Noteholders shall have received copies of all reasonably required data with respect to the Series 2021-1 Assets subject to any related Asset Designations and/or Asset Purchases, as the case may be, not less than two (2) Business Days prior to the related Funding Date;
(iv)no Amortization Event, Servicer Termination Event, Related Event of Default or any event which with the giving of notice or the passage of time, or both, would become an Amortization Event, Servicer Termination Event or Related Event of Default shall have occurred or is reasonably likely to occur as a result of the related Increase or purchase;
(v)such issuance of Series 2021-1 Debt Securities or Increase would not reasonably be expected to have a Material Adverse Effect;
(vi)all fees, costs and expenses described in the Class A Fee Letter and the Class B Fee Letter payable on or before the date of such issuance of Series 2021-1 Debt Securities or Increase shall have been paid or will be paid on the date of the Issuance or the Increase;
(vii)after applying the funds received by the Issuer upon such issuance of Series 2021-1 Debt Securities or Increase in accordance with the Series 2021-1 Agreements, the Required Cash Reserve Deposit Amount will be on deposit in the Series 2021-1 Cash Reserve Account;
(viii)after applying the funds received by the Issuer upon such issuance of Series 2021-1 Debt Securities or Increase in accordance with the Series 2021-1 Agreements, no Class A Pool Balance Deficiency exists or is reasonably likely to exist as a result of the related Increase or purchase;
(ix)after applying the funds received by the Issuer upon such issuance of Series 2021-1 Debt Securities or Increase in accordance with the Series 2021-1 Agreements, no Class B Pool Balance Deficiency exists or is reasonably likely to exist as a result of the related Increase or purchase;
(x)after completing the Increase or the issuance of Series 2021-1 Debt Securities, the aggregate principal amount outstanding under each Class of Series 2021-1 Debt Securities held by each Series 2021-1 Noteholder will be less than or equal to the Commitment Amount of such Series 2021-1 Noteholder with respect to such Class;
(xi)no default on other material indebtedness for borrowed money of the Seller has occurred;
(xii)prior to the issuance of a Series 2021-1 Debt Securities, such Series 2021-1 Debt Securities will have been duly issued in accordance with the Indenture; and
(xiii)the Issuer has prepared documentation for and/or executed and entered into the Interest Rate Hedging Agreements as required pursuant to Section 3.1(a)(v).
1.6Redemption
(a)On any Settlement Date, provided that no Related Event of Default has occurred and is continuing and after giving effect to any redemption contemplated by this Section 2.6(a) no Related Event of Default, Amortization Event or event which with the giving of notice or passage of time would result in a Related Event of Default or Amortization Event will occur, the Issuer may in its discretion redeem the Series 2021-1 Debt Securities (A) in the case of (i) and (ii) below, in whole, but not in part (a “Final Redemption”), or (B) in the case of a Change in Circumstances Redemption (as defined in paragraph (iii) below), (I) in part in respect only of the Class A Noteholder(s) that has/ have made a demand for payment, without payment of any early redemption fee; and (II) in whole or in part in respect of any Class B Noteholder subject to payment of the applicable Class B Early Redemption Amount, in any of the following circumstances:
(i)prior to the earliest date on which the Issuer would be obliged to pay such additional amounts were a payment in respect of the Series 2021-1 Debt Securities then due, in relation to any Class of Series 2021-1 Debt Securities (i) as a result of any change in the laws or regulations of Canada or any province or territory thereof or any authority or agency therein or thereof having power to tax or in the interpretation or administration of any such laws or regulations which becomes effective on or after the Issuance Date of such Series 2021-1 Debt Securities, the Issuer would be required to pay additional amounts as provided in Section 2.2(p); (ii) such obligation cannot be avoided by the Issuer taking reasonable measures available to it; and (iii) such circumstances are evidenced by the delivery by the Issuer to the Paying Agent, Indenture Trustee and each Series 2021-1 Noteholder of (x) a certificate signed by two senior officers of the Issuer stating that the said circumstances prevail and describing the facts leading thereto, and (y) an opinion of independent legal advisers of recognized standing to the effect that the circumstances set forth in (i) above, prevail (an “Adverse Tax Event”);
(ii)the aggregate principal amount of the Series 2021-1 Debt Securities is less than 10% of the highest aggregate principal amount outstanding under Series 2021-1 Debt Securities, or
(iii)a Class A Noteholder has made a demand for payment under Section 5.3 of the Note Purchase Agreement (“Change in Circumstances Redemption”).
(b)In connection with a Final Redemption or a Change in Circumstances Redemption, and subject to the satisfaction of any other conditions applicable to such Final Redemption or Change in Circumstances Redemption:
(i)the Issuer will, at least ten days prior to the related Settlement Date (or, in the case of an Adverse Tax Event, such other date that is prior to the earliest date on which the Issuer would be obliged to pay such additional amounts were a payment in respect of the Series 2021-1 Debt Securities then due), notify the Indenture Trustee and each Series 2021-1 Noteholder of the redemption, which notice will state (i) the date fixed for redemption; (ii) the principal amount of each Class of Series 2021-1 Debt Securities, together with any unpaid interest accrued thereon to (but excluding) the date fixed for redemption (the “Final Redemption Price”); (iii) in the case of a Change in Circumstances Redemption in whole or in part in respect of any Class B Noteholder, the applicable Class B Early Redemption Amount; (iv) any other conditions applicable to the redemption as specified by the Issuer in such notice; (v) that on the related Settlement Date, subject to the satisfaction of any such conditions, if applicable, the Final Redemption Price and, in the case of a Change in Circumstances Redemption in whole or in part in respect of any Class B Noteholder, the applicable Class B Early Redemption Amount, will become due and payable respectively for each Class of Series 2021-1 Debt Securities being redeemed, and that interest on the Series 2021-1 Debt Securities will cease to accrue on such date once the Final Redemption Price and, if applicable, the Class B Early Redemption Amount is paid; (vi) if applicable, the address at which the Series 2021-1 Debt Securities will
be surrendered; and (vii) the record date for such redemption, which will be one Business Day before the date fixed for redemption; and
(ii)the Issuer will deposit to the Series 2021-1 Collections Account, on or before the related Settlement Date, an amount (determined after taking into account those funds already on deposit in the Series 2021-1 Collections Account on such Settlement Date) equal to the sum of (i) the Final Redemption Price for each Class of Series 2021-1 Debt Securities; (ii) if applicable in accordance with this Section 2.6, the Class B Early Redemption Amount; and (iii) all fees, expenses, indemnities and other amounts owing to the applicable Series 2021-1 Noteholder(s) under the Indenture or the Note Purchase Agreement, and to the Indenture Trustee, the Structuring Agent, the Servicer, the Replacement Servicer, the Backup Servicer and the Subordinated Lender, under the Series 2021-1 Agreements.
(c)Where notice of a Final Redemption or Change in Circumstances Redemption has been given, the applicable Series 2021-1 Debt Securities being redeemed will, on the date fixed for redemption, subject to satisfaction of any applicable conditions as specified by the Issuer in the notice provided pursuant to Section 2.6(b)(i), become due and payable at the Final Redemption Price for such Class, together with, in the case of a Change in Circumstances Redemption in whole or in part in respect of any Class B Noteholder, the applicable Class B Early Redemption Amount, and on such date (unless the Issuer defaults in the payment of such Final Redemption Price and/or Class B Early Redemption Amount), the Series 2021-1 Debt Securities will cease to bear interest. On the date fixed for redemption, subject to satisfaction of any applicable conditions as specified by the Issuer in the notice provided pursuant to Section 2.6(b)(i) (i), each applicable Series 2021-1 Noteholder will be paid such Series 2021-1 Noteholder’s pro rata share of the Final Redemption Price and, as the case may be, Class B Early Redemption Amount, for the applicable Class of Series 2021-1 Debt Securities upon presentation and surrender of its respective Series 2021-1 Debt Securities at the office or agency specified, as applicable, and (ii) each other Person to whom monies are owed under Section 2.6(b) will be paid all amounts owing to such Person from the amounts deposited in the Series 2021-1 Collections Account in accordance with Article 5; provided, that no redemption may be effected unless, concurrently with the Final Redemption or Change in Circumstances Redemption occurring under this Section 2.6, all amounts due under this clause (c) and clause (b)(ii) above will be paid in full from funds on deposit in the Series 2021-1 Collections Account.
(d)On any Settlement Date, provided that no Related Event of Default has occurred and is continuing and after giving effect to any redemption contemplated by this Section 2.6(d) no Related Event of Default, Amortization Event or event which with the giving of notice or passage of time would result in a Related Event of Default or Amortization Event will occur, the Issuer may in its discretion redeem the Series 2021-1 Debt Securities in whole or in part, in connection with:
[***]
(e)Any Optional Redemption shall be subject to the conditions, and subject to the satisfaction of any other conditions applicable to such Optional Redemption as specified by the Issuer in the notice provided pursuant to Section 2.6(e)(i), as follows:
(i)the Issuer will, at least ten (10) Business Days prior to the related Settlement Date, notify the Indenture Trustee and each Series 2021-1 Noteholder of the redemption, which notice will state (i) the date fixed for redemption, (ii) in the case of a partial redemption, the partial principal amount of each Class of Series 2021-1 Debt Securities to be redeemed in connection with the Optional Redemption, together with any unpaid interest accrued thereon to (but excluding) the date fixed for redemption, and the Early Redemption Amount in respect thereof (the “Optional Redemption Price”); provided that following such Optional Redemption the ratio of the aggregate outstanding principal amount of the Class A Debt Securities to the aggregate outstanding principal amount of the Class B Debt Securities shall be the same as such ratio prior to the Optional Redemption; (iii) the record date for such redemption, which will be one Business
Day before the date fixed for redemption; and (iv) any other conditions applicable to the redemption;
(ii)the Issuer will deposit to the Series 2021-1 Collections Account, on or before the related Settlement Date, an amount equal to the sum of (i) the Optional Redemption Price for each Class of Series 2021-1 Debt Securities, and (ii) all fees, expenses, indemnities and other amounts owing to the Series 2021-1 Noteholders, or to or by the Indenture Trustee, the Structuring Agent, the Servicer, the Replacement Servicer, the Backup Servicer and the Subordinated Lender, under the Series 2021-1 Agreements;
(iii)the Issuer may obtain releases of the charge under the Indenture in any part of the Series 2021-1 Collateral from time to time, provided that (i) each Series 2021-1 Noteholder will have been paid such Series 2021-1 Noteholder’s share of the Optional Redemption Price for the applicable Class of Series 2021-1 Debt Securities; (ii) each other Person to whom monies are owed under this Section 2.6(e) will be paid all amounts owing to such Person from the amounts deposited in the Collections Account in accordance with Section 5.2; (iii) the Servicer will have delivered to the Indenture Trustee and each Series 2021-1 Noteholder (A) a schedule of the Obligor Accounts to be released (the “Release Schedule”), and (B) an updated schedule of Obligor Accounts reflecting the Series 2021-1 Collateral following the proposed release, each of which will be in form and substance satisfactory to (x) the Class A Noteholders acting by Extraordinary Resolution of the Class A Noteholders and (y) the Class B Noteholders acting by Extraordinary Resolution of the Class B Noteholders; (iv) the Servicer will have certified that immediately after giving effect to any requested release, no Class A Pool Balance Deficiency and no Class B Pool Balance Deficiency shall exist; (v) the Servicer will have certified that in selecting Series 2021-1 Collateral for release, the Issuer did not use any adverse selection procedures with respect to the Series 2021-1 Collateral released; and (vi) immediately after giving effect to any requested release, the amount on deposit in the Series 2021-1 Cash Reserve Account shall be not less than the Required Cash Reserve Amount; and
(iv)Upon satisfaction of the conditions specified in 2.6(e)(iii), the Indenture Trustee will promptly release the portion of the Series 2021-1 Collateral listed on the Release Schedule and will deliver to the Issuer, the Servicer and each Series 2021-1 Noteholder such documents and certificates in respect of the release as they may reasonably request.
1.7Transfer Restrictions
(a)Each note or instrument representing the Class A Debt Securities shall be imprinted with a legend in substantially the following form:
“EXCEPT IN THE PROVINCE OF MANITOBA, IN ACCORDANCE WITH NATIONAL INSTRUMENT 45-102 — RESALE OF SECURITIES, UNLESS OTHERWISE PERMITTED UNDER CANADIAN SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE THE DATE THAT IS FOUR MONTHS AND A DAY AFTER THE LATER OF (I) THE DATE HEREOF; AND (II) THE DATE THE ISSUER BECOMES A REPORTING ISSUER IN ANY PROVINCE OR TERRITORY OF CANADA. IN THE PROVINCE OF MANITOBA, UNLESS OTHERWISE PERMITTED UNDER APPLICABLE CANADIAN SECURITIES LAWS OR WITH THE PRIOR WRITTEN CONSENT OF THE APPLICABLE REGULATORS, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE THE DATE THAT IS TWELVE MONTHS AND A DAY AFTER THE DATE THE PURCHASER ACQUIRED THE SECURITY.”
“THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. BY ITS ACCEPTANCE OF THIS NOTE THE HOLDER HEREOF IS DEEMED TO REPRESENT TO THE ISSUER, THE SELLER AND THE SERVICER AND THE INDENTURE TRUSTEE THAT IT IS AN “ACCREDITED
INVESTOR” AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D PROMULGATED UNDER THE U.S. SECURITIES ACT (AN “ACCREDITED INVESTOR”) AND THAT IT IS ACQUIRING THIS NOTE FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF ANY OTHER PERSON) FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, PUBLIC DISTRIBUTION HEREOF. NO SALE, PLEDGE OR OTHER TRANSFER OF THIS NOTE MAY BE MADE BY ANY PERSON UNLESS EITHER SUCH SALE, PLEDGE OR OTHER TRANSFER IS OTHERWISE MADE IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT, IN WHICH CASE THE INDENTURE TRUSTEE SHALL REQUIRE THAT BOTH THE PROSPECTIVE TRANSFEROR AND THE PROSPECTIVE TRANSFEREE CERTIFY TO THE INDENTURE TRUSTEE, THE ISSUER AND THE SELLER AND THE SERVICER IN WRITING THE FACTS SURROUNDING SUCH TRANSFER, WHICH CERTIFICATION SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO THE INDENTURE TRUSTEE AND THE ISSUER.”
(b)Each note or instrument representing the Class B Debt Securities shall be imprinted with a legend in substantially the following form:
“EXCEPT IN THE PROVINCE OF MANITOBA, IN ACCORDANCE WITH NATIONAL INSTRUMENT 45-102 — RESALE OF SECURITIES, UNLESS OTHERWISE PERMITTED UNDER CANADIAN SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE THE DATE THAT IS FOUR MONTHS AND A DAY AFTER THE LATER OF (I) THE DATE HEREOF; AND (II) THE DATE THE ISSUER BECOMES A REPORTING ISSUER IN ANY PROVINCE OR TERRITORY OF CANADA. IN THE PROVINCE OF MANITOBA, UNLESS OTHERWISE PERMITTED UNDER APPLICABLE CANADIAN SECURITIES LAWS OR WITH THE PRIOR WRITTEN CONSENT OF THE APPLICABLE REGULATORS, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE THE DATE THAT IS TWELVE MONTHS AND A DAY AFTER THE DATE THE PURCHASER ACQUIRED THE SECURITY.”
“THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “U.S. SECURITIES ACT”), OR UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES. BY ITS ACCEPTANCE OF THIS NOTE THE HOLDER HEREOF IS DEEMED TO REPRESENT TO THE ISSUER, THE SELLER AND THE SERVICER AND THE INDENTURE TRUSTEE THAT IT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D PROMULGATED UNDER THE U.S. SECURITIES ACT (AN “ACCREDITED INVESTOR”) AND THAT IT IS ACQUIRING THIS NOTE FOR ITS OWN ACCOUNT (AND NOT FOR THE ACCOUNT OF ANY OTHER PERSON) FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, PUBLIC DISTRIBUTION HEREOF. NO SALE, PLEDGE OR OTHER TRANSFER OF THIS NOTE MAY BE MADE BY ANY PERSON UNLESS EITHER SUCH SALE, PLEDGE OR OTHER TRANSFER IS OTHERWISE MADE IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT, IN WHICH CASE THE INDENTURE TRUSTEE SHALL REQUIRE THAT BOTH THE PROSPECTIVE TRANSFEROR AND THE PROSPECTIVE TRANSFEREE CERTIFY TO THE INDENTURE TRUSTEE, THE ISSUER AND THE SELLER AND THE SERVICER IN WRITING THE FACTS SURROUNDING SUCH TRANSFER, WHICH CERTIFICATION SHALL BE IN FORM AND SUBSTANCE SATISFACTORY TO THE INDENTURE TRUSTEE AND THE ISSUER.”
(c)The Indenture Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Supplemental Indenture or under Applicable Law with respect to any transfer of any interest in any Series 2021-1 Debt Securities (including any transfers between or among depository members or beneficial owners in any global certificate representing any Series 2021-1 Debt Securities that is held in book entry only form) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Supplemental Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof.
Article 3
ADDITIONAL COVENANTS
1.1Issuer Covenants
(a)The Issuer hereby covenants in favour of the Indenture Trustee with respect to the Series 2021-1 Debt Securities that:
(i)Provision of Information. The Issuer shall deliver or cause to be delivered to the Indenture Trustee on a confidential basis such financial statements, reports and other information relating to the conduct of the business and affairs of the Issuer as the Series 2021-1 Noteholders may reasonably require including, without limitation, information pertaining to any actual or anticipated Related Event of Default or other event which could reasonably be anticipated to have a Material Adverse Effect on the affairs of the Issuer and copies of all Related Program Agreements (including any amendments thereto) in effect from time to time; provided, however, that any notice or information pertaining to any actual or anticipated Related Event of Default must be given to a Responsible Officer of the Indenture Trustee and provided, further, notice of an anticipated Related Event of Default shall not be deemed to put the Indenture Trustee on notice of an actual Related Event of Default and shall not cause the Indenture Trustee to assume any obligation to investigate whether an actual Related Event of Default has occurred.
(ii)Security Interest. The Issuer shall defend its security interests in and to the Series 2021-1 Collateral, whether now existing or hereafter acquired, against all claims of third parties claiming through or under the Seller. The Issuer will notify the Indenture Trustee promptly upon becoming aware of an encumbrance claimed against the Series 2021-1 Collateral other than the Security Interests granted in favour of the Indenture Trustee hereunder.
(iii)No Sale. The Issuer shall not sell, transfer, exchange or otherwise dispose of any of the Series 2021-1 Collateral except in accordance with the Series 2021-1 Agreements.
(iv)Delivery of Reports. Delivery of reports, information and documents to the Indenture Trustee shall be for informational purposes only and the Indenture Trustee’s receipt of such reports, information and documents shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Issuer’s compliance with any of its covenants under the Master Trust Indenture or under this Supplemental Indenture (as to which the Indenture Trustee is entitled to rely exclusively on a Certificate of the Issuer).
(v)Interest Rate Hedging Agreements. If at any time: [***]
(b)The Issuer acknowledges and agrees that Section 2.2 of the Receivables Sale and Servicing Agreement is inapplicable in respect of the Series 2021-1 Debt Securities and consequently, for the avoidance of doubt, a Funding Account and Prefunding Ledgers are not required to be established in respect of the Series 2021-1 Debt Securities and so Sections 6.5, 6.6 and 6.7 of the Receivables Sale and Servicing Agreement are inapplicable in respect of the Series 2021-1 Debt Securities.
1.2Amendments to Series 2021-1 Agreements
The Issuer hereby covenants and agrees with the Indenture Trustee that so long as any of the Series 2021-1 Debt Securities remain outstanding, it will provide prompt prior written notice to the Indenture Trustee of, and it shall not agree, execute or consent to, any assignment, amendment, supplement, modification, restatement, replacement or waiver of, or postponement of compliance with, the terms and conditions on the part of any other party to any Series 2021-1 Agreement unless, subject to Section 11.11(b) of the Master Trust Indenture and the terms of the Note Purchase Agreement, the Series 2021-1 Noteholders of each Class have consented thereto pursuant to an Extraordinary
Resolution or as otherwise required by the Note Purchase Agreement. No amendment of any of the Series 2021-1 Agreements having an adverse effect on the Indenture Trustee’s rights, benefits or obligations shall be valid without the Indenture Trustee’s consent thereto.
Article 4
SECURITY FOR THE SERIES 2021-1 DEBT SECURITIES
1.1Security for the Series 2021-1 Debt Securities
As security for the due payment of all Obligations Secured in respect of the Series 2021-1 Debt Securities (the “Related Obligations Secured”) and the performance by the Issuer of all of the Related Obligations Secured, the Issuer hereby mortgages, charges, pledges, grants, transfers, assigns, hypothecates and sets over unto the Indenture Trustee to and in favour of the Indenture Trustee for the benefit of the Related Specified Creditors and grants to the Indenture Trustee for the benefit of the Related Specified Creditors a Security Interest in, to the exclusion of all other secured creditors, the benefit of the following property and recourse of the Indenture Trustee and Related Specified Creditors for payment and all Related Obligations Secured shall be limited to the following property (collectively, the “Series 2021-1 Collateral”):
(a)all of the Issuer’s right, title and interest in, to and under the Series 2021-1 Assigned Obligor Account Assets;
(b)the right to receive all distributions from the Series 2021-1 Assigned Obligor Account Assets;
(c)all Collections of the Series 2021-1 Assigned Obligor Account Assets;
(d)all of the Issuer’s right, title and interest in, to and under the Series 2021-1 Agreements to the extent related thereto and every other agreement, instrument or document executed and delivered thereunder, including, without limitation, (i) all revenues and other moneys now due and payable or hereafter to become due and payable to the Issuer thereunder or in connection therewith by the other parties to any Series 2021-1 Agreement or receivable by the Issuer pursuant to or in connection with any Series 2021-1 Agreement, (ii) all rights of the Issuer to damages arising out of, or for breach or default with respect to, the Series 2021-1 Agreement, (iii) all deeds, documents, writings, papers, books, books of accounts and other records relating to any Series 2021-1 Agreement, (iv) the benefit of any guarantees or indemnities relating to any of the foregoing, and (v) all rights of the Issuer to perform and exercise all remedies in connection with the Series 2021-1 Agreements;
(e)all of the Issuer’s right, title and interest in and to the Series 2021-1 Accounts and all monies or investments, including all interest and other investment earnings (net of losses and expenses) deposited therein or credited thereto from time to time; and
(f)all benefits, advantages, property or assets of whatsoever kind in any form derived or realized, directly or indirectly, pursuant to or from any dealings with any of the foregoing property, rights and assets or that indemnifies or compensates for loss or theft of or damage to or destruction of any such property, rights and assets and any other proceeds thereof.
The Indenture Trustee’s rights, claim and recourse on behalf of the Series 2021-1 Noteholders and the other Related Specified Creditors against the Issuer in respect of the Related Obligations Secured owed to the Series 2021-1 Noteholders and the other Related Obligations Secured shall be limited to the Issuer’s right, title and interest in and to the Series 2021-1 Collateral, and no recourse shall be had to any other assets of the Issuer or to any assets of the General Partner. Notwithstanding the foregoing, the security hereby constituted is in addition to any other security which the Indenture Trustee may hold as security for the payment or performance of all or any part of the Related Obligations Secured.
1.2Habendum
To have and to hold the Series 2021-1 Collateral and all rights hereby conferred unto the Indenture Trustee forever but in trust nevertheless for the benefit of the Series 2021-1 Noteholders and the other
Related Specified Creditors and for the uses and purposes and subject to the terms and conditions herein set forth.
1.3Security Interest Valid
The Security Interest made and created by or pursuant to this Supplemental Indenture creates a valid and continuing security interest in the Series 2021-1 Collateral in favour of the Indenture Trustee and shall be and is hereby deemed to be effective, and value therefor given, as of and from the date of this Supplemental Indenture, whether or not any of the money secured by this Supplemental Indenture shall be advanced or received before or after or at the time of the issue of any of the Series 2021-1 Debt Securities or before or after or upon the date of this Supplemental Indenture.
1.4Reversion of 2021-1 Collateral to the Issuer
These presents are upon the express condition that if the Issuer shall well and truly pay all monies payable by the Issuer under the Series 2021-1 Debt Securities and satisfy all Related Obligations Secured, then these presents and the estate and rights hereby granted by the Issuer to the Indenture Trustee shall cease and become null and void and the Series 2021-1 Collateral shall revert and revest in the Issuer, without any release, acquittance, reconveyance, re-entry or other act or formality whatsoever.
1.5Attachment
The Issuer and the Indenture Trustee agree that it is their intention that the Security Interest hereby created shall attach immediately to the Series 2021-1 Collateral in which the Issuer has any interest on the date hereof, and, with respect to after-acquired property, forthwith at the time that the Issuer shall acquire an interest therein.
1.6Remedies; Power of Attorney
(a)Upon being instructed to institute Proceedings with respect to the enforcement of the Series 2021-1 Collateral by written direction of (i) so long as the Series 2021-1 Class A Debt Securities are outstanding, (A) each Class A Noteholder, if there are less than three Class A Noteholders; and (B) written direction of holders of at least 66 2/3% of the aggregate principal amount of the Class A Debt Securities, if there are three or more Class A Noteholders, and (b) following the payment in full of the Class A Debt Securities, written direction of holders of at least 50% of the aggregate principal amount of the Class B Debt Securities, the Indenture Trustee may (in accordance with such direction and subject to the Master Trust Indenture) forthwith or at any time thereafter:
(i)commence legal action to enforce payment or performance of the Related Obligations Secured;
(ii)require the Issuer to disclose to the Indenture Trustee the location or locations of the Series 2021-1 Collateral and the Issuer agrees to make such disclosure when so required by the Indenture Trustee;
(iii)require the Issuer, at the Issuer’s sole expense, to assemble the Series 2021-1 Collateral and deliver or make the Series 2021-1 Collateral available at a place or places designated by the Indenture Trustee to the Issuer that is reasonably convenient for the Issuer, and the Issuer agrees to so assemble, deliver or make available the Series 2021-1 Collateral;
(iv)enter any premises where the Series 2021-1 Collateral may be situate and take possession of the Series 2021-1 Collateral by any method permitted by Applicable Law;
(v)repair, process, modify, complete or otherwise deal with the Series 2021-1 Collateral and prepare for the disposition of the Series 2021-1 Collateral, whether on the premises of the Issuer or otherwise and take such steps as it considers necessary to maintain, preserve or protect the Series 2021-1 Collateral;
(vi)seize, collect, realize or dispose of the Series 2021-1 Collateral by private sale, public sale, lease, or otherwise upon such terms and conditions as the Indenture Trustee may determine or otherwise deal with the Series 2021-1 Collateral or any part thereof in such manner, upon such terms and conditions and of such times as may seem to the Indenture Trustee advisable;
(vii)subject to any required approval of any governmental authority, carry on all or any part of the business or businesses of the Issuer and may, to the exclusion of all others, enter upon, occupy and use all or any of such premises, buildings, plant, undertaking and other property of or used by the Issuer as part of or for such time and in such manner as the Indenture Trustee sees fit, free of charge, and the Indenture Trustee shall not be liable to the Issuer for any act, omission, or negligence (other than gross negligence or wilful misconduct) in so doing or for any rent, charges, depreciation, damages or other amount in connection therewith or resulting therefrom and any sums expended by the Indenture Trustee shall bear interest at the highest rate of interest applicable to any of the Related Obligations Secured until payment thereof;
(viii)file such proofs of claim or other documents as may be necessary or desirable to have its claim lodged in any bankruptcy, winding-up, liquidation, dissolution or other proceedings (voluntary or otherwise) relating to the Issuer;
(ix)borrow money for the purpose of carrying on the business of the Issuer or for the maintenance, preservation or protection of the Series 2021-1 Collateral and mortgage, charge, pledge or grant a security interest in the Series 2021-1 Collateral, whether or not in priority to the security created herein, to secure repayment of any money so borrowed;
(x)pay or discharge any Lien (other than the Permitted Liens) or claims by any Person in the Series 2021-1 Collateral and the amount so paid shall be added to the Related Obligations Secured and secured hereby and shall bear interest at the highest rate of interest at that time in respect of any of the Related Obligations Secured until payment thereof;
(xi)take any other action, suit, remedy or proceeding authorized or permitted by this Agreement, the PPSA or by Applicable Law or equity;
(xii)to the extent permitted by Applicable Law, transfer any securities forming part of the Series 2021-1 Collateral into the name of the Indenture Trustee or its nominee, with or without disclosing that the securities are subject to a security interest and cause the Indenture Trustee or its nominee to become the entitlement holder with respect to any security entitlements forming part of the Series 2021-1 Collateral;
(xiii)sell, transfer or use any investment property included in the Series 2021-1 Collateral of which the Indenture Trustee or its agent has “control” within the meaning of Section 22.1(2) of the PPSA; and
(xiv)appoint a receiver as its agent to take any of the foregoing actions on its behalf.
(b)If the Indenture Trustee is entitled to exercise its rights and remedies in accordance with Section 4.6(a) hereof, the Indenture Trustee may take proceedings in any court of competent jurisdiction for the appointment of a Receiver of the Series 2021-1 Collateral or may by appointment in writing appoint any Person to be a Receiver of the Series 2021-1 Collateral and may remove any Receiver so appointed by the Indenture Trustee and appoint another in its stead; and any such Receiver appointed by instrument in writing shall have powers of the Indenture Trustee set out in Section 4.6(a)(i) to (a)(xiv), inclusive, including, without limitation, the power (i) to take possession of the Series 2021-1 Collateral, (ii) to carry on the business of the Issuer, and (iii) to sell, lease or otherwise dispose of the whole or any part of the Series 2021-1 Collateral at public auction, by public tender or by private sale, either for cash or upon credit, at such time and upon such terms and conditions as the Receiver may determine; provided that, to the extent permitted and in the manner prescribed by Applicable Law any such Receiver shall
be deemed the agent of the Issuer and the Indenture Trustee shall not be in any way responsible for any misconduct or negligence of any such Receiver.
(c)The Issuer hereby irrevocably constitutes and appoints the Indenture Trustee as the true and lawful attorney of the Issuer with power of substitution in the name of the Issuer, and each Series 2021-1 Noteholder irrevocably accepts, ratifies and confirms the appointment of the Indenture Trustee as such, to do any and all such acts and things or execute and deliver all such agreements, documents and instruments as either of the Indenture Trustee, in its sole discretion, considers necessary or desirable to carry out the provisions and purposes of this Supplemental Indenture or to exercise any of its rights and remedies hereunder, and to do all acts or things necessary to realize or collect the proceeds, including, without limitation:
(i)to evidence or protect the Issuer’s interest in the Series 2021-1 Collateral and to execute and file, in the Seller’s or the Servicer’s name (as applicable) and on the Seller’s or the Servicer’s behalf (as applicable), such recording, registration, financing or similar statements (including any amendments, renewals and continuation statements) under Applicable Laws, including, in any personal property registry office in such jurisdictions where it may be necessary to validate, perfect or protect the Issuer’s interest in the Series 2021-1 Collateral;
(ii)to ask, demand, collect, sue for, recover, compromise, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Series 2021-1 Collateral;
(iii)to receive, endorse, and collect any drafts or other instruments, documents and chattel paper, in connection with clause (b) above;
(iv)to file any claims or take any action or institute any proceedings which may be necessary or desirable for the collection of any of the Series 2021-1 Collateral or otherwise to enforce the rights of the Indenture Trustee with respect to any of the Series 2021-1 Collateral;
(v)to perform the affirmative obligations of the Issuer hereunder; and
(vi)to prepare, execute, deliver, and/or register in the Seller’s or the Servicer’s name (as applicable) and on the Seller’s or the Servicer’s behalf (as applicable), such instruments and documents (including assignments) necessary or desirable in furtherance of the foregoing.
The Issuer hereby acknowledges, consents and agrees that the power of attorney granted pursuant to this Section is irrevocable (until termination of the Security Interest hereunder) and coupled with an interest. The Issuer hereby ratifies and agrees to ratify all acts of any such attorney taken or done in accordance with this Section. The Indenture Trustee agrees that it shall not exercise the power of attorney granted pursuant to this Section unless a Related Event of Default has occurred and is continuing and it has been instructed by Series 2021-1 Noteholders to institute Proceedings with respect to the enforcement of the Series 2021-1 Collateral in accordance with the Master Trust Indenture.
1.7Consents and Acknowledgements
(a)Immediately before any reassignment or conveyance of an interest in the Series 2021-1 Collateral pursuant to and in accordance with the Series 2021-1 Agreements, the Indenture Trustee shall automatically and without further action be deemed to have released and discharged its Security Interest in the Series 2021-1 Collateral and all amounts due or to become due and all amounts received with respect thereto and all proceeds thereof and the Indenture Trustee hereby irrevocably authorizes the Issuer to execute and deliver, on behalf of or in the name of the Indenture Trustee all discharges of registrations made in the name of the Indenture Trustee in respect of such discharged interests as are necessary in respect of such interest in the Series 2021-1 Collateral, provided that the execution, delivery and registration of such discharges shall only be effected if such execution, delivery and registration would not have an adverse effect on
the interests of the Issuer in the Series 2021-1 Collateral not being so assigned or conveyed.
(b)The Indenture Trustee shall do and perform, from time to time, any and all acts and execute any and all further instruments required or reasonably requested by and at the expense of the Issuer to more fully effect the purposes of this Article 4, including the execution of any releases, discharges or reassignments reasonably necessary therefor; provided, prior to executing any such document, the Indenture Trustee shall be entitled to receive a Certificate of the Issuer and an Opinion of Counsel stating that (i) all conditions precedent set forth in the Master Trust Indenture and this Supplemental Indenture to the collateral release, discharge or reassignment have been satisfied and (ii) the collateral release, discharge or reassignment is permitted by the terms of the Master Trust Indenture and this Supplemental Indenture (all at the expense of the Issuer).
Article 5
ACCOUNTS AND APPLICATIONS OF PAYMENTS
1.1Eligible Deposit Account
The Issuer will open and maintain the Series 2021-1 Collections Account and the Series 2021-1 Cash Reserve Account, and shall ensure that the Series 2021-1 Accounts are subject to the Blocked Account Agreements. If, at any time, the Series 2021-1 Collections Account or the Series 2021-1 Cash Reserve Account ceases to be an Eligible Deposit Account, the Issuer shall, within thirty (30) days establish a replacement Series 2021-1 Collections Account and/or Series 2021-1 Cash Reserve Account, as the case may be, for the applicable account meeting the definition of Eligible Deposit Account and transfer any cash and/or any investments to such replacement Series 2021-1 Collections Account and/or Series 2021-1 Cash Reserve Account, as the case may be, and from the date such replacement Series 2021-1 Collections Account and/or Series 2021-1 Cash Reserve Account, as the case may be, is established, it shall be the “Series 2021-1 Collections Account” and/or “Series 2021-1 Cash Reserve Account”, as the case may be. The amounts on deposit in the Series 2021-1 Accounts may only be invested in Permitted Investments, and any such Permitted Investments shall be maintained in the applicable Series 2021-1 Account.
1.2Application of Collections
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1.3Cash Reserve Account
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1.4Application of Series 2021-1 Collateral Upon Default
Upon a declaration that the Series 2021-1 Debt Securities are immediately due and payable in accordance with Section 8.2 of the Master Trust Indenture, all money and property derived from the Series 2021-1 Collateral that is available for distribution by the Issuer, the Indenture Trustee, the Paying Agent or a Receiver appointed by the Indenture Trustee, as the case may be, shall be applied as follows:
(a)first, to pay or reimburse any unpaid or unreimbursed fees, costs, charges, expenses and advances of the Indenture Trustee or a Receiver appointed by the Indenture Trustee (including the reasonable fees and disbursements of Counsel to any such Person) solely in connection with the exercise by such Receiver or the Indenture Trustee of all or any of the remedies granted to them under the Master Trust Indenture, including the reasonable remuneration of such Receiver or any agent or employee of such Receiver or any agent of the Indenture Trustee and all outgoings properly paid by such Receiver or the Indenture Trustee in exercising their remedies as aforesaid, and, if any, all taxes, assessments and other charges ranking in priority to the Security Interest on the Series 2021-1 Collateral, in each case to the extent allocable to the Series 2021-1 Collateral; and
(b)second, in accordance with Section 5.2, provided that all amounts that would otherwise be payable to the Seller (including in its capacity as Servicer) shall be made to the
holders of Series 2021-1 Debt Securities as an additional payment of principal until such time as all Series 2021-1 Debt Securities have been repaid in full.
1.5Application of Series 2021-1 Collateral Upon Redemption
On the date fixed for a redemption of Series 2021-1 Debt Securities hereunder, the Paying Agent will withdraw the amount of the related Final Redemption Price, as applicable, from the Series 2021-1 Collections Account and pay such amount to the Series 2021-1 Noteholders in accordance with Section 2.6, and, will pay such other amounts deposited in the Series 2021-1 Collections Account in connection with such Final Redemption, as applicable, to the applicable Related Specified Creditors entitled thereto in accordance with Section 5.2.
1.6Distributions
All distributions made with respect to each Class on each Settlement Date will be allocated pro rata among the Series 2021-1 Noteholders in such Class based on their respective percentage interests. Except as otherwise provided below, all such distributions with respect to each Class on each Settlement Date will be made to the Series 2021-1 Noteholders of the respective Class of record at the close of business on the related Record Date and will be made by wire transfer of immediately available funds to the account of any such Series 2021-1 Noteholder at a bank or other entity having appropriate facilities therefor, if such Series 2021-1 Noteholder will have provided the Paying Agent with wiring instructions no less than five (5) Business Days prior to the related Record Date (which wiring instructions may be in the form of a standing order applicable to all subsequent Settlement Dates) or otherwise by cheque mailed or delivered to the address of such Series 2021-1 Noteholder as it appears in the Note Register. The final distribution on each Series 2021-1 Note will be made in like manner, but only upon presentation and surrender of such Series 2021-1 Note at the offices of the Note Registrar or such other location specified in the notice to Series 2021-1 Noteholders of such final distribution delivered pursuant to Section 5.7. Prior to any termination of the Receivables Sale and Servicing Agreement, any distribution that is to be made with respect to a Series 2021-1 Note in reimbursement of a reduction previously allocated thereto, which reimbursement is to occur after the date on which such Series 2021-1 Note is surrendered as contemplated by the preceding sentence, will be made by cheque mailed or delivered to the address of the Series 2021-1 Noteholder that surrendered such Series 2021-1 Note as such address last appeared in the Note Register or to any other address of which the Paying Agent was subsequently notified in writing. If such cheque is returned to the Paying Agent, the Paying Agent, directly or through an agent, will take such reasonable steps to contact the related Series 2021-1 Noteholder and deliver such cheque as it will deem appropriate. Any funds in respect of a cheque returned to the Paying Agent will be set aside by the Paying Agent and held uninvested in trust and credited to the account of the appropriate Series 2021-1 Noteholder. The costs and expenses of locating the appropriate Series 2021-1 Noteholder and holding such funds will be paid out of such funds. No interest will accrue or be payable to any former Series 2021-1 Noteholder on any amount held in trust hereunder. If the Paying Agent has not, after having taken such reasonable steps, located the related Series 2021-1 Noteholder by the second anniversary of the initial sending of a cheque, the Paying Agent will, to the extent it is not required to dispose of such unclaimed funds otherwise in accordance with applicable provincial escheatment law, distribute the unclaimed funds to the Issuer.
1.7Final Distribution
Except as otherwise provided in the Receivables Sale and Servicing Agreement, whenever the Paying Agent is advised in writing by the Servicer that the final distribution with respect to any Class of Series 2021-1 Debt Securities (determined without regard to any possible future reimbursement of any reductions previously allocated to such Class of Series 2021-1 Debt Securities) will be made on the next Settlement Date, the Paying Agent will, no later than five (5) Business Days after the receipt of such written advice, provide to each Series 2021-1 Noteholder of record on such date of such Class of Series 2021-1 Debt Securities, with a copy to the Indenture Trustee and Note Registrar, a notice to the effect that:
(a)the Paying Agent expects that the final distribution with respect to such Class of Series 2021-1 Debt Securities will be made on such Settlement Date but only upon presentation and surrender of such Series 2021-1 Debt Securities at the office of the Note Registrar or at such other location therein specified, and
(b)no interest will accrue in respect of such Series 2021-1 Debt Securities from and after such Settlement Date if the final distribution is made on such date,
and specifying (A) the Settlement Date upon which the Series 2021-1 Assigned Obligor Account Assets will be liquidated and final payment of the Series 2021-1 Debt Securities will be made, (B) the amount of any such final payment, (C) that the Record Date otherwise applicable to such Settlement Date is not applicable, and (D) that payments will be made only upon presentation and surrender of the Series 2021-1 Debt Securities at the offices of the Note Registrar or such other location therein designated.
Upon presentation and surrender of the Series 2021-1 Debt Securities by the Series 2021-1 Noteholders on the final Settlement Date, the Paying Agent will, based solely on the information provided to it by the Servicer and the Note Registrar, distribute to each Series 2021-1 Noteholder so presenting and surrendering its Debt Securities such Series 2021-1 Noteholder’s percentage interest of that portion of the amounts then on deposit in the Series 2021-1 Collections Account that are allocable to payments on the Class of Series 2021-1 Debt Securities so presented and surrendered. Amounts on deposit in the Series 2021-1 Collections Account as of the final Settlement Date, exclusive of amounts that are payable to the Servicer as additional servicing compensation or would be payable to any Person in accordance with Section 5.2 or Section 5.4, as the case may be, will be allocated and paid in the order of priority provided for in Section 5.2 or Section 5.4, as the case may be, in each case to the extent of remaining available funds.
Any funds not distributed to any Series 2021-1 Noteholders of such Class on such Settlement Date because of the failure of such Series 2021-1 Noteholder to tender their Series 2021-1 Debt Securities will, on such date, be set aside and held uninvested in trust and credited to the account or accounts of the appropriate non-tendering Series 2021-1 Noteholders. If any Series 2021-1 Debt Securities as to which notice has been given pursuant to this Section will not have been surrendered for cancellation within six (6) months after the time specified in such notice, the Paying Agent will mail or deliver a second notice to the remaining non-tendering Series 2021-1 Noteholders to surrender their Debt Securities for cancellation in order to receive the final distribution with respect thereto. If within one (1) year after the second notice all such Series 2021-1 Debt Securities will not have been surrendered for cancellation, the Paying Agent, directly or through an agent, will take such steps to contact the remaining non-tendering Series 2021-1 Noteholders concerning the surrender of their Series 2021-1 Debt Securities as it will deem appropriate. The costs and expenses of holding such funds in trust and of contacting such Series 2021-1 Noteholders following the first anniversary of the delivery of such second notice to the non-tendering Series 2021-1 Noteholders will be paid out of such funds. No interest will accrue or be payable to any former Series 2021-1 Noteholder on any amount held in trust pursuant to this paragraph. If all of the Series 2021-1 Debt Securities will not have been surrendered for cancellation by the first anniversary following delivery of the second notice, the Paying Agent will to the extent it is not required to dispose of such unclaimed funds otherwise in accordance with applicable provincial escheatment law, distribute all unclaimed funds to the Issuer.
Article 6
SELLER NOTES
1.1Seller Notes
Seller Notes may be issued hereunder upon the terms and subject to the conditions herein. The Initial Seller Note will be issued in registered form, substantially in the form of Schedule F, and shall, upon issue, be executed by the Issuer for delivery to Seller. The Initial Seller Note shall be a single note and shall evidence the indebtedness of the Issuer to the Seller in respect of the Deferred Asset Purchase Price and the right of Seller to receive payments in the amounts and at the times specified herein. Each Seller Note shall be executed by manual or facsimile signature on behalf of the Issuer by its authorized officers. Seller Notes bearing the manual or facsimile signature of an individual who was, at the time when such signature was affixed, authorized to sign on behalf of the Issuer shall not be rendered invalid, notwithstanding that such individual ceased to be so authorized prior to the delivery of such Seller Notes or does not hold such office at the date of such Seller Notes.
1.2Rights of Seller
The Seller Note will be non-transferable and at all times be beneficially owned by the Seller and the Issuer shall not be required to deal directly with any person other than the Seller in respect of the Seller Note.
Article 7
APPOINTMENT OF PAYING AGENT
1.1Appointment of Paying Agent
Flexiti Financial Inc. is hereby appointed and shall serve as the initial Paying Agent of the Series 2021-1 Debt Securities. So long as Flexiti Financial Inc. is the Paying Agent of the Series 2021-1 Debt Securities, the Paying Agent shall not be paid a fee for such services. The Paying Agent shall make payments to Series 2021-1 Noteholders pursuant to Section 5.2. The Paying Agent shall have the revocable power to withdraw funds from the Series 2021-1 Collections Account for the purpose of making the payments to in accordance with Article 5. The Indenture Trustee (acting on the written direction of (i) so long as the Series 2021-1 Class A Debt Securities are outstanding, (A) each Class A Noteholder, if there are less than three (3) Class A Noteholders; and (B) written direction of holders of at least 66 2/3% of the aggregate principal amount of the Class A Debt Securities, if there are three (3) of more Class A Noteholders, and (b) following the payment in full of the Class A Noteholders, written direction of holders of at least 50% of the aggregate principal amount of the Class B Debt Securities) may revoke such power and remove the Paying Agent in such capacity if a Servicer Termination Event has occurred or if the Paying Agent shall have failed to perform its obligations under this Supplemental Indenture in any material respect. A Paying Agent, other than Flexiti Financial Inc. acting the initial Paying Agent, shall be permitted to resign as Paying Agent upon sixty (60) days’ prior written notice to the Indenture Trustee, provided that no such voluntary resignation shall be effective until a replacement Paying Agent acceptable to the Indenture Trustee, acting reasonably, has been appointed. In the event that the Paying Agent shall no longer be the Paying Agent, the Indenture Trustee shall appoint a successor selected by the Issuer to act as Paying Agent. The Indenture Trustee shall cause each successor or additional Paying Agent to execute and deliver to the Indenture Trustee an instrument in which such successor or additional Paying Agent shall agree with the Indenture Trustee that it will hold all sums, if any, held by it for payment to the Series 2021-1 Noteholders in trust for the benefit of the Series 2021-1 Noteholders entitled thereto until such sums shall be paid to such Series 2021-1 Noteholders. The Paying Agent shall return all unclaimed funds to the Issuer and upon removal or resignation shall also return all funds in its possession to the Issuer. The provisions of Article 12 of the Master Trust Indenture shall apply, mutatis mutandis, to the Paying Agent. Any reference in the Master Trust Indenture to the Paying Agent shall include any co-paying agent unless the context requires otherwise.
The Paying Agent shall be responsible for performing all tax withholding and tax reporting obligations of the Issuer and the Paying Agent with respect to all payments on the Series 2021-1 Debt Securities, including receipt and administration of tax withholding information (including, without limitation, any applicable Canadian or U.S. form or any other forms), remittance of all required withholding to appropriate taxing authorities and preparation and submission to appropriate taxing authority of all tax reporting with respect to such withholding, and with respect to amounts payable in respect of the Series 2021-1 Debt Securities. Any information required by the Paying Agent to complete all tax withholding and tax reporting obligations of the Issuer shall be immediately provided for by the Issuer to the Paying Agent upon request.
Article 8
EXTRAORDINARY RESOLUTIONS AND DEBTHOLDER PERCENTAGES
1.1Extraordinary Resolutions
In addition to the powers given to the holders of the Debt Obligations generally in Section 11.11 of the Master Trust Indenture and the powers given to the holders of the Series 2021-1 Debt Securities in Section 11.12 of the Master Trust Indenture, the Series 2021-1 Noteholders shall, to the exclusion of the holders of Debt Obligations of all other Series, have the power by Extraordinary Resolution to:
(a)sanction the release of the Issuer from its covenants and obligations under this Supplemental Indenture or the release in whole or in part of the Series 2021-1 Collateral from the security created hereby;
(b)subject to the provisions of the Master Trust Indenture, sanction any assignment, supplement, amendment, modification, restatement or replacement of or waiver of or postponement of compliance with any provision of the Series 2021-1 Debt Securities which shall be agreed to by the Issuer and any modification, alteration, abrogation, compromise or arrangement of or in respect of the rights of the Series 2021-1
Noteholders against the Series 2021-1 Collateral, whether such rights shall arise under the provisions of this Supplemental Indenture or otherwise;
(c)subject to the consent of each of the Related Specified Creditors that is a party to a Related Program Agreement, permit or direct the Indenture Trustee to sanction any supplementation, amendment, modification, restatement or replacement of or waiver of or postponement of compliance with such Related Program Agreement;
(d)assent to any compromise or arrangement by the Issuer with any creditor, creditors or class or classes of creditors or with the holders of any securities of the Issuer;
(e)restrain any holder of any Series 2021-1 Debt Securities from taking or instituting any suit, action or proceeding for the recovery of amounts payable under such Series 2021-1 Debt Securities or hereunder or for the execution of any trust or power hereunder or for the appointment of a Receiver or trustee in bankruptcy or the winding up of the Issuer or for any other remedy hereunder and to direct such holder of any Series 2021-1 Debt Securities to waive any Related Event of Default on which any suit or proceeding is founded;
(f)direct the Indenture Trustee and any holder of Series 2021-1 Debt Securities bringing any action, suit or proceeding to waive the Related Event of Default in respect of which such action, suit or other proceeding shall have been brought;
(g)sanction the sale, exchange or other disposition of the Series 2021-1 Collateral or any part thereof for such consideration as may be specified in the Extraordinary Resolution;
(h)sanction any assignment, amendment, supplement, modification, restatement, replacement or waiver of, or postponement of compliance with, the terms and conditions on the part of any other party to the Receivables Sale and Servicing Agreement, or the assignment by the Seller or Servicer of its rights or assumption of its obligations thereunder;
(i)sanction a release, assignment or sale of the Security Interest in the Series 2021-1 Collateral or any part thereof;
(j)subject to Article 12 of the Master Trust Indenture and this Supplement Indenture, require the Indenture Trustee to exercise or refrain from exercising any of the powers conferred upon it by the Master Trust Indenture; and
(k)take any other action with respect to the Series 2021-1 Debt Securities authorized by the Master Trust Indenture and this Supplemental Indenture to be taken by Extraordinary Resolution.
provided that, to modify the Outstanding Balance, currency, interest rate or the place of payment of a Series 2021-1 Note, the consent of the Series 2021-1 Noteholder of such Series 2021-1 Note is required.
1.2Noteholder Percentages
Notwithstanding the provisions of the Master Trust Indenture, the following provisions shall apply with respect to the Series 2021-1 Debt Securities:
(a)In Section 6.1 of the Master Trust Indenture the reference to “written direction of holders of at least 50% of the aggregate principal amount of the applicable Debt Obligations (or applicable Series or Class of Debt Obligations, as the case may be) then outstanding” shall with respect to the Series 2021-1 Class A Debt Securities only be replaced with “written direction of (A) each Class A Noteholder, if there are less than three Class A Noteholders; and (B) written direction of holders of at least 66 2/3% of the aggregate principal amount of the Class A Debt Securities, if there are three or more Class A Noteholders” and with respect to the Series 2021-1 Noteholders with respect to the entire Series of Debt Obligations only, be replaced with “written direction of (i) so long as the Series 2021-1 Class A Debt Securities are outstanding, (A) each Class A Noteholder, if
there are less than three Class A Noteholders; and (B) written direction of holders of at least 66 2/3% of the aggregate principal amount of the Class A Debt Securities, if there are three or more Class A Noteholders; and (ii) following payment in full of the Class A Debt Securities, written direction of holders of at least 50% of the aggregate principal amount of the Class B Debt Securities”.
(b)In Section 8.2(a) of the Master Trust Indenture, the reference to “request in writing of the holders of such Series representing not less than 50% of the aggregate principal amount of Debt Obligations of such Series then outstanding” shall be replaced with “request in writing of (i) so long as the Series 2021-1 Class A Debt Securities are outstanding, (A) each Class A Noteholder, if there are less than three Class A Noteholders; and (B) request in writing of holders of at least 66 2/3% of the aggregate principal amount of the Class A Debt Securities, if there are three or more Class A Noteholders, and (ii) following the payment in full of the Class A Debt Securities, request in writing of holders of at least 50% of the aggregate principal amount of the Class B Debt Securities”.
(c)In Section 8.2(b) of the Master Trust Indenture, the reference to “holders representing not less than 50% of the aggregate principal amount of Debt Obligations of such Series then outstanding” shall be replaced with “(i) so long as the Series 2021-1 Class A Debt Securities are outstanding, (A) each Class A Noteholder, if there are less than three Class A Noteholders; and (B) written direction of holders of at least 66 2/3% of the aggregate principal amount of the Class A Debt Securities, if there are three or more Class A Noteholders, and (ii) following payment in full of the Class A Debt Securities, holders of at least 50% of the aggregate principal amount of the Class B Debt Securities”.
(d)In Section 9.3 of the Master Trust Indenture, with respect to the Series 2021-1 Class A Debt Securities only, the reference to “66 2/3% of the Debtholders of such Series” shall be replaced with “all Class A Noteholders if there are less than three Class A Noteholders and at least 66 2/3% of the aggregate principal amount of the Class A Debt Securities if there are three or more Class A Noteholders”.
(e)In Section 9.4(a) of the Master Trust Indenture, the reference to “written direction of holders of at least 50% of the aggregate principal amount of the applicable Debt Obligations (or applicable Series or Class of Debt Obligations, as the case may be) then outstanding” shall be replaced with “written direction of (i) so long as the Series 2021-1 Class A Debt Securities are outstanding, (A) each Class A Noteholder, if there are less than three Class A Noteholders; and (B) written direction of holders of at least 66 2/3% of the aggregate principal amount of the Class A Debt Securities, if there are three or more Class A Noteholders, and (ii) following the payment in full of the Class A Debt Securities, written direction of holders of at least 50% of the aggregate principal amount of the Class B Debt Securities”.
(f)In Section 9.10 of the Master Trust Indenture, the reference to “holders of not less than 50% of the aggregate principal amount of Debt Obligations of such Series then outstanding” shall be replaced with “(i) so long as the Series 2021-1 Class A Debt Securities are outstanding, (A) each Class A Noteholder, if there are less than three Class A Noteholders; and (B) holders of at least 66 2/3% of the aggregate principal amount of the Class A Debt Securities, if there are three or more Class A Noteholders, and (ii) following the payment in full of the Class A Debt Securities, holders of at least 50% of the aggregate principal amount of the Class B Debt Securities”; the reference to “all the Debtholders of such Series” in clause (ii) shall be replaced by “(i) so long as the Series 2021-1 Class A Debt Securities are outstanding, (A) each Class A Noteholder, if there are less than three Class A Noteholders; and (B) holders of at least 66 2/3% of the aggregate principal amount of the Class A Debt Securities, if there are three or more Class A Noteholders, and (ii) following the payment in full of the Class A Debt Securities, holders of at least 50% of the aggregate principal amount of the Class B Debt Securities”; and the reference to “Debtholders representing less than 100% of the aggregate principal amount of Debt Obligations of such Series then outstanding” in clause (iii) shall be replaced with “(i) so long as the Series 2021-1 Class A Debt Securities are outstanding, (A) each Class A Noteholder, if there are less than three Class A Noteholders; and (B) holders of at least 66 2/3% of the aggregate principal amount of the Class A Debt Securities, if there are three or more Class A Noteholders, and (ii) following the payment in full of the Class A
Debt Securities, holders of at least 50% of the aggregate principal amount of the Class B Debt Securities”.
(g)In Section 11.12(b)(iii) of the Master Trust Indenture, the reference to “holders of not less than 66 2/3% of the aggregate principal amount then outstanding of the Debt Obligations of such Series” shall, with respect to the Series 2021-1 Class A Debt Securities only, be replaced with “(A) each Class A Noteholder, if there are less than three Class A Noteholders; and (B) holders of at least 66 2/3% of the aggregate principal amount of the Class A Debt Securities, if there are three or more Class A Noteholders” and in the case of the Series 2021-1 Noteholders with respect to the entire Series of Debt Obligations only “(i) so long as the Series 2021-1 Class A Debt Securities are outstanding, (A) each Class A Noteholder, if there are less than three Class A Noteholders; and (B) holders of at least 66 2/3% of the aggregate principal amount of the Class A Debt Securities, if there are three or more Class A Noteholders, and (ii) following payment in full of the Class A Debt Securities, holders of at least 50% of the aggregate principal amount of the Class B Debt Securities”.
(h)In Section 11.12(c)(iii)(B) of the Master Trust Indenture, with respect to the Class A Debt Securities only, the reference to “holders of not less than 66 2/3% of the aggregate principal amount then outstanding of the Debt Obligations of such Class” shall, with respect to the Series 2021-1 Class A Debt Securities only, be replaced with “(A) each Class A Noteholder, if there are less than three Class A Noteholders; and (B) holders of at least 66 2/3% of the aggregate principal amount of the Class A Debt Securities, if there are three or more Class A Noteholders”.
(i)In Section 11.13(a) of the Master Trust Indenture, the reference to “holders of not less than 66 2/3% of the aggregate principal amount of such Debt Obligations (or applicable Series or Class of Debt Obligations, as the case may be)” shall, with respect to the Series 2021-1 Class A Debt Securities only, be replaced with “(A) each Class A Noteholder, if there are less than three Class A Noteholders; and (B) holders of at least 66 2/3% of the aggregate principal amount of the Class A Debt Securities, if there are three or more Class A Noteholders”.
(j)In Section 11.13(b) of the Master Trust Indenture, the reference to “holders of not less than 66 2/3% of the aggregate principal amount of such Debt Obligations (or applicable Series or Class of Debt Obligations, as the case may be)” shall, with respect to the Series 2021-1 Class A Debt Securities only, be replaced with “ (A) each Class A Noteholder, if there are less than three Class A Noteholders; and (B) holders of at least 66 2/3% of the aggregate principal amount of the Class A Debt Securities, if there are three or more Class A Noteholders”.
(k)In Section 11.14(b)(ii) of the Master Trust Indenture, with respect to the Class A Debt Securities only, the reference to “holders of not less than 66 2/3% of the aggregate principal amount then outstanding of the Debt Obligations of such Class” shall be replaced with “(A) each Class A Noteholder, if there are less than three Class A Noteholders; and (B) holders of at least 66 2/3% of the aggregate principal amount of the Class A Debt Securities, if there are three or more Class A Noteholders”.
Article 9
GENERAL
1.1Obligations of the Issuer
Nothing contained in this Supplemental Indenture shall in any way modify or relieve the Issuer from its obligations to carry out its covenants contained in the Master Trust Indenture.
1.2Acceptance
The Issuer, the General Partner, the Paying Agent and the Indenture Trustee hereby accepts the powers, duties, obligations, rights and trusts of the Indenture Trustee in this Supplemental Indenture declared and provided for and agrees to perform the same on the terms and conditions herein set forth.
1.3Business Day Convention
Any payment of principal, interest and other amounts on any Series 2021-1 Debt Securities which is required to be paid on a day other than a Business Day shall be payable on the next succeeding Business Day.
1.4Governing Law.
This Supplemental Indenture shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. Each of the parties hereto hereby attorns to the non-exclusive jurisdiction of the courts of the Province of Ontario.
1.5Waiver of Jury Trial.
EACH OF THE GENERAL PARTNER, THE ISSUER, AND THE INDENTURE TRUSTEE 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 THE MASTER TRUST INDENTURE, THIS SUPPLEMENTAL INDENTURE, THE SERIES 2021-1 DEBT SECURITIES, OR THE TRANSACTIONS CONTEMPLATED HEREBY.
1.6Execution in Counterparts
This Supplemental Indenture may be executed in any number of counterparts (including counterparts by facsimile, electronic transmission and email in PDF or similar transmissions) each of which, when so executed, shall be deemed to be an original and which counterparts together shall constitute one and the same agreement.
1.7Hypothecary Representative / Power of Attorney
The Indenture Trustee hereby agrees to act as the hypothecary representative for the Related Specified Creditors to the extent necessary or desirable pursuant to the laws of the Province of Quebec for the purposes of this Indenture, to hold any hypothec or other security that may be granted from time to time by the Issuer for the benefit of the Related Specified Creditors and each document relating hereto or thereto. Each Person by becoming a Related Specified Creditor irrevocably accepts, ratifies and confirms the appointment of the Indenture Trustee as hypothecary representative of such Person. In particular, by the acceptance of the Series 2021-1 Debt Securities, the holders of such Series 2021-1 Debt Securities irrevocably agree that the Indenture Trustee may act as the hypothecary representative of such holders. If the Indenture Trustee is replaced according to Section 12.8 of the Master Trust Indenture, the successor Indenture Trustee will also constitute the successor hypothecary representative for the purposes of any hypothec referred to above without any formality (subject to registration of a notice of succession for purposes of exercising rights related to any such hypothec, as contemplated by Article 2692 of the Civil Code of Quebec). The Indenture Trustee, acting in its capacity as hypothecary representative, shall have the same rights, powers, immunities, indemnities and exclusions from liability as are prescribed in favour of the Indenture Trustee in this Indenture, which shall apply mutatis mutandis.
1.8Delivery of Executed Copies
Each party acknowledges delivery by electronic means of a fully executed copy of this Supplemental Indenture.
[Remainder of page intentionally left blank; signature page follows]
IN WITNESS WHEREOF the parties hereto have duly executed this Supplemental Indenture.
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| | FLEXITI SECURITIZATION LIMITED PARTNERSHIP, as issuer, by its general partner, FLEXITI SECURITIZATION GENERAL PARTNER INC. |
| Per: | |
| Name: |
| Title: |
| Per: | |
| Name: |
| Title: |
Signature Page to Series 2021-1 Supplemental Indenture
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| | FLEXITI SECURITIZATION GENERAL PARTNER INC., as General Partner, in its own right |
| Per: | |
| Name: |
| Title: |
| Per: | |
| Name: |
| Title: |
Signature Page to Series 2021-1 Supplemental Indenture
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| | FLEXITI FINANCIAL INC.
as initial Paying Agent |
| Per: | |
| Name: |
| Title: |
| Per: | |
| Name: |
| Title: |
Signature Page to Series 2021-1 Supplemental Indenture
| | | | | | | | | | | |
| | COMPUTERSHARE TRUST COMPANY OF CANADA, as Indenture Trustee |
| Per: | |
| Name: |
| Title: |
| Per: | |
| Name: |
| Title: |
Signature Page to Series 2021-1 Supplemental Indenture
Signature Page to Series 2021-1 Supplemental Indenture
Schedule A
FORM OF NOTE – FOR SERIES 2021-1 CLASS A DEBT SECURITIES
[***]
Schedule B
FORM OF NOTE – FOR SERIES 2021-1 CLASS B DEBT SECURITIES
[***]
Schedule C-1
FORM OF OWNERSHIP CONFIRMATION CERTIFICATE (REQUEST BY BENEFICIAL HOLDER)
[***]
Schedule C-2
Form of Ownership Confirmation Certificate (Request by Prospective Purchaser)
[***]
Schedule D
FORM OF MONTHLY SERVICER REPORT
[***]
1.
Schedule E
FORM OF WEEKLY REPORT
[***]
Schedule F
FORM OF SELLER NOTE
[***]
CERTAIN IDENTIFIED INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT BECAUSE IT IS NOT MATERIAL AND IS OF THE TYPE OF INFORMATION THAT THE REGISTRANT BOTH CUSTOMARILY AND ACTUALLY TREATS AS PRIVATE AND CONFIDENTIAL. [***] INDICATES THAT INFORMATION HAS BEEN OMITTED.
FLEXITI FINANCIAL INC.
as Seller and Servicer
and
FLEXITI SECURITIZATION LIMITED PARTNERSHIP
as Purchaser, by its general partner, Flexiti Securitization General Partner Inc.
and
FLEXITI SECURITIZATION GENERAL PARTNER INC.
in its own right
and
COMPUTERSHARE TRUST COMPANY OF CANADA
as Indenture Trustee
RECEIVABLES SALE AND SERVICING AGREEMENT
December 9, 2021
TABLE OF CONTENTS
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Annex A OBLIGOR Accounts | 3 |
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Annex A OBLIGOR Accounts | 2 |
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Annex A List of RETAINED Québec RECEIVABLES | 18 |
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RECEIVABLES SALE AND SERVICING AGREEMENT
THIS RECEIVABLES SALE AND SERVICING AGREEMENT, dated as of December 9, 2021 (this “Agreement”), is made between FLEXITI FINANCIAL INC., a corporation incorporated under the laws of Canada (hereinafter referred to as the “Seller” or the “Servicer”), FLEXITI SECURITIZATION LIMITED PARTNERSHIP, a limited partnership established under Ontario law, by its general partner, FLEXITI SECURITIZATION GENERAL PARTNER INC., a corporation incorporated under the laws of Ontario (the “Purchaser”), FLEXITI SECURITIZATION GENERAL PARTNER INC., in its own right (the “General Partner”), COMPUTERSHARE TRUST COMPANY OF CANADA, as Indenture Trustee.
WHEREAS the Seller wishes to sell Obligor Account Assets in Eligible Obligor Accounts to the Purchaser from time to time and the Purchaser wishes to purchase Obligor Account Assets in Eligible Obligor Accounts from the Seller from time to time, on and subject to the terms and conditions of this Agreement;
AND WHEREAS the Issuer may finance the purchase price of the Assigned Obligor Account Assets purchased from the Seller by issuing Debt Obligations from time to time pursuant to the Master Trust Indenture;
AND WHEREAS the Seller shall be the Initial Servicer of the Obligor Account Assets and the Indenture Trustee on behalf of the holders of Debt Obligations wishes to be able to enforce certain covenants of the Seller herein in its capacity as Servicer directly against the Seller;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual covenants and agreements of the parties herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
Article 1
DEFINITIONS AND PRINCIPLES OF INTERPRETATION
1.1Definitions
All capitalized terms used but not defined herein have the meanings assigned to them in the Master Trust Indenture and are incorporated herein by reference, and the following terms will have the following meanings:
“Adverse Claim” means a security interest, lien, mortgage, charge, pledge, assignment, title retention, hypothec, encumbrance, ownership interest or other right or claim, including any filing or registration made in respect thereof, of or through any Person (other than the Purchaser or the Indenture Trustee).
“Aggregate Eligible Pool Balance” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Amortization Event” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Applicable Law” means all applicable federal, provincial, territorial and local laws, statutes, regulations, rules, executive orders, supervisory requirements, directives, guidelines, circulars, opinions, codes of conduct, decisions, rulings, advisories, bulletins, interpretive letters, and other official releases customarily considered to be binding of or by any government, or any authority, department, or agency thereof, as now and hereafter in effect.
“Asset Designation and Servicing Supplement” means an asset designation and servicing supplement in the form of Schedule E, pursuant to the terms hereof, as the same may be further amended, restated, supplemented, replaced or otherwise modified from time to time as permitted thereunder.
“Asset Designation Conditions” has the meaning ascribed thereto in the Related Supplement.
“Asset Designation Cut-Off Date” means, in respect of any Asset Designation, the date specified as such in the related Asset Designation Notice.
“Asset Designation Date” means, in respect of any Asset Designation, the date specified as such in the related Asset Designation Notice.
“Asset Designation Notice” means a notice by the Seller designating assets in the form attached as Schedule B.
“Asset Designation Payment” means a payment by the Issuer to the Seller in respect of any Asset Designation in the amount specified in the applicable Asset Designation and Servicing Supplement, as the case may be.
“Asset Designations” means asset designations of additional Assigned Obligor Account Assets in respect of a Series of Debt Obligations by the Seller pursuant to this Agreement and Asset Designation and Servicing Supplements, and “Asset Designation” means any of them.
“Asset Increase Closing Date” means, in respect of each Asset Purchase or Asset Designation, as the case may be, the date specified as such in the Asset Purchase Notice applicable to such Asset Purchase or in the Asset Designation Notice applicable to such Asset Designation, as the case may be.
“Asset Purchase Cut-Off Date” means, in respect of any Asset Purchase, the date specified as such in the related Asset Purchase Notice.
“Asset Purchase Notice” means a notice by the Seller specifying Obligor Account Assets offered to the Issuer for purchase, in the form attached as Schedule A, to be delivered electronically.
“Asset Purchase Price” means the initial purchase price paid by the Issuer to the Seller in respect of any Asset Purchase in the amount specified in the applicable Sale and Servicing Supplement and/or Sale and Servicing Québec Assignment, as the case may be.
“Asset Purchases” means purchases by the Issuer of additional Obligor Account Assets, by the Seller pursuant to this Agreement and Sale and Servicing Supplements (and/or Sale and Servicing Québec Assignments), and “Asset Purchase” means any of them.
“Assigned Obligor Account Assets” means the Obligor Account Assets, sold to the Issuer pursuant to this Agreement and any associated Sale and Servicing Supplements (and/or Sale and Servicing Québec Assignments) hereunder, and “Assigned Obligor Account Asset” means any of them.
“Backup Servicer” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Cash Reserve Account” means any cash reserve account designated in any Related Supplement in respect of any Series of Debt Obligations.
“Charged-Off Obligor Account” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Closing Payment” means (a) an Asset Purchase Price; or (b) an Asset Designation Payment, as the case may be.
“Collection Period” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Collections” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Collections Account” means any collections account designated in any Related Supplement in respect of any Series of Debt Obligations.
“Collections Advance Amount” means, in respect of any Settlement Date in respect of any Series of Debt Obligations, the aggregate of all Periodic Payments due or deemed due, as the case may be, in respect of (and allocable to) the Eligible Receivables that form part of the Assigned Obligor Account Assets in respect of such Series of Debt Obligations on their respective Due Dates during the related
Collection Period, in each case to the extent such amounts were not paid by or on behalf of the related Obligor or otherwise collected (including received as net income from any Eligible Receivables under any Charged-Off Obligor Accounts) as of the close of business on last day of the immediately preceding Collection Period.
“Collections Advances” has the meaning ascribed thereto in Section 5.10(a), and “Collections Advance” means any one of them.
“Confidential Personal Information” means, in respect of each Series of Debt Obligations, any and all information or data protected by Privacy Laws that is provided by, through or on behalf of any party under any Related Program Agreement (a “party”) to another party that: (a) is personal information or information about an identifiable individual (as more particularly defined in the applicable Privacy Laws) that was collected, used, disclosed or accessible to such party as a result of such party’s acts and obligations pursuant to any Related Program Agreement or collected, used, disclosed or made accessible or available by or to it in connection with any Related Program Agreement; or (b) is information from which an individual or individual’s identity can be ascertained either from the information itself or by combining the information with information from other sources available to the parties.
“Costs and Expenses Advances” has the meaning ascribed thereto in Section 5.10(a), and “Costs and Expenses Advance” means any one of them.
“Credit and Collection Policies” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Credit Score” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Cut-Off Date” means any Asset Purchase Cut-Off Date or Asset Designation Cut-Off Date, as applicable.
“Deemed Collections” means amounts required to be deposited to the Collections Account in respect of a related Series of Debt Obligations pursuant to Sections 2.4, 5.5 or 5.7.
“Deferred Asset Purchase Price” means a deferred purchase price payable to the Seller in accordance with the application of payments provisions of the Related Supplement in respect of any Series of Debt Obligations, whether by way of cash or by way of adjusting upward the amount payable by the Issuer to the Seller in respect of any applicable Seller Note or a combination thereof.
“Designation Original Series” has the meaning ascribed thereto pursuant to Section 2.3(b).
“Designation Target Series” has the meaning ascribed thereto pursuant to Section 2.3(b).
“Due Date” means, with respect to any Eligible Receivable, each day set forth in the customer documentation on which a Periodic Payment on such Eligible Receivable is or had been scheduled to be due.
“Eligible Obligor Accounts” means Obligor Accounts with respect to which the applicable Obligor Accounts Eligibility Criteria are satisfied as of the applicable date of determination, and “Eligible Obligor Account” means any of them.
“Eligible Receivables” means Receivables with respect to which the Receivables Eligibility Criteria are satisfied as of the applicable date of determination, and “Eligible Receivable” means any of them.
“Excluded Québec Receivables” means any Québec Receivables with respect to which the Receivables Eligibility Criteria are not satisfied as of the applicable date of determination.
“Final Maturity Date” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Funding Account” means any funding account designated in any Related Supplement in respect of any Series of Debt Obligations.
“Initial Servicer” means Flexiti Financial Inc., together with its successors and permitted assigns.
“Late Collections” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Material Adverse Effect” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Master Trust Indenture” means the master trust indenture made as of December 9, 2021 between the Issuer, by its general partner, as issuer, the General Partner in its own right, and Computershare Trust Company of Canada, as indenture trustee, as amended, supplemented, modified, restated or replaced from time to time.
“Monthly Determination Date” means, with respect to each Settlement Date, one (1) Business Day immediately preceding such Settlement Date, or such other date as may be specified in any Related Supplement in respect of any Debt Obligations.
“Monthly Servicer Report” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Net Charge-Off Ratio” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Obligor Account Assets” means, in respect of any Eligible Obligor Account (a) all present and future Receivables existing or arising under the Eligible Obligor Account from time to time on and after the Cut-Off Date; (b) the related Rights; and (c) all proceeds of the foregoing, but shall exclude any Obligor Account all the Receivables in which are re-assigned to the Seller or its designee in accordance with the terms of this Agreement.
“Obligor Accounts” means loan accounts originated by the Seller and which are identified on the Seller’s computer file as associated with Obligors, and “Obligor Account” means any of them.
“Obligor Accounts Eligibility Criteria” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Obligors” means, in respect of any Obligor Accounts, the individuals obligated to make payments pursuant to such Obligor Accounts including, where the context permits or requires, any individuals obligated to make such payments pursuant to any guarantee or indemnity referred to in clause (e) of the definition of Rights, and “Obligor” means any of them.
“Outstanding Balance” means, in respect of an Obligor Account, the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Periodic Payment” means, with respect to any Eligible Receivable as of any Due Date, the scheduled payments to be made under the terms of such Eligible Receivable on such Due Date (as such terms may be changed or modified by reason of a modification, waiver or amendment granted or agreed to by the Servicer pursuant to the Credit and Collection Policies).
“Prefunding Ledgers” means has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations, and “Prefunding Ledger” means any of them.
“Privacy Laws” means the Personal Information Protection and Electronic Documents Act (Canada) and any regulations thereunder, as amended or supplemented from time to time, and any other similar applicable federal, provincial or territorial legislation now in force or that may in the future come into force in Canada governing the protection of personal information in the private sector applicable to, in respect of any Debt Obligations, the parties to the Related Program Agreements or to the activities contemplated under a Related Program Agreement, together with any applicable common law duties of confidentiality.
“Purchaser Québec Assignment” means, in respect of Excluded Québec Receivables, a sale and assignment instrument in the form set forth as Schedule D-2 hereto, pursuant to the terms hereof, as the
same may be further amended, restated, supplemented, replaced or otherwise modified from time to time as permitted thereunder.
“Québec Receivables” means Receivables owing from Obligors (i) whose address as indicated in the related contract giving rise to the Obligor Account is located in the Province of Québec, (ii) under an Obligor Account in respect of which payments are made to a location or an account located in the Province of Québec or (iii) under an Obligor Account that is governed by the laws of the Province of Québec.
“Receivables” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Receivables Eligibility Criteria” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Records” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Replacement Servicer” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Replacement Servicer Fee” has the meaning ascribed thereto in Section 6.3.
“Required Cash Reserve Amount” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Revolving Asset Purchase Amount” has the meaning ascribed to it in Section 2.2(b).
“Revolving Asset Purchase Cash Payment” has the meaning ascribed to in Section 2.2(c).
“Revolving Asset Purchase Conditions” means, at any applicable time, all of the following conditions in respect of any Series of Debt Obligations: (a) if applicable in respect of any Class of the Series of Debt Obligations, the aggregate Outstanding Balance of the applicable Debt Obligations, minus the aggregate amount on deposit in the Collections Account and Funding Account in respect of the related Series of Debt Obligations, if any, does not exceed the target note balance for the relevant Class of Debt Obligations; and (b) the amount on deposit in the applicable Cash Reserve Account is equal to or greater than the Required Cash Reserve Amount (the “Second Revolving Asset Purchase Condition”), as such conditions may be modified or supplemented in any Related Supplement in respect of any Series of Debt Obligations.
“Revolving Asset Purchase Date” has the meaning ascribed to it in Section 2.2(b).
“Revolving Obligor Account Transfer” has the meaning ascribed to it in Section 2.2(b).
“Rights” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“RPMRR” means the Québec Register of Personal and Movable Real Rights.
“Sale and Servicing Québec Assignment” means, in respect of Québec Receivables, a sale and assignment supplement in the form of Schedule D-1 hereto, pursuant to the terms hereof, as the same may be further amended, restated, supplemented, replaced or otherwise modified from time to time as permitted thereunder.
“Sale and Servicing Supplement” means a sale and servicing supplement in the form of Schedule D, pursuant to the terms hereof, as the same may be further amended, restated, supplemented, replaced or otherwise modified from time to time as permitted thereunder.
“Second Revolving Asset Purchase Condition” has the meaning ascribed thereto in the definition of “Revolving Asset Purchase Conditions”.
“Seller’s Account” means the bank account in which the Seller holds collections received from Obligors in respect of Obligor Accounts in the ordinary course of its business.
"Seller Notes" means, collectively, (a) any debt certificates executed by the Issuer and authenticated by or on behalf of the Indenture Trustee, substantially in the form specified in any Related Supplement in respect of any Series of Debt Obligations, and issued by the Issuer to evidence the unpaid balance of the purchase price for the Assigned Obligor Account Assets determined in accordance with the terms of the Related Program Agreements; and (b) any outstanding supplemental notes thereto issued by the Issuer, and “Seller Note” means any of them.
“Servicer Advances” has the meaning ascribed to it in Section 5.10(a), and “Servicer Advance” means any one of them.
“Servicer Obligations” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Servicer Termination Event” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Settlement Date” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Weekly Report” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Weekly Reporting Date” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
“Weekly Reporting Period” has the meaning ascribed thereto in any Related Supplement in respect of any Series of Debt Obligations.
1.2Extended Meanings
In this Agreement, words importing the singular number include the plural and vice versa and words importing gender include each gender.
1.3Headings and Table of Contents
The table of contents does not form part of this Agreement. Article and Section headings are not to be considered part of this Agreement, are included solely for convenience of reference and do not define, limit or enlarge the construction or interpretation hereof.
1.4References to Sections, Articles and Schedules
Unless otherwise provided, all references herein to Sections, Articles or Schedules are references to Sections, Articles and Schedules of or to this Agreement.
1.5References to Statutes
Unless otherwise provided, all references herein to any statute or any provision thereof shall mean such statute or provision as amended, restated or re-enacted from time to time.
1.6Certain Phrases
Unless otherwise provided herein, the words “including”, “includes” and “include” mean “including (or includes or include) without limitation”.
1.7Governing Law and Jurisdiction
This Agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. Each of the parties hereto hereby attorns to the non-exclusive jurisdiction of the courts of the Province of Ontario in any action or proceeding arising out of or relating to this Agreement.
1.8Invalidity of Provisions
Save and except for any provision or covenant contained herein which is fundamental to the subject matter of this Agreement (including those that relate to the payment of moneys), the invalidity or unenforceability of any provision or covenant hereof or herein contained will not affect the validity or enforceability of any other provision or covenant hereof or herein contained and any such invalid or unenforceable provision or covenant will be deemed to be severable.
1.9Computation of Time Periods
Unless otherwise provided herein, in the computation of a period of time from a specified date to a later specified date, the word “from” means “from and including” and each of the words “to” and “until” means “to but excluding”.
1.10Non-Business Days
Whenever any payment to be made hereunder shall be stated to be due, any period of time would begin or end, any calculation is to be made or any other action to be taken hereunder shall be stated to be required to be taken, on a day other than a Business Day, such payment shall be made, such period of time shall begin or end, such calculations shall be made and such other action shall be taken on the next succeeding Business Day.
1.11Accounting Principles
Except where otherwise specified, where the character or amount of any asset or liability or item of revenue or expense is required to be determined, or any consolidation or other accounting computation or presentation is required to be made for the purpose of this Agreement, such determination, consolidation, computation or presentation shall, to the extent applicable and except as otherwise specified herein or as otherwise agreed to in writing by the parties, be made in accordance with generally accepted accounting principles applied on a consistent basis.
1.12Currency
Unless otherwise provided, all amounts herein are stated in Canadian Dollars.
1.13Entire Agreement
This Agreement and the other Program Agreements contain the entire agreement between the parties relative to the subject matter hereof and supersede all prior and contemporaneous agreements, term sheets, commitments, understandings, negotiations, and discussions, whether oral or written. There are no warranties, representations or other agreements between the parties in connection with the subject matter hereof except as specifically set forth therein.
1.14Schedules
The following schedules annexed hereto are incorporated herein by reference and are deemed to be part hereof:
Schedule A – Form of Asset Purchase Notice
Schedule B – Form of Asset Designation Notice
Schedule C – Seller’s and Servicer’s Addresses
Schedule D – Form of Sale and Servicing Supplement
Schedule D-1 – Form of Sale and Servicing Québec Assignment
Schedule D-2 – Form of Purchaser Québec Assignment
Schedule E – Form of Asset Designation and Servicing Supplement
Article 2
PURCHASE AND SALE OF LOANS
1.1Purchases and Sales pursuant to Asset Purchase Notices
(a)The Seller may from time to time deliver electronically a completed Asset Purchase Notice to the Purchaser requiring the Purchaser to purchase the Obligor Account Assets in specified Eligible Obligor Accounts from the Seller (provided, however, that in respect of any such Asset Purchase Notice, the Québec Receivables covered by such Asset Purchase Notice shall comprise the universality of all Québec Receivables identified in the Seller’s Records as owned by the Seller as at the relevant Asset Purchase Cut-Off Date).
(b)Subject to the satisfaction of the conditions precedent set forth in Article 7 hereof, on the Asset Increase Closing Date specified in each Asset Purchase Notice, the Purchaser shall purchase from the Seller, and the Seller shall sell, transfer and assign to the Purchaser, as of and from the applicable Asset Purchase Cut-Off Date, all of the Seller’s right, title and interest in and to all present and future Obligor Account Assets in Obligor Accounts identified in the Asset Purchase Notice, by way of a Sale and Servicing Supplement and/or Sale and Servicing Québec Assignment entered into at the time in accordance with subsection 2.1(c). The purchase price for the applicable Assigned Obligor Account Assets shall be composed of: (i) an immediate cash payment to the Seller in the amount of the applicable Asset Purchase Price, and (ii) a deferred amount which shall be payable to the Seller as Deferred Asset Purchase Price. Such purchase price shall be satisfied at the option of the Seller, in cash or by adjusting upward the amount payable by the Issuer to the Seller in respect of any applicable Seller Note or a combination thereof, in either case, at the times and in the manner specified in the Related Program Agreements.
(c)Each Asset Purchase contemplated in Section 2.1(b) shall be completed pursuant to a Sale and Servicing Supplement and/or a Sale and Servicing Québec Assignment to be executed and delivered on the applicable Asset Increase Closing Date pursuant to Section 7.2(a)(ii) and shall be effective immediately upon the payment by the Purchaser to the Seller of the purchase price as contemplated in Section 2.1(b), upon which, title to the Obligor Account Assets in the specified Eligible Obligor Accounts (including Québec Receivables other than Excluded Québec Receivables) shall automatically pass from the Seller to the Purchaser on such date without the need for any further action on the part of the Seller or the Purchaser and all Collections paid and payable with respect to the applicable Assigned Obligor Account Assets from and after the applicable Asset Purchase Cut-Off Date will be the property of the Purchaser and will be deposited to the Collections Account in respect of the related Series of Debt Obligations in accordance with Section 5.3.
(d)The Purchaser will fund each Asset Purchase by: (i) issuing Debt Obligations or obtaining an increase thereunder pursuant to the Master Trust Indenture; or (ii) increasing the principal amount outstanding of the Seller Note.
1.2Revolving Debt Obligations Purchases
If applicable as specified in a Related Supplement in connection with any Debt Obligations that are revolving obligations (including any variable funding notes):
(a)On the date hereof, the Seller hereby sells, assigns and transfers to the Purchaser (i) all Obligor Account Assets in specified Eligible Obligor Accounts (other than Québec Receivables, which are covered in clause (ii) below) that are designated by the Seller in the Seller’s Records for sale to the Purchaser as at the relevant Asset Purchase Cut-Off Date in accordance with Section 2.2(c) below; and (ii) the universality of all Québec Receivables (including, without limitation, all present and future claims and rights of action related thereto or arising therefrom) identified in the Seller’s Records as owned by
the Seller as at the relevant Asset Purchase Cut-Off Date, pursuant to a Sale and Servicing Québec Assignment in the form set forth as Schedule D-1 hereto, but provided that the Excluded Québec Receivables identified in the Seller’s Records as at such Asset Purchase Cut-Off Date shall be immediately re-purchased by and assigned to the Seller pursuant to a Purchaser Québec Assignment in the form set forth as Schedule D-2 hereto. Subject to the Seller’s receipt of the Revolving Asset Purchase Cash Payment as contemplated in Section 2.2(c), title to all Obligor Account Assets in each specified Eligible Obligor Account (including Québec Receivables other than Excluded Québec Receivables) so identified, shall automatically pass from the Seller to the Purchaser on the applicable Revolving Asset Purchase Date without the need for any further action on the part of the Seller or the Purchaser (the “Revolving Obligor Account Transfer”), upon which, title to the Obligor Account Assets in the specified Eligible Obligor Accounts (including Québec Receivables other than Excluded Québec Receivables) shall automatically pass from the Seller to the Purchaser on the applicable Revolving Asset Purchase Date without the need for any further action on the part of the Seller or the Purchaser and all Collections paid and payable with respect to the applicable Assigned Obligor Account Assets from and after the applicable Revolving Asset Purchase Date (as defined below) will be the property of the Purchaser and will be deposited to the Collections Account in respect of the related Series of Debt Obligations in accordance with Section 5.3.
(b)On each Business Day during any revolving period as may be specified in any Related Supplement or Related Note Purchase Agreement in respect of any Series of Debt Obligations (each, a “Revolving Asset Purchase Date”), provided that:
(i)if applicable, as specified in a Related Supplement, in respect of any Series of Debt Obligations that requires the maintenance of the applicable Cash Reserve Account, the amount on deposit in the applicable Cash Reserve Account as of the immediately preceding Settlement Date was equal to or greater than the Required Cash Reserve Amount;
(ii)the amount on deposit in the Collections Account in respect of the related Series of Debt Obligations is at least equal to the aggregate amount required by the Purchaser to make all payments required to be made to the most senior Class of Debt Obligations and any amounts to be paid in priority to the most senior Class of Debt Obligations, or as may be otherwise specified in any Related Supplement or the Related Note Purchase Agreement in respect of any Series of Debt Obligations, on the next Settlement Date which follows such Revolving Asset Purchase Date (based on a pro forma calculation of the amounts that will be owed on such Settlement Date); and
(iii)if applicable, as specified in a Related Supplement, in respect of any Series of Debt Obligations, the Servicer provided a Weekly Report to the Purchaser on the most recent Weekly Reporting Date in accordance with Section 5.2(o), the Servicer shall:
(A)cease to hold in its capacity as Servicer and in trust for the Purchaser Collections deposited in the Seller’s Account (which will thereby be owned by the Seller), and then, as applicable, transfer from the applicable Collections Account to the Seller’s Account and, as applicable, transfer from the applicable Funding Account to the Seller’s Account the aggregate of (I) in the case of Collections which cease to be held by the Servicer in such capacity and in trust for the Purchaser (and thereby become owned by the Seller), the maximum amount of Collections then held in the Seller’s Account as will allow the Revolving Asset Purchase Conditions to remain satisfied immediately after the Revolving Obligor Account Transfer which is to occur on such Revolving Asset Purchase Date, (II) in the case of a transfer from the applicable Collections Account to the Seller’s Account, once the amount contemplated in (I) has been determined, and taking such amount into account, the maximum amount of Collections then held in the applicable Collections Account as will allow the Revolving Asset Purchase Conditions to remain satisfied immediately after the Revolving Obligor Account Transfer which is to
occur on such Revolving Asset Purchase Date, and (III) in the case of a transfer from an applicable Funding Account, if any, to the Seller’s Account, once the amounts contemplated in (I) and (II) have been determined, and taking such amounts into account, the maximum amount, if any, from the applicable Funding Account, if any, as will allow the Revolving Asset Purchase Conditions to remain satisfied immediately after the Revolving Obligor Account Transfer which is to occur on such Revolving Asset Purchase Date (the “Revolving Asset Purchase Amount”);
(B)transfer any amount required to satisfy the Second Revolving Asset Purchase Condition after such Revolving Obligor Account Transfer from the applicable Collections Account to the applicable Cash Reserve Account; and
(C)retain the remainder of the Collections then held in the applicable Collections Account in such account and, contemporaneously with the Servicer ceasing to hold in such capacity and in trust for the Purchaser Collections deposited in the Seller’s Account as contemplated in clause (A)(I) above and the transfers, if applicable, of amounts to the Seller’s Account contemplated in clauses (A)(II) and (III) above, Eligible Obligor Accounts, in respect of which the aggregate Outstanding Balance of the Assigned Obligor Account Assets in the Eligible Obligor Accounts is equal to the Revolving Asset Purchase Amount, shall be identified on the applicable Revolving Asset Purchase Date and designated by the Seller in the Seller’s Records as contemplated in Section 2.2(a).
(c)The purchase price for any Assigned Obligor Account Assets sold and transferred by the Seller to the Purchaser on a Revolving Asset Purchase Date shall be composed of (i) an immediate cash payment to the Seller in the amount of the applicable Revolving Asset Purchase Amount (or the portion thereof which is used on the Revolving Asset Purchase Date to purchase Obligor Accounts as contemplated in Section 2.3(b) below, as applicable) which will be effected pursuant to the Servicer ceasing to hold in such capacity and in trust for the Purchaser Collections deposited in the Seller’s Account as contemplated in clause (A)(I) of Section 2.2(b) above and the transfers, if applicable, to the Seller’s Account contemplated in clauses (A)(II) and (III) of Section 2.2(b) above, which amount will thereupon cease to be held by the Servicer as agent of and in trust for the Purchaser and will be owned by the Seller (the “Revolving Asset Purchase Cash Payment”), and (ii) Deferred Asset Purchase Price. Each transfer shall be effective immediately upon the payment by the Purchaser to the Seller of the cash payment as contemplated in this Section 2.2(c), upon which, title to the Obligor Account Assets in the specified Eligible Obligor Accounts (including Québec Receivables other than Excluded Québec Receivables) shall automatically pass from the Seller to the Purchaser on the Revolving Asset Purchase Date without the need for any further action on the part of the Seller or the Purchaser and all Collections paid and payable with respect to the applicable Assigned Obligor Account Assets from and after the applicable Asset Purchase Cut-Off Date will be the property of the Purchaser and will be deposited to the applicable Collections Account in accordance with Section 5.3. Such purchase price shall be satisfied at the option of the Seller, in cash or by adjusting upward the amount payable by the Issuer to the Seller in respect of the applicable Seller Note or a combination thereof, in either case, at the times and in the manner specified in the Related Program Agreements.
1.3Asset Designations
(a)The Issuer and the Seller hereby acknowledge and agree that (i) the Purchaser may from time to time designate Obligor Account Assets in Eligible Obligor Accounts from the Seller pursuant to one or more Sale and Servicing Supplements in respect of any Series of Debt Obligations in accordance with the terms of this Sale and Servicing Agreement, which shall constitute the Assigned Obligor Account Assets in respect of any Series of Debt Obligations; and (ii) the Assigned Obligor Account Assets shall be designated in the Seller’s Records and for purposes of the Related Program Agreements in respect of the relevant Series of Debt Obligations.
(b)Subject to the terms and conditions set forth herein, the Issuer may, from time to time re-designate Eligible Obligor Accounts that are allocated to any Series of Debt Obligations (the “Designation Original Series”) to the Collateral for a different Series of Debt Obligations issued by the Issuer pursuant to the Master Trust Indenture, such that such Eligible Obligor Accounts become designated as Collateral in respect of such other Series of Debt Obligations (the “Designation Target Series”), and the portion of the Deferred Asset Purchase Price that remains unpaid with respect to the Assigned Obligor Account Assets in connection with the Designation Original Series as at the Asset Designation Date shall form part of, and shall be satisfied through the payment of, the Deferred Asset Purchase Price payable from time to time following the Asset Designation Date in accordance with the terms of any Related Supplement in respect of the Designation Target Series.
(c)In connection with any Asset Designation of Assigned Obligor Account Assets pursuant to this Section 2.3, the Issuer shall deliver to the Servicer an Asset Designation Notice in the form attached as Schedule B to this Agreement on or prior to the related Asset Designation Date.
(d)Upon each Asset Designation pursuant to this Section 2.3, but subject to the terms and conditions set forth herein and in the Related Supplement for the Designation Original Series and Designation Target Series, the Assigned Obligor Account Assets in Eligible Obligor Accounts included in such Asset Designation shall thereafter constitute Assigned Obligor Account Assets for the specified Designation Target Series without the need for any further action on the part of the Seller or the Purchaser, and all Collections paid and payable with respect to such Assigned Obligor Account Assets on and after the applicable Asset Designation Cut-Off Date will be deposited to the Collections Account in respect of the Designation Target Series in accordance with Section 5.3.
(e)The Purchaser will fund each Asset Designation by: (i) issuing Debt Obligations or obtaining an increase thereunder pursuant to the Master Trust Indenture, the proceeds whereof shall be used to redeem the Debt Obligations of the Designation Original Series; or (ii) increasing the principal amount outstanding of the Seller Note.
1.4Disqualified Obligor Accounts
If at any time after the applicable Asset Increase Closing Date or Revolving Asset Purchase Date, the Seller discovers that an eligibility requirement contained in the definition of “Eligible Obligor Account” or “Eligible Receivable” herein was not satisfied with respect to any Receivables arising in connection with an Obligor Account on the related Asset Purchase Cut-Off Date or Asset Designation Cut-Off Date, as the case may be, or the Revolving Asset Purchase Date, as applicable, (a) the Seller shall pay to the Purchaser by deposit to the Collections Account in respect of a related Series of Debt Obligations on the immediately following Settlement Date subject to Section 5.9, an amount equal to the Outstanding Balance of such Receivables arising in connection with an Obligor Account, plus accrued interest thereunder; and/or (b) in consideration for the purchase of such Receivables arising in connection with an Obligor Account, the amount payable by the Issuer to the Seller pursuant to the applicable Seller Note shall be reduced by an amount equal to the amount by which the Receivables arising in connection with the Obligor Account purchased exceeds the amount specified to be payable by the Seller to the Issuer pursuant to the Related Supplement. Upon the payment of such amount to the Purchaser and/or reduction of the payable by the Issuer to the Seller pursuant to the applicable Seller Note, the Assigned Obligor Account Assets related to such Obligor Account will be hereby sold by the Purchaser to the Seller without any representation or warranty (whether express, implied, statutory or otherwise) by or on behalf of the Purchaser. Upon payment of such amount, any incorrectness in any representation or warranty related to such Obligor Account shall be deemed to have been rectified. The amount deposited to the Collections Account in respect of a related Series of Debt Obligations shall be considered to be “Deemed Collections” hereunder.
1.5Bank Accounts
The Seller and the Servicer acknowledge that any applicable Collections Account, any applicable Cash Reserve Account, any applicable Funding Account and any other accounts as may be specified from time to time in any Related Program Agreement in respect of any Series of Debt
Obligations (including all amounts deposited therein from time to time and any investments made with such amounts) is the property of the Purchaser and not of the Seller or the Servicer.
1.6Collateral Shortfall Sales of Additional Assets
If specified in the Related Note Purchase Agreement or Related Supplement in respect of any Series of Debt Obligations, on the relevant date(s) specified in the Related Program Agreements in respect of any Series following the Closing Date on which it is determined that specified events in relation to the Related Collateral have occurred, the Servicer will on behalf of the Issuer notify the Seller if the Issuer is offering to purchase and the Seller may, at its sole discretion, sell to the Issuer or designate to the relevant Series of Debt Obligations, as the case may be and in accordance with the procedures for selling or designating Obligor Account Assets pursuant to the terms hereof, additional Obligor Account Assets in respect of specified Eligible Obligor Accounts in a sufficient amount such that, after giving effect to such sale or designation of Obligor Account Assets in additional Eligible Obligor Accounts, the collateral requirements specified in the Related Note Purchase Agreement or Related Supplement in respect of any Series of Debt Obligations are satisfied by the Issuer. The Issuer shall provide to the Seller and Initial Servicer with any Related Note Purchase Agreement or Related Supplement in respect of any Series of Debt Obligations for which such provision is specified.
Article 3
REPRESENTATIONS AND WARRANTIES
1.1Representations and Warranties of the Seller and the Servicer
Each of the Seller and the Servicer represents and warrants to the Purchaser and the Indenture Trustee as of the date of this Agreement, on each Weekly Reporting Date, on each Asset Increase Closing Date (except as otherwise specified below) in respect of any Series of Debt Obligations, and on any other date on which these representations and warranties are specified to be repeated in any Related Program Agreement in respect of any Series of Debt Obligations, that:
(a)it is (i) a corporation duly organized and validly existing under the laws of its jurisdiction of incorporation; and (ii) duly qualified to carry on business in each jurisdiction in which the failure to be so qualified would reasonably be expected to have a Material Adverse Effect;
(b)it has full power and capacity to enter into this Agreement and the other Program Agreements to which it is party and to do all acts and things as are required of or contemplated to be done by it hereunder or thereunder;
(c)it has taken all necessary action to authorize the execution, delivery and performance of this Agreement and the other Program Agreements to which it is party and to do all acts and things as are required of or contemplated to be done by it hereunder or thereunder;
(d)there are no actions, suits or proceedings pending or to the knowledge of any officer of the Seller, threatened against or affecting the Seller or any of its undertakings and assets at law, in equity or before any arbitrator or before or by any governmental department, body, commission, board, bureau, agency or instrumentality having jurisdiction in the premises which would reasonably be expected to have a Material Adverse Effect and the Seller is in compliance with all Applicable Laws except such non-compliance as would not reasonably be expected to have a Material Adverse Effect;
(e)this Agreement has been duly executed and delivered by it and constitutes a legally binding obligation of the Seller enforceable against it in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors’ rights generally and to equitable principles of general application (regardless of whether enforcement is sought in a proceeding at law or in equity);
(f)the execution and delivery of this Agreement and the other Program Agreements to which it is party and compliance with their terms and conditions will not (i) result in a violation of the constating documents or by-laws of the Seller; (ii) result in a violation of any Applicable Law; (iii) result in a breach of, or constitute a default under, any loan
agreement, indenture, limited partnership agreement, trust deed or any other agreement or instrument to which the Seller is a party or by which it is bound which would reasonably be expected to have a Material Adverse Effect; or (iv) require any approval or consent of, or any notice to or filing with, any governmental authority or agency having jurisdiction except such as has already been given, filed or obtained, as the case may be;
(g)no default has occurred and is outstanding under any loan agreement, indenture, limited partnership agreement, trust deed or any other agreement or instrument to which the Seller is a party or by which it is bound which would reasonably be expected to have a Material Adverse Effect;
(h)its principal place of business, chief executive office and registered office are located at the addresses set forth under its name on the signature pages hereto and the offices where it keeps all Records held by it are located at the addresses set out in Schedule C hereto or such other addresses as the Seller shall from time to time notify the Purchaser;
(i)it is not a non-resident of Canada within the meaning of the ITA;
(j)as of the applicable Asset Purchase Cut-Off Date or Asset Designation Cut-Off Date, as the case may be, each Obligor Account forming part of the Assigned Obligor Account Assets in respect of such Asset Purchase Cut-Off Date or Asset Designation Cut-Off Date is an Eligible Obligor Account;
(k)all information, exhibits, documents, books, records or reports, including each Asset Purchase Notice, furnished to the Purchaser or the Indenture Trustee by or on behalf of the Seller (or known to the Seller in the case of any document furnished by or on behalf of the Seller but not prepared by the Seller or one of its affiliates) in connection with the transactions contemplated by this Agreement and the other Program Agreements is accurate and complete in all material respects;
(l)no Amortization Event or Servicer Termination Event or Related Significant Event, or event which with the giving of notice of the passage of time or both, would be an Amortization Event or Servicer Termination Event or Related Significant Event, has occurred and is continuing;
(m)each financial report and financial statement of the Seller delivered to the Purchaser or the Indenture Trustee pursuant to or in connection with this Agreement or any other Program Agreement has been prepared in accordance with generally accepted accounting principles, consistently applied, and Applicable Law and fairly and accurately presents the financial information and the financial condition and results of operations of the Seller contained therein as at their respective preparation dates;
(n)it is not insolvent and has not (i) admitted its inability to pay its debts generally as they become due or failed to pay its debts generally as they become due; (ii) proposed a compromise or arrangement to its creditors; (iii) had any petition for a receiving order or bankruptcy filed against it; (iv) consented to have itself declared bankrupt or wound up; (v) consented to have a receiver, liquidator or trustee appointed over any part of its assets; (vi) had any encumbrancer take possession of any of its property, which taking of possession could reasonably be expected to have a material adverse effect on its ability to carry out its obligations under the Program Agreements; (vii) had any execution or distress become enforceable or become levied upon any of its property, which event contemplated in this clause could reasonably be expected to have a material adverse effect on its ability of to carry out its obligations under the Program Agreements; or (viii) had any material unsatisfied judgment outstanding against it for more than fifteen (15) days; and
(o)since the date of the most recent financial statements of the Seller furnished to the Purchaser and the Indenture Trustee, there has been no change in the business, assets, affairs or operations of the Seller which could reasonably be expected to have a Material Adverse Effect.
The representations and warranties made above shall survive the execution and delivery of this Agreement and each Asset Purchase notwithstanding any investigations or examinations which may be made by or on behalf of the Purchaser and the Purchaser shall be deemed to have relied on such representations and warranties in the making or funding, as applicable, of each Asset Purchase.
1.2Representations and Warranties of the Seller on each Revolving Asset Purchase Date
The Seller represents and warrants to the Purchaser and the Indenture Trustee as of each Revolving Asset Purchase Date in respect of any Series of Debt Obligations, and on any other date on which these representations and warranties are specified to be repeated in any Related Supplement or Note Purchase Agreement in respect of any Series of Debt Obligations, that each Obligor Account forming part of the Assigned Obligor Account Assets in respect of such Revolving Asset Purchase Date is an Eligible Obligor Account.
1.3Representations and Warranties of the Purchaser and the General Partner
Each of the Purchaser, and, in the case of (b) to (h) (inclusive), the General Partner in its own right in respect of itself, represents and warrants to the Seller and the Indenture Trustee as of the date of this Agreement, on each Weekly Reporting Date, on each Asset Increase Closing Date in respect of any Series of Debt Obligations, and on any other date on which these representations and warranties are specified to be repeated in any Related Program Agreement in respect of any Series of Debt Obligations, that:
(a)the Purchaser is (i) a limited partnership created under the laws of the Province of Ontario; and (ii) duly qualified to carry on business in each jurisdiction in which the failure to do so would reasonably be expected to have a Material Adverse Effect;
(b)the General Partner is (i) the sole general partner of the Purchaser, (ii) a corporation duly constituted and validly existing under the laws of the Province of Ontario, and (iii) duly qualified to carry on business in each jurisdiction in which the failure to do so would reasonably be expected to have a Material Adverse Effect;
(c)it has the full power and capacity to enter into this Agreement and the other Program Agreements to which it is party and to do all acts and things as are required of or contemplated to be done by it hereunder or thereunder;
(d)it has taken all necessary action to authorize the execution, delivery and performance of this Agreement and the other Program Agreements to which it is party and to do all acts and things as are required of or contemplated to be done by it hereunder or thereunder;
(e)there are no actions, suits or proceedings pending or to the knowledge of any officer of the Purchaser or the General Partner, in its own right, threatened against or affecting the Purchaser or the General Partner, in its own right, or any of its undertakings and assets at law, in equity or before any arbitrator or before or by any governmental department, body, commission, board, bureau, agency or instrumentality having jurisdiction in the premises in respect of which there is a reasonable possibility of a determination adverse to the Purchaser which would reasonably be expected to have a Material Adverse Effect and neither the Purchaser nor the General Partner, in its own right, is in default in respect of any Applicable Law, rule, regulation, order, judgment, injunction, award or decree as a result of which a Material Adverse Effect would reasonably be expected to occur;
(f)this Agreement and the other Program Agreements to which it is party have been duly executed and delivered by it and constitute legally binding obligations of the Purchaser or the General Partner, in its own right, enforceable against it in accordance with their respective terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium or other laws affecting creditors’ rights generally and to equitable principles of general application (regardless of whether enforcement is sought in a proceeding at law or in equity);
(g)the execution and delivery of this Agreement and the other Program Agreements to which it is party and compliance with their respective terms and conditions will not (i) result in a
violation of its constating documents; (ii) result in a violation of any Applicable Law; (iii) result in a breach of, or constitute a default under, any loan agreement, indenture, limited partnership agreement, or any other agreement or instrument to which the Purchaser or the General Partner, in its own right, is a party or by which it is bound which would reasonably be expected to have a Material Adverse Effect; or (iv) require any approval or consent of, or any notice to or filing with, any governmental authority or agency having jurisdiction except such as has already been given, filed or obtained, as the case may be; and
(h)no default has occurred and is outstanding under any loan agreement, indenture, limited partnership agreement, trust deed or any other agreement or instrument to which the Purchaser or the General Partner, in its own right, is a party or by which it is bound which would reasonably be expected to have a Material Adverse Effect.
The representations and warranties made above shall survive the execution and delivery of this Agreement and each Asset Purchase notwithstanding any investigations or examinations which may be made by or on behalf of the Seller and the Seller shall be deemed to have relied on such representations and warranties in the completing each Asset Purchase.
Article 4
COVENANTS
1.1General Covenants of the Seller and the Servicer
Each of the Seller and the Servicer covenants with the Purchaser and the Indenture Trustee:
(a)to preserve and maintain its existence, rights, franchises and privileges and to qualify and remain qualified to carry on business in each jurisdiction in which the failure to do so would reasonably be expected to have a Material Adverse Effect;
(b)to not, except as expressly permitted herein (i) sell, assign (by operation of law or otherwise) or dispose of any part of the Assigned Obligor Account Assets (except as provided herein); (ii) take any action which may cause the validity, effectiveness or enforceability of the Assigned Obligor Account Assets to be impaired; or (iii) take or omit to take any action which may cause an Adverse Claim to attach or extend to or otherwise burden any part of the Assigned Obligor Account Assets;
(c)to comply with all laws (including, without limitation, Privacy Laws) rules, regulations, orders, judgments, injunctions, awards or decrees applicable to the Seller or the Assigned Obligor Account Assets except where the failure to do so would not reasonably be expected to have a Material Adverse Effect;
(d)to maintain records and books of account in accordance with generally accepted accounting principles, consistently applied, and Applicable Law;
(e)to timely and fully perform and comply with all provisions, covenants and other promises required to be observed by the Seller under the Assigned Obligor Account Assets, and timely and fully comply in all material respects with the Credit and Collection Policies with regard to each Assigned Obligor Account Asset;
(f)to notify the Purchaser and the Indenture Trustee at least twenty (20) Business Days prior to changing its name from that which is stated in its constating documents;
(g)to notify the Purchaser and the Indenture Trustee at least twenty (20) Business Days prior to changing the jurisdiction in which it is organized or the jurisdiction in which its principal place of business, chief executive office or registered office is located;
(h)to promptly, and in any event within twenty (20) Business Days, notify the Purchaser of any amendment, limitation or restriction of any license issued to the Seller or the Servicer by a regulatory authority relating to the carrying on by the Seller or the Servicer of its
business if such amendment, limitation or restriction would have a Material Adverse Effect;
(i)to promptly, and in any event within two (2) Business Days, notify the Purchaser of the occurrence of any Amortization Event or Servicer Termination Event or of any event which, with the giving of notice or the passage of time, or both, could become an Amortization Event or a Servicer Termination Event or a Related Significant Event;
(j)to record the sale of the Assigned Obligor Account Assets to the Purchaser as a sale for financial accounting and other reporting purposes or, if generally accepted accounting principles, consistently applied, does not permit such presentation, to disclose in its audited financial statements that the Assigned Obligor Account Assets have been sold to the Purchaser;
(k)to make notations in its books, records, documents and instruments relating to the Assigned Obligor Account Assets to evidence the interest of the Purchaser therein;
(l)to, from time to time at its expense, promptly execute and deliver all instruments and documents and make or cause to be made all filings, recordings, registrations and take all other actions in each applicable jurisdiction, including in each jurisdiction in which any of the Obligors is located, such as are necessary to validate, preserve, perfect or protect the ownership interest of the Purchaser in the Assigned Obligor Account Assets, including the registration at the RPMRR in accordance with Article 1642 of the Civil Code of Québec with respect to each Asset Purchase and the assignment contemplated in Section 2.2(a) (and including, if applicable, with respect to any related Purchaser Québec Assignment), within five (5) Business Days from each Asset Increase Closing Date of the Asset Purchase by the Seller to the Purchaser (or in the case of the assignment contemplated in Section 2.2(a), within five (5) Business Days of the initial Asset Increase Closing Date), provided that the Seller shall not be required, whether under this paragraph or otherwise, to amend any registrations or make new registrations against any Obligors to reflect any of the transactions contemplated herein or in the other Program Agreements, unless such amendments or new registrations are required under Applicable Law in order to ensure the continued perfection of the Purchaser’s interest in the Assigned Obligor Account Assets; and
(m)not, without the prior written consent of the Purchaser and the Indenture Trustee (acting at the direction of the holders of the Debt Obligations) and, if required in respect of any Series of Debt Obligations, notice to the Rating Agencies, make any change in the Credit and Collection Policies which could reasonably be expected to have a Material Adverse Effect.
1.2Further Assurances
Each of the Seller, the Servicer and the Purchaser, upon written request from any of the others, will from time to time make, do, execute, endorse, acknowledge and deliver or cause and procure to be made, done, executed, endorsed, acknowledged, filed, registered and delivered any and all further acts and assurances, including without limitation, any conveyance, deed, transfer, assignment or other instrument in writing as, in the opinion of either of such Persons, may be necessary or desirable to give effect to this Agreement and the transactions provided for in this Agreement and will take all such other action as may be required or desirable for more effectually and completely vesting the Assigned Obligor Account Assets acquired by the Purchaser.
Article 5
SERVICING OF PORTFOLIO
1.1Appointment of the Seller as Servicer
(a)The Purchaser hereby appoints the Seller to act as Initial Servicer and be the Purchaser’s agent for the purposes of servicing the Assigned Obligor Account Assets as set out in this Article 5 (it being acknowledged and agreed that the purchase of the Assigned Obligor Account Assets made hereunder is made on a fully-serviced basis in accordance with this Agreement) and the Seller hereby accepts such appointment.
(b)The Servicer may subcontract for the servicing of the Assigned Obligor Account Assets with (i) NCRi Inc., (ii) Millennium Process Group, Inc.; and (iii) with the Purchaser’s prior consent and the consent of the Indenture Trustee (acting at the direction of the holders of the Debt Obligations), any appropriately-qualified Person (including an affiliate); provided that no such consent shall be required in connection with any such subcontracting to collection agencies, debt buyers and law firms in the ordinary course of business and as is customary in the consumer credit industry; and provided further that the operation of a call centre by CURO Financial Technologies Corp., an affiliate of the Seller, shall not be considered subcontracting out of the servicing or use of third party servicing. In any case, the Servicer will remain liable to the Purchaser for the performance of the duties and obligations so subcontracted, including for any losses, claims or liabilities resulting from the acts or omissions of such Person, and all other duties and obligations of the Servicer set forth in this Article 5, and the Purchaser shall have the right to look solely to the Servicer for performance of such duties and obligations.
1.2Servicing of Portfolio
During the term of this Agreement, and in respect of any Series of Debt Obligations unless a Replacement Servicer is designated by the Purchaser in respect of such Series of Debt Obligations pursuant to Section 6.2, the Servicer covenants to the Purchaser and the Indenture Trustee to service the Assigned Obligor Account Assets in respect of such Series of Debt Obligations using a degree of skill, care and attention that accords with customary and usual procedures employed by servicers in connection with the servicing of property of the type included in the Assigned Obligor Account Assets and in accordance with the Credit and Collection Policies, and subject to and in accordance with the provisions of this Agreement. Without limiting the generality of the foregoing, the Servicer, unless (and only to the extent that) a Replacement Servicer is designated by the Purchaser pursuant to Section 6.2, shall and covenants to:
(a)except for Collections which are held by the Seller in the Seller’s Account which cease to be held by it in its capacity as Servicer and in trust for the Purchaser in accordance with Section 2.2(b), deposit Collections to the Collections Account in respect of a related Series of Debt Obligations (which will, until so deposited, be held in trust for the Purchaser but may be commingled with its own funds held in the Seller’s Account), in accordance with Section 5.3;
(b)maintain up-to-date Records at all times in respect of the Assigned Obligor Account Assets;
(c)hold the Records in trust for the Purchaser and the Indenture Trustee and at any time and from time to time during regular business hours, but not more than once in any twelve (12) month period prior to the occurrence of an Amortization Event, permit the Purchaser, its agents or representatives upon five (5) Business Days’ prior notice to (i) examine and make copies of all such Records in the possession (or under the control) of the Servicer; and (ii) visit the offices and properties of the Servicer for the purpose of examining such Records and discussing matters relating to the Assigned Obligor Account Assets and the Servicer’s performance under the Assigned Obligor Account Assets or hereunder with any of the Servicer’s officers or employees having knowledge of such matters;
(d)(i) ensure that all required Records with respect to Obligor Accounts are kept in either physical or electronic form by the relevant merchant and can be provided to the Servicer upon request; (ii) on or before the 30th day after the initial Asset Increase Closing Date, ensure that copies of all required Records with respect to Obligor Accounts are maintained in either physical or electronic form at one of the Servicer’s addresses identified in Schedule C; and (iii) subject to the foregoing, maintain and implement administrative and operating procedures (including, without limitation, an ability to recreate the required Records relating to Obligor Accounts in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records, computer tapes and disks and other information reasonably necessary or advisable for the administration and collection of all Assigned Obligor Account Assets;
(e)direct its auditors to assist the Purchaser’s auditors (if they are not the same auditors) to the extent and in such manner as is required for the Purchaser’s auditors to report on the status of the Assigned Obligor Account Assets;
(f)timely and fully perform and comply with all terms, covenants and other provisions of the Assigned Obligor Account Assets required to be performed and observed by it or the Purchaser under the terms of the applicable account agreements or Applicable Law;
(g)comply in all respects with the Credit and Collection Policies in regard to each Assigned Obligor Account Asset, including conducting a quarterly review of active Obligors’ Credit Scores;
(h)not, without the prior written consent of the Purchaser the Indenture Trustee (acting at the direction of the holders of the Debt Obligations) and, if required in respect of any Series of Debt Obligations, notice to the Rating Agencies, make any change in the Credit and Collection Policies which could reasonably be expected to have a Material Adverse Effect;
(i)not extend, amend or otherwise modify or waive any term or condition of any Assigned Obligor Account Assets unless permitted in accordance with the terms of the Credit and Collection Policies;
(j)use its commercially reasonable efforts to collect all Receivables payable in respect of the Assigned Obligor Account Assets, all in accordance with all Applicable Laws, the provisions hereof and the Credit and Collection Policies;
(k)make all payments payable by it to government agencies and others where a statutory lien or deemed trust might arise having priority over the Purchaser’s interest in any part of the Assigned Obligor Account Assets; provided that the Servicer may protest the payment of any such amounts if it is acting in good faith and it either provides the Purchaser with cash in an amount sufficient to satisfy the same or otherwise satisfies the Purchaser, acting reasonably, that its interests are not prejudiced thereby;
(l)as soon as possible, effect all filings or recordings with respect to the Purchaser’s interest in all Rights necessary by law or reasonably prudent or desirable for the perfection and protection of such interest and all appropriate renewals or amendments thereof; provided, however, that, except as otherwise contemplated in the Program Agreements, the Servicer shall not be required to effect any such filings or recordings to reflect the Purchaser as the secured party of record in connection with any security forming part of the related Rights;
(m)promptly, from time to time, furnish to the Purchaser such documents, records, information or reports in respect of the Assigned Obligor Account Assets or the conditions or operations, financial or otherwise, of the Servicer as may be in existence in written form or, if available in databases maintained by the Servicer, as may be produced with existing software as the Purchaser may from time to time reasonably request;
(n)on or before two (2) Business Days prior to each Settlement Date or any other reporting date as specified in any Related Supplement in respect of any Series of Debt Obligations, prepare and deliver to the Purchaser and the Indenture Trustee and, if required in respect of any Series of Debt Obligations, the Rating Agencies, a Monthly Servicer Report or any other report as specified in any Related Supplement in respect of any Series of Debt Obligations relating to the Receivables payable in respect of the Assigned Obligor Account Assets as of the close of business on the last day of the immediately preceding Collection Period and the settlement transactions to be completed on the Settlement Date related to such Collection Period; and
(o)unless otherwise specified in any Related Supplement in respect of any Debt Obligations, on or before each Weekly Reporting Date in respect of any Series of Debt Obligations, prepare and deliver to the Purchaser and the Indenture Trustee and, if required in respect of any Series of Debt Obligations, the Rating Agencies, a Weekly Report relating to the Receivables payable in respect of the Assigned Obligor Account Assets as of the last day of the immediately preceding Weekly Reporting Period to which such Weekly Report relates and the Aggregate Eligible Pool Balance.
1.3Deposit of Collections
Except for Collections in the Seller’s Account which cease to be held by it in its capacity as Servicer and in trust for the Purchaser in accordance with Section 2.2(b), all Collections in respect of the Assigned Obligor Account Assets shall be deposited by the Servicer in the Collections Account in respect of a related Series of Debt Obligations, within two (2) Business Days of the date of receipt by the Servicer (or, in the case of Collections arising from Assigned Obligor Account Assets received prior to the 2nd Business Day prior to the Asset Increase Closing Date in respect of such Assigned Obligor Account Assets, on the Asset Increase Closing Date).
1.4Power of Attorney
The Purchaser hereby constitutes and appoints the Servicer the true and lawful attorney of the Purchaser, with full power of substitution, to execute, deliver and register, for and on behalf of and in the name of the Purchaser, such documents, instruments or agreements which may be necessary or desirable to enable the Servicer to perform its obligations as servicer of the Assigned Obligor Account Assets which are set out in this Agreement. The Servicer agrees that it will not exercise such power of attorney for any other purpose whatsoever. For greater certainty and without limiting the generality of the foregoing, the Purchaser hereby grants to the Servicer a power of attorney and a mandate for the purposes of executing and registering, on behalf of the Purchaser, any and all acquittances, mainlevées, radiations, reductions, retrocessions and all other documents for the purposes of discharging, releasing, reassigning, retroceding, waiving or subordinating in the ordinary course of business any rights or registration resulting from the Eligible Receivables included in the Assigned Obligor Account Assets or the related Rights, including endorsing the Purchaser’s name on any consents, filings, registrations or other documents in furtherance thereof.
1.5Deemed Collections
If, on any day prior to the date that is one (1) year after the Final Maturity Date in respect of any Series of Debt Obligations, any Receivable payable in respect of any Obligor Account that is an Assigned Obligor Account Asset is either (i) reduced or cancelled as a result of any breach by the Seller or the Servicer of the terms of such Obligor Account or Applicable Law, or (ii) reduced or cancelled as a result of a set-off in respect of any claim by the applicable Obligor against the Seller, the Servicer or the Purchaser other than as a result of an act or omission of the Purchaser (whether such claim arises out of the same or a related transaction or an unrelated transaction), the Servicer shall be deemed to have received for the Purchaser’s account on the day of such reduction, cancellation or set-off, a Collection of such Receivable in the amount of such reduction, cancellation or set-off, which amount shall be considered to be “Deemed Collections” hereunder, and shall deposit such Deemed Collections to the Collections Account in respect of a related Series of Debt Obligations within two (2) Business Days such amount subject to Section 5.9.
1.6Payment Terms
(a)All amounts to be paid or deposited by the Seller, the Servicer, the Replacement Servicer or the Purchaser hereunder will be paid or deposited on the day when due in same day funds.
(b)The Seller and the Servicer will make all payments required to be made hereunder without deduction or set-off (except as expressly permitted hereunder) regardless of any defence or counterclaim.
(c)The Servicer (in its capacity as Paying Agent under any Related Supplement in respect of any Series of Debt Obligations) shall apply the Collections in the Collections Account in respect of the related Series of Debt Obligations in accordance with the Related Supplement without deduction or set-off regardless of any defence or counterclaim.
1.7Permitted Re-purchases
Provided that no Amortization Event, Servicer Termination Event or Related Event of Default has occurred and is continuing, the Seller shall have the option to repurchase all Assigned Obligor
Account Assets under an Obligor Account if the related Obligor Account has become a Charged-Off Obligor Account, provided that such repurchase will not result in an Amortization Event or Related Event of Default. The Seller may exercise its option to repurchase any such Obligor Account Assets by making a deposit to the Collections Account in respect of the related Series of Debt Obligations on a Settlement Date, subject to Section 5.9, in an amount equal to $1 for each Obligor Account, the Obligor Account Assets of which are repurchased (which the Seller and the Purchaser acknowledge and agree is equal to the fair market value of any such Obligor Account Assets). On the making of such deposit, the Obligor Account Assets of each such Obligor Account shall be deemed to be sold, assigned, transferred and conveyed to the Seller without the need for any further action hereunder. The amount deposited to the Collections Account in respect of a related Series of Debt Obligations shall be considered to be “Deemed Collections” hereunder. Following the completion of each repurchase of the Obligor Account Assets in an Obligor Account by the Seller pursuant to this Section 5.7, all Collections paid and payable with respect to such Obligor Account from and after the applicable repurchase date will be the property of the Seller. For the avoidance of doubt, the repurchase of Obligor Account Assets in an Obligor Account that has become a Charged-Off Obligor Account by the Seller pursuant to this Section 5.7 shall not affect the requirement to reflect such Obligor Account Assets in the calculation of the Net Charge-Off Ratio in respect of the Collection Period when it became a Charged-Off Obligor Account.
1.8Clean-Up
On any Settlement Date following any date on which the aggregate outstanding principal balance of any Series of Debt Obligations is less than 10% of the highest aggregate outstanding principal balance of such Series of Debt Obligations at any time, the Seller (so long as the Seller is the Servicer) shall have the option, exercisable by five (5) Business Days’ prior written notice to the Purchaser and the Indenture Trustee to purchase the Assigned Obligor Account Assets designated for such Series of Debt Obligations at a purchase price equal to the amount that when deposited to the applicable Collections Account and applied together with the balance of the applicable Cash Reserve Account pursuant to the Related Supplement in respect of such Series of Debt Obligations on such date is sufficient to cause the aggregate outstanding principal balance of all Debt Obligations in the Series to be reduced to zero, the interest distribution amount (calculated in accordance with the Related Supplement in respect of such Debt Obligations) to be paid in full and all other amounts payable to the Indenture Trustee pursuant to the Related Supplement in respect of such Series to be paid in full. Such purchase price shall be deposited to the Collections Account in respect of the related Series of Debt Obligations and applied on such Settlement Date to reduce the principal amount outstanding of the applicable Series of Debt Obligations to zero and pay such other amounts in full.
1.9Net Deposits
On any Settlement Date on which the Seller (either in its capacity as Seller or Servicer) is required to make a deposit to the Collections Account in respect of a related Series of Debt Obligations pursuant to Sections 2.4, 5.5 or 5.7 and also entitled to receive any payment of Deferred Asset Purchase Price (calculated taking into account such deposits and the prior payment of all other items to be paid pursuant to the application of payments provisions of the Related Supplement in respect of any Series of Debt Obligations) in respect of such related Series of Debt Obligations, the Seller may deposit the net amount owing, if any, provided that such netting shall in no way affect the priority or receipt of any payments or entitlements under the Related Supplement in respect of the applicable Series of Debt Obligations.
1.10Servicer Advances
(a)The Servicer, on behalf of the Purchaser: (i) will make payments in respect of costs and expenses associated with the enforcement and protection of the Purchaser’s rights under any Assigned Obligor Account Assets, or legal fees or disbursements of counsel in connection with any of the foregoing all in accordance with the practices followed from time to time by the Servicer in the normal course of its business in applying the Credit and Collection Policies (such payments, “Costs and Expenses Advances”); and (ii) with respect to any Series of Debt Obligations, on or before each Monthly Determination Date in respect of such Series of Debt Obligations until such time as all of such Series of Debt Obligations have been paid in full or otherwise been satisfied, provide the Paying Agent with a written notice to the effect that the Servicer will make an advance equivalent to the Collections Advance Amount and remit such amount to the Purchaser by deposit in the
Collections Account in respect of the related Series of Debt Obligations (for application by the Paying Agent on the Settlement Date in accordance with the Related Supplement in respect of the relevant Series of Debt Obligations) on the relevant Settlement Date, in each case from its own funds or other property (such payments, “Collections Advances”, and, together with Costs and Expenses Advances, “Servicer Advances”). For greater certainty, Servicer Advances shall not include any payments made in respect of the Required Cash Reserve Amount.
(b)The Servicer will be entitled to be reimbursed any Servicer Advance it makes as soon as practicable after funds available for such purpose have been received by the Servicer. The Servicer will on behalf of the Purchaser repay any outstanding Servicer Advances to itself with any corresponding Late Collections it receives, either from the proceeds in the Collection Account in respect of a Series of Debt Obligations in accordance with the Related Supplement in respect of any Series of Debt Obligations, or by retaining such amounts directly from the related Late Collections and not depositing such Late Collections to the Collection Account in respect of the related Series of Debt Obligations. Each Servicer Advance shall be considered to be a limited recourse loan to the Purchaser with recourse for repayment limited solely to amounts available for withdrawal from the Collections Account in respect of the related Series of Debt Obligations for that purpose pursuant to the Related Supplement in respect of any Series of Debt Obligations.
1.11Reports
(a)Unless otherwise specified in any Related Supplement in respect of any Debt Obligations, on each Monthly Determination Date, the Servicer will provide to the Purchaser, the Indenture Trustee and, if applicable in respect of any rated Debt Obligations, each Rating Agency, a Monthly Servicer Report for the related Collection Period.
(b)The Servicer will be responsible for performing all calculations necessary in connection with the Monthly Servicer Report. The Servicer will calculate, for each Settlement Date, (a) the available amount of Collections and other amounts available to be applied on such Settlement Date; and (b) the payments to be applied on such Settlement Date, in each case in accordance with the Related Supplement in respect of any Series of Debt Obligations and will give the Indenture Trustee and Paying Agent written notice of such calculation on the Settlement Date. The Paying Agent will have no obligation to re-compute, re-calculate or verify any information provided to it by the Servicer. The calculations by the Servicer of such amounts will, in the absence of manifest error, be presumptively deemed to be correct for all purposes hereunder.
(c)Unless otherwise specified in any Related Supplement in respect of any Debt Obligations, on each Weekly Reporting Date, the Servicer will provide to the Purchaser, the Indenture Trustee and, if applicable in respect of any rated Debt Obligations, each Rating Agency, a Weekly Report for the related Weekly Reporting Period.
(d)The Purchaser shall provide the Servicer with a copy of any Related Supplement in respect of any Debt Obligations for purposes of identification of the specified Monthly Determination Date, Weekly Reporting Date, Weekly Reporting Period and the form of Monthly Servicer Report and Weekly Report, in respect of each Series of Debt Obligations.
Article 6
SERVICER TERMINATION
1.1Servicer Termination Events
The happening of any of the Servicer Termination Events specified in any Related Supplement in respect of any Series of Debt Obligations shall constitute a Servicer Termination Event hereunder.
1.2Designation of Replacement Servicer
(a)If a Servicer Termination Event has occurred and is continuing in respect of any Series of Debt Obligations, the Indenture Trustee (acting at the direction of the Class or Classes of holders of Debt Obligations specified in the Related Supplement in respect of any Series of Debt Obligations) may, by notice to the Servicer designate the Backup Servicer, or, if applicable in respect of any Series of Debt Obligations, subject to the Rating Agency Condition and the consent of the Indenture Trustee (acting at the direction of the Class or Classes of holders of the Debt Obligations specified in the Related Supplement), any other Person as a Replacement Servicer to succeed the Servicer to perform the Servicer Obligations with respect to the Assigned Obligor Account Assets designated in respect of such Series of Debt Obligations, provided that any such Person so designated other than the Backup Servicer shall agree to perform the Servicer Obligations hereunder and under the Related Supplement.
(b)Upon the appointment of a Replacement Servicer pursuant to Section 6.2(a), the Servicer will, on demand and at its expense: (i) assemble all Records and make them available to the Replacement Servicer including a computer data file setting forth information in respect of each Obligor Account; (ii) notify all Obligors and other relevant Persons (x) of the sale, assignment and transfer to the Purchaser of the affected Assigned Obligor Account Assets; and (y) to remit all payments due under such affected Obligor Accounts to the Replacement Servicer; (iii) segregate, in a manner reasonably acceptable to the Purchaser and the Indenture Trustee, all cash, cheques and other instruments constituting Collections which are received by it from time to time and remit the same to the Replacement Servicer duly endorsed or with duly executed instruments of transfer, if applicable; and (iv) provide the Replacement Servicer with such commercially reasonable assistance as it may require in order to discharge its duties hereunder. To the extent the Records consist in whole or in part of computer programs which are licensed to the Servicer or its agents or if the Servicer uses accounting and management software in the administration of the related Obligor Accounts, the Servicer will use its reasonable commercial best efforts to arrange for the licence or sublicense of such programs to the Purchaser or its designates to permit the Purchaser or its designates to administer and collect the Obligor Accounts and to enforce the rights acquired by the Purchaser in respect of the Assigned Obligor Account Assets.
1.3Replacement Servicer Fee
A Replacement Servicer appointed pursuant to Section 6.2 shall be entitled to a reasonable fee (including any out-of-pocket expenses incurred by the Replacement Servicer in connection with its duties as Replacement Servicer, and any other amounts owing to it, together with any applicable taxes) for services rendered, such fee to be (a) as specified in the backup servicing agreement or in the replacement servicing agreement entered into by the Replacement Servicer in connection with its appointment as Replacement Servicer, or (b) otherwise settled by the Purchaser in its discretion with the Replacement Servicer, in the event of this clause (b), to a maximum percentage of Collections remitted to the Collections Account in respect of a related Series of Debt Obligations during any Collection Period, as specified in the Related Supplement in respect of any Series of Debt Obligations (the “Replacement Servicer Fee”). Such Replacement Servicer Fee shall be payable to the Replacement Servicer in accordance with the Related Supplement.
1.4Power of Attorney
(a)The Seller and Servicer have granted an irrevocable power of attorney to the Indenture Trustee pursuant to the Related Supplement in respect of each Series of Debt Obligations and, by delegation and direction of the Indenture Trustee, as provided in the Related Supplement, all such rights, benefits and powers under such power of attorney, coupled with an interest in favour of the Indenture Trustee, are hereby granted by the Seller and the Servicer to each of the Purchaser and the Indenture Trustee, to become effective immediately upon the occurrence of a Servicer Termination Event, and the Seller and the Servicer hereby irrevocably appoint each of the Purchaser and the Indenture Trustee as the Seller’s or the Servicer’s (as applicable) true and lawful agent and attorney-in-fact (and mandatary with respect to Québec matters), with full power of substitution, to take in the place and stead of and in the name of the Seller or the
Servicer (as applicable) or in the Purchaser’s or the Indenture Trustee’s own name from time to time at the Purchaser’s or the Indenture Trustee’s discretion, acting reasonably, such actions as the Seller or the Servicer (as applicable) may be obligated to take hereunder or as the Purchaser or the Indenture Trustee may deem necessary or advisable to collect, endorse, negotiate or otherwise realize on any Assigned Obligor Account Asset including any related Receivable, any negotiable instrument, or any other right of any kind, held or owned by the Seller or the Servicer (as applicable) and transferred, assigned or delivered to or received by the Purchaser as payment on account or otherwise in respect of any of the Assigned Obligor Account Assets, including:
(i)to evidence or protect the Purchaser’s interest in the Assigned Obligor Account Assets and to execute and file, in the Seller’s or the Servicer’s name (as applicable) and on the Seller’s or the Servicer’s behalf (as applicable), such recording, registration, financing or similar statements (including any amendments, renewals and continuation statements) under Applicable Laws, including, in any personal property registry office in such jurisdictions where it may be necessary to validate, perfect or protect the Purchaser’s interest in the Assigned Obligor Account Assets;
(ii)to ask, demand, collect, sue for, recover, compound, receive and give acquittances and receipts for moneys due and to become due in connection with the Receivables or otherwise owed to the Purchaser;
(iii)to receive, endorse and collect any cheques, drafts or other instruments, documents and chattel paper in connection with moneys due and to become due in connection with the Receivables forming part of the Assigned Obligor Account Assets or otherwise owed to the Purchaser;
(iv)to file any claims or take any action or institute any proceedings that the Purchaser or the Indenture Trustee may deem to be necessary or desirable for the collection of any Assigned Obligor Account Asset;
(v)to make all registrations and generally effect and complete all notices and other formalities required under the laws of the Province of Québec in order to render the sale and assignment of the Québec Receivables opposable against the respective debtors and all third persons in accordance with Articles 1641, 1645 and 3003 of the Civil Code of Québec; and
(vi)to prepare, execute, deliver, and/or register in the Seller’s or the Servicer’s name (as applicable) and on the Seller’s or the Servicer’s behalf (as applicable), such instruments and documents (including assignments) necessary or desirable in furtherance of the foregoing.
(b)The power of attorney (mandate) granted hereby shall be expressly coupled with an interest in favour of each of the Purchaser and the Indenture Trustee. The powers of attorney (mandate) and other rights and privileges granted hereby shall survive any dissolution, liquidation or winding-up of the Seller.
1.5Records
If the Related Note Purchase Agreement and/or the Related Supplement in respect of any Series of Debt Obligations requires the establishment of one or more Prefunding Ledgers and/or one or more Funding Accounts, the Servicer shall maintain records of the following items, shown separately:
(a)all payments into and out of any Funding Account; and
(b)all credits to, debits from and the balance of any Prefunding Ledger.
1.6Prefunding Ledgers
If the Related Note Purchase Agreement and/or the Related Supplement in respect of any Series of Debt Obligations requires the establishment of one or more Prefunding Ledgers and one or more Funding Accounts:
(a)the Servicer shall establish and maintain one or more ledgers relating to the applicable Funding Account(s) to be designated as a “Prefunding Ledger”, in accordance with the Related Note Purchase Agreement and the Related Supplement;
(b)the Servicer shall ensure that any transfer made from any Funding Account on a Revolving Asset Purchase Date pursuant to the terms hereof shall be debited from the applicable Prefunding Ledger to the extent that such transfer is made from applicable Prefunding Amounts; and
(c)the Servicer shall ensure that any transfer made from any Funding Account on a Settlement Date pursuant to the Related Supplement shall be debited from the applicable Prefunding Ledger.
1.7Transfer of Amounts in Funding Account; Interest on Amounts in Funding Account
If the Related Note Purchase Agreement and/or the Related Supplement in respect of any Series of Debt Obligations requires the establishment of an applicable Funding Account and Prefunding Ledgers:
(a)the Servicer shall not transfer any amount from any Funding Account other than in accordance with the terms hereof and the terms of the Related Supplement; and
(b)on the Business Day immediately preceding each Settlement Date, the Servicer shall transfer to the Collections Account in respect of the related Series of Debt Obligations all interest earned from and including the Business Day immediately preceding the previous Settlement Date on the amounts deposited in any Funding Account.
Article 7
CONDITIONS PRECEDENT
1.1Conditions to Initial Asset Purchase
(a)The obligation of the Purchaser to complete the initial Asset Purchase on the initial Asset Increase Closing Date shall be subject to the Purchaser having received the following documents in form and substance satisfactory to the Purchaser on or before the initial Asset Increase Closing Date (unless otherwise specified below or waived by the Purchaser):
(i)a certificate of an officer of the Seller, dated the initial Asset Increase Closing Date certifying (A) that attached thereto is a true and complete copy of the certificate and articles of incorporation and any amendments thereto, and the by-laws of the Seller, each as in effect on the date of such certificate; (B) that attached thereto is a true and complete copy of a resolution adopted by the Seller’s board of directors authorizing the execution, delivery and performance of this Agreement and the other Program Agreements to which the Seller is party, and that such resolution has not been modified, rescinded or amended and is in full force and effect; and (C) as to the incumbency and true specimen signature of each of the Seller’s officers executing this Agreement or any of the other Program Agreements to which the Seller is party;
(ii)a certificate of compliance (or equivalent) issued in the Seller’s jurisdiction of incorporation in respect of the Seller, and an equivalent certificate from the appropriate authority in each other jurisdiction in which qualification is necessary in order for the Seller to own or lease its property and conduct its business, each to be certified as of a recent date;
(iii)copies of this Agreement and each of the other Program Agreements to which the Seller is a party duly executed by the Seller, as well as, in the event that Québec Receivables are being sold and assigned, a Sale and Servicing Québec Assignment in the form set forth as Schedule D-1 hereto, duly completed and executed by the Seller, and, if applicable, a Purchaser Québec Assignment in the form set forth as Schedule D-2 hereto, duly completed and executed by the Purchaser and the Seller;
(iv)reports showing the results of searches conducted against the Seller under applicable personal or movable property security registers in the provinces where the Seller has its head office and registered office and where the Assigned Obligor Account Assets are located (including, for the purposes of the conflict of laws rules of the Province of Québec, each province where any of the related Obligor Accounts is payable or where a related Obligor is situated), together with executed copies of all discharges or releases of prior security interests or hypothecs relating to Assigned Obligor Account Assets that are then to be sold hereunder; provided that the Seller may establish that any particular registration does not affect any such Assigned Obligor Account Assets by delivering a letter or acknowledgment signed by the applicable secured party;
(v)a copy of verifications statements or other filings filed in the provinces (other than the Province of Québec) where the Seller has its head office and registered office and where the Assigned Obligor Account Assets are located (including, for the purposes of the conflict of laws rules of the Province of Québec, each province (other than the Province of Québec) where any of the related Obligor Accounts is payable or where a related Obligor is situated), that are sufficient to perfect the interests of the Purchaser in the Assigned Obligor Account Assets as against creditors of the Seller;
(vi)executed copies of all discharges and releases, if any, necessary to discharge or release all security interests, hypothecs and other rights or interest of any Person in the Rights, previously granted by or through the Seller and which could constitute an Adverse Claim, together with, where applicable, copies of the relevant financing change statements or other discharge statements with the registration particulars stamped thereon;
(vii)within five (5) Business Days following the initial Asset Increase Closing Date, the Seller shall have delivered to the Purchaser and the Indenture Trustee a copy of the certified statements of registration issued by the RPMRR relating to the registrations made pursuant to Article 1642 of the Civil Code of Québec in respect of the related Asset Purchase; and
(viii)within five (5) Business Days following the initial Asset Increase Closing Date, the Seller shall have delivered to the Purchaser and the Indenture Trustee a report showing the results of searches conducted against the Seller at the RPMRR (updated to show the registrations referred to in the immediately preceding paragraph).
1.2Conditions to Each Asset Purchase or Asset Designation
(a)The obligation of the Purchaser to complete any Asset Purchase or Asset Designation pursuant to the delivery of an Asset Purchase Notice or Asset Designation Notice shall be subject to the satisfaction of the following conditions on or before the applicable Asset Increase Closing Date unless otherwise specified below or waived by the Purchaser:
(i)the Seller shall have delivered electronically to the Purchaser and the Indenture Trustee a duly completed Asset Purchase Notice in respect of the proposed Asset Purchase in accordance with Section 2.1(a);
(ii)the Seller shall have delivered to the Purchaser a duly completed and executed Sale and Servicing Supplement providing for the sale, transfer and assignment of the related Assigned Obligor Account Assets from the Seller to the Purchaser, as well as, in the event that Québec Receivables are being sold and assigned, a
Sale and Servicing Québec Assignment in the form set forth as Schedule D-1 hereto, duly completed and executed by the Seller, and, if applicable, a Purchaser Québec Assignment in the form set forth as Schedule D-2 hereto, duly completed and executed by the Purchaser and the Seller;
(iii)each of the conditions precedent set forth in any Related Supplement in respect of any related purchase of Debt Obligations or further increases thereunder shall have been satisfied and the purchase price or other advance in respect of the related Series of Debt Obligations shall have been advanced in accordance with any Related Supplement;
(iv)within five (5) Business Days following the Asset Increase Closing Date involving Québec Receivables, the Seller shall have delivered to the Purchaser and the Indenture Trustee a copy of the certified statements of registration issued by the RPMRR relating to the registrations made pursuant to Article 1642 of the Civil Code of Québec in respect of the related Asset Purchase;
(v)within five (5) Business Days following the Asset Increase Closing Date involving Québec Receivables, the Seller shall have delivered to the Purchaser and the Indenture Trustee a Québec opinion relating to the related Asset Purchase, substantially in the form of the Québec opinion delivered in connection with the initial Asset Purchase;
(vi)within five (5) Business Days following the Asset Increase Closing Date, the Seller shall have delivered to the Purchaser and the Indenture Trustee a report showing the results of searches conducted against the Seller at the RPMRR (updated to show the registration referred to in the immediately preceding paragraph); and
(vii)executed copies of all discharges and releases, if any, necessary to discharge or release all security interests, hypothecs and other rights or interest of any Person in the Rights, previously granted by or through the Seller and which could constitute an Adverse Claim, together with, where applicable, copies of the relevant financing change statements or other discharge statements with the registration particulars stamped thereon.
(b)The obligation of the Seller to complete any Asset Purchase or Asset Designation shall be subject to the receipt by the Seller of the Closing Payment in respect of such Asset Purchase or Asset Designation.
Article 8
MISCELLANEOUS
1.1Amendments and Waivers
(a)Subject to the terms of the Master Trust Indenture, this Agreement may be amended, supplemented, modified, restated or replaced by written instrument only signed by the each of the parties hereto.
(b)No waiver of any provision of this Agreement, nor consent to any departure by any party therefrom, shall in any event be effective unless the same shall be in writing signed by such party, and then such waiver or consent shall, subject to the terms of the Master Trust Indenture, be effective only in the specific instance and for the specific purpose for which given. No failure on the part of any party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof.
1.2Binding Effect; Assignability
This Agreement shall be binding upon and enure to the benefit of the parties hereto and their respective successors and assigns. The Seller and the Servicer shall not have the right to assign any interest herein without the consent of the Purchaser and the Indenture Trustee (acting at the direction of the holders of the Debt Obligations) and, if applicable in respect of any Series of Debt
Obligations, ten (10) Business Days’ prior written notice to the Rating Agencies. The Seller and the Servicer acknowledge that the Purchaser may assign its interest herein without further notice to, or the consent of, the Seller, but subject to, if applicable in respect of any Series of Debt Obligations, ten (10) Business Days’ prior notice to the Rating Agencies. The Seller and the Servicer agree that, upon such assignment, the assignee or its further assigns may enforce directly, without joinder of the Purchaser, the rights set forth in this Agreement. The Seller and the Servicer agree to grant to any such assignee or its further assigns or its agents such powers of attorney as may be necessary for the exercise of their rights hereunder.
1.3Notices
Any notice, document or other communication required or permitted to be given or delivered hereunder shall, unless otherwise stated herein, be in writing (including photocopy, facsimile, electronic mail or other digital communication) and sent, as to each party hereto, at its address indicated below, or at such other address as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be effective when sent.
To the Seller and Servicer:
[***]
To the Issuer:
[***]
To the Indenture Trustee:
[***]
1.4Indemnification
(a)In respect of each Series of Debt Obligations, the Seller and the Initial Servicer hereby agree to indemnify the Purchaser and to save it harmless from and against any and all damages, losses, claims, liabilities, costs and expenses (including reasonable legal fees and disbursements) awarded against or incurred by the Purchaser arising out of or as a result of:
(i)any representation or warranty made or deemed to be made by the Seller or the Initial Servicer (or any of its officers) in or in connection with this Agreement or any other Related Program Agreement (including in any Monthly Servicer Report or Weekly Report), which was incorrect in any material respect when made or deemed made or delivered;
(ii)the failure of the Seller or the Initial Servicer to perform or observe any of its covenants, duties or obligations hereunder or under any of the other Related Program Agreements;
(iii)the failure by the Seller or the Initial Servicer to comply with any Applicable Law, rule, regulation, order, judgment, injunction, award or decree with respect to any part of the Assigned Obligor Account Assets, or the non-conformity of any Assigned Obligor Account Asset with any Applicable Law, rule, regulation, order, injunction, award or decree;
(iv)any commingling of Collections with other funds of the Seller or the Initial Servicer or any other Person;
(v)any reduction in the amount remitted to the Purchaser due to any waiver by the Seller or Initial Servicer of any amounts due under the Assigned Obligor Account Assets, except in accordance with the Credit and Collections Policy;
(vi)any Canadian, foreign, federal, provincial, state, municipal, local or other tax of any kind or nature whatsoever, including any capital, income, sales, excise, business or property tax, any customs duty, and any penalty or interest in respect of any thereof, which may be imposed on the Purchaser on account of any payment made under this Section 8.4; and
(vii)any collection, use, transfer or disclosure of Confidential Personal Information by the Seller or the Initial Servicer to the Issuer, any Backup Servicer, any Replacement Servicer and the use or disclosure of such Confidential Personal Information by the Issuer, any Backup Servicer, any Replacement Servicer for a purpose consistent with the Related Program Agreements, that is not in compliance with applicable Privacy Laws.
(b)For the avoidance of doubt, notwithstanding anything to the contrary contained in clause (a) above, the Seller and the Initial Servicer shall not be liable to the Purchaser, the General Partner or any other Person for any damages, losses, claims, liabilities, costs or expenses resulting solely from the failure of any Obligor to discharge its payment obligations under any Obligor Accounts and the related Rights which form part of the Assigned Obligor Account Assets.
(c)The Seller, the Initial Servicer and the Purchaser each agree to provide reasonable assistance to the other party, at the request of such other party and, in either case, at the Seller’s or the Initial Servicer’s expense (as applicable), in any action, suit or proceeding brought by or against, or any investigation involving such requesting party relating to any of the transactions contemplated hereby or to any part of the Assigned Obligor Account Assets. If the Seller and the Initial Servicer have acknowledged their liability under Section 8.4(a) in respect of any damages, losses, claims, liabilities, costs or expenses in connection with any such action, suit, proceeding or investigation, the Seller and the Initial Servicer (as applicable) will have the right, on behalf of the Purchaser but at the Seller’s and Initial Servicer’s expense, to defend such action, suit or proceeding, or participate in such investigation, with counsel selected by it, and will have sole discretion as to whether to litigate, appeal or settle.
(d)Other than as set out in Section 8.4(e), the obligations of the Seller and the Servicer under this Section 8.4 in respect of each Series of Debt Obligations will, subject to Applicable Law, survive this Agreement and remain in full force and effect for a period up to and including the date that is two (2) years from the Final Maturity Date in respect of such Series.
(e)The obligations of the Seller and the Initial Servicer under Section 8.4(a)(vi) in respect of each Series of Debt Obligations will, subject to Applicable Law, survive this Agreement and remain in full force and effect for a period up to and including the date that is six (6) years from the Final Maturity Date in respect of such Series.
1.5Costs and Expenses
The Seller and the Servicer will pay all documented and invoiced expenses incurred in the performance of their obligations under this Agreement and all reasonable out-of-pocket costs and expenses of the Purchaser in connection with all filings and registrations necessary or desirable to vest in the Purchaser all right, title and interest in and to the Assigned Obligor Account Assets.
1.6Limited Recourse
Recourse to the Purchaser for non-payment of any amount owing hereunder shall be limited to the Assigned Obligor Account Assets and any amounts received by the Purchaser in respect of the Assigned Obligor Account Assets and no other property or assets of the Purchaser will be subject to levy, execution or other enforcement procedure with regard to any obligation under this Agreement.
1.7Time of Essence
Time will be of the essence of this Agreement.
1.8Failure to Perform
If the Seller or the Servicer fails to perform any of its agreements or obligations hereunder, the Purchaser may (but will not be required to) itself perform, or cause to be performed, such agreement or obligation at, in the case of any such failure to perform by the Seller or the Servicer, the cost of the Seller or the Servicer (as applicable).
1.9No Petition
Each of the Seller and the Servicer hereby agrees that it will not institute against the Purchaser or the General Partner, either in its capacity as the general partner of the Issuer or in its own capacity, any bankruptcy, reorganization, arrangement, insolvency, winding-up or liquidation proceedings, or other proceeding under any federal or provincial bankruptcy, insolvency or similar law in connection with any obligations relating to this Agreement. The foregoing shall not limit the rights of the Seller or the Servicer to file any claim in or otherwise take any action with respect to any such proceeding that was instituted against the Purchaser or the General Partner, either in its capacity as the general partner of the Issuer or in its own capacity, by any Person other than the Seller or the Servicer.
1.10Further Assurances
The parties hereto agree, from time to time, to enter into such further agreements and to execute all such further instruments as may be reasonably necessary or desirable to give full effect to the terms of this Agreement and to the ability of the Purchaser to exercise or enforce any of its rights and remedies hereunder.
1.11Remedies
The remedies herein provided are cumulative and not exclusive of any remedies provided at law.
1.12Execution in Counterparts
This Agreement or any amendment may be executed in any number of counterparts (including counterparts by facsimile, electronic transmission and email in PDF or similar transmissions) each of which, when so executed, shall be deemed to be an original and which counterparts together shall constitute one and the same agreement.
1.13Limitation of Liability of the Indenture Trustee
The Indenture Trustee is entering into this Agreement not in its individual capacity but solely in its capacity as Indenture Trustee under the Master Trust Indenture. In executing this Agreement and acting hereunder, the Indenture Trustee shall be entitled to all of the rights, protections, indemnities, and immunities afforded to it in the Master Trust Indenture. The permissive authorizations, entitlements, powers, and rights granted to the Indenture Trustee herein shall not be construed as duties. Any exercise of discretion on behalf of the Indenture Trustee shall be exercised in accordance with the terms of the Master Trust Indenture.
[Remainder of page intentionally left blank; signature page follows]
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the date first above written.
| | | | | | | | | | | | | | |
| | FLEXITI FINANCIAL INC., as Seller and Servicer |
| | Per: | |
| | | Name: |
| | | Title: |
Signature Page to Sale and Servicing Agreement
| | | | | | | | | | | |
| | COMPUTERSHARE TRUST COMPANY OF CANADA, as Indenture Trustee |
| Per: | |
| Name: |
| Title: |
| Per: | |
| Name: |
| Title: |
Signature Page to Sale and Servicing Agreement
| | | | | | | | | | | |
| | FLEXITI SECURITIZATION LIMITED PARTNERSHIP, by its general partner, FLEXITI SECURITIZATION GENERAL PARTNER INC., as Purchaser |
| Per: | |
| Name: |
| Title: |
| Per: | |
| Name: |
| Title: |
| | | | | | | | | | | |
| | FLEXITI SECURITIZATION GENERAL PARTNER INC., in its own right, as General Partner |
| Per: | |
| Name: |
| Title: |
| Per: | |
| Name: |
| Title: |
Signature Page to Sale and Servicing Agreement
Schedule A
FORM OF ASSET PURCHASE NOTICE
[***]
Schedule B
FORM OF ASSET DESIGNATION NOTICE
[***]
Schedule C
SELLER’S AND SERVICER’S ADDRESSES
[***]
Schedule D
FORM OF SALE AND SERVICING SUPPLEMENT
[***]
SCHEDULE D-1
FORM OF SALE AND SERVICING QUÉBEC ASSIGNMENT
[***]
SCHEDULE D-2
FORM OF PURCHASER QUÉBEC ASSIGNMENT
[***]
Schedule E
FORM OF ASSET DESIGNATION AND SERVICING SUPPLEMENT
[***]
CERTAIN IDENTIFIED INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT BECAUSE IT IS NOT MATERIAL AND IS OF THE TYPE OF INFORMATION THAT THE REGISTRANT BOTH CUSTOMARILY AND ACTUALLY TREATS AS PRIVATE AND CONFIDENTIAL. [***] INDICATES THAT INFORMATION HAS BEEN OMITTED.
NATIONAL BANK OF CANADA
-and-
PRECISION TRUST
as Class A Noteholders
- and –
WF TORCA, LTD.
as Class B Noteholder
- and –
NATIONAL BANK OF CANADA
as Structuring Agent
- and –
CURO GROUP HOLDINGS CORP.
as Guarantor
| | |
PERFORMANCE GUARANTEE AND INDEMNITY AGREEMENT
Dated December 9, 2021 |
TABLE OF CONTENTS
PERFORMANCE GUARANTEE AND INDEMNITY AGREEMENT
WHEREAS reference is made to the note purchase agreement dated as of December 9, 2021 (as it may be amended, restated, replaced, supplemented, further amended and restated, or otherwise modified from time to time, the “Note Purchase Agreement”) entered into by and among Flexiti Securitization Limited Partnership, a limited partnership established under the laws of the Province of Ontario, by its general partner Flexiti Securitization General Partner Inc., a corporation incorporated under the laws of the Province of Ontario, as issuer (the “Issuer”), Flexiti Securitization General Partner Inc. in its own right (the “General Partner”), Flexiti Financial Inc., as seller (the “Seller”) and initial servicer (the “Servicer”), National Bank of Canada and BNY Trust Company of Canada in its capacity as trustee of Precision Trust, as class A noteholders (the “Class A Noteholders”), WF Torca, Ltd., as class B noteholder (the “Class B Noteholder”) and National Bank of Canada as structuring agent (the “Structuring Agent”, and together with the Class A Noteholders and the Class B Noteholder, the “Finance Parties”, and each a “Finance Party”) and Computershare Trust Company as Indenture Trustee.
AND WHEREAS reference is also made to that series 2021-1 supplemental indenture dated as of December 9, 2021 (as it may be amended, restated, replaced, supplemented, further amended and restated, or otherwise modified from time to time, the “Supplemental Indenture”) entered into by and among the Issuer, the General Partner, the Indenture Trustee and Flexiti Financial Inc., as paying agent. Terms used, but not otherwise defined herein, shall have the meanings given to such terms under the Supplemental Indenture, except that, for the purposes of this guarantee only, “Material Adverse Effect” shall mean any effect upon the business, operations, property or financial or other condition of the Guarantor (as defined below), which materially adversely affects the enforceability of this guarantee or the ability of the Guarantor to perform its obligations under this guarantee.
NOW THEREFORE for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned (the “Guarantor”) hereby agrees with the Finance Parties as follows:
Article 1
Guarantee
1.1The Guarantor unconditionally and irrevocably guarantees for the benefit of each Finance Party as a primary and independent obligation:
(a)that it shall cause the Issuer, the Seller and the Servicer (collectively, the “Designated Parties” and each a “Designated Party”) to:
(i)fully, punctually and duly perform, observe and keep, each and every covenant, obligation, condition and agreement in favour of the Finance Parties to be performed, observed or kept by each Designated Party under the Note Purchase Agreement (other than any covenant or obligation to pay the principal amount of any Series 2021-1 Class A Debt Security or Series 2021-1 Class B Debt Security or any interest due and owing thereon),
(ii)fully, punctually and duly perform each and every indemnity obligation now or hereafter owing by a Designated Party to the Finance Parties under a Series 2021-1 Agreement,
(iii)correct, or cause the correction of, any representation or warranty, certification or other statement made or deemed to be made by any Designated Party in any Series 2021-1 Agreement which shall become false in any material respect, and
(iv)fully, punctually and duly perform, observe and keep, each covenant, obligation, condition and agreement among the Designated Parties under the Series 2021-1 Agreements (including, for greater certainty, but without limitation, the covenants and obligations provided for in section 4.1 of the Receivables Sale and Servicing Agreement dated December 9, 2021), between the Issuer, the Seller and Servicer (such covenants, obligations, conditions and agreements in subsections (i) – (iv) in this Section 1.1 are collectively referred to as, the “Performance Obligations” and each, a “Performance Obligation”);
1.2that in the event that any Designated Party is in breach of any Performance Obligation, the Guarantor irrevocably and unconditionally agrees that it shall, without demand or notice of any nature, all of which are expressly waived by the Guarantor, fully, punctually and duly rectify or cause such Designated Party to rectify such breach to ensure that such Performance Obligation is satisfied and maintained in accordance therewith; and
1.3the full, due and punctual payment to the Finance Parties of the amount of any monetary award or judgment made in favour of any of them in respect of the breach by any Designated Party of or failure by any Designated Party to observe, perform or keep any Performance Obligation.
Article 2
Demand
1.1If any Designated Party fails or refuses to pay or perform any of the Performance Obligations:
any Finance Party may notify the Guarantor in writing of the manner in which such Designated Party has failed to pay or perform such Performance Obligation and demand performance of such Performance Obligation be made by the Guarantor. A demand shall be in writing and shall specify in what manner such Designated Party has failed to perform such Performance Obligation and shall confirm that such Finance Party is calling upon Guarantor to perform such Performance Obligation under this guarantee (the “Demand”). A single written Demand shall be effective as to any specific default during the continuance of that default, until such Designated Party or the Guarantor has cured such default, and additional written demands concerning such default shall not be required until such default is cured; and
(a)the Guarantor shall, within ten (10) Business Days of receipt of a Demand, perform or cause the performance of such Performance Obligations that are the subject of the Demand. The Guarantor agrees that, notwithstanding any stay, injunction or other prohibition preventing performance of all or any portion of the Performance Obligations by such Designated Party, those Performance Obligations shall nevertheless become due and performable by the Guarantor for the purposes of this guarantee upon the occurrence of any event or condition giving rise to the obligation of such Designated Party to perform such Performance Obligations.
1.2This guarantee shall be a continuing guarantee and shall guarantee the performance of the Performance Obligations, notwithstanding that any Designated Party may from time to time satisfy the Performance Obligations in whole or in part and thereafter incur further or other Performance Obligations.
Article 3
Indemnity
1.1In addition to the guarantee provided in Article 1, and as a separate and distinct obligation, the Guarantor hereby agrees to indemnify and save harmless each of the Finance Parties, forthwith on demand any Finance Party, from and against any and all direct and indirect claims, demands, losses, damages, liabilities, charges, obligations, payments and expenses of any nature or kind,
howsoever or whenever arising, which any of the Finance Parties may suffer or incur in any way relating to or arising from:
(a)the failure of the Designated Parties to satisfy the Performance Obligations; or
(b)the Performance Obligations or any of the Series 2021-1 Agreements in any way being or becoming for any reason whatsoever, in whole or in part, void, voidable, ultra vires, illegal, invalid, ineffective or otherwise unenforceable or released or discharged by operation of Applicable Law or otherwise.
Article 4
Non-Recourse Loan Carve-out Obligations
1.1Notwithstanding anything to the contrary in this agreement or any other Series 2021-1 Agreement, the Guarantor hereby agrees to indemnify and save harmless each of the Finance Parties, forthwith on demand by any Finance Party, from and against any and all direct and indirect claims, demands, losses, damages, liabilities, charges, obligations, payments and expenses of any nature or kind, howsoever or whenever arising, which any of the Finance Parties may suffer or incur in any way relating to or arising from:
(a)fraud, misrepresentation, willful misconduct or gross negligence by or on behalf of any Designated Party (including, for the avoidance of doubt, by any officer, director, employee or agent of any Designated Party) in connection with the Series 2021-1 Obligor Accounts or the Series 2021-1 Collateral;
(b)criminal acts by a Designated Party or by any officer or director of a Designated Party;
(c)the misapplication or conversion of funds or monies to be delivered to the Series 2021-1 Accounts by any Designated Party;
(d)the misapplication, misappropriation or conversion by any Designated Party either (x) to the benefit of any Person other than the Issuer or (y) in contravention of the Series 2021-1 Agreements of (A) any insurance proceeds paid by reason of any casualty or under any insurance policy related to a Series 2021-1 Assigned Obligor Account Asset, (B) any awards or other amounts received in connection with a condemnation of a Series 2021-1 Assigned Obligor Account Asset or (C) any other proceeds or collections constituting a portion of the Series 2021-1 Collateral;
(e)(A) any transfer or conveyance of, or consensual Lien or any Series 2021-1 Assigned Obligor Account Asset or other Series 2021-1 Collateral or any direct or indirect equity interests in the Guarantor or Issuer, in each case, in contravention of the Series 2021-1 Agreements or (B) failure to pay any Tax that results in a Lien or other encumbrance on any Series 2021-1 Assigned Obligor Account Asset (other than a Permitted Lien);
(f)any Designated Party filing a voluntary petition or instituting any other proceeding seeking to adjudicate it as bankrupt or insolvent, or seeking liquidation, reorganization, debt arrangement, dissolution, winding up, or composition or readjustment of debts of it or its debts, under any law relating to bankruptcy, insolvency, reorganization, winding up, moratorium or relief of debtors (the “Insolvency Legislation”) or any other action or proceeding for any other relief affecting creditors’ rights that is similar to bankruptcy, insolvency or liquidation law in respect of any Designated Party;
(g)the filing of an involuntary petition or other proceeding against any Designated Party seeking to adjudicate it as bankrupt or insolvent, or seeking liquidation, reorganization, debt arrangement, dissolution, winding up, or composition or readjustment of debts of it or its debts, under any applicable Insolvency Legislation or any other action or proceeding for any other relief affecting creditors’ rights that is similar to bankruptcy, insolvency or liquidation law in respect of any Designated Party (each an “Involuntary Proceeding”), in which any Designated Party colludes with, or otherwise assists, such petitioner, or solicits or causes to be solicited petitioning creditors for any such petition or proceeding;
(h)any Designated Party filing an answer consenting to or otherwise acquiescing in or joining in (other than for the sole purpose of maintaining standing to seek release or relief from such proceeding) any Involuntary Proceeding against any Designated Party;
(i)any Designated Party consenting to or acquiescing in or joining in an application for, or seeking the entry of an order for relief or the appointment of, a trustee, receiver, custodian, liquidator, assignee or the like with respect to any Designated Party or any Series 2021-1 Assigned Obligor Account Asset or Series 2021-1 Collateral (or any portion of any of the foregoing) under any applicable Insolvency Legislation except any such action by the Indenture Trustee; and
(j)any Designated Party making an assignment in writing for the benefit of creditors in a proceeding for the winding up and liquidation of an entity, or admitting in any legal proceeding its insolvency or inability to pay its debts as they become due unless such statements are compelled and required by law and otherwise true and correct,
the foregoing covenants and obligations are collectively referred to as, the “Non-Recourse Loan Carve-out Obligations” and each, a “Non-Recourse Loan Carve-out Obligation”, and together with the Performance Obligations, collectively, the “Guaranteed Obligations” and each, a “Guaranteed Obligation”.
1.2Any amounts payable under this Article 4 shall be due and payable by the Guarantor within two (2) Business Days of a demand from any Finance Party following the occurrence of any event specified in Section 4.1 above.
Article 5
Limitation of Liability
1.1Notwithstanding anything to the contrary contained in this agreement, the guarantee provided hereunder by the Guarantor and any security interest in collateral provided by the Guarantor to secure such guarantee shall be deemed to expressly provide that the obligations of the Designated Parties secured thereby do not include any obligations of the Designated Parties arising under or in connection with any hedging agreements to the extent that the granting of such guarantee or security interest would be illegal pursuant to the Commodity Exchange Act (7 U.S.C. § 1 et, seq.) as amended from time to time and any successor statute or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of the failure of the Guarantor to constitute an “eligible contract participant” as defined in the Commodity Exchange Act and the regulations thereunder at the time such guarantee or the grant of such security interest becomes effective with respect to such hedging agreement.
Article 6
Interest after Demand
1.1The Guarantor shall pay to the Finance Parties, interest on all amounts owing by the Guarantor pursuant to this agreement at the highest rate applicable from time to time to any of the indebtedness, liabilities or obligations under the Series 2021-1 Agreements. Such interest shall be calculated and payable monthly not in advance both before and after judgment.
Article 7
Liability Unaffected by Certain Matters
1.1The liability of the Guarantor hereunder shall be absolute and unconditional irrespective of, and shall not be released, discharged, limited or otherwise affected by:
(a)the lack of validity or enforceability of the Guaranteed Obligations in whole or in part for any reason whatsoever, including without limitation by reason of prescription, by operation of law or as a result of any Applicable Law;
(b)any prohibition or restriction imposed in respect of any rights or remedies of any of the Finance Parties in respect of any Guaranteed Obligations, including without limitation any
court order which purports to prohibit or suspend the acceleration of the time for payment of any Guaranteed Obligations, the payment by the Issuer of any Guaranteed Obligations or the rights or remedies of the Finance Parties (or any of them) against any Designated Party in respect of any Guaranteed Obligations;
(c)the lack of validity or enforceability in whole or in part of any Series 2021-1 Agreement;
(d)any change in the corporate existence, structure, ownership or control of any Designated Party (including any of the foregoing arising from any merger, consolidation, amalgamation, reorganization or similar transaction); any change in the name, objects, capital stock, constating documents or by-laws of any Designated Party; or the dissolution, winding-up, liquidation or other distribution of the assets of any Designated Party, whether voluntary or otherwise;
(e)any Designated Party becoming insolvent or bankrupt or subject to any proceeding under the provisions of any Insolvency Legislation or the arrangement provisions of applicable corporate legislation, any legislation similar to the foregoing in any other jurisdiction, or any legislation enacted substantially in replacement of any of the foregoing, or any of the Finance Parties voting in favour of any proposal, arrangement or compromise in connection with any of the foregoing;
(f)the failure or neglect of the Finance Parties to demand performance of the Guaranteed Obligations owing by any Designated Party, any guarantor of Guaranteed Obligations or any other Person;
(g)the valuation by the any of the Finance Parties of any security held in respect of the Guaranteed Obligations, which shall not be considered as a purchase of such security or as payment on account of the Guaranteed Obligations;
(h)any right or alleged right of set-off, combination of accounts, counterclaim, appropriation or application or any claim or demand that any Designated Party may have or may allege to have against any of the Finance Parties; or
(i)any other circumstances which might otherwise constitute a legal or equitable defence available to, or complete or partial discharge of, any Designated Party in respect of the Guaranteed Obligations or of the Guarantor in respect of this agreement.
Article 8
Liability Unaffected by Actions of the Finance Parties
1.1The liability of the Guarantor hereunder shall be absolute and unconditional irrespective of, and shall not be released, discharged, limited or otherwise affected by anything done, suffered or permitted by any of the Finance Parties in connection with the Designated Parties, or any Guaranteed Obligation. For greater certainty and without limiting the generality of the foregoing, without releasing, discharging, limiting or otherwise affecting in whole or in part the liability of the Guarantor under this agreement, and without notice to or the consent of the Guarantor, the Finance Parties (or any of them) may from time to time:
(a)Make advances and extend credit to the Designated Parties, or any of them (including new loans and credit facilities, whether in addition to or in replacement for other loans and credit facilities previously established by any of the Finance Parties for the Designated Parties), convert revolving lines of credit to non-revolving lines of credit or vice versa, increase or decrease the amount of credit available to the Designated Parties;
(b)increase the interest rates, fees and charges applicable to all or any of the Guaranteed Obligations from time to time;
(c)amend, renew, waive, release or terminate any Series 2021-1 Agreement or any provisions thereof in whole or in part from time to time (including, without limitation, any provisions relating to interest rates, fees, margin requirements, conditions for the extension of credit and the determination of the amount of credit available, positive and negative covenants, payment provisions, the application of payments received by or on
behalf of any Designated Party, Amortization Events, Servicer Termination Events and Related Events of Default);
(d)extend, renew, settle, compromise, waive, release or terminate the Guaranteed Obligations in whole or in part from time to time;
(e)grant time, renewals, extensions, indulgences, releases and discharges to the Designated Parties;
(f)take, refrain from taking or release guarantees from other Persons in respect of the Guaranteed Obligations;
(g)accept compromises or arrangements from the Designated Parties, any guarantor of the Guaranteed Obligations or any other Person;
(h)refrain from demanding payment from or exercising any rights or remedies in respect of the Designated Parties or any guarantor of the Guaranteed Obligations;
(i)apply all monies received from the Designated Parties, any guarantor of the Guaranteed Obligations or any other Person or from the proceeds of any security to pay such Guaranteed Obligations as the Class A Noteholders, the Class B Noteholder and Structuring Agent may see fit, or change any such application in whole or in part from time to time, notwithstanding any direction which may be given regarding application of such monies by the Issuer, any guarantor of the Guaranteed Obligations (including the Guarantor) or any other Person; and
(j)otherwise deal with the Designated Parties, any guarantor of the Guaranteed Obligations or any other Person and any security, as the applicable Finance Party may see fit in its absolute discretion.
Article 9
Liability Unaffected by Failure of the Finance Parties to Take, Hold or Enforce Security
1.1The Guarantor agrees that the Guarantor has provided this agreement to the Finance Parties on the express understanding that the Finance Parties have no obligation to obtain any security from the Designated Parties or from others to secure payment or performance of any Guaranteed Obligations; and if the Indenture Trustee or the Structuring Agent, in their absolute discretion, obtain any such security from the Designated Parties or others, the Indenture Trustee or the Structuring Agent shall have no obligation to continue to hold such security or to enforce such security. The Guarantor shall not be entitled to rely on or benefit from, directly or indirectly, any such security which the Indenture Trustee or any Finance Party may obtain. In furtherance of the foregoing, the liability of the Guarantor hereunder shall be absolute and unconditional irrespective of, and shall not be released, discharged, limited or otherwise affected by:
(a)the loss of or failure by the Indenture Trustee or any Finance Party to register, perfect or maintain any security, whether intentionally or through failure, neglect or otherwise;
(b)the failure or neglect of the Indenture Trustee or any Finance Party to enforce any security;
(c)the Indenture Trustee or any Finance Party having released, discharged, compromised or otherwise dealt with any such security in any manner whatsoever (and for greater certainty none of the Indenture Trustee or any Finance Party shall be bound to exhaust its or their recourse against any Designated Party, any guarantor of the Guaranteed Obligations or other Persons or enforce any security or take any other action or legal proceeding before being entitled to payment from the Guarantor under this agreement, and the Guarantor hereby waives all benefits of discussion and division); or
(d)the enforcement by the Indenture Trustee or any Finance Party of any such security in an improvident or commercially unreasonable manner (including the sale or other disposition
of any assets encumbered by such security at less than the fair market value thereof) whether as a result of negligence, recklessness or wilful action or inaction on the part of the Indenture Trustee or any Finance Party or otherwise, and regardless of any duty which the Indenture Trustee or any Finance Party might have to the Designated Parties under Applicable Law (including applicable personal property security legislation) in respect of the enforcement of any such security.
Article 10
Waivers
1.1No delay on the part of any of the Finance Parties in exercising any of its options, powers, rights or remedies, or any partial or single exercise thereof, shall constitute a waiver thereof. No waiver, modification or amendment of this agreement or of any such options, powers, rights or remedies shall be deemed to have been made unless made in writing and signed by an authorized officer of the Finance Parties, and any such waiver shall apply only with respect to the specific instance involved, and shall not impair the rights of any of the Finance Parties or the liability of the Guarantor hereunder in any other respect or at any other time.
1.2Nothing herein shall be construed as derogating from each Designated Party’s obligation to comply with all terms, provisions and covenants (whether financial or otherwise) contained in the Series 2021-1 Agreements.
Article 11
Foreign Currency Obligations
1.1The Guarantor shall make any payment to the Finance Parties hereunder in the same currency as is required to be paid by the Designated Parties to the Finance Parties in respect of the Guaranteed Obligations (the “Required Currency”). If the Guarantor makes payment to the Finance Parties hereunder in any other currency (the “Payment Currency”), such payment shall constitute satisfaction of the said liability of the Guarantor hereunder only to the extent of the equivalent amount of the Payment Currency and the Required Currency; and the Guarantor shall remain liable to the Finance Parties for any deficiency together with interest thereon payable pursuant to Article 6.
Article 12
Withholding Taxes
1.1Except as otherwise required by Applicable Law, any payment by the Guarantor hereunder shall be made without withholding for or on account of any present or future tax imposed by or within the jurisdiction in which the Guarantor is domiciled, any jurisdiction from which the Guarantor makes any payment or any other jurisdiction, or (in each case) any political subdivision or taxing authority thereof or therein. If any such withholding is required by Applicable Law, the Guarantor shall make the withholding, pay the amount withheld to the appropriate governmental authority before penalties attach thereto or interest accrues thereon and forthwith pay to the Class A Noteholders, the Structuring Agent and/or the Class B Noteholder, as applicable, such additional amount as may be necessary to ensure that the net amount actually received by the Class A Noteholders, the Structuring Agent and/or the Class B Noteholder, as applicable (after payment of such taxes including any taxes on such additional amount paid), is equivalent to the amount which the Class A Noteholders, the Structuring Agent and/or the Class B Noteholder, as applicable, would have received if no amounts had been withheld.
Article 13
Representations and Warranties
1.1The Guarantor represents and warrants to the Finance Parties as follows, and acknowledges that the Finance Parties are relying on such representations and warranties as a basis for extending and maintaining the extension of credit to the Issuer:
(a)the Guarantor:
(i)is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware;
(ii)has all corporate or other organizational power and authority required, and is otherwise duly qualified, to carry on its business in each jurisdiction in which its business is now conducted and in each jurisdiction in which failure to do so would reasonably be expected to have a Material Adverse Effect; and
(iii)has obtained all necessary licenses and approvals in each jurisdiction in which the conduct of its business requires licenses or approvals and in each jurisdiction in which failure to do so would reasonably be expected to have a Material Adverse Effect;
(b)the entering into, execution and delivery by the Guarantor of this guarantee and the performance of its obligations under this agreement, as well as doing all acts and things as are required or contemplated of the Guarantor under this agreement:
(i)are within the corporate and organizational powers of the Guarantor;
(ii)have been duly authorized by all necessary corporate and other organizational action;
(iii)does not require any permit, license, authorization, consent, approval, order, filing, notice, registration or qualification by, with or to any governmental authority, agency or other third party, except those that have been obtained and are in full force and effect;
(iv)do not violate any provision of (A) any Applicable Law or of any rule, regulation, order, writ, injunction, award or decree presently in effect applicable to the Guarantor or (B) the constating documents or by-laws of the Guarantor or any resolutions passed by the board of directors or shareholders of the Guarantor; and
(v)do not contravene, result in a breach of, or constitute a default under any loan agreement, indenture, trust deed or any other agreement or instrument binding on the Guarantor or by which any of the Guarantor’s assets may be bound or affected;
(c)there are, to its knowledge, no actions, suits or proceedings pending or threatened against or affecting the Guarantor or any of its undertakings and assets, at law, in equity or before any arbitrator or before or by any governmental department, body, commission, board, bureau, agency or instrumentality having jurisdiction in the premises in respect of which there is a reasonable possibility of a determination adverse to the Guarantor which would reasonably be expected to have a Material Adverse Effect and the Guarantor is not in default in respect of any law, rule, regulation, order, judgment, injunction, award or decree as a result of which a Material Adverse Effect would reasonably be expected to occur;
(d)this agreement has been duly authorized, executed and delivered by the Guarantor;
(e)this agreement constitutes the legal, valid and binding obligations of the Guarantor, enforceable against it in accordance with their respective terms;
(f)the facts regarding the Guarantor set forth or assumed in each of the opinions of counsel delivered in connection with this agreement and the Series 2021-1 Agreements are true and correct in all material respects;
(g)the Guarantor is not insolvent and no step has been taken or is intended to be taken by it or, to the best of its knowledge and belief, by any other Person that would lead to it being insolvent, and after giving effect to the transactions contemplated by this agreement it will not be insolvent;
(h)in any proceedings taken in the Guarantor’s jurisdiction of incorporation in relation to the applicable Series 2021-1 Agreement or any other Series 2021-1 Agreement to which it is a party the Guarantor will not be entitled to claim for itself or any of its assets immunity from suit, execution, attachment or other legal process;
(i)no step has been taken, or so far as the Guarantor is aware, is intended to be taken, for any consolidation, amalgamation, demerger, merger or corporate reconstruction with any Person, or to convey, transfer, lease or otherwise dispose of all or substantially all of the Guarantor’s assets to any Person, which would have a Material Adverse Effect;
(j)no default has occurred and is outstanding under any loan agreement, indenture, trust deed or any other agreement or instrument to which the Guarantor is a party or by which it is bound which default would reasonably be expected to have a Material Adverse Effect; and
(k)all of the Guarantor’s financial statements which have been delivered to a Designated Party or a Finance Party, are true and correct and fairly present and its financial condition, as of the date of such financial statements, and its results of operations, for the period then ended, all in accordance with the applicable accounting standards consistently applied; and since such date, or since the date of the release of the most recent financial statements of the Guarantor, there has been no change in any such condition or operations which would reasonably be expected to have a Material Adverse Effect.
Article 14
Covenants
1.1Until the Final Maturity Date, the Guarantor hereby covenants and agrees that:
(a)it shall preserve and maintain its corporate existence, rights, franchises and privileges and qualify and remain qualified to carry on business in each jurisdiction in which the failure to do so would reasonably be expected to have a Material Adverse Effect;
(b)it shall comply with all laws, rules, regulations, orders, judgments, injunctions, awards or decrees applicable to the Guarantor, except where the failure to do so would reasonably be expected not to have a Material Adverse Effect;
(c)it shall promptly deliver to each Finance Party:
(i)(A) each Annual Report on Form 10-K (the “10-K”) after such 10-K is filed with the U.S. Securities and Exchange Commission (the “SEC”), which 10-K shall contain audited financial statements of the Guarantor as of and for the end of the fiscal year to which such 10-K relates that are reported on by independent public accountants of recognized national standing (without a “going concern” or like qualification, commentary or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Guarantor and its subsidiaries in accordance with US GAAP consistently applied; and (B) together with each 10-K, its unaudited consolidating balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, and separately breaking out the Designated Parties;
(ii)(A) each Quarterly Report on Form 10-Q (the “10-Q”) after such 10-Q is filed with the SEC (beginning with the fiscal quarter ending March 31, 2022), which 10-Q shall contain unaudited financial statements of the Guarantor as of and for the end of the fiscal quarter to which such 10-Q relates; and (B) together with each 10-Q, its unaudited consolidating balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of
(or, in the case of the balance sheet, as of the end of) the previous fiscal quarter and separately breaking out the Designated Parties;
(iii)within ten Business Days of the Guarantor or an officer of the Guarantor becoming aware of any default with respect to the covenants of the Guarantor set out in Section 14 of this agreement, an officer’s certificate of the Guarantor specifying such default and what action the Guarantor is taking or proposes to take with respect thereto;
(iv)within thirty days after the end of each fiscal quarter, commencing with the fiscal year ending December 31, 2021, an officer’s certificate of the Guarantor, stating that a review of the activities of the Guarantor during the preceding fiscal quarter has been made under the supervision of the signing officers with a view to determining whether the Guarantor has kept, observed, performed and fulfilled their obligations under this agreement, and further stating, as to each such officer signing such certificate, that to the best of his or her knowledge, the Guarantor has during the preceding fiscal quarter kept, observed, performed and fulfilled each and every covenant contained in this agreement and is not in default at the date of such certificate in the performance or observance of or compliance with any of the terms, provisions and conditions of this agreement (or, if a default shall have occurred and is continuing, describing all such defaults of which he or she may have knowledge and what action the Guarantor is taking or proposes to take with respect thereto); and
(v)if the Issuer has not already done so, as soon as possible and in any event within five Business Days after the Guarantor becomes aware of the occurrence of an Amortization Event, a Related Event of Default or a Servicer Termination Event or an event which, with notice or lapse of time or both would constitute an Amortization Event, a Related Event of Default or a Servicer Termination Event, a statement of an appropriate officer of the Guarantor setting forth the relevant details and any action which it has taken or is proposing to take in respect thereof;
(d)it shall promptly notify each Finance Party of any downgrade in its senior unsecured long-term debt rating from Moody’s Investors Services Inc. or S&P Global Ratings;
(e)it shall notify each Finance Party of any amendment, limitation or restriction of any license issued to the Guarantor by a regulatory authority relating to the carrying on by the Guarantor of its business if such amendment, limitation or restriction would reasonably be expected to have a Material Adverse Effect;
(f)[***]
(g)it shall forthwith provide the Finance Parties with copies of any amendments, restatements, supplements or other modifications to, or any waivers of the Senior Notes Indenture and any notices of Default or Events of Default (each as defined in the Senior Notes Indenture) delivered pursuant to the Senior Notes Indenture.
(h)in this Section 14.1, each capitalized term given the meaning to such term in the Senior Notes Indenture shall have the meaning given to such term in the Senior Notes Indenture attached hereto for identification purposes in its current form as of the date hereof as Schedule “A”, without regard to any amendment, restatement, supplement or other modification with respect thereto after the date hereof that has not been approved in writing by the Structuring Agent.
1.2In this Article 14, the following capitalized terms have the following meanings:
“Capital Stock” means:
(a)in the case of a corporation, corporate stock or shares;
(b)in the case of an association or business entity other than a corporation, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(c)in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and
(d)any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of the issuing Person,
but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with such Capital Stock.
“Person” means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock corporation, trust, unincorporated organization or government or agency or political subdivision thereof or any other entity.
“Senior Notes” means the notes issued pursuant to the Senior Notes Indenture from time to time.
“Senior Notes Indenture” means (i) as of the date hereof, that certain Indenture, dated as of July 30, 2021, entered into by Guarantor, as the issuer, the guarantors party thereto, and TMI Trust Company, as Trustee and Collateral Agent, in connection with the issuance of the Senior Notes, together with all instruments and other agreements entered into by CURO Financial Technologies Corp. (“CFTC”), Guarantor, and such guarantors in connection therewith, and (ii) from time thereafter, such Senior Notes Indenture as may be amended, restated, supplemented or otherwise modified in accordance with the terms and conditions thereof, or any successor indenture or other credit facility of the Guarantor, CFTC or Curo Intermediate Holdings Corp., pursuant to which the Senior Notes are refinanced.
“Subsidiaries” means, with respect to any Person, (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more Subsidiaries of such Person (or a combination thereof) and (2) any partnership (A) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (B) the only general partners of which are such Person or one or more Subsidiaries of such Person (or any combination thereof).
“Total Stockholders’ Equity” means with respect to the Guarantor as of any date, the total stockholders’ equity of the Guarantor and its Subsidiaries, shown on the balance sheet for the most recently ended fiscal quarter for which financial statements are available, determined on a consolidated basis in accordance with US GAAP.
“US GAAP” means generally acceptable accounting principals applicable in the United States.
Article 15
Revival of Indebtedness and Liability
1.1If at any time all or any part of any payment previously applied by any of the Finance Parties in respect of any of the Guaranteed Obligations is rescinded or returned by any of the Finance Parties for any reason whatsoever, whether voluntarily or involuntarily (including, without limitation, as a result of or in connection with the insolvency, bankruptcy or reorganization of any Designated Party or the Guarantor, or any allegation that any of the Finance Parties received a payment in the nature of a preference), then to the extent that such payment is rescinded or returned, such Guaranteed Obligations shall be deemed to have continued in existence notwithstanding such initial application, and this agreement shall continue to be effective or be
reinstated, as the case may be, as to such Guaranteed Obligations as though such payment had not been made.
Article 16
Expenses
1.1The Guarantor agrees to pay to the Finance Parties forthwith on demand by any Finance Party, all expenses (including legal fees on a solicitor and his own client basis) incurred by the Finance Parties in connection with the preservation or enforcement of any of its rights and remedies hereunder, together with interest thereon calculated and compounded at the rate provided in Article 6.
Article 17
Additional Guarantee
1.1This agreement is in addition to and not in substitution for any other guarantees or agreements which may have previously been given to any of the Finance Parties by the Guarantor in connection with the Designated Parties or any Guaranteed Obligations, and is in addition to and without prejudice to any security or guarantee now or hereafter held by any of the Finance Parties in respect of any Guaranteed Obligations, and any other rights or remedies which the Finance Parties might have.
Article 18
Combination of Accounts and Set-Off
1.1Any of the Finance Parties may from time to time combine accounts and set off and apply any liabilities it may have to the Guarantor (including liabilities in respect of any monies deposited by the Guarantor with any of the Finance Parties) against any and all of the obligations of the Guarantor to the Finance Parties now or hereafter existing under this agreement, whether or not any of the Finance Parties has made any demand hereunder and whether or not any of such obligations may be unliquidated, contingent or unmatured.
Article 19
Notice
1.1Any notice, document or other communication required or permitted to be given or delivered hereunder shall, unless otherwise stated herein, be in writing (including photocopy, facsimile, electronic mail or other digital communication) and sent, as to each party hereto, at its address as follows, or at such other address as shall be designated by such party in a written notice to the other parties hereto:
(a)to the Guarantor:
[***]
(b)to the Class A Noteholders:
[***]
(c)to the Class B Noteholder:
[***]
(d)to the Structuring Agent:
[***]
Any communication transmitted by prepaid private courier shall be deemed to have been validly and effectively given or delivered on the Business Day after which it is submitted for delivery.
Any communication transmitted by facsimile or electronic mail shall be deemed to have been validly and effectively given or delivered on the day on which it is transmitted, if transmitted on a Business Day on or before 5:00 p.m. (local time of the intended recipient), and otherwise on the next following Business Day.
Article 20
Severability
1.1If any provision of this agreement shall be invalid or unenforceable, all other provisions hereof shall remain in full force and effect and all changes rendered necessary by the context shall be deemed to have been made.
Article 21
Interpretation
1.1This agreement shall be construed as if all changes in grammar, number and gender rendered necessary by the context have been made.
Article 22
Further Assurances
1.1The Guarantor agrees, at the Guarantor’s own expense, to promptly execute and deliver or cause to be executed and delivered to the Class A Noteholders, the Class B Noteholder and the Structuring Agent, upon the Class A Noteholders’, the Class B Noteholder’s or the Structuring Agent’s request from time to time, all such other and further documents, agreements, opinions, certificates and instruments as are required under this agreement or as may be reasonably requested by the Class A Noteholders, the Class B Noteholder or the Structuring Agent if necessary or desirable to more fully record or evidence the obligations intended to be entered into herein.
Article 23
Entire Agreement; Amendments; Conclusive Delivery
1.1This agreement constitutes the entire agreement between the Guarantor and the Finance Parties relating to the subject matter hereof, and no amendment of this agreement shall be effective unless made in writing and executed by the Guarantor and the Finance Parties. Possession by the Class A Noteholders and the Class B Noteholder of an executed copy of this agreement shall constitute conclusive evidence that:
(a)this agreement was executed and delivered by the Guarantor to the Class A Noteholders, the Class B Noteholder and Structuring Agent free of all conditions;
(b)there is no agreement or understanding between the Guarantor, any of the Finance Parties that this agreement was delivered in escrow or is not intended to be effective until the occurrence of any event or the satisfaction of any condition;
(c)neither the Class A Noteholders, the Class B Noteholder nor the Structuring Agent has made any representation, warranty, statement or promise to the Guarantor regarding the Issuer, the Class A Noteholders’, the Class B Noteholder’s or the Structuring Agent’s intention to obtain any security or guarantees from other Persons, the circumstances under which any of the Finance Parties may enforce this agreement, the manner in which any of the Finance Parties might enforce this agreement or any other matter which might conflict with any provision expressly set out herein; and
(d)there is no representation, warranty, statement, promise, understanding, condition or collateral agreement between any of the Finance Parties and the Guarantor relating to this agreement or the subject matter of this agreement, other than as expressly set out herein.
Article 24
Governing Law
1.1This agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein. Without prejudice to the right of the Finance Parties to commence any proceedings with respect to this agreement in any other proper jurisdiction, the Guarantor hereby irrevocably attorns and submits to the non-exclusive jurisdiction of the courts of the Province of Ontario.
Article 25
Successors and Assigns
1.1This agreement shall enure to the benefit of the Finance Parties and their respective successors and assigns, and shall be binding on the Guarantor and its successors and permitted assigns; “successors” includes any entity resulting from the amalgamation of a corporation with any other corporation. Without limiting the generality of the foregoing, if any of the Finance Parties assigns or transfers all or any portion of the Guaranteed Obligations and this agreement or any interest therein to any other Person, such Person shall thereafter be entitled to the benefit of this agreement to the extent of the interest so transferred or assigned, and the Guaranteed Obligations or portion thereof or interest therein so transferred or assigned shall be and shall remain part of the “Guaranteed Obligations” hereunder.
Article 26
Legal Advice
1.1The Guarantor acknowledges that the Guarantor has had ample opportunity to review and consider this agreement, fully understands the provisions hereof and has received legal advice from the Guarantor’s solicitors in connection with this agreement.
Article 27
Waiver of Limitation Period
1.1The Guarantor agrees that all limitation periods established by the Limitations Act, 2002 (Ontario) are hereby excluded and shall not apply to this agreement, other than the ultimate 15-year limitation period established by such statute. The Guarantor agrees that this agreement constitutes a “business agreement” as such term is defined by such statute.
Article 28
Execution in Counterparts
1.1This agreement or any amendment may be executed in any number of counterparts (including counterparts by facsimile, electronic transmission and email in PDF or similar transmissions) each of which, when so executed, shall be deemed to be an original and which counterparts together shall constitute one and the same agreement.
Article 29
Receipt of Copy of Agreement
1.1The Guarantor hereby acknowledges receipt of a copy of this agreement.
[Remainder of page intentionally left blank; signature page follows]
IN WITNESS WHEREOF this agreement has been executed and delivered by the parties hereto this 9th day of December, 2021.
| | | | | | | | | | | | | | |
| | CURO GROUP HOLDINGS CORP.,
as Guarantor |
| | Per: | |
| | | Name: |
| | | Title: |
Signature Page to Performance Guarantee
| | | | | | | | | | | |
| | NATIONAL BANK OF CANADA,
as a Class A Noteholder |
| Per: | |
| Name: |
| Title: |
| Per: | |
| Name: |
| Title: |
Signature Page to Performance Guarantee
| | | | | | | | | | | |
| | BNY TRUST COMPANY OF CANADA, in its capacity as trustee of PRECISION TRUST, by its Securitization Agent BMO NESBITT BURNS INC.,
as a Class A Noteholder |
| Per: | |
| Name: |
| Title: |
| Per: | |
| Name: |
| Title: |
Signature Page to Performance Guarantee
| | | | | | | | | | | |
| | NATIONAL BANK OF CANADA,
as Structuring Agent |
| Per: | |
| Name: |
| Title: |
| Per: | |
| Name: |
| Title: |
Signature Page to Performance Guarantee
| | | | | | | | | | | |
| | WF TORCA, LTD.,
as Class B Noteholder, by its director, WATERFALL ASSET MANAGEMENT, LLC |
| Per: | |
| Name: |
| Title: |
| Per: | |
| Name: |
| Title: |
Signature Page to Performance Guarantee
SCHEDULE A
[***]
LEASE AGREEMENT
THIS LEASE AGREEMENT made and entered into Wells Hubbard Limited Partnership, an Illinois limited partnership ("Landlord") and Tiger Financial Management LLC, a Nevada limited liability company ("Tenant").I. Basic Terms
A. Date of Lease: September 18, 2015
Landlord's Address for Notices:
Landlord's Address For Rent Payments:
Tenant's Address for Notices:
Wells Hubbard Limited Partnership c/o Urban Innovations, Ltd
445 North Wells Street, Suite 200 Chicago, Illinois 60654
Wells Hubbard Limited Partnership c/o Urban Innovations, Ltd
445 North Wells Street, Suite 200 Chicago, Illinois 60654
Tiger Financial Management LLC
3527 N. Ridge Rd.
Wichita, KS 67205
Attn: Real Estate Department
and
200 West Hubbard Street, Suite 800 Chicago, Illinois 60654
D. Property: The real property described in Exhibit A
| | | | | | | | |
Building: | 1 | The improvements situated on the
Property and commonly known as 440
North Wells Street, Chicago, Illinois |
60654
Premises: Those certain premises in the Building
as shown on Exhibit B and known as Suite 800 and the existing private lobby and elevator at 200 West Hubbard Street
| | | | | | | | |
G. Schedule of Base Rent: Period | Annual Base Rent | Monthly Base Rent |
2/1/16 — 1/31/17 | $427,142.00 | $35,595.17 |
2/1/17 — 1/31/18 | $433,423.50 | $36,118.63 |
2/1/18 — 1/31/19 | $439,705.00 | $36,642.08 |
2/1/19— 1/31/20 | $445,986.50 | $37,165.54 |
2/1/20— 1/31/21 | $452,268.00 | $37,689.00 |
2/1/21 — 1/31/22 | $458,549.50 | $38,212.46 |
2/1/22 — 1/31/23 | $464,831.00 | $38,735.92 |
2/1/23 — 1/31/24 | $471,112.50 | $39,259.38 |
2/1/24 — 1/31/25 | $477,394.00 | $39,782.83 |
2/1/25 — 1/31/26 | $483,675.50 | $40,306.29 |
If the Commencement Date is not the first day of a calendar month, the date of each Base Rent increase will be extended until the first day of the month following the applicable anniversary of the Commencement Date.
H.Rentable Area of the Building:
I.Rentable Area of the Premises:
J.Tenant's Proportionate Share:
K.Base Year:
Commencement Date:
2
96,130 Square Feet
12,563 Square Feet
Thirteen and 07/100 percent (13.07%) (The percentage calculated by dividing the Rentable Area of the Premises by the Rentable Area of the Building).
2016
February 1, 2016
| | | | | |
Term: | The period of time commencing on the Commencement Date and expiring 120 months after the Commencement Date (except that if the expiration date would not be the last day of a calendar month the Term shall extend until the last day of the calendar month), unless sooner terminated or extended as may be herein provided |
N. Security Deposit: $83,716.16
0. Permitted Uses: General office purposes
P. Brokers: CBRE and Urban Innovations, Ltd.
Attachments to Lease
Exhibit A: Legal Description
Exhibit B: Plan of Premises
Exhibit C: Work Letter
Exhibit D: Rules and Regulations
Exhibit E: Guaranty
H. Premises and Term
A.In consideration of the obligation of Tenant to pay rent and the other terms, provisions, and covenants hereof, Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord the Premises for the Term.
B.If this Lease is executed before the Premises become ready for occupancy, and Landlord cannot, using good faith efforts, deliver possession of the Premises by the Commencement Date, Landlord shall not be deemed to be in default, nor in any way liable to Tenant because of such failure. Notwithstanding anything to the contrary set forth in this Lease, the parties hereto hereby acknowledge and agree that each rent adjustment date and the expiration date of this Lease shall be delayed by the number of delayed days if the Commencement Date does not occur on the date set forth in Article I above. If Landlord fails to deliver the Premises to Tenant on or before May 31, 2016, and such failure is a result of delays within Landlord's reasonable control, Tenant may terminate this Lease by providing Landlord with written notice thereof by no later than June 14, 2016, in which case this Lease shall terminate and the parties shall have no further rights or obligations hereunder; provided,
3
however, that the parties may agree, in writing, to extend such termination date to provide the Landlord the opportunity to complete Landlord's Work. Tenant agrees to accept possession of the Premises on the Commencement Date (as the same may be delayed in accordance with this Paragraph). Landlord hereby waives payment of rent (including such portion of the additional rent which is related to Tenant's use and occupancy of the Premises) covering any period prior to the Commencement Date.
C.Tenant acknowledges that no representations as to the repair of the Premises, nor promises to alter, remodel, or improve the Premises have been made by Landlord, unless such are expressly set forth in this Lease. Except as provided in the Work Letter, the taking of possession by Tenant shall be deemed conclusively to establish that the Premises have been completed in " accordance with the plans and specifications and are in good and satisfactory condition as of when possession was so taken. Promptly following the Commencement Date, Tenant shall execute and deliver Landlord's standard form of letter of acceptance of delivery of the Premises.
HI. Base Rent and Security Deposit
A.Tenant agrees to pay to Landlord in lawful money of the United States Base Rent for the entire Term at the rates set forth above per month, in advance, except that the monthly installment which otherwise shall be due on the Commencement Date, shall be due and payable on the date hereof. Thereafter one such monthly installment shall be due and payable without demand on or before the first day of each calendar month succeeding the Commencement Date; further provided, that the rental payment for any fractional calendar month at the commencement or termination of the Term shall be prorated.
B.In addition, Tenant agrees to deposit with Landlord on the date hereof the Security Deposit set forth above, which sum shall be held by Landlord, without obligation for interest, as security for the full, timely and faithful performance of Tenant's covenants and obligations under this Lease, it being expressly understood and agreed that such deposit is not an advance rental deposit or a measure of Landlord's damages in case of Tenant's default. Upon the occurrence of any event of default by Tenant, Landlord may, from time to time, without prejudice to any other remedy provided herein or by law, use such fund to the extent necessary to make good any arrears of rent or other payments due Landlord hereunder, and any other damage, injury, expense or liability caused by any event of Tenant's default; and Tenant shall pay to Landlord on demand the amount so applied in order to restore the Security Deposit to its original amount. Landlord may also use such fund to the extent necessary to make good any amounts owing to Landlord as a result of Tenant's failure to leave the Premises in the condition required by this Lease at the termination of this Lease. Any remaining balance of such deposit shall be returned to Tenant at such time after termination of this Lease when Landlord shall have determined that all Tenant's obligations under this Lease have been fulfilled. Subject to the other terms and conditions contained in this Lease, if the Building is conveyed by Landlord, said deposit may be turned over to Landlord's grantee, and if so, Tenant hereby releases Landlord from any and all liability with respect to said deposit and its application or return.
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C. Provided no event of default shall then have occurred, the Security Deposit shall be reduced on the third anniversary of the Commencement Date to Seventy-Three Thousand Seven Hundred Sixteen and 16/100 Dollars ($73,716.16).
IV. Taxes
A.Landlord agrees to pay all general and special taxes, assessments and governmental charges of any kind and nature whatsoever (collectively "Taxes") lawfully levied against the Property, the Building, and the grounds, parking areas, driveways and alleys around the Building. If for any real estate tax year applicable to the Term or any extension of such Term (on an accrual basis), Taxes levied for such tax year exceed the Taxes for the Base Year, Tenant shall pay to Landlord as additional rent upon demand at the time the bill for such tax year issues, Tenant's Proportionate Share of any such excess less any monthly payments paid by Tenant as provided below for such tax year. In addition, Tenant shall pay upon demand Tenant's Proportionate Share of any contingent fees, expenses and costs incurred by Landlord in protesting any assessments, levies or the tax rate, provided net savings realized by such protests are equal to or more than the fees and expenses incurred by Landlord for such protests. Any payment to be made pursuant to this Article IV with respect to the real estate tax year in which this Lease commences or terminates shall be prorated.
B.During December of each year or as soon thereafter as practicable, Landlord shall give Tenant written notice of its estimate of the amount payable under Paragraph 4A for the ensuing calendar year. On or before the first day of each month thereafter, Tenant shall pay to Landlord as additional rent one-twelfth (1/12th) of such estimated amount, provided that if such notice is not given in December, Tenant shall continue to pay on the basis of the prior year's estimate until the first day of the month after the month in which such notice is given. If at any time it appears to Landlord that the amount payable under Paragraph 4A will vary from its estimate by more than five percent (5%), Landlord may, by written notice to Tenant, revise its estimate for such year, and subsequent payments by Tenant for such year shall be based upon such revised estimate.
C.Within ninety (90) days after the close of each calendar year or as soon thereafter as practicable, Landlord shall deliver to Tenant a statement showing the Taxes under Paragraph 4A and Tenant's share thereof. If such statement shows an amount due from Tenant that is less than the estimated payments previously paid by Tenant, the difference shall be credited to the next Tax payment due from Tenant or, if the Term has expired, it shall be accompanied by a refund of the excess to Tenant. If such statement shows an amount due from Tenant that is more than the estimated payments previously paid by Tenant, Tenant shall pay the deficiency to Landlord, as additional rent, within thirty (30) days after delivery of the statement.
D.If the Building is not fully occupied during all or a portion of any year and as a result of such lack of occupancy Taxes are reduced, Landlord may make an appropriate adjustment in Taxes for such year by adjusting those components of Taxes which vary with the occupancy level of the Building so that all of such Taxes are ratably allocated to the tenants then occupying space in the Building.
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E. If at any time during the Term, the present method of taxation shall be changed so that in lieu of or in addition to the whole or any part of any Taxes, there shall be levied, assessed or imposed on Landlord a capital levy or other tax directly on the rents received and/or a franchise tax, assessment, levy or charge measured by or based, in whole or in part, upon such rents, then all such taxes, assessments, levies or charges, or the part thereof so measured or based, shall be deemed to be included within the term "Taxes" for the purposes hereof. Nothing contained in this Lease shall require Tenant to pay any franchise, corporate, estate or inheritance tax of Landlord, or any income, profits or revenue tax or charge upon the net income of Landlord.
V. Operating Costs
A.If for any calendar year falling partly or wholly within the Term, Operating Costs incurred by Landlord shall exceed the Operating Costs incurred by Landlord in the Base Year, Tenant shall pay to Landlord as additional rent Tenant's Proportionate Share of any such excess less any monthly payments paid by Tenant as provided below. Any payment to be made pursuant to this Article V with respect to the year in which this Lease commences or terminates shall be prorated.
B.As used in this Lease, the term "Operating Costs" shall mean any and all expenses, costs and disbursements (other than Taxes) of any kind and nature whatsoever incurred by Landlord in connection with the ownership, leasing, management, maintenance, operation and repair of the Building or the Property or any improvements situated on the Property (including, without limitation, the cost of maintaining and repairing parking lots, parking structures, and easements, property management fees, salaries, fringe benefits and related costs for building staff, insurance costs of every kind and nature, heating and air conditioning costs, common area utility costs such as electricity, sewer and water charges, the cost of cleaning common areas, the cost of removing snow from common areas, and the cost of routine repairs, maintenance and decorating of common areas), except the following: (1) costs of alterations of tenants' premises; (2) costs of capital improvements; (3) depreciation; (4) interest and principal payments on mortgages, and other debt costs; (5) real estate brokers' leasing commissions or compensation; (6) any cost or expenditure (or portion thereof) for which Landlord is reimbursed, whether by insurance proceeds or otherwise, and (7) cost of any service furnished to any other occupant of the Building which Landlord does not provide to Tenant. Notwithstanding anything contained herein to the contrary, the amount allowed annually as depreciation for federal income tax purposes with respect to (i) any capital improvements made after the date of this Lease which reduce Operating Costs, or (ii) which are required under any governmental laws, regulations, or ordinances which were not applicable to the Building at the time it was constructed, shall be included in Operating Costs. In addition, interest on the undepreciated cost of any such improvement (at the prevailing construction loan rate available to Landlord on the date the cost of such improvement was incurred) shall also be included in Operating Costs. In the event Landlord elects to self insure, insure with a deductible in excess of $1,000 or obtain insurance coverage in which the premium fluctuates in proportion to losses incurred, then Landlord shall estimate the amount of premium that Landlord would have been required to pay to obtain
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insurance coverage (or insurance coverage without such provision) based on competitive market rates with a recognized carrier with an A.M. Best rating of not less than B+ and such estimated amount shall be deemed to be an Operating Cost. Landlord may, in a reasonable manner, allocate insurance premiums for so-called "blanket" insurance policies which insure other properties as well as the Building and said allocated amount shall be deemed to be an Operating Cost. Further, if certain services are supplied to some but not all tenants of the Building, Landlord may make appropriate adjustments so that the cost of such services are borne by those tenants receiving such services. If Landlord selects the accrual accounting method rather than the cash accounting method for Operating Costs purposes, Operating Costs shall be deemed to have been paid when such expenses have accrued.
C.In the event during all or any portion of any calendar year the Building is not fully rented and occupied, Landlord may elect to make an appropriate adjustment in occupancy related Operating Costs for such year, employing sound accounting and management principles, to determine Operating Costs that would have been paid or incurred by Landlord had the Building been fully rented and occupied and the amount so determined shall be deemed to have been Operating Costs for such year. In no event shall Landlord make a profit due to the "gross up" of Operating Costs as described in this Paragraph 5C.
D.During December of each year or as soon thereafter as practicable. Landlord shall give Tenant written notice of its estimate of the amount payable under Paragraph 5A for the ensuing calendar year. On or before the first day of each month thereafter, Tenant shall pay to Landlord as additional rent one-twelfth (1/12th) of such estimated amount, provided that if such notice is not given in December, Tenant shall continue to pay on the basis of the prior year's estimate until the first day of the month after the month in which such notice is given. If at any time it appears to Landlord that the amount payable under Paragraph 5A for the then current calendar year will vary from its estimate by more than five percent (5%), Landlord may, by written notice to Tenant, revise its estimate for such year, and subsequent payments by Tenant for such year shall be based upon such revised estimate. Tenant shall have no liability for increases in Controllable Operating Costs of more than five percent (5%) annually. "Controllable Operating Costs" shall mean only those items of Operating Costs where the cost or expense thereof shall be within the reasonable ability of Landlord to control (specifically excluded from Controllable Operating Costs, without limitation, are the costs and expenses of electricity, fuels and insurance and expenses of independent contractors who employ union employees). Such limitation on Controllable Operating Costs shall apply only to Controllable Operating Costs and not to other items of Operating Costs or Taxes and shall not limit or otherwise affect Tenant's obligations regarding the payment of any component of Rent other than the Controllable Operating Costs component of Tenant's Proportionate Share of Operating Costs.
E.Within ninety (90) days after the close of each calendar year or as soon thereafter as practicable, Landlord shall deliver to Tenant a statement showing the Operating Costs actually incurred by Landlord under Paragraph 5A and Tenant's share thereof. If such statement shows an amount due from Tenant that is less than the estimated payments previously paid by Tenant, the difference shall be credited to the next Operating Cost payment due from Tenant or, if the Term has expired, it shall be accompanied by a refund of the excess to Tenant. If such statement shows an amount due from Tenant that is more than the estimated payments previously paid by Tenant,
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Tenant shall pay the deficiency to Landlord, as additional rent, within thirty (30) days after delivery of the statement.
F. Provided no event of default (as defined in Article XVII) then exists, after receiving an annual Operating Costs statement and giving Landlord thirty (30) days prior written notice thereof, Tenant may inspect or audit Landlord's records relating to Operating Costs for the period of time covered by such Operating Costs in accordance with the following provisions. If Tenant fails to object to the calculation of Operating Costs on an annual Operating Costs statement within sixty (60) days after the statement has been delivered to Tenant or if Tenant fails to conclude its audit or inspection within ninety (90) days after the statement has been delivered to Tenant, then Tenant shall have waived its right to object to the calculation of Operating Costs for the year in question and the calculation of Operating Costs set forth on such statement shall be final. Tenant's audit or inspection shall be conducted where Landlord maintains its books and records, shall not unreasonably interfere with the conduct of Landlord's business, and shall be conducted only during business hours reasonably designated by Landlord. Tenant shall pay the cost of such audit or inspection unless the total Operating Costs for the period in question is determined to be in error by more than five percent (5%) in the aggregate, in which case Landlord shall pay the audit cost, not to exceed the amount Tenant was overcharged for the period in question. Tenant may not conduct an inspection or have an audit performed more than once during any calendar year; provided, however, that if Tenant discovers an error in the Operating Costs during its current year audit Tenant may review Operating Costs from the period that is the earlier of the prior three calendar years or Tenant's last audit to determine if the same error occurred previously. If such inspection or audit reveals that an error was made in the Operating Costs previously charged to Tenant, then Landlord shall refund to Tenant any overpayment of such costs, or Tenant shall pay to Landlord any underpayment of such costs, as the case may be, within thirty (30) days after notification thereof. Tenant shall maintain the results of each such audit or inspection confidential and shall not be permitted to use any third party to perform such audit or inspection other than an independent firm of certified public accountants: (1) which is not compensated on a contingency fee basis or in any other manner which is dependent upon the results of such audit or inspection (and Tenant shall deliver the fee agreement or other similar evidence of such fee agreement to Landlord upon request), and (2) which agrees with Landlord in writing to maintain the results of such audit or inspection confidential. Nothing in this section shall be construed to limit, suspend, or abate Tenant's obligation to pay Base Rent when due, including Tenant's Proportionate Share of Taxes and Operating Costs or any other charges due under this Lease as additional rent.
VI. Electric Service
A. To the extent Tenant is not billed directly by a public utility, Tenant shall pay, upon demand, as additional rent, for all electricity used by Tenant in the Premises, including, without limitation, for lighting, convenience outlets, heating and cooling systems and other direct uses. The charge shall be based upon metered use and shall be at the rates charged for such services by the local public authority or utility. Tenant shall furnish, at its own expense, all electric light bulbs, tubes and ballasts. Tenant will not without the written consent of Landlord
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use any apparatus or device in the Premises which will in any way increase its usage beyond the amount of electricity which Landlord determines to be reasonable for use of the Premises as general office space, nor connect with electric current (except through existing electrical outlets in the Premises) any apparatus or device for the purpose of using electric current. If Tenant shall require electric current in excess of that which is reasonably obtainable from existing electric outlets and normal for use of the Premises as general office space, then Tenant shall first procure the consent of Landlord (which consent will not be unreasonably withheld). Tenant shall pay all costs of installation of all facilities necessary to furnishing such excess capacity and for such increased electricity usage. Landlord represents and warrants that the Premises are currently separately metered.
B.Interruptions of any service shall not be deemed an eviction or disturbance of Tenant's use and possession of the Premises or any part thereof or render Landlord liable for damages by abatement of rent or otherwise or relieve Tenant from performance of Tenant's obligations under this Lease, except as provided in Paragraph 8(D).
C.Tenant shall have the right to receive 40 hours of after-hours air conditioning of Tenant's choosing each calendar year for no additional charge to Tenant. Thereafter, Tenant shall have the right to receive after-hours air conditioning by paying Landlord's then standard charge for after-hours air conditioning, which Landlord may increase from time to time in Landlord's reasonable discretion (which, for calendar year 2016, will be $28 per hour but available in no less than two-hour minimum increments and subject to increases based on Landlord's reasonable estimates). Tenant hereby acknowledges and agrees that Landlord has furnished two (2) new 20-ton air conditioning rooftop units that serve the Premises exclusively. Normal HVAC hours shall be 8:00 a.m. until 6:00 pm Mondays through Fridays and 8:00 a.m. until 1:00 p.m. Saturdays (Saturday hours shall be limited to cooling only from June 1st through September 30h1 each calendar year), except Sundays, New Year's Day, Easter, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Tenant shall be billed directly by ComEd (or such other utility company providing electricity to the Premises during the Term) for the electricity used by Tenant in connection with the HVAC (including the aforementioned rooftop units, fan-power and VAV boxes). The Building's boiler costs for heating shall be paid for by Landlord.
D.Landlord shall be responsible for the maintenance, repair and replacement of the HVAC Systems serving the Premises, except such repairs, maintenance or replacement necessitated by Tenant's negligence or misconduct.
VII. Alterations
A. Landlord agrees to install the improvements described in Exhibit C. All other improvements to the Premises, including all cabling within the walls in the Premises or within Building common areas ("Alterations") shall be installed at the cost and expense of Tenant, but only in accordance with plans and specifications which have been previously submitted to and approved in writing by Landlord, and only by Landlord or by contractors and subcontractors on Landlord's list of approved contractors. All cabling required by Tenant within the walls in the
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Premises or within Building common areas shall be installed by Landlord's approved contractors. In connection with any request for an approval of Alterations, Landlord may retain the services of an architect and/or engineer for the purpose of reviewing the plans and specifications submitted by Tenant and Tenant shall reimburse Landlord for the actual and reasonable fees of such architect and/or engineer. Tenant will also pay Landlord an amount equal to five percent (5%) of all the costs of such Alterations to reimburse Landlord for its inspection and supervision of the Alterations, which amount Landlord shall waive if Tenant utilizes Urban Innovations Ltd. as its general contractor for the Alterations. All Alterations shall be constructed in accordance with all governmental laws, ordinances, rules and regulations ("Laws") and Landlord's rules for contractors, including insurance requirements for contractors, and Tenant shall, prior to construction, provide such assurances to Landlord, including but not limited to, waivers of lien and surety company performance bonds, as Landlord shall require to assure payment of the costs thereof and to protect Landlord against any loss from any mechanics', laborers', materialmen's or other liens. At the time of completion of each Alteration, Tenant shall deliver to Landlord a set of final "as-built" plans. All Alterations shall be and remain the property of Tenant during the Term and Tenant shall, unless Landlord otherwise elects, remove all Alterations and restore the Premises to its original condition by the date of termination of this Lease or upon earlier vacating of the Premises; provided, however, that, if at such time Landlord so elects, such of the Alterations as Landlord shall elect shall become the property of Landlord as of the date of termination of this Lease or upon earlier vacating of the Premises and title shall pass to Landlord under this Lease as by a bill of sale. All such removals and restoration shall be accomplished in a good workmanlike manner and in accordance with Landlord's standard move in/move out procedures by contractors approved in writing by Landlord (which approval shall not be unreasonably withheld) so as not to damage the Building, or the Alterations which Landlord has elected will remain in the Premises. In particular, if Landlord has elected that cabling will remain in the Premises, all furniture and partition removal must be done in accordance with Landlord's standard move in/move out procedures and in such manner as will not adversely affect the cabling.
B. Landlord shall be responsible for any costs incurred in bringing the shell and core Building facilities into compliance with the Americans With Disabilities Act ("ADA"). If Tenant makes any Alterations to the Premises which affect ADA compliance, Tenant shall be responsible for any costs of compliance with the ADA resulting from such Alterations.
VIII. Services
A. Landlord agrees to furnish Tenant, while occupying the Premises: water, hot and cold at those points of supply provided for general use of tenants; heated air in season at such times as Landlord normally furnishes these services to all tenants of the Building, and at such temperatures as are in accordance with any applicable statutes, rules or regulations and are considered by Landlord to be standard (such service at other times and on Saturdays, Sundays and holidays to be optional on the part of Landlord); such window washing as may from time to time in the Landlord's judgment be reasonably required; and operatorless passenger elevators, provided Landlord may reasonably limit the number of elevators to be in operation on Saturdays,
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Sundays, and holidays (but in no event shall Landlord limit or restrict Tenant's access to the Premises); but any stoppage or interruption of these defined services, resulting from any cause, shall not render Landlord liable in any respect for damages to any person, property, or business, nor be construed as an eviction of Tenant or work an abatement of rent, nor relieve Tenant from fulfillment of any covenant or agreement hereof. Should any equipment or machinery furnished by Landlord cease to function properly, Landlord shall use reasonable diligence to repair the same promptly, but, subject to Section 8D below, Tenant shall have no claim for rebate of rent or damages on account of any interruptions in service occasioned thereby or resulting therefrom. Landlord hereby reserves the right to charge Tenant for any additional services requested by Tenant on such basis as Landlord, in its sole discretion, determines. Whenever heat generating machines or equipment are used by Tenant in the Premises which affect the temperature otherwise maintained by the air conditioning equipment, Landlord reserves the right to install supplementary air conditioning units in the Premises (or for the use of the Premises) and the expense of such purchase, installation, maintenance, and repair shall be paid by Tenant upon demand as additional rent.
B.Tenant shall have the exclusive use of the private elevator located in the private Hubbard Street lobby. Landlord, at its sole expense, shall modernize the private elevator (the "Elevator Modernization") in 2017 (the exact date of such Elevator Modernization to be determined by Landlord). Landlord shall provide Tenant reasonable notice prior to the commencement of the Elevator Modernization. At such time as the Elevator Modernization is underway and until completion, Tenant shall have access to the Premises through the main entrance of the Building and the elevator located therein, which Tenant hereby agrees to use during the Elevator Modernization. Tenant shall pay for the routine maintenance contract of the private elevator and for the annual inspection fees and costs associated with its annual inspection results submitted to the City of Chicago. Landlord shall pay the City's annual license renewal fee for the private elevator. Tenant shall pay $2,500 of the initial cost for any capital expenditures related to the private elevator and Landlord shall pay all costs in excess of the $2,500 paid by Tenant. The foregoing notwithstanding, Tenant shall not be responsible to pay $2,500 of the initial cost for any capital expenditures related to the Elevator Modernization or any capital expenditure prior to the completion of the Elevator Modernization. Tenant shall pay amounts due hereunder within 30 days after receipt of an invoice therefor, and such amounts shall be additional rent.
C.Tenant shall not provide any janitorial services without Landlord's written consent, which shall not be unreasonably withheld, conditioned or delayed. Any such services provided by Tenant shall be Tenant's sole risk and responsibility.
D.If there is an interruption of services which renders the Premises unusable for its intended purpose for more than five (5) consecutive business days and such interruption is a result of factors within the reasonable control of Landlord, then rent shall abate from the sixth day until such services are restored.
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IX. Use of Premises
A.The Premises shall be used for the Permitted Uses and no others. Tenant will not occupy or use, nor permit any portion of Premises to be occupied or used, for any use or purpose which is unlawful in part or in whole or deemed to be disreputable in any manner, or extra hazardous on account of fire, nor permit anything to be done which will render void or in any way increase the rate of fire insurance on the Building or its contents, and Tenant, shall immediately cease and desist from such use, paying all costs and expenses resulting therefrom. Tenant will conduct its business and control its agents, employees and invitees in such a manner as not to create any nuisance, nor unreasonably interfere with, annoy, or disturb other tenants or Landlord in the management of the Building.
B.Tenant shall at its own cost and expense promptly obtain any and all licenses and permits necessary for any Permitted Use. Tenant shall comply with all Laws applicable to the use and its occupancy of the Premises, and shall promptly comply with all governmental orders and directives for the correction, prevention and abatement of any violations or nuisances in or upon, or connected with, the Premises, all at Tenant's sole expense. If, as a result of any change in Laws the Premises must be altered to lawfully accommodate Tenant's use and occupancy, such alterations shall be made only with the consent of Landlord, which shall not be unreasonably withheld, conditioned or delayed, but the entire cost shall be borne by Tenant; provided, that, the necessity of Landlord's consent shall in no way create any liability against Landlord for failure of Tenant to comply with such Laws.
C.Tenant will maintain the Premises (including all fixtures installed by Tenant, water heaters within the Premises and plate glass) in good repair, reasonable wear and tear excepted, and in a clean and healthful condition, and comply with all Laws with reference to condition, or occupancy of the Premises. Any repairs or replacements shall be with materials and workmanship of the same character, kind and quality as the original. Tenant will not, without the prior written consent of Landlord, which shall not be unreasonably withheld, conditioned or delayed, paint, install lighting or decorations, or install any signs, window or door lettering or advertising media of any type on or about the Premises. At termination of this Lease, upon its expiration or otherwise, Tenant shall deliver up the Premises with all improvements located thereon (except as herein provided) in good repair and condition, reasonable wear and tear excepted, broom clean and free of all debris.
D.Tenant shall pay upon demand as additional rent the full cost of repairing any damage to the Premises, Building or related facilities resulting from and/or caused in whole or in part by the negligence or misconduct of Tenant, its agents, servants, employees, patrons, customers, or any other person entering upon the Property as a result of Tenant's business activities or resulting from Tenant's default hereunder.
E.The current rules and regulations are described in Exhibit D. Landlord shall at all times have the right to change such rules and regulations or to promulgate other rules and regulations in such reasonable manner as may be deemed advisable for the safety, care, and cleanliness of the Building or the Property and copies thereof will be forwarded to Tenant. Tenant will comply fully with such rules and regulations. Notwithstanding the foregoing, Landlord shall not discriminate against Tenant in enforcing such other rules and regulations.
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Tenant shall further be responsible for the compliance with such rules and regulations by Tenant's employees, servants, agents and visitors.
F.Tenant agrees that Tenant, its agents and contractors, licensees, or invitees shall not handle, use, manufacture, store or dispose of any flammables, explosives, radioactive materials, hazardous wastes or materials, toxic wastes or materials, asbestos, PCB's, petroleum products or derivatives or other similar substances (collectively "Hazardous Materials") on, under, or about the Premises; provided that Tenant may handle, store, use or dispose of products containing small quantities of Hazardous Materials, which products are of a type customarily found in offices and households (such as toner for copies, and the like); provided further that Tenant shall handle, store, use and dispose of any such Hazardous Materials in a safe and lawful manner and shall not allow such Hazardous Materials to contaminate the Premises, the Building or the environment. Tenant further agrees that Tenant will not permit any substance to come into contact with groundwater under the Premises. Any such substance coming into contact with groundwater shall, regardless of its inherent hazardous characteristics, be considered a Hazardous Material for purposes of this Lease.
G.Without limiting the above, Tenant shall reimburse, defend, indemnify and hold Landlord harmless from and against any and all claims, losses, liabilities, damages, costs and expenses, including without limitation, loss of rental income, loss due to business interruption, and attorney’s fees and costs, arising out of or in any way connected with the use, manufacture, storage, or disposal of Hazardous Materials by Tenant, its agents or contractors on, under or about the Premises including, without limitation, the costs of any required or necessary investigation, repair, cleanup or detoxification and the preparation of any closure or other required plans in connection therewith, whether voluntary or compelled by governmental authority. The indemnity obligations of Tenant under this clause shall survive any termination of the Lease. Any of Tenant's insurance insuring against claims of the type dealt with in this Paragraph shall be considered primary coverage for claims against the Premises arising out of or under this Paragraph.
H.Landlord hereby represents to Tenant that Landlord has not received any written notice of violations of Laws with respect to Hazardous Materials in or about the Premises which would materially affect Tenant's ordinary use of the Premises.
X. Inspections
Landlord shall have the right to enter the Premises at any reasonable time following reasonable notice (except in the case of emergencies or to provide routine cleaning or maintenance), for the following purposes: (a) to ascertain the condition of the Premises; (b) to determine whether Tenant is diligently fulfilling Tenant's responsibilities under this Lease; (c) to clean and to make such repairs as may be required or permitted to be made by Landlord under the terms of this Lease; or (d) to do any other act or thing which Landlord deems reasonable to preserve the Premises and the Building. During the last six (6) months of the Term and at any time Tenant is in default hereunder, Landlord shall have the right to enter the Premises at any reasonable time during business hours for the purpose of showing the Premises. Tenant shall
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give written notice to Landlord at least thirty (30) days prior to vacating and shall arrange to meet with Landlord for a joint inspection of the Premises. At such joint inspection of the Premises, Landlord and Tenant will review Landlord's standard move in/move out procedures. In the event of Tenant's failure to give such notice or arrange such joint inspection, Landlord's inspection at or after Tenant vacates the Premises shall be conclusively deemed correct for purposes of determining Tenant's responsibility for repairs and restoration.
XI. Assignment and Subletting
A.Tenant shall not have the right to assign or pledge this Lease or to sublet the whole or any part of the Premises, whether voluntarily or by operation of law, or permit the use or occupancy of the Premises by anyone other than Tenant, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed and such restrictions shall be binding upon any assignee or subtenant to which Landlord has consented. Tenant acknowledges that the Premises has unique characteristics of commercial space in River North. As such, Landlord has concerns about the types of businesses or operations, or both, in the Premises. Accordingly, Landlord has the sole discretion to approve or disapprove any proposed assignee or subtenant. In the event Tenant desires to sublet the Premises, or any portion thereof, or assign this Lease, Tenant shall give written notice thereof to Landlord within a reasonable time prior to the proposed commencement date of such subletting or assignment, which notice shall set forth the name of the proposed subtenant or assignee, the type of business and operations the proposed subtenant or assignee will conduct in the Premises, the relevant terms of any sublease and copies of financial reports and other relevant financial information of the proposed subtenant or assignee. In no event may Tenant sublet, nor will Landlord consent to any sublease of, all or any portion of the Premises if the rent is determined in whole or in part based upon the income or profits derived by the sublessee (other than a rent based on a fixed percentage or percentages of receipts or sales). Notwithstanding any permitted assignment or subletting, Tenant shall at all times remain directly, primarily and fully responsible and liable for the payment of the rent herein specified and for compliance with all of its other obligations under the terms, provisions and covenants of this Lease. Upon the occurrence of an "event of default" (as hereinafter defined), if the Premises or any part thereof are then assigned or sublet, Landlord, in addition to any other remedies herein provided or provided by law, may, at its option, collect directly from such assignee or subtenant all rents due and becoming due to Tenant under such assignment or sublease and apply such rent against any sums due to Landlord from Tenant hereunder, and no such collection shall be construed to constitute a novation or a release of Tenant from the further performance of Tenant's obligations hereunder. Tenant shall pay to Landlord, on demand, a reasonable service charge for the processing of the application for the consent and for the preparation of the consent. Such service charge shall be collectible by Landlord only where consent is granted by Landlord.
B.If Tenant is an entity other than a natural person, the ownership interests of which at the time of execution of this Lease, are held by fewer than fifty (50) persons, and if at any time during the Term persons or other entities who own at least one-third (1/3) of its ownership interests at the time of the execution of this Lease or following Landlord's consent to a transfer
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of such ownership interests, cease to own such ownership interests (other than as a result of transfer by bequest or inheritance), such transfer shall, at the option of Landlord, be deemed a default by Tenant under this Lease.
C.In addition to, but not in limitation of, Landlord's right to approve of any subtenant or assignee, Landlord shall have the option, in its sole discretion, in the event of any proposed subletting or assignment, to terminate this Lease, or in the case of a proposed subletting of less than the entire Premises, to recapture the portion of the Premises to be sublet, as of the date the subletting or assignment is to be effective. The option shall be exercised, if at all, by Landlord giving Tenant written notice thereof within thirty (30) days following Landlord's receipt of Tenant's written notice and accompanying information as required above. If this Lease shall be terminated with respect to the entire Premises pursuant to this Paragraph, the Term shall end on the date stated in Tenant's notice as the effective date of the sublease or assignment as if that date had been originally fixed in this Lease for the expiration of the Term. If Landlord recaptures under this Paragraph only a portion of the Premises, the rent during the unexpired Term shall abate proportionately. Tenant shall, at Tenant's own cost and expense, discharge in full any outstanding commission which may be due and owing as a result of any proposed assignment or subletting, whether or not the Premises are recaptured pursuant hereto and rented by Landlord to the proposed tenant or any other tenant. In the event of the recapture of a portion of the Premises by Landlord pursuant to the terms of this Paragraph, Tenant shall pay all costs associated with the separation of the recaptured premises from the portion not recaptured, including, but without limitation, the cost of all demising partitions, changes in lighting and HVAC Systems and all reasonable architectural and/or engineering fees.
D.In the event that Tenant sublets, assigns or otherwise transfers its interest in this Lease and at any time receives Excess Rent, Tenant shall pay to Landlord fifty percent (50%) of the Excess Rent as received by Tenant. Tenant shall furnish Landlord with a sworn statement, certified by an officer of Tenant or an independent certified public accountant, setting forth in detail the computation of Excess Rent, and Landlord, or its representatives, shall have access to the books, records and papers of Tenant in relation thereto, and the right to make copies thereof. If a part of the consideration for such sublease or assignment shall be payable other than in cash, the payment to Landlord shall be payable in such form as is reasonably satisfactory to Landlord. For purposes of this Paragraph, the term "Excess Rent" shall mean the excess, if any, of (i) all amounts received or to be received in the form of cash, cash equivalents, and non-cash consideration by Tenant from any assignee or sublessee over (ii) the sum of the rent payable to Landlord hereunder (or, in the case of a sublease of a portion of the Premises, the portion of the Rent which is allocable on a per square foot basis to the space sublet), plus the amount of any reasonable brokers' commissions and costs of tenant improvements incurred by Tenant in connection with such assignment or sublease, all of which shall be, in the case of a sublease, amortized over the term of the sublease for the purpose of calculating the amounts of the periodic payments due to Landlord hereunder.
E.Any assignment or subletting by Tenant pursuant to Paragraph 11A of all or any portion of the Premises, or termination of the Lease for a portion of the Premises pursuant to Paragraph 11C, shall automatically operate to terminate each and every right, option, or election, if any exist, belonging to Tenant, including by way of illustration, but not limitation, any option to expand its premises or to extend or renew the term of Tenant's lease for all or any portion of
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the Premises - i.e. such rights and options shall cease as to both space sublet or assigned and as to any portion of the original Premises retained by Tenant.
F. Notwithstanding Section 11B or 11E above to the contrary, Tenant may assign
this Lease or sublet all or part of the Premises (a "Permitted Transfer") to the following types of entities (a "Permitted Transferee") without the written consent of Landlord: (i) Tenant's Affiliate whose business and operations in the Premises will be the same as original Tenant's business and operations in the Premises; (ii) any entity in which or with which Tenant, or its corporate successors or assigns, is merged or consolidated, in accordance with applicable statutory provisions governing merger and consolidation of business entities, so long as (1) Tenant's obligations hereunder are assumed by the entity surviving such merger or created by such consolidation; (2) the Tangible Net Worth of the surviving or created entity is not less than the Tangible Net Worth of Tenant as of the date of this Lease, and (3) Tenant's business and operations in the Premises will be the same as original Tenant's business and operations in the Premises; or (iii) any corporation, limited partnership, limited liability partnership, limited liability company or other business entity acquiring all or substantially all of Tenant's assets if such entity's Tangible Net Worth after such acquisition is not less than the Tangible Net Worth of Tenant as of the date of this Lease and such entity's business and operations in the Premises will be the same as original Tenant's business and operations in the Premises. Tenant shall promptly notify Landlord of any such Permitted Transfer no later than twenty (20) days prior to the date of such proposed Permitted Transfer. Upon assignment or subletting to a Permitted Transferee, the original Tenant to this Lease shall not be released of the obligations of Tenant hereunder. Additionally, the Permitted Transferee shall comply with all of the terms and conditions of this Lease, including the Permitted Uses, and the use of the Premises by the Permitted Transferee may not violate any other agreements affecting the Premises, the Building, Landlord or other tenants of the Building. At least five (5) days in advance of the effective date of any Permitted Transfer, Tenant agrees to furnish Landlord with copies of the instrument effecting any Permitted Transfer and documentation establishing Tenant's satisfaction of the requirements set forth above applicable to any such Permitted Transfer. The occurrence of a Permitted Transfer shall not waive Landlord's rights as to any subsequent transfers. "Affiliate" means, with respect to any specified Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such specified Person. For purposes of this definition, the term "control" (including, with correlative meanings, the terms "controlled by" and "under common control with") means the power to direct or cause the direction of the management of a Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise. For purposes of this Section 11F only, "Person" shall mean an individual, trust, partnership, joint venture, association, corporation, and any other entity. "Tangible Net Worth" means the excess of total assets over total liabilities, in each case as determined in accordance with generally accepted accounting principles consistently applied ("GAAP"), excluding, however, from the determination of total assets all assets which would be classified as intangible assets under GAAP including, without limitation, goodwill, licenses, patents, trademarks, trade names, copyrights, and franchises. Any subsequent transfer by a Permitted Transferee shall be subject to Landlord's prior written consent (which Landlord may grant or deny in its sole discretion).
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XII. Fire and Casualty Damage
A.If the Building or Premises are rendered partially or wholly untenantable by fire or other casualty, Landlord shall deliver to Tenant a notice within sixty (60) days of such fire or other casualty setting forth the time, as reasonably determined by Landlord, required to materially restore the Building or Premises. If such damage cannot, in Landlord's reasonable estimation, be materially restored within one hundred eighty (180) days of such damage, then either party may terminate this Lease. A party shall exercise its option by written notice within fifteen (15) days of the date of Landlord's determination notice. For purposes hereof, the Building or Premises shall be deemed "materially restored" if they are in such condition as would not prevent or materially interfere with Tenant's use of the Premises for the purpose for which it was then being used. If this Lease shall be terminated pursuant to this Article XII, the Term shall end on the date of the notice of termination as if that date had been originally fixed in this Lease for the expiration of the Term and, if the Premises is untenantable in whole or in part following the casualty, the rent payable during the period in which the Premises is untenantable shall be reduced to such extent, if any, as may be fair and reasonable under all of the circumstances.
B.If this Lease is not terminated pursuant to Paragraph 12A, then Landlord shall proceed with all due diligence to repair and restore the Building or Premises, as the case may be (except that Landlord may elect not to rebuild if such damage occurs during the last year of the Term exclusive of any option which is unexercised at the date of such damage). If this Lease shall not be terminated pursuant to this Article XII and if the Premises is untenantable in whole or in part following the casualty, the rent payable during the period in which the Premises is untenantable shall be reduced to such extent, if any, as may be fair and reasonable under all of the circumstances.
C.In the event that Landlord should fail to complete such repairs and material restoration within one hundred eighty (180) days after the date of such damage, Tenant may at its option and as its sole remedy terminate this Lease by delivering written notice to Landlord, whereupon the Lease shall end on the date of such notice as if the date of such notice were the date originally fixed in this Lease for the expiration of the Term; provided however, that if construction is delayed because of changes, deletions, or additions in construction requested by Tenant, strikes, lockouts, casualties, acts of God, war, material or labor shortages, governmental regulation or control or other causes beyond the reasonable control of Landlord, the period for restoration, repair or rebuilding shall be extended for the amount of time Landlord is so delayed. Notwithstanding the above, if Landlord delivers to Tenant a notice setting forth a new projected date for completion of the material restoration of the Premises (such notice shall be accompanied by an explanation for the revised date), then Tenant shall have fifteen (15) days thereafter to exercise its right to terminate; if Tenant does not exercise its right to terminate within such fifteen (15) day period it shall be deemed to have agreed to allow Landlord until the date set forth in Landlord's notice to materially restore the Premises and may not thereafter exercise this right to terminate unless and until Landlord has failed to materially restore by such later date.
D.In no event shall Landlord be required to rebuild, repair or replace any Alterations which may have been placed in or about the Premises by Tenant. Any insurance which may be
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carried by Landlord or Tenant against loss or damage to the Building or Premises shall be for the sole benefit of the party carrying such insurance and under its sole control.
E.Notwithstanding anything herein to the contrary, in the event the holder of any indebtedness secured by a mortgage or deed of trust covering the Premises, Building or Property requires that any insurance proceeds be applied to such indebtedness, then Landlord shall have the right to terminate this Lease by delivering written notice to Tenant within fifteen (15) days after such requirement is made by any such holder, whereupon the Lease shall end on the date of such notice as if the date of such notice were the date originally fixed in this Lease for the expiration of the Term.
F.Each of Landlord and Tenant hereby releases the other from any and all liability or responsibility to the other or anyone claiming through or under them by way of subrogation or otherwise for any loss or damage to property caused by fire, extended coverage perils, vandalism or malicious mischief, sprinkler leakage or any other perils insured in policies of insurance covering such property, even if such loss or damage shall have been caused by the fault or negligence of the other party, or anyone for whom such party may be responsible, including any other tenants or occupants of the remainder of the Building; provided, however, that this release shall be applicable and in force and effect only to the extent that such release shall be lawful at that time and in any event only with respect to loss or damage occurring during such times as the releasor's policies shall contain a clause or endorsement to the effect that any such release shall not adversely affect or impair said policies or prejudice the right of the releasor to recover thereunder and then only to the extent of the insurance proceeds payable under such policies. Each of Landlord and Tenant agrees that it will require its insurance carriers to include in its policies such a clause or endorsement.
G.In the event of any damage or destruction to the Building or Premises, Tenant shall, upon notice from Landlord, remove forthwith, at its sole cost and expense, such portion or all of the property belonging to Tenant from such portion, or all of the Building or Premises as Landlord shall request.
XIII. Liability
Landlord shall not be liable for and Tenant will indemnify and hold Landlord harmless from any loss, liability, costs and expenses, including reasonable attorney's fees, arising out of any claim of injury or damage on or about the Premises caused by the negligence or misconduct or breach of this Lease by Tenant, its employees, subtenants, invitees or by any other person entering the Premises, Building or Property under express or implied invitation of Tenant or arising out of Tenant's use of the Premises. Landlord shall not be liable to Tenant or Tenant's agents, employees, invitees or any person entering upon the Property in whole or in part because of Tenant's use of the Premises for any damage to persons or property due to condition or defect in the Building or its mechanical systems which may exist or occur or in Tenant's design of the Premises, and Tenant assumes all risks of damage to such persons or property. Landlord shall not be liable or responsible for any loss or damage to any property or person occasioned by theft, fire, act of God, public enemy, injunction, riot, strike, insurrection, war, court order, requisition
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or order of governmental body or authority, or other matter beyond control of Landlord, or for any injury or damage or inconvenience, which may arise through repair or alteration of any part of the Building, or failure to make repairs, or from any cause whatever except Landlord's willful misconduct or gross negligence. Tenant shall procure and maintain throughout the term of this Lease a policy of insurance (Commercial General Liability Coverage), in form and substance satisfactory to Landlord, at Tenant's sole cost and expense, insuring both Landlord (as an additional insured) and Tenant against all claims, demands or actions arising out of or in connection with: (a) the Premises; (b) the condition of the Premises; (c) Tenant's operations in and maintenance and use of the Premises; and (d) Tenant's liability assumed under this Lease; the limits of such policy to be in the amount of not less than $2,000,000 combined single limit for bodily injury and property damage per occurrence. Tenant shall also maintain Property insurance for the full replacement value of Tenant's personal property. Such policies shall be procured by Tenant from responsible insurance companies satisfactory to Landlord. Certified copies of such policies, together with receipt evidencing payment of the premiums, shall be delivered to Landlord prior to the Commencement Date. Not less than thirty (30) days prior to the expiration date of such policies, certified copies of renewals thereof (bearing notations evidencing the payment of the renewal premiums) shall be delivered to Landlord. Such policies shall further provide that not less than thirty (30) days' written notice shall be given to Landlord before such policies may be cancelled or changed to reduce the insurance coverage provided thereby.
Subject to Paragraph 12F, except to the extent that such liability is caused by the negligence, willful or tortious act or omission of Tenant, its agents, contractors, employees, invitees, licensees, or visitors, Landlord shall defend, indemnify and hold Tenant harmless from and against all liabilities, claims, suits, fines, penalties, damages, losses, fees, costs and expenses (including, but not limited to, reasonable attorneys' fees) of whatever nature suffered by third parties (excluding Tenant or any Tenant affiliates) arising from the following: (1) any willful, negligent or tortious act or omission on the part of Landlord, its agents, contractors, employees; or (2) any failure on the part of Landlord to perform or comply with any of the covenants, agreements, terms, provisions, conditions or limitations contained in this Lease on its part to be performed or complied with.
The provisions of this Section shall survive the expiration or earlier termination of this Lease.
XIV. Condemnation
A. If any substantial part of the Building or Premises should be taken for any public
or quasi-public use under Laws or by private purchase in lieu thereof (a "Taking") and the Taking would prevent or materially interfere with the use of the Building or Premises for the purpose for which it is then being used, this Lease shall terminate effective when the Taking shall occur in the same manner as if the date of such Taking were the date originally fixed in this Lease for the expiration of the Term.
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B.If part of the Building or Premises shall be taken in a Taking, and this Lease is not terminated as provided in Paragraph 14A, this Lease shall not terminate but the rent payable hereunder during the unexpired portion of this Lease shall be reduced to such extent, if any, as may be fair and reasonable under all of the circumstances and Landlord shall undertake to restore the Building and Premises to a condition suitable for Tenant's use, as near to the condition thereof immediately prior to such Taking as is reasonably feasible under all the circumstances.
C.In the event of any such Taking, Landlord and Tenant shall each be entitled to receive and retain such separate awards and/or portion of lump sum awards as may be allocated to their respective interests in any condemnation proceedings; provided that Tenant shall not be entitled to receive any award for Tenant's loss of its leasehold interest, the right to such award being hereby assigned by Tenant to Landlord.
XV.Holding Over
Tenant will, at the termination of this Lease by lapse of time or otherwise, yield up immediate possession to Landlord. If Tenant retains possession of the Premises or any part thereof after such termination, then Landlord may, at its option, serve written notice upon Tenant that such holding over constitutes any one of (a) creation of a tenancy at sufferance, or (b) creation of a month to month tenancy; provided, however, that the rental shall, in addition to all other sums which are to be paid by Tenant hereunder, be equal to one hundred fifty percent (150%) of the rental being paid under this Lease immediately prior to such termination. If no such notice is served, then a tenancy at sufferance shall be deemed to be created at the rent in the preceding sentence. Tenant shall also pay to Landlord all damages sustained by Landlord resulting from retention of possession by Tenant, including the loss of any proposed subsequent tenant for any portion of the Premises. The provisions of this Article shall not constitute a waiver by Landlord of any right of re-entry as herein set forth; nor shall receipt of any rent or any other act in apparent affirmance of the tenancy operate as a waiver of the right to terminate this Lease for a breach of any of the terms, covenants, or obligations herein on Tenant's part to be performed.
XVI.Quiet Enjoyment
Landlord represents and warrants that it has full right and authority to enter into this Lease and that Tenant, while paying the rental and performing its other covenants and agreements herein set forth, shall peaceably and quietly have, hold and enjoy the Premises for the Term without hindrance or molestation from Landlord subject to the terms and provisions of this Lease. Landlord shall not be liable for any interference or disturbance by other tenants or third persons, nor shall Tenant be released from any of the obligations of this Lease because of such interference or disturbance.
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XVII. Events of Default.
Each of the following events shall be deemed to be an "event of default" by Tenant under this Lease:
A.Tenant shall fail to pay when or before due any sum of money becoming due to be paid to Landlord hereunder, whether such sum be any installment of the rent herein reserved, any other amount treated as additional rent hereunder, or any other payment or reimbursement to Landlord required herein (including the Additional Security Deposit [defined below]), whether or not treated as additional rent hereunder, and such failure shall continue for a period of five (5) days after receipt of written notice from Landlord that such payment was due;
B.Tenant shall fail to comply with any term, provision or covenant of this Lease other than by failing to pay when or before due any sum of money becoming due to be paid to Landlord hereunder, and shall not cure such failure within thirty (30) days (forthwith, if the default involves a hazardous condition) after written notice thereof to Tenant, provided, however, that it shall be an immediate event of default if Tenant shall fail to provide the insurance required of Tenant under this Lease;
C.Tenant shall fail to vacate the Premises immediately upon termination of this Lease, by lapse of time or otherwise;
D.The leasehold interest of Tenant shall be levied upon under execution or be attached by process of law or Tenant shall fail to contest diligently the validity of any lien or claimed lien and give sufficient security to Landlord to ensure payment thereof or shall fail to satisfy any judgment rendered thereon and have the same released, and such default shall continue for ten (10) days after written notice thereof to Tenant;
E.Tenant shall become insolvent, admit in writing its inability to pay its debts generally as they become due, file a petition in bankruptcy or a petition to take advantage of any insolvency statute, make an assignment for the benefit of creditors, make a transfer in fraud of creditors, apply for or consent to the appointment of a receiver of itself or of the whole or any substantial part of its property, or file a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws, as now in effect or hereafter amended, or any other applicable law or statute of the United States or any state thereof;
F.A court of competent jurisdiction shall enter an order, judgment or decree adjudicating Tenant a bankrupt, or appointing a receiver of Tenant, or of the whole or any substantial part of its property, without the consent of Tenant, or approving a petition filed against Tenant seeking reorganization or arrangement of Tenant under the bankruptcy laws of the United States, as now in effect or hereafter amended, or any state thereof, and such order, judgment or decree shall not be vacated or set aside or stayed within thirty (30) days from the date of entry thereof;
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XVIII. Remedies
Upon the occurrence of an event of default, Landlord shall have the option to pursue any one or more of the following remedies without any notice or demand whatsoever:
A.Landlord may, at its election, terminate this Lease or terminate Tenant's right to possession only, without terminating the Lease;
B.Upon any termination of this Lease, whether by lapse of time or otherwise, or upon any termination of Tenant's right to possession without termination of the Lease, Tenant shall surrender possession and vacate the Premises immediately, and deliver possession thereof to Landlord, and Tenant hereby grants to Landlord full and free license to enter into and upon the Premises in such event with or without process of law and to repossess Landlord of the Premises as of Landlord's former estate and to expel or remove Tenant and any others who may be occupying or within the Premises and to remove any and all property therefrom, without being deemed in any manner guilty of trespass, eviction or forcible entry or detainer, and without incurring any liability for any damage resulting therefrom, Tenant hereby waiving any right to claim damage for such reentry and expulsion, and without relinquishing Landlord's right to rent or any other right given to Landlord hereunder or by operation of law;
C.Upon any termination of this Lease, whether by lapse of time or otherwise, Landlord shall be entitled to recover as damages, all rent, including any amounts treated as additional rent hereunder, and other sums due and payable by Tenant on the date of termination, plus the sum of (1) an amount equal to the then present value of the rent, including any amounts treated as additional rent hereunder, and other sums provided herein to be paid by Tenant for the residue of the Term, less the then present value of the fair rental value of the Premises for such residue (taking into account the time and expense necessary to obtain a replacement tenant or tenants, including expenses hereinafter described relating to recovery of the Premises, preparation for reletting and for reletting itself) which the parties agree shall in no event exceed sixty percent (60%) of the then present value of the rent for the period, and (2) the cost of performing any other covenants which would have otherwise been performed by Tenant;
D.1. Upon any termination of Tenant's right to possession only without termination of the Lease, Landlord may, at Landlord's option, enter into the Premises, remove Tenant's signs and other evidences of tenancy, and take and hold possession thereof as provided in Paragraph 18B, without such entry and possession terminating the Lease or releasing Tenant, in whole or in part, from any obligation, including Tenant's obligation to pay the rent, including any amounts treated as additional rent, hereunder for the full term. In any such case Tenant shall pay forthwith to Landlord, if Landlord so elects, a sum equal to the entire amount of the rent, including any amounts treated as additional rent hereunder, for the residue of the Term plus any other sums provided herein to be paid by Tenant for the remainder of the Term, to be used by Landlord as a deposit against Tenant's obligations under Subparagraph 18D(2);
2. Landlord shall use reasonable efforts to relet the Premises or any part thereof for such rent and upon such terms as Landlord, in its sole discretion, shall determine (including the right to relet the Premises for a greater or lesser term than that remaining under this Lease, the right to relet the Premises as a part of a larger area, and the right to change the
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character or use made of the Premises). Landlord and Tenant agree that Landlord shall only be required to use the same efforts Landlord then uses to lease other properties Landlord owns or manages (or if the Premises is then managed for Landlord, then Landlord will instruct such manager to use the same efforts such manager then uses to lease other space or properties which it owns or manages); provided however that Landlord (or its manager) shall not be required to give any preference or priority to the showing or leasing of the Premises over any other space that Landlord (or its manager) may be leasing or have available and may place a suitable prospective tenant in any such available space regardless of when such alternative space becomes available; provided, further, that Landlord shall not be required to observe any instruction given by Tenant about such reletting or accept any tenant offered by Tenant. In any such case, Landlord may, but shall not be required to, make repairs, alterations and additions in or to the Premises and redecorate the same to the extent Landlord deems necessary or desirable, and Tenant shall, upon demand, pay the cost thereof, together with Landlord's expenses of reletting, including, without limitation, any broker's commission incurred by Landlord. If the consideration collected by Landlord upon any such reletting plus any sums previously collected from Tenant are not sufficient to pay the full amount of all rent, including any amounts treated as additional rent hereunder and other sums reserved in this Lease for the remaining Term, together with the costs of repairs, alterations, additions, redecorating, and Landlord's expenses of reletting and the collection of the rent accruing therefrom (including reasonable attorney's fees and broker's commissions), Tenant shall pay to Landlord the amount of such deficiency upon demand and Tenant agrees that Landlord may file suit to recover sums falling due under this section from time to time;
E.Landlord may, at Landlord's option, enter into and upon the Premises, with or without process of law, if Landlord determines in its sole discretion that Tenant is not acting within a commercially reasonable time to maintain, repair or replace anything for which Tenant is responsible hereunder and correct the same, without being deemed in any manner guilty of trespass, eviction or forcible entry and detainer and without incurring any liability for any damage resulting therefrom and Tenant agrees to reimburse Landlord, on demand, as additional rent, for any expenses which Landlord may incur in thus effecting compliance with Tenant's obligations under this Lease; and
F.Any and all property which may be removed from the Premises by Landlord pursuant to the authority of the Lease or of law, to which Tenant is or may be entitled, may be handled, removed and stored, as the case may be, by or at the direction of Landlord at the risk, cost and expense of Tenant, and Landlord shall in no event be responsible for the value, preservation or safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all expenses incurred in such removal and all storage charges against such property so long as the same shall be in Landlord's possession or under Landlord's control. Any such property of Tenant not retaken by Tenant from storage within thirty (30) days after removal from the Premises shall, at Landlord's option, be deemed conveyed by Tenant to Landlord under this Lease as by a bill of sale without further payment or credit by Landlord to Tenant.
In the event Tenant fails to pay any installment of rent, including any amount treated as additional rent, or other sums hereunder as and when such installment or other charge is due, Tenant shall pay to Landlord on demand a late charge in an amount equal to five percent (5%) of such installment or other charge overdue in any month and five percent (5%) each month
thereafter until paid in full to help defray the additional cost to Landlord for processing such late payments, and such late charge shall be additional rent hereunder and the failure to pay such late charge within ten (10) days after written demand therefor shall be an additional event of default. The provision for such late charge shall be in addition to all of Landlord's other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord's remedies in any manner.
Pursuit of any of the foregoing remedies shall not preclude pursuit of any of the other remedies herein provided or any other remedies provided by law (all such remedies being cumulative), nor shall pursuit of any remedy herein provided constitute a forfeiture or waiver of any rent due to Landlord hereunder or of any damages accruing to Landlord by reason of the violation of any of the terms, provisions and covenants herein contained. No act or thing done by Landlord or its agents during the Term shall be deemed a termination of this Lease or an acceptance of the surrender of the Premises, and no agreement to terminate this Lease or accept a surrender of said Premises shall be valid unless in writing signed by Landlord. No waiver by Landlord of any violation or breach of any of the terms, provisions and covenants herein contained shall be deemed or construed to constitute a waiver of any other violation or breach of any of the terms, provisions and covenants herein contained. Landlord's acceptance of the payment of rental or other payments hereunder after the occurrence of an event of default shall not be construed as a waiver of such default, unless Landlord so notifies Tenant in writing. Forbearance by Landlord in enforcing one or more of the remedies herein provided upon an event of default shall not be deemed or construed to constitute a waiver of such default or of Landlord's right to enforce any such remedies with respect to such default or any subsequent default. In the event either party files suit to enforce the performance of or obtain damages caused by a default under any of the terms of this Lease, the party against whom a judgment is
rendered shall pay the prevailing party's reasonable costs and attorneys' fees. The
reasonableness of such costs and attorneys' fees shall be determined by the court. Without limiting the foregoing, Tenant hereby expressly waives any right to trial by jury.
XIX. Tenant's Bankruptcy Or Insolvency.
If at any time and for so long as Tenant shall be subjected to the provisions of the United States Bankruptcy Code or other law of the United States or any state thereof for the protection of debtors as in effect at such time (each a "Debtor's Law"), Tenant, Tenant as debtor-in-possession, and any trustee or receiver of Tenant's assets (each a "Tenant's Representative") shall have no greater right to assume or assign this Lease or any interest in this Lease, or to sublease any of the Premises than accorded to Tenant in Article XI, except to the extent Landlord shall be required to permit such assumption, assignment or sublease by the provisions of such Debtor's Law. Without limitation of the generality of the foregoing, any right of any Tenant's Representative to assume or assign this Lease or to sublease any of the Premises shall be subject to the conditions that:
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A.Such Debtor's Law shall provide to Tenant's Representative a right of assumption of this Lease which Tenant's Representative shall have timely exercised, and Tenant's Representative shall have fully cured any default of Tenant under this Lease.
B.Tenant's Representative or the proposed assignee, as the case shall be, shall have deposited with Landlord as security for the timely payment of rent an amount equal to the larger of: (a) three months' rent and other monetary charges accruing under this Lease; and (b) any sum specified in Article III; and shall have provided Landlord with adequate other assurance of the future performance of the obligations of the Tenant under this Lease. Without limitation, such assurances shall include, at least, in the case of assumption of this Lease, demonstration to the satisfaction of the Landlord that Tenant's Representative has and will continue to have sufficient unencumbered assets after the payment of all secured obligations and administrative expenses to assure Landlord that Tenant's Representative will have sufficient funds to fulfill the obligations of Tenant under this Lease; and, in the case of assignment, submission of current financial statements of the proposed assignee, audited by an independent certified public accountant reasonably acceptable to Landlord and showing a net worth and working capital in amounts determined by Landlord to be sufficient to assure the future performance by such assignee of all of the Tenant's obligations under this Lease.
C.The assumption or any contemplated assignment of this Lease or subleasing any part of the Premises, as shall be the case, will not breach any provision in any other lease, mortgage, financing agreement or other agreement by which Landlord is bound.
D.Landlord shall have, or would have had absent the Debtor's Law, no right under Article XI to refuse consent to the proposed assignment or sublease by reason of the identity or nature of the proposed assignee or sublessee or the proposed use of the Premises concerned.
XX. Mortgages
Tenant accepts this Lease subject and subordinate to any mortgages and deed of trust now or at any time hereafter constituting a lien or charge upon the Property, or the improvements situated thereon, provided, however, that if the mortgagee, trustee, or holder of any such mortgage or deed of trust ("Mortgagee") elects to have Tenant's interest in this Lease superior to any such instrument, then by notice to Tenant from such Mortgagee, this Lease shall be deemed superior to such lien whether this Lease was executed before or after said mortgage or deed of trust. Tenant shall at any time hereafter on demand execute any instruments, releases or other documents which may be required by any such Mortgagee for the purpose of subjecting and subordinating this Lease to the lien of any such mortgage (provided that such Mortgagee agrees to recognize this Lease and not disturb Tenant's possession of the Premises if Tenant is not in an uncured event of default) or for the purpose of evidencing the superiority of this Lease to the lien of any such mortgage, as may be the case. The foregoing notwithstanding, upon Tenant's request after Lease execution, Landlord will use its commercially reasonable efforts to cause Mortgagee to deliver to Tenant a subordination, non-disturbance and attornment agreement (the "SNDA") on Mortgagee's customary form containing provisions pursuant to which Mortgagee agrees not to terminate the Lease in the event of a foreclosure of its mortgage or deed of trust or
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termination of its ground lease, provided that Tenant is not in breach or default under this Lease. Tenant understands that: (i) Landlord shall not be obligated to expend funds to procure the SNDA and if any fee is required or funds must be expended, such fees shall be paid and such funds shall be expended by Tenant, and (ii) Tenant's obligations under this Lease are not conditioned on obtaining the SNDA from Mortgagee.
XXI.Mechanic's and Other Liens
Tenant shall have no authority, express or implied, to create or place any lien or encumbrance of any kind or nature whatsoever upon, or in any manner to bind, the interest of Landlord in the Premises or to charge the rentals payable hereunder for any claim in favor of any person dealing with Tenant, including those who may furnish materials or perform labor for any construction or repairs, and each such claim shall affect and each such lien shall attach to, if at all, only the leasehold interest granted to Tenant by this Lease. Tenant covenants and agrees that it will pay or cause to be paid all sums legally due and payable by it on account of any labor performed or materials furnished in connection with any work performed on the Premises by or on behalf of Tenant on which any lien is or can be validly and legally asserted against its leasehold interest in the Premises or the improvements thereon and that it will save and hold Landlord harmless from any and all loss, liability, cost or expense based on or arising out of asserted claims or liens against the leasehold estate or against the right, title and interest of the Landlord in the Premises or under the terms of this Lease. Tenant will not permit any mechanic's lien or liens or any other liens which may be imposed by law affecting Landlord's or its Mortgagees' interest in the Premises or the Building to be placed upon the Premises or the Building arising out of any action or claimed action by Tenant, and in case of the filing of any such lien Tenant will promptly pay same. If any such lien shall remain in force and effect for twenty (20) days after written notice thereof from Landlord to Tenant, Landlord shall have the right and privilege of paying and discharging the same or any portion thereof without inquiry as to the validity thereof, and any amounts so paid, including expenses and interest, shall be so much additional rent hereunder due from Tenant to Landlord and shall be paid to Landlord immediately on rendition of bill therefor. Notwithstanding the foregoing, Tenant shall have the right to contest any such lien in good faith and with all due diligence so long as any such contest, or action taken in connection therewith, protects the interest of Landlord and Landlord's Mortgagee in the Premises, and Landlord and any such Mortgagee are, by the expiration of said twenty (20) day period, furnished such protection, and indemnification against any loss, liability, cost or expense related to any such lien and the contest thereof as are satisfactory to Landlord and any such Mortgagee.
XXII.Notices
Any notice or document required or permitted to be delivered under this Lease shall be addressed to the intended recipient, shall be transmitted personally, by fully prepaid registered or certified United States Mail return receipt requested, or by reputable independent contract
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delivery service furnishing a written record of attempted or actual delivery, and shall be deemed to be delivered when tendered for delivery to the addressee at its address set forth in Article I, or at such other address as it has then last specified by written notice delivered in accordance with this Article XXII, or if to Tenant at its aforesaid address and its last known registered office and, at Landlord's election, the home of a general partner or principal owner, whether or not actually accepted or received by the addressee. All parties included within the terms "Landlord" and "Tenant," respectively, shall be bound by notices given in accordance with the provisions of this Article to the same effect as if each had received such notice.
XXIII.Substitution of Premises — Intentionally Deleted
XXIV.Certain Rights Reserved To The Landlord
The Landlord reserves and may exercise the following rights without affecting Tenant's obligations hereunder:
A.to change the name or street address of the Building;
B.to install and maintain a sign or signs on the exterior of the Building;
C.to have access for the Landlord and the other tenants of the Building to any mail chutes located on the Premises according to the rules of the United States Post Office;
D.to designate all sources furnishing sign painting and lettering, ice, drinking water, towels, coffee cart service and toilet supplies, lamps and bulbs used on the Premises;
E.to retain at all times pass keys to the Premises;
F.to grant to anyone the exclusive right to conduct any particular business or undertaking in the Building, provided such business is in accord with applicable law;
G.to close the Building after regular working hours and on the legal holidays subject, however, to Tenant's right to admittance, under such reasonable regulations as Landlord may prescribe from time to time, which may include by way of example but not of limitation, that persons entering or leaving the Building identify themselves to a watchman by registration or otherwise and that said persons establish their right to enter or leave the Building; and
H.to take any and all measures, including inspections, repairs, alterations, decorations, additions and improvements to the Premises or Building, as may be necessary or desirable for the safety, protection or preservation of the Premises or Building or the Landlord's interests, or as may be necessary or desirable in the operation of the Building.
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Landlord may enter upon the Premises and may exercise any or all of the foregoing rights hereby reserved without being deemed guilty of an eviction or disturbance of Tenant's use or possession and without being liable in any manner to Tenant and without abatement of rent or affecting any of Tenant's obligations hereunder.
XXV. Miscellaneous
A.Words of any gender used in this Lease shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, unless the context otherwise requires.
B.The terms, provisions and covenants and conditions contained in this Lease shall apply to, inure to the benefit of, and be binding upon, the parties hereto and upon their respective heirs, legal representatives, successors and permitted assigns, except as otherwise expressly provided herein. Landlord shall have the right to assign any of its rights and obligations under this Lease and Landlord's grantee or Landlord's successor shall upon such assignment, become "Landlord" hereunder, thereby freeing and relieving the grantor or assignor of all covenants and obligations of "Landlord" hereunder; provided, however, that no successor Landlord shall be responsible for the return of any security deposit provided for pursuant to Paragraph 3B unless such successor receives the deposit. Tenant agrees to furnish promptly upon demand, a corporate resolution, proof of due authorization by partners, or other appropriate documentation evidencing the due authorization of Tenant to enter into this Lease. Nothing herein contained shall give any other tenant in the Building of which the Premises is a part any enforceable rights either against Landlord or Tenant as a result of the covenants and obligations of either party set forth herein.
C.The captions inserted in this Lease are for convenience only and in no way define, limit or otherwise describe the scope or intent of this Lease, or any provision hereof.
D.Tenant shall at any time and from time to time within ten (10) days after written request from Landlord execute and deliver to Landlord or any prospective Landlord or Mortgagee or prospective Mortgagee a sworn and acknowledged estoppel certificate, in form reasonably satisfactory to Landlord and/or Landlord's Mortgagee or prospective Mortgagee certifying and stating as follows: (1) this Lease has not been modified or amended (or if modified or amended, setting forth such modifications or amendments); (2) this Lease (as so modified or amended) is in full force and effect (or if not in full force and effect, the reasons therefor); (3) the Tenant has no offsets or defenses to its performance of the terms and provisions of this Lease, including the payment of rent (or if there are any such defenses or offsets, specifying the same); (4) Tenant is in possession of the Premises if such be the case; (5) if an assignment of rents or leases has been served upon Tenant by a Mortgagee or prospective Mortgagee, Tenant has received such assignment and agrees to be bound by the provisions thereof; and (6) any other accurate statements reasonably required by Landlord or its Mortgagee or prospective Mortgagee. It is intended that any such statement delivered pursuant to this subsection may be relied upon by any prospective purchaser or Mortgagee and their respective successors and assigns and Tenant shall be liable for all loss, cost or expense resulting from the failure of any sale or funding of any loan caused by any material misstatement contained in such estoppel certificate, provided that
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Landlord has notified Tenant of such material misstatement in writing and given Tenant five (5) business days to revise the same to the satisfaction of any such prospective purchaser or Mortgagee and their respective successors and assigns. In addition to any other remedy Landlord may have hereunder, Landlord may, at its option, if Tenant does not deliver to Landlord an estoppel certificate as set forth above within fifteen (15) days after Tenant is requested to do so, cancel this Lease effective the last day of the then current month, without incurring any liability on account thereof, and the Term is expressly limited accordingly.
E.This Lease may not be altered, changed or amended except by an instrument in writing signed by both parties hereto.
F.All obligations of Tenant hereunder not fully performed as of the expiration or earlier termination of the Term shall survive the expiration or earlier termination of the Term, including without limitation, all payment obligations with respect to Taxes and Operating Costs and all obligations concerning the condition of the Premises. Upon the expiration or earlier termination of the Term, Tenant shall pay to Landlord the amount, as estimated by Landlord, necessary: (1) to repair and restore the Premises as provided herein; and (2) to discharge Tenant's obligation for unpaid Taxes, Operating Costs or other amounts due Landlord. All such amounts shall be used and held by Landlord for payment of such obligations of Tenant, with Tenant being liable for any additional costs upon demand by Landlord, or with any excess to be returned to Tenant after all such obligations have been determined and satisfied. Any security deposit held by Landlord shall be credited against the amount payable by Tenant under this Paragraph 25F.
G.If any clause, phrase, provision or portion of this Lease or the application thereof to any person or circumstance shall be invalid or unenforceable under applicable Laws, such event shall not affect, impair or render invalid or unenforceable the remainder of this Lease nor any other clause, phrase, provision or portion hereof, nor shall it affect the application of any clause, phrase, provision or portion hereof to other persons or circumstances, and it is also the intention of the parties to this Lease that in lieu of each such clause, phrase, provision or portion of this Lease that is invalid or unenforceable, there be added as a part of this Lease a clause, phrase, provision or portion as similar in terms to such invalid or unenforceable clause, phrase, provision or portion as may be possible and be valid and enforceable.
H.Submission of this Lease shall not be deemed to be a reservation of the Premises. Landlord shall not be bound hereby until its delivery to Tenant of an executed copy hereof signed by Landlord, already having been signed by Tenant, and until such delivery Landlord reserves the right to exhibit and lease the Premises to other prospective tenants. Notwithstanding anything contained herein to the contrary, Landlord may withhold delivery of possession of the Premises from Tenant until such time as Tenant has paid to Landlord the security deposit required by Paragraph 3B, the first month's rent as set forth in Paragraph 3A, and any sum owed pursuant to this Lease.
I.Whenever a period of time is herein prescribed for action to be taken by Landlord or Tenant, the Landlord or Tenant, as applicable, shall not be liable or responsible for, and there shall be excluded from the computation for any such period of time, any delays due to causes of
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any kind whatsoever which are beyond the control of Landlord or Tenant (excluding either party's financial inability to perform).
J.If there be more than one Tenant, the obligations hereunder imposed upon Tenant shall be joint and several. Any indemnification of, insurance of, or option granted to Landlord shall also include or be exercisable by Landlord's trustee, beneficiary, agents and employees, as the case may be.
K.Each of the parties (1) represents and warrants to the other that it has not dealt with any broker or finder in connection with this Lease, except as described in Article I; and (2) indemnifies and holds the other harmless from any and all losses, liability, costs or expenses (including attorneys' fees) incurred as a result of an alleged breach of the foregoing warranty. Landlord agrees to promptly pay the broker, if any, listed in Article I.
L.Subject to Paragraph 25N below, Tenant shall, within ten (10) business days after receipt of Landlord's written request, furnish, and shall cause the Guarantor, if any, to furnish, Landlord annually a copy of their respective annual audited and, certified statements, if same are prepared, and if not, the unaudited Balance Sheet and Income Statement of Tenant or Guarantor, as the case may be, certified by a responsible financial officer of Tenant or Guarantor, respectively. Tenant agrees that Landlord may deliver a copy of such statements to its Mortgagee or a potential purchaser of Landlord's interest in the Premises, but otherwise, Landlord shall treat such statements and information contained therein as confidential.
M.Tenant, at its sole cost and expense, may install signage inside the first (1st) floor private lobby and an exterior plaque outside near the entrance of such private lobby, subject to Landlord's prior written approval in both such cases.
N.This Lease is expressly conditioned upon Speedy Cash Intermediate Holdings Corp., as Guarantor, executing a lease guaranty with respect to this Lease in the form attached hereto as Exhibit E and by this reference made apart hereof. If the net worth of Speedy Cash Intermediate Holdings Corp. is less than $50,000,000 at any time during the Term or the Renewal Term (defined below) of this Lease, as determined by its annual audited financial statements, Tenant shall provide Landlord with an additional Security Deposit in the amount of $500,000 in the form of cash or letter of credit (the "Additional Security Deposit") within ten (10) business days after receipt of written demand therefor from Landlord. Any letter of credit shall be reasonably acceptable to Landlord and shall have a term of not less than one year with an auto-renewing annual expiry date ending no earlier than forty-five days after the expiration date of the Term or the Renewal Term, as applicable, of this Lease. Landlord shall return the Additional Security Deposit to Tenant if the net worth of Speedy Cash Intermediate Holdings Corp. exceeds $50,000,000 thereafter, as determined by its annual audited financial statements, and the process described in this Paragraph shall be repeated if Speedy Cash Intermediate Holdings Corp.'s net worth is less than $50,000,000 thereafter. Tenant shall provide or cause Speedy Cash Intermediate Holdings Corp. to provide its annual audited financial statements to Landlord within ten (10) business days after receipt of Landlord's written request. The financial information provided shall remain confidential and, except for Landlord's principals, officers, affiliates, lenders, accountants, attorneys and financial advisors, Landlord shall not discuss, display or distribute copies of such, and will dispose of such in a secure manner.
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XXVI.Option to Renew
Provided (a) the Lease is in full force and effect, (b) no event of default by Tenant exists at the time of notification or commencement, (c) neither the Premises nor any part thereof are being sublet (except to Permitted Transferees and parties approved by Landlord), (d) the Lease has not been assigned (except to Permitted Transferees and parties approved by Landlord), (e) Tenant or a party approved by Landlord is an occupant of the Building under this Lease and intends to continue to use the Premises itself, and (f) that both at the time of notification and commencement there has been no material adverse change in the financial condition of the Tenant or a party approved by Landlord as reasonably determined by Landlord, Tenant shall have one (1) option to renew the Lease for five (5) years (the "Renewal Term") by notice in writing delivered to Landlord not less than nine (9) months prior to the expiration of the then current term of the Lease. All of the covenants, conditions and provisions of the Lease shall be applicable to the Renewal Term, except that the Annual and Monthly Base Rent shall be adjusted to reflect the current fair market rental for the Premises as of the date the Renewal Term is to commence for a top floor premises with similar views and amenities, private entrance and private access. Landlord shall advise Tenant of the new monthly rental for the Renewal Term within thirty (30) days after a request therefor from Tenant; Landlord's notification of the new rental may include an escalation provision to provide for a change in the fair market rental between the time of notification and the commencement of the Renewal Term. In no event shall the Annual and Monthly Base Rent be subject to determination or modification by any person, entity, court or authority other than as expressly set forth herein and in no event shall the Annual and Monthly Base Rent for the Renewal Term be less than the monthly rental during the last year of the then expiring term.
I.Rights Of First Offer
As used herein the term an "Offer Space" shall mean each of the first two available spaces with each such space measuring up to 6,000 Square Feet on the seventh (71h) floor of the Building. Provided (a) the Lease is in full force and effect, (b) Tenant is not in default hereunder at the time of notification or commencement, (c) the Premises nor any part thereof have been sublet (except to Permitted Transferees and parties approved by Landlord), (d) the Lease has not been assigned (except to Permitted Transferees and parties approved by Landlord), (e) Tenant or a party approved by Landlord is an occupant of the Building under this Lease and intends to continue to use the Premises and an Offer Space itself, (f) that both at the time of notification and commencement there has been no material adverse change in the financial condition of the Tenant or a party approved by Landlord as reasonably determined by Landlord, and (g) there shall be at least forty-eight (48) months remaining in the Term (excluding any then unexercised renewal options) on the date Tenant would commence paying rent on an Offer Space, Tenant shall have, subject to the foregoing and the currently existing rights of tenants and option holders, and the right of Landlord to relocate tenants to, or renew or extend the lease with any tenant or occupant currently in, an Offer Space, two (2) options to lease an Offer Space or the portion thereof described in Landlord's notice on the same terms and conditions as Landlord then proposes to offer such portion of an Offer Space to a third party, except as otherwise provided
herein. At the time Landlord proposes to offer an Offer Space or any portion thereof for lease to a third party, Landlord shall deliver to Tenant written notice of its intention along with a copy of the proposed terms. Notwithstanding anything herein to the contrary, Landlord shall not be obligated to offer an Offer Space to Tenant that Landlord would begin marketing during the initial twenty-four (24) months after the Commencement Date and Tenant will have no right of first offer for such an Offer Space. By way of illustration, but not limitation of the preceding sentence, Landlord shall not be obligated to offer an Offer Space to Tenant if an Offer Space is available for lease on March 1, 2018 (which is one month after the initial 24-months of the Term) since Landlord would have marketed such Offer Space's availability within the initial 24-months of the Term. Tenant shall exercise its options by written notice to Landlord delivered within ten (10) days of Landlord's notice to Tenant. If Tenant exercises either of its right of first offer, it shall lease the Offer Space or the portion thereof described in Landlord's notice on the terms and conditions set forth in the lease proposal attached to Landlord's notice. If Tenant timely exercises its right of first offer an Offer Space, Landlord, at its sole cost and expense, shall ensure within a reasonable period of time after Tenant takes possession of such Offer Space that Tenant's private elevator can access the seventh (71h) floor. If Tenant fails to exercise either right of first offer as specified herein, then Landlord may thereafter offer to lease the Offer Space or the portion thereof described in Landlord's notice to third parties on such terms and conditions as Landlord finds acceptable without first offering such space to Tenant.
Rooftop Deck
Tenant may, at its sole cost and expense, and in accordance with the provisions of Article VII hereof, construct an exclusive rooftop deck in an area designated by Landlord on the south side of the Building's roof (the "Rooftop Deck"). Landlord and Tenant shall mutually agree on the plans of the Rooftop Deck prior to construction, which shall be subject to approval by the City of Chicago. Urban Innovations, Ltd. shall act as the general contractor for the construction of the Rooftop Deck. Furthermore, Landlord may require Tenant to provide Landlord with adequate security in such amounts and in such form reasonably determined by Landlord for the cost of constructing such Rooftop Deck. Tenant's option to construct the Rooftop Deck shall expire upon the earlier to occur of: (i) another tenant in the Building leasing more square feet than the Premises; and (ii) four (4) calendar years after the Commencement Date. The foregoing notwithstanding, if Tenant has properly exercised its right to construct the Rooftop Deck, Tenant shall nevertheless forfeit its right to construct the Rooftop Deck if Tenant has not obtained a building permit issued by the City of Chicago within four (4) months after timely exercising its right to construct the Rooftop Deck and/or has not completed the construction of the Rooftop Deck within three (3) months following Tenant obtaining such permit, subject to delays beyond the reasonable control of Urban Innovations, Ltd. (which will result in a day for day extension of Landlord's obligation to complete such construction). Landlord may then offer such option to another tenant or prospective tenant if Tenant fails to timely complete the construction of the Rooftop Deck as aforementioned. Tenant shall abide by all rules and regulations enacted by Landlord with respect to the Rooftop Deck. Landlord shall not impose any ADA requirements to the Rooftop Deck unless ADA compliance is mandated specifically to the Rooftop Deck by an applicable governmental authority.
XXIX. Landlord's Exculpation
It is expressly understood and agreed that nothing in this Lease shall be construed as creating any liability whatsoever against the Landlord, or its successors and assigns, personally, and in particular without limiting the generality of the foregoing, there shall be no personal liability to pay any indebtedness accruing hereunder or to perform any covenant, either express or implied, herein contained, and that all personal liability of Landlord, or its successors and assigns, of every sort, if any, is hereby expressly waived by Tenant, and every person now or hereafter claiming any right or security hereunder, and that so far as Landlord, or its successors and assigns, is concerned the owner of any indebtedness or liability accruing hereunder shall look solely to Landlord's interest in the Building for the payment thereof.
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Tenant:
Tiger Financial Management
Landlord:
Wells Hubbard Limited Partnership
By: Wells Hubbard L.L.C., its general partner
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE is made as of this 27th day of January, 2020, by and between Wells Hubbard Limited Partnership, an Illinois limited partnership ("Landlord") and Curo Management LLC, a Nevada limited liability company, whose name was changed from Tiger Financial Management LLC with the Nevada Secretary of State on May 11, 2016 ("Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant entered into a written lease dated September 18, 2015, (the "Lease") for Suite 800 and the existing private lobby and elevator at 200 West Hubbard Street, Chicago, Illinois (the "Current Premises") in the Building; and
WHEREAS, Landlord and Tenant have agreed to expand the leased premises to include, in addition to the Current Premises, the entire seventh floor of the Building (the "Expansion Premises") on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and conditions hereinafter contained, Landlord and Tenant hereby agree as follows:
1.Expansion Premises. Landlord and Tenant agree that beginning as of November 1, 2020 (the "Expansion Premises Commencement Date"), Tenant will also lease the Expansion Premises containing approximately 12,313 rentable square feet on the seventh floor as shown on Exhibit A attached hereto. Therefore, as of the Expansion Premises Commencement Date, the term "Premises" shall mean the Current Premises and the Expansion Premises, unless the context requires otherwise. Tenant shall pay Base Rent and Tenant's Proportionate Share for the Expansion Premises as set forth in this First Amendment. The Term of the Lease with respect to the Expansion Premises shall expire on July 31, 2032 (the "Expansion Premises Expiration Date"), unless earlier terminated or extended in accordance with this First Amendment and the Lease.
2.Improvements. Tenant agrees to accept the Expansion Premises in its "AS IS" condition on the Expansion Premises Commencement Date and acknowledges that, except as specifically set forth herein, no representations as to the repair of the Expansion Premises, nor promises to alter, remodel or improve the Expansion Premises have been made by Landlord except that, at Landlord's cost, Landlord agrees after the Expansion Premises Commencement Date to (i) demolish all existing conditions (excluding the restrooms); (ii) complete any modifications to ensure that Tenant's private elevator serves the Expansion Premises in addition to the Current Premises, and (iii) replace existing double doors on the north side of the Expansion Premises (closest to the Building's main passenger elevator), similar to the doors recently replaced on the eighth floor, and, if necessary, make repairs to the entry door located in the southwest corner stairwell (similar to the repairs made on the eighth floor door in the same location). The taking of possession by Tenant shall be deemed conclusively to establish that the Expansion Premises is in good and satisfactory condition as of when possession was so taken.
3.Intercom System. Landlord shall furnish and install a new intercom system for
the benefit of the private entrance to the Current Premises after (i) Landlord identifies a system that satisfies Landlord's requirements, and (ii) Tenant approves such system, which approval shall not to be unreasonably withheld, conditioned or delayed. The foregoing notwithstanding, Tenant may identify its own new intercom system for the benefit of the private entrance to the Current Premises,
which shall be reasonably approved and installed by Landlord at its cost; provided, however, that Landlord's obligation to cover such cost shall be equal to an amount that is equal to or less than the cost of the intercom system identified by Landlord.
4.Tenant Improvements. Notwithstanding anything contained in the Lease to the
contrary, Tenant shall perform Tenant's Work in the Expansion Premises in accordance with the
applicable terms of the Lease and the Workletter attached thereto as Exhibit C. Landlord shall abate Base Rent for the Expansion Premises only on a dollar-for-dollar basis against Tenant's Allowance for the Expansion Premises as set forth in Paragraph 4 of this First Amendment. Such abatement shall be equal to the lesser amount of: (i) all actual, out of pocket amounts spent by Tenant on Tenant's Work in the Expansion Premises, and (ii) Tenant's Allowance for the Expansion Premises based on the rentable square footage of the Expansion Premises under construction during Tenant's Work in the Expansion Premises. Such credit against Base Rent for the Expansion Premises only for Tenant's Work in the Expansion Premises shall be applied to the Base Rent for the Expansion Premises only after the initial three (3) months of Base Rent abatement set forth in Paragraph 6 of this First Amendment. Any remaining Tenant's Allowance not earmarked for Tenant's Work before January 1, 2023 shall be forfeited by Tenant; provided, however, that Tenant may extend the date by which it must earmark such funds for up to one (1) additional year (meaning by January 1, 2024) by giving Landlord written notice no later than October 3, 2022 of Tenant's desire to extend such date. Any unused portion of the Tenant's Allowance for the Expansion Premises may be applied to additional Tenant's Work in the Expansion Premises, provided that any and all Tenant's Work in the Expansion Premises commences no later than January 1, 2023, unless Tenant timely extends such date in accordance with the immediately preceding sentence. The foregoing abatement against Base Rent for the Expansion Premises only shall be applied to such Base Rent beginning on the first day of the month after Tenant commences demolition during Tenant's Work in the Expansion Premises described above. The foregoing notwithstanding, Tenant must provide Landlord with copies of fully paid invoices, final lien waivers and other documentation requested by and acceptable to Landlord if Tenant seeks to abate expenses against any unused Tenant Allowance where Tenant uses a contractor for services other than UI (as defined in Paragraph 5 below), provided that Landlord approves of such contractor in advance and further provided that such contractor provides Tenant with services outside of Ul's scope of work.
3.Tenant Improvement Allowance. Landlord shall pay the cost of Tenant's Work in
the Expansion Premises up to but not in excess of an amount equal to $1,000,431.25 (which is equal to $81.25 per square foot of rentable area in the Expansion Premises) ("Tenant's Allowance") to be credited against Base Rent for the Expansion Premises only in accordance with Paragraph 3 above. Urban Innovations Ltd. ("UI") shall be the general contractor. UI will competitively bid all work to multiple subcontractors and will provide all bids in an -open book" manner to Tenant. Tenant's Allowance for Tenant's Work in the Expansion Premises shall be applied to hard construction costs (including tele/data cabling, architectural and permit fees). Tenant shall have the right to review and approve all bids prior to awarding any contracts for Tenant's Work in the Expansion Premises. Such Tenant approval shall not be unreasonably
withheld, conditioned or delayed. There shall be no Landlord-related supervisory costs associated with Tenant's Work in the Expansion Premises. Landlord shall use commercially reasonable efforts to cooperate with Tenant in order to procure all required permits and approvals for Tenant's Work in the Expansion Premises. In addition to the Tenant's Allowance for Tenant's Work in the Expansion Premises, Landlord shall pay Tenant's architect to complete one (1) space plan and one (1) revision thereto in an amount equal to $1,846.95 (which is equal to $0.15 per rentable square foot of the Expansion Premises).
6.Extension of the Current Premises' Term. The Term of the Lease with respect to both the Current Premises and Expansion Premises shall be coterminous. Notwithstanding any contrary provisions of the Lease, the Term of the Lease with respect to the Current Premises shall be extended until the Expansion Premises Expiration Date (the "Extended Term"), unless sooner terminated or extended in accordance with this First Amendment or the Lease, or both. Tenant shall continue to pay Base Rent and Tenant's Proportionate Share for the Current Premises as set forth in the Lease through and inclusive of the current expiration date of the Term for the Current Premises (meaning January 31, 2026). Thereafter, Tenant shall pay Base Rent and Tenant's Proportionate Share for the Current Premises during the Extended Term as set forth in Paragraph 9 below. The Base Year for the Current Premises and Tenant's Proportionate Share for the Current Premises shall remain unchanged by this First Amendment. Tenant shall pay Base Rent and Tenant's Proportionate Share for the Expansion Premises for the period commencing upon the Expansion Premises Commencement Date during the Extended Term as set forth below in Paragraph 6 below.
7.Base Rent for the Expansion Premises. Tenant shall pay as Base Rent for the Expansion Premises commencing upon the Expansion Premises Commencement Date and during the Extended Term in the following amounts:
Period Annualized Base Rent Monthly Base Rent
| | | | | | | | |
11/1/20-1/31/21 | $0.00 | $0.00 |
2/1/21-10/31/21 | $492,520.00 | $41,043.33 |
11/1/21-10/31/22 | $502,370.40 | $41,864.20 |
11/1/22-10/31/23 | $512,417.81 | $42,701.48 |
11/1/23-10/31/24 | $522,666.16 | $43,555.51 |
11/1/24-10/31/25 | $533,119.49 | $44,426.62 |
11/1/25-10/31/26 | $543,781.88 | $45,315.16 |
11/1/26-10/31/27 | $554,657.51 | $46,221.46 |
11/1/27-10/31/28 | $565,750.67 | $47,145.89 |
11/1/28-10/31/29 | $577,065.68 | $48,088.81 |
11/1/29-10/31/30 | $588,606.99 | $49,050.58 |
11/1/30-10/31/31 | $600,379.13 | $50,031.59 |
11/1/31-7/31/32 | $612,386.71 | $51,032.23 |
8.Tenant's Proportionate Share and Base Year. As used in the Lease, "Tenant's
Proportionate Share" of Operating Costs and Taxes shall mean, with respect to the Expansion Premises, the following:
3
Tenant's Proportionate Share: 12.81% (The percentage calculated by dividing the Rentable Area of the Expansion Premises by the Rentable Area of the Building, which is 96,130 Square Feet).
"Base Year" shall mean 2021.
9.Security Deposit. Tenant's Security Deposit shall remain $73,716.16 for the
Extended Term.
10.Base Rent for the Current Premises. Tenant shall pay as Base Rent for the Current Premises commencing upon February 1, 2026, and during the Extended Term in the following amounts:
| | | | | | | | |
Period | Annualized Base Rent | Monthly Base Rent |
2/1/26-1/31/27 | $493,349.01 | $41,112.42 |
2/1/27-1/31/28 | $503,215.99 | $41,934.67 |
2/1/28-1/31/29 | $513,280.31 | $42,773.36 |
2/1/29-1/31/30 | $523,545.92 | $43,628.83 |
2/1/30-1/31/31 | $534,016.83 | $44,501.40 |
2/1/31-1/31/32 | $544,697.17 | $45,391.43 |
2/1/32-7/31/32 | $555,591.11 | $46,299.26 |
11.Option to Renew. Article XXVI of the Lease is hereby deleted in its entirety and
replaced with the following:
"Provided (a) the Lease is in full force and effect, (b) no event of default by Tenant exists at the time of notification or commencement, (c) neither the Premises nor any part thereof are being sublet (except to Permitted Transferees and parties approved by Landlord), (d) the Lease has not been assigned (except to Permitted Transferees and parties approved by Landlord), (e) Tenant or a party approved by Landlord is an occupant of the Building under this Lease and intends to continue to use the Premises itself, and (f) that both at the time of notification and commencement there has been no material adverse change in the financial condition of the Tenant or a party approved by Landlord as reasonably determined by Landlord, Tenant shall have one (1) option to renew the Lease for five (5) years (the "Renewal Term") by notice in writing delivered to Landlord not less than twelve (12) months prior to the expiration of the then current term of the Lease. All of the covenants, conditions and provisions of the Lease shall be applicable to the Renewal Term, except that the Annual and Monthly Base Rent shall be adjusted to reflect the current fair market rental for the Premises as of the date the Renewal Term is to commence for a top floor premises with similar views and amenities, private entrance and private access. Landlord shall advise Tenant of the new monthly rental for the Renewal Term within thirty (30) days after a request therefor from Tenant; Landlord's notification of the new rental may include an escalation provision to provide for a change in the fair market rental between the time of notification and the commencement of the Renewal Term. In no event shall the Annual and Monthly Base Rent be subject to determination or modification by any person, entity, court or authority other than as expressly set forth
4
herein and in no event shall the Annual and Monthly Base Rent for the Renewal Term be less than the monthly rental during the last year of the then expiring term."
12. Rights Of First Offer. Article XXVII of the Lease is hereby deleted in its entirety.
13.Broker's Commission. Landlord and Tenant hereby represent and warrant to the other that neither it nor its officers or agents nor anyone acting on its behalf has dealt with any real estate broker other than Urban Innovations, Ltd. who represented Landlord in the negotiating or making of this First Amendment for the Expansion Premises, and Landlord and Tenant hereby agree to indemnify and hold the other party, its agents, employees, partners, directors, shareholders and independent contractors harmless from all liabilities, costs, demands, judgments, settlements, claims, and losses, including reasonable attorneys' fees and costs, incurred by such party in conjunction with any such claim or claims of any other broker or brokers claiming to have interested Tenant in the Expansion Premises or claiming to have caused Tenant to enter into this First Amendment, except as disclosed hereinabove. Except as disclosed in this Paragraph, Landlord and Tenant hereby represent and warrant to the other that neither Landlord nor Tenant have entered into any commission arrangement with any broker for the Expansion Premises. Landlord hereby acknowledges and agrees that any commissions owed for the Current Premises are solely Landlord's responsibility.
14.Terms of Lease. Capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Lease.
15.Incorporation of the Lease. Except as otherwise amended hereby, the terms and covenants of the Lease remain in full force and effect and the parties hereto, by execution of this First Amendment to Lease, ratify and confirm same.
IN WITNESS WHEREOF, Landlord and Tenant have executed this First Amendment by their duly authorized representatives as of the day and year first above written.
TENANT: LANDLORD:
Curo Management LLC, a Nevada limited Wells Hubbard Limited Partnership
liability company
By: Wells Hubbard L.L.C., its general partner
By: Urban Innovations, Ltd., its sole member
| | | | | | | | |
By: ___________________________________ By: | | |
|
Title
GUARANTOR:
Curo Intermediate Holdings Corp., a Delaware corporation, whose name was changed from Speedy Cash Intermediate Holdings Corp. with the Delaware Secretary of State on May 11,
2016
By:
Title:
Guarantor hereby executes this First Amendment to acknowledge and restate its liabilities and obligations under that certain Guaranty dated September 18, 2015, and to further acknowledge that such Guaranty shall apply during the Extended Term to both the Current Premises and Expansion Premises notwithstanding anything in the Lease or the Guaranty to the contrary.
THIS INDENTURE made as of the 24th day of September, 2012. IN PURSUANCE OF THE SHORT FORMS OF LEASES ACT.
BETWEEN:
KANCO-400 CARLINGVIEW LTD.
hereinafter called the "Landlord",
OF THE FIRST PART;
- and -
CASH MONEY CHEQUE CASHING INC.
hereinafter called the "Tenant",
OF THE SECOND PART;
- and -
SPEEDY CASH HOLDING CORP.
hereinafter called the "Indemnifier",
OF THE THIRD PART;
ITNESSETH:
1. That in consideration of the rents, covenants and
agreements hereinafter reserved and contained on the part of
the Tenant to be paid, observed and performed, the Landlord does
hereby demise and lease unto the Tenant the building (the "Building")
and the lands (the "Lands") more particularly described in Schedule "A"
annexed hereto and municipally known as 400 Carlingview Drive, Toronto,
Ontario comprising an area of approximately 26,754 square feet in the
Building (the "Leased Premises")
The Leased Premises shall be subject to this Lease and the reasonable rules and regulations made from time to time by the Landlord.
2. To have and to hold the Leased Premises for and during the
term of Five (5) years, and four (4) months to be computed from the 1st day of November, 2012 and from thenceforth next ensuing and fully to be completed and ending on the 28th day of February, 2018 (the "Term").
3. Yielding and paying therefore yearly for the Term hereby
granted that is from November 1, 2012 to February 28, 2018, without any
deduction defalcation or set-off whatsoever, Minimum Rent at the rate of THREE HUNDRED FORTH-SEVEN THOUSAND EIGHT HUNDRED TWO DOLLARS ($347,802.00) of lawful money of Canada payable in advance in equal consecutive monthly instalments of TWENTY-EIGHT THOUSAND NINE HUNDRED EIGHTY-THREE DOLLARS AND FIFTY CENTS ($28,983.50) each, plus H.S.T., on the first day of each month of the Term (subject to the Additional Provisions set out in Schedule "B" hereto). Minimum Rent is calculated at $13.00 per square foot per annum.
If the Term commences on any other day other than the first, or ends on
any day other than the last day, of the month, rent for the fractions of a month at the commencement and at the end of the Term shall be adjusted pro rata.
4. The Tenant shall have the right to use the Leased Premises only
for office use, and for no other purpose; provided the Tenant, in the use and occupation of the Leased Premises and in the prosecution or conduct of any business therein, shall comply with all requirements of all laws, orders, ordinances, rules and regulations of any Federal, Provincial or Municipal authorities and with any direction or certificate of occupancy issued pursuant to any law by any public officer or officers. The Tenant covenants that it will not use or permit to be used any part of the Leased Premises for any dangerous or noxious trade or business, and will not cause or maintain any nuisance in, at or on the Leased Premises, or cause or permit the Leased Premises to be used for the purpose of any bankrupt, liquidation or auction sale.
5. All payments required to be made by the Tenant under or in
respect of this Lease shall be made to the Landlord at the Landlord's office at 401 The West Mall, Suite 1100, Toronto, ON M9C 5J5 or to such agent or agents of the Landlord or at such other place as the Landlord shall hereafter from time to time direct in writing to the Tenant.
6.The Tenant delivers concurrently with its execution hereof a cheque payable to the Landlord's solicitor, in trust, in the amount of $98,203.69 (the "Deposit"). The Deposit is to be applied towards the fifth (5"1') and sixth (6"1') months' Minimum and Additional Rent and H.S.T. thereon.
7. The Tenant covenants and agrees to and with the Landlord as follows:
(a)To pay Minimum Rent and Additional Rent as aforesaid;
(b)(i) The Tenant will (1) pay as Additional
Rent to the Landlord in each and every year during
the Term and within the times provided for by the
taxing authorities all taxes, including local
improvement rates, impost charges or levies, rates,
duties and assessments, whether general or special,
that may be levied, rated, charged or assessed
against the Leased Premises or any part thereof
from time to time on the basis of a separate
assessment by any taxing authority, whether
federal, provincial, municipal, school or other-
wise, and any taxes payable by the Landlord which
are imposed in lieu of, or in addition to any such
real property taxes;
(2) to provide the Landlord within ten (10) days after
demand with a copy of any separate tax bills and
separate notices of assessment for the Leased Premises
received by the Tenant; (3) upon request, promptly deliver to the Landlord, receipts for payment of all such taxes
paid to any such taxing authorities, as aforesaid, and furnish such other information in connection therewith as the Landlord reasonably requires.
(ii) If in any year during the Term, there is not a separate assessment made by any taxing authority with respect to the Leased Premises, the Tenant shall pay, as Additional Rent in each such year during the Term when due as provided herein, to the Landlord, all taxes including local improvement rates, impost charges or levies, rates, duties and assessments, whether general or special, which may be levied, rated, charged or assessed against the Leased Premises, and any taxes payable by the Landlord which are imposed in lieu of any such real property taxes.
In the case of paragraph 7(b)(i) and 7(b)(ii), prior to the commencement of the Term of this Lease and to the commencement of each calendar year thereafter which commences during the Term, the Landlord shall estimate the amount of taxes for the ensuing calendar year or (if applicable) broken portion thereof, as the case may be, to become payable under this Lease, and notify the Tenant in writing of such estimate. The amount so estimated shall be payable in equal monthly instalments in advance over the calendar year or broken portion thereof in question, each such instalment being payable on each monthly rental payment date provided in paragraph 3 hereof. Notwithstanding anything herein contained to the contrary, in the event that at the time when the payment of the said taxes,
interim or final, instalment or otherwise is due, and the Landlord shall not have received from the Tenant sufficient sum to pay the full amount of such taxes then due, the Tenant shall forthwith within ten (10) days after demand pay the amount of any deficiency to the Landlord. When the taxes for the calendar year or broken portion thereof in question become finally determined, the Landlord shall reconcile the Tenant's payments in respect of taxes and the amount of taxes finally determined.
If the amounts paid by the Tenant towards taxes are either less than or greater than taxes finally determined, then the Landlord and the Tenant
shall promptly adjust for such under payment or overpayment, as the case may be. If the Tenant has overpaid the Landlord shall credit any such excess paid as against any future amount to be paid save with respect to the final lease year when, in such event the Landlord shall refund any excess paid and the Landlord will provide the Tenant with a statement of the overpayment and the application of the excess paid. If the Tenant has underpaid, it shall pay the difference within ten (10) days after receipt of the Landlord's detailed statement setting out the underpayment. Prior to the expiration of one year after receipt of the Landlord's statement hereinbefore described, upon reasonable notice to the Landlord, the Tenant shall be entitled to inspect the Landlord's records (including copies of tax bills)and statements pertaining to such taxes. (c) Tenant shall pay, in each and every year
during the Term, as Additional Rent, and discharge
within twenty (20) days after same shall become due
and payable, all taxes, rates, duties, and assess-
ments and other charges, if any, that may be levied, rated,
charged or assessed against or in respect of all
improvements, equipment and facilities of the
Tenant on or in the Leased Premises (whether
installed by the Tenant or by the Landlord on
behalf of the Tenant) and every tax and licence fee
in respect of any and every business carried on
thereon or therein in respect of the use or
occupancy thereof by the Tenant (and every sub-
tenant or licensee), whether such taxes, rates,
duties, assessments and license fees are charged by
any municipal, parliamentary, school or other body
during the Term hereby demised. The Tenant
further covenants and agrees that upon written
request of the Landlord, the Tenant will properly
deliver to it for inspection receipts for payment
of all taxes, rates, duties, assessments and other
charges in respect of all improvements, equipment
and facilities of the Tenant on or in the Leased
Premises which were due and payable up to one month
prior to such request, and in any event will
furnish to the Landlord, if requested by the
Landlord, evidence of payments satisfactory to the
Landlord before the 21st day of January in each
year covering payments for the preceding year.
If the Tenant or any subtenant or licensee of the Tenant shall elect to have the Leased Premises or any part thereof assessed for separate school taxes, the Tenant shall pay to the Landlord, as Additional Rent, within twenty (20) days after receipt notice from the Landlord, but in any event prior to the date of such taxes, as the amount of the separate school taxes are ascertained, any amount by which the amount of the separate school taxes exceed the amount which would have been payable for school taxes had such election not been made.
(d) Tenant shall pay either directly, as the same become due or as part of the Additional Rent payable hereunder, respectively all charges for public and private utilities, including without limitation, water, gas, electrical power or energy, steam or hot water used upon or in respect of the Leased Premises.
(e) Tenant shall have the right to contest, by
appropriate legal proceedings, at its own expense
and so long as the Landlord is not involved in any
cost, loss or penalty whatsoever, the validity of
any tax, rate (including local improvement rates),
assessment or other charges referred to in
paragraphs 7(b), and (c)hereof and the Landlord will
assist the Tenant in its contestation of such taxes and
provide any authorizations or assistance which the Tenant may
reasonably require.
(f) In this paragraph 7(f):
"Operating Costs" means the total amount
paid or incurred, calculated without duplication and in accordance with generally accepted accounting principles regardless of when payable, whether by Landlord or others on behalf of Landlord, for operating and maintaining the Leased Premises and shall include, without limiting the generality of the foregoing, all monies paid or incurred to persons, firms, companies or corporations employed in the maintenance of the said Leased Premises and Land (including without limitation for building services, asphalt, exterior lighting, patio, loading dock and HVAC), all costs of repairs required for such maintenance, the costs of providing hot and cold water electricity, gas, steam or other public or private utility, the cost of window cleaning, fire, casualty, liability, contents and other insurance, public utility costs, the cost of audit fees for calculation of rental adjustments under this Lease, the total cost of operating, maintaining, cleaning (including snow and ice removal and/or
clearance), supervising, policing, repairing and replacing the exterior parking areas,
common areas, landscaped areas and facilities, management and administration fees and all other expenses paid or incurred in connection with the maintenance or operation and management of the said Leased Premises and the services connected therewith.
Additional Rent, which is comprised as Operating Costs, taxes and utilities is estimated at$21,157.96 per month or $9.49 per square foot for the year 2012 and will be adjusted annually according to actual costs during the Term. No part of Operating Costs shall be used to subsidize any other tenant or vacant space. The Landlord shall, at all times, operate the property as a prudent owner so as to minimize the Operating Costs.
(g) Except for those items that are the Landlord's obligation as set out herein, the Tenant at its own expense, shall maintain and keep the Leased Premises and every part thereof in good order and condition (reasonable wear and tear, and damage by fire, lightning, tempest, and damage by the Landlord, or its agents, only excepted) and, without limiting the generality of the foregoing, the Tenant s al keep the Leased Premises well painted, clean and in such condition as a careful Tenant would do. (h) That it shall be lawful for the Landlord and its agents, at all reasonable times during the said
Term, and upon prior written notice to the Tenant to enter the Leased Premises accompanied by a representative of the Tenant to inspect the condition thereof. Where an inspection reveals repairs are necessary and the Tenant is obliged to make such repairs pursuant to the terms of this Lease, the Landlord shall give to the Tenant notice in writing and thereupon the Tenant will, within sixty (60) days from the date of delivery of the notice, commence to make the necessary repairs in a good and workmanlike manner and at its own expense. The Tenant shall promptly advise the Landlord in writing of any repairs that are required which are the responsibility of the Landlord, and the Landlord shall, within sixty (60) days from the date of the delivery of the notice commence to make the necessary repairs in a good and workmanlike manner at its own expense.
( ) Tenant shall pay to the Landlord as Additional
Rent , any value added tax or sales tax payable by
the Landlord under Federal Legislation ("H.S.T."), and which is calculated or computed on Minimum Rent and Additional Rent payable by the Tenant hereunder. The Tenant shall not be required to pay H.S.T. on any amounts that already include H.S.T..
(g) The Tenant will promptly comply with all requirements of all applicable statutes, laws, by-laws, rules, regulations, ordinances and orders from time to time in force during the Term (and any extensions thereof) whether municipal, parliamentary or otherwise.
( ) The Tenant shall not be required to
return the Leased Premises to base building condition
or remove any of its leasehold improvements or do any
restoration work at the expiry or earlier termination of
the Term or any extensions thereof.
(1) To pay to the Landlord as Additional Rent the cost of obtaining during the Term of this Lease a maintenance and service contract on the heating equipment issued by an approved mechanical contractor, which cost shall be billed to the Tenant as part of the Operating Costs.
(m) That it will not assign, sublet or part with possession
of the Leased Premises or any part thereof, or
share the occupation of the Leased Premises or
any part thereof, without the Landlord's written
consent, which consent shall not be unreasonably
withheld or delayed; provided that no assignment,
subletting, licensing or parting with possession of
the Leased Premises shall in any way release the Tenant
from its obligations under the terms of this Lease.
(n) That it will not do or omit or permit to be done or omitted upon or about the Leased Premises anything which shall be or result in a nuisance to the Landlord.
(m)The Tenant covenants and agrees that in the event the Tenant's use and occupation of the Leased Premises, whether or not the
Landlord has consented to the same, causes any increase in premiums for fire and extended coverage insurance, rental, boiler, casualty and other types of insurance carried by the Landlord from time to time on the building of which the Leased Premises form a part, the Tenant shall pay the additional premium on the policies aforementioned caused by reason thereof. If notice of cancellation shall be given respecting any insurance policy or any insurance policy on the said Leased Premises or any part thereof shall be cancelled or refused to be renewed by an insurer by reason of the use or occupation of the Leased Premises by the Tenant, whether or not the Landlord has consented to such use and occupation, the Tenant shall forthwith remedy or rectify such use or occupation within five (5) business days after being requested to do so in writing by the Landlord, and if the Tenant shall fail to do so
within such time frame, the Landlord may, at its option, determine this Lease forthwith by leaving upon the Leased Premises notice in writing of termination and thereupon rent and any other payment for which the Tenant is liable under this Lease shall be apportioned and paid up in full to the date of such determination of the Lease, and the Tenant shall immediately deliver up vacant possession of the Leased Premises to the Landlord.
Bills for additional premiums as aforesaid shall be rendered by the Landlord to the Tenant at such times As The Landlord may elect and shall be due from and Payable by the Tenant when rendered, and the amount Thereof shall be deemed to be and paid as Additional Rent.
And prior to taking possession of the Leased Premises,
the Tenant will provide the Landlord with a
certificate of liability insurance covering the
Tenant in respect of the Leased Premises and its
operation therein to the extent of not less than
$5,000,000.00 inclusive of all injuries or death to
persons and damage to property of others arising
from any one occurrence. The insurance certificate
shall name the Landlord as an additional insured.
(p) In the event of any damage to the Leased
Premises by any cause, to give notice in writing to the Landlord of such damage forthwith upon the same becoming known to the Tenant.
| | |
8. The Landlord covenants and agrees to and with the Tenant as follows: (a)For quiet enjoyment. (b)To fulfil its obligations in Schedule "B". |
(h) To pay all taxes (including local improvement rates),rates, duties and assessments that may be levied, rated,charged or assessed against the Leased Premises but excepting Tenant's taxes and license fees as
set forth in paragraph 7(c) hereof.
(d)To maintain in full force and effect during the Term of this Lease, and all extensions, insurance with such coverage and in such amounts as would be carried by a prudent owner of a building similar in size, age, location and use as the Building, which insurance shall be for replacement cost of the building, and shall also provide for general liability coverage.
(e) That the Landlord has in it good right, full
power and absolute authority to let the Leased Premises to the Tenant in the true intent of this indenture.
(f) To obtain a Non-Disturbance Agreement in the form provided by the mortgagees in favour of the Tenant from all mortgagees of the Lands, forthwith upon request by the Tenant.
9. It is hereby expressly agreed that, in the event that,
without the written consent of the Landlord, the Leased
Premises shall be used by any other person than the Tenant or
successors or assigns except as otherwise provided for herein,
the Term hereby granted or any of the goods and chattels of the Tenant
shall be at any time seized or taken in execution or in attachment
by any creditor of the Tenant, or the Tenant shall make any
assignment for the benefit of creditors generally or fail to
comply with the Bulk Sales Act (Ontario), or become bankrupt
or insolvent, or take the benefit of any Act now or hereafter in
force for bankrupt or insolvent debtors or any Order shall be made
for the winding up of the Tenant, then and in every such case the
current month's rent and the next ensuing three (3) months'
rent shall immediately become due and payable, and, at the
option of the Landlord, this Lease shall cease and determine
and the said Term shall immediately become forfeited and void,
in which event the Landlord may re-enter and take possession of
the Leased Premises as though the Tenant or any occupant or
occupants of the Leased Premises was or were holding over
after the expiration of the Term without any right whatever.
10. It is hereby expressly agreed that notwithstanding
the benefit of any present or future Statute taking away or
limiting the Landlord's right of distress none of the goods and
chattels of the Tenant on the Leased Premises at any time
during the said Term shall be exempt from levy by distress for rent in arrears.
11. The Landlord shall not be liable for any damage to the Leased
Premises caused by steam, water, rain or snow which may leak into,
issue or flow from any part of the said Building or adjoining premises
or from the water, steam, sprinkler or drainage pipes or
plumbing works of the same or from any other place or quarter
or for any damage caused by or attributable to the condition or
arrangement of any electrical or other wiring or for any damage
by anything done or omitted to be done, unless caused by or arising from
the negligence or willful act of the Landlord or those for whom the Landlord
is in law responsible.
12. It is hereby expressly agreed that the Tenant will
indemnify and save harmless the Landlord from and against any
and all liabilities, fines, suits, claims, demands, costs and
actions of any kind or nature whatsoever for which the Landlord
shall or may become liable, or suffer by reason of any
breach, violation or non-performance by the Tenant of any
covenant, term or provision hereof, or by reason of any injury,
loss, damage or death resulting from, occasioned to or suffered
by any person or persons, or any property by reason of any act,
neglect or omission on the part of the Tenant, or any of its
agents, customers, employees, servants, contractors, licensees
or invitees, for which it is responsible in law, in or about the Leased
Premises or any part
thereof.
13. It is hereby expressly agreed that, if the Tenant
shall continue to occupy the Leased Premises after the
expiration of this Lease, with or without the consent of the
Landlord, and without any further agreement, the Tenant shall
be a monthly tenant at one and a half times the monthly rental herein
reserved and otherwise on the Terms and conditions herein set forth, except
as to the length of tenancy.
14. It is hereby expressly agreed that Tenant will not
bring upon the Leased Premises or any part thereof any
machinery, equipment, article or thing that by reason of its
weight, size or use might damage the floors of the Leased
Premises and that if any damage is caused to the Leased
Premises by any machinery, equipment, article or thing by
overloading, the Tenant will forthwith repair the same or pay to the
8
Landlord the cost of making good the same.
15.Subject to the provisions of Schedule "B",
it is hereby expressly agreed that in the event of
failure of Tenant to pay any taxes, rates, insurance premiums or other charges which it has herein covenanted to pay, the Landlord may pay the same and shall be entitled to charge the sums so paid to the Tenant who shall pay them forthwith on demand; and Landlord, in addition to any other rights, shall have the same remedies and may take the same steps for the recovery of all such sums as it might have and take for the recovery of rent in arrears under the terms of this Lease; all such payments required to be made under the terms of this Lease shall be deemed rent.
16.It is hereby expressly agreed that all loading and
unloading of merchandise, supplies, materials, garbage and other chattels shall be affected only through or by means of existing doorways or corridors for such loading and unloading.
17.It is hereby expressly agreed that the Tenant will keep the Leased Premises and every part thereof in a clean and tidy condition and will not permit wastepaper, garbage, ashes or waste or objectionable material to accumulate thereon.
18.It is hereby expressly agreed that whenever in this Lease reference is made to the Leased Premises or leased
premises it shall include all structures, improvements and
erections in or upon the Leased Premises or any part thereof from time to time. This shall not affect the obligations of repair and maintenance as otherwise set out in this Lease.
19.It is hereby expressly agreed that the Tenant shall
from time to time at the reasonable request of the Landlord produce to the
Landlord satisfactory evidence of the due payment by the Tenant
of all payments required to be made by the Tenant under this Lease.
20.The Tenant shall have the right to make alterations,
repairs, improvements, erections and installations at its own expense, from time to time during the Term or any extension thereof, provided it has the prior written consent of the Landlord, for any structural repairs or alterations which is not to be unreasonably withheld or delayed. The Tenant must provide the Landlord with drawings of all alterations, repairs, improvements, erections and installations, whether structural or otherwise, for the Landlord's information purposes. The Tenant shall remove its trade fixtures on expiry or earlier termination of this Lease and shall repair any damage caused by the installation or removal thereof; provided further that the Tenant shall not remove or carry away from the Leased Premises any building or any plumbing, heating or ventilating plant or equipment or
other building services: The leasehold improvements shall become the property of the Landlord at the end or earlier termination of the Term.
21. Provided that upon re-entry by the Landlord under the terms of this Lease, the Landlord may, in addition to any other remedies to
which the Landlord may be entitled, at its option, at any time and from time to time relet the Leased Premises or any part or parts thereof for the account of the Tenant or otherwise and receive and collect the rents therefor, applying the same first to the payment of such reasonable expenses as the Landlord may have incurred in recovering possession of the Leased Premises, including legal expenses and solicitor's fees and for putting the same into good order or condition or preparing or altering the same for re-rental and all other expenses, commissions and charges paid, assumed or incurred by the Landlord in or about reletting the Leased Premises and then to the fulfilment of the covenants of the Tenant hereunder. Any such reletting herein provided for may be for the remainder of the Term as originally granted or for a longer or shorter period. In any such case and whether or not the Leased Premises or any part thereof be relet, the Tenant shall pay to the Landlord the rental hereby reserved and all other sums required to be paid by the Tenant up to the time of the termination of this Lease or of recovery
9
of possession of the Leased Premises by the Landlord, as the
case may be, and thereafter the Tenant covenants and agrees, if
required by Landlord, to pay to the Landlord until the end of
the Term of this Lease the equivalent of the amount of all
rentals hereby reserved and all other sums required to be paid
by the Tenant hereunder, less the proceeds of the reletting, net of
any commissions payable or any concession paid or given to new tenants,
if any, and the same shall be due and payable by the Tenant to the
Landlord on the days herein provided for rental, that is to say, upon each of the days herein provided for payment of rental, the Tenant shall pay to the Landlord the amount of the deficiency then existing.
22.Provided that during the Term hereby created any
person or persons may inspect the said Leased Premises accompanied by a Representative of the Tenant and all parts thereof at all reasonable times, but only after reasonable prior written notice to the Tenant on producing a written order to that effect signed by the Landlord.
23.Provided that the Landlord shall have the right
during the Term of this Lease to place upon the Leased
Premises a notice stating that the Leased Premises are for
sale and shall, within three (3) months from the termination of
the said Term, have the right to place upon the Leased Premises a
notice stating that the Leased Premises are for rent; and further
provided that the Tenant will not remove such notice or permit same to
be removed.
24.Provided that in the case of removal by the Tenant of the goods and chattels of the Tenant from the Leased Premises, the Landlord may follow the same for thirty (30) days.
25.Provided, and it is hereby expressly agreed, that
if and whenever during the Term hereby demised the Leased Premises
shall be destroyed or damaged by fire, lightning or tempest, or any
other perils, then, and in every
such event:
(a)If the damage or destruction is such that the
Leased Premises is rendered wholly unfit for occupancy
or it is impossible or unsafe to use and occupy it and
if in either event the damage, in the opinion of
an architect or engineer to be given to both the Landlord
and Tenant within thirty (30) days of the happening of
such damage or destruction, cannot be repaired with
reasonable diligence within one hundred and eighty (180)
days from the happening of such damage or destruction,
then either the Tenant or the Landlord may, within
five (5) days next succeeding the giving of the architect or
engineer's opinion as aforesaid, terminate this Lease by
giving to the other notice in writing of such termination,
in which event this Lease and the Term hereby demised
shall cease and be at an end as of the date of such
destruction or damage and the rent and all other
payments for which the Tenant is liable under the
terms of this Lease shall be apportioned and paid
in full to the date of such destruction or damage;
in the event that neither the Landlord nor the
Tenant so terminates this Lease, then the Landlord
shall repair the said Leased Premises with all reasonable
speed and the rent hereby reserved shall abate from
the date of the happening of the damage until the
damage shall be made good to the extent of enabling
the Tenant to use and occupy the Leased Premises.
(a)If the damage be such that the Leased Premises
is wholly unfit for occupancy, or if it is impossible
or unsafe to use or occupy it but if in either event
the damage, in the opinion of the architect or engineer
to be given to the Landlord and Tenant within thirty (30)
days from the happening of such damage, can be repaired with
reasonable diligence within one hundred and eighty (180) day
from the happening of such damage, then the rent hereby
reserved shall abate from the date of the happening of such
10
damage until the damage shall be made good to the extent of
enabling the Tenant to use and occupy the Leased Premises and the Landlord shall repair the damage with all reasonable speed.
(c) If in the opinion of the architect and engineer the
damage can be made good as aforesaid within one hundred
and eighty (180) days of the happening of such
destruction or damage and the damage is such that
the Leased Premises is capable of being partially
used for the purposes for which it is hereby demised,
then until such damage has been repaired, the rent shall
abate in the proportion that the part of the portion
of the Leased Premises is rendered unfit for
occupancy bears to the whole of the said portion of
the Leased Premises and the Landlord shall
repair the damage with all reasonable speed.
26. If, at any time during the Term hereby demised, any
public body or paramount authority shall take or expropriate
any portion of the Lands not covered by buildings or structures,
or shall take or expropriate an easement or right or license in
the nature of an easement over, upon or under a portion of the
Lands, and such taking, or expropriation does not materially affect
the Tenant's use or enjoyment of the Leased Premises, then the whole
of the compensation awarded or settlement for the lands so taken or
expropriated, whether fixed by agreement or otherwise shall be paid
to or received by the Landlord and the Tenant hereby assigns, transfers
and sets unto the Landlord all the right, title and interest of the
Tenant therein and thereto, and this Lease shall thereafter continue
in effect with respect to the Leased Premises without any abatement
of rent.
In the event that the taking or expropriation does materially affect the Tenant's use or enjoyment of the Leased Premises, the whole of the compensation awarded or settlement, whether fixed by agreement or otherwise, for the said lands so taken or expropriated, shall be allocated between the Tenant and the Landlord as they may agree, and shall nevertheless be paid to the Landlord, but the rent thereafter payable by the Tenant shall abate accordingly, and, in addition thereto, after payment of the amount to which the Landlord is entitled as aforesaid, the Tenant shall be entitled to that portion of the award or compensation granted by the expropriating body relating or attributable to the Tenant's leasehold improvements so taken or expropriated.
If the Landlord and the Tenant shall be unable to agree, within thirty (30) days after the amount of compensation, award or settlement as aforesaid has been fixed, as to whether such taking or expropriation materially affects the Tenant's use or enjoyment of the Leased Premises or as to the extent to which the rent shall abate, then the same shall be determined by a single arbitrator, if the parties can agree on one, and, failing such agreement, by a board of arbitration composed of
three arbitrators, one to be chosen by each of the parties hereto and the third to be chosen by the two arbitrators selected by the parties. The determination of a majority of such arbitrators to be final and binding upon the parties hereto. Any such arbitration shall be carried out under the provisions of The Arbitration Act of Ontario.
27. It is understood and agreed that whenever and to
the extent that the Landlord or the Tenant shall be unable to fulfil or
shall be delayed or restricted in the fulfilment of any
obligation hereunder in respect of the supply or provision of any
service or utility or the doing of any work or the making of
any repairs by reason of being unable to obtain the material, goods, equipment, service or labour required to enable it to fulfil such
obligation, by reason of any Statute, law or Order in Council, or any
regulation or Order passed or made pursuant thereto, or by reason of the Order or Direction of any Administrator, Comptroller, Board, Governmental Department or Office, or other authority required thereby, or by reason of any other cause beyond its control, whether of the foregoing character or' not, the Landlord or Tenant shall be relieved from the fulfilment of such
11
obligation and the other party shall not be entitled to compensation
for any inconvenience, nuisance or discomfort thereby occasioned.
28.Landlord declares that it may assign its rights under this Lease to a lending institution as collateral
security for a loan to the Landlord and in the event that such an assignment is given and executed by the Landlord and
notification thereof is given to the Tenant by or on behalf of the Landlord, it is expressly agreed between the Landlord and the Tenant that this Lease shall not be cancelled or modified for any reason whatsoever except as provided for, anticipated or permitted by the terms of this Lease or by law, without the consent in writing of such lending institution.
The Tenant covenants and agrees with the Landlord that it will, if and whenever reasonably required by the Landlord and at the Landlord's expense, consent to and become a party to any
instrument relating to this Lease which may be required by or on behalf of any purchaser, bank or mortgagee from time to time of the said premises; provided always that the rights of the Tenant as hereinbefore set out be not altered or varied by the terms of such instrument or document.
29.Provided that this Lease and everything herein
contained shall be deemed to be subordinate co any charge or charges from time to time created by the Landlord with respect to the Leased Premises by way of mortgage, and the Tenant hereby covenants and agrees that it will promptly at any time and from time to time as required by the Landlord during the Term hereof execute all documents and give all further assurances to this proviso as may be reasonably required to effectuate the postponement of its rights and privileges hereunder to the holder or holders of such charges; provided however that no such subordination by the Tenant shall have the effect of permitting the holder or holders of any mortgage or lien or other security to disturb the occupation and possession by the Tenant of the Leased Premises so long as the Tenant shall perform all of the terms, covenants, conditions, agreements and provisos contained in this Lease. The Landlord covenants and agrees to seek a non-disturbance agreement in favour of the Tenant from all mortgagees and charges registered against the property forthwith upon request by the Tenant.
30.The term "Landlord" as used in this Lease so far as
covenants or obligations on the part of the Landlord are
concerned shall mean and include only the owner or owners at the time in question of the Leased Premises and any person or entity for whom the Landlord is responsible in law, and in the event of any transfer or transfers of ownership, the Landlord herein named, and in case of any subsequent transfers or conveyances, the then vendor or transferor, shall be automatically freed and relieved from and after the date of such transfer or conveyance, of all personal liability as
respects the performance of any covenants or obligations on the part of the Landlord contained in this Lease thereafter to be
performed, provided that any funds in the hands of such Landlord or the then vendor or transferor at the time of such transfer, in which the Tenant has an interest, shall be turned over to the purchaser or transferee and any amount then due and payable to the Tenant by the Landlord or the then vendor or transferor under any provision of this Lease shall be paid to the Tenant, it being intended hereby that the covenants and obligations contained in this Lease on the part of the Landlord shall, subject as aforesaid, be binding on the Landlord, its successors and assigns, only during and in respect of their respective successive periods of ownership.
31. If any Construction or other liens or Order for the payment of money shall be filed against the Leased Premises by
reason, or arising out of any labour or material, work or
service, other than as a result of work performed by or on
behalf of the Landlord, the Tenant shall within fifteen (15) days after notice to the Tenant of the filing thereof, cause the same to be discharged by bonding, deposit, payment, Court Order or otherwise. The Tenant shall defend all suits to enforce such lien or Order whether against the Tenant or the Landlord at the Tenant's own expense. The Tenant hereby indemnifies the Landlord against any expense or damage as a result of such lien or Order.
12
32.The Tenant may install in, upon or about the Leased Premises any signs and advertising material, which shall remain the property of the Tenant and which the Tenant shall remove upon expiry or earlier termination of the Lease, subject to municipal code and written approval by the Landlord not to be unreasonably withheld upon receipt of applicable drawings or design as to colours, etc. The Tenant acknowledges the existing Paterson sign and accepts its form and position on the building.
33.The Tenant covenants with the Landlord that the
Tenant and its employees and all persons visiting or doing
business with them on the Leased Premises shall be bound by
and shall observe and perform any reasonable rules and
regulations made by the Landlord of which notice in writing
shall be given to the Tenant and all such Rules and Regulations
shall be deemed to be incorporated in and form part of this
Lease, provided such Rules shall not interfere with the Tenant's reasonable
use of the Leased Premises.
34.Any notice, request or demand herein provided for
or given hereunder, if given by the Tenant to the Landlord shall
be sufficiently given if mailed by registered mail, postage prepaid,
to the Landlord at 401 The West Mall, Suite 1100, Toronto, ON M9C 5J5.
Fax Number (416) 234-8445.
Any notice herein provided for or given hereunder
if given by the Landlord to the Tenant shall be sufficiently
given if mailed or faxed as aforesaid addressed to the Tenant
as follows: (a) Prior to the commencement of the Term, at 5155 Spectrum
Way #16, Mississauga, ON L4W 5A1, Fax Number (416) Attn:
; and (b) after the commencement of the Term, at the Leased Premises, Attention:
Any notice mailed as aforesaid shall be conclusively deemed to have been given on the next two business days following the day on which such notice is mailed as aforesaid or the next business day if sent by fax. Either Landlord or Tenant may, at any time, give notice in writing to the other of any change of address of the party giving such notice. From and after the giving of such notice, the address therein specified shall be deemed to be the address of such party for the giving of such notices thereafter.
35.The failure of the Landlord to insist upon a strict performance of any of the agreements, terms, covenants and conditions hereof shall not be deemed a waiver of any rights or
remedies that the Landlord may have and shall not be deemed a waiver of any subsequent breach or default in any of such agreements, terms, covenants and conditions.
36.Except as otherwise set out in this Lease, it is the intention of this Lease that the said rentals herein provided to be paid shall be net to the Landlord and clear of all taxes (except the Landlord's income taxes),costs and charges arising from or relating to the Leased Premises and that the Tenant shall pay all charges, impositions and expenses of every nature and kind relating to the Lease Premises and the Tenant covenants with the Landlord accordingly.
37.Words importing the singular number only shall include the plural and vice versa; words importing the masculine gender shall include the feminine gender and vice versa; and words importing persons shall include firms and corporations and vice versa.
38.All Rent in arrears and all sums paid or expenses
incurred on behalf of the Tenant or for which the Landlord is entitled hereunder to reimbursement from the Tenant, shall bear interest from the date upon which the same was due until actual payment thereof at a rate equal to the lesser of two percent (2%) per month or the prime commercial loan rate charged to borrowers having the highest credit rating from time to time by the Landlord's principal bank plus five (5%) per cent.
39.The Tenant hereby further agrees to pay to Landlord in compensation for Landlord's costs and expenses a service charge of $150.00 for each cheque tendered to Landlord
13
in payment of monies due under this Lease and which is not
honoured by the Tenant's bank or depository.
40.Provided the Tenant is not in default and is in occupancy of the entire Premises, the Tenant shall have the Option to Extend the Lease (the "Lease Extension") for three (3) further periods of five (5) years each upon the Tenant giving the Landlord written notice not more than twelve (12) months and not less than nine (9) months prior to the Lease expiry date. Minimum Rent for such renewal shall be the then fair market rent, which shall be mutually agreed upon between the Parties and, only if necessary, the final determination of fair market rent shall be subject to Arbitration, pursuant to the Arbitration Act of Ontario.
41. This indenture and everything herein contained shall extend to and bind and enure to the benefit of the respective heirs, executors, administrators, successors and assigns (as the case may be) of each and every of the parties hereto, subject to the consent of the Landlord being obtained, where required pursuant to this Lease, to any assignment or sublease by Tenant. All covenants herein contained shall be deemed to be joint and several and all rights and powers reserved to the Landlord may be exercised by either Landlord or its agents or representatives, authorized by the Landlord, provided that the Tenant has been given prior notice thereof.
42 Subject to the provisions of paragraph 7, all building systems
including lighting fixtures, plumbing fixtures, heating and air-
conditioning units, shall remain the property of Tenant for the Term
or any renewal or extension of this Lease but shall not be removed
from the Leased Premises without Landlord's prior written approval and
consent. Upon the expiration of the Term or any renewal or extension
of this Lease, or other termination hereof, such additions,
alterations, decorations, and improvements, as hereinbefore defined,
shall become the property of the Landlord as part of the reversion,
and Tenant shall surrender the Leased Premises in , broom-swept
condition pursuant to the terms of this Lease. Upon expiration of this
Lease or earlier termination thereof the Tenant shall remove all garbage
and debris from the Leased Premises and shall leave the Leased Premises in
a broom-swept condition, and shall surrender all keys for the Leased
Premises to Landlord at the place then fixed for payment of rent, and shall
inform Landlord of all combinations on locks, safes and vaults, if any, in
the Leased Premises.
43. Schedules "A", "B","C" and "D" attached hereto form part of this lease.
44. The Indemnifier hereby agrees with the Landlord that it will indemnify and save the Landlord harmless from and against any losses, costs or
damages arising out of any failure by the Tenant during the Initial Term to fulfil any of the Tenant's obligations under this Lease. This indemnity is absolute and unconditional and the obligations of the Indemnifier shall not be released, discharged, mitigated, impaired or affected by any extension of time, indulgences or modifications that the Landlord extends to the Tenant, any waiver by or failure of the Landlord to enforce any of the terms, covenants and conditions contained in the Lease, any assignment of the Lease by the Tenant or by any trustee, receiver or liquidator or any transfer of
all or any part of the Leased Premises by the Tenant, any consent that the Landlord gives to any such assignment or transfer, any amendment to the Lease, the expiration of the Term or any surrender, disclaimer, repudiation or termination of the Lease, or any renewal or extension of this Lease. The Indemnifier expressly waives notice of the acceptance of this Lease and of all notice of non-compliance, non-payment or non-observance on the part of the Tenant of the terms, conditions and covenants contained in this Lease. In the event of a default by the Tenant of its obligations hereunder, the Indemnifier waives any right to require the Landlord to proceed against the Tenant or pursue any rights or remedies against the Tenant, to proceed against or exhaust any security held by the Landlord from the Tenant or any other person, or to pursue any other remedy whatsoever in the Landlord's power. The Landlord has the right to enforce this indemnity regardless of the acceptance of additional security from the Tenant by the Landlord or by others or by operation of law. Without limiting the generality of the foregoing, the liability of the Indemnifier shall continue in full force and effect and shall not be or be deemed to have been waived, released, discharged, impaired or affected by reason or the release or discharge of the Tenant in any receivership, bankruptcy, insolvency, winding-up or other creditors' proceedings, including without limitation any proceedings under the Bankruptcy and Insolvency Act (Canada)or the Companies Creditors Act (Canada) or the surrender, disclaimer, or termination of the lease in any such proceedings and shall continue with respect to the periods prior thereto and thereafter for and with respect to the Term or any extension of renewal thereof exercised by the Tenant as if the Lease had not been surrendered, disclaimed , or terminated. The liability of the Indemnifier shall not be affected by any repossession of the leased premises by the Landlord. Notwithstanding anything contained in this paragraph, it is acknowledged and agreed that the indemnity contained herein is for financial obligations of the Tenant to the landlord and nothing contained herein shall require the Indemnifier to perform non-financial covenants of the Tenant.
IN WITNESS WEHEREOF the parties have duly execute this Agreement by the hands of their proper signing officers authorized in that behalf.
SIGNED AND DELIVERED
In the Presence of:
LEASE EXTENSION AND AMENDING AGREEMENT
DATE: May 15, 2017
| | | | | | | | |
BETWEEN: AND AND | TNC 400 CARLINGVIEW LTD. CASH MONEY CHEQUE CASHING INC. CURO Intermediate Holdings Corp. | ("Landlord") ("Tenant") ("Indemnifier") |
THE PARTIES hereby agree as follows:
WHEREAS:
(A)By a lease dated September 24, 2012 (the "Lease") between KANCO-400 CARLINGVIEW LTD. (the "Original Landlord") and CASH MONEY CHEQUE CASHING, INC. (the "Tenant"), and CURO INTERMEDIATE HOLDINGS CORP. (the "Indemnifier") the Original Landlord leased to the Tenant certain area (the "Premises"), comprising of approximately Twenty Six Thousand Seven Hundred Fifty-Four (26,754) square feet of rentable area, within a building (the "Building") located at 400 Carlingview Drive, Toronto, Ontario, upon certain terms and conditions therein contained for a term of five (5) years and four (4) months ending February 28, 2018;
(B)The Original Landlord sold the Building and assigned all of its rights, title and interest in the Lease to the Landlord effective on February 12, 2013; and
(C)All capitalized terms not defined herein shall have the meaning attributed to it in the Lease unless herein defined.
NOW THEREFORE THIS INDENTURE WITNESSETH that in consideration of the sum of two dollars ($2.00) paid by each party to the other hereto and for other good and valuable consideration (the receipt and sufficiency of which is hereby acknowledged by the parties hereto), the parties hereby agree as follows:
Page 1 of 6
1. AMENDMENTS
Landlord and Tenant acknowledge and agree that as of May 15, 2017, the Lease is hereby amended as follows:
(a)Term:
Term of the Lease shall be extended for a period of ten (10) years, commencing on March 1, 2018 (the "Commencement Date") and terminating on February 29, 2028, unless extended or earlier terminated as provided in the Lease.
(b) Rent:
Tenant shall pay, in the manner set out in the Lease, Minimum Rent on the Premises in the following manner subject to applicable taxes:
| | | | | | | | | | | |
Period | Annual Amount | Monthly Amount | Annual Minimum Rent per Square Foot |
| March 1, 2018 - February 28, 2026 | $374,556.00 | $31,213.00 | $14.00 |
| March 1, 2026 - February 29, 2028 | $401,310.00 | $33,442.50 | $15.00 |
(f) Schedule B paragraph 4 of the Lease is hereby deleted, and the following substituted therefor:
4. Tenant Inducement
In consideration of the extension of the Agreement, the Landlord shall provide an amount equal to twenty-nine dollars ($29.00) per square foot of rentable area of the Premises, exclusive of H.S.T., (the "Tenant Inducement").
Provided this Agreement has been fully executed, the Tenant Inducement shall be payable in two instalments, with sixty percent (60%) or seventeen dollars and forty cents ($17.40) per square foot of rentable area of the Premises, exclusive of H.S.T., being payable to the Tenant ten (10) business days after the Commencement Date of the Term provided the Tenant has fully complied with all of the following conditions: (a) the Tenant being current on all amounts owing to the Landlord including but not limited to Minimum Rent and Additional Rent (the "Rent"); and (b) the Commencement Date of the Term has passed.
The balance of forty percent (40%) or eleven dollars and sixty cents ($11.60) per square foot of rentable area of the Premises, exclusive of H.S.T. shall be payable to the Tenant on March 1, 2024, the first day of the seventh (7th) year of the Term. The balance of the Tenant Inducement of eleven dollars and sixty cents ($11.60) shall be payable to the Tenant provided the Tenant has fully complied with all of the following conditions: (a) the Termination Options have not been exercised; and (b) the Tenant being current on all amounts, including Rent, owing to the Landlord.
(h) Termination Options:
Termination Option 1
The Landlord confirms that the Tenant shall have a one-time right to terminate the Lease ("Termination Option 1") upon the completion of the fifth (5th) year of the Term, effective February 28, 2023, subject to the following conditions:
a)The Tenant has complied with and performed all the terms and covenants of the Lease and has not been in material default of the Lease past any period provided to cure said default; and
b)The Tenant must exercise their right to terminate the Lease in writing to the Landlord after August 31, 2022, but no later than November 30, 2022; and
c)Tenant pays to the Landlord a penalty of twelve (12) months Minimum Rent at the rate of fourteen dollars ($14.00) per square foot per annum (the "Termination Penalty").
The Lease shall terminate on February 28, 2023, and Tenant shall deliver vacant possession of the Premises to the Landlord by 5:00 P.M (EST) on February 28, 2023, in accordance with all applicable provisions of the Lease. Tenant shall be responsible for the payment of all Rent and charges to and including February
28, 2023 including all Rent and other charges in respect of any period to February 28, 2023, which may be billed or adjusted. The Termination Penalty will be due and payable to the Landlord by February 28, 2023, of the termination of the Lease to complete this transaction otherwise the termination notice shall become null and void.
Termination Option 2
The Landlord confirms that the Tenant shall have a one-time right to terminate the Lease ("Termination Option 2") upon the completion of the sixth (6th) year of the Term, effective February 29, 2024, subject to the following conditions:
a)The Tenant has complied with and performed all the terms and covenants of the Lease and has not been in material default of the Lease past any period provided to cure said default; and
b)The Tenant must exercise their right to terminate the Lease in writing to the Landlord after November 30, 2022, but no later than February 28, 2023.
The Lease shall terminate on February 29, 2024, and Tenant shall deliver vacant possession of the Premises to the Landlord by 5:00 P.M (EST) on February 29, 2024, in accordance with all applicable provisions of the Lease. Tenant shall be responsible for the payment of all Rent and charges to and including February
29, 2024 including all Rent and other charges in respect of any period to February 29, 2024, which may be billed or adjusted.
(i) Section 5 of the Lease is hereby deleted and replaced as follows:
All payments required to be made by the Tenant under or in respect of the Lease shall be made to the Landlord by way of electronic funds transfer from the Tenant's bank account to an account designated by the Landlord, or to such agent or agents of the Landlord or at such place as the Landlord shall hereafter from time to time direct in writing.
(j)Paragraph 1 and 2 of Section 34 of the Lease are hereby deleted and replaced with the following:
Any notice, request or demand herein provided for or given hereunder, if given by the Tenant to the Landlord shall be sufficiently given if mailed by registered mail, postage prepaid, to the Landlord at 3280 Bloor Street West, Centre Tower, Suite 1400, Toronto, Ontario, M8X 2X3. Fax Number 416-234-8445.
Any notice herein provided for or given hereunder if given by the Landlord to the Tenant shall be sufficiently given if mailed or faxed as aforesaid addressed to the Tenant at the Leased Premises.
(k)The following shall be modified in the Agreement:
Speedy Cash Holding Corp, the indemnifier, shall be removed and replaced with CURO Intermediate Holdings Corp.
2.CONFIRMATION
Except as specifically provided herein, the terms and conditions of the Lease are confirmed and continue in full force and effect (including, without limitation, all personal rights and obligations of the parties thereunder) and apply to this Agreement mutatis mutandis.
3.ACKNOWLEDGEMENT
The Landlord and Tenant confirm to the best of their knowledge and belief as of the date hereof that neither party is in default of their obligations under the Lease; that there are no disputes or claims outstanding by Tenant against Landlord in respect of any past billings, rental recoveries or other matters pertaining to the Lease and the parties are relying upon this confirmation in executing this Agreement.
4.FURTHER ASSURANCES
Tenant shall, at its expense, promptly execute such further documentation to give effect to this Agreement as Landlord reasonably requires from time to time.
5.ENTIRE AGREEMENT
The Lease together with this Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof. Tenant acknowledges and agrees that it has not relied upon any statement, representation, agreement or warranty except as set out in Lease as amended hereby.
6.BINDING EFFECT
This Agreement shall ensure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns, as the case may be, and where there is more than one party comprising the Landlord or the Tenant or where there is a male or female party, the provisions hereof shall be read with all grammatical changes thereby rendered necessary and all covenants shall be deemed joint and several.
'Remainder of page intentionally left blank, signature page to follow'
IN WITNESS WHEREOF the parties hereto have signed and otherwise properly executed this Agreement as of the date first written above.
EXECUTED AT TORONTO THIS DAY OF , 2017.
CASH MONEY CHEQUE CASHING, INC.
Per:
Name:
Title:
I have the authority to bind the Indemnifier.
EXECUTED AT___________________THIS______DAY OF _________________, 2017.
TNC 400 CARLINGVIEW LTD.
Name:
Title:
I have the authority to bind the Landlord.
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| Subsidiaries of CURO Group Holdings Corp. | |
| |
| | | |
| Entity | | Jurisdiction of Incorporation/Organization | |
| Curo Financial Technologies Corp. | | Delaware | |
| Curo Intermediate Holdings Corp. | | Delaware | |
| A Speedy Cash Car Title Loans, LLC (dba Speedy Cash) | | Nevada | |
| Ad Astra Recovery Services, Inc. | | Nevada | |
| Advance Group Inc. (dba Rapid Cash) | | Nevada | |
| Attain Finance, LLC (dpa Opt+) | | Nevada | |
| Attain Finance Canada, Inc. (dba Opt +) | | Canada | |
| Avio Credit, Inc. (dba Avio Credit) | | Delaware | |
| Cash Colorado, LLC (Speedy Cash) | | Nevada | |
| Concord Finance, Inc. (dba Speedy Cash; Speedy Cash Title, in state of Tennessee) | | Nevada | |
| Covington Credit, Inc. | | Oklahoma | |
| Covington Credit of Alabama, Inc. | | Alabama | |
| Covington Credit of Georgia, Inc. | | Georgia | |
| Covington Credit of Texas, Inc. | | Texas | |
| Curo Canada Corp. (dba Cash Money) | | Canada | |
| Curo Canada Receivables GP, Inc. | | Canada | |
| Curo Canada Receivables Limited Partnership | | Canada | |
| Curo Collateral Sub, LLC | | Delaware | |
| Curo Credit, LLC (dba First Phase) | | Delaware | |
| Curo Management, LLC | | Nevada | |
| Curo Receivables Holdings I, LLC | | Delaware | |
| Curo Receivables Holdings II, LLC | | Delaware | |
| Curo Receivables Finance I, LLC | | Delaware | |
| Curo Receivables Finance II, LLC | | Delaware | |
| Curo Ventures, LLC | | Delaware | |
| Ennoble Finance, LLC (dba Revolve Finance) | | Delaware | |
Evergreen Financial Investments, Inc. (dba Rapid Cash; Rapid Cash Payday Loans, in state of Oregon) | | Nevada | |
| FMMR Investments, Inc. (dba Rapid Cash) | | Nevada | |
| FLX Holding Corp. | | Canada | |
| Flexiti Financial Inc. | | Canada | |
| Flexiti Financing Corp. | | Canada | |
| Flexiti Financing SPE Corp. | | Canada | |
| Flexiti Technologies Inc. | | Canada | |
| FLX Factory S.A.U. | | Canada | |
Galt Ventures, LLC (dba Speedy Cash; Speedy Cash Installment Loans, in state of California) | | Kansas | |
| Heights Financing Holding Co. | | South Carolina | |
| Heights Finance Corporation | | Illinois | |
| Heights Finance Corporation | | Tennessee | |
Heights Reinsurance, Ltd. | | Turks & Caicos | |
LendDirect Corp. (dba LendDirect) | | Canada | |
Newco | | Canada | |
Principal Investments, Inc. (dba Rapid Cash) | | Nevada | |
Quick Credit Corporation | | South Carolina | |
| | | | | | | | | | | |
SC Aurum, LLC | | Nevada | |
SC Texas MB, Inc. | | Nevada | |
SCIL, Inc. (dba Speedy Cash; Speedy Cash-SCIL, Inc., in state of Wyoming) | | Nevada | |
| SCIL Texas, LLC (dba Speedy Cash) | | Nevada | |
| SMC Financing, LLC | | Delaware | |
| Southco Reinsurance, Ltd. | | Turks & Caicos | |
| SouthernCo, Inc. | | Delaware | |
| Southern Finance of South Carolina, Inc. | | South Carolina | |
| Southern Finance of Tennessee, Inc. | | Tennessee | |
| Speedy Cash (dba Speedy Cash) | | Nevada | |
| Speedy Cash Illinois, Inc. (dba Speedy Cash) | | Nevada | |
| The Money Store, LP (dba Speedy Cash) | | Texas | |
| Todd Car Title, Inc. (dba A Speedy Cash Car Title Loans) | | Nevada | |
| Todd Financial, Inc. (dba Speedy Cash) | | Nevada | |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-230905 on Form S-3 and Registration Statement Nos. 333-221945 and 333 –257167 on Form S-8 of our reports dated March 7, 2022, relating to the financial statements of CURO Group Holdings Corp. and the effectiveness of CURO Group Holdings Corp.'s internal control over financial reporting appearing in this Annual Report on Form 10-K for the year ended December 31, 2021.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 7, 2022
Exhibit 24
LIMITED POWER OF ATTORNEY
CURO Group Holdings Corp.
The undersigned, in his or her capacity as a director or officer, or both, of CURO Group Holdings Corp., does hereby appoint Don Gayhardt, Roger Dean, Vin Thomas and Tashia Rivard, or any one or more of them, his or her attorneys or attorney, with full power of substitution, to execute in his or her name any CURO Group Holdings Corp. Section 16 Report and the Annual Report of CURO Group Holdings Corp. on Form 10-K for its fiscal year ended December 31, 2021, and any amendments to that report, and to file it with the Securities and Exchange Commission. Each attorney shall have power and authority to do and perform in the name and on behalf of the undersigned, in any and all capacities, every act to be done in the premises as fully and to all intents and purposes as the undersigned could do in person, and the undersigned hereby ratifies and approves the acts of such attorneys.
Executed the dates set forth below.
| | | | | | | | | | | |
| /s/ Doug Rippel | | /s/ Chad Faulkner | |
| Doug Rippel | | Chad Faulkner | |
| February 8, 2022 | | February 4, 2022 | |
| | | |
| | | |
| /s/ Andrew Frawley | | /s/ David Kirchheimer | |
| Andrew Frawley | | David Kirchheimer | |
| March 2, 2022 | | January 24, 2022 | |
| | | |
| | | |
| /s/ Chris Masto | | /s/ Mike McKnight | |
| Chris Masto | | Mike McKnight | |
| February 20, 2022 | | February 8, 2022 | |
| | | |
| | | |
| /s/ Gillian Van Schaick | | /s/ Issac Vaughn | |
| Gillian Van Schaick | | Issac Vaughn | |
| February 3, 2022 | | February 7, 2022 | |
| | | |
| | | |
| /s/ Dale Williams | | /s/ Elizabeth Webster | |
| Dale Williams | | Elizabeth Webster | |
| January 26, 2022 | | January 26, 2022 | |
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| | | |
| /s/ Karen Winterhof | | | |
| Karen Winterhof | | | |
| February 24, 2022 | | | |
CERTIFICATIONS
I, Don Gayhardt, certify that:
1.I have reviewed this Annual Report on Form 10-K of CURO Group Holdings Corp. (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 7, 2022
By: __/s/ Don Gayhardt___________
Don Gayhardt
Chief Executive Officer
CERTIFICATIONS
I, Roger Dean, certify that:
1.I have reviewed this Annual Report on Form 10-K of CURO Group Holdings Corp. (the “registrant”);
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 7, 2022
By: __/s/ Roger Dean_________________________________
Roger Dean
Executive Vice President and Chief Financial Officer
CERTIFICATIONS
Solely for the purpose of complying with 18 U.S.C. § 1350, each of the undersigned hereby certifies in his capacity as an officer of CURO Group Holdings Corp. (the “Company”) that the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period.
Date: March 7, 2022
_/s/ Don Gayhardt_____________
Don Gayhardt
Chief Executive Officer
(Principal Executive Officer)
_/s/ Roger Dean___________
Roger Dean
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
